Trump isn't just for tariffs. He's enthusiastically for tariffs. He wants to build a tariff wall — and this time everyone — from producers to consumers — from American to Chinese — who will pay.

[T]he scale of what Mr. Trump is proposing is larger than any tariff increases that have been seen in nearly a century. He has floated a “universal tariff” of 10 to 20 percent on most foreign products and tariffs of 60 percent or more on China. To ban Chinese cars from coming into the United States via Mexico, he has said he would impose “whatever tariffs are required—100 percent, 200 percent, 1,000 percent.”

By the way, "in nearly a century” means “since Smoot-Hawley,” the notorious 1930 tariff act that helped precipitate the Great Depression and encourage a second Great War.

Remember that?

Yet the arguments Trump and Vance are making for tariffs were already addressed by free-trade proponents over a century ago. But, as Kody Jensen points out in this guest post, ignoramuses like Trump and Vance keep making them. So he goes back to what one of those anti-tariff agitators were saying, a pro-trade fellow called William Graham Sumner ...

What would Sumner say about Trump and Vance’s pro-tariff rhetoric?

by Kody Jensen

Sadly, all US presidents in recent times have leaned towards opposing free trade, but some have been worse than others. One has been much worse. In recent times Donald Trump has built his political reputation on being its wholehearted adversary. William Graham Sumner (1840–1910) was a wholehearted supporter of free trade. Professor, sociologist, clergyman, and advocate of laissez faire, the gold standard, and free trade — I went back to Sumner to find out how
he would respond to claims made by Trump and his running mate JD Vance about free trade in the recent debates? 

Let’s go to his writings to find a potential answer.

The Great Free Trade Debate

DT: “First of all, I have no sales tax," responds Trump to Harris characterising his tariff plan as a sales tax.. That’s an incorrect statement. We’re doing tariffs on other countries. Other countries are going to finally, after 75 years, pay us back for all that we’ve done for the world. I took in billions and billions of dollars from China.”

Sumner observes that protectionists have always shied away from referring to tariffs as taxes. Consider these comments from his 1888 book Protectionism: the -ism which teaches that waste makes wealth:

There are some who say that “a tariff is not a tax,” or as one of them said before a Congressional Committee: “We do not like to call it so!” That certainly is the most humorous of all the funny things in the tariff controversy. If a tariff is not a tax, what is it? In what category does it belong? No protectionist has ever yet told. They seem to think of it as a thing by itself, a Power, a Force, a sort of Mumbo Jumbo whose special function it is to produce national prosperity. They do not appear to have analyzed it, or given themselves an account of it, sufficiently to know what kind of a thing it is or how it acts. Any one who says that it is not a tax must suppose that it costs nothing, that it produces an effect without an expenditure of energy. They do seem to think that if Congress will say: “Let a tax of —— per cent be laid on article A,” and if none is imported, and therefore no tax is paid at the custom house, national industry will be benefited and wealth secured, and that there will be no cost or outgo. If that is so, then the tariff is magic. We have found the philosopher’s stone.

Furthermore:

A protective tax is one which is laid to act as a bar to importation, in order to keep a foreign commodity out. It does not act protectively unless it does act as a bar, and is not a tax on imports but an obstruction to imports. Hence a protective duty is a wall to inclose the domestic producer and consumer, and to prevent the latter from having access to any other source of supply for his needs, in exchange for his products, than that one which the domestic producer controls. The purpose and plan of the device is to enable the domestic producer to levy on the domestic consumer the taxes which the government has set up as a barrier, but has not collected at the port of entry. Under this device the government says: “I do not want the revenue, but I will lay the tax so that you, the selected and favoured producer, may collect it.” “I do not need to tax the consumer for myself, but I will hold him for you while you tax him.”

DT: “They aren’t gonna have higher prices," claims Trump, when asked if consumers can afford higher prices caused by tariffs. "What’s gonna have and who’s gonna have higher prices is China and all of the countries that have been ripping us off for years”

WGS: “To this it is obvious to reply: what good can they then do toward the end proposed?”

If the tariffs do not raise prices, then how do they encourage the protected industries? No doubt it would be a neat trick if the President could force foreigners to pay more for US products while not raising prices for US consumers. However, I cannot comprehend how taxes on US imports will achieve this. And nor can you.

Vance: “Think about this. If you’re trying to employ slave labourers in China at $3 a day, you’re going to do that and undercut the wages of American workers unless our country stands up for itself and says you’re not accessing our markets unless you’re paying middle-class Americans a fair wage.”

WGS:

The protectionist says that he does not want the American labourer to compete with the foreign “pauper labourer.” He assumes, that if the foreign labourer is a woolen operative, the only American who may have to compete with him is a woolen operative here. His device for saving our operatives from the assumed competition is to tax the American cotton or wheat grower on the cloth he wears, to make up and offset to the woolen operative the disadvantage under which he labors. If then, the case were true as the protectionist states it, and if his remedy were correct, he would, when he had finished his operation, simply have allowed the American woolen operative to escape, by transferring to the American cotton or wheat grower the evil results of competition with “foreign pauper labour.”

Can a tariff raise the general wage level? Sumner says no:

Wages are capital. If I promise to pay wages I must find capital somewhere with which to fulfill my contract. If the tariff makes me pay more than I otherwise would, where does the surplus come from? Disregarding money as only an intermediate term, a man’s wages are his means of subsistence—food, clothing, house rent, fuel, lights, furniture, etc. If the tariff system makes him get more of these for ten hours’ work in a shop than he would get without tariff, where does the “more” come from? Nothing but labour and capital can produce food, clothing, etc. Either the tax must make these out of nothing, or it can only get them by taking them from those who have made them, that is by subtracting them from the wages of somebody else. Taking all the wages class into account, then the tax cannot possibly increase, but is sure by waste and loss to decrease wages.

One point both Trump and Vance raised was that apparently even Joe Biden agreed with protectionist ideas, as he did not remove most of the tariffs imposed by the previous administration. I do not know what answer Sumner could give to this ubiquity of bad economics, other than to glumly shake his head.

And to point out perhaps that it is not economics that preaches tariffs to make Americans rich again—despite all the evidence against it: It's politics.

Additional Reading:

Protectionism: the -ism which teaches that waste makes wealth by William Graham Sumner

Leonard E. Read: Philosopher of Freedom by Mary Sennholz

William Graham Sumner: An Unjustly Forgotten Man by Gary M. Galles

On Liberty, Society, and Politics: The Essential Essays of William Graham Sumnerby Robert C. Bannister & John Attarian

 

"The capitalist system was termed 'capitalism' not by a friend of the system, but by Karl Marx" [updated]

"The capitalist system was termed 'capitalism' not by a friend of the system, but by an individual who considered it to be the worst of all historical systems, the greatest evil that had ever befallen mankind. That man was Karl Marx. Nevertheless, there is no reason to reject Marx’s term, because it describes clearly the source of the great social improvements brought about by capitalism. 

