Chapter 25 of 26 · Capitalism: A Treatise on Economics by George Reisman

Index

Note: Depending on the context, sub-subentries may refer either to the subentries under which they

A is A vs. A is A+, 674–682 Abramovitz, Moses, 806(89–91) Accidents, diminishing frequency of, in rational society, 107

Acid rain, 78, 80, 85, 93, 102 Ackley, Gardner, 677–678, 716(12), 893(18, 20, 29, 30)

Administered prices

See Cost of production as immediate determinant of prices Advances in technology See Technological progress Advertising diminishing returns to, 471 increases demand only to extent it increases production and supply, 555–556 productive role of, 471–473 results in greater gains from production and in more production, 555–556 Aggregate demand

See Demand, aggregate Aggregate economic accounting on an Aristotelian base, 699–708 Aggregate production See Production, aggregate Aggregate profit

See Profit, aggregate Aggregate spending

See Spending, aggregate Agricultural export crisis of 1972–73, 223 Air bags

See Safety

Air pollution, 78, 80, 83, 85 Alar, 85–86

Alaskan oil, 66, 82, 94, 112 Alchian, Armen, 1, 684, 716 Allen, William, 1

Allocation principles

See Price system, freemarket, allocation principles of

Altruism, xlvii, 281 animal-rights doctrine, in, 114 arguments for economic equality, in, 333–336 economics vs., 33–34 environmentalism reveals nature of, 103 irrational self-interest and pressure-group warfare support, 34–35 no basis for economic progress, 277 no basis for solving the problem of poverty, 335 price controls and shortages impose, as basis of relationship between buyer and seller, 239 role of, in perpetuating mass unemployment, 589 underlies high rate of profit, 831 See also Profit, motive; Sacrifice; Self-in— appear or directly to the main entries under which they appear.

terest(s) out on previously marginal em-American Indians, 38(38), 317 ployments, 211–212 inescapable conflicts among, because of prevented problems created by the lack of division-of-labor society, 317 loss of supplies from being solved property rights of, 317 by the thinking and planning of all why European civilization objectively de-concerned, 213–214 served to prevail over, 317 rise in the demand for and price of American institutionalist school, 6 OPEC oil, 254–255 Ames, Bruce, 85–86 shortages of oil and oil products, 203– Anarchy of production 204 actual under price controls and socialism, supplies of oil and oil products in

219–282 storage inadequate, 193 alleged under capitalism, 173 supplies of oil and oil products procapitalism vs., 138, 172–216 duced in U.S. less than would have Andrus, Cecil, 225 been, 222, 225, 226–227 Animal-rights doctrine, 112–115 rational response to, 211–212, 213–214 See also Ecology movement (en-See also Energy crisis; Oil cartel vironmentalism); Speciesism Argentina, 325–326, 519, 945

Antitrust laws Aristocracy constitute promonopoly legislation 387 See Feudal aristocracy; Socialism grounds for, baseless, 376, 389–437 Aristotle, influence of, on development of eco— alleged tendency toward formation of nomic activity and capitalism, 19 a single giant firm, rebuttal of, 392– Armentano, Dominick, 1

396, 402–403 Asceticism, 76 cartels, 423–425 Atomic power, 67, 85, 88, 98, 104 marginal revenue and the alleged Chernobyl, 79

“monopolistic restriction” of sup-disposal of radioactive wastes created by, ply, 408–423 72–73

Platonic competition of contempo-Three-Mile Island, 79 rary economics, 425–437 would cause further improvement in air predatory-pricing doctrine, 399–407 quality, 83 impair capital accumulation by reducing See also Ecology movement (en— productivity of capital goods, 637 vironmentalism)

rebuttal of charge that private firms “con-Australia, 288 trol” prices, 238 Austrian economics, Austrian school, 1, 3, 7, See also Freedom, rational concept of; Mo-218(31), 414–416.

nopoly vs. freedom of competition compatibility of, with proposition that the Applications of the invariablemoney/net-con- demand for A is the demand for A, 689– sumption analysis 690

See Invariablemoney/net-consumption integration with classical economics, 3–5 analysis, applications of main difference with classical school, 2 Arab oil embargo opposition to, 6 free market vs., 188–190, 192–194, 203– supply curve as a vertical line, on, 163

204, 211–212, 213–214 See also Böhm-Bawerk, Eugen von; Hayek, misleading news reports concerning, 192– F. A.; Marginal utility, law of diminish—

194, 224–225, 231–237 ing; Menger, Carl; Mises, Ludwig von; price controls responsible for associated Rothbard, Murray; Wieser, Friedrich von chaos Average money wage rate allocation of crude oil to the production See Wage(s) (rate[s])

of the various oil products, 263–264 Average period of production blocked spreading of loss of OPEC alternative measurement of, 852–854 supplies and obtaining replacement extremely short in Adam Smith’s “early supplies, 188–190 and rude state,” 862(96)

geographical distribution of oil and limits to technological progress as a source oil products, 243–247 of capital accumulation, and, 824 hoarding of oil and oil products, 246– meaning of, 820–824

247 why capital accumulation does not depend personal distribution of oil products, on continuous lengthening of, 820–824

240, 243 Average rate of profit prevented loss of supplies being taken See Profit, average rate of

Bmarginal-utility principle, 49–52,

414–416 measurement of average period of Bach, George Leland, 440(98), 499(51), production, 861(94) 602(110), 684 prices of goods and services in lim-Balance of trade/payments, 6 ited supply determined by compe-beneficial effect of negative, 529–531, tition of buyers, 614

