Freeman

ARTICLE

The Flight From Reality: 19. The Flight From Economics

APRIL 01, 1966 by CLARENCE B. CARSON

Dr. Carson is Professor of American History at Grove City College, Pennsylvania. Among his earlier writings in THE FREEMAN were his series on The Fateful Turn and The American Tradition, both of which are now available as books.

… In these crises there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity — the epidemic of over-production…. Be­cause there is too much civilization, too much means of subsistence, too much industry, too much commerce.

KARL MARX and FREDERICK ENGELS, 1848

The essence of social progress lies not in the increase of material wealth but in a rise of the margin of consumption.                                                   

SIMON N. PATTEN, 1893

… In industry after industry potential output is vastly greater than de­mand — a condition which grows steadily worse.                                                     

STUART CHASE, 1931

… Shall we continue to believe that panics, deflation, and bankruptcy are our only remedy for over productivity in industry? Or shall we… control overcapacity and reconstruct the purchasing power of our people?

REXFORD G. TUGWELL, 1935

Given a sufficiency of demand, the responding production of goods in the modern economy is almost completely reliable. We have seen… why men once had reason to regard the economic system as a meager and perilous thing. And we have seen how these ideas have persisted after the problem of production was conquered.                                     

JOHN K. GALBRAITH, 1958

The methods of reform have been drawn from a variety of incongruous sources — from war, from business, from charitable or­ganizations, from voluntary so­cieties, from feudal practices, from mercantile policies, among others. The consequences that have followed attempts to use these methods have been deter­mined by the methods. But there is more to the matter of the meth­ods of the reformers than their origin. There have been strange justifications for the use of the methods and peculiar, as well as particular, applications of them.

The particular orientation of most reformers has been materi­alistic. They have professed con­cern with the material well-being of people. Their interest and con­cern has had to do with hunger, deprivation, disease, malnutrition, poverty, poor housing, infesta­tions, and exposure. Such matters fall in the realm of economy. Many of the programs and policies of reformers are aimed at or have to do with things economic. These emphases make economics the cen­tral discipline for reformist atten­tion; their programs succeed or fail to the extent that they are more or less economically sound. It would not be too much to say that the vast meliorist reform ef­fort would only be morally, social­ly, and rationally justified if it were in accord with sound eco­nomics.

Uneconomical Programs

On the face of it, many reform programs appear to be uneconom­ical. Reformers have, at various times, advocated crop restrictions and control upon industrial pro­duction, subsidies for products al­ready in "surplus," loans to for­eign governments to enable them to buy American goods, give-away programs both domestic and for­eign, deficit spending by govern­ment in order to produce prosper­ity, inflation in order to increase "purchasing power," easy money policies to promote spending, the raising of wages by promoting unionization and establishing min­imum wages, the establishing of prices above or below market prices, special taxes upon corpo­rations which had become major instruments of production, gradu­ated income taxes which would fall proportionately heaviest upon those with the highest incomes, the governmental provision of in­come to those who do not produce, and so on. These are not measures of a character that would usually be called economical. Men have not customarily thought it economical­ly sound to spend more than they make, to take from those who pro­duce and give to those who do not, to pay more than the market price for goods and services, to give away their substance.

A deeper look at economics re­veals that such actions are, in­deed, uneconomical. Economics has to do with scarcity. This character of economics is indicated by the conventional uses of words related to it. For example, one dictionary defines "economical" as "avoiding waste or extravagance; thrifty." It "implies prudent planning in the disposition of resources so as to avoid unnecessary waste…." To "economize" is to "use spar­ingly or frugally." "Economy" re­fers to "thrifty management; fru­gality in the expenditure or con­sumption of money, materials, etc." Economics can be defined as the study and exposition of the most effective means for men to main­tain and increase the supply of goods and services at their dis­posal. These goods and services are understood to be scarce; and economics has to do with the fru­gal management of time, energy, resources, and materials so as to bring about the greatest increase in the supply of the goods and ser­vices most desired. An aspect of economics, one with which much of academic and theoretical eco­nomics has dealt, is the study and setting forth of answers to the question of what are the best so­cial conditions within which eco­nomic behavior may take place. Such a study is known as political economy, but it, too, has been premised upon the existence of scarcity.

