ECONOMICS IN ONE LESSON
Preface
The difference between one school and another is that one wakes up earlier than another to the absurdities to which its false premises are diving it, and becomes at that moment inconsistent by either unwittingly abandoning its false premises or accepting conclusion from them less disturbing or fantastic than those that logic would demand.
This book is an effort to show that many of the ideas which now pass for brilliant innovations and advances are in fact mere revivals of ancient errors, and a further proof of the dictum that those who are ignorant of the past are condemned to repeat it.
The students mind will be as receptive to new ideas as to old ones, but he will be content to put aside merely restless or exhibitionistic strainnign for novelty and originality.
This book is an effort to show that many of the ideas which now pass for brilliant innovations and advances are in fact mere revivals of ancient errors, and a further proof of the dictum that those who are ignorant of the past are condemned to repeat it.
The students mind will be as receptive to new ideas as to old ones, but he will be content to put aside merely restless or exhibitionistic strainnign for novelty and originality.
Chapter 1 The Lesson
Individuals have antagonistic interests.
Some public policies will eventually benefit everybody, or it would benefit one group only at the expense of all other groups.
The persistent tendency of men to see only the immediate effects of a given policy, or its effects only in certain groups. And to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.
The bad economists sees only what it immediately strikes the eye’ the good economist also looks beyond, he sees only the direct consequences of a proposed course.
The good economist looks also at the longer and indirect consequences. Wants the effect of the policies be applied to all groups not just a few .
The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy, it consists in tracing the consequences of that policy not merely for one group but for all groups.
Some public policies will eventually benefit everybody, or it would benefit one group only at the expense of all other groups.
The persistent tendency of men to see only the immediate effects of a given policy, or its effects only in certain groups. And to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.
The bad economists sees only what it immediately strikes the eye’ the good economist also looks beyond, he sees only the direct consequences of a proposed course.
The good economist looks also at the longer and indirect consequences. Wants the effect of the policies be applied to all groups not just a few .
The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy, it consists in tracing the consequences of that policy not merely for one group but for all groups.
Chapter II Broken Window
Public only see the two benefactor, not the third which was the tailor. The shopkeeper was going to use those 250$ to buy the suit, but instead he had to repair the window. No new employment has been added. They only see what is immediately visible to the eye.
Chapter II The Blessings of Destruction
Need is not demand. Effective economic demand requires not merely need but corresponding purchasing power.
The more money is turned out in this way, the more the value of any given unit of money falls. This falling can be measured in rising prices of commodities.
To most people it seemed an increase in total demand, in terms of dollar of lower purchasing power. What it took place was diversion of demand to these particular products from others. When workers work specifically on that they had that much less manpower and productive capacity left over for everything else.
Wherever business was increased in one direction, correspondingly reduced in another.
The war changed the postwar direction of effort, it changed the balance of industries, it changed the structure of industry.
The desperate need to get back to normal housing and other living conditions stimulated increased efforts.
Supply creates demand because at bottom it is demand. The supply of the thing they make is all that people have, in fact, to offer in exchange for the things they want. All this is inherent in the modern division of labor and in an exchange economy.
The monetary veil, to the underlying realities.
There is an optimum rate of displacement, a best time for replacement.
Explain the Comparative advantage comparative lost
A person has a comparative advantage at producing something if he can produce it at lower cost than anyone else.
It is never an advantage to have something destroyed, unless it have already become valueless or acquired a negative value by depreciation and obsolescence.
Something cannot be replaced by an individual (or socialist gvt) unless he or it has acquired or can acquire the savings, the capital accumulation, to make the replacement. War destroys accumulated capital.
The destruction of anything of real value is always a net loss, misfortune, disaster, and whatever the offsetting considerations in a particular instance, can never be, on net balance, a boon or blessing.
The more money is turned out in this way, the more the value of any given unit of money falls. This falling can be measured in rising prices of commodities.
To most people it seemed an increase in total demand, in terms of dollar of lower purchasing power. What it took place was diversion of demand to these particular products from others. When workers work specifically on that they had that much less manpower and productive capacity left over for everything else.
Wherever business was increased in one direction, correspondingly reduced in another.
The war changed the postwar direction of effort, it changed the balance of industries, it changed the structure of industry.
The desperate need to get back to normal housing and other living conditions stimulated increased efforts.