831–833 relationship of past, present, and fu-conflicts of interest among nations im— ture in production, 860(30), plied by doctrine of, 526

861(89)

critique of doctrine of, 526–536, 553–554 role of cost of production in determin-fiat money, and, 528 ing prices, xlviii, 7, 9, 52, 168; international precious metal standard, quoted: 414–416 under an, 531–533 time-preference principle, 792 rate of profit and, 831–834 valuations of marginal pair of buyers reduction in, requires reduction in U.S.

alone determine price, 163, 614 government’s budget deficit and in

Marxian exploitation theory and taxes falling on saving and capital for— conceptual framework of, accepted mation, 833–834 by, 484–485 unilateral free trade and, 535–536 critique of, by 484–485, 489 Balanced-budget-multiplier doctrine quoting Roscher’s fishermen example of See Keynesianism; Ricardo, David, errors of the productivity theory of interest, 787 Bangladesh, 62(25)

usage of the term “marginal product,” Banking system, government and the, 511–517

439(55)

Barro, Robert, 11(15) Borrowing

Bastiat, Frederic, xliv, xlvi why “having money” is a reasonable re-classical school member, 1 quirement for being able to borrow it, critique of fallacy that improvements in 187 production are economically harmful See also Government bonds; Government and acts of destruction are economically budget deficits beneficial, 38(46) Brentano, Lujo, 6 favorable view of effects of population Brezhnev, Leonid, 278, 287 growth, 6, 358 Bright, John, 1 identification of error of seeing only what Broken circle (in government created employis immediately apparent, 599(5) ment), 591, 593 implicit use of concept of invariable Buchanan, James, 1 money, 541(47) Buffalo, 75, 84, 93 recognition of political dilemma of inter-Bureaucratic management ventionist (socialist) state, 294(23) See Profit management vs. bureaucratic Beame, Abraham (former New York City management mayor) 228 Business

Behaviorism, 109, 110 macroeconomic dependence of the con-Bentham, Jeremy, l, 2, sumers on, 696–698 Bioregionalism, 102 source of its own demand and profitabil-Birth rate, 362 ity, as the, 696–697 Black market, 283–284, 287 See also Businessmen and capitalists; Profit Blacks Businessmen and capitalists See Capitalism vs. racism; Government cannot arbitrarily increase the rate of net intervention, racism promoted by consumption and the rate of profit, 737 Blanc, Louis, 6 central economic figures in this book in Bodin, Louis contrast both to Marxism and to Aus-See Mercantilism trian economics, 4 Böhm-Bawerk, Eugen von, xliv, xlvii, xlix, 3– competition of, for labor, 613–618 5, 7, 61(3) consumption of abandonment of time-preference theory governed primarily by their posses— by, 797 sion of capital, rather than current Austrian school member, 1 income, 826 contradiction between his “first cause” represents net consumption, 725–726 and the doctrine of the purchasing-economic power of consumers over, 173– power premiums, 794–795 180, 275–276, 297–298, 696 credit, explicit or by way of reference, for general benefit from wealth of, 296–300,

(development/recognition of/that) 306–316 analogy of lesser value of future government responsibility for emphasis of goods to perspective, 62(28) today’s, on shortterm results, 831 determination of price by cost as a productive role of, 135–148, 172–218, special case of determination by 267–276, 296–374, 462–484, 613–663, marginal utility, 52, 414–416 737–739

Bach, George Leland classical economics vs. the Marxian exploitation theory concerning, 473–498 coordination of division of labor by, 137–139, 144–145, 172–218, 267– 276, 462, 463–464 creation of demand for labor and wages by, 140–141, 298, 478–480, 613–618, 682–691; irrelevance of worker need and employer greed, 613–618 creation of division of labor by, 135– 144, 462–463 improvements in efficiency of division of labor and rise in real wages caused by, 145–147, 172–218 (especially 176–180), 298–300, 306– 316, 326–330, 343–358, 464, 622–663 incomes of “passive” capitalists and, 483–484 production for profit by, is production for use—by the consumers, 174 profits attributable to labor of, despite variation with size of the capital invested, 480–482 receipt of sales revenues by, is realization of “labor’s right to whole produce,” 482–483 responsible for continuous capital accumulation, through raising productivity of capital goods and ensuring sufficient relative production of capital goods on basis of saving, and thus for continuously raising productivity of labor and real wages, 176–180, 299, 302, 622–636, 737–739, 809–824, 826 saving of, creates productive expenditure, wages, and costs; reduces relative amount of profit, 478–480 special benefit to, of wealth of, 300–303 See also Capital accumulation; Capitalism; Harmony of interests; Individual rights, including property rights; Mises, Ludwig von; Net-consumption/net-investment theory of profit and interest; Price system, freemarket; Private ownership of the means of production; Profit; Saving(s); Self-interest(s)

Cairnes, John E., 1, 170(41), 664

Canada, 65, 288

Cantillon, Richard, 1

Capital automatic adjustment of rate of saving to need for, under invariable money, 858– 859 defined, 132, 448 destruction of, by inflation, 930–937 malinvestment, 935–936 prosperity delusion and overconsumption, 933–935 reversal of safety, 930–931

