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CAPITALISM: |
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The Clearest and
Most Comprehensive Contemporary Defense of the Capitalist
Economic System Available |
Literature and Lectures by Edith Packer, George Reisman, and Others |
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CONTENTSThis excerpt is taken from George Reisman, Capitalism: A Treatise on Economics. Ottawa, Illinois: Jameson Books, 1996. Copyright © 1996 by George Reisman. All rights reserved. LIST OF FIGURES xxxv LIST OF TABLES xxxvii PREFACE xxxix Notes l 1. Procapitalist Economic Thought, Past and Present 1 2. Pseudoeconomic Thought 6 Marshallian Neoclassical Economics: The Monopoly Doctrine and Keynesianism 7 Mathematical Economics 8 3. Overview of This Book 9 Notes 11 THE FOUNDATIONS OF ECONOMICS CHAPTER 1. ECONOMICS AND CAPITALISM PART A. THE NATURE AND IMPORTANCE OF ECONOMICS 1. Economics, the Division of Labor, and the Survival of Material Civilization 15 2. Further Major Applications of Economics 16 1. The Philosophical Foundations of Capitalism and Economic Activity 19 Freedom as the Foundation of Security 22 The Indivisibility of Economic and Political Freedom 23 The Rational Versus the Anarchic Concept of Freedom 23 The Decline of Freedom in the United States 26 The Growth of Corruption as the Result of the Decline of Freedom 26 3. Capitalism and the Origin of Economic Institutions 27 4. Capitalism and the Economic History of the United States 28 5. Why Economics and Capitalism Are Controversial 31 The Assault on Economic Activity and Capitalism 31 The Prevailing Prescientific Worldview in the Realm of Economics 32 Economics Versus Unscientific Personal Observations 32 6. Economics and Capitalism: Science and Value 36 CHAPTER 2. WEALTH AND ITS ROLE IN HUMAN LIFE 1. Wealth and Goods 39 2. Economics and Wealth 41 3. The Limitless Need and Desire for Wealth 42 Human Reason and the Scope and Perfectibility of Need Satisfactions 43 Progress and Happiness 45 The Objectivity of Economic Progress: A Critique of the Doctrines of Cultural Relativism and Conspicuous Consumption 46 The Objective Value of a Division-of-Labor, Capitalist Society 48 4. The Law of Diminishing Marginal Utility and the Limitless Need for Wealth 49 5. Applications of the Law of Diminishing Marginal Utility 51 Resolution of the Value Paradox 51 Determination of Value by Cost of Production 52 Determination of Consumer Spending Patterns 52 Say's Law 53 6. "Scarcity" and the Transformation of Its Nature Under Capitalism 54 7. Time Preference and the Scarcity of Capital 55 The Foundations of Time Preference 55 The Scarcity of Capital 56 A Word on Capital Accumulation and the Rate of Return 58 Time Preference, Rationality, and Freedom 58 Notes 61 CHAPTER 3. NATURAL RESOURCES AND THE ENVIRONMENT PART A. NATURAL RESOURCES 1. The Limitless Potential of Natural Resources 63 The Energy Crisis 66 2. The Law of Diminishing Returns 67 The Law of Diminishing Returns and the Limitless Potential of Natural Resources 69 Diminishing Returns and the Need for Economic Progress 70 3. Conservationism: A Critique 71 PART B. THE ECOLOGICAL ASSAULT ON ECONOMIC PROGRESS 1. The Hostility to Economic Progress 76 2. The Claims of the Environmental Movement and Its Pathology of Fear and Hatred 76 The Actual Nature of Industrial Civilization 76 The Environmental Movement's Dread of Industrial Civilization 78 The Toxicity of Environmentalism and the Alleged Intrinsic Value of Nature 80 The Alleged Pollution of Water and Air and Destruction of Species 83 The Alleged Threat from Toxic Chemicals, Including Acid Rain and Ozone Depletion 85 The Dishonesty of the Environmentalists' Claims 86 The Alleged Threat of "Global Warming" 87 Why Economic Activity Necessarily Tends to Improve the Environment 90 3. The Collectivist Bias of Environmentalism 91 Environmentalism and Irrational Product Liability 95 Environmentalism and the Externalities Doctrine 96 4. The Economic and Philosophic Significance of Environmentalism 98 5. Environmentalism, the Intellectuals, and Socialism 99 6. Environmentalism and Irrationalism 106 The Loss of the Concept of Economic Progress 106 Irrational Skepticism 106 The Destructive Role of Contemporary Education 107 The Cultural Devaluation of Man 112 Notes 115 THE DIVISION OF LABOR AND CAPITALISM CHAPTER 4. THE DIVISION OF LABOR AND PRODUCTION 1. The Division of Labor and the Productivity of Labor 123 The Multiplication of Knowledge 123 The Benefit from Geniuses 124 Concentration on the Individual's Advantages 125 Geographical Specialization 125 Economies of Learning and Motion 126 2. The Division of Labor and Society 128 3. Rebuttal of the Critique of the Division of Labor 129 4. Universal Aspects of Production 130 Notes 133 CHAPTER 5. THE DEPENDENCE OF THE DIVISION OF LABOR ON CAPITALISM I PART