Aggravated Scarcity

With these definitions in mind, it should be clear that the methods of reformers have not been eco­nomical. Crop restrictions are means of increasing scarcity rath­er than diminishing it. Minimum wages, above the market rate, in­crease the shortage of labor by pricing it out of use (cause un­employment). Price supports for goods make them unavailable to those who cannot afford them at that price, thus increasing their scarcity. Inflation increases the supply of money, not the supply of goods. The giving away of goods decreases their supply; and if these are taken from someone by government, this action de­creases the incentive for the pro­duction of goods. Loans to enable the buying of goods are not eco­nomic, though if the loans be re­paid with interest, at or above the market rate, it would be economi­cal for the lender. None of these devices involves frugal manage­ment of limited means to deal with the problem of scarcity.

Mercantilism Perpetuated

Modern (i.e., post-Medieval) economics took shape from pro­posals dealing with scarcity. Some of these developments in the six­teenth, seventeenth, and into the eighteenth centuries are known now as mercantilism. Mercantilism was, and is, nationalistic, that is, a proposed economy for dealing with the scarcity which confronts a particular nation. The particular scarcity which mercantilists em­phasized was the scarcity of gold, but the value of gold was gen­erally understood to be its virtu­ally universal acceptability as a medium of exchange. At any rate, mercantilists focused attention upon means for increasing the supply of gold within a nation. They thought of one nation’s wealth as being got at the expense of other nations and conceived of a variety of devices for getting gold from other nations. Their main invention was the favorable balance-of-trade idea, by which a nation would sell more goods to a nation than it bought from that nation, the difference being made up by gold. Mercantilists favored manufacturing, for thereby the value of a product would be en­hanced before it was sold, and they promoted colonization for the se­curing of raw materials and mar­kets. Regulatory measures were endorsed as means for enhancing the trade and gold supply of a nation.

Economically Sound Behavior Advantageous to Everyone

Dealing with scarcity was the object of mercantilism, but were such practices economical? It was the great work of the physiocrats and Adam Smith in the latter part of the eighteenth century to show that they were not. These writers took a cosmopolitan or universal view of economics. They were con­cerned to discover and set forth the natural order for economic be­havior. From this broad view, Smith, particularly, demonstrated that true economic behavior is so­cial, that when everyone behaves economically, everyone benefits.

In a century beset by world wars—wars rooted mainly in trade conflicts spawned by mercantilism —Smith held that trade is by na­ture peaceful, that the wealth of a people is not obtained at the ex­pense of other peoples, that when peoples of one country trade with those of another, both benefit. He maintained that when each man pursues his own interest, when ex­change is free from arbitrarily imposed obstacles, when each man may buy at the lowest price any­where in the world and sell to the highest bidder on the world mar­ket, when competition is allowed free play, all will benefit. Each man will be able to get the highest price possible for his goods and services and be able to obtain those he wants at the lowest possible price, that is, roughly, at the cost of providing them. There is an in­visible hand — an order in the uni­verse — that brings harmony out of the diverse actions of men, if they may act as they choose and are prohibited to use force, fraud, or deception in their dealings with others.

Smith held that government in­tervention was not necessary to bring about these beneficent re­sults. On the contrary, government intervention is a positive deterrent to economic behavior; it places ob­stacles in the way of free ex­change, promotes uneconomic (viewed socially) behavior, and distorts the market. In short, mer­cantilist practices are not eco­nomic.

Adam Smith Displaced

Economic thought, after Smith, consisted largely of refinements, extensions, and modifications of positions which he and the physio­crats had set forth. But the philo­sophical framework within which Smith worked hardly survived the eighteenth century for most think­ers, as we have seen in earlier chapters. The breadth of vision made possible by the cosmopolitan­ism, universalism, and belief in a natural order within a rational universe gave way to the particu­larism of romanticism and the nu­merous abstractions which served as a base for the proliferating ide­ologies of the nineteenth century. Economics became the "dismal science," the discipline which justified the ways of scarcity and privation to men.