Capital, marginal productivity of INDEX

tax effects, 931–933 capital[-goods]-saving inventions the ex-withdrawal-of-wealth effect, 936–937 ception, and contribute to, 777 destruction of, by inflation: further conse-does not depend on a continuous length-quences, 937–938 ening of average period of production, gains of debtors less than losses of 820–824 creditors, 937 does not imply a falling rate of profit, impoverishment of wage earners, 809–820

937–938 freedom and reason as ultimate founda-inflationary depression, 938 tions of, 636 reduction of the real rate of return, importance of recognizing the separate 937 demand for capital goods, for the theory “human,” is not, 455–456 of, in order to recognize/understand: relationship to capital goods, 132 increases in the supply of capital scarcity of, 55–58, 556–557, 750–762, goods as cause of further increases 779–784, 786-787, 839, 856–859 in the supply of capital goods, 278, ineradicability of, 56–58 622–630, 710–711, 809–814 wealth and, 132, 448 inverse relationship, the, between na-See also Capital accumulation; Capital tional income and economic prog-goods; Capital intensiveness; Capital ress and prosperity under value; Investment; Private ownership conditions of an invariable money, of the means of production; Productive 709–715 expenditure; Saving(s) role of saving in, as that of force to Capital, marginal productivity of acceleration, not one to one, 622– See Marginal productivity of capital 630, 710–711, 809–814, 836, 839– Capital accumulation 840 accelerated by rise in productivity of cap-role of technological progress and ital goods, 634–635 other causes of capital accumula-accelerated by rise in relative demand for tion besides saving, 557, 629–632, capital goods beyond maintenance pro-634–636, 838–839 portion, 623–628 impossible under socialism except at price average period of production and limits to of human life, because inefficiencies technological progress as a source of, make maintenance proportion for capi-824 tal goods too high, 260–261, 277–278, businessmen and capitalists responsible 641 for continuous, through raising produc-necessary to adoption of more advanced tivity of capital goods and ensuring suf-technologies, 631–632, 824 ficient relative production of capital nonsacrificial character of, under capital-goods, 299, 302, 622–636, 737–739, ism, 639–641

809–824, 826 de Jouvenel’s errors concerning, 641 cause of a rising productivity of labor and profit, average rate of, not reduced by, rising real wages, as the, 132, 622–642, 809–820

826 reciprocal relationship between, and tech-causes of nological progress, 631–632 activities of businessmen and capital-relative demand for capital goods deter-ists, 299, 302, 622–636, 737–739, mines relative production of, and thus 809–824, 826 whether economy is stationary, progres-capital intensiveness, degree of, 299, sive, or retrogressive, 622–628

302, 631–632, 824 resumption of, 638–639, 833–834 demand for capital goods relative to See also Capital accumulation, demand for consumers’ goods, 132, causes of; Capitalism, political pro-622–629, 809–812 gram for achieving freedom and reason the ultimate, 636 slavery undermines, 455–456 productivity of capital goods, 132– sufficiently low, but not steadily declin-133, 176–180, 629–632, 634–636 ing, degree of time preference required rise in economic degree of capitalism, for, 58

632–634 under invariable money, accelerated by saving and productive expenditure, rise in saving and relative demand for 622–629, 631–634, 682–689, 694– capital goods, 627–628

696; and private ownership of the undermining of, by government interven-means of production and respect tion and socialism for property rights as foundations budget deficits 638, 829–831, 927– thereof, 19–20, 58, 139, 280, 300– 928

303, 306–310, 622–641, 642, 644, environmental legislation, 98–99 651–654, 743–744, 826–829, 833– inflation, 110, 638, 930–937

834 price controls, 260–261 technological progress, 557, 629– redistributionism, 300–303, 653–655 631, 838–839 regulation, 637–638

1003 social security, 22–23, 37(23), 638 socialism, 277–278 taxation that retards saving, 306–310, 636–637, 826–829, 931–933 See also Capital; Capital goods; Capital intensiveness; Capital value; Capitalism, economic degree of; Economic progress; Inflation; Price system, freemarket; Productive expenditure; Productivity theory of wages; Saving(s); Technological progress

Capital export, 366–367

See also Monopoly, economic concept of;

tion, 376–389

N antitrust laws as monopoly, 387 artificially restricts supply, 375–389 exclusion of the less able and the disad-Nader, Ralph, 392 vantaged by, 382–385 Nash, Roderick Frazier, 119(114, 119, 121) exclusive government franchises as moNational Bank Act of 1863, 509 nopoly, 377–378 National Industrial Recovery Act (NRA), 591 government-owned and government-subsi- National income dized enterprises as monopoly, 385–387 importance of recognizing the separate high costs rather than high profits as the demand for capital goods, for the theory accompaniment of, 387–389 of, 709–715 licensing laws as monopoly, 378–380 inverse relationship between, and eco-minimum-wage and prounion legislation nomic progress, under an invariable as monopoly, 382–385 money, 712–714, 828, 830 patents and copyrights, trademarks and meaning of, in aggregate economic ac— brandnames not monopolies, 388–389 counting, 699 protection of the inefficient many against National income accounting the competition of the more efficient consumption illusion of, 700–706 few, 381–382 what equality between, and net national public education as monopoly, 385–387 product, conceals, 699–702 socialism as monopoly, 387 See also Aggregate economic accounting tariffs as monopoly, 380–381 Natural gas crisis of 1977, 222–223 See also Economic competition; Freedom, Natural resources, 63–76

