Tuesday, November 29, 2005

Cue Card Libertarianism -- Economics

“The art of economics consists in looking not merely at the immediate but at the longer term effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” – Henry Hazlitt, Economics in One Lesson.

Economics and those who practice it have a deservedly poor reputation. It has been called 'the dismal science'; it is also often said that if you laid all the world's economists end to end they would still never reach a conclusion; economists, it is also said, are number crunchers who, if they had any charisma would have become accountants. All this is, of course, true.

Economics itself has been defined variously as the "social science that studies the allocation of scarce resources to satisfy unlimited wants," or as the "science of value." Neither are strictly accurate. Economics, as George Reisman defines it,

is the science that studies the production of wealth under a system of division of labor, that is, under a system in which the individual lives by producing, or helping to produce, just one thing or at most a very few things, and is supplied by the labor of others for the far greater part of his needs... The importance of economics derives from the specific importance of wealth—of material goods—to human life and well-being.

Too few economists however have digested the lesson given by Hazlitt, or the definition offered by Reisman. Many economists since Keynes still see their job as being hand-maidens of the State, deciding how precisely state intervention should proceed, to what end, and who should be the beneficiary. Many still think short-range and bog themselves down in minutiae. They are supportive of policies that have short-term appeal for certain groups, e.g. inflation, borrowing, taxing, subsidising and (government) spending, but which are disastrous for everybody in the long term. By peddling minutiae too tortuous for the lay person to bother with, they create the illusion of wisdom, and bamboozle people into acquiescence; but theirs is the prescriptive wisdom of witch-doctors.

We are all the losers. It is often ignorance of basic economics that stops many people supporting the free society, and it is true that many of the key concepts of economics are not immediately apparent. Supply and demand is a fairly easy concept that, while beyond most politicians, is still something that even a six-year-old can grasp. However, beyond that lie dragons for some. The broken window fallacy and the laws of marginal utility and of comparative advantage for example are not so obviously intuitive, although they are wonderfully powerful tools once understood, as they should be in a free society (a game to help understand the latter is online here). The ideas of spontaneous order, or that there are "phenomena that are the product of human action but not of human design," or of the miracle of breakfast -- these ideas and concepts help to integrate economic thought and help make it understandable.

Indeed, in a free society with a free market place, economics would necessarily be demystified. It would be the servant of the entrepreneur instead of the bureaucrat, and be primarily descriptive of a process that citizens had already decided was morally proper, i.e. the voluntary exchange of goods and services in a society in which contracts and the rule of law are protected. Or, as Robert Nozick described the process, capitalist acts amongst consenting adults.

This is part of a continuing series explaining the concepts and terms used by libertarians, originally published in The Free Radical in 1993. The 'Introduction' to the series is here. The series may be found on the right-hand sidebar of 'Not PC.'

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19 Comments:

Blogger Rick said...

...are number crunchers who, if they had any charisma would have become accountants. All this is, of course, true.

Yeees...much in the same way that broadcasters are failed telemarketers.

Economists are extra special brainy people!

Furthermore, Riesman's definition is wrong. If you accept it then you accept that non-division-of-labour societies are beyond the reach of economic analysis.

11/29/2005 12:41:00 am  
Anonymous Robert Winefield said...

"...non-division-of-labour societies are beyond the reach of economic analysis"

Try and name one society where labour isn't divided, where people don't specialise, where every person repeats the labour (with varying degrees of success, according to their talents) of every other person within walking distance of them & you MIGHT understand Reisman's point.

11/29/2005 03:46:00 am  
Anonymous Robert Winefield said...

Two more hints: (1) What is there to trade in a society where everybody makes one or more of everything? Can their be economics in the absence of trade?

(2) Given the inbuilt biological specialisation in our species, how in the f**k can a human society exist where labour isn't divided? And no, a man, alone on an island with multiple personalities doesn't count as a society.

11/29/2005 03:54:00 am  
Blogger Rick said...

You are an angry, angry, angry man...

1] With little imagination

2] With pathetically impoverished historical knowledge

3] With a complete neglect of Tom and Barbara

Division of labour is about as new as our man Adam Smith, and that's no accident. This organisational innovation is far from universal, indeed is far from being acclaimed by all economists.

Listen grump, you just keep snorting your telemorese and leave economics to we extra special brainy people.

11/29/2005 10:25:00 am  
Blogger PC said...

As I said in the Cue Card: "Too few economists however have digested the lesson given by Hazlitt, or the definition offered by Reisman."

For evidence, see above. No wonder it's a dismal science.

11/29/2005 10:48:00 am  
Anonymous Anonymous said...

Maybe you should actually watch The Good Life next time.

Observe that Tom and Barbara divide the daily toil between them.

