Here are just five of the truths lost in the rhetoric. There are many more missing from the political debates.
One: Without real savings, there is no division of labor, no roundabout production, and no modern economy. Money in the bank is not real savings.
Two: Credit requires real savings. Notations on the FED’s accounts are not real savings and, therefore, cannot provide real credit.
Three: A nonperforming asset – a bad asset – always results in a loss; a loss suffered by someone (asset owner, taxpayer, holder of currency, etc.). Moving bad assets from brick bank to phantom bank simply deposits the loss in the taxpayer’s account.
Four: Earning an income by satisfying the wants of the consumer (without violating the person or property of others) is a benefit to the community, always. Volunteering on government projects and programs never produces benefits when weighed against the unseen — the alternate costs. Mandating volunteering is justifying slavery, regardless of the project or program.
Five: Government is an aggregation of the worst characteristics found in your friends, neighbors, and local crooks. The cream does not rise to the top, so to speak, in government agencies. Also, since politicians and government agents are neither omniscient nor altruistic as individuals, they are neither omniscient nor altruistic as a collective body.
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I think all that should be carved in stone (or maybe sewn on a pillow).
“The 21st Century contextualized Five Commandments for the Economically Inept (or Government Employees)”.
There… we can engrave it and give it this title. Somebody should run off a bunch of signs and post that at major intersections all over north america. Now THAT’s volunteer work (slavery
I can cheer for!
I agree; the cream does not rise to the top in government. Working for the federal government, I have seen it first hand. Managers are not held accountable for bad decisions; but then that should not be surprising. Since government is non-profit by definition and also a monopoly, bad decisions do not result in loss of income or profits as they would in the private sector.
David,
DIDO…………
Oh dear. In his zeal, the author has “tried to prove too much”, with the result that he has asserted some things that aren’t true, at least not always:-
- “Without real savings, there is no division of labor, no roundabout production, and no modern economy”. Change that to “…in a modern economy” and it would be correct. But it is quite possible for (say) subsistence farmers each to specialise for additional activities and set up roundabout production for those. Real savings emerge from doing that, in the form of intermediate goods, but they are not necessary to set it up, only to bring it to completion. The direction of causality is the wrong way round.
- “A nonperforming asset – a bad asset – always results in a loss…”. Again, the direction of causality is wrong. It does not result in a loss, it merely signifies it (and so stops it being passed on to another to bear). The asset is bad or nonperforming because something has gone wrong; that is the loss. If nobody knows, the bearer can pass it on, so for him there is no loss – but the loss is there all the same.
- “Earning an income by satisfying the wants of the consumer is a benefit to the community, always”. This is incorrect. There are exceptions, e.g. contract killers and the like.
- “Volunteering on government projects and programs never produces benefits when weighed against the unseen — the alternate costs”. Again, there are exceptions. Although nowadays governments don’t do that sort of thing, they used to occasionally, particularly colonial governments. For instance, in the East Indies the Dutch set up and ran the Culture System, which did produce net gains. (Of course, the Dutch didn’t let the locals get much of those gains, and most were net losers from forced labour requirements – but there were still net gains overall.)
to pm lawrence:
“roundabout” and “subsistence” are mutually exclusive.
The losses can also not just be born by the taxpayer but if they create inflation the losses can also be born by anyone holding the currency that is being inflated. It appears to me that this will be the result, part of the losses will be taken up by stockowners, part of the losses will be put onto the taxpayer directly, part will be indirectly dumped on those who hold dollars.
The winners appear to be executives at the bailed out corporations and certain other privileged corporations and owners whose mostly worthless bonds or other paper are being bailed out at above market rates. Plus of course the government officials who trade taxpayer money for direct or indirect wealth and power.
@PM – newson’s point is correct
If the farmer is subsisting, then they have no surplus to trade. If they grow to trade, or specialize, then that represents savings (of labor). So on one hand, I agree that saving does not always need to be in money, but trade requires saving. The division of labor requires trade, which requires saving. So perhaps the division of labor doesn’t require money savings, but only savings (of money or goods) can be traded.
Agree with you that the originator of the loss doesn’t always experience it, but that isn’t what the OP said. He said that the loss is always experienced by someone.
