Direct Acoustics

Background

I am concerned about the language being used by media and politicians about economics. I find it to be misleading, at best, and dangerous to our overall prosperity.
This essay is an attempt to put the issues of economics into comprehensible and accurate language. It is an attempt for clarification for those who are in favor of prosperity.
There is conflict in our culture and in the world between those who favor prosperity and those who oppose it. Many human interests are in conflict with the generation of wealth.
Some are religious, some are egalitarian, some are theft and some are altruistic. (To illustrate the latter, it is obvious that the possession of wealth tends to diminish nobility of character.)
Groups that fall in these categories are most young people, many already wealthy people, government bureaucrats, the media and academia. Economists are often hired by those who have an agenda other than that of creating wealth. Since most readers of economics are in favor of generating wealth, those economists have learned to write obscurely while pretending to favor prosperity. The study of economics would be simple if it were merely focused on how people generate wealth. The language for discussing economics has been largely taken over by those who oppose it. Conversations in the subject of economics will be useful only when those conversing are aware of whether they are in favor of generating wealth.

The key concept missing from contemporaneous discussion is the role of labor in creating value and hence, prosperity and wealth.

In short: Prosperity and wealth are generated by labor. ONLY!

Reprise: this is a terse background against which economic activity takes place:

* a man works to produce the goods necessary for his survival.
* he uses division of labor and tools to increase productivity.
* when he has a comparative advantage in labor productivity, he trades with other people, at mutually agreed prices; this leads to increased prosperity and leisure time.
* when he produces more goods than he needs to consume for his survival, he has generated wealth.
* money is an invention which facilitates trade and (unfortunately?) taxation.
* credit allows a worker to borrow his future labor to increase productivity in the present.
* general human productivity increases until government regulates and taxes, interfering with the freedom to labor and trade.
* eventually so much wealth is created for which people are evolutionarily unfit to handle and they invent psychological objections to it and tend toward the seemingly benevolent, albeit unproductive tenets of altruism.
* This tendency results in so-clalled bubbles and the boom and bust business cycle.

The foregoing I believe to be self-evident, although not obvious.

Here is my biggest objection to contemporary language. Economics has become unmoored from the fact that all production is based on labor. In a prosperous society, such as ours, the focus veers towards compassion and away from what makes us prosperous in the first place. The economics profession has become focused on the actions of government and mostly incomplete or irrelevant statistics.

Adam Smith recognized that labor is fundamental, and that truth was widely recognized to be true through the time of Karl Marx.

Marx embraced this observation and corrupted it by implying that all labor is equal and that all people are equally entitled to its fruits. Marx (and others) attempted to apply an absolute value to the labor in a good. Merely by observation, it is obvious that labor has no absolute or fixed value. Yet, labor does have value. Why is that labor different from one person to another or from one place to another? Ultimately, it is based on what someone else is willing to pay for it, but, aside from its market value, the value of labor is is determined by the productivity of the worker.

Von Mises, in his great tome about Money, ignored both Adam Smith and Marx, instead focusing on the subjectivity of the valuation of trade. (That is, the history of labor in a good does not determine its value.)

The error in the study of economics has been the attempt to quantify (or moralize) the value of labor. This cannot be done because all exchanges are voluntary agreements that ignore the history of the labor that went into the goods being exchanged. When I sell a loudspeaker, no one cares how much labor I put into it. The question is how good does it sound for its price. However, on the other hand, without my labor there would be no speaker at all for me to sell. The price of my labor is determined after the fact, that is, when I sell it. The magnitude of my labor’s value is determined by my skill, training and experience.

The following is inference or observation.

The Role of Government

There is nothing that government can do to create develop or stimulate production or prosperity — except, get out of the way. What government can do is to provide an environment in which people can labor, produce goods and exchange them. The most important elements of this environment are personal freedom (to work and trade) and the unconditional right of private property. The U.S. constitution was designed to provide this kind of environment. Perhaps the best example of this was the British management of Hong Kong in the middle of the twentieth century, when unbeknownst to most of the world, including Hong Kong itself (and in the complete absence of democracy), prosperity increased at more than ten percent per year.

When government spends money no value is created (there is no labor on the government side of the transaction). Instead, overall wealth is diminished, as through inflation. The value of money spent by government is obtained from the labor of people working outside of government. That value is obtained either through confiscation or inflation. When people in government think that stimulus is needed, it is because people in the private sector are not working and trading. The reason they are not working and trading is government regulations and barriers, such as taxes and fees. The only way the government can act as a stimulus is to remover the obstacles to working and trading. Some may think (compassionately) that government is necessary to save us when misfortune befalls. But the government has no source of goods other than productive workers from whom they must seize the goods they bestow on the unfortunate. This is possible only in a prosperous society, and the more the government bestows productive workers goods on the unproductive unfortunate, the less prosperous the society becomes.

I have no argument with charity. Even, I have no argument with government welfare, so long as it is understood by those who recommend it where it comes from and by what right. All too often, in the emotion of compassion, the facts of the matter are obscured or ignored.