conservationism, errors of concerning, demand for the products of business

71–76 minus demand for factors of pro-diminishing returns, law of, and, 67–71 duction by business, 725 economically useable supply of receipts, the, from the sale of capable of virtually limitless in-consumers’ goods by business crease, 64–65 minus the wages paid by business, determined by state of scientific and 723, 725, 734 technological knowledge and the sales revenues minus productive ex— quantity and quality of capital penditure, 725–736 equipment available, 64 total consumption minus total wages, greater now than in past, 64 734 increases as man expands his knowl-essential sources of, 725–726 edge of and physical power over other sources of, 734–735 the world and universe, 64–65 explains profits in production and sale of vastly exceeds the supply that man is capital goods as well as consumers’

economically capable of exploit-goods, 735 ing, 65 fall in energy crisis and, 66–67 limited ability to raise real wages by exploitation of less pure mineral deposits means of, 651 a sign of improved access, not exhaus-present in cases of rise in distribution tion of supplies, 64 factor, 651

foreign “exploitation” of, defended, 323– reduction in government spending

325 and taxes provides present-day limitless potential of, 63–67 one-time only, significant potential manmade increase in supply of arable for, to raise real wages, 652 land, 64 government budget deficits achieve mass of earth made of solidly packed, i.e., equivalent of raising rate of, 829–830 of chemical elements, 63 gravitation of relative wealth and income nature’s contribution coextensive with and, 737–739 supply of matter and energy in world, meaning of, 725–726, 725 indeed, the universe, 63 minimum, at a, where property rights fully problem of, one of useability, accessibil-respected and high degree of rationality ity, and economy, 63 prevails, 651–652 scarcity of, 668, 698 negative threat to supply of, not result of physical net investment vs., 750–754 but of philosophical and political fac-temporarily only, because of rise in tors, 66 capital intensiveness, 754 ultimate key to economic availability of, permanent disappearance of, not possible is motivated human intelligence, i.e., 651, 750–754 capitalism, 65–66 rate of, 737–739, 750 wealth character of, manmade, 59, 64–65 businessmen and capitalists cannot See also Ecology movement (en-arbitrarily increase, 737 vironmentalism); Energy crisis gravitation of relative wealth and in-Nazi Germany, 256, 263–264, 282, 284 come and, 737–739

See also Price controls, maximum; Short-impact of increases in quantity of ages; Socialism money on, 768

Neoclassical economics, 7–8, 865 meaning of, 734

Neo-Keynesianism, 865–867 provides explanation of high saving See also Keynes, John Maynard; Key-rates out of high incomes, 741–743 nesianism raised by “hoarding,” 837–838 Net consumption, 11(8) time preference determines, 743–744 accumulated capital as a determinant of, relationship of, to saving of wage earners,

739–741 734–735 businessmen and capitalists cannot arbi-rise in, implied as result of increase in trarily increase rate of, 737 supply of labor accompanied by dimin-cause, as the, of an excess of sales reve-ishing returns, 668 nues over productive expenditure, 725– secondary, 753

736 sole longrun determinant of average rate consumption expenditure of businessmen of profit under an invariable money and capitalists essential source of, via 758–759 dividends, draw, and interest payments, taxation of profits achieves equivalent of

725–726, 734–735 raising rate of, 826–830 equals understanding of, helps to reclaim wages— aggregate profit minus net invest-fund doctrine, 665 ment, 723 wider meaning of, 734–735 demand for consumers’ goods, minus See also Invariablemoney/net-consump— demand for labor, 570, 725 tion analysis, applications/implications

Nazi Germany of; Net-consumption/net-investment theory of profit and interest; Net investment; Profit, aggregate, average rate of Net-consumption/net-investment theory of profit and interest, 719–808 addition to the rate of profit caused by increases in the quantity of money, 762– 773 alternative theories, 787–803 classical basis of net-consumption theory, 797–799 confirms critique of the Marxian exploitation theory, 735–736 critique of doctrine that interest rate on government bonds expresses pure rate of return to which risk premiums are added, 722 critique of productivity theory in its traditional form, on basis of, 787–792 critique of time-preference theory in its traditional form, on basis of, 793–797

Böhm-Bawerk’s abandonment of the time-preference theory, 797 contradiction between Böhm-Bawerk’s “first cause” and the doctrine of the purchasing-power premiums, 794–795 disappearance of the higher value of present goods at the margin, 797 discounting approach, 795–796 determinants of average rate of profit in economic system different than determinants of rate of profit of individual company or industry, 721–722 interest, treatment of, in 720–721 other proponents of, 801–803 nature and problem of aggregate profit, 719–724 productive expenditure and the generation of equivalent sales revenues and costs, 723–725 net consumption and the generation of an excess of sales revenues over productive expenditure, 725–736 explains profits in production and sale of capital goods as well as consumers’ goods, 735 net-consumption theory further considered, 737–744 net investment as a determinant of aggregate profit and the average rate of profit, 744–762 path of explanation, 723 positive exposition of, 719–787 rate of profit based on difference between demand for products and demand for factors of production, 721 determined by rate of net consumption plus rate of net investment,

750, 773–774 not based on demand and supply of capital, 721 role of rate of increase in quantity of money in determination of, 762–

774 springs, inherent, to profitability, 778–787

Net investment

See also Invariablemoney/net-consumption analysis, applications/implications of; Net consumption; Net investment;

Profit, aggregate, average rate of Net investment accounting similarity to aggregate profit,