A. THE NATURE OF THE DEPENDENCIES 1. Dependence of the Division of Labor on Private Ownership of the Means of Production 135 2. The Dependence of the Division of Labor on Saving and Capital Accumulation 139 3. The Dependence of the Division of Labor on Exchange and Money 141 4. The Dependence of the Division of Labor on Economic Competition 144 5. The Dependence of the Division of Labor on the Freedom of Economic Inequality 145 Egalitarianism and the Abolition of Cost: The Example of Socialized Medicine 148 Government Intervention, Democracy, and the Destruction of the Individual's Causal Role 150 Summary 150 PART B. ELEMENTS OF PRICE THEORY: DEMAND, SUPPLY, AND COST OF PRODUCTION 1. The Meaning of Demand and Supply 152 2. The Law of Demand 155 The Concept of Elasticity of Demand 158 Seeming Exceptions to the Law of Demand 161 The Derivation of Supply Curves 162 Limitations of Geometrical Analysis 165 Confusions Between Supply and Cost 167 The Circularity of Contemporary Economics' Concept of Demand 169 Notes 169 CHAPTER 6. THE DEPENDENCE OF THE DIVISION OF LABOR ON CAPITALISM II: THE PRICE SYSTEM AND ECONOMIC COORDINATION PART A. UNIFORMITY PRINCIPLES 1. The Uniformity-of-Profit Principle and Its Applications 172 Keeping the Various Branches of Industry in Proper Balance 173 The Power of the Consumers to Determine the Relative Size of the Various Industries 174 The Impetus to Continuous Economic Progress 176 Profits and the Repeal of Price Controls 180 The Effect of Business Tax Exemptions and Their Elimination 183 Additional Bases for the Uniformity-of-Profit Principle 183 2. The Tendency Toward a Uniform Price for the Same Good Throughout the World 187 Why the Arab Oil Embargo Would Not Have Been a Threat to a Free Economy 188 Tariffs, Transportation Costs, and the Case for Unilateral Free Trade 190 3. The Tendency Toward Uniform Prices Over Time: The Function of Commodity Speculation 191 Rebuttal of the Charge That the Oil Shortages of the 1970s Were "Manufactured" by the Oil Companies 192 4. The Tendency Toward Uniform Wage Rates for Workers of the Same Degree of Ability 194 Equal Pay for Equal Work: Capitalism Versus Racism 196 5. Prices and Costs of Production 200 PART B. ALLOCATION PRINCIPLES 1. The General Pricing of Goods and Services in Limited Supply 201 2. The Pricing and Distribution of Consumers' Goods in Limited Supply 202 3. The Pricing and Distribution of Factors of Production in Limited Supply 206 4. The Free Market's Efficiency in Responding to Economic Change 209 A Rational Response to the Arab Oil Embargo 211 5. The Economic Harmonies of Cost Calculations in a Free Market 212 More on the Response to the Oil Embargo 213 Appendix to Chapter 6: The Myth of "Planned Obsolescence" 214 Notes 217 CHAPTER 7. THE DEPENDENCE OF THE DIVISION OF LABOR ON CAPITALISM III: PRICE CONTROLS AND ECONOMIC CHAOS PART A. PRICE CONTROLS AND SHORTAGES 1. Price Controls and Inflation 219 Price Controls No Remedy for Inflation 219 Inflation Plus Price Controls 220 2. Shortages 221 3. Price Controls and the Reduction of Supply 222 a. The Supply of Goods Produced 222 b. The Supply of Goods in a Local Market 222 The Natural Gas Crisis of 1977 222 The Agricultural Export Crisis of 197273 223 Price Controls as a Cause of War 223 c. The Supply of Goods Held in Storage 223 Hoarding and Speculation Not Responsible for Shortages 224 Rebuttal of the Accusation That Producers Withhold Supplies to "Get Their Price" 224 Price Controls and the "Storage" of Natural Resources in the Ground 225 d. The Supply of Particular Types of Labor and Particular Products of a Factor of Production 226 e. Price Controls and the Prohibition of Supply 226 The Destruction of the Utilities and the Other Regulated Industries 227 4. Ignorance and Evasions Concerning Shortages and Price Controls 228 Inflation and the Appearance of High Profits 228 The Destructionist Mentality 230 A Defense of Inventory Repricing 231 The Campaign Against the Profits of the Oil Companies 231 How the U.S. Government, Not the Oil Companies, Caused the Oil Shortage 234 The Conspiracy Theory of Shortages 237 Rebuttal of the Charge That Private Firms "Control" Prices 238 PART B. FURTHER EFFECTS OF PRICE CONTROLS AND SHORTAGES 1. Consumer Impotence and Hatred Between Buyers and Sellers 239 2. The Impetus to Higher Costs 241 The Administrative Chaos of Price Controls 243 3. Chaos in the Personal Distribution of Consumers' Goods 243 4. Chaos in the Geographical Distribution of Goods Among Local Markets 244 5. Chaos in the Distribution of Factors of Production Among Their Various Uses 245 Hoarding 246 6. Shortages and the Spillover of Demand 247 Why Partial Price Controls Are Contrary to Purpose 247 How Price Controls Actually Raise Prices 248 The Absurdity of the Claim That Price Controls "Save Money" 248 Applications to Rent Controls 249 How Repeal of Our Price