Supply creates demand because at bottom it is demand. The supply of the thing they make is all that people have, in fact, to offer in exchange for the things they want. All this is inherent in the modern division of labor and in an exchange economy.
The monetary veil, to the underlying realities.
There is an optimum rate of displacement, a best time for replacement.
Explain the Comparative advantage comparative lost
A person has a comparative advantage at producing something if he can produce it at lower cost than anyone else.
It is never an advantage to have something destroyed, unless it have already become valueless or acquired a negative value by depreciation and obsolescence.
Something cannot be replaced by an individual (or socialist gvt) unless he or it has acquired or can acquire the savings, the capital accumulation, to make the replacement. War destroys accumulated capital.
The destruction of anything of real value is always a net loss, misfortune, disaster, and whatever the offsetting considerations in a particular instance, can never be, on net balance, a boon or blessing.
Chapter IV Public Work Mean Taxes
No faith in government spending
All that is necessary is for the government to spend enough to make up the deficiency,?( todo lo que lo hacen es financiarlo para mejorarlo”)
Everything we get, outside of the free gifts of nature, must in some way be paid for.
All government expenditures must eventually be paid out of the proceeds of taxations, that inflation itself is merely a form, and a particularly cicious form of taxation.
Public works considered as a means of providing employment or of adding wealth to the community that it would not otherwise have had.
When providing employment becomes the end, need becomes a subordinate consideration.
Projects have to be invented. Those who doubt the necessity are dismissed as obstructionist and reactionaries. It would create 500 employers, this jobs would not otherwise have come into existence, immediately seen.
Taxpayers van a pagar por esto, que es dinero que lo ocuparian para sus finanzas personales que necesitan mas y les beneficia a ellos directamente.
To see these uncreated things requires a kind of imagination that not many people have. What has happened is that one thing has been created instead of others.
They overlook what is lost through taxation.
Projects that are invariably embarked upon the moment the main object is to give jobs and to put people to work. The usefulness of the project itself, as we have seen, inevitably becomes a subordinate consideration.
As would have been provided by the taxpayers themselves, if they had been individually permitted to but or have made what they themselves wanted, instead of being forced to surrender part of their earning to the state.
All that is necessary is for the government to spend enough to make up the deficiency,?( todo lo que lo hacen es financiarlo para mejorarlo”)
Everything we get, outside of the free gifts of nature, must in some way be paid for.
All government expenditures must eventually be paid out of the proceeds of taxations, that inflation itself is merely a form, and a particularly cicious form of taxation.
Public works considered as a means of providing employment or of adding wealth to the community that it would not otherwise have had.
When providing employment becomes the end, need becomes a subordinate consideration.
Projects have to be invented. Those who doubt the necessity are dismissed as obstructionist and reactionaries. It would create 500 employers, this jobs would not otherwise have come into existence, immediately seen.
Taxpayers van a pagar por esto, que es dinero que lo ocuparian para sus finanzas personales que necesitan mas y les beneficia a ellos directamente.
To see these uncreated things requires a kind of imagination that not many people have. What has happened is that one thing has been created instead of others.
They overlook what is lost through taxation.
Projects that are invariably embarked upon the moment the main object is to give jobs and to put people to work. The usefulness of the project itself, as we have seen, inevitably becomes a subordinate consideration.
As would have been provided by the taxpayers themselves, if they had been individually permitted to but or have made what they themselves wanted, instead of being forced to surrender part of their earning to the state.
Chapter V Taxes Discourage Production
These taxes inevitably affect the actions and incentives of those from whom they are taken
The result is that comers are prevented from getting better and cheaper products to the extent that they otherwise would, and that real wages are held down, compared with that they might have been.
The government spenders create the very problem of unemployment that they profess to solve.
Safeguard production itself., more than compensate for this.
But the larger the percentage of the national income taken by taxes the greater the deterrent to private production and employment. When the total tax burden grows beyond a bearable size, the problem of devising taxes that will not discourage and disrupt production becomes insoluble.
The result is that comers are prevented from getting better and cheaper products to the extent that they otherwise would, and that real wages are held down, compared with that they might have been.
The government spenders create the very problem of unemployment that they profess to solve.
Safeguard production itself., more than compensate for this.