    "Those improvements are the result of capital accumulation; they are based on the fact that people, as a rule, do not consume everything they have produced, that they save—and invest—a part of it. 

    "There is a great deal of misunderstanding about this ... [not least that] capitalist savings benefit workers.

"An often unrealised fact about capitalism is this: savings mean benefits for all those who are anxious to produce or to earn wages. When a man has accrued a certain amount of money—let us say, one thousand dollars—and, instead of spending it, entrusts these dollars to a savings bank or an insurance company, the money goes into the hands of an entrepreneur, a businessman, enabling him to go out and embark on a project which could not have been embarked on yesterday, because the required capital was unavailable.
    "What will the businessman do now with the additional capital? The first thing he must do, the first use he will make of this additional capital, is to go out and hire workers and buy raw materials—in turn causing a further demand for workers and raw materials to develop, as well as a tendency toward higher wages and higher prices for raw materials. Long before the saver or the entrepreneur obtains any profit from all of this, the unemployed worker, the producer of raw materials, the farmer, and the wage- earner are all sharing in the benefits of the additional savings.
    "When the entrepreneur will get something out of the project depends on the future state of the market and on his ability to anticipate correctly the future state of the market. But the workers as well as the producers of raw materials get the benefits immediately....
    "The scornful depiction of capitalism by some people as a system designed to make the rich become richer and the poor become poorer is wrong from beginning to end. Marx’s thesis regarding the coming of socialism was based on the assumption that workers were getting poorer, that the masses were becoming more destitute, and that finally all the wealth of a country would be concentrated in a few hands or in the hands of one man only. And then the masses of impoverished workers would finally rebel and expropriate the riches of the wealthy proprietors....
    "If we look upon the history of the world, and especially upon the history of England since 1865, we realize that Marx was wrong in every respect. There is no western, capitalistic country in which the conditions of the masses have not improved in an unprecedented way. All these improvements of the last eighty or ninety years were made in spite of the prognostications of Karl Marx.
    "We must realise, however, that this higher standard of living depends on the supply of capital. ... A country becomes more prosperous in proportion to the rise in the invested capital per unit of its population."

~ Ludwig Von Mises, from the collection of six of his lectures titled Economic Policy: Thoughts for Today and Tomorrow, and in Brazil under the title As Seis Lições (The Six Lessons) [hat tip Renato Moicano]

UPDATE:  Sad news just in that economic historian Robert Hessen has just died. David R. Henderson remembers him, and quotes from his contribution to the Concise Encylopaedia of Economics on Capitalism. 

"Capitalism,” a term of disparagement coined by socialists in the mid-nineteenth century, is a misnomer for “economic individualism,” which Adam Smith earlier called “the obvious and simple system of natural liberty” (Wealth of Nations).   Economic individualism’s basic premise is that the pursuit of self-interest and the right to own private property are morally defensible and legally legitimate. Its major corollary is that the state exists to protect individual rights. Subject to certain restrictions, individuals (alone or with others) are free to decide where to invest, what to produce or sell, and what prices to charge. There is no natural limit to the range of their efforts in terms of assets, sales, and profits; or the number of customers, employees, and investors; or whether they operate in local, regional, national, or international markets.

Here’s another great paragraph:

In early-nineteenth-century England the most visible face of capitalism was the textile factories that hired women and children. Critics (Richard Oastler and Robert Southey, among others) denounced the mill owners as heartless exploiters and described the working conditions—long hours, low pay, monotonous routine—as if they were unprecedented. Believing that poverty was new, not merely more visible in crowded towns and villages, critics compared contemporary times unfavourably with earlier centuries. Their claims of increasing misery, however, were based on ignorance of how squalid life actually had been earlier. Before children began earning money working in factories, they had been sent to live in parish poorhouses; apprenticed as unpaid household servants; rented out for backbreaking agricultural labor; or became beggars, vagrants, thieves, and prostitutes. The precapitalist “good old days” simply never existed (see industrial revolution and the standard of living).

And:

Despite these constraints, which worked sporadically and unpredictably, the benefits of capitalism were widely diffused. Luxuries quickly were transformed into necessities. At first, the luxuries were cheap cotton clothes, fresh meat, and white bread; then sewing machines, bicycles, sporting goods, and musical instruments; then automobiles, washing machines, clothes dryers, and refrigerators; then telephones, radios, televisions, air conditioners, and freezers; and most recently, TiVos, digital cameras, DVD players, and cell phones. ...

That these amenities had become available to most people did not cause capitalism’s critics to recant, or even to relent. Instead, they ingeniously reversed themselves. Marxist philosopher Herbert Marcuse proclaimed that the real evil of capitalism is prosperity, because it seduces workers away from their historic mission—the revolutionary overthrow of capitalism—by supplying them with cars and household appliances, which he called “tools of enslavement.”Some critics reject capitalism by extolling “the simple life” and labeling prosperity mindless materialism. In the 1950s, critics such as John Kenneth Galbraith and Vance Packard attacked the legitimacy of consumer demand, asserting that if goods had to be advertised in order to sell, they could not be serving any authentic human needs. They charged that consumers are brainwashed by Madison Avenue and crave whatever the giant corporations choose to produce and advertise, and complained that the “public sector” is starved while frivolous private desires are being satisfied. And having seen that capitalism reduced poverty instead of intensifying it, critics such as Gar Alperovitz and Michael Harrington proclaimed equality the highest moral value, calling for higher taxes on incomes and inheritances to massively redistribute wealth, not only nationally but also internationally.

Don't leave money in the hands of taxpayers!

"See, when the Government spends money, it creates jobs; whereas when the money is left in the hands of Taxpayers, God only knows what they do with it. Bake it into pies, probably. Anything to avoid creating jobs." 

~ Dave Barry

 

Note for the Greens: 'How the 0.7% Provide the Standard of Living of the 99.3%'

 

The Greens's Wealth Tax is being attacked for its unfairness (an effective marginal tax rate of 95%) for its incoherence (how can a retired home-owner with little income pay the impost?) for its spread (almost anyone with even an average-priced house in a trust is also hit) for its inefficiency (the revenue gained won't be spread far enough to matter) and for the likelihood of so-called "capital flight" -- of the wealthy simply upping sticks and taking their capital with them. 

All valid criticisms.

Some are even rightly criticising the morality of the impost: 

But what even the Wealth Tax's many critics often fail to understand, as George Reisman explains in this reposted Guest Post, is that the "top 0.7%" of wealth-owners provide the standard of living of the other 99.3%. What is the role of great wealth in a capitalist economy? No, not exploitation, but further prosperity...

How the 0.7% Provide the Standard of Living of the 99.3%

by George Reisman

The overwhelming majority of our contemporaries, ranging from the illiterate to the highly educated, are utterly ignorant of the role of privately owned means of production—capital—in the economic system. As they see matters, wealth in the form of means of production and wealth in the form of consumers’ goods are essentially indistinguishable. For all practical purposes, they have no awareness of the existence of capital and of its importance.

