WEBVTT NOTE 12.10. Growth, Affluence, and Government 1 00:00:00.000 --> 00:00:05.000 10. Growth, Affluence, and Government 2 00:00:05.000 --> 00:00:09.000 a. The Problem of Growth 3 00:00:09.000 --> 00:00:17.000 In recent years, economists and journalists alike have been heavily emphasizing a new concept, growth, 4 00:00:17.000 --> 00:00:29.000 and much economic writing is engaged in a numbers game on what percentage or rate of growth we should have next year or in the next decade. 5 00:00:29.000 --> 00:00:38.600 The discussion is replete with comparisons of the higher rate of country X, which we must hurriedly counter, etc. 6 00:00:38.600 --> 00:00:45.000 Amidst all the interest in growth, there are many grave problems which have hardly been touched upon. 7 00:00:45.000 --> 00:00:50.840 First and foremost is the simple query, what is so good about growth? 8 00:00:50.840 --> 00:00:58.760 The economists, discoursing scientifically about growth, have illegitimately smuggled an ethical judgment 9 00:00:58.760 --> 00:01:05.080 into their science, an ethical judgment that remains unanalyzed, as if it were self-evident. 10 00:01:05.640 --> 00:01:12.200 But why should growth be the highest value for which we can strive? What is the ethical 11 00:01:12.200 --> 00:01:19.560 justification? There is no doubt about the fact that growth, taken over as another dubious metaphor 12 00:01:19.560 --> 00:01:27.160 from biology, sounds good to most people, but this hardly constitutes an adequate ethical analysis. 13 00:01:27.160 --> 00:01:39.160 Many things are considered as good, but on the free market every man must choose between different quantities of them and the price for those foregone. 14 00:01:39.160 --> 00:01:47.160 Similarly, growth, as we shall presently see, must be balanced and weighed against competing values. 15 00:01:47.160 --> 00:01:54.160 Given due consideration, growth would be considered by few people as the only absolute value. 16 00:01:54.160 --> 00:02:06.280 It is completely illegitimate for the economist 17 00:02:06.280 --> 00:02:11.080 qua-economist simply to endorse growth. 18 00:02:11.080 --> 00:02:17.540 What he can do is contrast what growth means in various social conditions. 19 00:02:17.540 --> 00:02:24.480 In a free market, for example, every person chooses how much future growth he wants as 20 00:02:24.480 --> 00:02:27.260 compared to present consumption. 21 00:02:27.260 --> 00:02:34.960 Growth, that is, a rise in future living standards, can be achieved, as we have implicitly 22 00:02:34.960 --> 00:02:40.980 made clear throughout this volume, only in a few definable ways. 23 00:02:40.980 --> 00:02:48.340 Either more and better resources can be found, or more and better people can be born, or 24 00:02:48.340 --> 00:02:56.500 technology improved, or the capital goods structure must be lengthened and capital multiplied. 25 00:02:56.500 --> 00:03:02.880 In practice, since resources need capital to find and develop them, since technological 26 00:03:02.880 --> 00:03:09.940 improvement can be applied to production only via capital investment, since entrepreneurial 27 00:03:09.940 --> 00:03:16.940 Individual skills act only through investments, and since an increased labor supply is relatively 28 00:03:16.940 --> 00:03:24.980 independent of short-run economic considerations, and can backfire in Malthusian fashion by 29 00:03:24.980 --> 00:03:33.060 lowering per capita output, the only viable way to growth is through increased saving 30 00:03:33.060 --> 00:03:34.660 and investment. 31 00:03:34.660 --> 00:03:40.960 On the free market, each individual decides how much he wants to save, to increase his 32 00:03:40.960 --> 00:03:47.000 future living standards, as against how much he wants to consume in the present. 33 00:03:47.000 --> 00:03:54.220 The net resultant of all these voluntary individual decisions is the nation's or world's rate 34 00:03:54.220 --> 00:03:56.400 of capital investment. 35 00:03:56.400 --> 00:04:03.780 The total is a reflection of the voluntary free decisions of every consumer, of every 36 00:04:03.780 --> 00:04:10.220 The economist, therefore, has no business endorsing growth as an end. 37 00:04:10.220 --> 00:04:17.460 If he does so, he is injecting an unscientific, arbitrary value judgment, especially if he 38 00:04:17.460 --> 00:04:21.540 does not present an ethical theory and justification. 39 00:04:21.540 --> 00:04:28.060 He should simply say that, in a free market, everyone gets as much growth as he chooses 40 00:04:28.060 --> 00:04:46.100 What happens if the government decides, either by subsidies or by direct government ownership, 41 00:04:46.100 --> 00:04:50.020 to try to spur the social rate of growth? 42 00:04:50.020 --> 00:04:55.080 Then the economist should point out the entire situation changes. 43 00:04:55.080 --> 00:05:00.160 No longer does each person elect to grow as he thinks best. 44 00:05:00.160 --> 00:05:07.880 Now, with compulsory saving and investing, investment can come only at the expense of 45 00:05:07.880 --> 00:05:11.680 the forced saving of some individuals. 46 00:05:11.680 --> 00:05:20.800 In short, if A, B and C grow because their standard of living rises from compulsory investment, 47 00:05:20.800 --> 00:05:28.360 They do so at the expense of D, E and F, the ones who were compelled to save. 48 00:05:28.360 --> 00:05:34.080 No longer can we say that the social standard of living, the standard of living of each 49 00:05:34.080 --> 00:05:36.720 active person, rises. 50 00:05:36.720 --> 00:05:44.520 Under compulsory growth, some people, the coerced savers, clearly and demonstrably lose. 51 00:05:44.520 --> 00:05:46.920 They grow backward. 52 00:05:46.920 --> 00:05:54.160 Here is one reason why government intervention can never raise society's rate of growth. 53 00:05:54.160 --> 00:06:01.660 For when individuals act freely on the market, every one of their actions benefits everyone, 54 00:06:01.660 --> 00:06:09.240 and so growth is truly social, that is, participated in by everyone in the society. 55 00:06:09.240 --> 00:06:16.120 But when government acts to force growth, it is only some who grow, at the expense of 56 00:06:16.120 --> 00:06:18.800 and the Retrogression of Others. 57 00:06:18.800 --> 00:06:27.480 The Wertfrei Economist is therefore not permitted to say that society grows at all. 58 00:06:27.480 --> 00:06:34.280 Growth therefore is demonstrably not the single absolute value for anyone. 59 00:06:34.280 --> 00:06:41.180 People on the market all weigh growth against present consumption, just as they weigh work 60 00:06:41.180 --> 00:06:45.420 against leisure and all goods against one another. 61 00:06:45.420 --> 00:06:53.700 If we fully realize that there is no such existent entity as society apart from individuals, 62 00:06:53.700 --> 00:07:01.380 it becomes clear that society cannot grow at the expense of imposing losses on some or 63 00:07:01.380 --> 00:07:03.740 most of its members. 64 00:07:03.740 --> 00:07:09.860 Suppose for example that a community exists where the bulk of the population do not want 65 00:07:09.860 --> 00:07:11.080 to grow. 66 00:07:11.080 --> 00:07:15.080 They would rather not work very hard or save very much. 67 00:07:15.080 --> 00:07:20.240 Instead, they would lull under the trees, pick berries, and play games. 68 00:07:20.240 --> 00:07:25.620 To advocate the governments coming on the scene and forcing these people to work and 69 00:07:25.620 --> 00:07:33.100 save in order to grow at some time in the future means to advocate the compulsory lowering 70 00:07:33.100 --> 00:07:39.900 of the standard of living of the bulk of the populace in the present and near future. 71 00:07:39.900 --> 00:07:46.580 Any sort of achieved production under this scheme, however great, would not be growth 72 00:07:46.580 --> 00:07:48.260 for society. 73 00:07:48.260 --> 00:07:55.380 Instead, it would be retrogression, not only for some, but for most people. 74 00:07:55.380 --> 00:08:02.020 An economist, therefore, cannot scientifically advocate compulsory growth, for what he is 75 00:08:02.020 --> 00:08:07.140 really doing is attempting to impose his own ethical views. 76 00:08:07.140 --> 00:08:13.460 For example, more hard work and saving is better than more leisure and berries on the 77 00:08:13.460 --> 00:08:17.120 other members of society by force. 78 00:08:17.120 --> 00:08:21.300 These members greatly lose utility as a result. 