Economics for the Teachable
JANUARY 01, 1960 by LEONARD E. READ
The teachable—those who aspire to an ever greater understanding—are those with an awareness of how little they know.1 Lest teachableness and lowliness or inferiority be associated, consider the case for teachableness and wisdom as having a relationship:
Said Socrates, "This man thinks he knows something when he does not, whereas I, as I do not know anything, do not think I do, either." For such acknowledgments of fallibility, Socrates was acclaimed a wise man. He and many others—for instance Lecomte du Nouy and Robert Milliken, scientists of our time—discovered, as they expanded their own consciousness, that they progressively exposed themselves to more and more of the unknown. Edison‘s fact-packed, inquiring, ever-curious mind concluded that, "We don’t know a millionth of one per cent about anything. We are just emerging from the chimpanzee state." These teachable persons came to realize how little they knew and that, perhaps, is a measure of wisdom.
For the student of economics, this poses an interesting question: Is it possible to have a workable, productive economy premised on a society of teachable individuals, those who are aware that they know very little?
We can assume that such an economy would differ markedly from the planned society of egotists or know-it-alls, those at the other end of the intellectual spectrum, the ones who see no difficulties at all in arranging the lives of everyone else in accord with their designs. Further, they are quite willing to resort to the police force to implement their schemes for improving society by nationalizing it.
A group of seven economists, for example, recently voiced this view: "The federal government is our only instrument for guiding the economic destiny of the country."2
Some of the Problems
Government, in such a role, must be staffed largely with those who are unaware of how little they know, who have no qualms about their ability to plan and regulate the national economic growth, set wages, prescribe hours of work, write the price tags for everything, decide how much of what shall be produced or grown, expand or contract the money supply arbitrarily, set interest rates and rents, subsidize with other peoples’ earnings whatever activity strikes their fancy, lend billions in money riot voluntarily entrusted to them, allocate the fruits of the labor of all to foreign governments of their choice—in short, decide what shall be taken from each Peter and how much of the "take" shall be paid to each Paul.
Government control and ownership of the means of production is socialism, sometimes called "state interventionism" or "communism," depending on the degree of disparagement intended. It rests on the premise that certain persons possess the intelligence to understand and guide all human action. Socialism or state interventionism is advocated by those who sense no lack of this prescience in themselves, by the naive followers of such claimants, by the seekers of power over others, by those who foresee an advantage to themselves in such manipulations, and by the "do-gooders" who fail to distinguish between police grants-in-aid and the Judeo-Christian principles of charity. All in all, they are a considerable number, but still a minority of the tens of millions whose lives they would regulate.
The most important point to bear in mind is that socialism presupposes that government or officialdom is the endower, dispenser, and the source of men’s rights, as well as the guide, controller, and director of their energies. This is the Supremacy of Egotism: The State is God; we are the State!
Let us then examine the competency of a typical egotist. It matters net whom you choose—a professor, a professional politician, a Napoleon, a Hitler, a Stalin but the more pretentious the better.3 Simply admit some supreme egotist into your mind’s eye and take stock of him. Study his private life. You will usually discover that his wife, his children, his neighbors, those in his hire, fail to respond to his dictates in ways he thinks proper.4 This is to say, the egotist is frequently a failure in the very situations nearest and best known to him. Incongruously, he then concludes that he is called to manage whole societies—or even the world! Fie on anything small enough to occupy an ordinary man!
The Planner’s lncompetence
Let’s further test the knowledge of the egotist. He wants to plan production; what does he know about it? For example, there is a company in the U.S.A. which manufactures well over 200,000 separate items. No one person in the company knows what these items are and there is no individual on the face of the earth who has the skills, by himself, to make any one of them.5 It’s a safe bet that the egotist under examination has never been closer to this company than a textbook description by some fellow egotists. Yet, he would put this intricate, voluntary mechanism under the rigid control of government and would have no hesitancy at all in accepting the post of Chief Administrator. He would then arbitrarily allocate and price all raw materials and manpower and, after long and complicated statistics of the past, arbitrarily allocate and price the more than 200,000 items, most of which he never knew existed. Involved in the operations of this company alone—a mere fraction of the American economy—are incalculable human energy exchanges, many billions of them annually; but the egotist would manage these with a few "big man" gestures! Such cursory attention he would find necessary for, bear in mind, he also would have under his control the lives, livelihoods, and activities of the 176,750,000 individuals not directly associated with this company.
