WEBVTT NOTE XXIII. The Data of the Market 1 00:00:00.000 --> 00:00:05.000 Chapter 23 The Data of the Market 2 00:00:05.000 --> 00:00:09.000 1. The Theory and the Data 3 00:00:09.000 --> 00:00:26.000 Catallactics, the theory of the market economy, is not a system of theorems valid only under ideal and unrealizable conditions, and applicable to reality merely with essential restrictions and modifications. 4 00:00:26.000 --> 00:00:40.000 All the theorems of catallactics are rigidly and without any exception valid for all phenomena of the market economy, provided the particular conditions which they presuppose are present. 5 00:00:40.000 --> 00:00:47.000 It is, for instance, a simple question of fact, whether there is direct or indirect exchange. 6 00:00:47.000 --> 00:00:48.080 Exchange. 7 00:00:48.080 --> 00:00:54.040 But where there is indirect exchange, all the general laws of the theory of indirect 8 00:00:54.040 --> 00:01:01.320 exchange are valid with regard to the acts of exchange and the media of exchange. 9 00:01:01.320 --> 00:01:09.240 As has been pointed out, praxeological knowledge is precise or exact knowledge of reality. 10 00:01:09.240 --> 00:01:15.160 All references to the epistemological issues of the natural sciences and all analogies 11 00:01:15.160 --> 00:01:21.420 These derived from comparing these two radically different realms of reality and cognition 12 00:01:21.420 --> 00:01:23.020 are misleading. 13 00:01:23.020 --> 00:01:29.980 There is, apart from formal logic, no such thing as a set of methodological rules applicable 14 00:01:29.980 --> 00:01:36.860 both to cognition by means of the category of causality and to that by means of the category 15 00:01:36.860 --> 00:01:40.280 of finality. 16 00:01:40.280 --> 00:01:46.120 Praxeology deals with human action as such in a general and universal way. 17 00:01:46.120 --> 00:01:51.840 It deals neither with the particular conditions of the environment in which man acts, nor 18 00:01:51.840 --> 00:01:57.460 with the concrete content of the valuations which direct his actions. 19 00:01:57.460 --> 00:02:04.780 For praxeology, data are the bodily and psychological features of the acting men, their desires 20 00:02:04.780 --> 00:02:11.420 and Value Judgments and the theories, doctrines and ideologies they develop in order to adjust 21 00:02:11.420 --> 00:02:17.060 themselves purposively to the conditions of their environment, and thus to attain the 22 00:02:17.060 --> 00:02:19.820 ends they are aiming at. 23 00:02:19.820 --> 00:02:25.940 These data, although permanent in their structure and strictly determined by the laws controlling 24 00:02:25.940 --> 00:02:31.240 the order of the universe, are perpetually fluctuating and varying. 25 00:02:31.240 --> 00:02:34.760 They change from instant to instant. 26 00:02:34.760 --> 00:02:41.080 The fullness of reality can be mentally mastered only by a mind resorting both to the conception 27 00:02:41.080 --> 00:02:47.960 of praxeology and to the understanding of history, and the latter requires command of 28 00:02:47.960 --> 00:02:51.640 the teachings of the natural sciences. 29 00:02:51.640 --> 00:02:56.460 Cognition and prediction are provided by the totality of knowledge. 30 00:02:56.460 --> 00:03:01.780 What the various single branches of science offer is always fragmentary. 31 00:03:01.780 --> 00:03:06.560 It must be complemented by the results of all the other branches. 32 00:03:06.560 --> 00:03:11.760 From the point of view of acting man, the specialization of knowledge and its breaking 33 00:03:11.760 --> 00:03:17.740 up into the various sciences is merely a device of the division of labor. 34 00:03:17.740 --> 00:03:24.160 In the same way in which the consumer utilizes the products of various branches of production, 35 00:03:24.160 --> 00:03:30.280 The actor must base his decisions on knowledge brought about by various branches of thought 36 00:03:30.280 --> 00:03:32.440 and investigation. 