Tracing consequences both seen and unseen.
Brian McCallDemand Is a Consequence of Production
Posted at 12:26 pm on August 14, 2012, by Brian McCall

A question to you of a chicken and egg sort.

If you have a group of people in a flat empty world with nothing in their possession, how do you get them to have things? Would you:

A) Give everyone pieces of paper with faces on them, call it money, and tell them to wait for someone to devise a way to accumulate those pieces of paper for himself, and hope that the means he devises results in people getting stuff?

B) Or would you give them tools, machines, and other various means to produce things they want? Would you give the knowledge and the means to make the tools?

The answer here should be obvious. Yet, I am always astounded to hear people say that the way to generate economic growth is to stimulate demand, or speak as if the money itself has some kind of intrinsic value. Demand is an artifact; it is a consequence of production, not its progenitor.

It wasn’t the vast network of highways that induced Henry Ford to start building cars. It wasn’t the airport runway that induced the Wright Brothers to put wings on a lawnmower. And it isn’t the existence of currency that induces people to make things. We make things because we want things. Money is merely the means by which we coordinate and communicate our individual desires and interests to others. If no one else is making anything, currency doesn’t communicate anything.

A currency is not a measure of the total demand. It is a measure of overall production. The dollar is the inch on this yardstick. I explained it this way the other day: If you have a length of rope, and you wish it were longer, you don’t make a longer rope by making more notches in your yardstick, and call the new divisions “inches”. You still have the same length of rope, just smaller units of measure. Your inches are shorter, and it is a deception to say that just because now it takes more “inches” to measure the same length of rope, that you have a longer rope.

So consider this when someone claims that the economy isn’t growing because no one has money, or that companies are hording it all. Well, that makes just about as much sense as saying you have a shorter rope because you’ve erased some notches and now your “inches” are longer.

Of course, there is a general kind of demand that the production takes advantage of, but this is a generic phenomenon that doesn’t change or modulate in intensity. A demand for the needs and comforts of life are not specific, and are always present. But the means by which they are satisfied are specific and can take an infinite variety of forms.

So it is not merely enough that humans will always want and demand ways to conserve their energy and save labor. That is a given. Nor can that kind of demand be stimulated by giving out pieces of paper.

Nor will handing out pieces of paper get you from point A, that generic, formless and inchoate sort of demand to something as specific as an internal combustion engine — the internal combustion engine being only one way that general demand can be satisfied. To perhaps borrow from Keynes’ interpretation of Say’s Law, the production of internal combustion engines creates a demand for internal combustion engines.

Filed under: Economic Theory
Comments: Comments Off on Demand Is a Consequence of Production

Brian McCallIt Doesn’t Mean What You Think It Means
Posted at 12:38 am on January 28, 2012, by Brian McCall

In the It Doesn’t Mean What You Think It Means category, I’m having to add the terribly abused No True Scotsman fallacy. I’m starting to see this unfortunate abuse with ever increasing frequency.

Here is a short version of it [I know this isn’t the full version, but for the sake of brevity…]:

Person A: No Scotsman dislikes haggis.
Person B: My uncle is Scottish and he doesn’t like haggis.
Person A: No true Scotsman dislikes haggis.

Now consider this:

Person A: All fruit is edible
Person B: Plastic fruit isn’t edible.
Person A: All real fruit is edible. [or substitute true if you prefer]

What is the difference between the two?

In the first, a sweeping generalization is confronted with a counterexample. The response is to change the definition of the term. At first, a Scotsman is merely a native inhabitant of Scotland. Then when confronted with the counterexample, the term Scotsman mutates to become bound up definitionally with the practice of eating haggis, such that the very meaning of Scotsman is “one who eats haggis and is a native inhabitant of Scotland,” and only became so for the purpose of excluding that specific case.

What about the second? Why does it not suffer the same deficiency? Aren’t we changing the definition of fruit just to exclude fake fruit?

No, because edibility is intrinsic to the definition of the term fruit. (I am of course only speaking of the common literal use of the term. Not metaphorical uses like “the fruits of one’s exertions,” or scientific terms like fruiting body.) That’s why it must there be preceded by the qualifier “fake.” Eating haggis is not an intrinsic characteristic of the term “Scotsman.” When Person A says that all real fruit is edible, it is not the same as saying all fruit is red. To be fruit is to be edible.

I’ve noticed this tendency lately. Someone will make a strawman characterization of an opposing political view. Another will respond, asserting a correct or more complete definition. The first will then claim the second is committing the No True Scotsman fallacy.

Some clown with a website says, “libertarianism is always bound up in the continuation of systems of oppression such as racism, misogyny, christianism, nativism, and the like.” It is such an absurd caricature that anyone with even a modest acquaintance with its principles can see that those are not necessary and intrinsic characteristics of the philosophy. Not only that, but they are incompatible.

Someone responded by providing a list of libertarian writers who forcefully oppose those, and he is accused of committing the No True Scotsman fallacy, as if he is engaging in some ad hoc refinement of the scope of the term to include ONLY those writers.

If anything, it appears the converse is taking place. Instead of No True Scotsman, it is All True Scotsmen.

Person A: All libertarians are crazy fruitcakes who believe horrible things I find morally repugnat.
Person B: These libertarians don’t believe those things.
Person A: Well, all True libertarians do, even if they don’t know it.

Filed under: Internet, Philosophy, Politics
Comments: Comments Off on It Doesn’t Mean What You Think It Means

Henry Hazlitt"[T]he whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. 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."
Henry Hazlitt, Economics in One Lesson






Recent Entries