One lesson in economics

ECONOMICS

SECTION 1
Basic alternatives
Elementary consequences
'Social' consequences
Political economy

The one lesson in economics
you really should understand

The basic alternatives of survival

Start with yourself. How can you survive? There are three alternatives:

(A1) you produce what you need
- this is living the economic way.

(A2) others give you what you need
- this is living on charity.

(A3) you steal what you need
- this is living the criminal way.

Obviously, no other alternatives are available.

Elementary consequences

You can understand that for a person alone on an island only option (A1) is available.

Condition (A1) is the only universal condition of survival.
No matter how many people there are in the world, if each one of them produces what he or she needs, all of them can satisfy their needs. A world consisting exclusively of producers is economically viable.

Condition (A2) is not a universal condition of survival.
It is not possible that everybody lives on charity. No one can live on charity unless there is some other person who produces what he needs for himself and also what he wishes to distribute to others. Moreover, no one can continue to live on charity unless at all times there is another who produces what he needs himself and also what he wishes to distribute to others. A world consisting exclusively of paupers is not economically viable.

Condition (A3) also is not a universal condition of survival.
It is not possible that everybody lives by crime. No one can live by crime unless there is some other person who produces what the criminal takes away. Moreover, no one can continue to live by crime unless at all times there is another who produces what the criminal takes away. A world consisting exclusively of criminals is not economically viable.

Living on charity and living by crime are parasitic ways of life. They can flourish only so long as the producers do not stop producing.

When there are too many people counting on the charity of others, the producers will not be able to satisfy their own needs and the needs of those who live on charity. Human nature being what it is, it is likely that the producers eventually will cut back on charitable giving because they prefer satisfying their own needs to satisfying the needs of others. In any case, even if the producers should prefer being charitable to satisfying their own needs, their capacity for charitable giving is bound to diminish over time because what they give away they cannot use for maintaining, let alone increasing, their productive powers.

When there are too many people living by crime, the producers will not be able to satisfy their own needs and the needs of the thieves and robbers. Human nature being what it is, it is likely that the producers soon will cut back on production because they prefer enjoying leisure, even if it means poverty, to working hard for the benefit of criminals. In any case, even if the producers should continue to produce, their capacity to do so is bound to diminish over time because what they have to give up to thieves and robbers they cannot use for maintaining, let alone increasing, their productive powers.

Human nature being what it is, people who find that a parasitic way of life is capable of satisfying their needs are more likely to prefer being a parasite to being a producer. That way, they can save themselves a lot of pain and trouble

'Social' consequences

We have seen that only (A1) is a universal condition of survival. A single person on an otherwise deserted island can survive only by producing what he needs himself. He has no alternatives. However, if there is another person on the island the other alternatives are available.

For two persons on an island, the alternatives are

(B1) They work together as a team to produce what they need.
This is the beginning of economic society (a household)

(B2) Each one produces what he needs and what he can exchange for a more valuable good or service produced by the other.
This is the beginning of economic conviviality (the market).

(B3) One of them works to sustain himself as well as the other.
This is the beginning of charitable society or charitable conviviality, which includes a producer and a non-aggressive non-productive person. Traditionally, families are charitable societies in which the productive members take care of the needs of the very young, the sick and the old. Giving alms to beggars on the street or performing acts of kindness for strangers are examples of charitable conviviality.

(B4) One of them steals from or robs the other.
This is irregular parasitism, the opposite of economic conviviality, which includes an antagonism between an aggressive non-productive person and his victim.

(B5) One of them forces the other to produce for the two of them.
This is regular parasitism or the beginning of political society, which includes an antagonism between an aggressive non-productive ruler and his victim. The main difference between charitable society or conviviality, on the one hand, and political society (there being no such thing as political conviviality), on the other hand, is that the former is constituted by giving and the latter by taking.

For three or more persons, the basic relations among individuals (B1 to B5) remain the same. However, there now is the complication that arises from the possibility of forming and dissolving coalitions. Hence, there may be larger and smaller households or firms, larger and smaller bands of parasites (thieves and robbers), and larger and smaller bands of rulers. There may be also various sorts of schemes of co-operation and support among several groups and individuals. The bottom line, however, is that to survive non-producers must rely either on the charity of the producers or on their own capacity for deceit, fraud and violence to exploit the producers. There is no other way.

Political economy

If you really have understood this lesson, you should be able to cut through the rhetoric of deceit that the more sophisticated non-producers have used since time immemorial to perpetuate their rule. For example, a lot of rhetorical ingenuity has been deployed to obfuscate the difference between giving charity to persons in need and taking from one group of people ('them', 'the others', 'the rich') while giving some of the loot to another group ('you', 'us', 'the poor').

You should also be able to discover the fallacy of much contemporary 'technical economics' which tends to leave out all 'moral considerations'. Only by eliminating such considerations can one say that the difference between giving and taking is really without 'economic significance', because both amount to a unilateral transfer of property, without payment of compensation.

Without a moral compass, an organisation set up by producers to organise their charitable activities is not really different from an organisation set up by people to organise their taking of the property of others. 'Economically speaking', the only relevant action of organisations of either type is to effect a redistribution of property. Therefore -- or so the argument goes --, we should judge them 'economically' only by considering their efficacy and costs in bringing about a desired redistribution. We should not judge them 'morally' by considering how they bring it about.

It is a truism that for every person there are some needs which he can satisfy more efficiently by taking the property of others than by his own production-and-exchange or by relying on the charity of others. There is always a public that stands to gain from a taking. If that public is large enough and sufficiently devoid of a moral sense it readily will give political legitimacy to the view that the organised taking of the property of others is a more efficient way of satisfying their needs than relying on the charity of those others.

Of course, that view rapidly loses its credibility once we start considering the effects of such takings in the long run. However, as one of the great 'technical' economists and self-confessed immoralist, J.M. Keynes, consoled his followers: 'In the long run we are all dead.' Moreover, throughout history, it has been understood by rulers that occasional acts of temporary self-restraint on their part will give producers sufficient hope to increase production again by so much that soon increased predation again will become profitable. Exploiting people--or, to use the current euphemism, 'human resources management'--is an art with a long pedigree.

Bibliographical note:

Probably the best book of economic principles is Murray N. Rothbard's Man, Economy, and State: A Treatise on Economic Principles. (2 volumes.) Princeton, NJ: D. Van Nostrand Co., 1962. Reissue, Los Angeles: Nash Publishing Co., 1970. New York: New York University Press, 1979. Auburn University, Alabama: The Ludwig von Mises Institute, 1993. A new edition is being prepared by the Ludwig von Mises Institute in Auburn, Alabama. .