Monday, October 5, 2009


Economic prosperity depends upon social cooperation under the division of labor. The larger the pool of people who cooperate with one another by specializing in the production of one or a very few goods or services, the greater will be their individual productivity and the greater will be the total amount of goods and services available for man’s economic benefit. This fact is undeniable, both from an empirical and a logical perspective. Of course, the largest possible pool of people would encompass the entire world. We need only look around us to recognize the benefits of worldwide trade—coffee from the tropics, wool from Australia and New Zealand, electronic goods from Asia, manufactured goods from Europe, not to mention oil from the Middle East, to name just some of the most obvious examples.

Given the universal acceptance by economists that the division of labor accounts for all economic progress and that worldwide trade advances the division of labor, one would expect that mankind would be on a one-way escalator to higher and higher overall prosperity. But such is not the case. Even a supposedly free, capitalist country like the United States suffers almost routine, wrenching economic crises. Others seem on the road to permanent prosperity only to sink back into the Dark Ages, such as has occurred in many African nations since the spate of post WWII de-colonizations.

Statist apologists such as Nobel Laureate Paul Krugman blame the very foundation of our prosperity—capitalism--for these crises and demand that governments take a guiding role in important economic affairs. A frightened citizenry, constantly bombarded by this message, know that government has the power to redistribute wealth and, at least temporarily, protect vociferous, well organized, and high profile special interest groups. Such has been the case with the auto unions. They can deliver the make-or-break votes to key politicians and wage a well-financed publicity campaign to quiet dissenters. But one does not need to be a rocket scientist to understand that government cannot bail out everyone in society. If it could, there would be no crises in the first place. So either government interventions for the benefit of special interests is limited so that the real economy is able eventually to cure itself, or continued interventions will create what has been called a “vampire economy” marked by capital consumption. Then the plundered many will sink further and further into destitution until, eventually, the plunderers themselves will find fewer and fewer sources of capital to plunder and the entire economy will collapse. According to former Gorbachev economic advisor Yuri Maltsev, this was the scenario, carried out in the most brutal fashion, that caused the collapse of the former Soviet Union.

In contrast to capital consumption, capital accumulation proceeds from the above-mentioned process of social cooperation under the division of labor. But one must understand the policies that cause the two different outcomes. In other words, what policies aid and abet a division of labor society? It is that question to which we now turn and from which discussion will be revealed the twin pillars of civilization—money and the rule of law.

Money and the Division of Labor

In order to specialize, man must be able to exchange the goods and/or services that he produces above and beyond his own needs for goods and services produced above and beyond the individual needs of others. There are two ways to accomplish this exchange—direct exchange and indirect exchange. Direct exchange, also known as “barter”, requires a coincidence of wants; that is, A produces what B wants and B produces what A wants. The two agree to exchange. But direct exchange has limited usefulness. What if A does not desire the production of B, even if B desires the production of A, or vice versa? And how can one ever expect to produce something like a locomotive or a jumbo jet and exchange it for any ordinary necessity of everyday life such as bread? It is obvious that man would produce only simple goods and live a very limited economic existence indeed.

But, man discovered that some goods were always in high demand; therefore, he traded for them, secure in the knowledge that he could re-trade them for goods that he really desired. Thus was born, gradually over time, indirect exchange. All indirect exchange originated in some useful commodity, and over the centuries many commodities have performed the function of indirect exchange. But the precious metals, especially gold and silver, have always been used as indirect exchange, even when in competition with other commodities. The precious metals are rare, difficult to counterfeit, easily stored, impervious to the elements, divisible into small amounts for small transactions, etc. Now man would be able to extend the division of labor into more time consuming and capital intensive goods and services.

The Law and the Division of Labor

But it was not sufficient to discover indirect exchange only. In fact, indirect exchange made it easier to obtain the goods and services of others without exchanging anything at all. In other words, man could steal money or, worse yet, counterfeit money. Whereas, it would be difficult to hide thousands of dollars’ worth of some every day good, such as bread, and use it oneself or exchange it over a long period of time, money is ubiquitous and imperishable. That is, all money looks the same, is readily accepted everywhere, and does not lose its usefulness over time. Therefore, over the centuries, man adopted standards of civilized behavior and sanctions against those who failed to follow such standards. Thus arose a body of law, enforced by government’s criminal justice system, to make man secure in all his property, especially his money. Man had delegated his inherent, God-given right to self-defense to government to protect his life, liberty, and property. Without such laws and without powers delegated to government, man never would have been able to fully exploit the power of money to extend the division of labor to greater and greater levels of production. Civilization would have stalled at a very low level of existence, perhaps no greater than that of the indigenous tribes of North America.

Money and The Law Under Attack

Today both money and the law are under attack, boding ill for the future of civilization. Money no longer is based upon a useful commodity; it is fiat money and may be manufactured in unlimited amounts by the very man-made organization founded for its protection—government. Furthermore, government has become the prime tool by which certain groups in society obtain the production of others without freely trading a good oR service of their own. Whether by the name of “welfare economics”, “economic stimulus packages”, “trade tariffs and quotas”, or some other outrageous sophist claim, government dwarfs even organized crime as a group of bandits to be feared, for there is no legal basis for protecting oneself and one’s property from its predations. Furthermore, the third party beneficiaries give their wholehearted approval to government’s counterfeit money production and resource redistribution operations! Thus, we witness the sad spectacle of government, formed to protect money through enforcement of the law, becoming instead the agent for civilization’s destruction.

No comments:

Post a Comment