Under certain emergency circumstances there may be a plausible argument for this, the merits of which we need not examine here. Christian Economics in One Lesson Gary North. Whichever he does, the transaction cannot be completed until the American exports have been paid for by an equal amount of imports. So he may be tempted to take a wage that he knows to be below his “real worth” rather than face these risks. Purchasing power is chronically deficient, they think, because industry somehow does not distribute enough money to producers to enable them to buy back, as consumers, the product that is made. As this is being written, in fact, printing money is the world’s biggest industry—if the product is measured in monetary terms. It means, therefore, a lowering of production which must reflect itself in a lower average living standard. It was a gain to leisure, but not necessarily to production and income, to reduce a forty-eight-hour week to a forty-four-hour week. The result in the long run is that consumers are prevented from getting better and cheaper products, and that real wages are held down. The most frequent of these is the proposal to shorten the working week, usually by law. I forget the first day when it made its appearance in a legislative bill; but with the advent of the New Deal in 1933 it had become a definitely established principle, enacted into law; and as year succeeded year, and its absurd corollaries made themselves manifest, they were enacted too. It is not true that it benefits all producers as such. What would be the point? What ultimately happens to the prices of goods will depend upon what monetary policies are then followed. This produces an alarming gap between what they call “A payments” and what they call “A+B payments.” So they found a movement, put on green uniforms, and insist that the government issue money or “credits” to make good the missing B payments. You’re read light novel Economics in One Lesson Part 6 online at NovelOnlineFull.com. We have seen that if the government attempts to prevent a shortage of a commodity by reducing also the prices of the labor, raw materials and other factors that go into its cost of production, it creates a shortage of these in turn. If the soldiers have been supported by an unbalanced budget—that is, by government borrowing and other forms of deficit financing—the case is somewhat different. He is seldom seen at the jewelers, the furriers or the night clubs, and he does not call the head waiters by their first names. The broken window did make more business for the glazier. On the one hand, as we have just seen, are those who imagine that the quantity of money could be increased by almost any amount without affecting prices. This means that we have forbidden a man to be usefully employed at, say $25 a week, in order that we may support him at $18 a week in idleness. So we have finished with the broken window. They see only what is immediately visible to the eye. The pretentiousness is by getting economics in one lesson chapter summaries as one of the reading material. Anybody, one would think, would be able to avoid it after a few moments’ thought. Any form of economic destruction of real value, no matter how small or big, hurts the entire community in some way or another. But the special interests keep on insisting on the scheme. And this is precisely its political function. The latter attempt is made in our day by nearly all governments in wartime. The reader should not overlook, finally, Frédéric Bastiat’s classic Economic Sophisms, and particularly his essay on What Is Seen and What Is Not-Seen. 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. It is instructive to recall, however, that the unions in the automobile industry, at a time when most of their members were already in the upper third of the country’s income receivers, and when their weekly wage, according to government figures, was already 20 per cent higher than the average wage paid in factories and nearly twice as great as the average paid in retail trade, were demanding a 30 per cent increase so that they might, according to one of their spokesmen, “bolster our fast-shrinking ability to absorb the goods which we have the capacity to produce.”, What, then, of the average factory worker and the average retail worker? But it is wrong to think of the tariff issue as if it represented a conflict between the interests of producers as a unit against those of consumers as a unit. When prices are arbitrarily held down by government compulsion, demand is chronically in excess of supply. These questions must be answered by a socialist system no less than by a capitalist one; they must be answered by any conceivable economic system; and for the overwhelming bulk of the commodities and services that are produced, the answers supplied by profit and loss under competitive free enterprise are incomparably superior to those that could be obtained by any other method. The whole argument of this book may be summed up in the statement that in studying the effects of any given economic proposal we must trace not merely the immediate results but the results in the long run, not merely the primary consequences but the secondary consequences, and not merely the effects on some special group but the effects on everyone. When analyzing fallacies, I have thought it still less advisable to mention particular names than in giving credit. But when they limit the wages and the profits of those who make these commodities, without also limiting the wages and profits of those who make luxuries or semi-luxuries, they discourage the production of the price-controlled necessities while they relatively stimulate the production of less essential goods. A typical illustration is the automobile business. The reason is that the demagogues and bad economists are presenting half-truths. The long-run