It is on the fallacy of isolation, at bottom, that the “production-for-use-and-not-for-profit” school is based, with its attack on the allegedly vicious “price system.” The problem of production, say the adherents of this school, is solved. Whether the net effect of the tariff is to lower money wages or to raise money prices will depend upon the monetary policies that are followed. The reason for this is elementary. But in the foregoing illustration we have taken precisely the kind of machine that has been the special object of modern technophobia. (We have been over all this ground before in our analysis of “parity” prices.) What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom. This means, in less technical language, that “a 1 per cent reduction in the real rate of wage is likely to expand the aggregate demand for labor by not less than 3 per cent.”[1] Or, to put the matter the other way, “If wages are pushed up above the point of marginal productivity, the decrease in employment would normally be from three to four times as great as the increase in hourly rates”[2] so that the total income of the workers would be reduced correspondingly. The most frequent proposal of this sort in Congress is for more credit to farmers. There are several methods by which it is commonly proposed to do this. Testifying on behalf of the United States Department of Justice before the Temporary National Economic Committee (better known as the TNEC) in March 1941, Corwin Edwards cited innumerable examples of such practices. Suppose the result is that the farm hands are unable to raise their wages at all, that the retail store workers are able to get an increase of 10 per cent, the clothing workers of 20 per cent, the coal miners of 30 per cent, the building trades of 40 per cent, and the railroad employees of 50 per cent. All this does not mean that unions can serve no useful or legitimate function. The farmers that asked for parity prices did have a legitimate complaint. It forces workers into industries with even lower wages and prospects than they could find in the allegedly sick X industry. At first it is contended that wages and living costs are not connected; that wages can easily be lifted without lifting prices. The only element of truth in the contention is that any change that is sudden may be unsettling. Sometimes they go further, and charge that all proposals under any circumstances to reduce particular wage rates directly in order to reduce unemployment are “anti-labor.” But what they are themselves proposing, stated in bald terms, is to deceive labor by reducing real wage rates (that is, wage rates in terms of purchasing power) through an increase in prices. This is the lesson that has been the special concern of this book. It is also a science of seeing general consequences. It is the fallacy of overlooking secondary consequences. Once again it is forgotten that, if these bureaucrats are not retained in office, the taxpayers will be permitted to keep the money that was formerly taken from them for the support of the bureaucrats. If they are the result of a general revival, if they follow from increased prosperity of business, increased industrial production and increased purchasing power of city workers (not brought about by inflation), then they can indeed mean increased prosperity and production not only for the farmers, but for everyone. As far as they go they may often be right. That will depend on the present relationship of supply and demand. The introduction of steam-hoisting machines and grain elevators upon the wharves and docks, the employment of steam power, etc. When your money is taken through taxes to support needless bureaucrats, precisely the same situation exists. . Like every other tax, inflation acts to determine the individual and business policies we are all forced to follow. So already, alas, in Adam Smith’s time, machinery had thrown from 240 to 4,800 pin makers out of work for every one it kept. The wheat growers may be able to persuade the national government—or, better, a world organization—to force all of them to reduce pro rata the acreage planted to wheat. The overwhelming majority of the people, therefore, would probably suffer from the optical illusion that the new industry had cost us nothing. This brings us to the general meaning and effect of economic equilibrium. They consider him a good risk. What is the result? Its net effect, therefore, is to reduce American efficiency, as well as to reduce efficiency in the countries with which we would otherwise have traded more largely. And this in time will also have its consequences. Economics in One Lesson Chapters Time uploaded. Why should he not prefer, for example, to make $1 a week out of a workman rather than see some other employer make $2 a week out of him? The taxpayers, in return for supporting them, would have got nothing. It is true that under an international gold standard discrepancies in balances of imports and exports are sometimes settled by shipments of gold. The government cannot keep piling up debt indefinitely; for if it tries, it will some day become bankrupt. Let us see, for example, what happened in the stocking industry. It does not necessarily follow, because each of these propositions, like a coin, has its reverse side, or because the equivalent proposition, or the other name for the remedy, sounds much less attractive, that the original proposal is under all conditions unsound. 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. And the product is then produced and sold at a permanently lower price. Exactly. If they defer spending, they believe they will get more for their money. Let us observe a few other points. Thus private lenders (except the relatively small proportion that have got their funds through inheritance) are rigidly selected by a process of survival of the fittest. The government’s funds all come from taxes. 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 … The central lesson is that we should try to see all the main consequences of any economic policy or development—the immediate effects on special groups, and the long-run effects on all groups. Doesn’t the fellow who gets drunk know that he will wake up next morning with a ghastly stomach and a horrible head? And in their early history they did much to protect the health of their members. Producing and consuming nations are going to agree on just what these fair prices are, because no one will be unreasonable. "F$H:R��!z��F�Qd?r9�\A&�G���rQ��h������E��]�a�4z�Bg�����E#H �*B=��0H�I��p�p�0MxJ$�D1��D, V���ĭ����KĻ�Y�dE�"E��I2���E�B�G��t�4MzN�����r!YK� ���?