37 00:03:32.440 --> 00:03:38.660 It is not permissible to disregard any of these branches in dealing with reality. 38 00:03:38.660 --> 00:03:44.820 The historical school and the institutionalists want to outlaw the study of praxeology and 39 00:03:44.820 --> 00:03:51.160 economics and to occupy themselves merely with the registration of the data or, as they 40 00:03:51.160 --> 00:03:57.480 They call them nowadays the institutions, but no statement concerning these data can 41 00:03:57.480 --> 00:04:03.120 be made without reference to a definite set of economic theorems. 42 00:04:03.120 --> 00:04:09.480 When an institutionalist ascribes a definite event to a definite cause, for example, mass 43 00:04:09.480 --> 00:04:15.600 unemployment to the alleged deficiencies of the capitalist mode of production, he resorts 44 00:04:15.600 --> 00:04:18.240 to an economic theorem. 45 00:04:18.240 --> 00:04:24.560 In objecting to the closer examination of the theorem tacitly implied in his conclusions, 46 00:04:24.560 --> 00:04:29.600 he merely wants to avoid the exposure of the fallacies of his argument. 47 00:04:29.600 --> 00:04:36.160 There is no such thing as a mere recording of unadulterated facts apart from any reference 48 00:04:36.160 --> 00:04:37.960 to theories. 49 00:04:37.960 --> 00:04:44.580 As soon as two events are recorded together or integrated into a class of events, a theory 50 00:04:44.580 --> 00:04:46.440 is operative. 51 00:04:46.440 --> 00:04:53.080 The question whether there is any connection between them can only be answered by a theory, 52 00:04:53.080 --> 00:04:57.760 that is, in the case of human action, by praxeology. 53 00:04:57.760 --> 00:05:04.520 It is vain to search for coefficients of correlation if one does not start from a theoretical insight 54 00:05:04.520 --> 00:05:06.880 acquired beforehand. 55 00:05:06.880 --> 00:05:12.840 The coefficient may have a high numerical value without indicating any significant and 56 00:05:12.840 --> 00:05:18.340 and Relevant Connection between the two groups 2. 57 00:05:18.340 --> 00:05:21.040 THE ROLE OF POWER 58 00:05:21.040 --> 00:05:27.240 The historical school and institutionalism condemn economics for disregarding the role 59 00:05:27.240 --> 00:05:30.520 which power plays in real life. 60 00:05:30.520 --> 00:05:37.000 The basic notion of economics, namely the choosing and acting individual, is, they say, 61 00:05:37.000 --> 00:05:39.720 an unrealistic concept. 62 00:05:39.720 --> 00:05:43.560 The individual man is not free to choose and to act. 63 00:05:43.560 --> 00:05:48.880 He is subject to social pressure, to the sway of irresistible power. 64 00:05:48.880 --> 00:05:54.580 It is not the individual's value judgments, but the interactions of the forces of power 65 00:05:54.580 --> 00:05:57.960 that determine the market phenomena. 66 00:05:57.960 --> 00:06:05.160 These objections are no less spurious than all other statements of the critics of economics. 67 00:06:05.160 --> 00:06:11.880 Strategy in general, and economics and catallactics in particular, do not contend or assume that 68 00:06:11.880 --> 00:06:17.860 man is free in any metaphysical sense attached to the term freedom. 69 00:06:17.860 --> 00:06:23.240 Man is unconditionally subject to the natural conditions of his environment. 70 00:06:23.240 --> 00:06:29.860 In acting, he must adjust himself to the inexorable regularity of natural phenomena. 71 00:06:29.860 --> 00:06:35.980 It is precisely the scarcity of the nature-given conditions of his welfare that enjoins upon 72 00:06:35.980 --> 00:06:39.740 man the necessity to act. 73 00:06:39.740 --> 00:06:45.840 Most social reformers, foremost among them Fourier and Marx, pass over in silence the 74 00:06:45.840 --> 00:06:52.120 fact that the nature-given means of removing human uneasiness are scarce. 