Observe that Tom barters his produce for essential items that he can't produce or invent himself. Things like spare parts for his Rotary Hoe...

Observe that Neither Tom nor Barbara is particularly skilled in the martial arts - and nor do they have to be because they live in a place where one portion of the work-force specialise in maintaining law and order.

So Rick, not so brainy after all...

11/29/2005 02:47:00 pm  
Blogger Rick said...

I like how I get told off if everything I say isn't also a syllogism but when it comes to PC he gets to just...

No wonder it's a dismal science

It's "dismal" because Malthusian economics leads to sour conclusions, and what could be more unhappy than the "fact" that economic analysis fails outside of the only type of society it commends to us?

But I don't accept that.

Maybe you should actually watch The Good Life next time

Quiz me then damnit! At least I admit I know the show instead of hiding my knowledge of how many times Margo got muck on her behind behind a veil of a shadowed cognomen!

Fact is that the Good's choose a life of self-sufficiency- a life rejecting the division of labour society.
It's still praxology, still economics too, but not as we know it, Captain [Nemo].

11/29/2005 05:22:00 pm  
Blogger PC said...

Rick, "non-division-of-labour societies," and Tom and Barbara Good are not beyond the realm of economc analyis, it's just that little economic anaysis is needed to understand them.

But maybe one reason commenters are impatient with you is that Reisman has provided extended argument for his definition at the link I provided, and if you had objections or questions one might have expected you to check that out first?

As it happens, you would have found a good part of the answer you were after in the paragraph following his definition:

"The importance of economics derives from the specific importance of wealth—of material goods—to human life and well-being. The role of wealth in human life is a subject that will be examined in Chapter 2 of this book, but provisionally its importance can be accepted on a common-sense basis. Obviously, human life depends on food, clothing, and shelter. Moreover, experience shows that there is no limit to the amount of wealth that practically all civilized men and women desire, and that the greatest part of their waking hours is actually spent in efforts to acquire it—namely, in efforts to earn a living.

"Yet the importance of wealth, by itself, is not sufficient to establish the importance of economics. Robinson Crusoe on a desert island would need wealth, and his ability to produce it would be helped if he somehow managed to salvage from his ship books on various techniques of production. But it would not be helped by books on economics. All that books on economics could do for Crusoe would be to describe abstractly the essential nature of the activities he carries on without any knowledge of economics, and, beyond that, merely to provide the possible intellectual stimulation he might feel as the result of increasing his knowledge of the society from which he was cut off. Something more than the importance of wealth is required to establish the importance of economics."

Just to clarify then -- for the economist in the audience -- non-division-of-labour societies, and Tom and Barbara Good, would not be helped by books on economics. All that books on economics could do for them would be to describe abstractly the essential nature of the activities he carries on without any knowledge of economics, and, beyond that, merely to provide the possible intellectual stimulation he might feel as the result of increasing his knowledge of the society from which he was cut off.

Time to digest the definition, Rick. Perhaps try chewing it first.

11/29/2005 07:18:00 pm  
Blogger Rick said...

That's good, you're a little out of your depth but you're having a go. That's good.

But like the White Witch and the Winefield you look only so far ahead and stop. That's why Aslan rises again and wins. In the next paragraph we read...

Despite its vital importance, the division of labor, as a country's dominant form of productive organization—that is, a division-of-labor society—is a relatively recent phenomenon in history. It goes back no further than eighteenth-century Britain. Even today it is limited to little more than the United States, the former British dominions, the countries of Western Europe, and Japan. The dominant form of productive organization in most of the world—in the vast interiors of Asia, Africa, and most of Latin America—and everywhere for most of history, has been the largely self-sufficient production of farm families and, before that, of tribes of nomads or hunters.

So by his own lights, Reisman as economist is impotent to discuss the Goods and those in our society like them, as well as most of the rest of our planet, as well as every social habitation from Babylon to Egypt to Feudal Europe to Stalinist Russia to Stone Age Aotearoa.

But did we human beans not have economic motivations prior to the industrial revolution of 1780? Did economic issues not dwell at the heart of events in the history of the world prior to 1780? Did man not have his rights and his law or didn't his economic aspects apply back then? Did our inviolable economic laws only come online 225 years ago or are they internal as the Physiocrats told Adam Smith they were? Can I say anything meaningful about how the marginal productivity of labour, gross domestic product or openness of the non-div' lab' economy of Charlemagne's kingdom compares to Helen Clark's? Or is that outside the scope of human cognitive discipline?

You know what I think about that! This goes beyond what help to Tom's potatoe rows reading Human Action would be! Sheesh...

11/30/2005 12:15:00 am  
Anonymous Anonymous said...