Controls on Oil Reduced the Price Received by the Arabs 254 PART C. UNIVERSAL PRICE CONTROLS AND THEIR CONSEQUENCES 1. The Tendency Toward Universal Price Controls 256 2. Universal Price Controls and Universal Shortages 257 Excess Demand and Controlled Incomes 257 3. The Destruction of Production Through Shortages 258 The Prosperity Delusion of Price Controls: The World War II "Boom" 262 4. Socialism on the Nazi Pattern 263 Notes 264 CHAPTER 8. THE DEPENDENCE OF THE DIVISION OF LABOR ON CAPITALISM IV: SOCIALISM, ECONOMIC CHAOS, AND TOTALITARIAN DICTATORSHIP PART A. THE CHAOS OF SOCIALISM 1. Socialism 267 2. The Essential Economic Identity Between Socialism and Universal Price Controls 267 3. The Myth of Socialist Planning--The Anarchy of Socialist Production 269 The Soviet Quota System 273 Shortages of Labor and Consumers' Goods Under Socialism 274 4. Further Economic Flaws of Socialism: Monopoly, Stagnation, Exploitation, Progressive Impoverishment 275 5. Socialism's Last Gasp: The Attempt to Establish a Socialist Price System and Why It Is Impossible 279 PART B. THE TYRANNY OF SOCIALISM 1. The Tyranny of Socialism 282 2. The Necessity of Evil Means to Achieve Socialism 282 3. The Necessity of Terror Under Socialism 283 4. The Necessity of Forced Labor Under Socialism 286 Forced Labor in the Soviet Union 287 The Imposition of Forced Labor in the United States 287 5. Socialism as a System of Aristocratic Privilege and a Court Society 288 6. From Forced Labor to Mass Murder Under Socialism 290 7. From Socialism to Capitalism: How to Privatize Communist Countries 290 Notes 294 CHAPTER 9. THE INFLUENCE OF THE DIVISION OF LABOR ON THE INSTITUTIONS OF CAPITALISM PART A. PRIVATE OWNERSHIP OF THE MEANS OF PRODUCTION 1. The General Benefit from Private Ownership of the Means of Production 296 The Benefit of Capital to the Buyers of Products 296 The Benefit of Capital to the Sellers of Labor 298 The Direct Relationship Between the General Benefit from Capital and Respect for the Property Rights of Capitalists 298 2. The Capitalists' Special Benefit from Private Ownership of the Means of Production 300 Implications for Redistributionism 300 Destructive Consequences of Government Ownership 303 Profit Management Versus Bureaucratic Management 304 The "Successful" Nationalizations of Oil Deposits: A Rebuttal 305 3. The General Benefit from the Institution of Inheritance 306 The Destructive Consequences of Inheritance Taxes 307 4. The General Benefit from Reducing Taxes on the "Rich" 308 5. Private Ownership of Land and Land Rent 310 How Private Ownership of Land Reduces Land Rent 313 Land Rent and Environmentalism 316 The Violent Appropriation Doctrine 317 The Demand for Land Reform 319 6. Private Property and Territorial Sovereignty 322 A Defense of Foreign "Exploitation" of Natural Resources 323 PART B. ECONOMIC INEQUALITY 1. Economic Inequality Under Capitalism 326 2. Critique of the Marxian Doctrine on Economic Inequality 330 Economic Inequality and the Law of Diminishing Marginal Utility 332 Economic Inequality and the Normal Curve 336 3. The "Equality of Opportunity" Doctrine: A Critique 337 Education and the Freedom of Opportunity 342 Everyone's Interest in the Freedom of Opportunity 342 PART C. ECONOMIC COMPETITION 1. The Nature of Economic Competition 343 2. The Short-Run Loss Periods 345 The Enemies of Competition as the True Advocates of the Law of the Jungle 348 3. Economic Competition and Economic Security 348 4. The Law of Comparative Advantage 350 International Competition and Free Labor Markets 351 Comparative Advantage Versus the Infant-Industries Argument 354 How the Less Able Can Outcompete the More Able in a Free Labor Market 355 5. The Pyramid-of-Ability Principle 357 Freedom of Competition and the General Gain from the Existence of Others 357 6. The Population Question 358 Worldwide Free Trade 360 Free Trade and the Economic Superiority of the United States Over Western Europe 361 International Free Trade and Domestic Laissez Faire 361 The Birth Rate 362 7. Free Immigration 362 Refutation of the Arguments Against Free Immigration 363 Free Immigration and International Wage Rates 366 Capital Export 366 8. The Harmony of Interests in the Face of Competition for Limited Money Revenues 367 Notes 371 CHAPTER 10. MONOPOLY VERSUS FREEDOM OF COMPETITION 1. The Meaning of Freedom and of Freedom of Competition 375 2. The Political Concept of Monopoly and Its Application 376 Monopoly Based on Exclusive Government Franchises 377 Licensing Law Monopoly 378 Tariff Monopoly 380 The Monopolistic Protection of the Inefficient Many Against the Competition of the More Efficient Few 381 Monopoly Based on Minimum-Wage and Prounion Legislation: The Exclusion of the Less Able and the Disadvantaged 382 Government-Owned and Government-Subsidized Enterprises as Monopoly 385 The Antitrust Laws as Promonopoly