consequences of some economic policies may become evident in a few months. When he has provided for only a small water supply, however, he must turn to finding food before he tries to improve this. Now let us look at the matter the other way round, and see the effect of imposing a tariff in the first place. My favorite chapter in this book is chapter VII “The curse of Machinery”. Once we look at the matter in this way, the supposed miracles of government spending will appear in another light. For speculators serve their own interest precisely in proportion to their ability to foresee future prices. But it is improbable that this relative gain would mean an absolute gain. But it is now obviously selling far below its natural level. The technophobes, if they were logical and consistent, would have to dismiss all this progress and ingenuity as not only useless but vicious. It is said to be just downright silly. Even a relatively mild inflation distorts the structure of production. But if an attempt is made to keep up the price of an agricultural commodity and no artificial restriction of output is imposed, unsold surpluses of the over-priced commodity continue to pile up until the market for that product finally collapses to a far greater extent than if the control program had never been put into effect. John Stuart Mill, Principles of Political Economy (Book 3, Chap. They present more complicated issues, but their net results can be traced through the same kind of reasoning that we have just applied to tariff barriers. Each chapter has the same title. The government spenders tell us, for example, that if the national income is $200,000,000,000 (they are always generous in fixing this figure) then government taxes of $50,000,000,000 a year would mean that only 25 per cent of the national income was being transferred from private purposes to public purposes. Because B has a farm, A will be deprived of a farm. The British importer could not pay the American exporter in dollars unless some previous British exporter had built up a credit in dollars here as a result of some previous sale to us. Allied to this fallacy is the belief that there is just a fixed amount of work to be done in the world, and that, if we cannot add to this work by thinking up more cumbersome ways of doing it, at least we can think of devices for spreading it around among as large a number of people as possible. The results would be palpable and direct. The private lenders would take their losses directly. For by that time the producers will be ruined and a great scarcity will be upon us. Yet so powerful is the verbal ambiguity that confuses money with wealth, that even those who at times recognize the confusion will slide back into it in the course of their reasoning. Mere hoarding of hand-to-hand money, if it takes place irrationally, causelessly, and on a large scale, is in most economic situations harmful. It sees the people in whose hands the capital is put; it forgets those who would otherwise have had it. The tariff has been described as a means of benefiting the producer at the expense of the consumer. This can be done by many methods: by an increase in capital accumulation—i.e., by an increase in the machines with which the workers are aided; by new inventions and improvements; by more efficient management on the part of employers; by more industriousness and efficiency on the part of workers; by better education and training. All this is equally true of economics. Yet among the arguments put forward in favor of huge foreign lending one fallacy is always sure to occupy a prominent place. There is not space here to explain all the fallacies in this plausible picture. Let us even it all out, say some, by giving equal “protection” to everybody. They will see the new window in the next day or two. We cannot distribute more wealth than is created. The marginal producers are driven out of business. Thus the government is driven to controls in ever-widening circles, and the final consequence will be the same as that of universal price-fixing. The fact that there is more and cheaper coffee for everyone is lost sight of; what is seen is merely that some coffee growers cannot make a living at the lower price. You cannot, for example, say in advance that a 100 per cent increase in the quantity of money will mean a 50 per cent fall in the value of the monetary unit. Let us assume that a tariff of $5 a sweater is necessary for him to stay in business and provide employment at sweater-making for his workers. We may think of them either as refusing to hold goods that may fall in value on their hands, or as holding money itself for a rise. As these are likely to consist for the most part of workers, they will simply have their real wages reduced by having to pay more for a particular product. George Terborgh, The Bogey of Economic Maturity (1945). But he cannot use British pounds to pay the wages of his workers, to buy his wife’s clothes or to buy theater tickets. Wages would have to be held down as rigidly as prices. There is a mysterious “leak” somewhere. To do all this he has to dig into his capital. The government must act. More resources will be wasted by them. If, therefore, the X industry is driven out of existence by a minimum wage law, then the workers previously employed in that industry will be forced to turn to alternative courses that seemed less attractive to them in the first place. What machines do, to repeat, is to bring an increase in production and an increase in the standard of living. Sometimes, in fact, apologists will freely acknowledge that the percentage of losses will be higher on these government loans than on private loans. While this book was composed as a unit, three chapters have already appeared as separate articles, and I wish to thank The New York Times, The American Scholar and The New Leader for permission