Distributists almost always have one political
economist they detest more than all the rest . . . which is saying a lot. That is that Mean Ol’ Adam Smith, whose “invisible
hand” argument has sometimes been characterized as attempting to substitute for
the Hand of God.
That’s
kind of . . . dumb. The invisible hand
is Smith’s metaphor of the economic system with proper internal controls. If the system is properly designed, it will
run almost automatically as if it were
guided by an “invisible hand” so that things always work out properly. The fact that Smith’s system was not properly
designed is another matter, and an argument for another day.
Our
interest today is Smith’s first principle of economics. As he put it in The Wealth of Nations, this can be stated quite simply as “Consumption
is the sole end and purpose of all production.”
Smith’s
first principle leads naturally into Say’s Law of Markets . . . and (as we
might expect), Jean-Baptiste Say is probably second on the list of political
economists people love to hate. And yet,
like Smith’s invisible hand, Say’s Law is nothing more than common sense.
 |
| Jean-Baptiste Say |
To
explain Say’s Law, all other things being equal, there are only two ways to
consume: produce for your own consumption directly with your land, labor, or
capital, or to trade to others to be able to consume what they produce with
their land labor, or capital. Thus, what
is produced tends to be what people want or need, without stimulating
artificial demand for unnecessary or unwanted production produced only for
profit: production equals income, and supply generates its own demand, and
demand, its own supply.
Ironically,
Say best explained the law named after him (he didn’t invent it, but gave it
its clearest expression) in refuting the theories of the third political
economist on the list of those people love to hate: the Reverend Thomas
Malthus. Under the Malthusian Spell, for
over two centuries most experts have concluded that for there to be economic
growth, the rate of population growth must be reduced; there are too many
people.
Bologna,
said Say and a number of others, such as John Weyland, a political economist
people would probably love to hate if they knew anything about him. Weyland’s anti-Malthusian theory irritated
more experts than Adam Smith.
 |
| John Weyland |
Weyland’s
theory is that the rate of population growth varies inversely — and naturally —
with the standard of living. Thus, as living standards rise, the reproductive
rate decreases, and as living standards fall, the reproductive rate increases
in response. Confusing cause and effect, however, many authorities following
Malthus have assumed that rising standards of living are caused by reducing
population growth, not that the rate of population growth is reduced by raising
the standard of living.
Under
the Banking Principle on which binary economics is based, the amount of money
in the system is determined by production — all money comes from production, as
it is the medium by means of which I trade what I produce for what you produce.
Under the Currency Principle, the amount of money determines production. Thus,
under the Banking Principle you need production in order to have money, while
under the Currency Principle you need money in order to have production.
Keynesian
economics, therefore, assumes as a given that all financing for new capital
investment must come out of existing production: past savings. These by
definition belong to the currently wealthy, or to the State if it can create
money backed by its own debt, thereby effectively abolishing private property.
 |
| Adam Smith |
In
Keynesian economics, it is essential that there be great disparities of wealth,
and the more expensive new capital becomes, the greater the disparity must be
in order to provide savings for new capital formation and job creation. Further, in order to ensure that there is
enough savings to form capital, wage earners must spend all of their income to
purchase unnecessary or unwanted, even useless goods and services in order to
generate more profits for the rich.
This
is because the presumed need for unconsumed production to provide savings
requires unnecessary production . . . which must be sold to turn it into money
savings. The more useless junk people
can buy in the Keynesian paradigm, the better the economy runs. Consumer credit
is a great boon — for the rich, because it enables people to create money to
purchase the excess goods and services, thereby providing the savings Keynes
considered essential.
 |
| Snuffy Smith |
Of
course, if new capital formation were financed out of future savings instead of
past savings, great wealth disparities, unnecessary production, consumer
credit, and a host of other Keynesian fixes would be unnecessary.
That
is why, if you want to demonize an economist, you might want to look at Keynes,
rather than Adam Smith, Jean-Baptiste Say, or John Weyland.
Or,
better yet, don’t demonize anybody, but learn about the Just Third Way.
#30#