Legislation 387 Socialism as the Ultimate Form of Monopoly 387 3. Further Implications of the Political Concept of Monopoly: High Costs Rather Than High Profits 387 Patents and Copyrights, Trademarks and Brandnames, Not Monopolies 388 All Monopoly Based on Government Intervention; Significance of Monopoly 389 4. The Economic Concept of Monopoly 389 5. The Alleged Tendency Toward the Formation of a Single Giant Firm Controlling the Entire Economic System: A Rebuttal 392 Incompatibility With the Division of Labor--Socialism as the Only Instance of Unlimited Concentration of Capital 392 Inherent Limits to the Concentration of Capital Under Capitalism 393 Government Intervention as Limiting the Formation of New Firms 394 The Incentives for Uneconomic Mergers Provided by the Tax System 395 In Defense of "Insider Trading" 395 6. Economically Sound Mergers 396 The Trust Movement 397 7. The Predatory-Pricing Doctrine 399 More Than One Firm in an Industry as the Normal Case 402 "Predatory Pricing" in Reverse: The Myth of Japanese "Dumping" 403 The Chain-Store Variant of the Predatory-Pricing Doctrine 403 Contract Pricing 405 The Predatory-Pricing Doctrine and the Inversion of Economic History 406 The Myth of Predation With Respect to Suppliers 406 The Myth of Standard Oil and the South Improvement Company 407 8. Marginal Revenue and the Alleged "Monopolistic Restriction" of Supply 408 Competitors' and Potential Competitors' Costs--Ultimately, Legal Freedom of Entry--as Setting the Upper Limit to Prices in a Free Market 411 Ricardo and Böhm-Bawerk on Cost of Production Versus the Elasticity of Demand 414 Pricing Under Patents and Copyrights 417 Contract Pricing and Radical Privatization 420 Private Streets 421 Eminent Domain 421 9. Cartels 423 Cartels and Government Intervention 424 10. "Monopoly" and the Platonic Competition of Contemporary Economics 425 The Doctrine of Pure and Perfect Competition 430 Implications of Marginal-Cost Pricing 432 The Alleged Lack of "Price Competition" 434 11. A Further Word on Cost of Production and Prices 437 Notes 438 CHAPTER 11. THE DIVISION OF LABOR AND THE CONCEPT OF PRODUCTIVE ACTIVITY PART A. THE ROLE OF MONEYMAKING IN PRODUCTIVE ACTIVITY 1. The Division of Labor and Productive Activity 441 The Doctrine That Only Manual Labor Is Productive 441 2. Productive Activity and Moneymaking 442 Consumptive Production 443 3. Productive Expenditure and Consumption Expenditure 444 4. Capital Goods and Consumers' Goods 445 Classification of Capital Goods and Consumers' Goods Not Based on Physical Characteristics 445 Government a Consumer 446 Producers' Labor and Consumers' Labor 446 Producers' Loans and Consumers' Loans 447 Government Borrowing 447 Capital Goods and Consumers' Goods Internally Produced; Other Revenues 447 Capital and Wealth 448 Capital Value and Investment 448 Productive Expenditure and Capital Value 450 Common Confusions About Capital Goods 450 Answers to Misconceptions of the Concepts Presented 452 Adam Smith on "Productive and Unproductive Labor" 456 5. Critique of the Concept of Imputed Income 456 6. Critique of the Opportunity-Cost Doctrine 459 PART B. THE PRODUCTIVE ROLE OF BUSINESSMEN AND CAPITALISTS 1. The Productive Functions of Businessmen and Capitalists 462 Creation of Division of Labor 462 Coordination of the Division of Labor 463 Improvements in the Efficiency of the Division of Labor 464 2. The Productive Role of Financial Markets and Financial Institutions 464 The Specific Productive Role of the Stock Market 466 3. The Productive Role of Retailing and Wholesaling 467 4. The Productive Role of Advertising 471 PART C. BUSINESSMEN AND CAPITALISTS: CLASSICAL ECONOMICS VERSUS THE MARXIAN EXPLOITATION THEORY 1. The Association Between Classical Economics and the Marxian Exploitation Theory 473 2. Correcting the Errors of Adam Smith: A Classical-Based Critique of the Conceptual Framework of the Exploitation Theory 475 Smith's Confusion Between Labor and Wage Earning 475 The Conceptual Framework of the Exploitation Theory 476 Smith's Failure to See the Productive Role of Businessmen and Capitalists and of the Private Ownership of Land 477 The Primacy-of-Wages Doctrine 477 A Rebuttal to Smith and Marx Based on Classical Economics: Profits, Not Wages, as the Original and Primary Form of Income 478 Further Rebuttal: Profits Attributable to the Labor of Businessmen and Capitalists Despite Their Variation With the Size of the Capital Invested 480 A Radical Reinterpretation of "Labor's Right to the Whole Produce" 482 Implications for the Incomes of "Passive" Capitalists 483 Acceptance of the Conceptual Framework of the Exploitation Theory by Its Critics 484 3. Necessary Revisions in Classical Economics 485 4. The Labor Theory of Value of Classical Economics 486 Harmonization of the Labor Theory of Value With Supply and Demand and the Productive Role of