Economists were soon, once again, wrestling with the conun­drum which ever and again besets them. The conundrum has had many formulations, but the one which follows may, perhaps, state the essence of them all. If man is confronted with scarcity, if the supply of goods and services is less than the desire for them, it looks as if one man’s gain is another man’s loss. That is, when one man takes from the limited supply of goods, he has them at the expense of others who might have used them. If this were the case, the quest for goods and services would be a clash or contest between those who had them and those who wanted them for possession, with one side the winner and one the loser. Mercantilists had con­ceived of such a struggle among nations. Ricardo and Malthus con­ceived of the matter as a contest between increasing population and the limited means for subsistence. Marx rendered it into a class strug­gle. The social Darwinists, Spencer and Sumner, saw it as a struggle in which the fit survived.

Developing Economic Theory

Economists adopted a variety of postures about the struggle and the scarcity. Ricardo held that that was the way things were and there was nothing much to be done about it (though technological in­novations might temporarily ameliorate conditions for workers). Utilitarians held that free ex­change and competition were all to the good; though some might get hurt, the greatest good for the greatest number would be achieved. Marx opted for revolution. The Austrians — Menger and Bohm­-Bawerk — concluded that everyone benefited from free exchange be­cause wants and values are subjec­tive. The social Darwinists held that it all added up to progress. Utopians, who did not accept scar­city, were searching out the sources of privation in supposed exploitation and envisioning their perfect societies.

The main lines of economic thought in the nineteenth century run from the classicists — Smith and Ricardo — to the utilitarians —Bentham and Mill — to the Austri­ans. These schools shared the view, more or less, that true economic behavior is that of free men, will­ingly exchanging goods, making their own calculations, and seek­ing their own ends. Government intervention was not economic to them; it produced distortions which were antithetical to eco­nomic action. Even Karl Marx did not hold much brief for palliative action by governments.

Concerned with Scarcity

Two points need particular em­phasis. Historically, economic thought has been concerned with scarcity, however much the import of this may have been distorted by some thinkers. Nor was this sim­ply an historical accident. The reason for being of economy is scarcity. If there were no scarcity, there would be no justification for economics. There would be no oc­casion for saving, for careful man­agement, for priorities as to the order of satisfying desires, for choices among goods, or for effi­ciency. Second, economic thought has been, in the main, noninter­ventionist. Individual economists have favored this or that inter­ventionist measure—the protective tariff, compulsory workmen’s com­pensation insurance, government inspections — but not on economic grounds (the tariff being a possi­ble exception). If it were economi­cal, for instance, for an employer to take out insurance on his em­ployees, he could be persuaded of this, and compulsion would be ir­relevant.

There is no body of thought which demonstrates that it is eco­nomical for governments to inter­vene in the lives of people. There have been numerous claims, of course, that governments could manage businesses more effec­tively than would private inter­ests, that governments will con­serve scarce resources, that gov­ernment action will render this o that economic benefit. A careful ex­amination will show, I believe, that these are not economic argu­ments, that they are based not upon the premise of a scarcity of goods and services but an abun­dance. They are based, in short, upon the premise that economic behavior is unnecessary.

The "Plague of Abundance"

At any rate, interventionist thought has been based upon the view that there exists an abun­dance of goods and services. The idea that mankind is confronted with a glut of goods and services is not particularly recent. It goes back at least to The Communist Manifesto (1848), and possibly be­fore that time. But it has had its particular American articulation. This was provided mainly by that school of "economics" known as the institutionalists. Prominent leaders of this school have been Thorstein Veblen, John R. Com­mons, Stuart Chase, and, lately, John K. Galbraith.

Their basic position is that con­ditions have changed, that it was once true, indeed had been from time immemorial, that societies were confronted with scarcity, but that this condition is no longer the case for some societies, no­tably the United States. Stuart Chase held that the United States reached a condition of abundance in 1902. "Abundance," he said, "is self-defined, and means an eco­nomic condition where an abun­dance of material goods can be produced for the entire population of a given community."1 Rexford G. Tugwell, the irrepressible New Dealer, described the change to plenty in this way: "Our economic course has carried us from the era of economic development to an era which confronts us with the neces­sity for economic maintenance. In this period of maintenance, there is no scarcity of production. There is, in fact, a present capacity for more production than is consum­able, at least under a system which shortens purchasing power while it is lengthening capacity to produce."²

John K. Galbraith, who plays Stuart Chase to post World War II America, describes the develop­ment as historical in the follow­ing: "Nearly all [people] through­out all history have been very poor. The exception, almost in­significant in the whole span of human existence, has been the last few generations in the small corner of the world populated by Europeans. Here, and especially in the United States, there has been great and quite unprecedented affluence."3 Vance Packard, who is to Galbraith as Galbraith is to Veblen and Keynes — that is, de­rivative — states the development with his usual dramatic flair:

Man throughout recorded history has struggled — often against appall­ing odds..—to cope with material scar­city. Today, there has been a massive breakthrough. The great challenge in the United States—and soon in West­ern Europe—is to cope with a threat­ened overabundance of the staples and amenities and frills of life.4

The Overproduction Theory

The evidence which purports to support these claims of abundance has run the gamut from Veblen’s conspicuous consumption of the leisure class to Packard’s charges that industrial waste makers prey upon the gullible public with their shoddy merchandise with its built-in planned obsolescence. The terms which have received the widest acceptance for describing abundance are overproduction, un­employment, surpluses, unused in­dustrial capacity, and undercon­sumption.

The following is some of the evidence Stuart Chase submitted in 1931:

American oil wells are capable of producing 5,950,000 barrels a day, against a market demand of 4,000,000 barrels, according to the figures of the Standard Oil Company of New Jersey.5

The real problem [in coal] is excess capacity. The mines of the country can produce at least 750,000,000 tons a year, while the market can absorb but 500,000,000 tons.6

American shoe factories are equipped to turn out almost 900,000,000 pairs of shoes a year. At present we buy about 300,000,000 pairs—two and one-half pairs per capita. There is admittedly a considerable shortage of shoes [?], but could we wear out, or even amuse ourselves with, five pairs per capita? I doubt it. For myself two pairs a year satisfy both util­ity and style. Yet if we doubled shoe consumption — gorging the great American foot, as it were — one-third of the present shoe factory equipment would still lie idle.7

Jumping now across the economic front to agriculture, we find that the basic problem of the American farmer lies in his "surplus." The govern­ment at the present writing has bought and holds in storage millions of bushels of wheat in a heroic and possibly calamitous attempt to keep the surplus from crushing wheat farmers altogether.

One might suppose that these writers would rejoice at the abun­dance of goods, be glad that an age-old problem has been solved, be jubilant at the prospects of plenty. They might even have been grateful for an economic system that provided them with such an abundance. How good it is, they might have said, to live in Amer­ica where this has taken place. Of course, they were in the mood to say no such things. Instead, they held that abundance had produced great and difficult problems, prob­lems of a monumental scale that threatened to grow. Poverty has continued to exist alongside abun­dance, overproduction resulted in waste and profligacy, mechanical production eventuated in techno­logical unemployment, and pro­ducers reduced to all sorts of stratagems to dispose of their mounting goods and services.

Intervention Rationalized

One writer attempted to account for many of the untoward develop­ments of this century as a con­sequence of the efforts of pro­ducers to maintain artificial scar­city. The following are methods that he claims have been used to maintain scarcity:

1.    The Destruction of Surpluses by Warfare. For the temporary creation of scarcity, no more effective means has yet been devised than modern warfare. Within a relatively short time it can dissipate industrial sur­pluses and create an additional de­mand for goods that taxes productive equipment to capacity….

2.    The Extension of Loans. With the disappearance of wartime de­mands, other markets are sought in an effort to avoid an immediate and complete collapse of the industrial structure…. The result [after World War I] was a series of… loans that by 1929 totaled about $11,023,000,­000….

3.    Public Subsidy of the Consumer. When the process of lending purchas­ing power to the consumer failed, the Federal government commenced what is now an established practice of giv­ing to the indigent funds with which to buy….

4.    The Destruction of Goods and the Curtailment of Output. Having failed through wars, loans, "gifts," and a variety of other means to make purchasing power keep pace with large-scale production, attempts are now being made to preserve condi­tions of scarcity by deliberately con­trolling output so that it does not ex­ceed profitable demand.9

Many different specters have been raised over the years which have been supposed to have arisen from this overproduction, but none has been more persistent than that of rising unemployment. Stuart Chase declared, in the early 1930′s, that the "current depression will pass." However,

What threatens to continue una­bated, in good times and bad, is tech­nological unemployment with its three faces — the machine, the merger, the stop watch. In four years oil refineries increased output 84 per cent, and laid off 5 per cent of their men while do­ing it. Tobacco manufacturing output climbed 53 per cent in the same peri­od, with 13 per cent fewer men at the end. This is the trend throughout in­dustry.