Perhaps OP should have added “within a regime of strong personal property rights” to the “satisfying the wants of consumers” statement.
I think your logic is a little twisted about the “net gain”. If I kill you and harvest your organs, providing additional years and quality of life to the many members of the community, has there been a net gain of the community? I guess it all depends on your perspective. I believe that if there was truly a net benefit, then it could be demonstrated through voluntary contract and profit, not through power. If the participant must be compelled, then the program smacks of losses – psychic, perhaps, like the loss of leisure is psychic, but still real.
PM -
1. Extending the length of production requires real savings, always.
2. Correct. Changed to “someone suffers a loss.”
3. Correct. Added a proviso.
4. Sounds like you would accept slavery and central control as a means to benefit society when weighed agaisnt the alternatives. Is that correct?
“For instance, in the East Indies the Dutch set up and ran the Culture System, which did produce net gains. (Of course, the Dutch didn’t let the locals get much of those gains, and most were net losers from forced labour requirements – but there were still net gains overall.)”
Thanks for putting me onto this, I had not heard of
it before. After reading the Wiki article I am now fully converted to the statist point of view.
I look forward to my 60 days of compulsory unpaid service.
However, I am concerned that the “net gain” is only valid if one does not consider the Indonesians as human beings. Also, should we consider the previous (or perhaps all) colonial military expenditure when calculating net gain or loss?
cannot agree more. i do not think that they are lost in rhetoric however, after studying austrian economics and discussing it with some of the staunches republicans and democrats i have come to the conclusion that most people have this misconceived notion that our economy is beyond comprehension and that the only way to understand/control it (as crazy as that sounds: control) is to have the government regulate and oversee it. Republicans and democrats alike DO NOT TRULY believe in the free market, when in actuality at the end of the day entrepreneurial investments is what lets us progress as a society and race. every regulation on the free market is a regulation against progress.
Newson, Jason4liberty, Jim Fedako, you misunderstand. The subsistence farmers in the example do not have to be right up against the limits of survival to be subsistence farmers (so, Newson, subsistence farming is compatible with roundabout activities – they are additional). They can have a surplus, devoted to leisure activities. Those are not savings – nothing accumulates. Switching to various additional constructive activities then generates saving, but you do not have saving first, additional constructive activities later. You have spare resources first, additional constructive activities later – but the spare resources can’t be classified as savings, because they are labour (not enduring) and natural resources (just there, not saved by human operations). That was the point I was trying to bring out.
Jim Fedako (“Sounds like you would accept slavery and central control as a means to benefit society when weighed agaisnt the alternatives. Is that correct?”), Mikey, you misunderstand. I was not advocating state directed enterprises to harness people’s resources and redirect them away from personal leisure or whatever towards constructive activity that has real increases in output. I was simply pointing out that there have indeed been cases where that happened. If anything, that should be telling you that whether an activity is constructive is not a test of whether it is justified. The point here is, the original assertion was only addressing whether states caused net gains, measuring them on a cost-benefit basis to “the community”. It’s a collectivist test – Jim Fedako’s test, not mine. I can see what he’s doing, of course; he’s trying to show that, even by collectivist standards, the state doesn’t deliver. However, sometimes it does; he was “trying to prove too much”. That doesn’t make me someone who wants collectivist standards, it makes me someone who tests the accuracy of claims and tells it like it is.
Specifically on ‘However, I am concerned that the “net gain” is only valid if one does not consider the Indonesians as human beings. Also, should we consider the previous (or perhaps all) colonial military expenditure when calculating net gain or loss?’: (a.) there were no Indonesians in those days, just natives; (b.) “net gain” is net across everybody, counting in people back in Holland who invested in things, even with losses to the locals (which I already pointed out); and (c.) prior expenditure should only be counted back to when this system was adopted, as earlier expenditures were on other projects (but, as it happens, those were also profitable for the Dutch, and – since they involved trade as well as taxes – possibly for the locals too, collectively).