Next, what does the egotist know about exchange? In a specialized or division-of-labor economy like ours, exchange cannot be carried on by primitive barter. It is accomplished by countless interchanges interacting on one another with the aid of a generally accepted medium of exchange or money. The socialistic philosophy of the egotists presupposes that there are persons competent to regulate and control the volume and value of money and credit. Yet, surely no one person or committee is any more competent to manipulate the supply of money and credit to attain a definite end than he or a committee is able to make an automobile or a wooden lead pencil!
An economy founded on the premise of know-it-allness is patently absurd.
But, can there be a sensible, rational economy founded on the premise of know-next-to-nothingness? An economy that would run rings around socialism? In short, is there a highly productive way of life which presupposes no human prescience, no infallibility, nothing beyond an awareness that it is not the role of man to pattern others in his own image? There is such a way!
The Creator as Sovereign
Contrary to socialism, this way of life for teachable people, who concede their fallibility, denies that government, staffed by fallible people, is the source of men’s rights. It holds, instead, that men "are endowed by their Creator with certain unalienable rights, that among these are Life,
To illustrate, let us observe how such a person "builds" his own house. He does not think of himself as actually having built it. No man living could do that. He thinks of himself as having done only an assembly job. He is aware of numerous preconditions, two of which are:
1. The provision of his materials. Others cut trees, sawed them into boards which were kiln dried, planed, grooved, held in waiting, delivered. Some mined ore, assembled blast furnaces from which came the metals for saws, planes, pipes, tubs, nails, hardware. There were those who assembled the machinery to mine the ore and those who assembled the machine tools to make the machinery. There were those who saved the fruits of their labor and loaned or invested it that there might be these tools. There were the growers of flax and soybeans, the extractors of their oils, chemists, paint makers. Others wrote books about mixing concrete, architecture, engineering, construction. There were publishers, typesetters—how does one make a linotype machine?—on and on, creative energies and energy exchanges through time and space, ad infinitum!
2. A reasonable absence of destructive energies. No thieves stole his supplies. Those who supplied him had not defrauded him nor had they misrepresented their wares. Violence, like coercively keeping men from working where they chose (strikes) or like coercively keeping men from freely exchanging the products of their labor (protectionism) had not succeeded in denying these services to him. In short, interferences with creative efforts and exchanges had not reached the point where a house Was impossible.
The man who knows how little he knows is aware that creative energies, and creative energy exchanges, work miracles if unhampered. The evidence is all about him. There is his automobile, the coffee he drinks, the meat he eats, the clothes he wears, the symphony he hears, the books he reads, the painting he sees, the perfume he smells, the velvet he touches and, above all, the insights or inspiration or ideas that come to him—from where he does not know.
Respect for the Unknown
The teachable person looks with awe upon all creation.° He agrees that "only God can make a tree." And he also understands that, in the final analysis, only God can build a house. Nature, Creation, God—use your own term—if not interfered with, will combine atoms into molecules which when configurated in one manner will form a tree, in another manner a blade of grass, in still another manner a rose—mysteries upon mysteries! And, there are demonstrations all around him that the creative energies of men, when not interfered with, do, through space and time, configurate, in response to human necessity and aspiration, to form houses, symphonies, foods, clothes, airplanes—things in endless profusion.
