It forgets, in the second place, that it is merely condemning the people who worked in that industry to unemployment. No trustworthy estimate has been made that takes into account all kinds of activity, unincorporated as well as incorporated business, and a sufficient number of good and bad years. During the transition period the large, long-established firms, with a heavy capital investment and a great dependence upon the retention of public good-will, are forced to restrict or discontinue production. There may be times when an increase in debt is a minor consideration as against the gains achieved with the borrowed funds; when a government subsidy is unavoidable to achieve a certain purpose; when a given industry can afford an increase in production costs, and so on. In Europe they joyously count the houses, the whole cities that have been leveled to the ground and that “will have to be replaced.” In America they count the houses that could not be built during the war, the nylon stockings that could not be supplied, the worn-out automobiles and tires, the obsolescent radios and refrigerators. It overlooks, first of all, that consumers will suffer the loss of that product. I hope she comes back soon. Who’s “Protected” by Tariffs?12. There is a strange idea abroad, held by all monetary cranks, that credit is something a banker gives to a man. Both of these groups leave to cruder minds the question whether existing wages are “fair.” The real question, they insist, is whether or not they will work. As political power today is most commonly measured by votes, the groups that the authorities most often attempt to favor are workers and farmers. It is the fallacy of overlooking secondary consequences. It is a misnomer to call this temporary refusal to buy “saving.” It does not spring from the same motives as normal saving. We shall examine the effect of some of these methods when we come to the broader discussion of government commodity controls. The larger cash balances of firms and individuals are merely one link in the chain of consequences from that uncertainty. In their various ways they all dilate upon the advantages of destruction. The eighteenth century figures for the textile industries are a case in point. Because the commodity is cheaper, people are both tempted to buy, and can afford to buy, more of it. The farmers that asked for parity prices did have a legitimate complaint. One of the most frequent is government loans to farmers to enable them to hold their crops off the market. There are scores of domestic industries or of exporting industries that have no tariff protection. This was the cause of the 1929 collapse, or at least of our failure to recover from it. To argue, on the basis of an extreme example, that the volume of real savings would not be reduced by a substantial reduction in the interest rate, is like arguing that the total production of sugar would not be reduced by a substantial fall of its price because the efficient, low-cost producers would still raise as much as before. The great burden of income taxes is imposed on a minor percentage of the nation’s income; and these income taxes have to be supplemented by taxes of other kinds. Each “industry” represents not only just one section of the productive process considered “horizontally,” but just one section of that process considered “vertically.” Thus the direct labor cost of making automobiles in the automobile factories themselves may be less than a third, say, of the total costs; and this may lead the incautious to conclude that a 30 per cent increase in wages would lead to only a 10 per cent increase, or less, in automobile prices. h��UoL[U�����A�B)�lo[ �[� �!�lKaH�,]2�N�Ē�*���j�l�=������ٜq���%�YȲ����a�"輯����~�{�{�9�w~��s�� P>�a��Ex�=�rq��~���4��y�h���%�`�CJ3����P@�A����@�v�a���n«ix���,�X($�!� �l�X����c#��ȠԸb��j�j�~��� Ө��a-T9M��0s�O���ns��Uis �|Bn��cu�W���+����-G �|�fo���!ץ�j��x(��{>�ɼ�G$1z�}�q%��N[��L��.��/ɸ�j�s�b�]fA�!�F��4�mt Please use the follow button to get notification about the latest chapter next time when you visit NovelOnlineFull.com. But everything he does delays or prevents him from doing something else only a little less urgent. This is the argument that if the farmer gets higher prices for his products he can buy more goods from industry and so make industry prosperous and bring full employment. Once their capital might have been turned into any of a thousand forms, but today it is trapped, so to speak, in one particular form. [1] One effect of this attempt to keep coal prices above the competitive market level was to accelerate the tendency toward the substitution by consumers of other sources of power or heat—such as oil, natural gas and hydro-electric energy. And this is precisely its political function. In discussing this subject, there is no point in assuming a price control that would fix prices exactly where a free market would place them in any case. It is, let us suppose, a beautiful and not an ugly bridge. We can watch them at work. But the government almost invariably operates by different standards. Even if they were “normal” at the time, what reason is there to suppose that these same relationships should be preserved a generation later in spite of the enormous changes in the conditions of production and demand that have taken place in the meantime? PART ONE The Lesson THE LESSON PART THE LESSON APPLIED The Broken Window The Blessings of Destruction Public Works Mean Taxes Taxes Discourage Production Credit Diverts Production The Curse of Machinery Spread.the-Work Schemes Disbanding Troops and Bureaucrats The Fetish of … But what we are discussing is a rise in farm prices brought about by government intervention. But the solution is never to reduce supplies arbitrarily, to prevent further inventions or discoveries, or to support people for continuing to perform a service that has lost its value. It must be preserved at all costs. It is not ordinarily even cumulative: dishoarding, as eccentric recluses die and their hoards are discovered and dissipated, probably offsets new hoarding. What a commodity has cost to produce in the past cannot determine its value. The employment argument of the government spenders becomes vivid, and probably for most people convincing. The more sophisticated advocates of inflation, in brief, are disingenuous. Nor is it possible to bring inflation to a smooth and gentle stop, and so avert a subsequent depression. The argument for “parity” prices ran roughly like this. The price that I got for a bushel of wheat might decline. The glazier’s gain of business, in short, is merely the tailor’s loss of business. The mental habit is so strong that even professional economists and statisticians cannot consistently break it. The risks of fluctuating farm prices must be borne by somebody; they have in fact been borne in modern times chiefly by the professional speculators. For inflation is a kind of tax that is out of control of the tax authorities. It is