Businessmen and Capitalists 486 Other Classical Doctrines and the Rise in Real Wages 487 Classical Economics' Limitations on the Labor Theory of Value 487 The Actual Significance of Quantity of Labor in Classical Economics 491 5. The "Iron Law of Wages" of Classical Economics 491 Diminishing Returns and the Malthusian Influence 492 Ricardo's Reservations 492 Adam Smith's Mistaken Belief in the Arbitrary Power of Employers Over Wage Rates 493 Ricardo's Confusions Concerning the "Iron Law of Wages" 494 The Actual Meaning Ricardo Attached to "A Fall in Wages" 495 Classical Economics' Mistaken Denial of the Ability to Tax Wage Earners 497 6. Marxian Distortions of Classical Economics; The Final Demolition of the Exploitation Theory 497 Notes 498 PART THREE THE PROCESS OF ECONOMIC PROGRESS CHAPTER 12. MONEY AND SPENDING 1. The Quantity Theory of Money 503 The Quantity Theory of Money as the Explanation of Rising Prices 505 2. The Origin and Evolution of Money and the Contemporary Monetary System 506 The Potential Spontaneous Remonetization of the Precious Metals 510 The Government and the Banking System 511 3. The Quantity of Money and the Demand for Money 517 4. The Demand for Money: A Critique of the "Balance of Payments" Doctrine 526 The Balance of Payments Doctrine and Fiat Money 528 The Balance of Payments Doctrine Under an International Precious Metal Standard 531 Inflation as the Cause of a Gold Outflow 533 Unilateral Free Trade and the Balance of Trade 535 5. Invariable Money 536 Invariable Money and the Velocity of Circulation 537 The Contribution of the Concept of Invariable Money to Economic Theory 538 Notes 540 CHAPTER 13. PRODUCTIONISM, SAY'S LAW, AND UNEMPLOYMENT Productionism Versus the Anti-Economics of Consumptionism 543 1. Depressions and Alleged "Overproduction" 544 2. Machinery and Unemployment 546 3. Alleged Inherent Group Conflicts Over Employment 548 4. Make-Work Schemes and Spread-the-Work Schemes 549 5. War and Government Spending 550 6. Population Growth and Demand 553 7. Imperialism and Foreign Trade 553 8. Parasitism as an Alleged Source of Gain to Its Victims 554 9. Advertising as Allegedly Fraudulent but Economically Beneficial 555 10. Misconception of the Value of Technological Progress 556 11. Increases in Production and Alleged Deflation 558 12. Consumptionism and Socialism 559 PART B. SAY'S (JAMES MILL'S) LAW 1. Monetary Demand and Real Demand 559 2. The Referents of Say's Law and Its Confirmation by Cases Apparently Contradicting It 561 3. Partial, Relative Overproduction 564 Say's Law and Competition 568 4. Say's Law and the Average Rate of Profit 569 Production and the Fallacy of Composition 573 5. Falling Prices Caused by Increased Production Are Not Deflation 573 The Anticipation of Falling Prices 574 Economic Progress and the Prospective Advantage of Future Investments Over Present Investments 576 Falling Prices and Accumulated Stocks 578 Falling Prices Resulting from a Larger Supply of Labor 579 PART C. UNEMPLOYMENT 1. The Free Market Versus the Causes of Mass Unemployment 580 Full Employment, Profitability, and Real Wages 583 Government Interference 588 2. Unemployment and the 1929 Depression 589 3. Unemployment, the New Deal, and World War II 590 Why Inflation Cannot Achieve Full Employment 591 Inflation Plus Price and Wage Controls 592 World War II as the Cause of Impoverishment in the United States 592 Prosperity Based on the Return of Peace 593 A Rational Full-Employment Policy 594 Appendix to Chapter 13: Inventories and Depressions 594 Inventories and Capital 595 "Excess" Inventories, Malinvestment, and the Deficiency of Inventories 597 Inflation and Credit Expansion as the Cause of Malinvestment in Inventories 598 Why "Excess" Inventories and Monetary Contraction Are Associated 598 Notes 599 CHAPTER 14. THE PRODUCTIVITY THEORY OF WAGES PART A. THE MARXIAN EXPLOITATION THEORY 1. The Influence of the Exploitation Theory 603 2. Marx's Distortions of the Labor Theory of Value 604 Implications for Value Added and Income Formation 605 3. Marx's Version of the Iron Law of Wages 607 The Rate of Exploitation Formula 608 4. Implications of the Exploitation Theory 610 PART B. THE PRODUCTIVITY THEORY OF WAGES 1. The Irrelevance of Worker Need and Employer Greed in the Determination of Wages 613 2. Determination of Real Wages by the Productivity of Labor 618 3. The Foundations of the Productivity of Labor and Real Wages: Capital Accumulation and Its Causes 622 Saving as a Source of Capital Accumulation 622 Technological Progress as a Source of Capital Accumulation 629 The Reciprocal Relationship Between Capital Accumulation and Technological Progress 631 The Economic Degree of Capitalism, the Wage "Share," and Real Wages 632 Other Factors, Above All Economic Freedom and Respect for Property Rights, as Sources of Capital Accumulation 634 The Undermining of Capital