The teachable person is likely to be aware of some wonderful cosmic force at work—a drawing, attracting, magnetic power—attending to perpetual creation. He may well conceive of himself as an agent through whom this power has the potentiality of flowing and, to the extent this occurs, to that degree does he have an opportunity to share in the processes of creation. As agent, his psychological problem is to rid himself of his own inhibitory influences—fear, superstition, anger, and the like—in order that this power may freely flow. He knows that he cannot dictate to it, direct it, or even get results by commanding, "Now I shall be inspired" or "Now I shall create a symphony" or "Now I shall discover a cure for the common cold" or "Now I shall invent a way of impressing upon others how little they know." He is quite certain he must not thwart this power as it pertains to his own personal being.
Society-wise, the teachable human being, the one who conceives of himself as agent through whom this mysterious, creative power has the potentiality of flowing, concedes that what applies to him must, perforce, apply to other human beings; that this same power has the potentiality of flowing through them; that his existence, his livelihood, his own opportunity to serve as an agency of that power, depends on how well these others fare creatively. He realizes that he can no more dictate its flow in others than in himself. He knows only that he must not thwart it in others and that it is to his interest and theirs, and to the interest of all society, that there be no thwarting of this force in others by anyone. Leave this power alone and let it work its miracles!
Thwarting Creative Action
Creative action cannot be induced by any form of authoritarianism, be the commands directed at oneself or at others. However, any idiot can thwart these actions in himself or in others, precisely as he can thwart the forces of creation from manifesting themselves as a tree. He can prevent a tree from being, but he can’t make it be. Coercive force can only inhibit, restrain, penalize, destroy. It cannot create!
The teachable individual imposes no inhibitions, restraints, or penalties on creative actions. He leaves them free to pursue their miraculous courses.
The man who knows how little he knows would like to see the removal of all destructive obstacles to the flow of creative energy and energy exchanges. But, even this, he doesn’t quite know how to accomplish. He would rely mostly on an improved understanding of the Golden Rule, the Ten Commandments, and other consistent ethical and moral principles. He hopes that more and more persons eventually will see that even their own self-interest is never served by impairing the creative actions of others, or living off them as parasites.
Government’s Limited Role
In summary, then, the teachable person is content to leave creative energies and their exchanges untouched; and he would rely primarily on ethical precepts and practices to keep these energy circuits free of destructive invasion. The governmental apparatus would merely assist these precepts and practices by defending the life and property of all citizens equally; by protecting all willing exchange and restraining all unwilling exchange; by suppressing and penalizing all fraud, all misrepresentation, all violence, all predatory practices; by invoking a common justice under written law; and by keeping the records incidental thereto.
Very well. So far, in theory, creative energies or actions and their exchanges are left unhampered. Destructive actions are self-disciplined or, if not, are restrained by the societal agency of law and defensive force. Is that all? Does not the person who is aware of how little he knows have to know a lot of economics?
Why Pay for Things
The man, mentioned previously, who "built" his own house, has about as much economic understanding as is necessary. He reflects on all the countless antecedent services which he assembled into a finished home. Originally, all of these items came from Nature. They were there when the Indians foraged this same territory. There was no price on them in their raw state—they were for free, so to speak, Yet, he paid—let us say—$10,000 for them.
What was the payment for? Well, when we slice through all the economic terms, he paid for the human action that necessarily had to be applied to things of the good earth. He paid for actions and energies which he himself did not possess, or possessing, did not choose to exert. Were he limited to his own energies to bring about the services antecedent to his assembly of them, he could not have built such a home in a thousand lifetimes.
These human actions for which he paid took several forms. Generalizing, his $10,000 covered salaries and wages that had been paid for judgment, foresight, skill, initiative, enterprise, research, management, invention, physical exertion, chance discovery, know-how; interest that had been paid for self-denial or waiting; dividends that had been paid for risking; rent that had been paid for locational advantage—in short, all of the $10,000 covered payments for one or another form of human action. Literally millions of individuals had a hand in the process.