But the larger the percentage of the national income taken by taxes the greater the deterrent to private production and employment. When the total tax burden grows beyond a bearable size, the problem of devising taxes that will not discourage and disrupt production becomes insoluble.
Chapter VI Credit Diverts Production
Credit Diverts Production
Farmers may have enough long term credit or enough short term credit but it turns out they have not enough intermediate credit, or the interest rate is too high, or the complaint is that private loans are made only to rich and well established farmers. So new lending institutions and new types of farm loans are piled on tip of each other by the legislature
These policies springs from two acts of shortshightedness
1. to look at the matter only from the standpoint of the farmer that borrow.
2. The other is to think only of the first half of the transaction
Loans from government:
1. loan to enable the farmer to hold his crop off the market
2. loan to provide capital-often to set the farmer up in business by enabling him to buy the farm itself or a mule or tractor.
“self-liquidation”
each private lender risks his own funds. They are usually careful in their investigations to determine the adequacy of the assets pledged and the business acumen and honestly of the borrower.
Government lenders will take risks with other peoples money that private lenders will not take with their own money. A la gente que no le da prestamos la empresa privada.
What is really being lent is not money, which is merely the medium of exchange, but capital.
Credit is something a man already has
The net result of government credit has not been to increase the amount of wealth produced by the community but to reduce it, because the available real capital has been placed in the hand of the less efficient borrowers rather than in the hand of the more efficient and trustworthy.
Most lender, therefore, investigate any proposal carefully before they risk their own money in it. They weight the prospect of profits against the chances of loss.
The private money will be invested only where repayment with interest or profit is definitely expected. 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.
Private loans will utilize existing resources and capital far better than government loans. Government loans will waste far more capital and resources than private loans. It will reduce production not increase it.
The government never lends or gives anything to business that it does not take away from business.
When the government makes loans or subsidies to business, what it does is to tax successful private business in order to support unsuccessful private business.
Farmers may have enough long term credit or enough short term credit but it turns out they have not enough intermediate credit, or the interest rate is too high, or the complaint is that private loans are made only to rich and well established farmers. So new lending institutions and new types of farm loans are piled on tip of each other by the legislature
These policies springs from two acts of shortshightedness
1. to look at the matter only from the standpoint of the farmer that borrow.
2. The other is to think only of the first half of the transaction
Loans from government:
1. loan to enable the farmer to hold his crop off the market
2. loan to provide capital-often to set the farmer up in business by enabling him to buy the farm itself or a mule or tractor.
“self-liquidation”
each private lender risks his own funds. They are usually careful in their investigations to determine the adequacy of the assets pledged and the business acumen and honestly of the borrower.
Government lenders will take risks with other peoples money that private lenders will not take with their own money. A la gente que no le da prestamos la empresa privada.
What is really being lent is not money, which is merely the medium of exchange, but capital.
Credit is something a man already has
The net result of government credit has not been to increase the amount of wealth produced by the community but to reduce it, because the available real capital has been placed in the hand of the less efficient borrowers rather than in the hand of the more efficient and trustworthy.
Most lender, therefore, investigate any proposal carefully before they risk their own money in it. They weight the prospect of profits against the chances of loss.
The private money will be invested only where repayment with interest or profit is definitely expected. 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.
Private loans will utilize existing resources and capital far better than government loans. Government loans will waste far more capital and resources than private loans. It will reduce production not increase it.
The government never lends or gives anything to business that it does not take away from business.
When the government makes loans or subsidies to business, what it does is to tax successful private business in order to support unsuccessful private business.
Chapter VII The Cruise of Machinery
Belief that machines on net balance create unemployment. Whenever there is a long continued mass unemployment, machines get the blame anew.
Public tolerates it because:
1. believes at bottom that the unions at right
2. is too confused to see just why they are wrong
some understood that the machines was permanently displacing men, they were mistaken, for before the end of 19century the stocking industry was employing at least 100 men for every man it employed at the beginning of the century.
Automation as a major cause of unemployment.
Understanding of why the past consequences of the introduction of machinery and other labor-saving devices had to occur.
Ms. Roosevelt: we have reached a point today where labor-saving devices are good only when they do not throw the worker out of his job”.
