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Destroying an Economy to Save It / mises.org-Artikel

verfasst von - Elli -, 24.04.2003, 16:28

-->Hoffentlich zerpflückt dottore ihn nicht, habe ihn nicht gelesen...

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Destroying an Economy to Save It
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By Sean Corrigan 

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Should this, in turn, be financed through higher borrowing (ideally
largely monetized), so as to penalize those of us prudent enough find a more
sustainable lifestyle to go along with our newly-reduced means? 

Of course not. But somehow we must believe that there is a
reverse quantum threshold in economics in which when you proceed from the
micro world to the macro, common sense no longer rules and you enter instead
into a shadowy realm populated by paradoxes and counter-intuitive phenomena.

Let's deal first of all with the idea that spending creates
jobs whereas saving destroys them.

Now, we know that the Austrian School economists are often
accused by their critics of taking one set of logical consequences and
magnifying them into inescapable necessities. But, honestly, this whole
concept offered by our opponents requires a confluence of such bizarre and
improbable circumstances to occur, that only an addle-headed, Statist
dilettante could put such a scenario of mass asceticism before us with a
straight face. 

Rather than wasting time on its detailed refutation, let us
present a simple model to show that, at the very least, spending does not have to
create jobs and saving does not have to destroy them. 

Imagine a simple economy where a community of workers labor
together co-operatively to produce just sufficient goods to satisfy their
combined daily wants. Let us say there are 10 ordinary workers and one more
important character who contributes his share of the toil, plus he owns the
land or the materials which the other workers employ. Between them they put in
$110 worth of labor and produce $110 worth of goods each day. Income equals
consumption and no goods are left to rot on the shelves. Full employment
obtains and so, even for social democrats, bliss momentarily prevails. 

But now suppose one of the workers has a son who has grown
to maturity and presents himself for a job. Yet all the resources in Company-A
have been fully allocated between his father and his peers, so there seems no
prospect of providing him with one.

The Collectivists would say that either we should make the
others share the work (and its output) with him by giving him a fictitious,
but equal, claim on the day's produce by printing up some money for him to
spend (inflationary credit creation), or they should be forced by regulation
to restrict their work so as to make room for his (dirigisme),
or the State should directly confiscate a portion from every man's just
allotment and transfer it to this importunate by force majeure (welfarism).

(In practice, the state will usually manage to commandeer
two such portions this last way, since it will naturally employ a bureaucrat
directly to oversee the enforced redistribution, so further adding to the
burden of all).

Clearly, the commonweal has not been served in this manner.
Due to the inculcation of the bad habits of venality, to the opportunity for
corruption and influence-peddling to arise, as well as to the frustration
generated by the sheer invidiousness of it all, there will soon be a host of
social problems to exacerbate the economic ones we have introduced.

So here is a better solution.

The workers and the boss each save one twelfth
of their incomes and the sum realized is lent to the young man on condition he
work at making something different--but hopefully valued--for them all to
consume. Or he could repair their existing tools, or work to fashion new and
better versions of these tools. Either way, the output wrested from the
existing resources can be increased, either by specialization of function or
through technological advance.

In other words, they save and invest in either a
horizontal, or a vertical, extension of the structure of production.

Now watch this. 

Previously, the initial firm, Company-A, paid out $110 (perhaps
composed of $100 in salaries to the 'ordinary' workers and $10 in dividends to
the owner of the capital stock) and it received $110 in revenues from the same
for the wares they themselves produced, these all being consumed immediately.

Now, however, Company-A only gets $100.83 dollars back from
this original set of worker-owner-customers and the residual $9.16 is spent
instead by the newly-employed youth as he utilizes the compensation received
for his role in his new employment at the just-formed Company-B.

But, Lo, if we look at the aggregate personal income
statistics, we see that Company-A's workers get $100, its owner $10, and
Company-B's worker gets $9.16, for a total of $119.16 - income has gone
up because of, not despite, the exercise of thrift, as Mill long ago realized!

Company-A, for its part, recovers all of its initial $110
cash outlay (some of which was made above, some below, the line) and it has,
accordingly, sold all its goods. Personal spending was $110, and therefore
personal saving came to $9.16: the sums tally.

In turn, Company-B has temporarily transformed its monetary
capital (and thus, ultimately, part of Company-A's output of consumer goods)
into a stock of its new products--be they additional, new consumer items or
productivity-enhancing capital goods. 

These, it will hopefully exchange in the next round of the
cycle of production, thus keeping its employee fed and watered as reward for
his labors once more. 

Thus, far from sending the economy into a deflationary
spiral, the act of forbearance on the part of Company A's staff and owners,
has led to capital formation, extra employment and the provision of more goods.
Moreover, the act can mean an enhancement of the future production of all such
goods to the extent that the new member of the labor force helped give rise to
useful producer's, rather than consumer's, goods.  

In other words, thrift has led to an expansion of the
economy which even the crude and misleading measure of GDP cannot fail to
capture. Moreover, it has quite possibly laid the groundwork for an enrichment
of the capital structure and so paved the way for future advances into the
bargain.

In passing, let us note that we have glossed over any
monetary issues arising. However, if we had only a fixed amount of $110 cash
in this little community (perhaps because we physically possess 4 Troy oz, 192
grains of gold coins at $25/oz), we now have 12 units of goods being produced
where we had 11 before.

Thus, to the extent that there were no offsetting extension
of self-liquidating trade credit between Companies-A and -B, or that barter
did not re-emerge, we could expect prices to have fallen 8.3% on the average
(and under the always-implied, but rarely-occurring, condition that one B is
everywhere equal to one A).

Saving might have given rise to what is confused for
deflation (i.e. a fall in the amount of money outstanding below the freely
expressed demand for it), but which is really only a price decline. Yet this
would in no way have been incompatible with a general increase in the supply
of material goods, employment and a maintenance, if not a
productivity-delivered augmentation, of real income.

We started by presenting this as a special case, as a
counter-factual to see off the Dismal Scientists we quoted above, but, in fact,
a little thought should see that this is, in fact, the route to prosperity
which we have all traveled through the long ages of human progress.

Most of us ordinary folk today live far better than did the
Sun King himself: we would certainly seem indescribably wealthy to an Alfred
the Great.

That advance in prosperity has not been built on government
intervention (for even such an absolute monarch of Louis could not keep France
from spiraling into bankruptcy), nor was it built on needless consumption of
the kind only his court knew how to practice, nor on monetary debasement or
otherwise the bilking of ones' creditors - which is what McCulley and
Kaletsky, et al, are effectively proposing and to which Louis was also
no stranger.

No. It was built on savings being converted into capital and
an assault on either, whether led by the persuasion of sophists or the
pre-emption of the State, is only guaranteed to hamper our struggle towards
greater future prosperity.

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Sean Corrigan is a principal of www.capital-insight.com,
a London-based economic consultancy. He is also co-manager of the
Bermuda-based Edelweiss Fund.
See his Mises.org Articles
Archive, or send him MAIL.
See also the Study
Guide on Business Cycles.

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gesamter Thread:

Destroying an Economy to Save It / mises.org-Artikel - - Elli -, 24.04.2003, 16:28
- Re: Destroying an Economy to Save It - silvereagle, 24.04.2003, 18:03
  - Re: Der Edelweiss-Fonds auf den Bermudas usw. gefällt mir noch besser - oh, oh! - dottore, 24.04.2003, 18:13