Even many concerns that did an export business would be hurt on net balance. The government’s funds all come from taxes. The overwhelming majority of the people, therefore, would probably suffer from the optical illusion that the new industry had cost us nothing. The Lesson Restated25. He is perhaps best known as the author of the classic, Economics in One Lesson (1946). What a commodity has cost to produce in the past cannot determine its value. Instead of having a window and $50 he now has merely a window. Economics is haunted by more fallacies than any other study known to man. It increases demand and reduces supply. We can perhaps make this last point clearer by an exaggerated example. This increases the profits of those who make the article. . Not to be missed is Philip Wicksteed’s The Common Sense of Political Economy, as remarkable for the ease and lucidity of its style as for the penetration and power of its reasoning. It can never be applied all around the circle. Suppose we make our tariff wall so high that it becomes absolutely prohibitive, and no imports come in from the outside world at all. By reducing the freight that can be profitably carried, we reduce the value of the investment in transport efficiency. But if a policy of monetary inflation is pursued, to enable prices to rise so that the increased hourly wages can be paid, this will merely be a disguised way of reducing real wage rates, so that these will return, in terms of the amount of goods they can purchase, to the same real rate as before. It recognizes, for example, that when it keeps the price of milk or butter below the level of the market, or below the relative level at which it fixes other prices, a shortage may result because of lower wages or profit margins for the production of milk or butter as compared with other commodities. I have referred to various union make-work and featherbed practices. The end result would be that the government would not only tell each consumer precisely how much of each commodity he could have; it would tell each manufacturer precisely what quantity of each raw material he could have and what quantity of labor. He can see the inequity in holding down the price of that. My third debt is to Ludwig von Mises. [2] Cf. Everyone as consumer buys a hundred different products; as producer he makes, usually, only one. But, as a result of the lower price, they will have money left over, which they did not have before, to spend on other things. The reader should not overlook, finally, Frédéric Bastiat’s classic Economic Sophisms, and particularly his essay on What Is Seen and What Is Not-Seen. But this does not disturb them. It would be impossible for anyone to know precisely how each consumer would have spent his extra $5 if he had been allowed to retain it. And they see a post-war world made certainly prosperous by an enormous “accumulated” or “backed-up” demand. We have seen what some of the effects are of governmental efforts to fix the prices of commodities above the levels to which free markets would otherwise have carried them. The function of profits, finally, is to put constant and unremitting pressure on the head of every competitive business to introduce further economies and efficiencies, no matter to what stage these may already have been brought. All this explains why, when super-inflation has once set in, the value of the monetary unit drops at a far faster rate than the quantity of money either is or can be increased. It is true that a few persons can profit at the expense of the rest of us from this minute arbitrary subdivision of labor—provided it happens in their case alone. But wartime price-fixing, wise or not, is in almost all countries continued for at least long periods after the war is over, when the original excuse for starting it has disappeared. It may mean a forced restriction of acreage, as in the American AAA plan. Alvin is broke. When he has done this by his reading in general economics, he can be trusted to find the right books in his special field of interest. When they say, under nearly all conditions, that the way to recovery is to increase wage rates, they have found only another way of saying that the way to recovery is to increase costs of production. It is enough to recognize that deficit financing is irrelevant to the point that has just been made; for if we assume that there is any advantage in a budget deficit, then precisely the same budget deficit could be maintained as before by simply reducing taxes by the amount previously spent in supporting the wartime army. 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