Rick wrote:

"has been the largely self-sufficient production of farm families and, before that, of tribes of nomads or hunters."

And were you to study anthropology, human evolution and inner workings of primitive tribal-cultures (you are in Australia - so study the Aboriginies!) you would find that within those "self-sufficient family groups" that available labour was divided. Men hunting, women gathering, older women tending the children.

The effect of this co-operative action was to generate more wealth (albeit in terms of animal skins, increased calorific intakes etc.) than would have been possible if every person in that tribe had attempted to hunt, gather food, tend children all at the same time.

The reason the good Professor ignores this is that there is bugger all economics can say about wealth generation in small tribal groups - other than what I've just said. That doesn't mean that economics can't describe what's going on it just means that the explaination is simple because the economics are simple - much like you Rick.

11/30/2005 06:15:00 am  
Blogger PC said...

Rick said: "So by his own lights, Reisman as economist is impotent to discuss the Goods and those in our society like them."

No Rick. Reisman as economist is unnecessary to discuss the Goods and those in our society like them because even a moron can understand what's going on there. As Anonymous said, the explanation for their activities is simple because the economics are simple...

"Too few economists however have digested the lesson given by Hazlitt, or the definition offered by Reisman."

I thought that was worth repeating from the Cue Card.

11/30/2005 08:43:00 am  
Blogger Rick said...

Too few economists however have digested..the definition offered by Reisman.

Coz it's bollocks!

if every person in that tribe had attempted to hunt, gather food, tend children all at the same time...the good Professor ignores this is that there is bugger all economics can say...

No, wrong. He "ignores" it because that's not what's meant by a division of labour system. For you, Nemo, it seems everyone short of a foosball figurine enjoys that form of social organisation.

And according to the lit it's not "bugger all", it's nothing. Outside div'lab organisation means outside the prof's definition- the definition PC accepts...and yet he agrees with you when you say...

As Anonymous said, the explanation for their activities is simple because the economics are simple...

Nice use of ellipsis.

But wait...I'm sorry..what aspect of non-division of labour society did you say is simple? Did you say the economic aspect? But you must be mistaken! Or does your definition of economics extend beyond Reisman's definition after all?

Well you're both right- it is economics. But is it simple? 'Bugger all?' Well you're better men than me (I find it can be a challange), but at least I've won you over and Reisman has lost you. That's was my point after all- that economics has a broader place than here defined.

Reisman as economist is unnecessary to discuss the Goods and those in our society like them because even a moron can understand what's going on there.

That's the trouble with the world, never a moron around when you need one.
I bet the "sub-moronic" C17th Dutch could have used a Cresswellian moron to apply some economic sense during their tulip crisis.
And I wonder if I can pull a moron off the street to relate to me the economics of ancient Rome, someone less "moronic" than guys like Archamedies, who never saw what was comming to him.

But anyway, as I reject the above definition I retain the power to say that Tom&Barbara, Maori and Aboriginie are better off economically if they live in a division of labour society. To be able to say so you need to be able to do an economic evaluation on their social organisation- an evaluation outside the scope of economics as defined by the professor.

11/30/2005 11:04:00 am  
Blogger PC said...

Rick, if all you have is production without any division of labour, then there's nothing economics qua economics has to say about it. Contra Mises, not every human action is economic action; if it were, then the field of economics would be cognisant with the definition 'all the stuff that people do.' Clearly it's not - the point of a definition is to circumscibe and delineate a field by first pointing out the genus -- in this case, the production of wealth - and then the differentia - in this instance wealth production that involves division of labour. On every other human activity econmists may hold whatever position they choose, but qua economist they have nothing to say. As students of human nature or ethics on the other hand, they may say all they want.

For instance, to use a common example, Andrew has just met Mary at a bar and wants to ask her out on a date. He wants to do so in such a way that she'll accept. There are, of course, several ways Andrew can go about doing this.
Andrew has chosen to pursue a value from among many others--Mary--and he's got to choose the best way (from many other ways) to ask her out. Does this mean that economics also offers advice on dating and relationships?

As another example, if for instance you sit at home picking your nose, then on that the discipline of economics is, thankfully, silent. If Tom and Barbara plant cabbages and consume them by themselves, then on that economics is also silent, or at least has very little to contribute. If however you try and sell pictures of your nasal excavations or Tom and Barbara Good swap their cabbages for a ride in their neighbour's car, then in that respect economics begins to take an interest, for then Tom & Barbara and their neighbour Jerry are engaging in wealth production under a system of division of labour. ('Wealth' remember is the ability to choose amongst available goods and services in order to satisfy your wants. More goods and services available = more wealth.)