Let the Market Decide
The major economic problem—the root of economic hassles—reduced to its simplest terms, revolves around the question of who is going to get how much of that $10,000. How is economic justice to be determined? What part shall go to the grower of soybeans, to the investor in a saw mill, to the man who tends the machine that pours nails into wooden kegs, to the inventor of the machine, to the owner of a paint plant? Who shall determine the answers?
How much economics does one have to know to settle, in one’s own mind, how and by whom economic justice shall be rendered? He has to know only this: Let the payment for each individual’s contribution be determined by what others will offer in willing exchange. That’s all there is to an economy for those who know they know not. It is that simple.?
The concept underlying such an economy—never formalized until the year 1870—is known as the marginal utility theory of value. It also goes by two other names: "the subjective theory of value" and "the free market theory of value." Testimony to its simplicity was given by Eugen von Böhm-Bawerk, one of its greatest theoreticians:
And so the intellectual labor that people have to perform in estimating subjective value is not so astounding as may appear… incidentally, even if it were a considerably greater task than it actually is, one could still confidently entrust it to "John Doe and Richard Roe."… For centuries, long before science set up the doctrine of marginal utility, the common man was accustomed to seek things and abandon things… he practiced the doctrine of marginal utility before economic theory discovered it.8
The labor theory of value held scholarly sway prior to this free market theory. It contended that value was determined by the amount of effort expended or fatigue incurred. For example, some persons make mud pies, others mince pies. The same effort, let us assume, is expended in the preparation of each. Under the labor theory of value the mud pie makers should receive the same return for their efforts as the mince pie makers. The only way to accomplish this—consumers being unwilling to exchange the fruits of their labor for mud pies—is for the government to subsidize the mud pie makers by taking from the mince pie makers. Karl Marx elaborated upon and helped systematize this theory—governments taking from the productive and subsidizing the less productive.
The labor theory of value, proved over and over again to be the enemy of both justice and sound economics, nonetheless, continues to gain in popular acceptance.
Emotional reactions to effort expended and fatigue incurred do not readily give way to reason. Sentimental thoughts, such as "the poor, hard-working farmers," set the political stage for agricultural subsidies. Similarly, sympathies which emanate from such outmoded and erroneous reflections as "the down-trodden laboring man" condition most people to accept the coercive powers allowed labor unions.
Practice of the labor theory of value is rationalized by spenders, inflationists, Keynesians, egotists, on the ground that it puts purchasing power in the hands of those who will spend it. As set forth earlier, this man-concocted system of forcibly controlling creative human action—interventionism, socialism, communism—presupposes all-knowing bureaucrats but, to date, not a single one has been found, not even a reasonable facsimile.
The free market, on the other hand, is for the teachable, who know their own limitations, who feel no compulsions to play God, and who put their faith in voluntary, willing exchange—a manner of human relationships that miraculously works economic wonders for all without requiring infallibility of anyone.
1The teachable shall inherit the earth appears to be a sensible interpretation of the Biblical pronouncement, "The meek shall inherit the earth." It is quite obvious that "the meek" had no reference to the Mr. Milquetoasts in society.
2See First National City Bank Letter for August 1959. p. 90.
³"A high-brow is a low-brow plus pretentiousness," said H. G. Wells.
4Napoleon’s domestic affairs were a mess and his numerous family drove him to distraction; Hitler was an indifferent paper hanger; Stalin tried first theology and then train robbery before he elected bureaucracy and dictatorship; many bureaucrats charged with great affairs have no record of personal success.
5See my "I, Pencil" for a demonstration that no one person knows how to make an item even as simple as a wooden lead pencil. Copy on request.
6"If I may coin a new English word to translate a much nicer old Greek word, `wanting-to-know-it-ness’ was their characteristic; wonder… was the mother of their philosophy." The Challenge of the Greek by T. R. Glover.
7There are some who will contend that one must understand money, the medium of exchange. This, also, is an impossible requirement. For extended comments on this point of view, see my Government: An Ideal Concept.
8From pages 203-4, Vol. II, Capital and Interest by Eugen von Böhm-Bawerk. The Libertarian Press,