Accumulation and Real Wages by Government Intervention 636 The Nonsacrificial Character of Capital Accumulation Under Capitalism 639 Appendix to Section 3: An Analytical Refinement Concerning the Rate of Economic Progress 641 4. The Productivity Theory of Wages and the Interpretation of Modern Economic History 642 The Cause of Low Wages and Poor Working Conditions in the Past 642 How Real Wages Rose and the Standard of Living Improved 644 5. A Rise in the Productivity of Labor as the Only Possible Cause of a Sustained, Significant Rise in Real Wages 646 The Futility of Raising Money Wage Rates by Means of an Increase in the Quantity of Money or Decrease in the Supply of Labor 646 The Futility of a Rise in the Demand for Labor Coming at the Expense of the Demand for Capital Goods 647 The Futility of Raising the Demand for Labor by Means of Taxation 648 The Limited Scope for Raising Real Wages Through a Rise in the Demand for Labor 650 6. Critique of Labor and Social Legislation 653 Redistributionism 653 Labor Unions 655 Minimum-Wage Laws 659 Maximum-Hours Legislation 660 Child-Labor Legislation 661 Forced Improvements in Working Conditions 662 7. The Employment of Women and Minorities 663 8. The Productivity Theory of Wages and the Wages-Fund Doctrine 664 9. The Productivity Theory of Wages Versus the Marginal-Productivity Theory of Wages 666 The Productivity Theory of Wages and the Effect of Diminishing Returns 667 Notes 669 CHAPTER 15. AGGREGATE PRODUCTION, AGGREGATE SPENDING, AND THE ROLE OF SAVING IN SPENDING Spending Not a Measure of Output 673 Shortcomings of Price Indexes 674 1. Gross National Product and the Issue of "Double Counting": A Is A Versus A Is A+ 674 2. The Role of Saving and Productive Expenditure in Aggregate Demand 682 The Demand for A Is the Demand for A 683 The Demand for Consumers' Goods and the Demand for Factors of Production as Competing Alternatives 685 Compatibility With the Austrian Theory of Value 689 Application to the Critique of the Keynesian Multiplier Doctrine 690 Saving Versus Hoarding 691 Saving as the Source of Most Spending 694 The "Macroeconomic" Dependence of the Consumers on Business 696 Saving as the Source of Increasing Aggregate Demand, Both Real and Monetary 698 Saving as the Source of Rising Consumption 698 3. Aggregate Economic Accounting on an Aristotelian Base 699 The Consumption Illusion of Contemporary National-Income Accounting 700 Gross National Revenue 706 More on the Critique of the Multiplier 707 4. Importance of Recognizing the Separate Demand for Capital Goods for the Theory of Capital Accumulation and the Theory of National Income 709 The Inverse Relationship Between National Income and Economic Progress in an Economy With an Invariable Money 712 Overthrow of the Keynesian Doctrines of the Balanced-Budget Multiplier and the Conservatives' Dilemma 714 Notes 716 CHAPTER 16. THE NET-CONSUMPTION/NET-INVESTMENT THEORY OF PROFIT AND INTEREST PART A. THE POSITIVE THEORY 1. The Nature and Problem of Aggregate Profit 719 The Treatment of Interest 720 The Rate of Profit Not Based on Demand and Supply of Capital, but on the Difference Between the Demand for Products and the Demand for Factors of Production 721 Determinants of the Average Rate of Profit in the Economic System Different from Determinants of the Rate of Profit of the Individual Company or Industry 721 Critique of the Doctrine That the Interest Rate on Government Bonds Expresses the Pure Rate of Return to Which Risk Premiums Are Added 722 The Path of Explanation: Net Consumption and Net Investment 723 2. Net Consumption and the Generation of an Excess of Sales Revenues Over Productive Expenditure 725 Net Consumption: Its Other Sources, Wider Meaning, and Relationship to the Saving of Wage Earners 734 Confirming the Critique of the Exploitation Theory 735 3. The Net-Consumption Theory Further Considered 737 Why Businessmen and Capitalists Cannot Arbitrarily Increase the Rate of Net Consumption and the Rate of Profit 737 The Net-Consumption Rate and the Gravitation of Relative Wealth and Income 737 Accumulated Capital as a Determinant of Net Consumption 739 An Explanation of High Saving Rates Out of High Incomes 741 Net Consumption and Time Preference 743 4. Net Investment as a Determinant of Aggregate Profit and the Average Rate of Profit 744 Net Investment Versus Negative Net Consumption 750 The Prolongation of Net Investment Under an Invariable Money 754 Net Investment as the Result of the Marginal Productivity of Capital Exceeding the Rate of Profit 756 Net Investment as a Self-Limiting Phenomenon 758 Capital Intensification and the Tendency Toward the Disappearance of Net Investment Under an Invariable Money 758 The Process of Capital Intensification 759 5. The Addition to the Rate of Profit Caused by Increases in the Quantity of Money 762 The Impact of Increases in the