Every day each of us in his own activity is engaged in trying to reduce the effort it requires to accomplish a given result. Each of us is trying to save his own labor, to economize the means required to achieve the ends. Every employer seeks constantly to gain more economically and efficiently- by saving labor.
On net balance machines, technological improvements, automation, economies and efficiency o not throw men out of work.
The real result of machine is to increase production, to raise the standard of living, to increase economic welfare.
1. by making goods cheaper for consumers
2. by increasing wages because they increase the productivity of the workers.
Public tolerates it because:
1. believes at bottom that the unions at right
2. is too confused to see just why they are wrong
some understood that the machines was permanently displacing men, they were mistaken, for before the end of 19century the stocking industry was employing at least 100 men for every man it employed at the beginning of the century.
Automation as a major cause of unemployment.
Understanding of why the past consequences of the introduction of machinery and other labor-saving devices had to occur.
Ms. Roosevelt: we have reached a point today where labor-saving devices are good only when they do not throw the worker out of his job”.
Every day each of us in his own activity is engaged in trying to reduce the effort it requires to accomplish a given result. Each of us is trying to save his own labor, to economize the means required to achieve the ends. Every employer seeks constantly to gain more economically and efficiently- by saving labor.
On net balance machines, technological improvements, automation, economies and efficiency o not throw men out of work.
The real result of machine is to increase production, to raise the standard of living, to increase economic welfare.
1. by making goods cheaper for consumers
2. by increasing wages because they increase the productivity of the workers.
Chapter VIII Spread the Work Schemes
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.
Belief that there is only a fixed amount of work to be done in the world.
Subdivision of labor: always raises production costs, that it results on net balance in less work done and in fewer goods produced.
Belief that there is only a fixed amount of work to be done in the world.
Subdivision of labor: always raises production costs, that it results on net balance in less work done and in fewer goods produced.
Chapter IX Disbanding Troops and Bureaucrats
Desmobilization of forces, will become self-supporting civilians.
Purchasing power.
It is forgotten that if these bureaucrats are not retained in office, the taxpayers will be permitted to keep the money that was formerly taken from them for the support of the bureaucrats. Once again it is forgotten that the taxpayers income and purchasing power go up by at least as much as the income and purchasing power of the former officeholder go down.
Purchasing power.
It is forgotten that if these bureaucrats are not retained in office, the taxpayers will be permitted to keep the money that was formerly taken from them for the support of the bureaucrats. Once again it is forgotten that the taxpayers income and purchasing power go up by at least as much as the income and purchasing power of the former officeholder go down.
Chapter X The Fetish of Full Employment
The economic goal is to get the greatest results with the least effort. Men used their ingenuity to develop a hundred thousand labot-saving inventions
Our real objective is to maximize production.
Full producton bills vs full employment bills
Policies that will maximize production.
Our real objective is to maximize production.
Full producton bills vs full employment bills
Policies that will maximize production.
Chapter XI Who's "Protected" by tariffs?
Consider merely the immediate effects of a tariff on special groups, and neglecting to consider its long run effects on the whole community.
Labor in each country is more fully employed in doing just those things that it does best, instead of being forced to do things that it does inefficiently or badly. Consumers in both countries are better off. They are able to buy what they want where they can get it cheapest.
In general as a result of the duty, there would be no net increase in the number of jobs provided, no net increase in the demand for goods, and no increase in labor productivity. Labor productivity would, in fact, be reduced as a result of the tariff.
As a result of the tariff wall the average productivity of American labor and capital is reduced.
Tariff: as a means of benefiting the producer at the expense of the consumer.
Against the fallacy that a tariff on net balance “provide employment” “raises wages”, or “protects the American standard of living.” It does completely the opposite.
Labor in each country is more fully employed in doing just those things that it does best, instead of being forced to do things that it does inefficiently or badly. Consumers in both countries are better off. They are able to buy what they want where they can get it cheapest.
In general as a result of the duty, there would be no net increase in the number of jobs provided, no net increase in the demand for goods, and no increase in labor productivity. Labor productivity would, in fact, be reduced as a result of the tariff.
As a result of the tariff wall the average productivity of American labor and capital is reduced.
Tariff: as a means of benefiting the producer at the expense of the consumer.
Against the fallacy that a tariff on net balance “provide employment” “raises wages”, or “protects the American standard of living.” It does completely the opposite.