723 capital intensification and, 758–762 determinant, a, of aggregate profit and the average rate of profit, 744–762 disappearance of, under an invariable money, 758–759 formula for, 702–705 impact of increases in quantity of money on, 768–773 meaning of, 702 negative net consumption, vs., 750–754 perpetuation of, through increases in the quantity of money, 768–771 productive-expenditure iceberg, as the tip

INDEX 1029 in, and elsewhere require gradual phase-vent, contributed to, 524 out of public welfare, 977 lengthened and deepened by government most of country’s gold deposited in banks intervention, 589–590 of, by time of World War I, 509 See also Depressions; Government inter-policies required to restore, to former vention greatness, 988–989 Nicolaevsky, Boris, 295(30) population increase since 1776, 29 Ninotchka, 250 possibility of brownouts and blackouts in, Nixon, Richard, 256 79, 227–228 Nordhaus, William rent control in, provides special applica-See Samuelson Paul tion of principle of spillover of demand Norris-La Guardia Act, 591 in response to shortages, 249 Nutter, G. Warren, 295(31, 33) repealing rent controls in would end housing shortage of, 182

O subway system of, a good candidate for privatization, 972 taxicab industry of, provides example of Objectivism licensing-law monopoly and of monopoly See Rand, Ayn protecting the inefficient many against the Obsolescence more efficient few, 381–382, 388 myth of planned, 214–216 of the, 705–706 New York Times rapid, capital intensiveness under, 786– productive expenditure minus business costs, as, 702–705 prolongation of, under an invariable money, 754–756 rate of, 750 impact of increases in quantity of money on, 768–773 result of marginal productivity of capital exceeding the rate of profit, 756–757 result of technological progress via contribution to increase in quantity of commodity money, 818–819 self-limiting phenomenon, 758 without increasing capital intensiveness,

775–776

See also Invariablemoney/net-consumption analysis, applications/implications of; Net consumption; Net-consumption/net-investment theory of profit and interest; Profit, aggregate, average rate of Net national product (NNP)

equality between, and national income significance of, 700–706 what, conceals, 699–702 meaning of, in aggregate economic accounting, 699

New Deal, 220, 590–591, 638

New intellectuals, need for, 110, 112 requirements of becoming, 119(111) New York City, 407 bank in, calculated imputed income of housewives’ services, 458

Daily News strike in, 145 destruction of rental housing in 230, 250,

980 examples using, 202, 274, 280, 421, 451,

468, 614 garbage police, has, 74 government of, provides only recent example of policy of deficits without abil— cancer rate normal at Three Mile Island, 787

79 Oil cartel contempt for Goddard’s ideas on space free market vs., 63–67, 176, 222, 225– flight when first presented, 178 226, 234–237, 254–255 example using, 24 U.S. government responsible for success failure of workgroup experiment at Saab of, 234–237 plant in Sweden, 133(1) Oil companies

FDIC refusal to make good losses in ex-myth of withholding of supplies by, to “get cess of $100,000 on bank accounts, their price,” 224–225

541(22) not responsible for oil shortage, 192–193, few scientists believe greenhouse warm-234–237 ing can be detected, 87 profit motive of, leads to increase in sup-misreporting by, in campaign against the ply of oil, 236 profits of the oil companies, 231–233 profits of, campaign against, 231–234 money supply data, 264(7), 540(1), punitive windfall-profits tax on, led to

541(34), 965(98) bankruptcies of, 255–256 naïve report on economic inequality, See also News media, misleading re—

171(38) ports by, concerning Arab oil em-naïve report on inventory accumulation as bargo and energy crisis cause of bad business, 595 Oil crisis perverted concept of efficiency held by, 78 See Arab oil embargo; Energy crisis poverty as cause of flood deaths in Oligopoly, 390–391, 429, 435–436

Bangladesh, 62(25) See also Monopoly, economic concept of; progress in extracting oil from tar sands in Pure-and-perfect-competition doctrine

Canada, 115(2) OPEC quoting Interior Secretary Cecil D. Andrus See Oil cartel denying he had charged oil companies 100–percent reserve with withholding supplies, 225 See Gold standard, 100–percent reserve quoting New York’s Mayor Abraham Opportunity-cost doctrine, critique of, 459–

Beame on vacancy rate, 228 462 quotation of the day during gasoline short-fails to see money outlays as essential for age, 240 alternative opportunities to influence Roosevelt’s 1944 State of the Union Mes-costs, 461 sage containing proposal for forced prevents recognition of profit as a labor labor, 295(36) income, 480–481

South Bronx housing conditions, 250 Overproduction welfare reform, 990(14) doctrine of

See also News media, misleading reports alleges, is cause of depressions, 544– by, concerning Arab oil embargo and 546 energy crisis implies people are poor because they ity to inflate, 923 News media, misleading reports by, concerning are rich, 546 hatred between landlords and tenants in,

240 ignorance and evasion of City’s govern—

Arab oil embargo and energy crisis, 63–67, only partial and relative exists, 564–569 192–194, 223–226, 231–237, 237–238, 238 which is confirmed by law of dimin—

See also Economic history ishing marginal utility, 53–54 ment concerning rent controls, 228, 230 1929 Depression, 522 See also Say’s (James Mill’s) Law large concentrations of welfare recipients belief in power of Federal Reserve to pre-Oversaving doctrine

1030 INDEX

See Underconsumption/oversaving doc-Piecework, 133(8), 656 trine, critique of Planned obsolescence, myth of, 214–216 Overstone, Lord Samuel Jones Lloyd, 1 Planning

