THE Global Justice Movement Website

THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.

Thursday, September 2, 2021

The First Principle of Economics

As we saw in the previous posting on this subject, there are short term expedients that if implemented as permanent solutions impose a condition of dependency — slavery — on the great mass of people.  This is not to say that such things as stimulus payments, redistribution, job creation, full employment, and so on, are not essential at times, but they are not the solutions that so many people seem to think.


No, only a program or programs that allow people to be able to fulfill their fullest human potential can be called a solution or even just.  Expedients may be charitable, but charity that eliminates justice is injustice, no matter how great the motivation or good the intentions.

Contrary to what seems to be the incentive for the Great Reset and similar programs, human beings naturally want to be useful and productive, not be taken care of forever.  In any event, to think of people only as consumers and dependents ignores two-thirds of the economic equation.  To be able to consume, it is essential that what is consumed must first have been produced, and that the product get from the producer to the consumer.

Adam Smith


This, in fact, is the first principle of economics, at least according to Adam Smith.  As he stated in The Wealth of Nations (1776), “Consumption is the sole end and purpose of all production.” (Adam Smith, The Wealth of Nations, IV.8.49.) Producing for any other purpose is not merely wasteful, it is ultimately contrary to the whole meaning and purpose of life.

If you produce something that is not useful and not intended to be such, and you derive no benefit from the effort itself — except income to enable you to consume — you have wasted time and resources and have not been useful.  It contradicts human nature to perform tasks and produce goods and services that have no purpose other than to provide consumption income.

To conform to the meaning and purpose of life, economic activity must conform to human nature, which is to be both a producer and a consumer of that which is produced.  This is the basis of the “Smithian school” of classical economics.  Catholic social teaching as well as other natural law-based faiths and philosophies also take this as a given.

David Ricardo


This becomes obvious when we go more deeply into Smith’s first principle of economics, that production is only for consumption, and nothing else.  For starters, it necessarily implies that production must precede consumption.  This contradicts a fundamental and unquestioned principle of the “Ricardian school” of classical economics, named for David Ricardo, which also underpins socialism and virtually the whole of modern economics.

Ricardo accepted without dispute the belief that new capital can only be financed by cutting consumption and accumulating the surplus as money savings.  Widespread acceptance of this incorrect principle is one possible reason people find the Great Reset and similar proposals so attractive.

To explain, if production can only be financed out of existing or past savings, there must be pre-existing production to refrain from consuming to be able to accumulate savings.  Put another way, if unconsumed production is the only source of financing for production, production must precede production — which does not make sense.  You must have your cake and eat it, too.



As we have pointed out before on this blog, this is the great error of Keynesian economics, at least with respect to logic.  A thing cannot precede itself, but Keynes’s theories require just that.  In a very real sense, Keynesian economics, which requires that there be un-produced production before production can take place, begs the question: how do you refrain from consuming that which has not been produced in order to set aside the unconsumed production to finance future production?

Nothing can exist before it exists.  Nothing can both “be” and “not be” at the same time under the same conditions.  That is the first principle of reason — and the past savings assumption completely ignores it.

Ricardo’s and Keynes’s past savings assumption therefore violates the first principle of reason on which the whole of Aristotelian philosophy is built.  That is, nothing can both exist and not exist at the same time under the same conditions.  The theory that no production can take place unless production has already taken place dissolves into nonsense.