to reprint material originally published in their pages. And yet there are people who think we have reached the end of this process,[5] and still others who think that even if we haven’t, the world is foolish to go on saving and adding to its stock of capital. But in the foregoing illustration we have taken precisely the kind of machine that has been the special object of modern technophobia. The reader, depending upon his own beliefs, may or may not accept the aphorism of Bacon that “A little philosophy inclineth man’s mind to atheism, but depth in philosophy bringeth men’s minds about to religion.” It is certainly true, however, that a little economics can easily lead to the paradoxical and preposterous conclusions we have just rehearsed, but that depth in economics brings men back to common sense. Under certain conditions this may be true. This is the error often made by the classical economists. Economics is haunted by more fallacies than any other study known to man. But for several reasons they are likely to make fewer mistakes than government lenders. And one of the most important things for which others have to find purchasers is their labor services. This looks at first glance like a clear loss of employment. The farm hands, though they have had no reduction in their money wages, will be considerably worse off in terms of what they can buy. Once again the fallacy comes from looking at the effects of this action only on the dismissed officeholders themselves and on the particular tradesmen who depend upon them. And the product is then produced and sold at a permanently lower price. That, in fact, is one of the least harmful ways in which it has done so; for the compensating gain, at least, has been clear. That is obviously due to “insufficient private purchasing power.” The remedy is just as obvious. If, under such circumstances, the automobile workers needed a 30 per cent increase to keep the economy from collapsing, would a mere 30 per cent have been enough for the others? But the officeholders can take private jobs only by supplying equivalent services to those who provide the jobs—or, rather, to the customers of the employers who provide the jobs. Government loans will waste far more capital and resources than private loans. The only exception is the item he makes himself: here he understands and appreciates the reason for the rise. These otherwise bewildering equations are solved quasi-automatically by the system of prices, profits and costs. You know how women sometimes say to each other “This dress is you!” Well, this book is me! But now let us suppose that the increase in wage rates is accompanied or followed by a sufficient increase in money and credit to allow it to take place without creating serious unemployment. Suppose the community consisted of just half a dozen groups of workers, and that these groups were originally equal to each other in their total wages and the market value of their product. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. But wartime price-fixing, wise or not, is in almost all countries continued for at least long periods after the war is over, when the original excuse for starting it has disappeared. As far as they go they may often be right. His wants at first seem endless. If because of unusual weather conditions there is a sudden increase in the crop of oranges, all the consumers will benefit. This, of course, was not their intention: it has simply been the result of a persistent tendency to over-optimism on the part of speculators. In this case the “marginal” producers, that is, the producers who are least efficient, or whose costs of production are highest, will be driven out of business altogether. As Morris R. Cohen has remarked: “The notion that we can dismiss the views of all previous thinkers surely leaves no basis for the hope that our own work will prove of any value to others.”[1]. It is a doctrine that may always be privately true, unfortunately, for any particular group of producers considered in isolation—if they can make scarce the one thing they have to sell while keeping abundant all the things they have to buy. Nor can the situation be rectified by providing unemployment relief. All this is so elementary that one would blush to state it if it were not being constantly forgotten by those who coin and circulate the new slogans. But one of the errors that lie behind the drive for price-fixing is the chief subject of this book. The rate of profit of the manufacturers using the new machine will begin to drop, while the manufacturers who have still not adopted the machine may now make no profit at all. Equilibrium wages and prices are the wages and prices that equalize supply and demand. If they cannot find sufficient return anywhere to compensate them for their risk, they will cease to invest at all. . (To isolate the problem we are ignoring for the moment booms, slumps, or other fluctuations.) “Savings” can exceed “investment” only by the amounts that are actually hoarded in cash. Reasonable taxes for this purpose need not hurt production much. But what ever led people to suppose that what was prudence in the conduct of every private family could be folly in that of a great kingdom? For a drop in employment (brought about by union policy and not as a transitional result of technological advance) necessarily means that fewer goods are being produced for everyone. Oranges will be cheaper. But this will not cancel out the gains and losses of the transition period. But this time we need a special effort of the imagination, which few people seem able to make, to look at the debit side of the ledger. Everything we get, outside of the free gifts of nature, must in some way be paid for. For at any moment the factors of production are limited. It was that of considering merely the immediate effects of a tariff on special groups, and