79 00:08:21.300 --> 00:08:29.060 Furthermore, it must be emphasized again that in cases of coerced saving, the saver reaps 80 00:08:29.060 --> 00:08:34.900 none of the benefit of his sacrifice, which is instead reaped by government officials 81 00:08:34.900 --> 00:08:37.280 or other beneficiaries. 82 00:08:37.280 --> 00:08:45.180 This contrasts to the free market, where people save and invest precisely because they will 83 00:08:45.180 --> 00:08:50.120 reap some tangible and desired rewards. 84 00:08:50.120 --> 00:08:58.020 In a regime of coerced growth, then, society cannot grow, and conditions are totally different 85 00:08:58.020 --> 00:09:00.180 from those of the free market. 86 00:09:00.180 --> 00:09:07.680 Indeed, what we have is a form of the free-rider argument against the free market and for government. 87 00:09:07.680 --> 00:09:17.680 Here, the various free-riders band together to force other people to be thrifty so that the former can benefit. 88 00:09:17.680 --> 00:09:26.680 Even if we set these problems aside, it is doubtful how much the coercing free-riders can benefit from these measures. 89 00:09:26.680 --> 00:09:30.680 Many considerations treated earlier now come into play. 90 00:09:30.680 --> 00:09:48.680 In the first place, the growth and success of the compulsory free riders discourage production and shift more and more people and energy from production to the exploitation of production, that is, to compulsory free riding. 91 00:09:48.680 --> 00:09:55.580 Secondly, we have seen that if government itself does the investing out of the confiscated 92 00:09:55.580 --> 00:10:04.360 savings of others, the result, for many reasons, is not genuine investment, but waste assets. 93 00:10:04.360 --> 00:10:11.320 The capital built out of coerced savings then, instead of benefiting the consumers, is largely 94 00:10:11.320 --> 00:10:14.080 wasted and dissipated. 95 00:10:14.080 --> 00:10:19.740 Even if government uses the money to subsidize various private investments, the results are 96 00:10:19.740 --> 00:10:21.280 still grave. 97 00:10:21.280 --> 00:10:27.880 For these investments, being uneconomic in relation to genuine consumers' demand and 98 00:10:27.880 --> 00:10:34.280 profit and loss signals on the market, will constitute malinvestment. 99 00:10:34.280 --> 00:10:40.520 Once the government removed its subsidies and let all capital compete equally in serving 100 00:10:40.520 --> 00:10:46.480 in Consumers, it is doubtful how much of this investment would survive. 101 00:10:46.480 --> 00:10:52.920 Although we have no intention of dealing here to any extent with an empirical problem like 102 00:10:52.920 --> 00:10:59.280 Soviet economic growth, we may illustrate our analysis by noting the hullabaloo that 103 00:10:59.280 --> 00:11:06.040 has been raised in recent years over the supposedly enormous rate of Soviet growth. 104 00:11:06.040 --> 00:11:13.200 Curiously, one finds that the growth seems to be taking place almost exclusively in capital 105 00:11:13.200 --> 00:11:20.280 goods, such as iron and steel, hydroelectric dams, etc., whereas little or none of this 106 00:11:20.280 --> 00:11:27.400 growth seems ever to filter down to the standard of living of the average Soviet consumer. 107 00:11:27.400 --> 00:11:34.320 The consumer's standard of living, however, is the be-all and end-all of the entire production 108 00:11:34.320 --> 00:11:42.640 and Process. Production makes no sense whatever, except as a means to consumption. Investment 109 00:11:42.640 --> 00:11:50.820 in capital goods means nothing, except as a necessary waystation to increased consumption. 110 00:11:50.820 --> 00:11:56.660 When capital investment takes place in the free market, it deprives no one of consumption 111 00:11:56.660 --> 00:12:04.340 and Goods, for those save who voluntarily choose investment over some present consumption. 112 00:12:04.340 --> 00:12:10.700 No one is required to sacrifice present consumption who does not wish to do so. 113 00:12:10.700 --> 00:12:17.740 As a result, the standard of living of everyone rises continually and smoothly as investment 114 00:12:17.740 --> 00:12:19.460 increases. 115 00:12:19.460 --> 00:12:25.980 But a Soviet or other system of compulsory investment lowers the standard of living of 116 00:12:25.980 --> 00:12:45.620 In short, government investment, as we have noted, turns out to be a peculiar form of 117 00:12:45.620 --> 00:12:50.220 wasteful consumption by government officials. 118 00:12:50.220 --> 00:12:56.740 In many cases these investments are not simply bureaucratic errors, they pay welcome gains 119 00:12:56.740 --> 00:13:00.200 to government officials in prestige. 120 00:13:00.200 --> 00:13:07.340 Every underdeveloped government seems to insist on its steel mill or its dam, for example, 121 00:13:07.340 --> 00:13:13.160 regardless whether it is economic or not, therefore usually not. 122 00:13:13.160 --> 00:13:19.540 As Milton Friedman astutely points out, the Pharaohs raised enormous sums of capital to 123 00:13:19.540 --> 00:13:21.400 to Build the Pyramids. 124 00:13:21.400 --> 00:13:24.820 This was capital formation on a grand scale. 125 00:13:24.820 --> 00:13:30.820 It certainly did not promote economic development in the fundamental sense of contributing to 126 00:13:30.820 --> 00:13:36.860 a self-sustaining growth in the standard of life of the Egyptian masses. 127 00:13:36.860 --> 00:13:41.720 Modern Egypt has, under government auspices, built a steel mill. 128 00:13:41.720 --> 00:13:48.460 This involves capital formation, but it is a drain on the economic resources of Egypt. 129 00:13:48.460 --> 00:13:53.900 Since the cost of making steel in Egypt is very much greater than the cost of buying 130 00:13:53.900 --> 00:14:00.940 it elsewhere, it is simply a modern equivalent of the pyramids, except that maintenance expenses 131 00:14:00.940 --> 00:14:03.140 are higher. 132 00:14:03.140 --> 00:14:07.980 There is another consideration that reinforces our conclusion. 133 00:14:07.980 --> 00:14:14.940 Professor Lockman has been diligently reminding us of what economists generally forget, that 134 00:14:14.940 --> 00:14:23.660 Capital is not just a homogeneous blob that can be added to or subtracted from. 135 00:14:23.660 --> 00:14:29.900 Capital is an intricate, delicate, interweaving structure of capital goods. 136 00:14:29.900 --> 00:14:37.660 All of the delicate strands of this structure have to fit and fit precisely or else malinvestment 137 00:14:37.660 --> 00:14:39.100 occurs. 138 00:14:39.100 --> 00:14:45.320 The free market is almost an automatic mechanism for such fitting, and we have seen throughout 139 00:14:45.320 --> 00:14:52.520 this volume how the free market, with its price system and profit and loss criteria, 140 00:14:52.520 --> 00:14:58.940 adjusts the output and variety of the different strands of production, preventing any one 141 00:14:58.940 --> 00:15:02.220 from getting long out of alignment. 142 00:15:02.220 --> 00:15:08.520 But under socialism, or with massive government investment, there is no such mechanism for 143 00:15:08.520 --> 00:15:15.720 for fitting and harmonizing. Deprived of a free price system and profit and loss criteria, 144 00:15:15.720 --> 00:15:22.640 the government can only blunder along, blindly investing without being able to invest properly 145 00:15:22.640 --> 00:15:29.000 in the right fields, the right products, or the right places. A beautiful subway will 146 00:15:29.000 --> 00:15:35.560 be built, but no wheels will be available for the trains. A giant dam, but no copper 147 00:15:35.560 --> 00:15:49.560 These sudden surpluses and shortages, so characteristic of government planning, are the result of massive malinvestment by the government. 148 00:15:49.560 --> 00:16:01.560 As P.T. Bauer writes, if development has meaning as a desirable process, it must refer to an increase in desired output. 149 00:16:01.560 --> 00:16:12.560 Governmental collection and investment of saving affect production which is not subject to the test of voluntary purchase at market price. 150 00:16:12.560 --> 00:16:20.560 Increased output through this method is at best an ambiguous indicator of economic improvement. 151 00:16:20.560 --> 00:16:29.560 If the capital is not provided voluntarily, this suggests that the population prefers an alternative use of resources, 152 00:16:29.560 --> 00:16:34.860 whether current consumption or other forms of investment. 