Quantity of Money on the Net-Investment and Net-Consumption Rates 768 Increases in the Quantity of Money and the Perpetuation of Net Investment 768 The Increase in the Quantity of Commodity Money as an Addition to Aggregate Profit 771 Summary Statement of the Determinants of the Rate of Profit 773 6. Increases in the Real Rate of Profit Dependent on Increases in the Production and Supply of Goods 774 Net Investment Without Increasing Capital Intensiveness 775 Capital-Saving Inventions 776 7. The Inherent Springs to Profitability 778 Wage Rate Rigidities and Blockage of the Springs 784 Capital Intensiveness and the Monetary Component in the Rate of Profit 784 Capital Intensiveness Under Rapid Obsolescence 786 PART B. THE NET-CONSUMPTION/NET-INVESTMENT THEORY AND ALTERNATIVE THEORIES 1. Exposition and Critique of the Productivity Theory in Its Traditional Form 787 2. Exposition and Critique of the Time-Preference Theory in Its Traditional Form 792 The Contradiction Between Böhm-Bawerk's "First Cause" and the Doctrine of the Purchasing-Power Premiums 794 The Discounting Approach 795 The Disappearance of the Higher Value of Present Goods at the Margin: Böhm-Bawerk's Abandonment of the Time-Preference Theory 797 3. The Classical Basis of the Net-Consumption Theory 797 Appendix to Section 3: Critique of Ricardo's Doctrine of the Falling Rate of Profit 799 4. Other Proponents of the Net-Consumption/Net-Investment Theory 801 Notes 803 CHAPTER 17. APPLICATIONS OF THE INVARIABLE-MONEY/NET-CONSUMPTION ANALYSIS 1. The Analytical Framework 809 2. Why Capital Accumulation and the Falling Prices Caused by Increased Production Do Not Imply a Falling Rate of Profit 813 Confirmation of Fact That Falling Prices Caused by Increased Production Do Not Constitute Deflation 817 More on the Relationship Between Technological Progress and the Rate of Profit 818 Ricardo's Insights on Capital Accumulation 819 The Rate of Profit and the Demand for Money 820 3. Why Capital Accumulation Does Not Depend on a Continuous Lengthening of the Average Period of Production 820 The Average Period of Production and the Limits to Technological Progress as a Source of Capital Accumulation 824 4. Implications for the Doctrine of Price Premiums in the Rate of Interest 825 5. Implications for the Process of Raising Real Wages 826 6. How the Taxation of Profits Raises the Rate of Profit 826 The Influence of the Monetary System 828 7. How Government Budget Deficits Raise the Rate of Profit 829 The Need to Reduce Government Spending 830 The Government's Responsibility for the Emphasis of Today's Businessmen on Short-Term Results 831 8. Profits, the Balance of Trade, and the Need for Laissez Faire in the United States 831 9. Implications for the Theory of Saving 834 Net Saving and Increases in the Quantity of Money 834 Why the Actual Significance of Saving Lies at the Gross Level 835 Net Saving and the Rate of Profit 836 10. More on Saving and "Hoarding": "Hoarding" as a Long-Run Cause of a Rise in the Rate of Profit 837 Implications for the Critique of Keynesianism 837 11. Critique of the Investment-Opportunity and Underconsumption/Oversaving Doctrines 838 The Basic Error of Underconsumptionism 841 How the Demand for Capital Goods and Labor Can Radically and Permanently Exceed the Demand for Consumers' Goods 843 Consumption as the Purpose of Production and the Progressive Production of Consumers' Goods Over Time 847 The Ratio of Demands Between Stages 851 More on the Average Period of Production 852 A Rise in the Demand for Capital Goods and Fall in the Demand for Consumers' Goods: The Cross-Hatching of Production 854 12. More on Why Savings Cannot Outrun the Uses for Savings 856 Capital Intensiveness and Land Values 856 The Housing Outlet and Consumer Interest 857 The Automatic Adjustment of the Rate of Saving to the Need for Capital 858 Notes 859 CHAPTER 18. KEYNESIANISM: A CRITIQUE 1. The Essential Claims of Keynesianism 864 Neo-Keynesianism 865 2. The Unemployment Equilibrium Doctrine and Its Basis: The IS Curve and Its Elements 867 The Grounds for the MEC Doctrine 875 The Keynesian Solution: "Fiscal Policy" 876 3. Critique of the IS-LM Analysis 879 The Declining-Marginal-Efficiency-of-Capital Doctrine and the Fallacy of Context Dropping 879 The Marginal-Efficiency-of-Capital Doctrine and the Claim That the Rate of Profit Is Lower in the Recovery from a Depression Than in the Depression 881 The Unemployment Equilibrium Doctrine and the Claim That Saving and Net Investment Are at Their Maximum Possible Limits at the Very Time They Are Actually Negative 881 The Contradiction Between the Marginal-Efficiency-of-Capital Doctrine and the Multiplier Doctrine 883 A Fall in Wage Rates as the Requirement for the Restoration of Net Investment and Profitability Along With Full Employment 883 Wage Rates, Total Wage Payments, and the Rate of Profit 884 