Hearings on extension of the Bituminous Coal Act of 1937. Spread-The-Work Schemes 9. All that happens is that money is taken away through taxes from families of higher income (and perhaps a little from families of even lower income) to force them to subsidize these selected families with low incomes and enable them to live in better housing for the same rent or for lower rent than previously. Two of the most notable examples in recent years have been the coal and silver industries. Ordinarily these selfish feelings would have no effect on the total production of wheat. Some of them, like precision instruments, like nylon, lucite, plywood and plastics of all kinds, simply improve the quality of products. Each person is likely to think that he can so manage the political forces that he can benefit from the subsidy more than he loses from the tax, or benefit from a rise for his own product (while his raw material costs are legally held down) and at the same time benefit as a consumer from price control. Or it might be thought of as equivalent to a flat tax of the same percentage, without exemptions, on everyone’s income. Then there will be a real scarcity, and consumers will have to pay exorbitant prices for the commodity. The American automobile industry pays the highest wages in the world, and among the very highest even in America. But its purchasing power, and therefore the “new business” that it can stimulate, are incomparably smaller. Profit margins are reduced or wiped out. Now all loans, in the eyes of honest borrowers, must eventually be repaid. 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. They do not mean the freedom of the plain citizen to raise as much of a given crop as he wishes, to come and go at will, to settle where he pleases, to take his capital and other belongings with him. A typical example is the belief that the government should make huge loans to foreign countries for the sake of increasing our exports, regardless of whether or not these loans are likely to be repaid. Yet governmental policy almost everywhere today tends to assume that production will go on automatically, no matter what is done to discourage it. It is true that this result can follow only in the long run and only if monetary and credit policy permit it. If saving is a sin, dissaving must be a virtue; and in any case he is simply making up for the harm being done by the saving of his pinchpenny brother Benjamin. Yet American motor car makers can undersell the rest of the world, because their unit cost is lower. It can best be disposed of, perhaps, by putting before ourselves a somewhat more realistic picture of what actually takes place. Now let us look at the matter the other way round, and see the effect of imposing a tariff in the first place. Every employer, small as well as large seeks constantly to gain his results more economically and efficiently—that is, by saving labor. 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 … Instead of thinking only where bridges must be built, the government spenders begin to ask themselves where bridges can be built. endstream endobj 888 0 obj <> endobj 889 0 obj <>/ProcSet[/PDF/ImageC]/XObject<>>>/Rotate 0/Type/Page>> endobj 890 0 obj <>stream Economics in One Lesson - novelonlinefull.com. 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. In some countries the black market kept growing at the expense of the legally recognized fixed-price market until the former became, in effect, the market. And in trying to answer this we must never lose sight of a few elementary truisms. Wells, published in 1889, he will find passages that, except for the dates and absolute amounts involved, might have been written by our technophobes (if I may coin a needed word) of today. They lend him the other three-fourths; and he gets the farm. Now let us take another look. It should be immediately obvious that if the loans we make to foreign countries to enable them to buy our goods are not repaid, then we are giving the goods away. And it provoked retaliatory tariffs in other countries. This is inevitable when we consider that demand and supply are merely two sides of the same coin. 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. The number of its employees, the capital invested in it, the market value of its product in terms of dollars, could be easily counted. In 1873 Bessemer steel in England , where its price had not been enhanced by protective duties, commanded $80 per ton; in 1886 it was profitably manufactured and sold in the same country for less than $20 per ton. This does not necessarily mean that I will restrict my own efforts or my own output. ��8���o(�ꖅ�O�r��T+&����U' 0 ���s The price of that product therefore falls in relation to the price of other products, and the stimulus to the relative increase in its production disappears. Each of us must also sell something, even if for most of us it is our own services rather than goods, in order to get the purchasing power to buy. But let us see what Benjamin actually does with this other $25,000. But such a change would mean that the dollar profit margin, representing the income of investors, managers and the self-employed, would then have, say, only 84 per cent as much purchasing power as it had before. For the producers are on net balance getting no more for their milk and butter than if they had been allowed to charge the free market price in the first place; but the consumers are getting their milk and butter at a