Chapter XII The Drive for Exports
It is exports that pay for imports, and vice versa. The greater exports we have, the greater imports we must have, if we ever expect to get paid.
What is directly given away is the money with which to buy it. It is possible, therefore, for individual exporters to profit on net balance from the national loss-if their individual profit from the exports is greater than their share of taxes to pay for the program.
Collectively, the real reason a country needs exports is to pay for its imports.
What is directly given away is the money with which to buy it. It is possible, therefore, for individual exporters to profit on net balance from the national loss-if their individual profit from the exports is greater than their share of taxes to pay for the program.
Collectively, the real reason a country needs exports is to pay for its imports.
Chapter XIII Parity Prices
Parity prices: A plan to subsidize a special interst.
Agriculture most important industry it must be protected.
Bring back the prices of the farmer’s products to a parity with the prices of the things the farmer buys.
On some large farms which have been completely mechanized and are operated along mass production lines, it requires only one third to one fifth the amount of labor to produce the same yields as it did a few yars back.
Fallacy: the farmer gets higher prices for his products he can buy more goods from industry and so make industry prosperous and bring full employment. This can only be achieved by a subsidy at the direct expense of the taxpayer.
Government intervention.
Purchasing power.
How this destruction of wealth is brought about will depend upon the particular method pursued to bring prices up.
subsidized
bail out
fixed prices
Agriculture most important industry it must be protected.
Bring back the prices of the farmer’s products to a parity with the prices of the things the farmer buys.
On some large farms which have been completely mechanized and are operated along mass production lines, it requires only one third to one fifth the amount of labor to produce the same yields as it did a few yars back.
Fallacy: the farmer gets higher prices for his products he can buy more goods from industry and so make industry prosperous and bring full employment. This can only be achieved by a subsidy at the direct expense of the taxpayer.
Government intervention.
Purchasing power.
How this destruction of wealth is brought about will depend upon the particular method pursued to bring prices up.
subsidized
bail out
fixed prices
Chapter XIV Saving the X Industry
One effect of the 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 hydroelectric energy.
Fallacy: Concerned with government trying to save x industry, that if it is allowed to shrink in size or perish through the forces of free competition it will pull down the general economy with it, and that if it is artificially kept alive it will help everybody else.
It means that both capital and labor are less efficiently employed than they would be if they were permitted to make their own free choices. It means, a lowering of production which must reflect itself in a lower average living standard.
When we try to prevent any industry from dying in order to protect the labor already trained or the capital already invested in it. Paradoxical as it may seem to some, it is just as necessary to the health of the dynamic economy that dying industries be allowed to die as that growing industries be allowed to grow.
It is foolish to preserve obsolescent industries as to try to preserve obsolescent method of production.
Fallacy: Concerned with government trying to save x industry, that if it is allowed to shrink in size or perish through the forces of free competition it will pull down the general economy with it, and that if it is artificially kept alive it will help everybody else.
It means that both capital and labor are less efficiently employed than they would be if they were permitted to make their own free choices. It means, a lowering of production which must reflect itself in a lower average living standard.
When we try to prevent any industry from dying in order to protect the labor already trained or the capital already invested in it. Paradoxical as it may seem to some, it is just as necessary to the health of the dynamic economy that dying industries be allowed to die as that growing industries be allowed to grow.
It is foolish to preserve obsolescent industries as to try to preserve obsolescent method of production.
Chapter XV How the Price system works
The scientist, engineers techinicians can solve the problem of production. But unfortunately the world is ruled by businessman that are thinking only in profits.
A plan to subsidize a special interest.
Fallacy of isolation:
See each industry as if they existed in isolation.
Alternative applications of time and labor.
One occupation can expand only at the expense of all other occupations.
Price system is constantly changing interrelationships of costs of production, prices and profits.
Fallacy: Prices are not determined by costs of production but 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.
A plan to subsidize a special interest.
Fallacy of isolation:
See each industry as if they existed in isolation.
Alternative applications of time and labor.
One occupation can expand only at the expense of all other occupations.
Price system is constantly changing interrelationships of costs of production, prices and profits.
Fallacy: Prices are not determined by costs of production but 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.
Chapter XVI Stabilizing Commodities
What goverments are trying to do is to stablize the economy of the fluctuations in prices.