“A nonperforming asset – a bad asset – always results in a loss; a loss suffered by someone (asset owner, taxpayer, holder of currency, etc.)” is still wrong, with the causality backwards. It should be “A nonperforming asset – a bad asset – always indicates that there has been a loss”. It’s the point at which we can recognise the loss, not what causes it.
to pm lawrence:
your peasants are clearly above the subsistence (survival) level if they have leisure time. leisure is savings; time being no less a scarce resource than any other, if intangible.
newson,
Good point and that’s exactly what Veblin believed also.
PM -
1. “Nothing accumulates.” Are you implying that real savings (relative to the shoemaker) occur only when the shoemaker begins accumulating shoes? If so, that’s a deficient definition of real savings.
2. Yes, it is true that a gun-wielding entity could martial my neighbors each weekend to build bridges, hospitals, etc. It seems to me that you would call that a societal gain. Correct? I don’t.
I am not applying a collectivist test — such a test doesn’t and cannot exist. We can debate various sums of utils. But, since there is no such thing as a util, we would only be on a fool’s errand.
3. We may be quibbling here, but … Your definition is a tautology.
When my lawnmower stopped working, it became a nonperforming asset and resulted in a loss, which I noted on my psychic balance sheet. Now, if the lawnmower was my neighbor’s, and I was a jerk, the loss is his. And, if the lawnmower was owned by my township’s road crew, the loss is partially mine.
Newson wrote “your peasants are clearly above the subsistence (survival) level if they have leisure time”.
That’s a misunderstanding of what subsistence farming is. It does not mean “farmers whose every possible effort goes to subsistence and are at the edge of survival”. It means “farmers whose every actual effort goes to subsistence”. It says nothing about whether they have resources to spare, only about whether they are doing anything else that you could use to describe them.
“leisure is savings; time being no less a scarce resource than any other, if intangible.”
Bluntly, wrong (as well as ungrammatical – “savings” is plural). Saving is the process of accumulating. Applying time to leisure activities does not produce saving. You can only use time or lose it, not save it – but what you use it for can produce saving.
Jim Fedako variously asks:-
- ’1. “Nothing accumulates.” Are you implying that real savings (relative to the shoemaker) occur only when the shoemaker begins accumulating shoes? If so, that’s a deficient definition of real savings.’ No, but in the subsistence farmer example it starts when some of them begin raising more cattle and setting aside the hides. More occurs when others tan those to get leather, and so on. The real saving is the accumulation of intermediate goods that happens before the part-time cobbler gets going. However, it happens after some of the other subsistence farmers start their sidelines. The sidelines give rise to the savings; some sidelines require prior saving, but others do not. That means that the first diversifying does not require prior saving. Of course, some of those others may have chosen to get all their farm work for the year out of the way first, and then done their other stuff while consuming saved food – but that is not an inherent necessity, which is the point.
- “2. Yes, it is true that a gun-wielding entity could martial my neighbors each weekend to build bridges, hospitals, etc. It seems to me that you would call that a societal gain. Correct? I don’t.” No, I would not, in general (though some might). It would be if those things really were assets giving rise to increased future production (those examples aren’t). The point I was making was that states can (though they usually don’t) do things of net cost-benefit (though they then usually take even more of the gain, making many net losers). Of course, without that enforcing, things would happen even better – but the fact remains that states can organise production, that there is no inherent negative sum in what they can do. Being what they are, of course, they generally choose the negative sum stuff, but their options include positive sum stuff.
- “I am not applying a collectivist test — such a test doesn’t and cannot exist. We can debate various sums of utils. But, since there is no such thing as a util, we would only be on a fool’s errand.” With all due respect, the test applied was “Earning an income by satisfying the wants of the consumer (without violating the person or property of others) is a benefit to the community, always. Volunteering on government projects and programs never produces benefits when weighed against the unseen — the alternate costs.” [emphasis added]. That’s testing what “the community” gets out of it. To me, that looks like holding collectivists to their own standards in an attempt to show it doesn’t work, a reductio ad absurdum. It doesn’t work justly, but in odd cases it does work in its own terms.