75 00:06:52.120 --> 00:06:57.700 As they see it, the fact that there is not an abundance of all useful things is merely 76 00:06:57.700 --> 00:07:04.060 caused by the inadequacy of the capitalist mode of production and will therefore disappear 77 00:07:04.060 --> 00:07:07.020 in the higher phase of communism. 78 00:07:07.020 --> 00:07:12.060 An eminent Menshevik author who could not help referring to the nature-given barriers 79 00:07:12.060 --> 00:07:21.320 to human well-being, in genuinely Marxian style, calls nature the most relentless exploiter. 80 00:07:21.320 --> 00:07:25.300 In acting, man is directed by ideologies. 81 00:07:25.300 --> 00:07:30.640 He chooses ends and means under the influence of ideologies. 82 00:07:30.640 --> 00:07:35.300 The might of an ideology is either direct or indirect. 83 00:07:35.300 --> 00:07:41.340 It is direct when the actor is convinced that the content of the ideology is correct and 84 00:07:41.340 --> 00:07:46.560 that he serves his own interests directly in complying with it. 85 00:07:46.560 --> 00:07:52.740 It is indirect when the actor rejects the content of the ideology as false but is under 86 00:07:52.740 --> 00:07:58.340 under the necessity of adjusting his actions to the fact that this ideology is endorsed 87 00:07:58.340 --> 00:08:00.500 by other people. 88 00:08:00.500 --> 00:08:06.700 The mores of their social environment are a power which people are forced to consider. 89 00:08:06.700 --> 00:08:12.140 Those recognizing the spuriousness of the generally accepted opinions and habits must 90 00:08:12.140 --> 00:08:18.500 in each instance choose between the advantages to be derived from resorting to a more efficient 91 00:08:18.500 --> 00:08:26.060 Mode of Acting, and the disadvantages resulting from the contempt of popular prejudices, superstitions, 92 00:08:26.060 --> 00:08:28.020 and folkways. 93 00:08:28.020 --> 00:08:31.220 The same is true with regard to violence. 94 00:08:31.220 --> 00:08:37.260 In choosing, man must take into account the fact that there is a factor ready to exercise 95 00:08:37.260 --> 00:08:41.000 violent compulsion upon him. 96 00:08:41.000 --> 00:08:46.520 All the theorems of catallactics are valid also with regard to actions influenced by 97 00:08:46.520 --> 00:08:49.760 by such social or physical pressure. 98 00:08:49.760 --> 00:08:55.760 The direct or indirect might of an ideology and the threat of physical compulsion are 99 00:08:55.760 --> 00:08:59.380 merely data of the market situation. 100 00:08:59.380 --> 00:09:04.920 It does not matter, for instance, what kind of considerations motivate a man not to offer 101 00:09:04.920 --> 00:09:10.840 a higher bid for the purchase of a commodity than the one he really makes, without obtaining 102 00:09:10.840 --> 00:09:13.120 the good concerned. 103 00:09:13.120 --> 00:09:18.360 Through the determination of the market price, it is immaterial whether he spontaneously 104 00:09:18.360 --> 00:09:24.020 prefers to spend his money for other purposes, or whether he is afraid of being looked upon 105 00:09:24.020 --> 00:09:31.000 by his fellow men as an upstart or as a spin-thrift, afraid of violating a government-decreed 106 00:09:31.000 --> 00:09:37.920 ceiling price, or of defying a competitor ready to resort to violent revenge. 107 00:09:37.920 --> 00:09:44.040 In any case, his abstention from bidding a higher price contributes to the same extent 108 00:09:44.040 --> 00:09:47.040 to the emergence of the market price. 109 00:09:47.040 --> 00:09:52.880 It is customary nowadays to signify the position which the owners of property occupy on the 110 00:09:52.880 --> 00:09:56.240 market as economic power. 111 00:09:56.240 --> 00:10:00.280 The expediency of this terminology is questionable. 