great deal below the free market price. It is one more illustration of the fallacy of seeing only a special interest in the short run and forgetting the general interest in the long run. I hope I shall not be accused of injustice on the ground, therefore, that a fashionable doctrine in the form in which I have presented it is not precisely the doctrine as it has been formulated by Lord Keynes or some other special author. Foreign exchange, in short, is a clearing transaction in which, in America, the dollar debts of foreigners are cancelled against their dollar credits. An American exporter sells his goods to a British importer and is paid in British pounds sterling. The most frequent proposal of this sort in Congress is for more credit to farmers. It is solved precisely through the price system. So that while labor might get a broader slice of a smaller pie, during this period of transition and adjustment to a new equilibrium, it may be doubted whether this would be greater in absolute size (and it might easily be less) than the previous narrower slice of a larger pie. Likewise, in Chapter VII, he writes [page 54], “Statistics and history are useless in economics unless accompanied by a basic deductive understanding of the facts.” What is Hazlitt’s basic view of the use and status of statistics? But the shopkeeper will be out $50 that he was planning to spend for a new suit. He writes begging letters to Benjamin. “Saving,” in short, in the modern world, is only another form of spending. The increased output of shoes at lower cost by the new machine is forgotten; what is seen is a group of men and women thrown out of work. In the century and three-quarters since The Wealth of Nations appeared, the case for free trade has been stated thousands of times, but perhaps never with more direct simplicity and force than it was stated in that volume. Nothing is easier to achieve than full employment, once it is divorced from the goal of full production and taken as an end in itself. Other sections of the country, we should remember, are then comparatively poorer. In England, the pound sterling debts of foreigners are cancelled against their sterling credits. The glazier’s gain of business, in short, is merely the tailor’s loss of business. It is possible, no doubt, to conceive of a case in which the profits in a whole industry are reduced without any corresponding reduction in employment—a case, in other words, in which an increase in wage rates means a corresponding increase in payrolls, and in which the whole cost comes out of the industry’s profits without throwing any firm out of business. has been placed in the hands of the less efficient borrowers rather than in the hands of the more efficient and trustworthy. When we had our WPA, it was considered a mark of genius for the administrators to think of projects that employed the largest number of men in relation to the value of the work performed—in other words, in which labor was least efficient. But this is precisely the opposite of what the government regulators originally wanted to do. Where labor was plentiful, individual employers often stood to gain by speeding up workers and working them long hours in spite of ultimate ill effects upon their health, because they could easily be replaced with others. Instead of being parasites, they become productive men and women. It should be immediately clear that this could be brought about more directly and honestly by a reduction in wage rates. One of the most frequent is government loans to farmers to enable them to hold their crops off the market. [3] Historically 20 per cent would represent approximately the gross amount of the gross national product devoted each year to capital formation (excluding consumers’ equipment). He may find that he is unable to replace these workers by workers equally good who are willing to accept the wage that the former have now rejected. The result would then be the same as if the working week had been reduced without an increase in hourly wage rates. 14, par. When people risk their own funds they are usually careful in their investigations to determine the adequacy of the assets pledged and the business acumen and honesty of the borrower. Everywhere government spending is presented as a panacea for all our economic ills. If we have devoted considerable space to this issue, it is because our conclusions regarding the effects of new machinery, inventions and discoveries on employment, production and welfare are crucial. The only element of truth in the contention is that any change that is sudden may be unsettling. My greatest debt, with respect to the kind of expository framework on which the present argument is hung, is to Frédéric Bastiat’s essay Ce qu’on voit et ce qu’on ne voit pas, now nearly a century old. 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. Yet among the arguments put forward in favor of huge foreign lending one fallacy is always sure to occupy a prominent place. The same reasoning applies to civilian government officials whenever they are retained in excessive numbers and do not perform services for the community reasonably equivalent to the remuneration they receive. 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. It soon becomes absolutely essential. For, as we have seen, the causation is never a merely mechanical one. But there is no irrational or cumulative consumer restraint. (To isolate the problem we are ignoring for the moment booms, slumps, or other fluctuations.) 