Critique of the "Paradox-of-Thrift" Doctrine 884 Critique of the Saving Function 885 Critique of the "Liquidity-Preference" Doctrine 885 4. The Economic Consequences of Keynesianism 887 The Growth in Government 888 Budget Deficits, Inflation, and Deflation 888 Keynesianism and Economic Destruction 889 Why Keynesianism Is Not a Full Employment Policy 890 Keynesianism Versus the Rate of Profit: "The Euthanasia of the Rentier" and "The Socialization of Investment" 891 Notes 892 CHAPTER 19. GOLD VERSUS INFLATION PART A. INFLATION OF THE MONEY SUPPLY VERSUS ALTERNATIVE THEORIES OF RISING PRICES 1. The Analytical Framework of the Quantity Theory of Money 895 The Vital Demand/Supply Test for All Theories of Rising Prices 897 The Elimination of Less Supply as the Cause of an Inflationary Rise in Prices 897 2. Refutation of the "Cost-Push" Doctrine in General 907 3. Critique of the "Wage-Push" Variant 909 4. Critique of the "Profit-Push" Variant 911 5. Critique of the "Crisis-Push" Variant 913 6. Critique of the Wage-Price Spiral Variant 915 7. Critique of the "Velocity" Doctrine 915 8. Critique of the "Inflation-Psychology" Doctrine 916 9. Critique of the Credit-Card Doctrine 917 10. Critique of the Consumer-Installment-Credit Doctrine 919 11. Critique of the Consumer-Greed Doctrine 920 12. The Meaning of Inflation 920 PART B. THE DEEPER ROOTS AND FURTHER EFFECTS OF INFLATION 1. The Connection Between Inflation and Government Budget Deficits 922 Budget Deficits and the Monetary Unit 924 2. The Motives and Rationale for Deficits and Inflation 925 The Welfare State 925 Inflation and War Finance 926 Inflation and the "Easy Money" Doctrine 926 Inflation as the Alleged Cure for Unemployment 926 The Underlying Influence of the Socialist Ideology 926 3. Inflation and Deficits Versus Representative Government and Economic Freedom 927 4. Inflation as the Cause of a Redistribution of Wealth and Income 928 5. Inflation and the Destruction of Capital 930 Reversal of Safety 930 Tax Effects 931 The Prosperity Delusion and Overconsumption 933 Malinvestment 935 The Withdrawal-of-Wealth Effect 936 6. Consequences of the Destruction of Capital 937 Reduction of the Real Rate of Return 937 The Gains of Debtors Less Than the Losses of Creditors 937 The Impoverishment of Wage Earners 937 The Stock Market and Inflationary Depression 938 7. Inflation as the Cause of Depressions and Deflation 938 Gold Clauses and Prospective Inflation of Paper as the Cause of Deflation in Gold 940 8. Inflation as the Cause of Mass Unemployment 941 9. The Inherent Accelerative Tendencies of Inflation 942 The Welfare-State Mentality 943 Inflation to Solve Problems Caused by Inflation 944 Recessions as Inflationary Fueling Periods 945 Indexing and the Wage and Interest Ratchets 945 The Current State of Inflation 946 Inflation and the Potential Destruction of the Division of Labor 949 PART C. GOLD 1. Freedom for Gold as the Guarantee Against the Destruction of Money 951 A Proper Gold Policy for the Government 951 2. The Case For a 100-Percent-Reserve Gold Standard 954 Falling Prices Under the 100-Percent-Reserve Gold Standard Would Not Be Deflationary 954 The 100-Percent-Reserve Gold Standard as the Guarantee Against Deflation 955 Further Virtues of the 100-Percent-Reserve Gold Standard 956 The Moral Virtue of the 100-Percent-Reserve Gold Standard 957 The Monetary Role of Silver 958 3. The 100-Percent-Reserve Gold Standard as the Means of Ending Inflation Without a Depression 959 The 100-Percent-Reserve Gold Standard, Liquidity, and the Dismantling of the Welfare State 962 Notes 963 EPILOGUE CHAPTER 20. TOWARD THE ESTABLISHMENT OF LAISSEZ-FAIRE CAPITALISM 1. Introduction 969 The Importance of Capitalism as a Conscious Goal 969 The Capitalist Society and a Political Program for Achieving It 971 2. Privatization of Property: Importance of Fighting on Basis of Principles 972 3. The Freedom of Production and Trade 973 Appropriate Compromises 974 The Case for the Immediate Sweeping Abolition of All Violations of the Freedom of Production and Trade 974 4. Abolition of the Welfare State 976 Elimination of Social Security/Medicare 976 Elimination of Public Welfare 977 Elimination of Public Hospitals 978 Firing Government Employees and Ending Subsidies to Business 978 Escaping from Rent Control With the Support of Tenants 980 5. Abolition of Income and Inheritance Taxes 980 6. Establishment of Gold as Money 982 7. Procapitalist Foreign Policy 982 Freedom of Immigration 984 Friendly Relations With Japan and Western Europe 985 8. Separation of State from Education, Science, and Religion 986 Abolition of Public Education 986 Separation of Government and Science 986 Separation of State and Church 987 9. A General Campaign at the Local Level 988 10. The Outlook for the Future 989 Notes 990 A BIBLIOGRAPHY OF WRITINGS IN DEFENSE OF CAPITALISM 993 INDEX 1001 |