112 00:10:00.280 --> 00:10:05.800 The term is at any rate inappropriate, as far as it is intended to imply that under 113 00:10:05.800 --> 00:10:12.800 Under the impact of economic power, the determination of the market phenomena is controlled by laws 114 00:10:12.800 --> 00:10:18.400 other than those dealt with by catallactics. 115 00:10:18.400 --> 00:10:23.080 The Historical Role of War and Conquest 116 00:10:23.080 --> 00:10:28.640 Many authors glorify war and revolution, bloodshed and conquest. 117 00:10:28.640 --> 00:10:34.660 Carlyle and Ruskin, Nietzsche, Georges Sorel and Spengler were harbingers of the ideas 118 00:10:34.660 --> 00:10:52.660 The course of history, say these philosophies, is not determined by the mean activities of materialistic peddlers and merchants, but by the heroic deeds of warriors and conquerors. 119 00:10:52.660 --> 00:11:02.660 The economists err in abstracting from the experience of the short-lived liberal episode a theory to which they ascribe universal validity. 120 00:11:02.660 --> 00:11:19.660 This epoch of liberalism, individualism and capitalism, of democracy, tolerance and freedom, of the disregard of all true and eternal values, and of the supremacy of the rabble, is now vanishing and will never return. 121 00:11:19.660 --> 00:11:25.660 The dawning age of manliness requires a new theory of human action. 122 00:11:25.660 --> 00:11:32.400 However, no economist ever ventured to deny that war and conquest were of utmost importance 123 00:11:32.400 --> 00:11:39.820 in the past, and that Huns and Tartars, Vandals and Vikings, Normans and Conquistadors played 124 00:11:39.820 --> 00:11:42.640 an enormous part in history. 125 00:11:42.640 --> 00:11:47.820 One of the determinants of the present state of mankind is the fact that there were thousands 126 00:11:47.820 --> 00:11:50.340 of years of armed conflicts. 127 00:11:50.340 --> 00:11:57.220 Yet, what remains and is the essence of human civilization is not the legacy inherited from 128 00:11:57.220 --> 00:11:59.500 the warriors. 129 00:11:59.500 --> 00:12:05.300 Civilization is an achievement of the bourgeois spirit, not of the spirit of conquest. 130 00:12:05.300 --> 00:12:10.860 Those barbarian peoples who did not substitute working for plundering disappeared from the 131 00:12:10.860 --> 00:12:12.980 historical scene. 132 00:12:12.980 --> 00:12:17.700 If there is still any trace left of their existence, it is in the achievements they 133 00:12:17.700 --> 00:12:23.540 They Accomplished Under the Influence of the Civilization of the Subdued Peoples 134 00:12:23.540 --> 00:12:30.200 Latin civilization survived in Italy, France and the Iberian Peninsula in defiance of all 135 00:12:30.200 --> 00:12:32.860 barbarian invasions. 136 00:12:32.860 --> 00:12:39.180 If capitalist entrepreneurs had not succeeded Lord Clive and Warren Hastings, British rule 137 00:12:39.180 --> 00:12:46.580 in India might one day become such an insignificant historical reminiscence as are the 150 years 138 00:12:46.580 --> 00:12:55.140 It is not the task of economics to enter into an examination of the endeavors to revive 139 00:12:55.140 --> 00:12:57.640 the ideals of the Vikings. 140 00:12:57.640 --> 00:13:03.800 It has merely to refute the statements that the fact that there are armed conflicts reduces 141 00:13:03.800 --> 00:13:06.340 its teachings to naught. 142 00:13:06.340 --> 00:13:11.540 With regard to this problem, there is need to emphasize again the following. 143 00:13:11.540 --> 00:13:18.220 First, the teachings of catallactics do not refer to a definite epoch of history, but 144 00:13:18.220 --> 00:13:25.700 to all actions characterized by the two conditions, private ownership of the means of production, 145 00:13:25.700 --> 00:13:28.560 and division of labor. 