153 00:16:34.860 --> 00:16:41.380 The current controversy over growth is, in a sense, the result of a critical error made 154 00:16:41.380 --> 00:16:48.780 by right-wing economists in their continuing debate with their left-wing opponents. 155 00:16:48.780 --> 00:16:55.520 Instead of emphasizing freedom and free choice as their highest political end, the rightist 156 00:16:55.520 --> 00:17:03.040 Most economists have stressed the importance of freedom as a utilitarian means of encouraging 157 00:17:03.040 --> 00:17:07.840 saving, investment, and therefore economic growth. 158 00:17:07.840 --> 00:17:13.640 We have seen that conservative opponents of the progressive income tax have often fallen 159 00:17:13.640 --> 00:17:21.160 into the trap of treating saving and investment as somehow a greater and higher good than 160 00:17:21.160 --> 00:17:27.800 and Consumption, and therefore of implicitly criticizing the free market's saving-consumption 161 00:17:27.800 --> 00:17:29.360 ratio. 162 00:17:29.360 --> 00:17:36.840 Here we have another example of the same lapse into an implicit arbitrary criticism of the 163 00:17:36.840 --> 00:17:37.840 market. 164 00:17:37.840 --> 00:17:44.760 What the modern leftist proponents of compulsory growth have done is to use the venerable arguments 165 00:17:44.760 --> 00:17:51.320 of the Conservatives as a boomerang against them, and to say in effect to their opponents, 166 00:17:51.320 --> 00:17:57.360 very well, you have been maintaining that saving and investment are of critical importance 167 00:17:57.360 --> 00:18:05.320 because they lead to growth and economic progress, fine, but as you yourselves implicitly grant, 168 00:18:05.320 --> 00:18:10.680 the free market's proportion of saving and investment is really too slow. 169 00:18:10.680 --> 00:18:12.820 Why then rely upon it? 170 00:18:12.820 --> 00:18:19.740 Why not speed up growth by using government to coerce even more saving and investment, 171 00:18:19.740 --> 00:18:22.420 to speed up capital further? 172 00:18:22.420 --> 00:18:28.560 It is evident that conservatives cannot counter by reiterating their familiar arguments. 173 00:18:28.560 --> 00:18:33.340 The proper comment here is the analysis we have been expounding. 174 00:18:33.340 --> 00:18:41.740 In short, A, by what right do you maintain that people should grow faster than they voluntarily 175 00:18:41.740 --> 00:18:42.740 We Wish to Grow 176 00:18:42.740 --> 00:18:51.460 B. Compulsory growth will not benefit the whole of society as will freely chosen growth, 177 00:18:51.460 --> 00:18:55.300 and it is therefore not social growth. 178 00:18:55.300 --> 00:19:02.740 Some will gain, and gain at some distant date, at the expense of the retrogression of others. 179 00:19:02.740 --> 00:19:10.700 C. Government investment or subsidized investment is either malinvestment or not investment 180 00:19:10.700 --> 00:19:24.860 What in point of fact is economic growth? 181 00:19:24.860 --> 00:19:31.700 Any proper definition must surely encompass an increase of economic means available for 182 00:19:31.700 --> 00:19:35.060 the satisfaction of people's ends. 183 00:19:35.060 --> 00:19:43.040 In short, increased satisfactions of people's wants, or as P.T. Bauer has put it, an increase 184 00:19:43.040 --> 00:19:47.980 in the range of effective alternatives open to people. 185 00:19:47.980 --> 00:19:54.900 On such a definition, it is clear that compulsory saving, with its imposed losses and restrictions 186 00:19:54.900 --> 00:20:02.240 on people's effective choices, cannot spur economic growth, and also that government 187 00:20:02.240 --> 00:20:10.080 investment, with its neglect of voluntary private consumption as its goal, can hardly be said to 188 00:20:10.080 --> 00:20:18.240 add to people's alternatives. Quite the contrary. On Soviet economic growth, P. T. Bauer and Basil 189 00:20:18.240 --> 00:20:26.640 Yemi make this salutary comment. The meaning of national income, industrial output and capital 190 00:20:26.640 --> 00:20:34.220 Formation is also debatable in an economy when so large a part of output is not governed 191 00:20:34.220 --> 00:20:37.520 by consumers' choices in the market. 192 00:20:37.520 --> 00:20:43.740 The difficulties of interpretation are particularly obvious in connection with the huge capital 193 00:20:43.740 --> 00:20:52.200 expenditure undertaken by government without reference to the valuation of output by consumers. 194 00:20:52.200 --> 00:21:01.200 Finally, the very term growth is an illegitimate import of a metaphor from biology into human action. 195 00:21:01.200 --> 00:21:09.200 Growth and rate of growth connote some sort of automatic necessity or inevitability, 196 00:21:09.200 --> 00:21:17.200 and have, for many people, a value-loaded connotation of something self-evidently desirable. 197 00:21:17.200 --> 00:21:23.680 Concomitantly with the hubbub about growth, there has developed an enormous literature about 198 00:21:23.680 --> 00:21:31.040 the economics of underdeveloped countries. We can here note only a few considerations. 199 00:21:31.040 --> 00:21:38.800 First, contrary to a widespread impression, neo-classical economics applies just as fully 200 00:21:38.800 --> 00:21:45.840 to underdeveloped as to any other countries. In fact, as P.T. Bauer has often stressed, 201 00:21:45.840 --> 00:21:59.840 The economic discipline is in some ways sharper in less developed countries because of the extra option that many people have of reverting from a monetary to a barter economy. 202 00:21:59.840 --> 00:22:08.840 An underdeveloped country can grow only in the same ways as a more advanced country, largely via capital investment. 203 00:22:08.840 --> 00:22:24.340 The economic laws which we have adumbrated throughout this volume are independent of the specific content of any communities or nation's economy, and therefore independent of its level of development. 204 00:22:24.340 --> 00:22:31.860 Secondly, underdeveloped countries are especially prone to the wasteful, dramatic, prestigious 205 00:22:31.860 --> 00:22:39.940 government investment in such projects as steel mills or dams, as contrasted with economic 206 00:22:39.940 --> 00:22:46.020 but undramatic private investment in improved agricultural tools. 207 00:22:46.020 --> 00:22:51.940 The following quotation from Bauer's study on India is instructive for its analysis of 208 00:22:51.940 --> 00:22:55.500 of Central Planning as well as Development. 209 00:22:55.500 --> 00:23:02.440 As a corollary of reserving a large and increasing sector of the economy for the government, 210 00:23:02.440 --> 00:23:08.760 private enterprise and investment, both Indian and foreign, are banned from a wide range 211 00:23:08.760 --> 00:23:12.220 of industrial and commercial activity. 212 00:23:12.220 --> 00:23:18.280 These restrictions and barriers affect not only private Indian investment, but also the 213 00:23:18.280 --> 00:23:26.380 The entry of foreign capital, enterprise and skill, which inevitably retards economic development. 214 00:23:26.380 --> 00:23:32.980 Such measures are thus paradoxical in view of the alleged emphasis on economic advance. 215 00:23:32.980 --> 00:23:41.440 Bauer's chief defect is a tendency to underweigh the role of capital in economic development. 216 00:23:41.440 --> 00:23:49.420 It is fascinating to discover, in 1925 and 1926, before Soviet Russia became committed 217 00:23:49.420 --> 00:23:57.420 to full socialism and coerced industrialization, Soviet leaders and economists attacking central 218 00:23:57.420 --> 00:24:05.160 planning and forced industry, and calling for economic reliance on private peasantry. 219 00:24:05.160 --> 00:24:13.880 Under 1926, however, the Soviet planned economy deliberately planned uneconomically for forced 220 00:24:13.880 --> 00:24:19.480 heavy industry in order to establish an autarkic socialism. 221 00:24:19.480 --> 00:24:27.100 Finally, the term underdeveloped is definitely value-loaded to imply that certain countries 222 00:24:27.100 --> 00:24:32.880 are too little developed below some sort of imposed standard. 223 00:24:32.880 --> 00:24:39.600 As James W. Wiggins and Helmut Schirk point out, undeveloped would be a more objective 224 00:24:39.600 --> 00:24:41.880 term. 225 00:24:41.880 --> 00:24:48.240 Because of its spectacular burst of popularity, something must here be said of the recent 226 00:24:48.240 --> 00:24:54.960 Stages of Economic Growth doctrine of Professor W. W. Rostow. 