It can mean only one thing. An equivalent tonnage of goods can be produced by a declining number of workers, and men must lose their jobs by the thousands — presently by the million.10

This would, according to his analysis, lead to a further increase of surpluses, for there would be less and less income to buy the goods produced.

The System Accused

All those who have written in this vein about abundance have pointed finally to one thing: some­thing wrong in the system itself. Their reasoning is not difficult to follow. Productive power has been developed which can and does pro­duce a glut of goods. All sorts of devices have been got up to dis­pose of these surpluses. On the other hand, many are in need because it does not require many workers to produce this great bounty. One recent writer has pro­claimed that we have been wor­shiping a false god. He said,

Some people even seem to think that mass production can cure all the world’s economic and social ills. You might almost say that it has become a world mania. Mass production has become our god, our cure-all, our eco­nomic savior.¹¹

Writer after writer has pro­claimed that the flaw lies in dis­tribution. Stuart Chase put it this way:

In respect to the whole body of fin­ished goods, it is not so much overpro­duction as underconsumption which is the appalling fact. As a nation we can make more than we can buy back. Save in certain categories, there is a vast and tragic shortage of the goods necessary to maintain a comfortable standard of living. Millions of tons of additional material could be mar­keted if purchasing power were avail­able. Alas, purchasing power is not available.¹²

Charles Wyand declared,

More goods are being produced than can be profitably sold. On the other hand, it can be clearly shown that most people are consuming at but a fraction of their potential capacity…. As will be shown later, the consumer’s buying power cannot absorb all that the nation can produce be­cause (1) incomes are insufficient, (2) too much of the nation’s income is saved, and (3) prices are too high.¹3

Horace Kallen said,

Indeed, at no time in the history of industrial society has the production of the necessities of life been suffi­cient to meet all needs. It was not need which limited demand. It was price. Prices had so outdistanced wages that wages could not catch up with them.¹4

Palliatives Proposed

Those who have written in this vein have not always been quite consistent. On the one hand, they have often indicated that there is an absolute surplus—actually more goods produced than can or will be consumed. On the other hand, and in certain moods, they hold that the problem is only one of maldistribution. Then, too, some writers have focused upon the wastefulness of private enterprise and have advocated the conserva­tion of scarce resources. In recent years, many of those who have dealt with such matters have pro­fessed great concern for "eco­nomic growth." It would, there­fore, be a misconstruction of what has been going on to deal with all of it in connection with scarcity.

What all these positions share —whether it be a concern with over­production, underconsumption, maldistribution, wastefulness, or economic growth—is the view that government must intervene in one way or another to correct the situ­ation. They hold that the "system" produces these unwanted conse­quences and that collective action must be taken to set it straight.

Simon Patten, an early advo­cate of the notion that a surplus exists and a teacher of Rexford G. Tugwell, advocated the absorp­tion of the surplus by taxation. He declared that taxation should "be placed not on particular forms of prosperity, but on general pros­perity. The State should not try to hunt up the individual who profits by each of the improvements it makes, but should make taxation a reduction of the general surplus of society." His justifica­tion of this was that "we can con­ceive of the State as a factor in production, and hence entitled to a share of the undistributed pro­duce of industry. It has helped to promote general prosperity, and can demand a part of the surplus of society along with landlords, employers, capitalists and laborers."¹5

John R. Commons, an early and late reformer, called in 1893 for a guaranteed right to employment in order to take care of the "sur­plus" of laborers:

The right to employment when en­forced would have the effect of guar­anteeing to every worker, even the lowest, a share of the total income in excess of his minimum of subsistence. It would give steady work through the year, which would increase the wages of the lowest labourers by 30% to 50%. And by overcoming the chronic excess of labourers beyond the opportunities for employment, it would raise the marginal utility of the marginal labourers, thus raising the wages of all.¹6

So it has gone through the years: the apostles of surplus, overproduction, technological un­employment (surplus workers), underconsumption, and maldistribution have been proposing some variety of reform or intervention. Stuart Chase proclaimed that the situation called for detailed plan­ning:

In my judgment the only final way out lies through planned production. We have to scrap a large fraction of laissez-faire, and deliberately orient productive capacity to consumption goods….