146 00:13:28.560 --> 00:13:33.460 Whenever and wherever, in a society in which there is private ownership of the means of 147 00:13:33.460 --> 00:13:39.860 production, people not only produce for the direct satisfaction of their own wants, but 148 00:13:39.860 --> 00:13:47.860 and also consume goods produced by other people, the theorems of catallactics are strictly valid. 149 00:13:47.860 --> 00:13:54.860 Second, if apart from the market and outside of the market there is robbing and plundering, 150 00:13:54.860 --> 00:13:57.860 these facts are a datum for the market. 151 00:13:57.860 --> 00:14:03.860 The actors must take into account the fact that they are threatened by murderers and robbers. 152 00:14:03.860 --> 00:14:08.860 If killing and robbing become so prevalent that any production appears useless, 153 00:14:08.860 --> 00:14:21.380 3. 154 00:14:21.380 --> 00:14:26.760 In order to seize booty, something to be plundered must be available. 155 00:14:26.760 --> 00:14:32.660 The heroes can only live if there are enough bourgeois to be expropriated. 156 00:14:32.660 --> 00:14:38.100 The existence of producers is a condition for the survival of conquerors. 157 00:14:38.100 --> 00:15:08.100 4. There are, of course, other imaginable systems of a society based on the division of labor, besides the capitalist system of private ownership of the means of production. Champions of militarism are consistent in asking for the establishment of socialism. The whole nation should be organized as a community of warriors, in which the non-combatants have no other task 158 00:15:08.100 --> 00:15:20.780 4. 159 00:15:20.780 --> 00:15:24.100 Real Man as a Datum 160 00:15:24.100 --> 00:15:28.060 Economics deals with the real actions of real men. 161 00:15:28.060 --> 00:15:34.620 Its theorems refer neither to ideal nor to perfect men, neither to the phantom of a fabulous 162 00:15:34.620 --> 00:15:43.740 to economic man, homo economicus, nor to the statistical notion of an average man, ammoyant. 163 00:15:43.740 --> 00:15:50.380 Man with all his weaknesses and limitations, every man as he lives and acts, is the subject 164 00:15:50.380 --> 00:15:52.940 matter of catallactics. 165 00:15:52.940 --> 00:15:57.420 Every human action is a theme of praxeology. 166 00:15:57.420 --> 00:16:03.900 The subject matter of praxeology is not only the study of society, societal relations and 167 00:16:03.900 --> 00:16:08.780 and Mass Phenomena, but the study of all human actions. 168 00:16:08.780 --> 00:16:15.860 The term the social sciences and all its connotations are in this regard misleading. 169 00:16:15.860 --> 00:16:22.300 There is no yardstick that a scientific investigation can apply to human action other than that 170 00:16:22.300 --> 00:16:29.220 of the ultimate goals the acting individual wants to realize in embarking upon a definite 171 00:16:29.220 --> 00:16:30.360 action. 172 00:16:30.360 --> 00:16:35.640 The ultimate goals themselves are beyond and above any criticism. 173 00:16:35.640 --> 00:16:41.160 Nobody is called upon to establish what could make another man happy. 174 00:16:41.160 --> 00:16:47.080 What an unaffected observer can question is merely whether or not the means chosen for 175 00:16:47.080 --> 00:16:52.720 the attainment of these ultimate goals are fit to bring about the results sought by the 176 00:16:52.720 --> 00:16:54.260 actor. 177 00:16:54.260 --> 00:17:00.240 Only in answering this question is economics free to express an opinion about the actions 178 00:17:00.240 --> 00:17:06.440 of Individuals and Groups of Individuals, or of the Policies of Parties, Pressure Groups 179 00:17:06.440 --> 00:17:08.660 and Governments. 180 00:17:08.660 --> 00:17:13.980 It is customary to disguise the arbitrariness of the attacks launched against the value 181 00:17:13.980 --> 00:17:19.940 judgments of other people by converting them into a critique of the capitalist system or 182 00:17:19.940 --> 00:17:23.580 of the conduct of entrepreneurs. 