Tuesday, April 01, 2008

Economics and History by essentials

I'm enormously enjoying two courses I'm currently doing and, unlike the post below this one, it's no April Fool's Day hoax to say so. I've never found economics and history so fascinating -- but then, I am studying under two masters!

1. To the obvious frustration of many readers, one of those courses is George Reisman's self-study programme in economics, based on his book Capitalism: A Treatise in Economics -- which according to Nobel Laureate James Buchanan, deserves to take its place alongside that of Adam Smith's.

A crucial achievement of Reisman's -- one that puts him almost completely at odds with the 'thinkers' behind much of today's more mainstream neo-Keynesian economics -- is that his course (and his book) places the producer at the heart of the economic process.

This focus on production instead of consumption really does begin at the first page, right there in his definition of economics -- he defines economics as the science that studies the production of wealth under a system of division of labour. (You can compare his definition to some other commonly used definitions here, and reflect yourself on the implications of those differences.)

One major implication of this focus is his concern with just what exactly is required for the production of wealth under a system of division of labour to flourish. Rather than simply observing that producers produce and taking it for granted that they will continue no matter what is inflicted upon them -- which is the case with so many economists, who are only too happy to dream up and propose ever more imaginary restrictions -- Reisman instead is intensely concerned with the material, cultural and philosophical requirements of production.

Perhaps the most obvious requirement is that production itself be held as a value -- which means, he argues in our most recent lecture, that the requirements of human life be held as objectively valuable. (The end of economic activity therefore should be understand not in consumption as such, but more fundamentally as the furthering of human life and human values.) There are conditions under which the production of wealth under a system of division of labour is unable to flourish -- and here the student is invited to reflect on those parts of the contemporary world in which the the production of any kind of wealth is unable to flourish; these are without exeption those parts of the world in which the values of western civilisation (in brief: respect for logic, reason and individual rights) are spurned.

As he argued in our last lecture, the use of logic and reason and a respect for indidual rights crucially underpins the production of wealth, and are themselves objectively valuable. If the requirements of human life are recognised as being objectively valuable, then the value of western civilisation and the values that underpin it must itself be so recognised.

Consider the almost complete ignorance of those concepts in those parts of the world in which wealth is conspicuously absent, and the outright racist agenda of multiculturalism -- which blithely proclaims all cultures as equal, no matter how destructive to the human lives within them -- all but silences our ability to point this out. Reisman points out that to define 'culture' as being equivalent to race is to ignore the crucial truth that the life-saving values of western culture are open to anybody of any race who wishes to embrace them.

Fortunately, for readers unwilling to embrace this idea themselves, they can read the argument online in George Reisman's superb pamphlet 'Education and the Racist Road to Barbarism.'

I commend it to your attention.

2. The other course that I'm enjoying immensely is historian Scott Powell's 'entire history of the world course' (official title A First History for Adults) of which I'm presently just biting off a small morsel: his ten lectures on 'The Islamist Entanglement,' delivered by tele-conference. These are not just enjoyable, but as I go through the course I realise how necessary a thorough understanding of the history of the Middle East is to understanding its present state, and its possible futures.

The chief reason it's so enjoyable is not just Scott's abundant enthusiam, but his ability to explain history with both the detailed point-of-view necessary to seeing precisely who did what to whom and why, but also from the 'mountain-top' perspective necessary to integrate all the details, and draw all the wider implications therefrom.

The most recent lecture on Turkey's history will give you an example. As Scott titles his summary, 'Turkey Shows the Middle East’s Potential–and it Doesn’t Look Good.' A lesser historian would find it near impossible to describe and integrate the multitude of apparent contradictions about the most westernised, most advanced and most successful of all the Middle East's Islamic countries -- the benevolent dictator who secularised the country; the military dictatorships who frequently rescue Turkey from 'demise by democracy'; how Turkey's entry to the European Union could potentially destroy it ...

Scott's history-by-essentials offers the opportunity to see Turkey's future as the microsm of the Middle East's. It's a disquieting outlook.

But it's still not too late to sign up for either this ten-lecture course, or the whole First History for Adults. I can thoroughly recommend it.

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9 Comments:

Blogger Paul Walker said...

I would argue that Adam Smith moved away from seeing the producer as the centre of economics to seeing it as the consumer for good reason. Having the producer as centre of the economic process is what leads to mercantilism, the very thing that Smith wrote "The Wealth of Nations" to fight. Smith rightly argued that the consumer was the important player in the economy since it is the consumer's welfare that matters. Having the producer as the heart of the economy leads to the protection of the producer. It leads to monopoly and to guilds and to trade barriers etc. These things protect producers but do even more harm to consumers.

