Part 8 (1/2)

In seeing that econo consequences, we ic andinevitable implications implications

We ebra Suppose we say that if x x = 5 then = 5 then x + y = x + y = 12 The ”solution” to this equation is that y equals 7; but this is so precisely because the equation 12 The ”solution” to this equation is that y equals 7; but this is so precisely because the equation tells tells us in effect that Y equals 7 It does not make that assertion directly, but it inevitably implies it us in effect that Y equals 7 It does not make that assertion directly, but it inevitably implies it

What is true of this elementary equation is true of the most complicated and abstruse equations encountered in mathematics The answer already lies in the statement of the problem The answer already lies in the statement of the problem It must, it is true, be ”worked out” The result, it is true, may someti surprise Heentirely new-a thrill like that of ”some watcher of the skies, when a new planet swims into his ken” His sense of discovery may be justified by the theoretical or practical consequences of his answer Yet the ansas already contained in the fornized at once For mathematics reminds us that inevitable implications are not necessarily obvious implications it is true, be ”worked out” The result, it is true, may someti surprise Heentirely new-a thrill like that of ”some watcher of the skies, when a new planet swims into his ken” His sense of discovery may be justified by the theoretical or practical consequences of his answer Yet the ansas already contained in the fornized at once For mathematics reminds us that inevitable implications are not necessarily obvious implications

All this is equally true of econoineering When an engineer has a proble on that problee to span two points, he must first know the exact distance between these two points, their precise topographical nature, the ned to carry, the tensile and coth of the steel or other e is to be built, and the stresses and strains to which it may be subjected Much of this factual research has already been done for him by others His predecessors, also, have already evolved elaborate th of his materials and the stresses to which they will be subjected, he can determine the necessary diairders

In the saned a practical problem, must know both the essential facts of that problem and the valid deductions to be drawn from those facts The deductive side of economics is no less important than the factual One can say of it what Santayana says of logic (and what could be equally well said of mathematics), that it ”traces the radiation of truth,” so that ”when one terical syste to that ternize the necessary implications of the econo 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 na seen from opposite sides When they say that the way to prosperity is to increase far that the way to prosperity is to make food dearer for the city worker When they say that the way to national wealth is to pay out govern that the way to national wealth is to increase taxes When they make it a main objective to increase exports, most of them do not realize that they necessarily make it a main objective ultimately to increase imports 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 econo 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 na seen from opposite sides When they say that the way to prosperity is to increase far that the way to prosperity is to make food dearer for the city worker When they say that the way to national wealth is to pay out govern that the way to national wealth is to increase taxes When they make it a main objective to increase exports, most of them do not realize that they necessarily make it a main objective ultimately to increase imports 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

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 nainal proposal is under all conditions unsound There may be tiainst the gains achieved with the borrowed funds; when a government subsidy is unavoidable to achieve a certain iven industry can afford an increase in production costs, and so on But we ought to make sure in each case that both sides of the coin have been considered, that all the implications of a proposal have been studied And this is seldom done

2

The analysis of our illustrations has taught us another incidental lesson This is that, e study the effects of various proposals, not roups in the long run, the conclusions we arrive at usually correspond with those of unsophisticated common sense It would not occur to anyone unacquainted with the prevailing econoood to have s broken and cities destroyed; that it is anything but waste to create needless public projects; that it is dangerous to let idle hordes of men return to work; that machines which increase the production of wealth and economize human effort are to be dreaded; that obstructions to free production and free consu other nations to take its goods for less than they cost to produce; that saving is stupid or wicked and that squandering brings prosperity would not occur to anyone unacquainted with the prevailing econoood to have s broken and cities destroyed; that it is anything but waste to create needless public projects; that it is dangerous to let idle hordes of men return to work; that machines which increase the production of wealth and economize human effort are to be dreaded; that obstructions to free production and free consu other nations to take its goods for less than they cost to produce; that saving is stupid or wicked and that squandering brings prosperity