Thus, capitalists are generally depicted as fat men, whose girth allegedly signifies an excessive consumption of food and of wealth in general, while their alleged victims, the wage earners, are typically depicted as substantially underweight, allegedly signifying their inability to consume, thanks to the allegedly starvation wages paid by the capitalists.

The truth is that in a capitalist economic system, the wealth of the capitalists is not only overwhelmingly in the form of means of production, such as factory buildings, machinery, farms, mines, stores, warehouses, and means of transportation and communication, but all of this wealth is employed in producing for the market, where its benefit is made available to everyone in the economic system who is able to afford to buy its products.

Consider. Whoever can afford to buy an automobile benefits from the existence of the automobile factory and its equipment where that car was made. He also benefits from the existence of all the other automobile factories, whose existence and competition served to reduce the price he had to pay for his automobile. He benefits from the existence of the steel mill that provided the steel for his car, and from the iron mine that provided the iron ore needed for the production of that steel, and, of course, from the existence of all the other steel mills and iron mines whose existence and competition served to hold down the prices of the steel and iron ore that contributed to the production of his car.

And, thanks to the great magnitude of wealth employed as capital, the demand for labour, of which capital is the foundation, is great enough and thus wages are high enough that virtually everyone is able to afford to a substantial degree most of the products of the economic system. For the capital of the capitalists is the foundation both of the supply of products that everyone buys and of the demand for the labour that all wage earners sell. 

More capital—a greater amount of wealth in the possession of the capitalists—means a both a larger and better supply of products for wage earners to buy and a greater demand for the labour that wage earners sell. Everyone, wage earners and capitalists alike, benefits from the wealth of the capitalists, because, as I say, that wealth is the foundation of the supply of the products that everyone buys and of the demand for the labour that all wage earners sell. More capital in the hands of the capitalists always means a more abundant, better quality of goods and services offered for sale and a larger demand for labour.

The further effect is lower prices and higher wages, and thus a higher standard of living for wage earners.

Furthermore, the combination of the profit motive and competition operates continually to improve the products offered in the market and the efficiency with which they are produced, thus steadily further improving the standard of living of everyone.

In the alleged conflict between the so-called 99.3% percent and the so-called 0.7% percent, the programme of the 99.3 percent is to seize as far as possible the wealth of the 0.7% percent and consume it.

To the extent that it is enacted, the effect of this program can only be to impoverish everyone, and the 99.3 percent to a far greater extent than the 0.7 percent. To the extent that the 0.7 percent loses its mansions, luxury cars, and champagne and caviar, 99.3 times as many people lose their houses, run-of-the mill cars, and steak and hamburger.

In the realm of economics and politics, there is probably nothing of greater importance than recognition of the very profound yet utterly simple truth that the existence of wealth in the form of privately-owned means of production is of economic benefit to everyone, i.e., not only to the owners of the means of production, but also the non-owners as well, that is, to the buyers of products in general and to the sellers of labour.

Finally, the essay also shows how the accumulation of great business fortunes generally requires a series of important innovations that are the source of continuing high profits that are in turn needed as the source of the continuing high rate of saving and capital accumulation needed to build a business fortune.

Q: What essay? Why, Reisman’s full essay on Kindle, of course.  Read more.

NB: Businessman and founder of Animation Research Ltd Ian Taylor gets it. And, yes, I've changed the original title etc. from 1% to 0.7% to reflect the Greens's latest target ....

"This virtuous process ... grants anyone and everyone at least a chance to prosper."

"The wealth of a nation and its people came from enhanced productivity. Greater output per capita led to higher wages and incomes, greater consumption, and increased capital accumulation. This virtuous process, led by entrepreneurs and innovators, would swell production, granting anyone and everyone at least a chance to prosper."

~ Phil Gramm, Robert Ekelund and John Early, from their 2022 book The Myth of American Inequality: How Government Biases Policy Debate [hat tip Cafe Hayek]

INFLATION: Critique of the 'Wage-Price-Spiral' Explanation

"Closely related to the doctrine of cost-push inflation [in which rising costs to business are mistakenly said to be the cause of inflation in general] is the doctrine of the 'wage-price spiral.' According to this doctrine, prices rise because wages rise, and wages rise because prices rise. Wages and prices, it is believed, simply chase each other upward in a spiral, and that is why prices go on rising. (If a proponent of this doctrine is sympathetic to labour unions, he asserts that the process begins with an arbitrary rise in prices due to the profit-push of employers. If he is unsympathetic to labor unions, he asserts that it begins with an arbitrary rise in wages due to the wage-push of the unions.) ...
    'Little can be said in criticism of the wage-price spiral doctrine that has not already been said in criticism of the other variants of the cost-push doctrine. [See 'Profit-Push...'; and 'Crisis-Push...']
    "In the absence of an increase in the quantity of money and a consequent rising aggregate monetary demand, any 'wage-price spiral' that somehow came into existence would quickly burn itself out of existence in mounting unemployment and unsold stocks of goods.
"Even in cases in which labour unions, for example, hold the contractual right to receive wage increases on the basis of cost-of-living increases, they abandon this right when insistence upon it would add still more of their members to the ranks of an already large number of unemployed members. The experience of the early 1980s provides dramatic confirmation of the truth of these propositions."

~ George Reisman, from page 915 of his book Capitalism: A Treatise on Economics. Read it online here, or buy it here (currently at half-price!)

"Race to the bottom"?

Trade skeptics and other foolish fellows and fellow-esses will sometimes concede that, well, yes, it might be okay that you and I and the family down the road can buy our underwear and electronics more cheaply if we let the places that make that stuff more cheaply sell it to us. But, they then say, those places make that stuff more cheaply because their wages are lower -- and if we let those places sell us everything, then eventually all wages everywhere will be lower. We will all, they say, be in a "race to the bottom" in which everyone loses.

I suggest these worry-worts and foolish persons quit their worrying, because that isn't going to happen. And that isn't going to happen, because Capital.

What does that mean? 

Don Boudreaux explains (in the American context) as part of some on-going correspondence he's having with a trade skeptic:

Mr. W__:

Disagreeing with my explanation of why high-wage American workers have nothing to fear from an American policy of free trade with low-wage countries, you write: “High US worker productivity comes from companies investing plenty of capital for workers to work with. But under free trade companies would move investments to countries with lower wages. US workers will become less productive and be paid lower wages. This is why the combination of free trade and capital mobility are bad for workers in rich nations.”

Wrong.

While you’re correct that the productivity of American workers is raised in no small part by significant private-sector investment in the U.S. – that is, by the creation and use in the U.S. of capital goods and services that improve worker productivity – for a variety of reasons you’re incorrect to conclude that American workers would suffer under free trade. Here are two of those reasons.