183 00:17:23.580 --> 00:17:27.980 Economics is neutral with regard to all such statements. 184 00:17:27.980 --> 00:17:32.860 To the arbitrary statement that the balance between the production of different goods 185 00:17:32.860 --> 00:17:38.880 is admittedly faulty under capitalism, the economist does not oppose the statement that 186 00:17:38.880 --> 00:17:41.600 this balance is faultless. 187 00:17:41.600 --> 00:17:47.120 What the economist asserts is that in the unhampered market economy, this balance is 188 00:17:47.120 --> 00:17:54.320 in agreement with the conduct of the consumers, as displayed in the spending of their incomes. 189 00:17:54.320 --> 00:18:00.320 This is the general feature of democracy, whether political or economic. 190 00:18:00.320 --> 00:18:06.160 Democratic elections do not provide the guarantee that the man elected is free from faults, 191 00:18:06.160 --> 00:18:12.200 but merely that the majority of the voters prefer him to other candidates. 192 00:18:12.200 --> 00:18:18.100 It is not the task of the economist to censure his fellow men and to call the result of their 193 00:18:18.100 --> 00:18:20.720 actions faulty. 194 00:18:20.720 --> 00:18:26.100 The alternative to the system in which the individual's value judgments are paramount 195 00:18:26.100 --> 00:18:33.360 in the conduct of production processes is autocratic dictatorship. Then the value judgments 196 00:18:33.360 --> 00:18:39.220 of the dictators alone decide, although they are not less arbitrary than those of other 197 00:18:39.220 --> 00:18:41.300 people. 198 00:18:41.300 --> 00:18:48.340 Man is certainly not a perfect being. His human weakness taints all human institutions 199 00:18:48.340 --> 00:18:57.820 and thus, also, the market economy 5. The period of adjustment 200 00:18:57.820 --> 00:19:04.020 Every change in the market data has its definite effects upon the market. It takes a definite 201 00:19:04.020 --> 00:19:09.940 length of time before all these effects are consummated, that is, before the market is 202 00:19:09.940 --> 00:19:14.980 completely adjusted to the new state of affairs. 203 00:19:14.980 --> 00:19:31.980 The ethics has to deal with all the various individuals' conscious and purposive reactions to the changes in the data, and not, of course, merely with the final result brought about in the market structure by the interplay of these actions. 204 00:19:31.980 --> 00:19:43.980 It may happen that the effects of one change in the data are counteracted by the effects of another change occurring by and large at the same time and to the same extent. 205 00:19:43.980 --> 00:19:48.980 No considerable change in the market prices finally results. 206 00:19:48.980 --> 00:19:54.980 The statistician, exclusively preoccupied with the observation of mass phenomena 207 00:19:54.980 --> 00:20:00.980 and the outgrowth of the totality of market transactions as manifested in market prices, 208 00:20:00.980 --> 00:20:07.980 ignores the fact that the non-emergence of changes in the height of prices is merely accidental 209 00:20:07.980 --> 00:20:14.980 and not the outcome of a continuance in the data and the absence of specific adjustment activities. 210 00:20:14.980 --> 00:20:20.980 He fails to see any movement and the social consequences of such movements. 211 00:20:20.980 --> 00:20:29.980 Yet each change in the data has its own course, generates certain reactive responses on the part of the individuals affected 212 00:20:29.980 --> 00:20:34.980 and disturbs the relation between the various members of the market system 213 00:20:34.980 --> 00:20:41.900 Even if, eventually, no considerable changes in the prices of the various goods, and no 214 00:20:41.900 --> 00:20:47.260 changes at all in the figures concerning the total amount of capital in the whole market 215 00:20:47.260 --> 00:20:55.780 system result, economic history can give vague information ex post factum about the length 216 00:20:55.780 --> 00:20:58.100 of adjustment periods. 