Overview of the present book, 9–11 See Economic planning Owen, Robert, 6 Plato, 338

Ozone layer, 78, 90, 102 Platonic competition

See Monopoly, economic concept of, Platonic competition of contemporary eco—

P nomics

Platonic-Heraclitean view of the nature of en-Packard, Vance, 214, 218 tities, 674–682

Paradox-of-thrift doctrine Poland, 274

See Keynesianism Political concept of monopoly Parasitism, held to be source of gain to its See Monopoly, political concept of victims, 554–555 Political economy

See also Consumptionism; Keynesianism See Economics

Pareto, Vilfredo, 8 Pollution, 81

Partial-equilibrium doctrine, 7, 166–167 alleged, of water and air by industrial civ-Partial, relative overproduction, never general ilization, 83–85 or absolute overproduction, 564–569 avoidance of air, outweighs benefits of Patents and copyrights, trademarks and fossil fuels, according to Carl Sagan, 80 brandnames costs of complying with regulations not monopolies, 388–389 against, 118(90)

not wealth, though contribute to wealth, destructive consequences of international

40 limitations on, 101, 112(86)

pricing under, 417–420 equation of production with, 111 Peikoff, Leonard, 12(17), 37(15), 38(47, n. fear of, by environmental movement, 78

50), 118(98), 169(1), 716(2) fear of, would have stopped development Period of production, average of Midwest, 93

See Average period of production not a significant cause of birth defects or Peterson, Willis, 718(71) cancer, 86

Petty, William not the real problem of the industrialized

See Mercantilism world, 99

Phillips curve, critique of, 589 quoting Barry Commoner on, 101 Philosophy serious problem in backward, not industri— contemporary, 35–36, 109–110 alized, countries, 83, 85 influence of rational, on development of usage of, comparable to usage of “concu— capitalism and economic activity, 19–21 piscence,” 91

See also Contemporary education used to mean a change in state of nature Philpot, Gordon, 718(71–72) caused by man, 91 Physical force, initiation of, 45, 92 See also Ecology movement (en— absence of, is meaning of freedom, and vironmentalism)

essential to capitalism, 21–22 Population growth economic inequality based on, more ex-beneficial economic effects of, 358–362, treme than economic inequality under 634–635 freedom, 148 shown to be a source of rising aggregate enemies of competition implicitly advo-real demand only insofar as contributes cate, 348 to more production and supply, 553 externalities doctrine used as justification See also Economic competition; Free im— for, 97 migration freedom, the absence of, 21–27, 322, 339, Potato growers case, 561–569

375 Praxeology, 61(12)

government under capitalism limited to Precious metals defense against, 21–22, 971 See Gold; Silver present in all government intervention Predatory-pricing doctrine, 399–408 into the economic system, 21, 26 Press pursuit of science depends on absence of, See Freedom, press, of; News media, mis—

36 leading reports by concerning Arab oil stands in the way of capitalism’s just treat-embargo and energy crisis ment of blacks, 198 Pressure-group warfare, 34–35, 175–176, 304, underlies problem of unemployment, 339 361–362, 830, 974–975

See also Freedom; Government interven-Price competition, 434–437 tion; Individual rights, including prop-Price controls, maximum erty rights; Socialism absurdity of claim that they “save money,” Physiocrats, 1, 11(1) 248–249

Pigou, A. C., 865–866 administrative chaos of, 243 Pigou effect, 866 cause reduction of supply, 222–228

Overstone, Lord goods held in storage, 223–226;

“storage” of natural resources in the ground caused by, 225–226 goods in a local market, 222–223 goods produced, 222 particular types of labor and particular products of a factor of production, 226 de facto socialism and, 263–264 destroy private ownership of the means of production, 267–269 destruction of utilities and other regulated industries by, 227–228 economic chaos caused by, 219–264 economy models disappear under, 241 energy crisis disappeared when, removed from oil, 66, 254–255 freedoms of employment, press, speech, travel incompatible with

See Socialism higher prices caused by, 241–243, 248–

255 how repeal of, on oil reduced price received by Arabs, 254–256 identity of socialism to, 267–269 ignorance concerning effects of, 228–238 no remedy for inflation, 219–220 partial, contrary to purpose, 247–248 plus inflation, 220–221 prohibition of supply caused by, 226–227 prosperity delusion of, 262 rebuttal of charge private firms impose, 238 shortages caused by, 182–183, 188–189,

193–194, 202–204, 211–212, 213–214,

221–228, 234–237 shortages and, further effects of, 239–256 chaos in the distribution of factors of production among their various uses, 245–247 chaos in the geographical distribution of goods among local markets,

244–245 chaos in the personal distribution of consumers’ goods, 243–244 consumer impotence and hatred between buyers and sellers, 239–241 impetus to higher costs, 241–243 spillover of demand, 247–256 short-run effects of repeal of, 182–183,

190, 240–241, 252–255 socialism caused by, 263–264 totalitarian state needed to enforce, 283–

284 universal, and their consequences, 256–

264 how excess demand develops under, even though incomes are controlled, 257–258 tendency toward, 256 universal shortages, 257–258 wage controls plus massive inflation led to labor shortage in World War II, 592 war caused by, 223

World War II boom, and 262 impoverishment during, 593–594 prosperity based on return to peace,

593–594

Price controls INDEX

See also Arab oil embargo; Agricultural elements of: demand, supply, and cost of export crisis of 1972–73; Energy crisis; production, 151–169

