A talk to the Shaftesbury Conference at the John Locke Foundation, August 28, 2006.
Welcome Shaftesburyites to the Dismal Science that doesn't have to be dismal. And hear a probably apocryphal story on what makes man tick. And when I say man, I of course embrace woman. Why? Because women are, ahem, so embraceable.
For think: Where would we men be without women? Would we men not become scarce, very scarce? In that case, where then would women be? Ah, also very scarce. For today we meet and talk of the root cause of economic science in the first place, i.e. scarcity – on how to think about it, and cope with it.
Cope? That story I mentioned above tells of dazzling Hollywood film star Za Za Gabor. Za Za had six marriages in which she learned good housekeeping, thanks to each ex-husband. How so? Well, think, in each divorce she got to keep the house.
So Ticker No. 1 in our one lesson in economics is the law of self-interest, how it copes with scarcity, such as keeping the houses in Za Za's case. Yet many people wrongly tie such interest to greed or materialism, if such excesses may, yes, get into play.
So, Shaftesburyites, see how self-interest drives the entire economy, and gets each of us to tick, behave – or, heaven forbid, misbehave – as each of us call the shots on ourself, as each of us privately wields our individual and very powerful free will. Free as long as you don’t violate the equal freedom of others.
So interest covers the full moral-immoral spectrum: Selfishness and evil, yes, but also charity, altruism, religion, kindness, goodness, honesty, love, compassion, civility, etc. Nobody is without it. So you run you, with a near-absolute monopoly over yourself, with a DNA – that double-helix thing – unlike anybody else in the world before or since.
So it follows that you are a most unique individual – no one like you before or since – that you define yourself, that you are in charge, that you set or reset your disposition, along with your insight-outlook on life, with your very own ongoing raison d’tre. For doesn’t this sweeping self-interest good-to-evil spectrum explain the maybe divinely-sparked yet still self-directed ways of Mother Teresa as it does your own unique ways?
For, Shaftesburyites, bear in mind that society can’t think, feel, choose, or act. Only the individual can think, feel, choose, act, though he/she can act in concert with others. For consider: Due to scarcity, is not his or her every action, without exception, based on gain, as that person perceives gain? Yet many people frown on gain, even on self-interest itself. Yet think: Isn’t a selfless act an oxymoron? An impossibility? Oh, yes!
Take a homely example: Your nose itches, yet you alone get to scratch it and gain relief. So gain, broadly viewed, rules human behavior. Which makes incongruous the rife animus against profit, including personal and, more so, corporate profit.
For ask, relatedly, what does being a dentist mean? It means, right? Drilling, filling and, ah-ha, billing.
So in my book self-interest and true self-government are one. Per the answers to three queries: 1. Are you not a sort of one-person state? 2. Don’t you fully govern yourself? And 3. Don’t you apply self-control, self-management, self-care, self-direction, and even self-creation in terms of philosophy and personality?
To all three questions, Shaftesburyites, I say, Yes, adding that deep-down in every mind, if often untapped, is self-help. Or as Ben Franklin put the matter in his Poor Richard’s Almanac: “God helps them that help themselves.” Yes, if I still add: Caveat emptor.
All while each of you follow Thomas Jefferson’s "pursuit of happiness" – happiness more often nonmonetary than monetary. Yet hear Adam Smith on self-interest in 1776 in his The Wealth of Nations: "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."
So Ticker No. 1 is self-interest – or maybe self-enlightenment is a better term. So interest serves as each individual's driving directive force, so it serves as our central social driving force. Force against what? What else but scarcity. Ticker No. 2 then in our one lesson in economics is the law of scarcity itself.
Recall the parable of how the Lord Jehovah thundered down on terrified Adam and Eve fleeing the timeless scarcity-free Garden of Eden, with an angry Lord proclaiming, per Genesis: “In the sweat of thy face shalt thou eat bread.”
Recall why the miscreant couple and their myriad untold generations of offspring, including you and me, got banished to a world of scarcity: They had partaken of the Forbidden Fruit. Alas for Adam and Eve, if less alas for you and me. We Shaftesburyites never knew any Garden of Eden. Nor, safe to say, will we.
For aside from inhaling free life-saving oxygen, as you are doing right now, or watching beautiful sunsets, don’t you see that virtually every thing you need to stay alive is scarce, as often measured by price – that key economic rate of exchange?
So water is very cheap, diamonds very dear. Think of scarce food, clothing and shelter – those three basics of existence. Think of scarce communications such as email or a telephone. Note scarce transport such as a car/bus, train/plane. Note scarce medicine from an aspirin to a heart transplant.
Or see a bank then for your financial scarcity, a beauty salon or barbershop for your hair style scarcity, a law firm for your legal scarcity, and so on. Or see farmers raising scarce potatoes, cucumbers and lettuce for your potato salad. Scarcity, scarcity everywhere, even including precious life itself, yours and mine. Sorry about that.
Yet watch your peers in our market society trade daily, if not avidly. See them practice division of labor or specialization not only to ease scarcity but to advance what my great mentor at New York University, Ludwig Mises, called "social cooperation."
Mises – who was he? He was a Jewish escapee from Nazi Europe, a champion of limited government, an author of a truly transcendental economics book entitled Human Action (1949), a giant who professionally predicted in 1920 the implosion of socialism la the Soviet Union for its lack of “economic calculation.” Bull’s eye prediction, as you know.
And social cooperation was his name for society – a voluntary social order in which each of you plays a key role. Indeed, Mises hailed you as the "sovereign consumer." Together with other sovereign consumers, all holding the lethal economic power of the purse, you run our big free enterprise show – if imperfectly, given some business wrongdoers.
Yet entrepreneurs still work for you – and your dollar – and ease your scarcity by cutting cost, improving quality, building variety, and inventing amazing things like, say, a cell phone with TV, radio, internet, movie, and photo transmission power. Wow.
Entrepreneur Thomas Alva Edison is a case-in-point. So are John D. Rockefeller, Andrew Carnegie, and inventive Sam Walton, founder of Wal-Mart. But scarcity presses on, as seen by Pres. Harry Truman on scarce friends. Said shrewd Pres. Truman: "If you ever need a friend in Washington, ah-ha, buy a dog."
Ticker No. 3 in this economics in one lesson is the law of opportunity cost, also known as the law of trade-offs. This is the idea that no matter what you do, for business or pleasure, Shaftesburyites, it is ever at the expense of something else.
It's the idea that whenever you choose one thing/person, you must give up the benefit of whatever or whoever was your second-ranked option. It’s the idea that you can't have your cake and eat it too. It’s the idea that the National Organization of Women put its case artlessly, saying “Have It All” – an impossibility in our scarce, scarce world.
So opportunity cost gets down to three words: No Free Lunch, a law cutting the lure of state largesse: the lure that the state can somehow give anything without taking something away – e.g., forcing up taxes and making mistakes la Hurricane Katrina-hit FEMA and the inept levee-building Corps of Engineers in New Orleans last year.
Meanwhile, government bloats as seen in our federal red-ink $2.7 trillion 2007 budget, a national debt veering toward the $9 trillion mark, both overlarded with pork per a record 15,000-plus budget earmarks in 2005 – or an annual average of 30 bring-home-the-bacon pet projects per member of Congress. No wonder incumbents win elections. Oink, oink.
Government bloat bespeaks of the wit and wisdom of English poet Robert Browning and Dutch architect Mies van der Rohe, each saying, “Less is more.” Less bloat means less taxes, less waste, more self-government – more liberty.
So this opportunity cost ticker casts the Welfare State system of transfer payments as a coercive zero-sum game, but our market democracy of willing buyers and sellers as a voluntary positive-sum game, as both parties in any trade see profit – or no deal.
Doesn’t this situation make a case for capitalism, our inherent meritocracy, as free individuals help each other in the market or out, as voluntary forward-looking private charities beat coercive “entitlement” government welfare? Or hear wit George Bernard Shaw on the contrasting welfare scheme: "When the state robs Peter to pay Paul, it can always count on the support of Paul."
Ticker No. 4 is business, Main Street–Wall Street, i.e. the law of trade mutuality, of two-way gainful trade. Such gain spurs buying and selling, supply and demand, competition and entrepreneurship, all reflecting a market democracy promoting trade to ease scarcity here and abroad. Free trade means no regulation, no controls, no protection.
So see world trade today accelerate, spread, globalize, as you can gather from the title of N.Y. Times writer Thomas Friedman's best-seller, The World Is Flat. So, Mr./Ms. Shaftesburyite, is globalization good or bad, a boon or bane in easing scarcity?
Well, did you catch my phrase earlier, "market democracy"? F. A. Hayek, a student of Mises and a Nobel Prize economist, thought highly of scarcity-easing trade, of market democracy, domestic and foreign. He said the market not only tends to make people better off by easing scarcity, but tends to makes them more socially responsible.
How so? Well, take savers: individuals and firms building national capital creation and so helping others, including the poor, inadvertently – as if by an “invisible hand” in Adam Smith’s keen phrase. That was the idea of Pres. John F. Kennedy in 1962 in proposing a tax cut and saying: “A rising tide lifts all boats,” Including those of the poor.
Or take today’s high-priced gasoline as a case of rising scarcity. At once the invisible hand spurs oil firms to explore and discover new oil sources, while spurring consumers to slow down purchases of gasoline.
So the market presses both producers and consumers to do the right thing, the socially responsible thing. So market democracy – producers and consumers daily voting their pocketbook – becomes a self-adjusting-self-directing economy without the state or anybody else lifting a finger.
So private everyday market democracy is most unlike those public every-other-year political elections. Market democracy runs an endless plebiscite 24 hours a day, 7 days a week, as you and many others seek to impede scarcity. Market spontaneity amazed Hayek, who called it a "marvel." I do too.
Thus does trade mutuality support if not, as I think, create society. It made sense to Robinson Crusoe and Friday on their desert island to trade with each other, each thinking smart, after checking comparative cost and division of labor between them.
Mutuality makes sense to us to ease scarcity by trading daily – using division of labor, checking out comparative costs, buying freely from producers sharper than ourselves such as Google, Verizon, Merrill Lynch, General Electric, Macy’s, Metropolitan Life – as trading parties get ahead via mutual gain.
Gain? So Robinson Crusoe gave us the 5-day work-week, for didn't he get his work done by Friday? Hey!
Or think of a green high-school graduate from Jersey City, me, arriving as a mail clerk in 1939 at 590 Madison Ave., N.Y., IBM headquarters, and getting a lesson not on trade's scarcity-easing productivity but on its power to wage peace. For on an outside wall was a huge 30-foot-high sign, painted in black and gold, reading "World Peace Through World Trade."
That thought was the idea of Thomas J. Watson, founder and head of IBM, who wondered about the dubious outcome of World War I and the League of Nations, who saw how trade lifts living standards and benefits people directly, who prodded them to see the folly of war when armed forces shoot/bomb customers and investors, actual or potential.
And last but not least in this one economic lesson, Shaftesburyites, is the gross Ticker No. 5, Gresham’s law on inflation. It is named after Sir Thomas Gresham, 16th century English financier and advisor to Queen Elizabeth I. Gresham saw that in money circulation "bad money drives out good," as people unload their bad money and hoard the good.
Thus does debased coinage or irredeemable paper currency or unrestrained bank credit swell and replace money of higher value in terms of gold or silver. To put Gresham’s Law into modern lingo, inflation stems from too much money chasing too few goods. As our hardly good-as-gold U.S. dollar falls and falls.
I attest personally to how far the dollar has fallen since I was a boy. In 1930, when I was 9 years old, the price of a 1st-class stamp was 2 cents; today it is soon 42 cents, or 21 times more. In 1930 a doctor charged $2 for an office visit and $3 for a home visit; today he’s up around $80 for an office visit, or 40 times more, and home visits are as dead as a do-do. In 1930 a ride on a New York City subway cost a nickle; today it’s $2 – again 40 times more.
So inflation goes, so money rots. Rotting is bad enough but it also causes rotten recessions as well. I leave it to you on just when the next recession strikes, as it most certainly will.
No surprise: The root of monetary rot is politics: a power-corrupting statist anything-goes majoritarian amorality, as government counterfeits money legally. Note Roman Emperor Diocletian in 301 A.D. blaming inflation not on his debasing Roman coinage but on “the greed of merchants.” Thus did Diocletian pass the buck in his day and set wage and price controls, which soon failed. As they always do.
I close listing those five scarcity-coping tickers in my one lesson in economics as: 1. the law of self-interest, 2. the law of scarcity, 3. the law of opportunity cost, 4. the law of trade mutuality, and that miscoping 5. Gresham’s law on inflation.
So there, dear Shaftesburyites. And I can too chew gum and walk at the same time.
October 6, 2006