Under normal conditions, when speculators are doing their job well, the profits of farmers and millers will depend chiefly on their skill and industry in farming or milling, and not on market fluctuations.
When the government steps in, the ever-normal granary becomes in fact an ever-political granary. The effect of this is to secure a higher price temporarily than would otherwise exist, but to do only by bringing about later on a much lower price than would otherwise have existed.
For the loan policy is usually accompanied by, or inevitably leads to, a policy of restricting production- a policy of scarcity.
Consumers are forced to pay higher prices than otherwise for that product, they have just that much less to spend on other products.
Uniform proportional restriction- the inefficient high-cost are artificially kept in business.
To give farmers money for restricting production, or to give them the same amount of money for an artificially restricted production, is no different from forcing consumers or taxpayers to pay people for doing nothing at all.
Government keeping prices above natural market levels
Under normal conditions, when speculators are doing their job well, the profits of farmers and millers will depend chiefly on their skill and industry in farming or milling, and not on market fluctuations.
When the government steps in, the ever-normal granary becomes in fact an ever-political granary. The effect of this is to secure a higher price temporarily than would otherwise exist, but to do only by bringing about later on a much lower price than would otherwise have existed.
For the loan policy is usually accompanied by, or inevitably leads to, a policy of restricting production- a policy of scarcity.
Consumers are forced to pay higher prices than otherwise for that product, they have just that much less to spend on other products.
Uniform proportional restriction- the inefficient high-cost are artificially kept in business.
To give farmers money for restricting production, or to give them the same amount of money for an artificially restricted production, is no different from forcing consumers or taxpayers to pay people for doing nothing at all.
Government keeping prices above natural market levels
Chapter XVII Government price fixing
Government keeping prices below natural market levels
The whole economy, in total war, is necessarily dominated by the State.
It is the wartime inflation that mainly causes the pressure for price-fixing.
Price controls are always hinted at, even when they are not imposed.
People will but not in proportion of their need, but only in proportion of their purchasing power.
Schemes for maximum price-fixing usually begin as efforts to “keep the cost of living from rising”.
We must assume that the purchasing power in the hands of the public is grater than the supply of goods available, and that prices are being held down by the government below the levels to which a free market would put them.
2 consequences:
1. increase the demand for that commodity- commodity cheaper- people buy more
2. reduce the supply of that commodity- people buy more, supply is quickly taken from the shelves.
In a rationing system the government adopts a double price system, in which each consumer must have a certain number of coupons or points in addition to a given amount of ordinary money. Rationing merely limits the demand without also stimulating the supply, as a higher price would have done.
Subsidy is paid to producers, those who are really being subsidized are the consumers. They are being subsidized to the extent of the difference- that is, by the amount of subsidy paid ostensibly to the producers.
The end result would be that the government would not only tell each consumer precisely how much of each commodity he could have, it would tell each manufacturer precisely what quantity of each raw material he could have and what quantity of labor.
There is no such thing as uniform rate of profit, the result of this policy is to drive the least profitable concerns out of business altogether, and to discourage or stop the production of certain items. This means unemployment, a shrinkage in production and a decline in living standards.
The real cause of trying to fix maximum prices is either a scarcity of goods or a surplus of money. The plans for holding down prices by legal edict are the result of thinking of the short-run interests of people only as consumers and forgetting their interests as producers.
As producer he wants inflation
As consumer he wants price ceilings
As taxpayer he will resent paying subsidies
Price fixing discourages and disrupts employment and production
The whole economy, in total war, is necessarily dominated by the State.
It is the wartime inflation that mainly causes the pressure for price-fixing.
Price controls are always hinted at, even when they are not imposed.
People will but not in proportion of their need, but only in proportion of their purchasing power.
Schemes for maximum price-fixing usually begin as efforts to “keep the cost of living from rising”.
We must assume that the purchasing power in the hands of the public is grater than the supply of goods available, and that prices are being held down by the government below the levels to which a free market would put them.
2 consequences:
1. increase the demand for that commodity- commodity cheaper- people buy more
2. reduce the supply of that commodity- people buy more, supply is quickly taken from the shelves.
In a rationing system the government adopts a double price system, in which each consumer must have a certain number of coupons or points in addition to a given amount of ordinary money. Rationing merely limits the demand without also stimulating the supply, as a higher price would have done.