Inflation; Hoarding; Natural gas crisis general pricing of goods and services in of 1977; Nazi Germany; Oil cartel; limited supply, 201–202

Price system, freemarket; Profit, mo-labor, for, combined with 100–percent-re-tive; Rent controls; Rents, freemarket; serve gold standard, would eliminate Shortages; Socialism; Soviet Russia mass unemployment and anxiety asso-Price controls, minimum ciated with job loss, 594 cause and/or perpetuate unemployment, prices and costs

339, 355–356, 383–384, 588–592, 655– competitors’ and potential 660, 938, 941–942 competitors’ costs—ultimately, despite ineradicable scarcity of labor, legal freedom of entry—set the

59–60, 201, 339 upper limit to prices in a free mar-farm subsidies, 181–182 ket, 411–421 lead to acreage controls and restric-determination of price by cost con-tion of production, including on cealed in cases of horizontal or better grades of land, 181 downward sloping supply curves frustrate the law of comparative advan-167–169 tage and prevent the less able from out-determination of price by cost im-competing the more able, 355–356, plied by uniformity-of-profit prin-382–384 ciple, 200–201 minimum-wage legislation, 355–356, determination of price by cost vs. de-382–384, 658, 659–660 termination by direct marginal util-monopolize the market against the less ity, 437

able and the disadvantaged, 382–384 determination of value or price by promote racial discrimination, 383–384 cost as special case of law of dimin-prounion legislation and/or union scales, ishing marginal utility, 52, 208– 31, 355–356, 382–384, 655–659 209, 414–416 can create mass unemployment in prices of the means of production depen— midst of hyperinflation, 941–942 dent on private ownership of the means case, a, of irrational self-interest, 34 of production, 139 cause artificial inequalities of wages pricing and distribution of consumers’

or mass unemployment, 657–658 goods in limited supply, 202–206 Price formation, two patterns of, 51–52, 152– pricing and distribution of factors of pro-155, 167–169, 182, 200–209, 408–423, 425– duction in limited supply, 206–209 437 pricing, general, of goods and services in See also Demand; Demand and supply; limited supply, 201–202

Cost of production; Marginal utility, private property rights and profit motive law of diminishing; Price system, free-the base of, 267–269, 279–282 market; Supply production for profit under, is precisely Price indexes, shortcomings of, 674 production for use—by the consumers, Price system, freemarket 174 allocation principles of, 201–214 promotes safety, 79, 174–176, 642–644, causes of mass unemployment, vs. the, 645

580–589 uniformity-of-price principles, 187–194 dependence of division of labor on, 172– uniformity-of-profit principle, 172–187 216 wage determination under, 194–199 dependence of economic planning on, See also Arab oil embargo; Cost of pro-137–139, 142–143, 172–218, 267–275, duction; Energy crisis; Gold; Gold stan-279–282 dard; News media, misleading reports dependence of, itself on by, concerning Arab oil embargo and exchange and money, 139 energy crisis; Oil cartel; Price controls, private ownership of the means of maximum; Price controls, minimum;

production, 137–139, 267–275, Profit; Rent controls; Rents, freemar—

279–282 ket; Shortages; Socialism; Soviet Rus— profit motive and freedom of compe-sia; Wage(s) (rate[s])

tition, 137–139, 172–216, 267–269 Prices saving and capital accumulation, 139, See Price system, freemarket; Profit, mo—

140–141 tive; Price controls, maximum; Short— saving and productive expenditure, ages; Socialism

140–141, 682–690 Prices, falling economic coordination, and, 137, 142– anticipation of, caused by increased pro-143, 172–218 duction, not deflationary, 574–576 economic harmonies of cost calculations capital accumulation causes, 809–818 under, 212–214 caused by increased production are not efficiency of, in responding to economic deflation, 573–580, 809–818, 825–826 change, 209–214 economic progress and prospective ad—

1031 vantage of future investments over present investments not deflationary, 576– 578 effect of, on value of accumulated stocks not deflationary, 578–579 fundamental distinction between, caused by increased production and, caused by financial contraction, 558–559, 573– 574, 809–818, 820, 825–826 resulting from larger supply of labor, not deflationary, 579–580 uniformity-of-profit principle causes, 179–180

See also Productionism; Say’s (James Mill’s) Law

Pricing contract, 405–406, 420–423 marginal-cost, 426–430 implications of, 432–434

Samuelson quoted urging government subsidies to producers to cover losses resulting from following, 433

Primacy-of-wages doctrine, 477–478

See also Marxian exploitation theory, critique of; Profit, primacy of

Private ownership of the means of production capital accumulation, economic progress, and rising productivity of labor and real wages depend on, 176–179, 277–278, 298–310, 622–636, 642, 644, 653, 743– 744, 826–834 capitalists’ special benefit from, 300–303 dependence of division of labor on, 135– 295, especially 135–151 dependence of price system on, 135–295, especially, 137–139, 267–269, 279–282 dependence of profit motive on, 137–139, 172–218, 267–269, 279–282 employment of, in production for profit, is production for use—by the consumers, 174 freedom as basis of extension of, 27 freedoms of speech, press, and occupation depend on, 23, 283–288 fundamental necessity of, based on nature of gains provided by division of labor, 135–136 general benefit from, 296–300, 306–316 buyers of products, to, 296–298; See also Consumers, businessmen and capitalists stand in service of direct relationship between, and respect for the property rights of the capitalists, 176–179, 275, 298–