First, worker productivity in the U.S. isn’t kept high exclusively by investments here in capital goods and services. Also raising American workers’ productivity is the extensiveness and quality of our transportation and communications infrastructure, the relative honesty and efficiency of our legal system, and the still-dominance here of what Deirdre McCloskey calls “bourgeois virtues,” especially our culture of commerce, hard work, and high trust. Making trade freer would do nothing to worsen America’s performance on these fronts; indeed, I believe that this performance would be further improved.

Second, the amount of capital in the world isn’t fixed. It expands or shrinks with the bettering or worsening of investment climates in different countries across the globe.

There’s a reason why low-wage countries have in place less capital per worker than is in place in the U.S., that reason being that investing in those countries is less attractive than is investing in the U.S. And the attractiveness of investing in those countries is unlikely to improve greatly merely as a result of the U.S. lowering its trade barriers. But if the investment climate in low-wage countries improves in a way to attract to those countries substantially more investment, as long as government in the U.S. does nothing to worsen the investment climate here – say, by raising taxes exorbitantly – the stock of capital in America will not fall. Instead, the global stock of capital will rise as new capital is created for low-wage countries. Workers in low-wage countries will thus become more productive with no decline in the productivity of American workers.

Also keep in mind this fact: No small part of the high productivity of American workers is due directly to international trade. This trade not only makes available to many American workers low-cost, high-quality raw materials, tools, and inputs to work with, but also offers to many American companies vast foreign markets that enable these companies to operate at large, highly productive scales.

But in the end, all of the above is unnecessarily complex. The simple fact is this: A people are not made richer when their government obstructs their access to low-priced goods and services. They’re made poorer. Period.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

FURTHER READING: 

• 'Capital Supply and American Prosperity' (1952) - Ludwig Von Mises 

"Capitalism is a system of class harmony..."

"Capitalism is a system of class harmony, in which the accumulated wealth of the capitalists, i.e., their capital, is the source of the supply of products and the demand for labour, and progressively enriches wage earners.
    "The result is that today the average wage earner in a capitalist country has a higher standard of living than did the kings and emperors of the past, such as Augustus Caesar, Louis XIV, and Queen Victoria."

          ~ George Reisman. For proof, see his Capitalism: A Treatise on Economics

"Don't knock the rich. When did a poor person ever give you a job?" #QotD

"Don't knock the rich. When did a poor person ever give you a job?"
~ Laurence J. Peter
.

Quote of the Day: On taxing the rich (and the semi-rich)

“In view of what they hear from the experts, the people cannot be blamed for their ignorance and their helpless confusion. If an average housewife struggles with her incomprehensibly shrinking budget and sees a tycoon in a resplendent limousine, she might well think that just one of his diamond cuff links would solve all her problems. She has no way of knowing that if all the personal luxuries of all the tycoons were expropriated, it would not feed her family—and millions of other, similar families—for one week; and that the entire country would starve on the first morning of the week to follow . . . . How would she know it, if all the voices she hears are telling her that we must soak the rich?
     “No one tells her that higher taxes imposed on the rich (and the semi-rich) will not come out of their consumption expenditures, but out of their investment capital (i.e., their savings); that such taxes will mean less investment, i.e., less production, fewer jobs, higher prices for scarcer goods; and that by the time the rich have to lower their standard of living, hers will be gone, along with her savings and her husband’s job—and no power in the world (no economic power) will be able to revive the dead industries (there will be no such power left).”
~ Ayn Rand, from her article ‘The Inverted Moral Priorities’

.

Politicians–and everyone else—still don’t understand Say’s Law

[Editor's note: How do you do away with a “Law” that had been core to economists’ understanding of the market economy for 150 years? You misrepresent it.
    On Thursday US Energy Secretary Rick Perry on declared "you put the supply out there and the demand will follow." It appears that Perry was attempting to invoke Say's Law, and many professional economists and pundits quickly took to mocking both Perry and Say's Law for making assertions contrary to modern Keynesian orthodoxy.
    Below, economist Per Bylund explains in this Guest Post what Say's Law really says, how Keynes misrepsented it, and why understanding the Law is still a good thing.]

Few concepts are as misunderstood as the so-called Say’s Law. In part, this is the fault of John Maynard Keynes who, needing to do away with it to make room for interventionist policy, did much to make it mis-understandable. How do you do away with a “Law” that had been core to economists’ understanding of the market economy for 150 years? Simple: You misrepresent it. Strawmen are so much easier to knock over than the real thing.

Hence, the “Law” is presently known in the misbegotten terms Keynes gave it, that “supply creates its own demand,” something that is obviously untrue.

Originally, however, Say’s Law was different. It even had a different name. Economists prior to Keynes tended to refer to it simply as the Law of Markets, so-called because it describes in very simple terms the fundamentals of how a market functions. Jean Baptiste Say was simply the earliest to express the law, which may be why it has come to bear his name.

Say noted that

A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value.

This means that

As each of us can only purchase the productions of others with his own productions — as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase.

In other words (and this still shocks postmodern economists), production necessarily precedes consumption; and (in the way Keynes’s mis-statement should be re-ordered) anyone’s demand is constituted by their supply.

The Law of Markets thus summarises the nature of market actions where production is specialised under the division of labour. Specifically, that we produce to sell, with the intention to then use the proceeds to buy what we really want. Market production is in other words indirect and not undertaken to directly satisfy one’s own wants. We produce instead to satisfy other people’s wants, and can thereby satisfy our own by purchasing what others produce.

The benefit is that there is a separation between what I want to consume and what I produce, which means we can each specialise in producing something we are comparatively good at instead of producing only what we want to consume. It also means we can specialise in producing only one thing instead of a multitude, thereby cutting switching costs, develop skills and expertise, increase knowledge, and consequently increase output.

But while universal specialisation under the division of labour means that overall output is significantly increased, it also means we become dependent on each other in trade. Not only do we need to sell what we produce to others in order to get the means necessary, but we need to also trade with those who produce what we want to satisfy our wants. We become interdependent – and voluntarily so. This is why Ludwig Von Mises stated that

Society is division of labour and combination of labour. In his capacity as an acting animal man becomes a social animal.

This “social animal” benefits from, engages in, and in fact arises out of market (inter)action. As we can only benefit ourselves by properly aligning our own productive efforts with what other people want, we must understand other people. By doing so, we can better anticipate what needs and wants they have and then busy ourselves with attempting to meet those needs. And because production takes time, production must precede demand.

Because demand is unknown, production is necessarily speculative and entrepreneurial. Actual demand will be discovered when the goods are presented to potential buyers. Entrepreneurs are therefore forecasters, project appraisers, and risk-takers; in an advanced economy they advance funds to owners of labour and capital, and only recoup this investment if they succeed in selling the product.