227 00:24:54.960 --> 00:25:01.560 Highly recommended as the answer to Marx, as if Marx had never been answered before, 228 00:25:01.560 --> 00:25:08.900 The show defines five stages of economic growth through which each modern nation passes. 229 00:25:08.900 --> 00:25:16.220 These center around the take-off, and include preconditions of take-off, drive from take-off 230 00:25:16.220 --> 00:25:21.920 to maturity, and, as the final stage, high mass consumption. 231 00:25:21.920 --> 00:25:27.520 Perhaps some of the popularity may be due to the term take-off, which is certainly in 232 00:25:27.520 --> 00:25:32.040 in tune with our aeronautical and space-minded age. 233 00:25:32.040 --> 00:25:37.720 In addition to committing the common fallacy of assuming some sort of automatic rate of 234 00:25:37.720 --> 00:25:43.480 growth, Rastow adds many others of his own, among which are the following. 235 00:25:43.480 --> 00:25:50.320 A. The resumption of the futile modern search for non-existent laws of history. 236 00:25:50.320 --> 00:25:57.400 B. The discovery of such laws by way of that hoary fallacy of late 19th century German 237 00:25:57.400 --> 00:26:05.480 in Thought, Stages of History, with each arbitrary stage somehow destined to evolve automatically 238 00:26:05.480 --> 00:26:13.720 into the next, c. the undue stress, here as in other ways closer to Marx than most critics 239 00:26:13.720 --> 00:26:23.400 realize, on sheer technology, on sheer technology as the funds at origo of economic development, 240 00:26:23.400 --> 00:26:31.760 D. The deliberate mixing of government and private firms as equally capable of entrepreneurship 241 00:26:31.760 --> 00:26:39.120 and E. Reliance on the fallacious concept of social overhead capital, which must be mainly 242 00:26:39.120 --> 00:26:44.080 supplied by the government before take-off is achieved. 243 00:26:44.080 --> 00:26:52.040 Actually, as we have seen, there are not different stages of economy, each subject to its own 244 00:26:52.040 --> 00:26:59.760 Laws, but one single economics which applies to any level of development and explains any 245 00:26:59.760 --> 00:27:07.480 degree of growth, Rostow's final stage of high mass consumption is particularly open 246 00:27:07.480 --> 00:27:08.900 to question. 247 00:27:08.900 --> 00:27:14.680 What was more characteristic of the early take-off stage of the Industrial Revolution 248 00:27:14.680 --> 00:27:44.040 B. Professor Galbraith and the Sin of Affluence 249 00:27:44.040 --> 00:27:49.020 In the early part of the 20th century, the main indictment of the capitalist system by 250 00:27:49.020 --> 00:27:54.740 its intellectual critics was the alleged pervasiveness of monopoly. 251 00:27:54.740 --> 00:28:02.160 In the 1930s, mass unemployment and poverty, one-third of a nation, came to the fore. 252 00:28:02.160 --> 00:28:08.020 At the present time, growing abundance and prosperity have greatly dimmed the poverty 253 00:28:08.020 --> 00:28:15.500 and Unemployment Theme, and the only serious monopoly seems to be that of labor unionism. 254 00:28:15.500 --> 00:28:20.840 Let it not be thought, however, that criticism of capitalism has died. 255 00:28:20.840 --> 00:28:25.080 Two seemingly contradictory charges are now rife. 256 00:28:25.080 --> 00:28:32.220 A, that capitalism is not growing fast enough, and B, that the trouble with capitalism is 257 00:28:32.220 --> 00:28:35.320 that it makes us too affluent. 258 00:28:35.320 --> 00:28:42.360 This wealth has suddenly replaced poverty as the tragic flaw of capitalism. 259 00:28:42.360 --> 00:28:47.280 This performance leads one to believe that Schumpeter was right when he declared, 260 00:28:47.280 --> 00:28:53.480 Capitalism stands its trial before judges who have the sentence of death in their pockets. 261 00:28:53.480 --> 00:28:57.800 They are going to pass it, whatever the defense they may hear. 262 00:28:57.800 --> 00:29:04.260 The only success victorious defense may produce is a change in the indictment. 263 00:29:04.260 --> 00:29:10.660 At first sight, these latter charges appear contradictory, for capitalism is at one and 264 00:29:10.660 --> 00:29:17.740 the same time accused of producing too many goods, and yet of not increasing its production 265 00:29:17.740 --> 00:29:19.940 of goods fast enough. 266 00:29:19.940 --> 00:29:25.460 The contradiction seems especially glaring when the same critic presses both lines of 267 00:29:25.460 --> 00:29:31.740 attack, as is true of the leading critic of the sin of affluence, Professor John Kenneth 268 00:29:31.740 --> 00:29:33.180 Galbraith. 269 00:29:33.180 --> 00:29:38.500 But as the Wall Street Journal has aptly pointed out, this is not really a contradiction at 270 00:29:38.500 --> 00:29:45.780 all, for the excessive affluence is all in the private sector, the goods enjoyed by the 271 00:29:45.780 --> 00:29:46.780 consumers. 272 00:29:46.780 --> 00:29:54.100 The deficiency, or starvation, is in the public sector, which needs further growth. 273 00:29:54.100 --> 00:30:00.800 Thus Galbraith deplores the government's failure to invest more in scientists and scientific 274 00:30:00.800 --> 00:30:06.720 Research to promote our growth, while also attacking American affluence. 275 00:30:06.720 --> 00:30:12.840 It turns out, however, that Galbraith wants more of precisely that kind of research which 276 00:30:12.840 --> 00:30:17.320 can have no possible commercial application. 277 00:30:17.320 --> 00:30:24.320 Although Galbraith's book, The Affluent Society, is replete with fallacies, backed by dogmatic 278 00:30:24.320 --> 00:30:30.780 assertions and time-honored rhetorical devices in place of reasoned argument, the book warrants 279 00:30:30.780 --> 00:30:35.620 presents some consideration here in view of its enormous popularity. 280 00:30:35.620 --> 00:30:42.340 Galbraith's major rhetorical device may be called the sustained sneer, which includes 281 00:30:42.340 --> 00:30:49.980 a. presenting and opposing arguments so sardonically as to make it seem patently absurd with no 282 00:30:49.980 --> 00:30:58.420 need for reasoned refutation, b. coining and reiterating veblinesque names of disparagement, 283 00:30:58.420 --> 00:31:06.020 for example, the conventional wisdom, and c, ridiculing the opposition further by psychological 284 00:31:06.020 --> 00:31:12.820 ad hominem attacks, that is, accusing opponents of having a psychological vested interest 285 00:31:12.820 --> 00:31:19.820 in their absurd doctrines, this mode of attack being now more fashionable than older accusations 286 00:31:19.820 --> 00:31:26.020 of economic venality, the conventional wisdom encompasses just about everything with which 287 00:31:26.020 --> 00:31:29.060 which Galbraith disagrees. 288 00:31:29.060 --> 00:31:35.820 As in the case of most economists who attack economic science, Professor Galbraith is an 289 00:31:35.820 --> 00:31:42.500 historicist who believes that economic theory, instead of being grounded on the eternal facts 290 00:31:42.500 --> 00:31:48.900 of human nature, is somehow relative to different historical epochs. 291 00:31:48.900 --> 00:31:54.620 Conventional economic theory, he asserts, was true for the eras before the present, 292 00:31:54.620 --> 00:31:56.420 which were times of poverty. 293 00:31:56.420 --> 00:32:04.340 Now, however, we have vaulted from a centuries-long state of poverty into an age of affluence, 294 00:32:04.340 --> 00:32:09.380 and for such an age, a completely new economic theory is needed. 295 00:32:09.380 --> 00:32:15.900 Galbraith also makes the philosophical error of believing that ideas are essentially refuted 296 00:32:15.900 --> 00:32:17.640 by events. 297 00:32:17.640 --> 00:32:24.600 On the contrary, in human action, as contrasted with the natural sciences, ideas can be refuted 298 00:32:24.600 --> 00:32:34.600 One of Galbraith's gravest flaws is the arbitrariness of the categories which pervade his work, of poverty and affluence. 299 00:32:34.600 --> 00:32:45.600 Nowhere does he define what he means by these terms, and therefore nowhere does he lay down standards by which we can know, even in terms of money. 