217 00:20:58.100 --> 00:21:03.700 The method of attaining such information is, of course, not measurement, but historical 218 00:21:03.700 --> 00:21:05.660 and Social Understanding. 219 00:21:05.660 --> 00:21:10.700 The various adjustment processes are in reality not isolated. 220 00:21:10.700 --> 00:21:17.300 Synchronously, an indefinite number of them take their course, their paths intersect, 221 00:21:17.300 --> 00:21:20.520 and they mutually influence one another. 222 00:21:20.520 --> 00:21:26.740 To disentangle this intricate tissue and to observe the chain of actions and reactions 223 00:21:26.740 --> 00:21:33.300 set into motion by a definite change in the data is a difficult task for the historian's 224 00:21:33.300 --> 00:21:38.660 Funding, and the results are mostly meager and questionable. 225 00:21:38.660 --> 00:21:44.440 The understanding of the length of adjustment periods is also the most difficult task incumbent 226 00:21:44.440 --> 00:21:49.940 upon those eager to understand the future, the entrepreneurs. 227 00:21:49.940 --> 00:21:55.940 Yet for success in entrepreneurial activities, mere anticipation of the direction in which 228 00:21:55.940 --> 00:22:02.140 the market will react to a certain event is of little significance if it is not supplemented 229 00:22:02.140 --> 00:22:09.340 by an adequate anticipation of the length of the various adjustment periods involved. 230 00:22:09.340 --> 00:22:14.940 Most of the mistakes committed by entrepreneurs in the conduct of affairs, and most of the 231 00:22:14.940 --> 00:22:21.660 blunders vitiating the prognoses of future business trends on the part of expert forecasters, 232 00:22:21.660 --> 00:22:26.900 are caused by errors concerning the length of adjustment periods. 233 00:22:26.900 --> 00:22:32.440 When dealing with effects brought about by changes in the data, it is customary to distinguish 234 00:22:32.440 --> 00:22:39.360 between the temporally nearer and the temporally remoter effects, namely the short-run effects 235 00:22:39.360 --> 00:22:41.800 and the long-run effects. 236 00:22:41.800 --> 00:22:48.040 This distinction is much older than the terminology in which it is expressed nowadays. 237 00:22:48.040 --> 00:22:54.560 In order to discover the immediate, the short-run effects brought about by a change in a datum, 238 00:22:54.560 --> 00:22:59.880 There is, as a rule, no need to resort to a thorough investigation. 239 00:22:59.880 --> 00:23:05.100 The short-run effects are, for the most part, obvious, and seldom escape the notice of a 240 00:23:05.100 --> 00:23:10.040 naive observer unfamiliar with searching investigations. 241 00:23:10.040 --> 00:23:16.140 What started economic studies was precisely the fact that some men of genius began to 242 00:23:16.140 --> 00:23:22.080 suspect that the remoter consequences of an event may differ from the immediate effects 243 00:23:22.080 --> 00:23:26.160 is visible even to the most simple-minded layman. 244 00:23:26.160 --> 00:23:32.520 The main achievement of economics was the disclosure of such long-run effects, hitherto 245 00:23:32.520 --> 00:23:38.520 unnoticed by the unaffected observer and neglected by the statesmen. 246 00:23:38.520 --> 00:23:45.160 From their startling discoveries, the classical economists derived a rule for political practice. 247 00:23:45.160 --> 00:23:51.280 Governments, statesmen and political parties, they argued, in planning and acting, should 248 00:23:51.280 --> 00:23:59.040 should consider not only the short-run consequences, but also the long-run consequences of their measures. 