So back to the original point, that too few economists have digested the definition. You say that by Reisman's definition, economics has nothing to say on 17C Dutch tulips or on the economy of Ancient Rome. But this is not so. You quote for example from Reisman's follow-up discussion of his definition, but you overlook an important point. Reisman says: "Despite its vital importance, the division of labor, as a country's dominant form of productive organization—that is, a division-of-labor society—is a relatively recent phenomenon in history." The key phrase here is "a country's dominant form of productive organization." Even if not dominant, where division of labour exists there is something for economists to study; where there isn't, there ain't. The more there is, the more there is to say; the less there is, the less there is to say.

Economists for instance have very little of use to say about the Irish potato famine qua economist; on that tragedy political economists as they used to be called are of more use - thus reflecting another important point of Reisman's: that "the division of labor does not exist or function automatically. Its functioning crucially depends on the laws and institutions countries adopt. A country can adopt laws and institutions that make it possible for the division of labor to grow and flourish, as the United States did in the late eighteenth century. Or it can adopt laws and institutions that prevent the division of labor from growing and flourishing, as is the case in most of the world today, and as was the case everywhere for most of history." As Tom Bethell shows in 'The Noblest Triumph,' the latter was the case in Ireland for the period in question, and the famine was the eventual result.

Anyway, reading on in Reisman's discussion through all of Part A answers your question for you, including your question on Ancient Rome, and reflecting on it and chewing it all is recommended (all of it, including the notes at the foot of the Chapter 1 page, esp. notes, 1 to 5.)

Put simply, you may have production, but if there's no catallactics, there's no economics. If for instance you have a 'command econony,' then in such a case you have no catallactics, no price system, and as Mises showed, pretty soon no production either.

11/30/2005 01:16:00 pm  
Blogger Rick said...

Though interesting, the majority of the above is orbita dicta. I must fight the urge to tell you of how pair bonds and the institution of marriage as an economic contractual deal-sealing mechanism is a far larger and more long standing phenomena than that of romance....however...

Reisman: I define economics as the science that studies the production of wealth under a system of division of labor, that is, under a system in which the individual...is supplied by the labor of others for the far greater part of his needs.

For the sake of consenting that economics has meaningful things to say about the majority of the planet and of human history- Feudalism springs at once to mind- I reject this definition by saying something like...

PC: Even if not dominant, where division of labour exists there is something for economists to study

QED baby

ps the work of political economists these days is called ECONOMICS!

12/01/2005 10:38:00 am  
Blogger PC said...

I suspect you mean obiter dicta, Rick, not 'orbita.' I'll note in passing that there's a subtle difference.

However, judging by your reply above -- the meaning for most of which eludes me, I'm afraid -- I can see why the concept of 'orbiting' was on your mind, as it was on mine when I read your reply. :-)

I hasten to say my reply here is not a request for clarification; I suspect the less said here about "pair bonds and the institution of marriage as an economic contractual deal-sealing mechanism" the better. :-/

12/01/2005 11:16:00 am  
Blogger Rick said...

Ha-hah!

That's what PC's white flag looks like for those who haven't seen it lately.

12/01/2005 01:53:00 pm  
Blogger PC said...

No Rick, that was a 'for fucks sake' flag.' There is a difference.

12/01/2005 03:57:00 pm  
Blogger Rick said...

Do you reckon your 'fucks sake' flag has been bleached to pure white under the direct sun rays of dazzling argument?

Yeah, that Feudal marriage system is well worth a google. You can learn all about how selection of a mate and formation of an economic working unit is the subject of, I dunno, economic consideration for most of the world and most all of our history. Romantic love, on the other hand, is far far far more of an origional and Western idea.
Isn't knowing stuff a lark?

I could just go on and on about it. There's a Kiwi comic strip about a farmer and his wife called 'Mildred'...there's Cantabrian farming anecdotes I've got on divorces sparked by the friction of country vs town life...you sure as hell better think about the economics when you start a family...but I'll tell y'all another day eh?

12/01/2005 05:45:00 pm  
Blogger xxsurfzenxx said...

I see this post is dated, but I arrived here while looking into the family tree of economists for research on a publication with which I am assisting. The topic of the publication is the neutrality of money debate and its relevance in business cycle theory. I wanted to remark because I am working on the final leg of my PhD work in Economic Development and I am familiar with the work of Hazlitt. I follow the gist of the post without issue. What I do wonder about is how come so much time is spent responding to the poster by the name of Rick: as a reader, it seems that this poster has no desire to give good-faith benefit of the doubt to the author and instead is intent on making their own point known regardless of its relevance or merit to the conversation at hand. Why devote such energy in good-faith attempting to explain something to someone who lacks any desire to understand the point being made?

10/06/2011 08:44:00 pm  

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