For America, industrial co-ordina­tion must probably take the form of a drastic revision of the anti-trust laws; an alliance between industry, trade association, and government to control investment (i. e., plant ca­pacity) on the one hand, and to guard against unwarranted monopoly prices on the other; a universal system of minimum wages and guaranteed hours of labor to frighten off fly-by-night entrepreneurs and to stimulate purchasing power; and finally…, the setting up of a National Planning Board as a fact gatherer and in turn an advisor… on every major eco­nomic undertaking in accordance with a master blueprint.¹7

Rexford G. Tugwell said,

Let me summarize: In this era of our economic existence, I believe it is manifest that a public interest… commands the protection, the main­tenance, the conservation, of our in­dustrial faculties against the destruc­tive forces of the unrestrained com­petition…. For today and for tomor­row our problem is that of our na­tional economic maintenance for the public welfare by governmental inter­vention….¹8

Charles Wyand held that the gross effect of these trends is to offer American business the choice of some sort of private control of business practice or of growing gov­ernmental interference to prevent the complete collapse of the capitalistic economy.¹9

New Means to Old Ends

The emphasis has shifted some­what over the years but not the goal of government control and direction. The problem, according to John K. Galbraith, is one of private affluence and public pen­ury. There needs to be a great deal more spending in the govern­mental realm. Following his lead, Vance Packard emphasized the desirability of spending for edu­cation, government provided rec­reation facilities, support of re­search for the desalinization of water, and so forth.

The claims of abundance, sur­plus, and under consumption are but a prelude, then, to the calls for positive government action. The arguments move, gradually and subtly or swiftly, from eco­nomics to the political arena. Their import can now be spelled out. If the problem were one of produc­tion, which it would be if there remained the fundamental diffi­culty posed by scarcity, it would be a matter for economics. To deal with scarcity, there needs to be frugal management, saving, in­vestment, balanced budgets, cal­culations as to the best means to use to get the greatest return from materials, and determina­tions as to how to produce the most goods with the least expendi­ture of energy. But if the situa­tion were reversed, if abundance had replaced scarcity, economic behavior would no longer be in order. It might be helpful to spend more than was taken in, to employ more workers than the task at hand required, to use more ma­terials than would be called for by the undertaking. To be eco­nomical, at any rate, would be anachronistic.

Most important, economic anal­ysis has long shown conclusively that individuals and private com­panies have the incentives when they may exchange freely to deal as effectively as can be done with general scarcity. But the case might be quite different if abun­dance were the problem. This is the character of the arguments which have been recapitulated above. When the problem becomes one of distribution, it then be­comes feasible to argue that gov­ernments can intervene for amel­iorative purposes. In short, it might be admitted that force would be a poor way to achieve production, but the same would not necessarily go for distribution. Governments can redistribute; they can take goods from some and give them to others; they can spend, expropriate, set aside lands and resources, confiscate, and even waste rather effectively. These are tasks which governments alone, because of their monopoly of the use of force, would be suited to perform, if anybody had to per­form such tasks.

The United States government has indeed been engaging in such practices for a good many years, assisted on occasion by local and state governments. The methods for doing these things are many and varied. They run the gamut from low interest rates for those in favored categories to the con­fiscatory taxation of the wealthy, from the subsidizing of some kinds of production to the limita­tion of other kinds, from minimum wages to maximum prices, from public welfare to social security, from financing low-rent housing to taxing high-rise apartments, and from the extension of power to organized labor to the intimate regulation of business activity. These are not economic actions; they are, instead, political. They have to do with power and its use. They have to do with artifi­cially creating shortages, with driving prices above or below the market price, with the allocation of manpower according to political considerations, with arbitrary con­servation and profligate spending. Even "surpluses" can be created —that is, goods priced higher than anyone can or will pay for them —by the use of force.

This shift from economics to politics is mirrored in the activ­ities of many of those who now bear the name of economist. A popular news magazine noted this change recently. It said, "In the palaces and Parliaments of a hun­dred countries, economists are in­creasingly called upon to build, revive, or draw together national economies. Their home is no longer the ivory tower, and their profes­sion is no longer the ‘gloomy science’ but a romantic and re­warding wielding of power." More­over, "the Presidents and Minis­ters are receptive to the advice…. Several economists have risen to head governments, including West Germany’s Ludwig Erhard, Portu­gal’s Antonio Salazar, and Boliv­ia’s Victor Paz Estenssoro. Others, such as Britain’s Harold Wilson, are hopefully planning their own takeover [since achieved in his casel."²° In America, many econ­omists have become well-known names in government circles over the years: Rexford G. Tugwell, Walter Heller, John K. Galbraith, among others. Below this exalted rank, hundreds more toil away in the numerous government depart­ments which lay seige to economy in the land.