249 00:23:59.040 --> 00:24:04.460 The correctness of this inference is incontestable and indisputable. 250 00:24:04.460 --> 00:24:12.020 Action aims at the substitution of a more satisfactory state of affairs for a less satisfactory. 251 00:24:12.020 --> 00:24:18.320 Whether or not the outcome of a definite action will be considered more or less satisfactory 252 00:24:18.320 --> 00:24:26.640 depends on a correct anticipation of all its consequences, both short-run and long-run. 253 00:24:26.640 --> 00:24:32.960 Some people criticize economics for alleged neglect of the short-run effects, and for 254 00:24:32.960 --> 00:24:37.860 alleged preference given to the study of the long-run effects. 255 00:24:37.860 --> 00:24:41.080 The reproach is nonsensical. 256 00:24:41.080 --> 00:24:46.360 Economics has no means of scrutinizing the results of a change in the data other than 257 00:24:46.360 --> 00:24:52.800 One to start with its immediate consequences and to analyze step by step, proceeding from 258 00:24:52.800 --> 00:24:58.980 the first reaction to the remoter reactions, all the subsequent consequences, until it 259 00:24:58.980 --> 00:25:03.140 finally arrives at its ultimate consequences. 260 00:25:03.140 --> 00:25:10.640 The long-run analysis necessarily always fully includes the short-run analysis. 261 00:25:10.640 --> 00:25:16.340 It is easy to understand why certain individuals, parties and pressure groups are eager to 262 00:25:16.340 --> 00:25:21.340 to Propagate the Exclusive Sway of the Short-Run Principle. 263 00:25:21.340 --> 00:25:27.380 Politics, they say, should never be concerned about the long-run effects of a device and 264 00:25:27.380 --> 00:25:33.620 should never abstain from resorting to a measure from which benefits are expected in the short-run 265 00:25:33.620 --> 00:25:38.060 merely because its long-run effects are detrimental. 266 00:25:38.060 --> 00:25:41.620 What counts is only the short-run effects. 267 00:25:41.620 --> 00:25:45.060 In the long run, we shall all be dead. 268 00:25:45.060 --> 00:25:50.360 All that economics has to answer to these passionate critics is that every decision 269 00:25:50.360 --> 00:25:56.420 should be based on a careful weighing of all its consequences, both those in the short 270 00:25:56.420 --> 00:25:59.500 run and those in the long run. 271 00:25:59.500 --> 00:26:05.380 There are certainly, both in the actions of individuals and in the conduct of public affairs, 272 00:26:05.380 --> 00:26:11.180 situations in which the actors may have good reasons to put up even with very undesirable 273 00:26:11.180 --> 00:26:19.500 to avoid what they consider still more undesirable short-run conditions. 274 00:26:19.500 --> 00:26:25.140 It may sometimes be expedient for a man to heat the stove with his furniture. 275 00:26:25.140 --> 00:26:30.380 But if he does, he should know what the remoter effects will be. 276 00:26:30.380 --> 00:26:35.420 He should not delude himself by believing that he has discovered a wonderful new method 277 00:26:35.420 --> 00:26:38.540 of heating his premises. 278 00:26:38.540 --> 00:26:43.860 That is all that economics need opposed to the frenzy of the short-run apostles. 279 00:26:43.860 --> 00:26:47.700 History, one day, will have to say much more. 280 00:26:47.700 --> 00:26:53.120 It will have to establish the role that the recommendation of the short-run principle, 281 00:26:53.120 --> 00:27:00.020 this revival of Madame de Pompadour's notorious phrase, après nous les déluge, played in 282 00:27:00.020 --> 00:27:06.660 the most serious crisis of Western civilization, it will have to show how welcome this slogan 283 00:27:06.660 --> 00:27:12.620 was to governments and parties whose policies aimed at the consumption of the spiritual 284 00:27:12.620 --> 00:27:17.020 and material capital inherited from earlier generations.