- “3. We may be quibbling here, but … Your definition is a tautology. When my lawnmower stopped working, it became a nonperforming asset and resulted in a loss, which I noted on my psychic balance sheet”. No, it is not a tautology, it is keeping the eye on the ball. When the lawnmower stopped working, it became a nonperforming asset but that did not result in a loss – though there always is a loss. When the lawnmower stopped working, that resulted in a loss, and that in turn showed up in the books by recognising the loss and the nonperforming asset. It’s like saying a damaged vehicle is a write off; common but inaccurate language says something like “the driver wrote off the car”, meaning he damaged it. Sure, he did damage it, so much that the accountant (possibly the driver wearing his other hat) had to note down the damage by writing off the car’s value in the books. But the accounting isn’t the physical stuff; the physical stuff causes the accounting stuff. A nonperforming asset (both words together) is something that goes on in the accounting; nonperforming is the physical stuff. When it doesn’t perform, that gives rise to a double entry in the accounting: one side of it is the loss, and the other side is the write down of the asset value. The cause and effect chain is not “lawnmower damage” -> “nonperforming asset” -> “loss”, it’s “lawnmower damage” -> {“nonperforming asset”, “loss”}; the last two form a pair and (as a tautology, if you like) you don’t get one without the other, but they are linked by a common cause, not by one causing the other. One side of the double entry does not cause the other, something else caused the double entry, which intrinsically went to two places.
PM –
1. Real savings does not require accumulation. Real savings are that which you produce but do not directly consume. Accumulation is not required. Consider the crêpe maker on a sidewalk in Paris. He produces crêpes only on demand. He accumulates nothing, ever.
2. You ignore alternate costs. Yes, government can produce. That is obvious. But to state that the benefits of government production can exceed the benefits resulting from the actions of free individuals is to refute the essence of this website.
3. You are seeing an “and” and reading a “which.”
to pm lawrence:
first, subâ‹…sistâ‹…ence:
   
–noun
1. the state or fact of subsisting.
2. the state or fact of existing.
3. the providing of sustenance or support.
4. means of supporting life; a living or livelihood.
5. the source from which food and other items necessary to exist are obtained.
6. Philosophy.
a. existence, especially of an independent entity.
b. the quality of having timeless or abstract existence.
c. mode of existence or that by which a substance is individualized.
Origin:
1400–50; late ME < LL subsistentia; see subsist, -ence
Synonyms:
3. survival, maintenance, nourishment.
Dictionary.com Unabridged
subâ‹…sistâ‹…ence
–noun
1. the state or fact of subsisting.
2. the state or fact of existing.
3. the providing of sustenance or support.
4. means of supporting life; a living or livelihood.
5. the source from which food and other items necessary to exist are obtained.
6. Philosophy.
a. existence, especially of an independent entity.
b. the quality of having timeless or abstract existence.
c. mode of existence or that by which a substance is individualized.
Origin:
1400–50; late ME < LL subsistentia; see subsist, -ence
Synonyms:
3. survival, maintenance, nourishment.
Dictionary.com Unabridged
second: “leisure is savings” -”leisure” is the subject, “savings” the object. in english, the verb agrees with the subject. here’s another example to jog your memory, “fleas are a dog’s worse nightmare”.
own goal.
third: that leisure isn’t converted into accumulated goods doesn’t disqualify it as savings. fedako’s example suffices.
“…worst nightmare.”
“The cream does not rise to the top, so to speak, in government agencies.”
Perhaps a more apt comparison is that dead fish rise to the top?
One better: What rises to the top of a Septic System tank?
Well, PM forgive me for being sceptical. We can never measure the wealth that would have been created if the state had not controlled the labor and other inputs involved in these projects. We can see things like the TVA, Pontine marshes reclamation,
autobahns, the list is long, long.
But what we can never see is what would have been created if labor and resources had stayed entirely in the private sector, their use directed by the market and it’s meaningful prices,and easily visible returns on capital.
This being undeniable, we can never state with certainty that the state enterprise can produce a net
gain, as we have nothing to measure this gain against, all we can say is that indeed some net wealth has been created over a period of time.
It is like saying that the post office makes us better off, which is true, but does not mean than that we would not be even better off if mail delivery was in the private sector entirely.