300 00:32:45.600 --> 00:32:51.400 Nowhere does he define what he means by these terms, and therefore nowhere does he lay down 301 00:32:51.400 --> 00:32:59.040 standards by which we can know, even in theory, when we have passed the magic borderland between 302 00:32:59.040 --> 00:33:06.680 poverty and affluence that requires an entirely new economic theory to come into being. 303 00:33:06.680 --> 00:33:12.680 The present book, and most other economic works, make it evident that economic science 304 00:33:12.680 --> 00:33:17.480 is not dependent on some arbitrary level of wealth. 305 00:33:17.480 --> 00:33:24.900 The basic praxeological laws are true of all men at all times, and the catallactic laws 306 00:33:24.900 --> 00:33:32.640 of the exchange economy are true whenever and wherever exchanges are made. 307 00:33:32.640 --> 00:33:39.880 Galbraith makes much of his supposed discovery, suppressed by other economists, that the marginal 308 00:33:39.880 --> 00:33:46.720 Marginal utility of goods declines as one's income increases, and that therefore a man's 309 00:33:46.720 --> 00:33:54.920 final $1,000 is not worth nearly as much to him as his first, the margin of subsistence. 310 00:33:54.920 --> 00:34:01.960 But this knowledge is familiar to most economists, and this book, for example, has included it. 311 00:34:01.960 --> 00:34:08.920 The marginal utility of goods certainly declines as our income rises, but the very fact that 312 00:34:08.920 --> 00:34:16.160 that people continue to work for the final $1,000 and work for more money when the opportunity 313 00:34:16.160 --> 00:34:22.840 is available demonstrates conclusively that the marginal utility of goods is still greater 314 00:34:22.840 --> 00:34:28.080 than the marginal disutility of leisure foregone. 315 00:34:28.080 --> 00:34:34.320 Galbraith's hidden fallacy is a quantitative assumption from the mere fact that the marginal 316 00:34:34.320 --> 00:34:47.320 When the marginal utility of goods falls as one's income and wealth rise, Galbraith has somehow concluded that it has already fallen to virtually, or really, zero. 317 00:34:47.320 --> 00:34:59.320 The fact of decline, however, tells us nothing whatever about the degree of this decline, which Galbraith arbitrarily assumes has been almost total. 318 00:34:59.320 --> 00:35:07.320 All economists, even the most conventional, know that as incomes have risen in the modern world, 319 00:35:07.320 --> 00:35:13.320 workers have chosen to take more and more of that income in the form of leisure. 320 00:35:13.320 --> 00:35:18.320 And this should be proof enough that economists have long been familiar 321 00:35:18.320 --> 00:35:25.320 with the supposedly suppressed truth that the marginal utility of goods in general 322 00:35:25.320 --> 00:35:29.320 tends to decline as their supply increases. 323 00:35:29.320 --> 00:35:33.240 But, Galbraith retorts, economists admit 324 00:35:33.240 --> 00:35:36.040 that leisure is a consumer's good, 325 00:35:36.040 --> 00:35:39.840 but not that other goods decline in value 326 00:35:39.840 --> 00:35:42.360 as their supply increases. 327 00:35:42.360 --> 00:35:45.560 Yet this is surely an erroneous contention. 328 00:35:45.560 --> 00:35:49.240 What economists know is that as civilization 329 00:35:49.240 --> 00:35:51.700 expands the supply of goods, 330 00:35:51.700 --> 00:35:55.240 the marginal utility of goods declines, 331 00:35:55.240 --> 00:36:09.240 and the marginal utility of leisure foregone, the opportunity cost of labor increases, so that more and more real income will be taken in the form of leisure. 332 00:36:09.240 --> 00:36:16.240 There is nothing at all startling, subversive or revolutionary about this familiar fact. 333 00:36:16.240 --> 00:36:23.240 According to Galbraith, economists willfully ignore the spectre of the satiation of wants. 334 00:36:23.240 --> 00:36:34.740 Yet they do so quite properly, because when wants, or rather wants for exchangeable goods, are truly satiated, we shall all know it soon enough. 335 00:36:34.740 --> 00:36:43.240 For at that point, everyone will cease working, will cease trying to transform land resources into final consumers' goods. 336 00:36:43.240 --> 00:36:56.240 There will be no need to continue producing, because all needs for consumers' goods will have been supplied, or at least all those which can be produced and exchanged. 337 00:36:56.240 --> 00:37:11.240 At this point, everyone will stop work, the market economy, indeed all economy, will come to an end, means will no longer be scarce in relation to ends, and everyone will bask in paradise. 338 00:37:11.240 --> 00:37:18.040 I think itself evident that this time has not yet arrived, and shows no signs of arriving. 339 00:37:18.040 --> 00:37:24.720 If it someday should arrive, it will be greeted by economists as by most other people, not 340 00:37:24.720 --> 00:37:27.680 with curses, but with rejoicing. 341 00:37:27.680 --> 00:37:35.000 Despite their venerable reputation as practitioners of a dismal science, economists have no vested 342 00:37:35.000 --> 00:37:39.800 interests, psychological or otherwise, in scarcity. 343 00:37:39.800 --> 00:37:44.520 But in the meanwhile, this is still a world of scarcity. 344 00:37:44.520 --> 00:37:48.720 Scarce means have to be applied to alternate ends. 345 00:37:48.720 --> 00:37:51.120 Labor is still necessary. 346 00:37:51.120 --> 00:37:58.000 People still work for their final $1,000 of income and would be happy to accept another 347 00:37:58.000 --> 00:38:00.740 $1,000 should it be offered. 348 00:38:00.740 --> 00:38:03.120 We would venture another prediction. 349 00:38:03.120 --> 00:38:09.520 An informal poll taken among the people asking whether they would accept or know what to 350 00:38:09.520 --> 00:38:17.200 to do with an extra few thousand dollars of annual real income would find almost no one 351 00:38:17.200 --> 00:38:25.480 who would refuse the offer because of excessive affluence or satiety or for any other reason. 352 00:38:25.480 --> 00:38:30.160 Few would be at a loss about what to do with their increased wealth. 353 00:38:30.160 --> 00:38:34.120 Professor Galbraith, of course, has an answer to all this. 354 00:38:34.120 --> 00:38:38.640 These wants, he says, are not real or genuine ones. 355 00:38:38.640 --> 00:38:45.240 They have been created in the populace by advertisers, and their wicked clients the 356 00:38:45.240 --> 00:38:47.200 producing businessmen. 357 00:38:47.200 --> 00:38:56.400 The very fact of production through such advertising creates the supposed wants that it supplies. 358 00:38:56.400 --> 00:39:03.560 Galbraith's entire theory of excess affluence rests on this flimsy assertion that consumer 359 00:39:03.560 --> 00:39:08.520 The consumer wants are artificially created by business itself. 360 00:39:08.520 --> 00:39:15.720 It is an allegation backed only by repetitious assertion and by no evidence whatever, except 361 00:39:15.720 --> 00:39:22.220 perhaps for Galbraith's obvious personal dislike for detergents and tail fins. 362 00:39:22.220 --> 00:39:29.520 What is more, the attack on wicked advertising as creating wants and degrading the consumer 363 00:39:29.520 --> 00:39:36.600 is surely the most conventional of the conventional wisdom in the anti-capitalist's arsenal. 364 00:39:36.600 --> 00:39:43.440 In addition to wicked advertising, wants are also artificially created, according to Galbraith, 365 00:39:43.440 --> 00:39:48.280 by emulation of one's neighbor, keeping up with the Joneses. 366 00:39:48.280 --> 00:39:54.600 But in the first place, what is wrong with such emulation, except an unsupported ethical 367 00:39:54.600 --> 00:39:56.720 judgment of Galbraith's? 368 00:39:56.720 --> 00:40:03.120 Galbraith pretends to ground his theory, not on his private ethical judgment, but on the 369 00:40:03.120 --> 00:40:08.080 alleged creation of wants by production itself. 370 00:40:08.080 --> 00:40:14.840 Yet simple emulation would not be a function of producers, but of consumers themselves, 371 00:40:14.840 --> 00:40:22.360 unless emulation too were inspired by advertising, but this reduces to the criticism of advertising 372 00:40:22.360 --> 00:40:24.480 discussed in the text. 373 00:40:24.480 --> 00:40:31.480 And secondly, where did the original Jones obtain his wants? Regardless of how many people 374 00:40:31.480 --> 00:40:38.640 have wants purely in emulation of others, some person or persons must have originally 375 00:40:38.640 --> 00:40:45.760 had these wants as genuine needs of their very own. Otherwise, the argument is hopelessly 376 00:40:45.760 --> 00:40:53.200 circular. Once this is conceded, it is impossible for economics to decide to what extent each 377 00:40:53.200 --> 00:40:57.680 Each want is pervaded by emulation. 