Published: April 22, 2008 12:31 am            

Arthur Foulkes: We all live within the ‘economic order’

TERRE HAUTE — I recently interviewed a woman who spoke of being temporarily “outside the economic order.”

She meant by this, if I understood her correctly, that she was not producing anything for sale and was spending her time outdoors. She was, however, consuming. She wore glasses that someone else produced. She wore clothes someone else produced and used a car, a computer and electronic equipment other people produced.

I’m not sure any of us can exist outside the “economic order.” Economics is concerned with the fact that there is only so much stuff to go around. I don’t think any of us can exist apart from this fact, even temporarily.

At the very least, we all are consumers, and consumption is definitely a part of the “economic order.” We cannot help being consumers because we all require resources such as food, water and shelter to survive.

There is a tendency to view economics as grubby, selfish and materialistic. Economics is said to focus on crass things such as money, prices, profits and private property. In a perfect world, none of these things would exist, some critics of economics seem to believe.

Money is simply something that makes it easier for people to trade with each other.

There is nothing bad about this. In fact, because money makes trade easier, it also makes division of labor more likely. And trade and the division of labor contribute significantly — to put it mildly — to human well-being.

Nor are prices evil. Prices in a free market reflect the supply and demand for products. This signaling function is essential for figuring out where scarce productive resources can be employed to meet consumer wants and needs. Consumers, in a free market, determine the demand for products; therefore, ignoring prices is ignoring consumer preferences in favor of some arbitrary notion of what a price “ought” to be.

Private property is likewise vital to human well-being. It provides incentives for improvement and investment, and also provides a safe haven for anyone to be left alone (unless a government entity uses “eminent domain” to force someone to abandon his property). Economic progress is most evident where private property rights are respected. Societies without private property rights suffer lack of investment, lack of growth and crippling poverty.

Politicians and policy-makers often ignore the important role of production and focus instead on the distribution of existing wealth. This ignores the fact that for wealth to be distributed, it first must be produced. Even those who philosophically deplore “wealth” consume it every day.

It seems incredible, but during the Great Depression and at many other times in American and world history, the “answer” policy-makers have devised for economic slowdowns is to reduce production or to destroy wealth after it was produced.

During the Great Depression, for example, the government forced farmers to slaughter and bury healthy livestock, plow under perfectly good crops and to take fertile fields out of production. Also during the Depression, the government hampered wealth creation through he Smoot-Hawley Tariff, which greatly restricted international trade.

Another economic fallacy that hampers wealth creation is the belief that prices should not be permitted to fall during an economic slowdown. This was the guiding belief of Herbert Hoover, who fought to keep wages and prices from slipping at the beginning of the Depression. Because of this, market forces were hampered and economic recovery was prevented.

There is no getting around the fact that we all are consumers and cannot avoid being such. We can attempt to “manage” things such as the supply of money, prices and production, but this always leads to new problems and, down the road, new interventions.

Today, we have a thoroughly “mixed” economy, which means an economy where policy-makers team up with influential members of the private sector to hamper competition, production and, ultimately, prosperity and freedom.

Like it or not, there is no getting around the fact that we all live within the “economic order.” Denials of this truth only leave us poorer and less free than we otherwise would be.

Arthur Foulkes is a Terre Haute native and long-time resident. He writes a column on business and economics for the Tribune-Star. He can be reached at (812) 231-4232 or arthur.foulkes@tribstar.com.

        

• Click to discuss this story with other readers on our forums.