%_&�#���(��0J:EAi��Q�(�()ӔWT6U@���P+���!�~��m���D�e�Դ�!��h�Ӧh/��']B/����ҏӿ�?a0n�hF!��X���8����܌k�c&5S�����6�l��Ia�2c�K�M�A�!�E�#��ƒ�d�V��(�k��e���l ����}�}�C�q�9 This falling value can be measured in rising prices of commodities. Who’s “Protected” by Tariffs?12. We cannot and must not forget Joe Smith. 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. Suppose, as a result of this, that the price of sweaters in America goes up only $5. And in the long run it brings disastrous consequences to the whole community. h�bbd```b``���@$�0yLF�H��� $�3� ɿM�L��l`]� ��?�=J*�?���{ ɢ This time it is supported by a whole bundle of related fallacies. If no honest attempt is made to pay off the accumulated debt, and resort is had to outright inflation instead, then the results follow that we have already described. Minimum Wage Laws19. It reduces the costs of goods to consumers, and it increases the wages of the labor that uses the new machines because it increases the productive power of that labor. It was precisely the great merit of the classical economists that they looked for secondary consequences, that they were concerned with the effects of a given economic policy or development in the long run and on the whole community. But even if universal unionization could be achieved, the unions could not possibly be equally powerful, any more than they are today. An export subsidy is a clear case of giving the foreigner something for nothing, by selling him goods for less than it costs us to make them. And heavy unemployment means that fewer goods are produced, that the nation is poorer, and that there is less for everybody. Everybody else, it is true, will be worse off; because, other things equal, everyone else will have to give more of what he produces to get less of what the wheat grower produces. In all these cases the unions, by demanding decent standards, often increased the health and broader welfare of their members at the same time as they increased their real wages. In an exchange economy everybody’s income is somebody else’s cost. This error lies behind the minute subdivision of labor upon which unions insist. The government should put no arbitrary barriers in the way of private lending to countries with which we are at peace. The average standard of living is lowered compared with what it would have been. They do it by making goods cheaper for consumers (as in our illustration of the overcoats), or they do it by increasing wages because they increase the productivity of the workers. THE CENTRAL PROBLEM OF ECONOMICS will be taught in economics tuition in the first week of term 1. When they buy houses they will have just that much less purchasing power for everything else. Public Works Mean Taxes5. The answer already lies in the statement of the problem. Where is the “purchasing power” going to come from to employ them? The first thing to be noticed about this argument is that if it is valid the policy adopted is inconsistent and timorous. His is one of the personal tragedies that, as we shall see, are incident to nearly all industrial and economic progress. We piled up an entire year’s crop in storage. He now sells his sweaters for $15 each, but English manufacturers could sell their sweaters of the same quality for $10. To be sure, it would enable Americans to work in the sweater industry at approximately the average level of American wages (for workers of their skill), instead of having to compete in that industry at the British level of wages. It has come into being through the magic of government spending. Inflation, as we shall later see, while it complicates the analysis, does not at bottom change the consequences of the policies discussed. Even if they were “normal” at the time, what reason is there to suppose that these same relationships should be preserved a generation later in spite of the enormous changes in the conditions of production and demand that have taken place in the meantime? So far as giving employment is concerned, Benjamin’s “saving” and spending combined give as much as Alvin’s spending alone, and put as much money in circulation. Some of them, like precision instruments, like nylon, lucite, plywood and plastics of all kinds, simply improve the quality of products. Throw them out of work, and you create unemployment and a fall in purchasing power, which would spread in ever-widening circles. For speculators serve their own interest precisely in proportion to their ability to foresee future prices. What other result could we expect from deliberately erecting artificial obstacles to trade and transportation? As a producer he wants inflation (thinking chiefly of his own services or product); as a consumer he wants price ceilings (thinking chiefly of what he has to pay for the products of others). Their place is taken by fly-by-night concerns with little capital and little accumulated experience in production. h��UoL[U�����A�B)�lo[ �[� �!�lKaH�,]2�N�Ē�*���j�l�=������ٜq���%�YȲ����a�"輯����~�{�{�9�w~��s�� P>�a��Ex�=�rq��~���4��y�h���%�`�CJ3����P@�A����@�v�a���n«ix���,�X($�!� �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 To save the coal industry Congress passed the Guffey Act, under which the owners of coal mines were not only permitted, but compelled, to conspire together not to sell below certain minimum prices fixed by the government. The government may try to meet this difficulty through subsidies. The other is to think only of the first half of the transaction. But when an elaborate and minute division of labor has set in, this direct and immediate connection ceases to exist. “Savings” and “investment” may be so defined as to be identical, and therefore necessarily equal. The effect of keeping interest rates artificially low, in fact, is eventually the same as that of keeping any other price below the natural market. If people are willing to work for less than they are really worth to him, why should he not take the fullest advantage of this? It is often complained that demagogues can be more plausible in putting forward economic nonsense from the platform than the honest men who try to show what is wrong with it. The plan that started out so gravely to “stabilize” prices and conditions brings incomparably greater instability than the free forces of the market could possibly have brought. If, either through government or private coercion, an attempt is made to lift prices above their equilibrium level, demand is reduced and therefore production is reduced. Economics in One Lesson Writing this introduction is a labor of love for me. Buy a farm for them; set them up in business; make productive and self-respecting