378 00:40:57.680 --> 00:41:02.920 There are many fallacies in Galbraith's conventional attack on advertising. 379 00:41:02.920 --> 00:41:09.760 In the first place, it is not true that advertising creates wants or demands on the part of the 380 00:41:09.760 --> 00:41:10.840 consumers. 381 00:41:10.840 --> 00:41:17.880 It certainly tries to persuade consumers to buy the product, but it cannot create wants 382 00:41:17.880 --> 00:41:26.440 or Demands because each person must himself adopt the ideas and values on which he acts, 383 00:41:26.440 --> 00:41:30.960 whether these ideas or values are sound or unsound. 384 00:41:30.960 --> 00:41:39.440 Galbraith here assumes a naive form of determinism, of advertising upon the consumers, and like 385 00:41:39.440 --> 00:41:46.000 all determinists, he leaves an implicit escape clause from the determination for people like 386 00:41:46.000 --> 00:42:09.000 If there is determinism by advertising, how can some people be determined to rush out and buy the product, while Professor Galbraith is free to resist the advertisements with indignation, and to write a book denouncing the advertising? 387 00:42:09.000 --> 00:42:18.000 Secondly, Galbraith gives us no standard to decide which wants are so created and which are legitimate. 388 00:42:18.000 --> 00:42:28.000 By his stress on poverty, one might think that all wants above the subsistence level are false wants created by advertising. 389 00:42:28.000 --> 00:42:33.000 Of course, he supplies no evidence for this view, but as we shall see further, 390 00:42:33.000 --> 00:42:40.200 Further, this is hardly consistent with his views on public or governmentally induced wants. 391 00:42:40.200 --> 00:42:47.840 Thirdly, Galbraith fails to distinguish between fulfilling a given want in a better way and 392 00:42:47.840 --> 00:42:50.200 inducing new wants. 393 00:42:50.200 --> 00:42:57.080 Unless we are to take the extreme and unsupported view that all wants above the subsistence 394 00:42:57.080 --> 00:42:59.200 line are created. 395 00:42:59.200 --> 00:43:05.960 We must note the rather odd behavior attributed to businessmen by Galbraith's assumptions. 396 00:43:05.960 --> 00:43:13.000 Why should businessmen go to the expense, bother and uncertainty of trying to create 397 00:43:13.000 --> 00:43:19.520 new wants when they could far more easily look for better or cheaper ways of fulfilling 398 00:43:19.520 --> 00:43:23.440 wants that consumers already have? 399 00:43:23.440 --> 00:43:30.280 If consumers, for example, already have a discernible and discoverable want for a no-rub 400 00:43:30.280 --> 00:43:38.440 cleanser, it is surely easier and less costly to produce and then advertise a no-rub cleanser 401 00:43:38.440 --> 00:43:46.720 than it would be to create some completely new want, say for blue cleansers in particular, 402 00:43:46.720 --> 00:43:52.720 and then work very hard and spend a great deal of money on advertising campaigns to 403 00:43:52.720 --> 00:43:59.520 to try to convince people that they need blue cleansers because blue is the color of the 404 00:43:59.520 --> 00:44:03.860 sky or for some other artificial reason. 405 00:44:03.860 --> 00:44:09.920 Professor Lawrence Abbott, in his important book on competition, quality of products and 406 00:44:09.920 --> 00:44:16.020 the business system, put it this way, the producers will generally find it easier and 407 00:44:16.020 --> 00:44:23.540 and less costly to gain sales by adapting the product as closely as possible to existing 408 00:44:23.540 --> 00:44:30.620 tastes and by directing advertising to those whose wants it is already well-equipped to 409 00:44:30.620 --> 00:44:37.020 satisfy than by attempting to alter human beings to fit the product. 410 00:44:37.020 --> 00:44:44.140 In short, the Galbraithian view of the business and marketing system makes little or no sense. 411 00:44:44.140 --> 00:44:50.300 Rather than go to the expensive, uncertain, and, at bottom, needless task of trying to 412 00:44:50.300 --> 00:44:57.560 find a new want for consumers, business will tend to satisfy those wants that consumers 413 00:44:57.560 --> 00:45:05.580 already have, or that they are pretty sure consumers would have if the product were available. 414 00:45:05.580 --> 00:45:11.880 Advertising is then used as a means of a, conveying information to the consumers that 415 00:45:11.880 --> 00:45:29.880 What the product is now available and telling them what the product will do, and b. specifically trying to convince the consumers that this product will satisfy their given want, for example, will be a no-rub cleanser. 416 00:45:29.880 --> 00:45:39.880 Indeed, our view is the only one that makes sense of the increasingly large quantities of money spent by business on marketing research. 417 00:45:39.880 --> 00:45:50.880 Why bother investigating in detail what consumers really want if all one need do is to create the wants for them by advertising? 418 00:45:50.880 --> 00:45:58.880 If in fact production really created its own demand through advertising, as Galbraith maintains, 419 00:45:58.880 --> 00:46:10.880 Business would never again have to worry about losses or bankruptcy or a failure to sell automatically any good that it may arbitrarily choose to produce. 420 00:46:10.880 --> 00:46:18.880 Certainly there would be no need for marketing research or for any wondering about what consumers will buy. 421 00:46:18.880 --> 00:46:23.880 This image of the world is precisely the reverse of what is occurring. 422 00:46:23.880 --> 00:46:31.040 Indeed, precisely because people's standards of living are moving ever farther past the 423 00:46:31.040 --> 00:46:38.440 subsistence line, businessmen are worrying ever more intensely about what consumers want 424 00:46:38.440 --> 00:46:40.520 and what they will buy. 425 00:46:40.520 --> 00:46:47.080 It is because the range of goods available to the consumers is expanding so much beyond 426 00:46:47.080 --> 00:46:54.840 and simple staples needed for subsistence in quantity, quality and breadth of product substitutes 427 00:46:54.840 --> 00:47:01.820 that businessmen must compete as never before in paying court to the consumer, in trying 428 00:47:01.820 --> 00:47:07.200 to obtain his attention, in short, in advertising. 429 00:47:07.200 --> 00:47:13.000 Increasing advertising is a function of the increasingly effective range of competition 430 00:47:13.000 --> 00:47:16.120 for the consumer's favor. 431 00:47:16.120 --> 00:47:22.140 Not only will businessmen tend to produce for and satisfy what they believe are the 432 00:47:22.140 --> 00:47:29.440 given wants of consumers, but the consumers, in contrast to voters, as we have seen, have 433 00:47:29.440 --> 00:47:35.260 a direct market test for every piece of advertising that they confront. 434 00:47:35.260 --> 00:47:40.760 If they buy the cleanser and find that much rubbing is still required, the product will 435 00:47:40.760 --> 00:47:43.240 soon fade into oblivion. 436 00:47:43.240 --> 00:47:52.240 Thus any advertising claims for market products can be and are quickly and readily tested by the consumers. 437 00:47:52.240 --> 00:48:07.240 Confronted with these facts, Galbraith could only maintain that the aversion against rubbing was itself generated in some mysterious and sinister fashion by business advertising. 438 00:48:07.240 --> 00:48:15.240 On the alleged powers of business advertising, it is well to note these pungent comments of Ludwig von Mises. 439 00:48:15.240 --> 00:48:25.240 It is a widespread fallacy that skillful advertising can talk the consumers into buying everything that the advertiser wants them to buy. 440 00:48:25.240 --> 00:48:35.240 However, nobody believes that any kind of advertising would have succeeded in making the candle-makers hold the field against the electric bulb, 441 00:48:35.240 --> 00:48:52.160 Advertising is one of the areas in which Galbraith curiously and in glaring self-contradiction 442 00:48:52.160 --> 00:48:56.800 treats private business differently from governmental activities. 