Tuesday, February 1, 2011

The Problem with Money, Part II: The Black Hole of Consumption

We ended yesterday's learned discourse with the question why, if we all have the derived right to create money — "derived" because it comes from the exercise of two natural rights, that of private property and liberty (freedom of association/contract) — how come we never seem to have enough? Or any at all, for that matter?

Conventional economics claims to have at least part of the answer. Why do we never seem to have enough money? Because human beings are a bunch of greedy pigs whose wants can never be satisfied. Never. Each human being is a consuming machine who lives only to suck away resources from other human beings in a constant struggle for supremacy and lust for ultimate power.

This is a slightly exaggerated version of what you'll read in many economics textbooks when you come to the subject of "scarcity." It's also why we describe binary economics as a "post scarcity" school of thought. Is it because binary theory holds that economic scarcity can be overcome? In strict terms, absolutely not. "Economic scarcity," however, has a very special meaning on which, unfortunately, many economists tend to fudge, confusing it with Malthusian scarcity. This is a theory concerning which, as Schumpeter remarked "Professor [Edwin] Cannan [1861-1935] did not exaggerate when he wrote that the Essay [Malthus's Essay on Population, 1798] 'falls to the ground as an argument, and remains only a chaos of facts collected to illustrate the effect of laws which do not exist.'" (Joseph A. Schumpeter, History of Economic Analysis. New York: Oxford University Press, 1954, 580.) As Schumpeter explained,

As presented in the first edition, it [i.e., Malthus's argument] clearly was intended to mean that population was actually and inevitably increasing faster than subsistence and that this was the reason for the misery observed. The geometrical and arithmetical ratios of these increases, to which Malthus like earlier writers seems to have attached considerable importance, as well as his other attempts at mathematical precision, are nothing but faulty expressions of this view which can be passed by here with the remark that there is of course no point whatever in trying to formulate independent "laws" for the behavior of two interdependent quantities. The performance as a whole is deplorable in technique and little short of foolish in substance. (Ibid., 579.)
So how does "economic scarcity" differ from the human wasteland that people seem to derive from Malthusian doctrine? Simple. All economic scarcity says is that "X" amount of everything exists at any single point in time, and that you can't use the same quantity of X to make product A and, at the same time, make product B. This is often put in terms of "guns or butter," i.e., a society can use its existing resources to produce military goods or consumer goods, and there is a necessary tradeoff between the two.

From this conventional economists assume as an established fact that, "therefore," there will always be an insufficiency of everything, because — given the presumed necessary tradeoff between different goods and services within the limitations imposed by "scarce" resources — nobody can have an infinite amount of everything.

There are "one or two" problems with this analysis, as we will demonstrate tomorrow. Assuming we make our way through yet another Storm of the Century.


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