citizens of them; let them add to the total national product and pay the loan off out of what they produce. An increased quantity of money comes into existence in a specific way. In the latter field they can seriously advocate or acquiesce in principles which they would think it insane to apply in domestic business. Businesses that depend on domestic trade would therefore be hurt in the long run as much as export businesses would be helped. When it becomes obvious that wages can be raised only at the expense of profits, the bureaucrats begin to argue that profits were already too high anyway, and that lifting wages and holding prices will still permit “a fair profit.” As there is no such thing as a uniform rate of profit, as profits differ with each concern, the result of this policy is to drive the least profitable concerns out of business altogether, and to discourage or stop the production of certain items. Economics in One Lesson - They mean, I suspect, the freedom of bureaucrats to settle these matters for him. There is one argument for “parity” prices that should be dealt with before we leave the subject. The real question is, therefore, whether A or B shall get the farm. One is the argument that it “creates employment”; the other that it creates wealth which would not otherwise have been produced. The banker is not giving something for nothing. Let us now look at some of the results of government attempts to hold the prices of commodities below their natural market levels. For producers invest in new capital goods—that is, they buy new and better and more ingenious tools—because these tools reduce cost of production. And at no matter what moment they speak, they are sure that wages are still not high enough to buy back the product. If taxes are taken from people and corporations, and spent in one particular section of the country, why should it cause surprise, why should it be regarded as a miracle, if that section becomes comparatively richer? He feels assured of repayment. The net income of incorporated business in the fifteen years from 1929 to 1943, to take an illustrative figure, averaged less than 5 per cent of the total national income. Two of the most notable examples in recent years have been the coal and silver industries. The latter attempt is made in our day by nearly all governments in wartime. The higher price can be forced by mere edict, which is the least workable method. 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. For the pickets are really being used, not primarily against the employer, but against other workers. A young hoodlum, say, heaves a brick through the window of a baker’s shop. When they say that the way to economic salvation is to increase “credit,” it is just as if they said that the way to economic salvation is to increase debt: these are different names for the same thing seen from opposite sides. Not only may he fail promptly to find another job offering more; he may fail for a time to find another job offering remotely as much. His conscience sometimes troubles him even about the $25,000 he spends. The Nineteenth Century is derided for its supposed inculcation of the doctrine that mankind through saving should go on making itself a larger and larger cake without ever eating the cake. Within a few months the doctrines of a group calling themselves the Technocrats had spread through the country like a forest fire. An enormous literature is based on this fallacy, and, as so often happens with doctrines of this sort, it has become part of an intricate network of fallacies that mutually support each other. But competition and production will then also begin to force down the price of overcoats. Suppose, in spite of the self-contradictoriness of the assumption, that all workers by coercive methods could raise their wages by an equal percentage? When we decide to cut down our imports, we are in effect deciding also to cut down our exports. Meaning where you spend your money one way means you have to sacrifice in another area. Not to be missed is Philip Wicksteed’s The Common Sense of Political Economy, as remarkable for the ease and lucidity of its style as for the penetration and power of its reasoning. When the total tax burden grows beyond a bearable size, the problem of devising taxes that will not discourage and disrupt production becomes insoluble. Labor productivity would, in fact, be reduced as a result of the tariff. If money and credit are so inelastic that they do not increase when wages are forced up (and if we assume that the higher wages are not justified by existing labor productivity in dollar terms), then the chief effect of forcing up wage rates will be to force unemployment. 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. This rationing cannot stop with consumers. The political pressure groups that have benefited from the inflation will insist upon its continuance. Because consumers are forced to pay higher prices than otherwise for that product, they have just that much less to spend on other products. Christian Economics in One Lesson Gary North. ECONOMICS IN ONE LESSON The first chapter, commences with Hazlitt explaining that economics is filled with fallacies that are created daily and they affect economic theories and ideas. On the assumption that there is only a fixed amount of work to be done, the conclusion is drawn that a thirty-hour week will provide more jobs and will therefore be preferable to a forty-hour week. The Blessings of Destruction4. In 1910, 140,000 persons were employed in the United States in the newly created auto mobile industry. The subtleties or obscurities to be found in the authors most responsible for propagating them are washed off. If the strikebreakers consist merely of professional thugs who themselves threaten violence, or who cannot in fact do the work, or if they are being paid a temporarily higher rate solely for the purpose of making a pretense of carrying on until the old workers are frightened back to work at the old rates, the hatred may be warranted. It is, in fact, a flat capital levy, without exemptions, in which the poor man pays as high a percentage as the rich man. But what really takes place is a diversion of demand to these particular products from others. Here we shall have to say simply that all government expenditures must eventually be paid out of the proceeds of taxation; that to put off the evil day merely increases the problem, and that inflation itself is merely a form, and a particularly vicious form, of taxation. 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2020 economics in one lesson chapters