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. He feels assured of repayment. Because the black market, however, finally supplanted the legal price-ceiling market, it must not be supposed that no harm was done. They have turned them into rails and roadbeds, freight cars and locomotives. Among men of good will such an aim can be taken for granted. This has several immediately bad effects. It does not expand its operations, or it expands only those attended with a minimum of risk. When the process has been completed, nearly everybody will have a higher income measured in terms of money. Who gains when everyone equally subsidizes everyone else? After he takes your money he has more purchasing power. He either deposits it in a hank or he invests it. But the results do not end there. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. [1] One effect of this attempt to keep coal prices above the competitive market level was to accelerate the tendency toward the substitution by consumers of other sources of power or heat—such as oil, natural gas and hydro-electric energy. Such sudden changes can even cause a depression.) But if, under the forty-hour week, the workers were already getting as high a wage as the level of production costs and prices made possible (and the very unemployment they are trying to cure may be a sign that they were already getting even more than this), then the increase in production costs as a result of the 33 1/3 per cent increase in hourly wage rates will be much greater than the existing state of prices, production and costs can stand. This supposed encouragement often takes the form of a direct grant of government credit or a guarantee of private loans. It can practice division and specialization of labor. I say only part of the job, because rationing merely limits the demand without also stimulating the supply, as a higher price would have done. But everything he does delays or prevents him from doing something else only a little less urgent. We should merely have added an army of needless bureaucrats to carry out the program, with all of them lost to production. The national loss on the transaction would be certain, but it might be distributed in ways difficult to follow. Each man sees that if he personally had more money he could buy more things from others. They want to get it back. We have deprived the man of the independence and self-respect that come from self-support, even at a low level, and from performing wanted work, at the same time as we have lowered what the man could have received by his own efforts. They forget the interests of the consumers who are immediately injured by being forced to pay these duties. The remedy, however, is not quite that simple. What will be the result of reducing the working week from forty hours to thirty (without any increase in hourly pay)? One of the arguments for the rescue plan was that it would help “the East.” One of its actual results was to cause deflation in China, which had been on a silver basis, and to force China off that basis. The harm was both economic and moral. The people who support such schemes think only of the employment they would provide for particular persons or groups; they do not stop to consider what their whole effect would be on everybody. Their law always proposes to determine what C shall do for X or, in the better case, what A, B and C shall do for X. . These are the most naive inflationists. It increases the demand for capital and reduces the supply of real capital. It means, therefore, a lowering of production which must reflect itself in a lower average living standard. But (assuming that production of goods and services has not increased) prices of goods and services will have increased correspondingly; and the nation will be no richer than before. It would be idiotic to go on piling up mountains of surplus shoes, simply because we could do it, while hundreds of more urgent needs went unfilled. These wages and salaries, of course, had to be paid out of the national product. Suppose that there had been no tariff on foreign knit goods, that Americans were accustomed to buying foreign sweaters without duty, and that the argument were then put forward that we could bring a sweater industry into existence by imposing a duty of $5 on sweaters. Any form of economic destruction of real value, no matter how small or big, hurts the entire community in some way or another. Here, because of sheer size, the danger of optical illusion is greater than ever. Prices are determined by supply and demand, and demand is determined by how intensely people want a commodity and what they have to offer in exchange for it. But perhaps, also, he has devoted many years of his life to acquiring and improving a special skill for which the market no longer has any use. This ought not to be surprising; for a wage is, in fact, a price. If a rationing system is adopted, it means that each consumer can have only a certain maximum supply, no matter how much he is willing to pay for more. Necessary policemen, firemen, street cleaners, health officers, judges, legislators and executives perform productive services as important as those of anyone in private industry. If the particular shopkeepers who formerly got the business of these bureaucrats lose trade, other shopkeepers elsewhere gain at least as much. 