Subsidy is paid to producers, those who are really being subsidized are the consumers. They are being subsidized to the extent of the difference- that is, by the amount of subsidy paid ostensibly to the producers.
The end result would be that the government would not only tell each consumer precisely how much of each commodity he could have, it would tell each manufacturer precisely what quantity of each raw material he could have and what quantity of labor.
There is no such thing as uniform rate of profit, the result of this policy is to drive the least profitable concerns out of business altogether, and to discourage or stop the production of certain items. This means unemployment, a shrinkage in production and a decline in living standards.
The real cause of trying to fix maximum prices is either a scarcity of goods or a surplus of money. The plans for holding down prices by legal edict are the result of thinking of the short-run interests of people only as consumers and forgetting their interests as producers.
As producer he wants inflation
As consumer he wants price ceilings
As taxpayer he will resent paying subsidies
Price fixing discourages and disrupts employment and production
Chapter XVIII What Rent Control Does
The long run effect of this discriminatory device, the builders and owners of luxury apartments are encouraged and rewarded; the builders and owners of the more needed low rent housing are discouraged and penalized.
The very fact that the legal rents are held so far below market rents artificially increases the demand for rental space at the same time as it discourages any increase in supply. The more certain it is that the scarcity of rental houses or apartments will continue.
The very fact that the legal rents are held so far below market rents artificially increases the demand for rental space at the same time as it discourages any increase in supply. The more certain it is that the scarcity of rental houses or apartments will continue.
Chapter XIX MInimum Wage Laws
Chapter XX
Chapter XXI
Chapter XXII
Chapter XXIII The Mirage of Inflation
The most obvious and yet the oldest and most stubborn error on which the appeal of inflation rests is that of confusing “money” with wealth.
Real wealth of course, consists in what is produced and consumed.
And to many the conclusion seems obvious that if the government merely issued more money and distributed it to everybody, we should all be that much richer.
There is a second group, less naïve, if the whole thing were as easy as that the government could solve all our problems merely bby printing money. They sense that there must be a catch somewhere, so they would limit in some way the amount of additional money they would have the government issue. They would have it print just enough to make up some alleged deficiency or gap.
A payments, “a+b payments”
Any substantial increase in the quantity of money will reduce the purchasing power of each individual monetary unit
The value of the total quantity of money multiplied by its velocity of circulation, must always be equal to the value of the toal quantity of goods bought.
The value of the monetary unit must vary exactly and inversely with the amount put into circulation.
Why and how an increase in the quanity of money raises prices?
Complications start when government introduces an attempt at price fixing.
Until the rise in prces and money incomes has covered virtually the whole nation, nearly everybody will have a higher income measured in terms of money. But prices of goods and services will have increased correspondingly. The nation will bee no richer than before.
The gains of the first groups of producers to benefit by higher prices or wages from the inflation are necessarily at the expense of the losses suffered by the last groups of producers that are able to raise their prices or wages.
The value of money, as we have seen, depends upon the subjective valuations of the people who hold it. They depend also on the quality of money. The present valuation will often depend upon what people expect the future quantity of money to be.
What they are proposing is to deceive labor by reducing real wage rates (purchasing power) through an increase in prices.
The inflation idea someone believes is a multiplier, by which every dollar printed and spent by the government, becomes magically the equivalent of several dollars added to the wealth of the country.
Most of the times are because of maladjustments within the wage-cost price structure.
We are all accustomed to measuring our income and wealth in terms of money.
The extra heavy taxation then required does not merely take away purchasing power, it also lowers or destroys incentives to production, and so reduces the total wealth and income of the country.
Real wealth of course, consists in what is produced and consumed.
And to many the conclusion seems obvious that if the government merely issued more money and distributed it to everybody, we should all be that much richer.
There is a second group, less naïve, if the whole thing were as easy as that the government could solve all our problems merely bby printing money. They sense that there must be a catch somewhere, so they would limit in some way the amount of additional money they would have the government issue. They would have it print just enough to make up some alleged deficiency or gap.
A payments, “a+b payments”
Any substantial increase in the quantity of money will reduce the purchasing power of each individual monetary unit
The value of the total quantity of money multiplied by its velocity of circulation, must always be equal to the value of the toal quantity of goods bought.