Jim Fedako wrote:-
- “Real savings does not require accumulation. Real savings are that which you produce but do not directly consume. Accumulation is not required. Consider the crêpe maker on a sidewalk in Paris. He produces crêpes only on demand. He accumulates nothing, ever.”
Yes, real (and also money) savings do require accumulation, by definition; more precisely, they involve them. (There’s that same grammatical error there too, supposing that “savings” is singular.) The changed definition is precisely the sort of scenario I was outlining, in which there is further diversified activity without prior saving (although, in this case, the materials used had been saved to have them ready). If we are to accept this changed definition, there is no dispute over substance after all – but the author has failed to communicate, by not using words with their accepted meaning.
- “You ignore alternate costs. Yes, government can produce. That is obvious. But to state that the benefits of government production can exceed the benefits resulting from the actions of free individuals is to refute the essence of this website.”
Leaving aside the misuse of “refute” (it’s not a synonym for “dispute”), that’s a bait and switch. I never claimed that state actions of this sort could do better; I merely claimed that they could be constructive. Yes, that should be obvious – but that is just precisely what the author claimed, with “Volunteering on government projects and programs never produces benefits when weighed against the unseen — the alternate costs”. He would have been right if he had written “…the costs and benefits of alternatives”, because that would would have done that comparison, but he only compared the benefits of the government doing them with the costs not borne by the government that are usually left out. That is, he was making sure the government activities got a true cost-benefit analysis rather than the usual distorted one, but he didn’t go far enough. I pointed out that this test is sometimes satisfied.
- ‘You are seeing an “and” and reading a “which.”‘
No, I am reading in the context of the original and now slightly modified claim, “A nonperforming asset – a bad asset – always results in a loss…”. It is that claim that is false; it should be rewritten something like “Whatever produces a nonperforming asset – a bad asset – always results in a loss…”.
Newson, your comments on subsistence form an instance of the fallacy of irrelevant information. Keep your eye on the ball. For instance, farming done by polynesian islanders when outsiders arrived was for subsistence, but they had spare resources they used for war, seafaring, etc.
Here is more irrelevant information: ‘”leisure is savings” -”leisure” is the subject, “savings” the object. in english, the verb agrees with the subject. here’s another example to jog your memory, “fleas are a dog’s worse nightmare”. own goal.’
Wrong, it is not an own goal – because you still didn’t spot the grammatical error. The other stuff is 100% accurate, but it’s missing the error. The error isn’t having the verb singular to agree with the subject (as it should). It’s that you don’t stick with the singular once you get to the object. For instance, you do it again in “third: that leisure isn’t converted into accumulated goods doesn’t disqualify it as savings. fedako’s example suffices.” – you should have written “…that leisure isn’t converted into accumulated goods doesn’t disqualify it as saving…”. But yes, it does disqualify it, by definition; see my rebuttal of Jim Fedako above,
Mikey, everything you say is true, but as I have just pointed out, Jim Fedako did not put that in the article but “tried to prove too much” with an even stronger assertion. It is only that that I am trying to clear up. If he did not intend to assert that he should rework and reword it; if he did he should be corrected. Either way, what I am pointing out is as far as truth will let you go.
PM –
Last time through …
As an example, Shostak writes, “Note that when the baker exchanges his nine loaves of bread for five dollars with a shoemaker, he in fact supplies the shoemaker with his real savings, which is nine loaves of bread.”
To satisfy your definition of real savings, did the baker have to accumulate those loaves over time? Did the baker have to store them for, say, an hour? A day? A month? What about the shoemaker and his pair of shoes?
You certainly have a thing with grammar, you’re the Grammar Girl of this comment string … but you miss on logical fallacies.
You state, “Yes, real (and also money) savings do require accumulation, by definition; more precisely.”
As if I am to accept your assertion as true simply because you made the assertion. Provide a definition that satisfies both your assertion and Shostak’s example, if you can.
“because that would would have done that comparison” You lost me on the double “would.” What would Grammar Girl say?
“I merely claimed that they could be constructive.”
Who has ever argued that government couldn’t construct? So, you claimed the obvious as your argument? That’s it?
An alternate cost is the value of that which is foregone — alternate costs are the benefits lost.