”What is prudence in the conduct of every private fa common sense in reply to the sophists of his tidoet lost in co even when they ee with conclusions that are palpably absurd The reader, depending upon his own beliefs, may or may not accept the aphorism of Bacon that ”A little philosophy inclineth eth ion” It is certainly true, however, that a little economics can easily lead to the paradoxical and preposterous conclusions we have just rehearsed, but that depth in econos men back to co for all the consequences of a policy instead of aze on those immediately visible

3

In the course of our study, also, we have rediscovered an old friend He is the Forgotten Man of William Graham Sumner The reader will remember that in Sumner's essay, which appeared in 1883: As soon as A observes so, fro, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X Their laays proposes to determine what C shall do for X or, in the better case, what A, B and C shall do for X What I want to do is to look up CI call hiht of He is the victim of the reformer, social speculator and philanthropist, and I hope to show you before I get through that he deserves your notice both for his character and for the many burdens which are laid upon hiet a law passed to remedy the evil and help X Their laays proposes to determine what C shall do for X or, in the better case, what A, B and C shall do for X What I want to do is to look up CI call hiht of He is the victim of the reformer, social speculator and philanthropist, and I hope to show you before I get through that he deserves your notice both for his character and for the many burdens which are laid upon him

It is a historic irony that when this phrase, the Forgotten Man, was revived in the 1930s, it was applied, not to C, but to X; and C, as then being asked to support still otten than ever It is C, the Forgotten Man, who is always called upon to stanch the politician's bleeding heart by paying for his vicarious generosity

4

Our study of our lesson would not be colected to observe that the fundamental fallacy hich we have been concerned arises not accidentally but systematically It is an almost inevitable result, in fact, of the division of labor

In a pri pioneers, before the division of labor has arisen, a man works solely for himself or his immediate family What he consumes is identical hat he produces There is always a direct and immediate connection between his output and his satisfactions

But when an elaborate and minute division of labor has set in, this direct and immediate connection ceases to exist I do not s I consume but, perhaps, only one of the this one co this one service, I buy all the rest I wish the price of everything I buy to be low, but it is in my interest for the price of the coh Therefore, though I wish to see abundance in everything else, it is inthat it is reater the scarcity, co that I supply, the higher will be the reward that I can get forI buy to be low, but it is in my interest for the price of the coh Therefore, though I wish to see abundance in everything else, it is inthat it is reater the scarcity, co that I supply, the higher will be the reward that I can get for my efforts

This does not necessarily mean that I will restrict my own efforts or my own output In fact, if I a that commodity or service, and if free competition exists in my line, this individual restriction will not pay rower of wheat, say, I want e as possible But if I am concerned only with my own material welfare, and have no humanitarian scruples, I want the output of all other other wheat growers to be as wheat growers to be as lo as possible; for I want scarcity in wheat (and in any foodstuff that can be substituted for it) so that hest possible price as possible; for I want scarcity in wheat (and in any foodstuff that can be substituted for it) so that hest possible price

Ordinarily these selfish feelings would have no effect on the total production of wheat Wherever competition exists, in fact, each producer is cohest possible crop on his own land In this way the forces of self-interest (which, for good or evil, are more persistently powerful than those of altruism) are harnessed to rowers or any other group of producers to coovernes The wheat growers overnanization-to force all of thee planted to wheat In this way they will bring about a shortage and raise the price of wheat; and if the rise in the price per bushel is proportionately greater, as it well rowers as a whole will be better off They will getelse Everybody else, it is true, will be worse off: because, other things equal, everyone else will have to give rower produces So the nation as a whole will be just that much poorer It will be poorer by the arown But those who look only at the wheat far loss things equal, everyone else will have to give rower produces So the nation as a whole will be just that much poorer It will be poorer by the arown But those who look only at the wheat far loss

And this applies in every other line If because of unusual weather conditions there is a sudden increase in the crop of oranges, all the consumers will benefit The world will be richer by that es will be cheaper But that very fact roup poorer than before, unless the greater supply of oranges compensates or more than compensates for the lower price Certainly if under such conditions er than usual, then I aeneral plenty