4/01/2008 08:13:00 pm  
Anonymous Sean said...

Paul,

Of course you correctly identify some bad economic policies. But concern for the consumer can lead to as many if not more. Concern for the consumer leads to price controls, to red tape and a myraid regulation.

What Reisman has identified, correctly, is that before one consumes one must produce. Before one can eat, one must work. Discussion of consumer welfare is meaningless with production. Indeed to be a consumer one must be a producer (or relative etc of one).

Consider a desert island economy. To talk of Cursoue's consumer welfare ansent of his ability to gather/fish/hunt (produce) is to talk of nothing. Here your objection completly collapses. Crusoe the producer is hardly going to pursue policies detrimental to Crusoe the consumer. That would be a logical nonsense.

Sean.

4/02/2008 11:02:00 am  
Anonymous Sean said...

That should be;

"Discussion of consumer welfare is meaningless withOUT production."

4/02/2008 11:04:00 am  
Blogger PC said...

I think Sean makes the relevant point.

Put simply, the Mercantilists favoured producers to the exclusion of consumers.

The Keynesians and neo-Keynesians favour the consumer to the exclusion of producers.

But as Sean says, what Reisman argues is that production necessarily precedes consumption -- indeed, somewhat similar to Say's Law, he points out that in order even to be a consumer one must first be a producer.

I'm not sure one would characterise that as any variant of Mercantilism, except by non-essentials?

4/02/2008 12:17:00 pm  
Blogger Paul Walker said...

Without consumption what is the point of production? It is consumption that provides utility. That is the real point. We do not produce just for the fun of producing but we do consume just for the fun of it.It is true that without production you have nothing to consume but the point of production is consumption. "I consume therefore I am."

4/02/2008 12:41:00 pm  
Blogger Paul Walker said...

PC: you're right, I'm not trying to say Reisman is a mercantilist, far from it. He clearly is no such thing. But production without consumption is pointless and it is consumption that gives us utility, that is what provides welfare. We produce because we want to consume. We trade also because we want to consume. Trade is pointless in and of itself. We trade because we wish to consume a different bundle of goods than those we produce. My point was just that thinking in terms of the producer can lead to bad outcomes. Which, I think, was Smith's point. He opposed mercantitlism because it lowered national welfare. Mercatilists thought of welfare, mostly, in terms of the producer's welfare.

4/02/2008 01:16:00 pm  
Blogger PC said...

Yes, we produce because we want to consume; but consumption we can take for granted -- to produce we have to do something other than simply sit their with a spoon trying to catch rain from the sky.

The fundamental problem of economic life is not how to consume, but how to produce. There's nothing in that statement that argues for production without consumption however -- it simply recognises the fundamental principle that in order to consume, one must have first produced something to beconsumed. In other words, you cannot talk about consumption without first talking about production, and what it requires.

As he says in his 1964 essay 'Production versus Consumption':

"In the nineteenth century, economists identified the fundamental problem of economic life as how to expand production. Implicitly or explicitly, they perceived the base both of economic activity and economic theory in the fact that man’s life and well-being depend on the production of wealth. Man’s nature makes him need wealth; his most elementary judgments make him desire it; the problem, they held, is to produce it. Economic theory, therefore, could take for granted the desire to consume, and focus on the ways and means by which production might be increased.

In the twentieth century, economists have returned to the directly opposite view. Instead of the problem being understood as how continuously to expand production in the face of a limitless desire for wealth resulting from the limitless possibilities of improvement in the satisfaction of man’s needs, the problem is erroneously believed to be how to expand the desire to consume so that consumption may be adequate to production. Economic theory in the twentieth century takes production for granted and focuses on the ways and means by which consumption may be increased. It proceeds as though the problem of economic life were not the production of wealth, but the production of consumption.

These two diametrically opposed and mutually exclusive basic premises concerning the fundamental problem of economic life play the same role in economic theory as do conflicting metaphysics in philosophy. Point for point, they result either in opposite conclusions or in the advancement of opposite reasons for the same conclusion. So thoroughly and fundamentally do they determine economic theory that they give rise to two completely different systems of economic thought.
"

4/02/2008 04:16:00 pm  
Blogger PC said...

"PC: you're right, I'm not trying to say Reisman is a mercantilist, far from it." Indeed not, especially in light of Nobel Prize winner James Buchanan's praise for Reisman's book:, "Reisman's exposure of modern mercantilist fallacies takes its place alongside that of Adam Smith."

:-)

4/02/2008 04:19:00 pm  
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5/12/2008 11:36:00 pm  

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