At the same time, the consumers can only buy if they have themselves engaged in production that satisfies other people’s needs — because otherwise they will only have the willingness but not the ability to buy (and that is not demand). This is not a circular argument but an integration at the “macro” level – and also an explanation for economic growth. The ability to sell goods in the market and thus engage in specialised production requires prior investment [i.e., a ‘wages fund’ – Ed.]. So to specialise one needed to first produce demanded goods in excess of one’s own wants. The same is true today: development of a new good requires investment, and that investment is speculative because actual demand cannot be known until it is too late.

The implication is that there can never be a general glut in the economy and therefore no “deficiency” in what Keynes called “aggregate demand.” It is however certainly possible for there to exist a surplus or shortage of any particular commodity, which happens regularly as entrepreneurs fail to precisely anticipate and therefore meet market demand, but only in the short term.

As all production is undertaken to sell the goods produced to then purchase goods that better satisfy the producer’s want, the inability to sell becomes an inability to demand. We cannot demand unless we first produce the means to demand. It is thus not a “demand deficiency” that someone is unable to sell what he or she produce, and consequently cannot demand goods in the market. Rather, it is a production failure that causes a reduction in effective demand — specifically, an entrepreneurial failure.

If government stimulates demand, then this only subsidises those goods that have been produced at too high cost. Consequently, the entrepreneurial errors are propped up and production therefore remains misaligned with demand.

So it is easy to see why proponents of interventionism would want to do away with the Law of Markets. If demand is not constituted by supply, then markets may not clear and government must save us from ourselves. Something every government today feels compelled to promise.

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Per Bylund is assistant professor of entrepreneurship & Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship at Oklahoma State University. Website: PerBylund.com.
This post previously appeared at the Mises Wire. It has been lightly edited.

Quote of the Day: On wages and the irrelevance of worker need and employer greed

 

“An important truth is that employers compete against other employers, and employees against other employees-not employees against employers, as folklore says. It is the availability of higher-valued alternatives, not the ability to bargain collectively, that increases bargaining power.”
~ Armen Alchian and William Allen,  from their classic textbook University Economics

RELATED READING:

• Wages and the Irrelevance of Worker Need and Employer Greed – GEORGE REISMAN’S BLOG

[Hat tip Jim Rose]

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Quote of the Day: Turgot v Keynes on the “circular flow”

 

When you compare the Classical Economists with Keynes on virtually any subject, it’s like comparing adult talk with the mewling of children.

For Keynes, and Keynsesians, the key ingredient of an economic system is the “circular flow” of money between business organisations, in their capacity as employers, and employees, in their capacity as consumers. Roger Garrison’s diagram indicates the facile folly:

The key to the Keynesian scheme is consumerism: his entire conception of a healthy economy fixated upon consumer spending.

But this is just baby talk. It focusses only on consumption. It ignores entirely how the goods got here in the first place.

Unfortunately, you see, Keynes was not an economist.¹ He had never read the classical economists. If he had, he may have realised that consumption is only the final cause of economic activity. The efficient cause is production – and this is the circulation of money that Turgot explained so well way back in 1766:

The True Idea of the Circulation of Money
…it can be seen that the cultivation of estates, manufactures of all kinds, and all the branches of trade, depend upon the mass of capitals, or of moveable, accumulated wealth, which, having been first advanced by the entrepreneurs in each of these different classes of work, must return to them again every year with a steady profit; that is, the capital to be again invested and advanced in the continuation of the same enterprises, and the profits for the more or less comfortable living of the entrepreneurs. It is this advance and this continual return which constitutes what ought to be called the circulation of money; this useful and fruitful circulation, which gives life to all the labour of society, which maintains all the movement and life of the body politic, and which is correctly compared to the circulation of the blood in the animal body. For if, by any disorder whatsoever in the sequence of expenditure of the different classes of society, the entrepreneurs cease to get back their advances with such profit as they have a right to expect, it is evident that they will be obliged to reduce their enterprises; that the amount of labour, of the consumption of the fruits of the earth, of the production and of the revenue would be equally diminished; that poverty will take the place of wealth, and that the common workman, ceasing to find employment, will fall into the deepest misery. [Emphasis in the original.]

That is adult talk compared to Keynes’s mewling.

If Keynes had only read and digested the classical economists, he may have realised (with Turgot) that the important circulation of money was that advanced by capital owners into production, and returned to them as profits – this “fund” steadily accumulating over generations and “giving life to all the labour of society.”

Instead, in his ignorance, his life’s work became set upon destroying it.

---

NOTE

1. Keynes will be remembered as "a man with a great many ideas that knew very little economics," Friedrich Hayek notes in this brief interview. Hayek, who knew Keynes well, explained:

ROSTEN: I’m interested in your earlier comment about the fact that here is a man of immense intelligence, great imagination, wide learning, and so on, and yet was not an economist. I’m not clear whether you mean he didn’t have the kind of mind that excels in economics — just as in mathematics, say, you can find people who are brilliant but who, given mathematics, are just hopeless — or do you mean he didn’t have the kind of mind that makes for first-rate economists?
HAYEK: Oh, yes, he had. If he had given his whole mind to economics, he could have become a master of economics, of the existing body. But there were certain parts of economic theory which he had never been interested in. He had never thought about the theory of capital; he was very shaky even on the theory of international trade; he was well informed on contemporary monetary theory, but even there he did not know such things as Henry Thornton or Wicksell; and of course his great defect was he didn’t read any foreign language except French. The whole German literature was inaccessible to him. He did, curiously enough, review Mises’s book on money, but later admitting that in German he could only understand what he knew already. [laughter]

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Mises on Capitalism

This book, ‘Economic Policy: Thoughts for Today and Tomorrow’, might be Mises's best-selling book.
    It is a very clear explanation of the basics of economic policy: private property, free trade, exchange, prices, interest, money and inflation, socialism, fascism, investment, and much more. As Mises discusses each topic, he addresses the many merits of market institutions and the dangers of intervention.
    These chapters [partially excerpted below] were originally delivered as lectures in Argentina in 1958, at the University of Buenos Aires, and later written up in prose. Mises had urged Argentina to turn from dictatorship and socialism toward full liberty, so there is a special urgency behind the cool logic employed here. The book's continued popularity is due to its clarity of exposition on the ways in which economic policy affects everyone.
    It is a very good text for undergraduates studying economic policy, and for anyone who wants to gain a fundamental understanding of the interaction between market forces and government intervention. [Free legal download here]

• Introduction to Ludwig Von Mises’ Economic Policy
• Capitalism: Mass Production and the Standard of Living (1 of 3) 
• Capitalism: Opposition from the Intellectuals (2 of 3)
• Capitalism: Capital and Wages (3 of 3)

Introduction to Ludwig Von Mises’ Economic Policy [excerpt] 
~ by Bettina Bien Greaves