Economics as a Tool for Reform

There has, then, been a flight from economics, a flight from eco­nomics as a discipline for study and exposition to "economics" as a tool for social reform, a flight from economics to politics. This has been, also, a flight from real­ity, though the full demonstration of this will follow later on in this work. It may be of some use, how­ever, to observe here that scarcity is still with us, and may be ex­pected to remain. Scarcity arises from the nature of the universe and the nature of man. Man wants a great variety of commodities and attentions. The want of them makes them economic goods and services. In order for these goods and services to be provided, some­one has to labor, to use resources, to defer the gratification of wants. Labor and materials are in limited supply (always); deferment re­quires discipline; wants are un­limited by these or any other physical considerations. Hence, scarcity is an enduring fact of life.

Production is not something that is solved, once and for all. Goods must continue to be pro­duced, else the supply that exists will be exhausted. Continued pro­duction requires the making of economic decisions — of decisions as to which materials in short supply and how many men in the limited labor pool and how much capital from the small store of it to employ to make what goods that will be in greatest demand.

Distribution is not something separable from production, not, that is, if production is to be maintained. Distribution — that is, exchange — is the great spur to production; it is the close relation between efforts and rewards that induces individuals to apply their energies economically to produc­tion. Surpluses do not indicate abundance; they rather indicate misallocation of materials, poor judgment, false signals in the economy, price rigidities, and/or the use of force to bring these about.

Scarcity remains. There is no better testimony to this fact than the desperate efforts of socialists to increase productivity, to achieve, as they say, "economic growth." But even these efforts are misunderstood by contempo­rary "distributionist economists." One writer notes that the Soviet Union has been using all sorts of devices to spur production. "But, nowhere in his talks did Khrushchev say anything about distribution. As a matter of fact he didn’t seem to be aware of this side of the economic picture at all. He seemed to think production is the alpha and omega of the eco­nomic system."11

The view that America is now saddled with problems of abun­dance has been used to justify intervention, but the roots of eco­nomic misunderstanding are even deeper than this. There is a whole body of pseudo-economic literature devoted to attempts to demonstrate that economic behavior results in contradictions that can only be resolved by government interven­tion. These arguments deserve some examination.

The next article in this series will concern "Meliorist Economics."

 

—FOOTNOTES—

1 Quoted in Charles S. Wyand, The Economics of Consumption (New York: Macmillan, 1937), p. 54.

2 Rexford G. Tugwell, The Battle for Democracy (New York: Columbia Uni­versity Press, 1935), p. 7.

3 John K. Galbraith, The Affluent Soci­ety (Boston: Houghton Mifflin, 1958), p. 1.

4 Vance Packard, The Waste Makers (New York: David McKay, 1960), p. 7.

5 Stuart Chase, The Nemesis of Amer­ican Business (New York: Macmillan, 1931), p. 88.

6 Ibid., p. 89.

7 Ibid., p. 79.

8 Ibid., p. 76.

9 Wyand, op. cit., pp. 44-48.

10 Chase, op. cit., pp. 15-16.

11 Walter Hoving, The Distribution Revolution (New York: Ives Washburn, 1960), p. 4.

12 Chase, op. cit., p. 78.

¹3 Wyand, op. cit., p. 40.

14 Horace M. Kallen, The Decline and Rise of the Consumer (New York: D. Ap­pleton-Century, 1936), p. 404.

¹5 Simon N. Patten, Essays in Eco­nomic Theory, Rexford G. Tugwell, ed. (New York: Alfred A. Knopf, 1924), p. 98.

¹6 John R. Commons, The Distribution of Wealth (New York: Reprints of Eco­nomic Classics, 1963), pp. 84-85.

¹7 Chase, op. cit., pp. 95-97.

¹8 Tugwell, op. cit., p. 9.

¹9 Wyand, op. cit., p. 73.

2¹ Hoving, op. cit., p. 4.

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