443 00:48:56.800 --> 00:49:03.900 Thus, while business is supposed to be creating consumer wants through advertising, thereby 444 00:49:03.900 --> 00:49:06.900 by generating an artificial affluence. 445 00:49:06.900 --> 00:49:10.380 At the same time, the neglected public sector 446 00:49:10.380 --> 00:49:14.060 is increasingly starved and poverty-stricken. 447 00:49:14.060 --> 00:49:16.740 Apparently, Galbraith has never heard of 448 00:49:16.740 --> 00:49:20.340 or refuses to acknowledge the existence of 449 00:49:20.340 --> 00:49:22.780 governmental propaganda. 450 00:49:22.780 --> 00:49:26.780 He makes no mention whatever of the hordes of press agents, 451 00:49:26.780 --> 00:49:31.460 publicists and propagandists working for government agencies, 452 00:49:31.460 --> 00:49:38.460 Bombarding the taxpayers with propaganda which the latter have been forced to support. 453 00:49:38.460 --> 00:49:44.420 Since a considerable part of the propaganda is for ever greater increases in the particular 454 00:49:44.420 --> 00:49:51.480 government bureau's activities, this means that G, the government officials, expropriate 455 00:49:51.480 --> 00:49:59.200 T, the bulk of the taxpayers, in order to hire more propagandists for G, to persuade 456 00:49:59.200 --> 00:50:05.280 the taxpayers to permit still more funds to be taken from them, and so forth. 457 00:50:05.280 --> 00:50:11.340 It is strange that, while waxing indignant over detergent and automobile commercials 458 00:50:11.340 --> 00:50:17.860 over television, Professor Galbraith has never had to endure the tedium of public service 459 00:50:17.860 --> 00:50:21.380 commercials beamed at him from the government. 460 00:50:21.380 --> 00:50:27.320 We may pass over the Washington conferences for influential private organizations that 461 00:50:27.320 --> 00:50:33.800 that serve as transmission belts for government propaganda to the grass roots, the inside 462 00:50:33.800 --> 00:50:40.260 briefings that perform the same function, the vast quantities of printed matter subsidized 463 00:50:40.260 --> 00:50:44.840 by the taxpayer and issued by the government, etc. 464 00:50:44.840 --> 00:50:53.560 Indeed, not only does Galbraith not consider government propaganda as artificially want-creating, 465 00:50:53.560 --> 00:51:00.320 And this is a realm, let us remember, where consumers have no market test of the product. 466 00:51:00.320 --> 00:51:08.160 But one of his major proposals is for a vast program of what he calls investment in men, 467 00:51:08.160 --> 00:51:15.360 which turns out to be large-scale governmental education to uplift the wants and tastes of 468 00:51:15.360 --> 00:51:16.720 the citizenry. 469 00:51:16.720 --> 00:51:22.920 In short, Galbraith wants society's objective to be the deliberate expansion of the new 470 00:51:22.920 --> 00:51:29.600 New Class, roughly intellectuals, who are blithely assumed to be the only ones who really 471 00:51:29.600 --> 00:51:37.720 enjoy their work, with its emphasis on education and its ultimate effect on intellectual, literary, 472 00:51:37.720 --> 00:51:40.800 cultural and artistic demands. 473 00:51:40.800 --> 00:51:46.920 In proposing this large-scale creation of an intellectual class, Galbraith virtually 474 00:51:46.920 --> 00:51:54.220 ignores the artificiality of educating people beyond their interests, capacities or job 475 00:51:54.220 --> 00:51:57.040 opportunities available. 476 00:51:57.040 --> 00:52:03.280 It seems evident that while the free market and business are accused of artificially creating 477 00:52:03.280 --> 00:52:08.780 consumer wants, the shoe is precisely on Galbraith's own foot. 478 00:52:08.780 --> 00:52:15.760 It is Galbraith who is eager to curtail and suppress the consumers freely chosen wants 479 00:52:15.760 --> 00:52:22.680 and who is advocating a massive and coercive attempt by the government to create artificial 480 00:52:22.680 --> 00:52:31.160 wants, to invest in men by educating them to redirect their wants into those refined 481 00:52:31.160 --> 00:52:36.680 and artistic channels of which Professor Galbraith is so fond. 482 00:52:36.680 --> 00:52:43.380 Everyone will have to give up his tail-fins so that all may be compelled to read books. 483 00:52:43.380 --> 00:52:47.260 like the affluent society, for example. 484 00:52:47.260 --> 00:52:53.060 There are other grave and fundamental fallacies in Galbraith's approach to government. 485 00:52:53.060 --> 00:52:58.820 In particular, after making much adieu over the fact that, with poverty conquered, the 486 00:52:58.820 --> 00:53:05.200 marginal utility of further goods is lower, he finds that everything somehow works in 487 00:53:05.200 --> 00:53:08.660 reverse for governmental needs. 488 00:53:08.660 --> 00:53:15.140 Governmental needs, in some mystical way, are exempt from this law of diminishing marginal 489 00:53:15.140 --> 00:53:16.140 wants. 490 00:53:16.140 --> 00:53:23.860 Instead, mirabile dictu, governmental needs increase in urgency as society becomes more 491 00:53:23.860 --> 00:53:25.220 affluent. 492 00:53:25.220 --> 00:53:31.940 From this flagrant and unresolved contradiction, Galbraith leaps to the conclusion that government 493 00:53:31.940 --> 00:53:39.460 must compel the massive shifting of resources from superfluous private to starved public 494 00:53:39.460 --> 00:53:40.960 needs. 495 00:53:40.960 --> 00:53:47.580 But on the basis of diminishing marginal utility alone, there is no case for such a shift, 496 00:53:47.580 --> 00:53:54.320 since all wants at a higher real income are of lower utility than the wants of the poverty 497 00:53:54.320 --> 00:53:55.660 stricken. 498 00:53:55.660 --> 00:54:02.500 And when we realize that if we talk about created wants at all, governmental propaganda 499 00:54:02.500 --> 00:54:10.240 is vastly more likely to create wants than is business, a case, even in Galbraith's 500 00:54:10.240 --> 00:54:18.740 own terms, can be made for just the reverse, for a shift from the governmental to the private 501 00:54:18.740 --> 00:54:19.740 sector. 502 00:54:19.740 --> 00:54:26.460 And finally, Galbraith, in his lament for the starved and underprivileged public sector, 503 00:54:26.460 --> 00:54:32.560 somehow neglects to inform his readers that whatever statistics are used, it is clear 504 00:54:32.560 --> 00:54:40.500 that in the past half-century, government activity has increased far more than private. 505 00:54:40.500 --> 00:54:45.940 Government is absorbing and confiscating a far greater share of the national product 506 00:54:45.940 --> 00:55:05.740 Galbraith also airily assumes, in common with many other writers, that many governmental 507 00:55:05.740 --> 00:55:14.200 services are collective goods and therefore simply cannot be supplied by private enterprise. 508 00:55:14.200 --> 00:55:19.160 Without going further into the question of the desirability of private enterprise in 509 00:55:19.160 --> 00:55:23.960 these fields, one must note that Galbraith is quite wrong. 510 00:55:23.960 --> 00:55:31.360 Not only is his thesis simply a bald assertion unsupported by facts, but, on the contrary, 511 00:55:31.360 --> 00:55:37.840 every single service generally assumed to be supplyable by government alone has been 512 00:55:37.840 --> 00:55:41.400 historically supplied by private enterprise. 513 00:55:41.400 --> 00:56:03.400 This includes such services as education, road building and maintenance, coinage, postal delivery, fire protection, police protection, judicial decisions, and military defense, all of which are often held to be self-evidently and necessarily within the exclusive province of government. 514 00:56:03.400 --> 00:56:21.400 Since this would take us far afield indeed, we can mention here only one reference to the successful development of the road and canal networks of 18th century England by private road, canal and navigation improvement companies. 515 00:56:21.400 --> 00:56:31.400 There are many other important fallacies in Galbraith's book, but the central thesis of the affluent society has now been discussed. 516 00:56:31.400 --> 00:56:38.280 Thus, one of the reasons why Galbraith sees great danger in the present high consumption 517 00:56:38.280 --> 00:56:44.600 is that much is financed by consumer credit, which Galbraith considers in the conventional 518 00:56:44.600 --> 00:56:50.840 manner to be inflationary and to lead to instability and depression. 