Professor Mises (1881–1973) was one of the 20th century’s foremost economists. He was the author of profound theoretical books such a Human Action, Socialism, Theory and History, and a dozen other works. However, in these lectures, delivered in Argentina in 1959, he spoke in nontechnical terms suitable for his audience of business professionals, professors, teachers, and students. He illustrates theory with homespun examples. He explains simple truths of history in terms of economic principles. He describes how capitalism destroyed the hierarchical order of European feudalism, and discusses the political consequences of various kinds of government. He analyses the failures of socialism and the welfare state and shows what consumers and workers can accomplish when they are free under capitalism to determine their own destinies.
    When government protects the rights of individuals to do as they wish, so long as they do not infringe on the equal freedom of others to do the same, they will do what comes naturally—work, cooperate, and trade with one another. They will then have the incentive to save, accumulate capital, innovate, experiment, take advantage of opportunities, and produce. Under these conditions, capitalism will develop. The remarkable economic improvements of the 18th and 19th centuries and Germany’s post-World War II “economic miracle” were due, as Professor Mises explains, to capitalism:

[I]n economic policies, there are no miracles. You have read in many newspapers and speeches, about the so-called German economic miracle—the recovery of Germany after its defeat and destruction in the Second World War. But this was no miracle. It was the application of the principles of the free market economy, of the methods of capitalism, even though they were not applied completely in all respects. Every country can experience the same “miracle” of economic recovery, although I must insist that economic recovery does not come from a miracle; it comes from the adoption of—and is the result of—sound economic policies. (p. 15)

So we see that the best economic policy is to limit government to creating the conditions which permit individuals to pursue their own goals and live at peace with their neighbours. Government’s obligation is simply to protect life and property and to allow people to enjoy the freedom and opportunity to cooperate and trade with one another. In this way government creates the economic environment that permits capitalism to flourish…

Greece, Keynes & intellectual decay: What made it possible?

Greece is in many ways the dead end of Keynesian economics; of the idea that aggregate demand alone, regardless of its source, is what fires prosperity. Like many modern top-heavy welfare states, Greece has abundant demand; but thanks to unaffordable government promises it has few willing to produce enough to pay for it, and –even now!—an infrastructure of credit creation ready, willing and able to underpin it.

The result, of course, has been prosperity’s opposite.

So how does something as intellectually lame as Keynesian apparatus get traction? Why were Keynes’s nonsensical nostrums accepted so readily in the mid-twentieth century by neoclassical economists when they’d been thoroughly exploded decades before by British classical economists?

The answer given by Austroclassical economist George Reisman is: “intellectual decay.” Not just in those (like Hayek and the ineffectual Pigou) who attempted to answer Keynes in the 1930s, or later on post-war when the Keynesian technocrats took control of the academies and their centres of economic “planning” -- because the decay had started several generations earlier.

So, you want to know what made Keynesianism possible, and with it disasters like Greece? Answer: intellectual decay.¹

¹

Doesn’t it make you want to know more about the wages-fund doctrine “and other such essential doctrines of classical ‘economics” like Say’s Law that Keynes was supposed to have assailed? And about that intellectual decay? Because it wasn’t just exhibited in economics – and it didn’t of course originate there. Because, to paraphrase Keynes himself,

So-called practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct philosopher. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

We can identify the scribbler most at fault as German philosopher Immanuel Kant³, that “catastrophic spider” as Nietzsche called him who had declared “a few years back” that it was senseless to seek causes or try to integrate knowledge of phenomena since all these mere appearances – the notion for example that saving was somehow causally related to wage levels and future production, for example – or that production of commodities itself creates a market for the commodities produced -- were only surface manifestations of the unknowable.

Trying to explain these slippery manifestations by means of causality and integrated argument would be, argues Kant, a long, slow path to bedlam. American pragmatist John Dewey essentially holds that the ultimate source of the decay recounted above was  German idealism, noting Kant as “the thinker who for the past seventy-five years supplied the bible of German thought” that would foment a “revolt” against British support and enthusiasm for laissez-faire liberalism in economics and politics.⁴ The Kantian “bible’s” core themes, says Dewey, were skeptical, idealist, and duty-based:

Kant to himself and to many in his own day was a revolutionary. There is no valid intellectual access, he taught, to the things of ultimate importance to man. …

Dewey notes

    the immense interest taken in professional German philosophy in the generation after 1870 — the generation of revolt against the empiricism that reigned in Great Britain from Locke onwards. …
    German philosophy was seized upon [by this generation] as a weapon with which to attack the former official philosophy of England. It is more than a coincidence that the reign of German idealism in Great Britain⁵ coincided with the revolt against laissez-faire liberalism in economics and politics, and with the growth of collectivism … .

… and of intellectual decay.

---

1. Reisman’s phrase echoes Mises’s on the rise in those earlier generations of “the anti-capitalist mentality”: [T]he supremacy of those modern doctrines is a proof of intellectual decay … . It demonstrates … the decay of the intellectuals and of the bourgeoisie.” (Mises, Omnipotent Government, pp. 118–19)
2. From George Reisman’s book Capitalism: A Treatise on Economics, p. 865. (You can download a free PDF copy at Reisman’s site, www.capitalism.net)
3. Of Kant, the “all-pulveriser,” H.L. Mencken once observed, “Kant was probably the worst writer ever heard of on earth before Karl Marx. Some of his ideas were really quite simple, but he always managed to make them seem unintelligible. I hope he is in Hell." Mencken was being generous.
4. Quotes from Dewey’s 1929 collected essays, Characters and Events: Popular Essays in Social and Political Philosophy, which also suggests: “It is possible that the Great War [no less] was in some true sense a day of reckoning for Kantian thought” (68).
5. Hard to believe, but one of the prime popularisers of Kant’s “idealism” in England was a book written and intended as an entertainment. Little-known now, for a generation of British and American romantics Carlyle's Sartor Resartus was the populariser of Kant’s philosophy.
The book Sartor Resartus (literally, 'The Tailor Re-Tailored') purports to describe dialectically a 'Book of Clothes' produced by a 'professor of clothing' Doctor Diogenes Teufeldrockh (Dr Heaven-Sent Devil's-Dung), which book, we are told, argues that clothes are simply appearances or metaphors for the true 'inner state' of a thing -"the material world is symbolic of the spiritual world of ultimate reality. Man's creeds, beliefs, and institutions, which are all in tatters because of the enormous advances of modern thought and science, have to be tailored anew as his reason perceives the essential mystery behind the natural world."
Itself written metaphorically (of course), the book is in may ways an ancestor to the books of Umberto Eco.