true that a few persons can profit at the expense of the rest of us from this minute arbitrary subdivision of labor—provided it happens in their case alone. (For several reasons, including the fact that labor costs do not represent all costs, the price will not quite do that—certainly not in any short period. It is the science of tracing the effects of some proposed or existing policy not only on some special interest in the short run, but on the general interest in the long run. But as overcoats are now cheaper, more people will buy them. It is possible, of course, to push too far the argument that machines do not on net balance throw men out of work. In that way you not only enrich him and put him on his feet; you enrich the whole community by that much added output. The results would be palpable and direct. It usually consists of two balls or weights which work by centrifugal force. He brings it into the bank with him. They do this partly, indeed, because they fear they may lose their jobs, and they wish to conserve their resources: they have contracted their buying not because they wish to consume less, but because they wish to make sure that their power to consume will be extended over a longer period if they do lose their jobs. Because people buy more, the accumulated supply is more quickly taken from the shelves of merchants. . Hearings on extension of the Bituminous Coal Act of 1937. Suppose, now, we offer only $18 a week on relief. Let us first see what happens when the government tries to keep the price of a single commodity, or a small group of commodities, below the price that would be set in a free competitive market. It also means a forced cut in the production of farm commodities to bring up the price. it will buy equipment from other industries; more men will be employed; they will give more business to the butchers, bakers and neon-light makers, and then it is prosperity that will spread in ever-widening circles. And in terms of welfare, of course, the loss suffered will be much greater than the loss in merely arithmetical terms, because the psychological losses of those who are unemployed will greatly outweigh the psychological gains of those with a slightly higher income in terms of purchasing power. Instead of having a repaired shower and a sweater, he has the shower and no sweater. It means, therefore, a lowering of production which must reflect itself in a lower average living standard. Then the result just described does not seem to take place. The inability to produce automobiles, radios, and refrigerators during the war will bring about a cumulative post-war demand for those particular products. To the extent that it remains peaceful, it is a legitimate labor weapon, even though it is one that should be used rarely and as a last resort. But the city worker, by precisely the same change, pays 50 cents a bushel more for wheat in an increased price of bread. They may sometimes make mistakes. People who would be among the first to deny that prosperity could be brought about by artificially boosting prices, people who would be among the first to point out that minimum price laws might be most harmful to the very industries they were designed to help, will nevertheless advocate minimum wage laws, and denounce opponents of them, without misgivings. Their “purchasing power” is thereby increased. It is true that under an international gold standard discrepancies in balances of imports and exports are sometimes settled by shipments of gold. A uniform proportional restriction (to return to our government intervention scheme) means, on the one hand, that the efficient low-cost producers are not permitted to turn out all the output they can at a low price. We can think of these non-existent objects once, perhaps, but we cannot keep them before our minds as we can the bridge that we pass every working day. Only part of their relief-wage is for their efforts, therefore (in work often of doubtful utility), while the rest is a disguised dole. It is precisely because a professional class of speculators exists to take these risks that farmers and millers do not need to take them. Or here is a farmer struggling along with primitive methods of production because he has not the capital to buy himself a tractor. The unworkable relationships between prices and key wage rates, if the insistence of the powerful unions prevails, will remain. But competition and production will then also begin to force down the price of overcoats. The only exception to this occurs when a group of workers is receiving a wage actually below its market worth. The latter attempt is made in our day by nearly all governments in wartime. The much-reviled speculators are not the enemy of the farmer; they are essential to his best welfare. Online Library Economics In One Lesson Chapter Summaries over a million copies sold, Economics in One Lesson is an essential guide to the basics of economic theory. How much does a new plate glass window cost? The first thing to be noticed about this table is that total production increases each year because of the saving, and would not have increased without it. This is the error often made by the classical economists. The first is a reduction in the standard working week from forty hours to thirty without any change in the hourly rate of pay. Though some of them would disdain to say that there are net benefits in small acts of destruction, they see almost endless benefits in enormous acts of destruction. The first process is essential to the second. For by that time the producers will be ruined and a great scarcity will be upon us. . If one industry alone could get protection, while its owners and workers enjoyed the benefits of free trade in everything else they bought, that industry would benefit, even on net balance. It means that there is less food to be consumed. There is no point in arguing that as a result of the restriction scheme at least the price of farm products has been raised and “the farmers have more purchasing power.” They have got it only by taking just that much purchasing power away from the city buyer. My second debt is to Philip Wicksteed: in particular the chapters on wages and the final summary chapter owe much to his Common Sense of Political Economy. �9@QDN˓��T���������'A� The case is different, however, when the State steps in and either buys the farmers’ crops itself or lends them the money to hold the crops off the market. The best way to raise wages, therefore, is to raise labor productivity. Mere inflation—that is, the mere issuance of more money, with the consequence of higher wages and prices—may look like the creation of more demand. We have not taken an argument for the imposition of a new tariff in order to bring a new industry into existence, but an argument for the retention of a tariff that has already brought an industry into existence, and cannot be repealed without hurting somebody. 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