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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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From the beginning of Chapter 13: [Introduction to Productionism] (pp. 542-543)This excerpt is taken from George Reisman, Capitalism: A Treatise on Economics. Ottawa, Illinois: Jameson Books, 1996. Copyright © 1996 by George Reisman. All rights reserved. May not be reproduced in any form without written permission of the author. The following limited exception is granted: Namely, provided they are reproduced in full and include this copyright notice and are made for noncommercial use, i.e., for use other than for sale, including use as part of any publication that is sold, copies of this excerpt may be downloaded into personal computers and distributed electronically or on paper printouts from a personal computer; reproduction on the internet is permitted provided the copy of the excerpt is accompanied by the following link to the Jefferson School's home page (which may, and hopefully will, be displayed elsewhere and more prominently): The Jefferson School of Philosophy, Economics, and Psychology. This limited right of reproduction expires on December 31, 1999. This page has been visited The identification that the fundamental problem of economic life is how steadily to increase the ability to produce in the face of a limitless need and desire for wealth, is one of the great achievements of the British classical economists.1 This identification, together with its implications for the understanding of the effects of such phenomena as the use of machinery, advertising, a rise in the birthrate, foreign trade, imperialism, war, and government spending, I term productionism.2 Productionism is intimately bound up with a series of further propositions which the classical economists advanced, or which are clearly implied in their teachings. We have already examined a number of these propositions, among them: the central importance of the division of labor in raising the productivity of labor; the law of comparative advantage, which, together with the limitless need for wealth, guarantees a place for everyone in the division of labor, provided only that the freedom of competition exists; and the quantity theory of money. We have seen the clear implication of the quantity theory of money that depressions are caused by government sponsorship of a fractional-reserve banking system, which increases the quantity of money unduly, thereby artificially reducing the demand for money and raising its velocity of circulation, thus setting the stage for a subsequent financial contraction, deflation of the money supply, and depression. In Part B of this chapter, we shall see how production and supply, and only production and supply, create purchasing power and thus demand in its real sense--i.e., in the sense of the goods and services a monetary demand can actually buy. This is the classical economists' proposition that has come to be known as Say's Law of Markets.3 In close connection with Say's Law, we shall come to understand the corollary proposition that the existence of a general overproduction--i.e., of an excess of aggregate supply over aggregate demand--is an impossibility. In Part C of this chapter, we shall also see how mass unemployment is the result of government intervention, not the workings of a capitalist economy itself. While the present chapter shows how the productive process generates an aggregate real demand that is equal to aggregate supply and grows precisely as aggregate supply grows, subsequent chapters will show how the productive process also generates an aggregate monetary demand that in the absence of government interference is sufficient to buy the aggregate supply at a profit--that is, how the productive process itself inherently operates to make production financially profitable to the businessman of average skill and ability. Along the way, we shall see how, as the classical economists put it, "what is saved is spent," indeed, is the source of most spending in the economic system, and more, underlies both a growing aggregate real demand for goods and services and a growing aggregate monetary demand for them. All of these doctrines of classical economics are closely related to productionism in the sense both of supporting it and being supported by it. The one proposition connected with productionism which will be advanced
and which may appear as a significant departure from the central ideas of the classical
economists, but which actually is entirely consistent with them at the most fundamental
level, is that real wages and thus the average worker's standard of living are determined
by the productivity of labor. This proposition, indeed, is actually nothing more than the
idea behind Say's Law applied to wages: real wages are determined by production, just as
the real demand for goods is determined by production. Thus throughout, productionism and
its related propositions are integrally connected to classical economics. Notes 1. Concerning the fundamental problem of economic life, see above, pp. 4251 and 5461. 2. Most of what follows in this part derives from my article "Production Versus Consumption," Freeman 14, no. 10 (October 1964), pp. 312; reprinted as a pamphlet (Laguna Hills, Calif.: The Jefferson School of Philosophy, Economics, and Psychology, 1991). 3. In reality, Ricardo and especially James Mill propounded it with far greater clarity and consistency than Say. In my judgment, the law should actually be called James Mill's Law. |
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