Content is copyright PC.BlogSpot.Com © Please contact author for permission to republish: (organon at ihug.co.nz)

“Real wages are, virtually to their full extent, the product of past labour”

Folks, let’s do an experiment. Australian economist Steve Kates posted this on Friday, and he reckoned few Australian readers grasped the point. An important point.  I reckoned NZ readers would be much smarter. See if you can prove me right in the comments …

Folks, I know no modern economist would think this way, but what worries me more is that I doubt they would even know what he is saying. This is from the great F.W. Taussig in his 1896 Wages and Capital: an Examination of the Wages Fund Doctrine. Moreover, it is from pages 26-27 of a 325-page book where he seeks to dispose of one matter right from the start before getting into any of the more difficult questions. This is mere trivia:

We are now in a position to give an answer to one part of the question with which this chapter opened; whether wages are or are not paid from present or current product. . . . Wages are certainly not paid from the product of present labor; they are paid from the product of past labor. . . . Real wages are, virtually to their full extent, the product of past labor. At this moment, or within a few days, the last touches toward completion have indeed been given to the commodities now being enjoyed. But the great bulk of the labor whose product all of us, whether laborers or idlers, now enjoy, was done in the past.

Our ability to produce is based on our capital base. If we fritter it away on the various value-losing activities that the Australian Labor Government had been indulging in, falling living standards is what you must expect. Labor had been progressively lowering our living standards by allowing our capital base to erode. This from today’s Australian indicates this is still misunderstood: ‘Joe Hockey’s sales pitch fails to reach the retail counter.’

The worst retail sales report in ­almost a year and the biggest foreign trade deficit on record have signalled that Australia’s superior economic performance may be short-lived.

Retail comes at the end of a very long process that modern economic theory not just ignores but virtually denies in everything it preaches. I’m afraid that economic theory will have to go back to the nineteenth century to pick up the lost threads that Keynesian economics has trampled on.

So, what’s his point?

How one Labour blogger hopes to destroy production and slash real wages

Economic ignorance rears its head again at Labour blog Red Alert this morning.  Someone called David Clark* writes:

Our economy is stagnant under National… It doesn’t have to be this way…For starters, National passed over a huge opportunity to stimulate the economy.  The latest Treasury figures estimate the cost of income tax cuts made by the National Government in 2010 at around $11 or $12 Billion.

Leave aside for the moment both the numbers involved, the sad fact the GST hike fully balanced out the tax cut for most people, and the inanity of referring to people keeping some of their own money as a “cost.”

But this Mr Clark writes as a Keynesian, under whose theories a tax cut is recognised as one classic form of stimulus—especially when accompanied by hefty borrowing, which this “tax cut” was.  So why is he decrying this as not stimulus? Perhaps he just hasn’t read his Keynesian script properly himself, because he then waffles on for a while about how high-earners spend less of their income than low-earners—typical Keynesian claptrap—before using alleged economist Joseph Stiglitz to illustrate this point:

“Consider someone like Mitt Romney, whose income in 2010 was $21.7 million. Even if Romney chose to live a much more indulgent lifestyle, he would spend only a fraction of that sum in a typical year to support himself and his wife in their several homes. But take the same amount of money and divide it among 500 people—say, in the form of jobs paying $43,400 apiece—and you’ll find that almost all of the money gets spent.

So what does he think happens to the rest of that notional $21.7 million not spent supporting “someone like Romney and his wife” in their several homes? That it gets baked into pies? Or buried in the back garden? Or rolled into doobies and smoked? No, of course not (not by Mitt Romney, anyway). No, the remainder not spent on consumer goods also gets spent—only, as with all savings, it gets spent by someone other than “Romney and his wife,” and (mostly) on things other than consumer goods.

This is a process to which Keynesians are profoundly blind: both in what happens to saving, and in where those savings are actually spent--virtually the whole of which goes to the productive part of the economy.

You see, saving is not dis-spending—it is deferred spending. Savers defer a portion of their own spending power and direct it (or have it directed for them by their bank) into investment vehicles, where it then adds to the pool of real savings from which entrepreneurs and businesses can borrow to grow their businesses.

Which means all the $21.7 million is spent just as surely if it was taken and given away to voters low-income earners. But the chief difference is that, if saved, the overwhelming majority of that $21.7 million is spent not on destructive consumption and consumer goods but on productive consumption and capital goods, i.e., on the very part of the economy that grows the economy and from which the overwhelming proportion of  wages are actually paid—and about which Keynesians like Mr Clark are virtually one-hundred percent blind. 

George Reisman illustrates this point:

The truth, which real economists, from Adam Smith to Mises, have elaborated, is that in a market economy, the wealth of the rich — of the capitalists — is overwhelmingly invested in means of production, that is, in factories, machinery and equipment, farms, mines, stores, and the like. This wealth, this capital, produces the goods which the average person buys, and as more of it is accumulated and raises the productivity of labor higher and higher, brings about a progressively larger and ever more improved supply of goods for the average person to buy.
    Thus, for example, because the automobile companies have numerous modern and efficient automobile factories, there is a production of automobiles sufficient for almost every family in the United States to own one. Because Exxon-Mobil and other oil companies own oil wells, pipelines, and refineries, there is gasoline and heating oil for the average American to buy. (And if the wealth of these companies were greater, and if its use in developing sources of supply were not blocked again and again by those who value the wildness of nature above the welfare of people, there would be a larger and more affordable supply of gasoline and heating oil to buy.)
    The capital of business firms is also the foundation of the demand for labor. The wealthier and more numerous are business firms, the greater is the demand for labor and the higher are wage rates. As illustration, just consider where it is more desirable to work: in an economy with few or no business firms or only small, impoverished business firms, or in an economy with large numbers of wealthy business firms. It is obvious whose competition for one's services will be more beneficial.
    Thus, in a market economy, people have a two-sided benefit from the capital owned by others. The capital of others is the source of the supply of the goods they buy and the source of the demand for the labor they sell. And the greater is that capital, the greater is this two-sided benefit to everyone. To the extent that the supply of goods produced is greater, prices are lower. And to the extent that the demand for labor is greater, wages are higher. Lower prices and higher wages: that is the effect of capital accumulation.
    An essential prerequisite of capital accumulation is saving.

Which is precisely what Mr Clark, whoever he is, decries.

Mind you, at least he’s arguing for tax cuts for some people, which on a Labour blog is sure going to have his head pulled in very quickly.

If the economic world really operated in accordance with the dreams of Messrs Clark, Stiglitz and Keynes, however, we would see even more penury than we do today, because if the greater part of spending was really to be spent on consumption rather than production—i.e., on consumer goods rather than capital goods—then production would fall, capital would diminish, the wage share of national income would fall, and real wages and real profits would plummet.

So be careful what you wish for, Mr Clark.

PS: You might argue that if consumers slowed their spending it wouldn’t matter how much businesses were producing because no-one would be buying what they’re selling—so that taxing business and “the rich” is “necessary” to give stimulus money to consumers.

This, too, would be profoundly blind to who actually purchases most of what businesses produce: which is other businesses, for whom savings is their primary source of spending.  Indeed, business in itself “generates a monetary demand that is fully sufficient for the profitable sale of its products.”