300, 302–316, 634–639 sellers of labor, to, 298 influence of division of labor on, 296–326 implications of, for destructive consequences of government ownership, 303–306 implications of, for redistributionism,

300–303 markets and market prices of the means of production depend on, 137–139, 267– 269, 279–282 price controls destroy, 267–269

1032 INDEX territorial sovereignty, and, 322–326 antieconomics of consumptionism, vs.

no rational economic basis for exten-the, 543–544 sions of sovereignty over areas pos-balance-of-trade/payments doctrine shown sessing free governments, 322–323 to lead to absurd results, 553–554 See also Businessmen and capitalists; effects of machinery shown to be neutral Capital accumulation; Capitalism; Har-on aggregate employment and benefi-mony of interests; Individual rights, in-cial for standard of living, 546–548 cluding property rights; Land, private general overproduction shown to be im-ownership of; Mises, Ludwig von; Price possible, 544–546 system, freemarket; Saving(s); Self-in- government spending to promote employ-terest(s); Socialism ment shown to be unnecessary and Private property rights wasteful, 552–553

See Individual rights, including property imperialism shown to be economically rights harmful to practitioners, 553–554 Private streets, 421 inherent group conflicts over employment Privatization, radical, 420–423 shown to be nonexistent, 548–549 Privatizing Communist countries, 290–294 make-work schemes and spread-the-work Producer(s) schemes, shown to be destructive, 549– businessmen and capitalists as original 550 and primary, 478–484 meaning of, 542–543 defined, 59, 131 population growth shown to be a source of Producers’ goods rising aggregate demand only insofar as See Capital goods contributes to more production and sup-Producers’ labor, 446–447 ply, 553

See also Capital goods; Consumers’ labor; rebuttal of belief that parasitism can be a Productive expenditure source of gain to its victims, 554–555 Product, defined, 59, 131 relationship of, to classical economics, Product liability, irrational, 95–96 542–543

Production technological progress, shown to be valu-aggregate, 674–682 able as a source of supply of capital capital accumulation underlies ability to goods, not of uses for capital goods, increase, 622–642 556–558 consumption, and, twofold relationship war shown to be economically destruc-between, 131, tive, 550–552 consumptive, 443–444 See also Consumptionism; Full employ-cross-hatching of, 854–856 ment; Keynesianism; Say’s (James defined, 59, 130 Mill’s) Law environment necessarily improved by, Productionist aggregate demand curve, 546 90–91, 92 Productive activity private ownership of the means of produc-advertising, productive role of, 471–473 tion and respect for individual rights businessmen and capitalists, productive underlies ability to increase role of, 135–148, 172–218, 267–276,

See Capital accumulation; Freedom; 296–374, 462–484, 613–663

Harmony of interests; Individual division of labor and concept of, 441–500 rights, including property rights; financial markets and financial institu—

Private ownership of the means of tions, productive role of 464–466 production inherent tendency of, to improve environ-undermining of, by government interven-ment, 90–91, 92 tion and socialism moneymaking’s role in, 441–462, espe—

See Capital accumulation, undermin-cially 442–444 ing of by government intervention; price system’s and profit motive’s role in,

Government intervention; Socialism 135–148, 172–218, 267–276 universal aspects of, 130–133 retailing and wholesaling, productive role See also Businessmen and capitalists, pro-of, 467–471 ductive role of; Capital accumulation; stock market, specific productive role of, Capitalism; Private ownership of the 466–467 means of production; Profit, motive; why the aggregate negative consequences Productive activity; Productive expen-of, should be regarded as equivalent to diture; Productionism; Productivity acts of nature, 92–93 theory of wages Productive and unproductive labor according Productionism, 542–559 to Adam Smith, 456 advertising shown to result in greater Productive consumption, 131 gains from production and in more pro-See also Capital; Capital accumulation; duction, and to increase demand only to Capital goods; Production, universal as-extent it increases production and sup-pects of; Productive expenditure ply, 555–556 Productive expenditure, 444–445, 673–894 aggregate demand curve of, 546 passim

Private property rights capital value and, 450 defined, 444 demand for labor part of, 478–480, 682– 691 depends on existence of businessmen and capitalists, 478–480 saving, 478–480, 626, 682–691 equal contribution of, to sales revenues and costs, 723–725 net consumption as the source of an excess of sales revenues over, 725–736 net investment equals, minus costs deducted from sales revenues, 702–705 reduced by progressive personal income and inheritance, corporate income, and capital gains taxes, 636 role of, in aggregate demand, 682–708 secondary, 750–752

See also Aggregate economic accounting on an Aristotelian base; Capital; Capital accumulation; Capital goods; Capitalism, economic degree of; Gross national revenue; Labor, demand for; Net investment; Saving(s)

Productive process as the source of its own demand and profitability, 696–697 Productivity of capital goods crucial to capital accumulation, 629–630, 635–636 dependence of, on price system and profit motive explains inability of socialism to accumulate capital except at expense of famine, 635 increased by anything that increases production in general economic freedom and respect for property rights, 635 free immigration, 362–364, 634 free international trade, 634 greater division of labor, 123–128,

634 population growth, 360, 634 price system, freemarket, 635 technological progress, 628–629 uniformity-of-profit principle, 635 meaning of, 629, 634 reduced by taxation of profits, subsidies, antitrust laws, prounion legislation, environmental legislation, and government regulation in general, 637 subsumes contribution of technological progress to capital accumulation, 634 See also Capital accumulation; