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First you make the good, then you make the market. This is deeply in conflict with accepted economic thought.
The economic life of the Middle East never recovered from the imaginative destruction, pillage and massacre of Genghis Khan.
The race for increased efficiency required that the losers should lose.
few things are more evident in modern social history than the decline of interest in inequality as an economic issue.
Accordingly, he need not save.
But most important, the professional manager or executive took away from the man of wealth the power that is implicit in running a business. Seventy-five years ago Morgan, Rockefeller, Hill, Harriman and the others were the undisputed masters of the business concerns they owned, or it was indisputably in their power to become so. Their sons and grandsons still have the wealth, but with rare exceptions the power implicit in the running of the firm has passed to professionals.
The increase in the security and incomes of Americans at the lower income levels has effectively reduced—indeed, for many purposes, eliminated—the servile class.
But enjoyment of things has always been intimately associated with the third prerogative of wealth, which is the distinction that it confers. In
As the rich have become more numerous, they have inevitably become a debased currency.
In the advanced country, in contrast, increased production is an alternative to redistribution. And, as indicated, it has been the great solvent of the tensions
Increasing aggregate output leaves a self-perpetuating margin of poverty at the very base of the income pyramid. This goes largely unnoticed, because it is the fate of a voiceless minority.
And liberals have long been accustomed to expect the poor to speak in the resounding tones of a vast majority.
However, this insecurity, valuable though it seemed in principle, was cherished almost exclusively either in the second person or in the abstract.
have been principally deplored by university professors on lifetime appointments.
The specter that for long haunted the economist was the monopoly seeking extortionate gains at the public expense. This dominated his thoughts. The less dramatic figure, the businessman seeking protection from the vicissitudes of the competitive economy, was much less in his mind.
A third way unimagined
With increasing well-being, all people become aware, sooner or later, that they have something to protect.
Thus the notion, so sanctified by the conventional wisdom, that the modern concern for security is the reaction to the peculiar hazards of modern economic life could scarcely be more in error. Rather, it is the result of improving fortune—of moving from a world where people had little to one where they had much more to protect.
The great depression was severe partly because there was so much wealth and income to lose. The hazard was greatest in the United States and Canada where the per capita wealth was greatest. And the depression stimulated concern for economic security in precisely the same way that a conflagration stimulates an interest in fire insurance and a flood in flood control.
Along with the carrot of pecuniary reward must go the stick of personal economic disaster. Both were essential. To remove the stick, which must be the consequence of increasing economic security, would be to remove half the incentives by which men were inspired. Plainly, however, the notion that economic insecurity is essential for efficiency and economic advance was a major miscalculation—one of the greatest in the history of economic ideas.
Plainly the increased concern for security, so far from being in conflict with increased productivity, was consistent with a greatly accelerated rate of advance.
in the conventional wisdom such empirical evidence is not necessarily decisive.
The conflict between security and progress, once billed as the social conflict of the century, doesn’t exist.
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Whether we need or even wish the goods that are produced, their assured production means assured income for those who produce them. This serves the goal of economic security.
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the present preoccupation with production,
For we have wants at the margin only so far as they are synthesized. We do not manufacture wants for goods we do not produce.
marginal utility
Production only fills a void that it has itself created.
incredibly, they have closed their eyes (and ears) to the most obtrusive of all economic phenomena, namely, modern want creation.
As a society becomes increasingly affluent, wants are increasingly created by the process by which they are satisfied.
Among the many models of the good society, no one has urged the squirrel wheel.
In Chapter 8, we saw how deeply we were committed to production for reasons of economic security. Not the goods but the employment provided by their production was the thing by which we set ultimate store. Now we find our concern for goods further undermined. It does not arise in spontaneous consumer need. Rather, the dependence effect means that it grows out of the process of production itself.
Clearly the attitudes and values which make production the central achievement of our society have some exceptionally twisted roots.
The case involves some rather strained argument—it makes education unproductive and the manufacturer of school desks productive—but,
Scientists, writers, professors, artists are also important competitors of the businessmen for public esteem.
behavior. Perhaps the most honorific
Increased production solved, or seemed to solve, nearly all of the social problems of the day.
Keynes concentrated the eyes of liberals on production,
censorious social levels of American society, there has long been a fashionable aversion to gadgetry. (The word gadget is itself
When men are unemployed, society does not miss the goods they do not produce. The loss here is marginal. But the men who are without work do miss the income they no longer earn.
to suggest that the product is in any way incidental, is disturbing. It brings the economic society to the brink of the dubious world of make-work and boondoggling.
Consumer demand thus comes to depend more and more on the ability and willingness of consumers to incur debt.
the belief that monetary policy is the highly professional prerogative of the financial community. As such, it must be protected from the crude pressures of democratic government.
There was nothing else, so it had to work.
First of all, monetary policy suffers from the unfortunate absence of any occult effect. It has long been clear that economic management, especially in the United States, would be greatly facilitated if resort could occasionally be had to witchcraft. Monetary policy, by far the most promising possibility, involves none. This every good citizen must regret.
monetary policy must work, if at all, by reducing the aggregate demand for goods. Its handle for accomplishing this is a higher interest rate and a diminished supply of funds for lending. By thus discouraging lending by banks and borrowing by consumers and producers, the policy is presumed to restrict or restrain what the latter have to spend. The reduction in this spending, if it occurs, will then have secondary (or multiplier) effects on the spending of others. The ultimate consequence is to reduce the demand for goods as a whole or to restrain the rate of increase in demand.1 By thus
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there is, in fact, considerable agreement that monetary policy does not make any effective contact with consumer borrowing and spending.
For all of these reasons, most investment will be extremely unresponsive to moderate increases in the interest rate, which is the way in which monetary policy presents itself to the ordinary business firm.
monetary policy is a blunt, unreliable, discriminatory and somewhat dangerous instrument of economic control. It survives in esteem partly because so few understand it, including so few of those—builders, smaller businessmen who must finance inventories, farmers—on whom it places the prime burden of its restraint. It survives, also, because an active monetary policy means that, at times, interest rates will be high—a circumstance that is far from disagreeable for those with money to lend.
monetary measures are the instrument of conservatives. The weapon of liberals is fiscal policy. And among economists generally, fiscal policy is regarded as the ultimate economic weapon. The friends of monetary policy aver its effectiveness, perhaps partly to allay their unconscious doubts.
positive fiscal policy to counter inflation will almost always require an increase in taxes.