519 00:56:50.840 --> 00:56:57.960 Yet, as we shall see further, consumer credit that does not add to the money supply is not 520 00:56:57.960 --> 00:56:59.500 inflationary. 521 00:56:59.500 --> 00:57:06.260 It simply permits consumers to redirect the pattern of their spending, so as to buy more 522 00:57:06.260 --> 00:57:11.100 of what they want and ascend higher in their value scales. 523 00:57:11.100 --> 00:57:17.300 In short, they may redirect spending from non-durable to durable goods. 524 00:57:17.300 --> 00:57:22.980 This is a transfer of spending power, not an inflationary rise. 525 00:57:22.980 --> 00:57:28.620 The device of consumer credit was a highly productive invention. 526 00:57:28.620 --> 00:57:36.260 Predictably, Galbraith pours much of his scorn on the supply and demand explanation of inflation, 527 00:57:36.260 --> 00:57:42.620 and especially on the proper monetary explanation, which he terms mystical. 528 00:57:42.620 --> 00:57:48.540 His view of depression is purely Keynesian, and assumes that a depression is caused by 529 00:57:48.540 --> 00:57:52.540 a deficiency of aggregate demand. 530 00:57:52.540 --> 00:57:58.820 Galbraith is an increase in prices, which he would combat either by reducing aggregate 531 00:57:58.820 --> 00:58:06.420 demand through high taxes or by selective price controls and the fixing by compulsory 532 00:58:06.420 --> 00:58:10.940 arbitration of important wages and prices. 533 00:58:10.940 --> 00:58:16.820 If the former route is chosen, Galbraith, as a Keynesian, believes that unemployment 534 00:58:16.820 --> 00:58:18.380 would ensue. 535 00:58:18.380 --> 00:58:24.320 But Galbraith is not really worried, for he would take the revolutionary step of separating 536 00:58:24.320 --> 00:58:26.480 income from production. 537 00:58:26.480 --> 00:58:32.120 Production, it seems, is important only because it provides income. 538 00:58:32.120 --> 00:58:38.600 We have seen that government activity has already affected a considerable separation. 539 00:58:38.600 --> 00:58:45.080 He proposes a sliding scale of unemployment insurance provided by the government to be 540 00:58:45.080 --> 00:58:54.000 The payment in depression rising almost to the general prevailing wage. 541 00:58:54.000 --> 00:59:00.800 For some reason, Galbraith would not go precisely as high because of a lingering fear of some 542 00:59:00.800 --> 00:59:05.480 disincentive effect on the unemployed's finding jobs. 543 00:59:05.480 --> 00:59:12.400 He does not seem to realize that this is merely a way of aggravating and prolonging unemployment 544 00:59:12.400 --> 00:59:19.360 During a Depression and Indirectly Subsidizing Union Wage Scales Above the Market. 545 00:59:19.360 --> 00:59:25.340 There is no need to stress the author's other vagaries, such as his adoption of the conventional 546 00:59:25.340 --> 00:59:32.340 conservationist concern about using up precious resources, a position, of course, consistent 547 00:59:32.340 --> 00:59:37.000 with Galbraith's general attack on the private consumer. 548 00:59:37.000 --> 00:59:43.400 Amidst the tangle of Galbraith's remaining fallacies and errors, we might mention one, 549 00:59:43.400 --> 00:59:48.520 his curious implication that Professor von Mises is a businessman. 550 00:59:48.520 --> 00:59:55.920 For first, Galbraith talks of the age-old hostility between businessmen and intellectuals, 551 00:59:55.920 --> 01:00:02.720 backs this statement by quoting Mises as critical of many intellectuals, and then concedes that 552 01:00:02.720 --> 01:00:07.520 Most businessmen would regard Mises as rather extreme. 553 01:00:07.520 --> 01:00:14.380 But since Mises is certainly not a businessman, it is odd to see his statements used as evidence 554 01:00:14.380 --> 01:00:18.120 for businessman intellectual enmity. 555 01:00:18.120 --> 01:00:25.120 This peculiar error is shared by Galbraith's Harvard colleagues, whose work he cites favorably, 556 01:00:25.120 --> 01:00:32.340 and who persist in quoting such non-businessmen as Henry Hazlitt and Dr. F. A. Harper as 557 01:00:32.340 --> 01:00:41.620 As we have indicated, there is a problem of the public sector. 558 01:00:41.620 --> 01:00:48.900 Scarcities and conflicts keep appearing in government services and in these fields alone. 559 01:00:48.900 --> 01:00:55.540 For example, juvenile delinquency, traffic jams, overcrowded schools, lack of parking 560 01:00:55.540 --> 01:00:57.500 space, etc. 561 01:00:57.500 --> 01:01:04.260 We have seen that the single remedy that proponents of government activity can offer is for more 562 01:01:04.260 --> 01:01:08.780 funds to be channeled from private to public activity. 563 01:01:08.780 --> 01:01:14.820 We have shown, however, that such scarcity and inefficiency are inherent in government 564 01:01:14.820 --> 01:01:17.740 operation of any activity. 565 01:01:17.740 --> 01:01:23.980 Instead of taking warning from the inefficiencies of government output, writers like Galbraith 566 01:01:23.980 --> 01:01:29.700 Galbraith turned the blame from government onto the taxpayers and consumers, just as 567 01:01:29.700 --> 01:01:36.660 government water officials characteristically blame the consumers for water shortages. 568 01:01:36.660 --> 01:01:43.340 At no time does Galbraith so much as consider the possibility of mending an ailing public 569 01:01:43.340 --> 01:01:47.620 sector by making that sector private. 570 01:01:47.620 --> 01:01:53.940 How would Galbraith know when his desired social balance was achieved? 571 01:01:53.940 --> 01:02:01.380 What criteria has he set to guide us in knowing how much shift there should be from private 572 01:02:01.380 --> 01:02:03.420 to public activity? 573 01:02:03.420 --> 01:02:05.620 The answer is none. 574 01:02:05.620 --> 01:02:12.920 Galbraith cheerfully concedes that there is no way of finding the point of optimum balance. 575 01:02:12.920 --> 01:02:17.220 No test can be applied for none exists. 576 01:02:17.220 --> 01:02:24.900 But after all, precise definitions, precise equilibrium are not important, for to Galbraith 577 01:02:24.900 --> 01:02:32.500 it is crystal clear that we must move now from private to public activity, and to a 578 01:02:32.500 --> 01:02:34.700 considerable extent. 579 01:02:34.700 --> 01:02:40.900 We shall know when we arrive, for the public sector will then bask in opulence. 580 01:02:40.900 --> 01:02:47.140 And to think that Galbraith accuses the perfectly sound and logical monetary theory of 581 01:02:47.140 --> 01:02:53.140 of Inflation, of being mystical and unrevealed magic. 582 01:02:53.140 --> 01:02:59.120 Before leaving the question of affluence and the recent attack on consumption, the very 583 01:02:59.120 --> 01:03:06.320 goal of the entire economic system, let us note two stimulating contributions in recent 584 01:03:06.320 --> 01:03:13.540 years on hidden but important functions of luxury consumption, particularly by the rich. 585 01:03:13.540 --> 01:03:33.540 F. A. Hayek has pointed out the important function of the luxury consumption of the rich at any given time in pioneering new ways of consumption and thereby paving the way for later diffusion of such consumption innovations to the mass of the consumers. 586 01:03:33.540 --> 01:03:41.040 As Hayek puts it, a large part of the expenditure of the rich, though not intended for that end, 587 01:03:41.040 --> 01:03:51.540 thus serves to defray the cost of the experimentation with the new things that, as a result, can later be made available to the poor. 588 01:03:51.540 --> 01:03:58.540 The important point is not merely that we gradually learn to make cheaply on a large scale 589 01:03:58.540 --> 01:04:27.560 And Bertrand de Juvenel, stressing the fact that refined aesthetic and cultural 590 01:04:27.560 --> 01:04:50.560 and Cultural Tastes are concentrated precisely in the more affluent members of society, also points out that these citizens are the ones who could freely and voluntarily give many gratuitous services to others, services which, because they are free, are not counted in the national income statistics. 591 01:04:50.560 --> 01:04:58.000 If all housewives suddenly stopped doing their own housework and instead hired themselves 592 01:04:58.000 --> 01:05:04.000 out to their next-door neighbors, the supposed increase in national product, as measured 593 01:05:04.000 --> 01:05:10.520 by statistics, would be very great, even though the actual increase would be nil.