And what applies to changes in supply applies to changes in deht about by new inventions and discoveries or by changes in taste A new cotton-picking h it may reduce the cost of cotton underwear and shi+rts to everyone, and increase the general wealth, will mean the employ a better cloth at a faster rate, will make thousands of old machines obsolete, and wipe out part of the capital value invested in the poorer the owners of those h it can confer uni that is dreaded by the owners of coal mines and oil wells

Just as there is no technical ie in public taste or morals, even for the better, that would not hurt someone An increase in sobriety would put thousands of bartenders out of business A decline in ga touts to seek rowth of male chastity would ruin the oldest profession in the world

But it is not merely those who deliberately pander to men's vices ould be hurt by a sudden i those ould be hurt most are precisely those whose business it is to improve those morals Preachers would have less to complain about; reformers would lose their causes; the demand for their services and contributions for their support would decline If there were no cries and firemen, and no jailers, no locks traffic snarls) even no police those ould be hurt most are precisely those whose business it is to improve those morals Preachers would have less to complain about; reformers would lose their causes; the demand for their services and contributions for their support would decline If there were no cries and firemen, and no jailers, no locks traffic snarls) even no policemen

Under a system of division of labor, in short, it is difficult to think of a greater fulfillment of any human need which would not, at least temporarily, hurt some of the people who have made investments or painfully acquired skill to ress were coonism between the interests of the whole coroup would not, if it were noticed at all, present any serious problem If in the same year as the world wheat crop increased, my own crop increased in the saricultural products increased correspondingly, and if the output of all industrial goods also rose and their unit cost of production fell to correspond, then I as a wheat groould not suffer because the output of wheat had increased The price that I got for a bushel of wheat er output ht decline But if I could also because of increased supplies buy the output of everyone else cheaper, then I should have no real cause to co else dropped in exactly the same ratio as the decline in the price of my wheat, I should be better off, in fact, exactly in proportion to my increased total crop; and everyone else, likewise, would benefit proportionately frooods and services

But econoress never has taken place and probably never will take place in this completely uniform way Advance occurs now in this branch of production and now in that And if there is a sudden increase in the supply of the thing I help to produce, or if a new invention or discovery ain to the world is a tragedy to edy to

Now it is often not the diffused gain of the increased supply or new discovery that most forcibly strikes even the disinterested observer, but the concentrated loss The fact that there is ht of; what is seen isat the lower price The increased output of shoes at lower cost by the new roup of ether proper-it is, in fact, essential to a full understanding of the problenized, that they be dealt with syains froress cannot be used to help the victims find a productive role elsewhere

But the solution is never to reduce supplies arbitrarily, to prevent further inventions or discoveries, or to support people for continuing to perform a service that has lost its value Yet this is what the world has repeatedly sought to do by protective tariffs, by the destruction ofof coffee, by a thousand restriction scheh scarcity

It is a doctrine that may always be privately true, unfortunately, for any particular group of producers considered in isolation-if they canabundant all the things they have to buy But it is a doctrine that is always publicly false It can never be applied all around the circle For its application would mean econoeneralized fors that seeroup are seen to be illusions when the interests of everyone, as consumer no less than as producer, are considered

To see the probleoal of econoe Santayana, The Realm of Truth The Realm of Truth (1938), p 16 (1938), p 16

Part Three The Lesson After Thirty Years

Chapter XXVI

THE L LESSON A AFTER T THIRTY Y YEARS

THE FIRST EDITION of this book appeared in 1946 It is now, as I write this, thirty-two years later How es has been learned in this period? of this book appeared in 1946 It is now, as I write this, thirty-two years later How es has been learned in this period?

If we are referring to the politicians-to all those responsible for forovernment policies-practically none of it has been learned On the contrary, the policies analyzed in the preceding chapters are far more deeply established and widespread, not only in the United States, but in practically every country in the world, than they hen this book first appeared

Weexample, inflation This is not only a policy imposed for its own sake, but an inevitable result of most of the other interventionist policies It stands today as the universal syovernment intervention everywhere