The value of the monetary unit must vary exactly and inversely with the amount put into circulation.
Why and how an increase in the quanity of money raises prices?
Complications start when government introduces an attempt at price fixing.
Until the rise in prces and money incomes has covered virtually the whole nation, nearly everybody will have a higher income measured in terms of money. But prices of goods and services will have increased correspondingly. The nation will bee no richer than before.
The gains of the first groups of producers to benefit by higher prices or wages from the inflation are necessarily at the expense of the losses suffered by the last groups of producers that are able to raise their prices or wages.
The value of money, as we have seen, depends upon the subjective valuations of the people who hold it. They depend also on the quality of money. The present valuation will often depend upon what people expect the future quantity of money to be.
What they are proposing is to deceive labor by reducing real wage rates (purchasing power) through an increase in prices.
The inflation idea someone believes is a multiplier, by which every dollar printed and spent by the government, becomes magically the equivalent of several dollars added to the wealth of the country.
Most of the times are because of maladjustments within the wage-cost price structure.
We are all accustomed to measuring our income and wealth in terms of money.
The extra heavy taxation then required does not merely take away purchasing power, it also lowers or destroys incentives to production, and so reduces the total wealth and income of the country.
Chapter XXIV The Assault on Saving
When money is invested it is used to buy or build capital goods.
The refusal to buy is the consequence of depressions
The various consumers goods industries are built on the expectation of a certain demand, and that if people take to saving they will disappoint this expectation and start a depression. –rests that of forgetting that what is saved on consumer’s goods is spent on capital goods, and that saving does not necessarily mean even a dollar’s contraction in total spending.
The first effect on net balance would be to force shifts in employment and temporarily to decrease employment by its effect on the capital goods industries. And its long-run effect would be to reduce production below the level that would otherwise have been achieved.
An artificial reduction in the interest rate encourages increased borrowing. It tends, to encourage highly speculative ventures that cannot continue except under the artificial conditions that gave them birth. Supply side- the artificial reduction of interest rates discourages normal thrift, saving and investment. It reduces the accumulation of capital. It slows down that increase in productivity, that economic growth that progressives profess to be so eager to promote.
Assumption that there is a fixed limit to the amount of new capital that can be absorbed, or even that the limit of capital expansion has already been reached.
Capital is consumer’s durable good. Qualitative improvements are possible and desirable without finite limit in all but the very best.
Capital proper: tools of production There is no limit to the expansion that is possible and desirable.
They reduce unit costs of production.
The refusal to buy is the consequence of depressions
The various consumers goods industries are built on the expectation of a certain demand, and that if people take to saving they will disappoint this expectation and start a depression. –rests that of forgetting that what is saved on consumer’s goods is spent on capital goods, and that saving does not necessarily mean even a dollar’s contraction in total spending.
The first effect on net balance would be to force shifts in employment and temporarily to decrease employment by its effect on the capital goods industries. And its long-run effect would be to reduce production below the level that would otherwise have been achieved.
An artificial reduction in the interest rate encourages increased borrowing. It tends, to encourage highly speculative ventures that cannot continue except under the artificial conditions that gave them birth. Supply side- the artificial reduction of interest rates discourages normal thrift, saving and investment. It reduces the accumulation of capital. It slows down that increase in productivity, that economic growth that progressives profess to be so eager to promote.
Assumption that there is a fixed limit to the amount of new capital that can be absorbed, or even that the limit of capital expansion has already been reached.
Capital is consumer’s durable good. Qualitative improvements are possible and desirable without finite limit in all but the very best.
Capital proper: tools of production There is no limit to the expansion that is possible and desirable.
They reduce unit costs of production.
Chapter XXV The lesson restated
Economics 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.
Sanayana say of logic: traces the tradition of truth. When one term of a logical system is known to describe a fact, the whole system attaching to that term becomes, as it were, incandescent.
Aphorism of bacon: a little philosophy inclineth men’s minds to atheism, but depth in philosophy bringeth men’s minds about to religion.
Depth in economics brings men back to common sense. Depth in economics consists in looking for all the consequences of a policy instead of merely resting one’s gaze on those immediately visible.
Wherever competition exists, each producer is compelled to put forth his utmost efforts to raise the highest possible crop on his own land.
But economic progress never has taken place and probably never will take place n this completely uniform way.