“Whatever produces a nonperforming asset – a bad asset – always results in a loss…”.
The period always goes inside the quotes. And, produces is not the best choice for the verb. Other than that, I agree with you.
Jim Fedako still has some confusion.
‘Shostak writes, “Note that when the baker exchanges his nine loaves of bread for five dollars with a shoemaker, he in fact supplies the shoemaker with his real savings, which is nine loaves of bread.” To satisfy your definition of real savings, did the baker have to accumulate those loaves over time? Did the baker have to store them for, say, an hour? A day? A month? What about the shoemaker and his pair of shoes?’
The point at issue was that, in many cases, the downstream activity did not require any prior saving, only a prior surplus. It is quite possible to have a surplus – spare capacity or resources – without having to make a distinct effort to set the surplus aside (saving). If that were not so, it would be logically impossible for any saving ever to get started, as there wouldn’t be any way to implement the distinct effort of saving!
“You certainly have a thing with grammar, you’re the Grammar Girl of this comment string … but you miss on logical fallacies”.
Actually, I’m trying to avoid little slips on definitions etc. adding up to missing the target. What you suppose are “logical fallacies” are confusions on your part about just what is at issue like that.
Of my “Yes, real (and also money) savings do require accumulation, by definition; more precisely”, Jim Fedako asks “As if I am to accept your assertion as true simply because you made the assertion. Provide a definition that satisfies both your assertion and Shostak’s example, if you can”.
No to the second sentence, because the English language of the word “saving” clearly shows the truth of it, answering the first sentence. Saving is the act of, well, setting aside, and by extension that which is set aside. In context, that can be money, real goods and resources, or whatever.
I will ignore where Jim Fedako picked up on a typo.
Of my “I merely claimed that they could be constructive”, Jim Fedako asks “Who has ever argued that government couldn’t construct? So, you claimed the obvious as your argument? That’s it?”
No, that was part of keeping people’s eyes on the ball. Note the opposite implication, “trying to prove too much”, in “Volunteering on government projects and programs never produces benefits when weighed against the unseen — the alternate costs”. I’ll try to bring it out below where you seek to clarify what you meant…
“An alternate cost is the value of that which is foregone — alternate costs are the benefits lost”. But, precisely because this may be mobilising a surplus like leisure time, it isn’t in every case eating into a saving that had an alternative use which must be foregone. Where a volunteer freely chooses not to take the leisure or whatever, it is in fact a better use.
Of my “Whatever produces a nonperforming asset – a bad asset – always results in a loss…”, Jim Fedako remarks “The period always goes inside the quotes. And, produces is not the best choice for the verb. Other than that, I agree with you.”
Wrong, actually. You are describing standard US usage, where standard British usage makes the full stop, comma, or whatever go outside so that the larger new sentence gets the punctuation it needs to hold a quotation from the body of another sentence and still work as its own sentence. That is, the earlier sentence isn’t quoted as a whole, just its contents; a full stop inside it wouldn’t allow continuing to finish off the outer sentence that holds the quotation (after all, there might be yet more words in that sentence). It’s the larger sentence that is being terminated and needs a full stop, but the end of the original has been discarded as things are not stopping there (that’s why calling it a “full stop” makes it clearer what it is doing). US usage is actually not serving this function very well, with sentences nested inside sentences and so on. British usage simply quotes the inside of the original so as to get just one sentence, the new outer one. Unfortunately that cannot be done when quoting two or more source sentences.
As for using “produces” – I didn’t want to put “results in” twice. But if there is basic agreement, do you now see why the wording in the article say the wrong thing, even if you yourself meant to communicate the right thing?
PM,
You are a slippery writer. You made an assertion, I challenged, and then you redirected.
You wrote: “Yes, real (and also money) savings do require accumulation, by definition; more precisely, they involve them.”
I wrote: “Provide a definition that satisfies both your assertion and Shostak’s example, if you can.”
Then, you redirected away from this challenge by noting that “[t]he point at issue was …” (my emphasis) I don’t care what was the issue, I want you to defend your assertion relative to what is issue.
Respond (an admission of error counts as a responce). I will then address the rest of your comments.
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