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. The implication is that these are jobs that would not otherwise have come into existence. This is the belief that a more efficient way of doing a thing destroys jobs, and its necessary corollary that a less efficient way of doing it creates them. The money rate will rise and a crisis will develop if the inflation is reversed, or merely brought to a halt, or even continued at a diminished rate. But if the planners succeed in tying up the idea of international cooperation with the idea of increased State domination and control over economic life, the international controls of the future seem only too likely to follow the pattern of the past, in which case the plain man’s living standards will decline with his liberties. But now the taxpayers turn over this part of their funds to them as fellow civilians in return for equivalent goods or services. Can they think of plausible reasons why an additional bridge should connect Easton and Weston? If he designs a bridge to span two points, he must first know the exact distance between those two points, their precise topographical nature, the maximum load his bridge will be designed to carry, the tensile and compressive strength of the steel or other material of which the bridge is to be built, and the stresses and strains to which it may be subjected. This is perhaps as good a place as any to point out that what distinguishes many reformers from those who cannot accept their proposals is not their greater philanthropy, but their greater impatience. People who recognize this situation are deterred from starting new enterprises. It is impossible, moreover, to control the value of money under inflation. 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. He is the author of Economics in One Lesson among 20 other books. If we keep the price down, everyone will get his fair share. What is the profit when everyone loses in added taxes precisely what he gains by his subsidy or his protection? p���W�\�9}���. Exactly. These otherwise bewildering equations are solved quasi-automatically by the system of prices, profits and costs. (It is possible no doubt to imagine that improvements and new inventions merely in replaced machinery and other capital goods of a value no greater than the old would increase the national productivity; but this increase would amount to very little, and the argument in any case assumes enough prior investment to have made the existing machinery possible.) Spread-The-Work Schemes9. 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. In the case of consumers we may say either that it supplies them with more and better goods for the same money, or, what is the same thing, that it increases their real incomes. This is a sign that the persons to whom the money has been lent will be expected to produce things for the market that people actually want. But the new employment does not depend on the elasticity of demand for the particular product involved. It confuses need with demand. But need is not demand. But they have put them, say, into the railroad business. Here are mighty generators and power houses. What did it? But the shrinkage of a hundred other industries, the loss of 20,000 other jobs somewhere else, would not be so easily noticed. The destruction of war will, it is true, divert post-war demand from some channels into others. The only exception is the item he makes himself: here he understands and appreciates the reason for the rise. They will throw the available capital into bad or at best dubious projects. This does not mean, however, that everyone’s relative or absolute wealth and income will remain the same as before. Could things be blacker? It is perhaps the worst possible form, which usually bears hardest on those least able to pay. It sees the people in whose hands the capital is put; it forgets those who would otherwise have had it. Elementary illustrations like this are sometimes ridiculed as “Crusoe economics.” Unfortunately, they are ridiculed most by those who most need them, who fail to understand the particular principle illustrated even in this simple form, or who lose track of that principle completely when they come to examine the bewildering complications of a great modern economic society. But the central error, as we have hinted, comes from looking at only one industry, or even at several industries in turn, as if each of them existed in isolation. �x������- �����[��� 0����}��y)7ta�����>j���T�7���@���tܛ�`q�2��ʀ��&���6�Z�L�Ą?�_��yxg)˔z���çL�U���*�u�Sk�Se�O4?׸�c����.� � �� R� ߁��-��2�5������ ��S�>ӣV����d�`r��n~��Y�&�+`��;�A4�� ���A9� =�-�t��l�`;��~p���� �Gp| ��[`L��`� "A�YA�+��Cb(��R�,� *�T�2B-� Production will be reduced all around the circle. . The soldiers previously supported by civilians will not become merely civilians supported by other civilians. He is no longer seen in the night clubs and at the fashionable shops; and those whom he formerly patronized, when they speak of him, refer to him as something of a fool. Compared with him brother Benjamin is much less popular. Such arguments may or may not be justified in a particular case. 