And to take money from businesses (or to reduce the pool of real savings, which amounts to the same thing) just in order to give to consumers the money with which to buy those same business’s products? This would be tantamount to businesses standing on the corner handing out hundred-dollar bills to passers-by in the hope they purchase eighty dollars worth of goods from them. In other words, it would be as insane as it would be destructive.

* * * *

* Oh, go on then, he’s Labour’s latest Dunedin North MP and adviser to someone called David Parker.

Feeding the 99% plus [updated]

Peter Schiff visits the #OccupyWallStreet crowd to debate capitalism with them, arriving under a banner reading “I Am The 1% … Let’s Chat.” “Schiff had plenty of takers,” recounts John Hayward at the Human Events blog.

The ensuing encounter is a master class on what happens when a serenely confident man, with full command of his facts, talks to a passionate mob of clueless wonders who don’t know a thing about their supposed cause, and don’t think they should have to… Schiff doesn’t just engage these people, he short-circuits them.  You can see one or two of them making a visible effort to think, which they abandon after realising it’s easier to chant slogans.

Schiff’s basic point, which is grasped but dimly: capitalism does not need to be fixed it needs to be restored. But there is at least one point of agreement...

(At least he found folk to debate. Across the Atlantic it’s more a case of #UnOccupyLondon as it turns out the “occupation” is really by a bunch of empty tents. HT Phil S.)

Here’s something else the #OWS crowd (and most of today’s politicians) need to get to grips with:  “What the protesters [and the politicians] do not realize is that the wealth of the one percent provides the standard of living of the ninety-nine percent… all of us, one hundred percent of us, benefit from the wealth of the hated capitalists. We benefit without ourselves being capitalists, or being capitalists to any great extent.”

How so?

Because, explains George Reisman,  the vast majority of the wealth owned by the so-called “one-percent” is not held in the form of candy bars or champagne bottles, but in the form of the capital goods and equipment that produce the consumer goods on which we (and the protesters) all depend—capital goods that only come to represent wealth to the extent they are used to produce the goods and services people, in their capacity as consumers, really want.

The protesters have no awareness of this, because they see the world through an intellectual lens that is inappropriate to life under capitalism and its market economy. They see a world, still present in some places, and present everywhere a few centuries ago, of self-sufficient farm families, each producing for its own consumption and having no essential connection to markets.
    In such a world, if one sees a farmer’s field, or his barn, or plow, or draft animals, and asks who do these means of production serve, the answer is the farmer and his family, and no one else. In such a world, apart from the receipt of occasional charity from the owners, those who are not owners of means of production cannot benefit from means of production unless and until they themselves somehow become owners of means of production. They cannot benefit from other people’s means of production except by inheriting them or by seizing them.

But in the modern world (at least, to the extent that the so-called “one-percent” are not simply milking government subsidies and bailouts, which is how Russel Norman, Bill English & David Cunliffe all seem to think business should work), all of us benefit from the private ownership of their means of production whoever owns them—just as long as the owners are left free to produce and innovate. We all get the benefit of their production, both as buyers of the products of those means of production, but also as sellers of labour employed to work with those means of production.

The wealth of the capitalists, in other words, is the source both of the supply of products that non-owners of the means of production buy and of the demand for the labor that non-owners of the means of production sell. It follows that the larger the number and greater the wealth of the capitalists, the greater is both the supply of products and the demand for labor, and thus the lower are prices and the higher are wages, i.e., the higher is the standard of living of everyone. Nothing is more to the self-interest of the average person than to live in a society that is filled with multi-billionaire capitalists and their corporations, all busy using their vast wealth to produce the products he buys and to compete for the labor he sells.
    Nevertheless, the world the protesters yearn for is a world from which the billionaire capitalists and their corporations have been banished, replaced by small, poor producers, who would not be significantly richer than they themselves are, which is to say, impoverished. They expect that in a world of such producers, producers who lack the capital required to produce very much of anything, let alone carry on the mass production of the technologically advanced products of modern capitalism, they will somehow be economically better off than they are now. Obviously, the protesters could not be more deluded.

This is not just hyperbole. The world the protesters yearn for (and which the politicians are only to eager to deliver) is one in which multi-billionaire capitalists and their corporations are increasingly and ruinously shackled. We have everything to lose by that, and only the chains of penury to gain.

We are all better off by multi-billionaire capitalists and their corporations not being shackled; not being stolen from (or subsidised); but instead being left free to produce, free to innovate, and of course free to fail. Indeed, our very well-being depends on the freewheeling production and creative destruction of capitalism. History itself shows that this is so:

This can be seen in the fact that today, the average worker works 40 hours per week, while a worker of a century or so ago worked 60 hours a week. For the 40 hours he works, the average worker of today receives the goods and services comprising the average standard of living of 2011, which includes such things as an automobile, refrigerator, air conditioner, central heating, more and better living space, more and better food and clothing, modern medicine and dentistry, motion pictures, a computer, cell phone, television set, washer/dryer, microwave oven, and so on. The average worker of 1911 either did not have these things at all or had much less of them and of poorer quality.
    If we describe the goods and services received by the average worker of today for his 40 hours of labor as being 10 times as great as those received by the average worker of 1911 for his 60 hours of labor, then it follows that expressed in terms of the amount of labor that needs to be performed today in order to be able to buy goods and services equivalent to the standard of living of 1911, prices have fallen to two-thirds of one-tenth of their level in 1911, i.e., to one-fifteenth of their level in 1911, which is to say, by 93 1/3 percent.

The problems in recent years have not been due to the rampant running amok of multi-billionaire capitalists and their corporations, but the opposite: the running amok of regulators, subsidisers, bailout merchants and money printers—all of them keen to shackle winners, subsidise losers, and print more of the same collapsing currencies whose printing led us directly to world disaster. Concludes Reisman,

Thus, however ironic it may be, it turns out that virtually all of the problems the Occupy Wall Street protesters complain about are the result of the enactment of policies that they support and in which they fervently believe. It is their mentality, … and the government policies that are the result, that are responsible for what they complain about. The protesters are, in effect, in the position of being unwitting flagellants. They are beating themselves left and right and as balm for their wounds they demand more whips and chains. They do not see this, because they have not learned to make the connection that in violating the freedom of businessmen and capitalists and seizing and consuming their wealth, i.e., using weapons of pain and suffering against this small hated group, they are destroying the basis of their own well being.
  However much the protesters might deserve to suffer as the result of the injury caused by the enactment of their very own ideas, it would be far better, if they woke up to the modern world and came to understand the actual nature of capitalism, and then directed their ire at the targets that deserve it. In that case, they might make some real contribution to economic well being, including their own.

Read Reisman’s thorough critique of the economic fallacies behind the #OWS movement:

• How a Highly Productive and Provident One Percent Provides the Standard of Living of a Largely Ignorant and Ungrateful Ninety-Nine Percent –  G E O R G E   R E I S M A N ‘ S   B L O G