Tuesday, July 7, 2015

Solving the Greek Debt Crisis, III: The Sound of One Hand Clapping


Absent a rich uncle conveniently dying or a fairy godmother waving a magic wand to grant three wishes (neither of which, for various reasons, is something we should count on), there is only way to get out of debt: produce enough to cover your current consumption needs, make up for what you consumed in the past that you didn’t produce, and put something aside for a rainy day . . . which means a year’s worth of income to cover yourself because rain spoiled the annual harvest.

You can't eat what doesn't exist.
That is, as we pointed out yesterday, the purpose of production being consumption, the obvious corollary is that unless something has been produced and exists, you can’t consume it.  If you didn’t produce something, somebody else had to.  If you didn’t trade something to the producer, you still owe him.

That, as we also pointed out yesterday, is Say’s Law of Markets, which can be summarized briefly (and somewhat inaccurately) as “production equals income, therefore, supply generates its own demand, and demand its own supply.”  Unfortunately, a lot of people — especially economists and politicians — don’t have a firm grasp (or in some cases any grasp at all) on such esoteric concepts as “production,” “income,” “supply,” and “demand,” or the related concepts of “property,” “money,” “credit,” “banking,” and “finance.”

Take, for instance, Karl Marx and John Maynard Keynes, both of whom rejected Say’s Law of Markets.  Why?  Because they assumed that human labor is the only real factor of production.  Land and natural resources are only productive if you “mix” human labor with “the gratuitous offerings of nature.”  In Marx’s and Keynes’s Ricardian world, human artifacts — technology — consist only of the labor used to create them, and must be considered accumulated or congealed labor.

"If there is no value, labor is not labor."
At best, technology “enhances” human labor, and cannot be considered independently productive.  Only labor adds value.  And if whatever is produced with labor turns out to be worthless?  Marx has yer back, Jack: then the labor doesn’t count as labor . . . making it at one and the same time the standard of value, and a thing of no value in and of itself.

That is not, however, the principle in moral philosophy, Smithian classical economics, or binary economics.  Labor is not the sole factor of production, and it is not due everything from production.  As Pope Pius XI explained,

“But not every distribution among human beings of property and wealth is of a character to attain either completely or to a satisfactory degree of perfection the end which God intends. Therefore, the riches that economic-social developments constantly increase ought to be so distributed among individual persons and classes that the common advantage of all, which Leo XIII had praised, will be safeguarded; in other words, that the common good of all society will be kept inviolate. By this law of social justice, one class is forbidden to exclude the other from sharing in the benefits. Hence the class of the wealthy violates this law no less, when, as if free from care on account of its wealth, it thinks it the right order of things for it to get everything and the worker nothing, than does the non-owning working class when, angered deeply at outraged justice and too ready to assert wrongly the one right it is conscious of, it demands for itself everything as if produced by its own hands, and attacks and seeks to abolish, therefore, all property and returns or incomes, of whatever kind they are or whatever the function they perform in human society, that have not been obtained by labor, and for no other reason save that they are of such a nature. And in this connection We must not pass over the unwarranted and unmerited appeal made by some to the Apostle when he said: ‘If any man will not work neither let him eat.’ For the Apostle is passing judgment on those who are unwilling to work, although they can and ought to, and he admonishes us that we ought diligently to use our time and energies of body, and mind and not be a burden to others when we can provide for ourselves. But the Apostle in no wise teaches that labor is the sole title to a living or an income.” (Quadragesimo Anno, § 57.)

"I am, like, so into this ... ribbit."
We have to get a little Zen here.  Does anything count as produced if human labor is not involved?  If a tree produces apples and nobody picks them, do those apples exist?  If gold and silver are not mined or oil pumped, is it still there?  What is the sound of one hand clapping?

The answer to all three questions is, “It depends.”  It depends on how you define “produce,” “existence,” “clap,” and a host of other concepts that are implied, even if not stated, such as property, money, credit, banking, savings, finance . . .

The bottom line is that if you don’t define your concept or principles adequately, then what you build on or extrapolate from those principles might be true, correct, or good — but it might, just as easily, be a complete disaster.  As both Aristotle and Aquinas noted, it is from small errors that big errors grow.  And grow, and grow, and grow. . . .

#30#

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