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. We cannot distribute more wealth than is created. I come to the same conclusions. When Ludwig von Mises’ new treatise on economics, now in preparation, appears, it will extend beyond any previous work the logical unity and precision of modern economic analysis. The money incomes of group A, for example, will have increased before prices have increased, so that they will be able to buy almost a proportionate increase in goods. [1] Instead we shall try to see just why and how an increase in the quantity of money raises prices. They could be produced just as well by an equivalent peacetime inflation. Though these results had been predicted by opponents of the restriction and loan policy. It is put forward by some of the more sophisticated defenders. What a commodity has cost to produce in the past cannot determine its value. They could, in other words, have worked the same number of hours and got their total weekly incomes increased by one-third, instead of merely getting, as they are under the new thirty-hour week, the same weekly income as before. But economic progress never has taken place and probably never will take place in this completely uniform way. It may be that, if the inflation is brought to a halt after a few years, the final result will be, say, an average increase of 25 per cent in money incomes, and an average increase in prices of an equal amount, both of which are fairly distributed among all groups. Printed in the U.S.A.   and published by arrangement with Harper & Brothers. 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. The belief that they do so rests on a series of delusions. It is for this reason, for example, that wages in the United States were incomparably higher than wages in England and Germany all during the decades when the “labor movement” in the latter two countries was far more advanced. When they say, under nearly all conditions, that the way to recovery is to increase wage rates, they have found only another way of saying that the way to recovery is to increase costs of production. endstream endobj 892 0 obj <>stream In fact, as we have just seen, they merely intensify the shortage of goods. For what is really being lent is not money, which is merely the medium of exchange, but capital. You are simply cutting down “the national income” and helping to bring about or intensify a depression. The father hunts; the mother prepares the food; the children collect firewood. As long as any of these conditions remain unfulfilled, there will be indefinite room for more capital. And it is all presented, in the panegyrics of its partisans, as a net economic gain without offsets. We cannot assume that it will provide sufficient additional jobs, however, to maintain the same payrolls and the same number of man-hours as before, unless we make the unlikely assumptions that in each industry there has been exactly the same percentage of unemployment and that the new men and women employed are no less efficient at their special tasks on the average than those who had already been employed. It is true that, when millions of men are suddenly released, it may require time for private industry to reabsorb them—though what has been chiefly remarkable in the past has been the speed, rather than the slowness, with which this was accomplished. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. Because they wish to make sure of retaining the farmer’s vote, the politicians who initiate the policy, or the bureaucrats who carry it out, always place the so-called “fair” price for the farmer’s product above the price that supply and demand conditions at the time justify. Now as a result of this annual saving and investment, the total annual production of the country will increase each year. "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 It is not wise to bestow charity on foreign peoples under the impression that one is making a hardheaded business transaction purely for one’s own selfish purposes. We shall defer analysis of the effects of inflation of various kinds until a later chapter. If he had twice as much money he could buy twice as many things; if he had three times as much money he would be “worth” three times as much. The great burden of income taxes is imposed on a minor percentage of the nation’s income; and these income taxes have to be supplemented by taxes of other kinds. What is really being lent, say, is the farm or the tractor itself. Again more work will be given to the makers of the machines. Agriculture is the most basic and important of all industries. Any form of economic destruction of real value, no matter how small or … It is railways and roads and motor cars; ships and planes and factories; schools and churches and theaters; pianos, paintings and books. 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]. Because this is a work of exposition I have availed myself freely and without detailed acknowledgment (except for rare footnotes and quotations) of the ideas of others. The greater supply of savings seeking investment forces savers to accept lower rates. Christian Economics in One Lesson Gary North. He hollows out a place in the sand to collect rain water, or builds some crude receptacle. But if they are in fact merely men and women who are looking for permanent jobs and willing to accept them at the old rate, then they are workers who would be shoved into worse jobs than these in order to enable the striking workers to enjoy better ones. A duty of $ 5 left over they help employment in ever-widening circles, and will employment! Percentage terms, this will not stand examination could see the sweater manufacturer more... Hollows out a place in this completely uniform way nature of inflation are in distress! Experts, the unions insist that firemen be employed elsewhere average he $... 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