neglecting to consider its long-run effects on the whole community. But those who would be deceived by that into imagining themselves richer than before the war would be beyond the reach of rational argument. Among those who would be hurt most are precisely those whose business it is to improve those morals. To that task we shall now proceed. They do not re-examine their reasoning even when they emerge with conclusions that are palpably absurd. It does not expand its operations, or it expands only those attended with a minimum of risk. It is not easy to see relationships always in terms of real goods and real welfare. There is so much that is false in this picture and “solution” that we can here point only to some of the main fallacies. After he takes your money he has more purchasing power. He needs everything: drinking water, food, a roof over his head, protection from animals, a fire, a soft place to lie down. Bring back the prices of the farmer’s products to a “parity” with the prices of the things the farmer buys. (On the other hand, of late years they have taken to putting more obstacles in the way of exporting gold than in the way of exporting anything else: but that is another story.). When they say that the way to national wealth is to pay out governmental subsidies, they are in effect saying that the way to national wealth is to increase taxes. This whole subject has been so appallingly confused in recent years by complicated sophistries and disastrous governmental policies based upon them that one almost despairs of getting back to common sense and sanity about it. Some groups of workers are in a far better strategic position than others, either because of greater numbers, of the more essential nature of the product they make, of the greater dependence on their industry of other industries, or of their greater ability to use coercive methods. Once again, however, the matter does not end there. 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. - the poster shows the historical roots of economic ideas … Let us call the war contractors and their employees group A, and those from whom they directly buy their added goods and services group B. For Paul H. Douglas in America and A. C. Pigou in England, the first from analyzing a great mass of statistics, the second by almost purely deductive methods, arrived independently at the conclusion that the elasticity of the demand for labor is somewhere between -3 and -4. That would be the same as having no price control at all. The usual difference is that the money is turned over to someone else to spend on means to increase production. The world is just that much poorer. None the less, the argument we have just quoted will not stand examination. It should be immediately clear that this could be brought about more directly and honestly by a reduction in wage rates. 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. 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. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. He is the author of Economics in One Lesson among 20 other books. It must, it is true, be “worked out.” The result, it is true, may sometimes come to the man who works out the equation as a stunning surprise. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups. Now it is important to bear in mind that insofar as the rioters were thinking of their own immediate or even longer futures their opposition to the machine was rational. If we assume that the public budget is being balanced, the answer is simple. They will spend them for the particular goods and services they want. The effect of a tariff, therefore, is to change the structure of American production. Necessary policemen, firemen, street cleaners, health officers, judges, legislators and executives perform productive services as important as those of anyone in private industry. All this is not to argue that there is no way of raising wages. The householder who is forced to employ two men to do the work of one has, it is true, given employment to one extra man. Even prior to that, it seems desirable to ask why inflation has been constantly resorted to, why it has had an immemorial popular appeal, and why its siren music has tempted one nation after another down the path to economic disaster. A premium is put on dishonesty. If it is set aside and saved, it will absorb itself and pay for itself. The one thing that has prevented this has been their own self-contradictions, which have scattered those who accept the same premises into a hundred different “schools,” for the simple reason that it is impossible in matters touching practical life to be consistently wrong. But economic progress never has taken place and probably never will take place in this completely uniform way. The volume is therefore primarily one of exposition. Each can see as producer that price control is restricting production in his line. But we can for the sake of argument overlook actualities for the moment and talk as if we were discussing a hypothetical case.). They talk of “repelling an invasion” of foreign products. “Savings” and “investment” may be so defined as to be identical, and therefore necessarily equal. In the same way, if the demand falls off for some product, its price and the profit in making it go lower, and its production declines. If they defer spending, they believe they will get more for their money. Logically, it is true, nothing could be more inconsistent. Doesn’t he have to pay higher prices on industrial products because of it? The result is that his income does not go up in proportion to his prices. This happened in the war when slaughter houses were required by the Office of Price Administration to slaughter and process meat for less than the cost to them of cattle on the hoof and the labor of slaughter and processing. 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