Saturday, October 19, 2013

In Economics, We Reap What We Sow

"The great blessing of private property, then, is that people can benefit from their own industry and insulate themselves from the negative effects of others' actions.  It is like a set of invisible mirrors that surround individuals, households, or firms, reflecting back on them the consequence of their acts.  The industrious will reap the benefits of their industry; the frugal the consequences of their frugality; the improvident and the profligate likewise.  They receive their due, which is to say they experience justice as a matter of routine."

Tom Bethell

This is another way of saying that we reap what we sow.

A word deserves a definition here.  It is the word "profligate."

Profligate is an adjective, and it means recklessly extravagant or wasteful.  It comes from the Latin word profligare, which means to overthrow or ruin.

All of these groups, according to Tom Bethell, the industrious, the frugal and the profligate, will receive what they have sown, like morning follows the night.  But we know this instinctively.

But what does this have to do with private property?  He seems to mean that our home (or business) is our castle.  In it we can arrange ourselves, our lives, our organization, to act for themselves and therefore be less acted upon.  For certain, if we don't act we WILL be acted upon - by others, the society, the trends, the policies, even nature itself.

Our very word economics comes from the Greek word oikonomia, which means household management.  That in and of itself implies prudence, discretion and just title.

Just title is ownership, and certainly when we own something we act in the best interests of that thing, be it a piece of jewelry, the yard around the house, a business, etc.  We act out of SELF INTEREST.

Recently I had occasion to travel.  On one leg of my journey I sat next to an economics student, a college sophomore, studying a book about how economics can eliminate poverty in the world.  She was studying the book, and very diligently, making notes in the margins and underlining key phrases.

When she took a break I asked if I could see the book.  I read the back, about the author, and the prologue and preface.  I skimmed over the chapter titles.  Basically the thesis is that if just equal out the "stuff" worldwide, which you might call redistribution, we can end poverty, and very quickly!

One of the notes she had written in the margin was something like, "impoverished countries are really poor."  I asked her about the book, and that notation.  I asked her if she knew why.  Embarrassed, she was afraid to answer.  

The basic reason, I suggested, was that in those very, very impoverished countries, there is little or no ability for individual expression, the people lack just title (private property) or there is no system established that allows the people to act out of self interest.  The people in these countries often exist to support the system set up by the dictator, or lack the economics and general education to exploit natural resources.

And I suggested that Adam Smith had proposed the thesis that when allowed an Invisible Hand would direct all of that.  I further suggested that he said the butcher, the baker and the beer maker provide us our dinner not because they like us so much, but out of self interest.  The better the product they produce the more we will return.  This encourages them to provide more, and then receive more in return from us.  The resulting increase in profits improves their personal conditions, and therefore raises the standard of living they can provide themselves and their families.  Multiplied throughout a country this system, one of free enterprise, has a massive and lifting effect.  All who thus participate can therefore be raised, and with this improvement in the gross domestic product grows, and a higher national income follows.

One important criteria lacking in these impoverished countries is private property, just title, protected individual rights and therefore self interest.  There is little industry to reap, little to be frugal about, and the people cannot be extravagant in any manner.  There is usually profligacy, however, by the state.

While the dictators or other "leaders" in these impoverished nations live an improved lifestyle, at least by comparison to the general rabble they demand serves the state, they do so with profligacy, and spawn ruin.

Such gubmental profligacy does cause ruin, in the short and long runs.  The general populace is enslaved in supporting it, whether through reduced industry or increased taxes, or bending to crushing regulations, high interest rates or inflation, and enforced obedience to laws which impede economic individualism.  And the progress of capitalism is stultified, free enterprise lacks, and a general malaise results.  

I remember once being accused of participating in a general malaise.  I was accused by my country's president, as was the rest of society.  We were told to get back to work!

That was not a malaise created by the people, and their unwillingness to work, but instead was imposed by policies generated from above.  

Malaise, like economics, trickles downward.

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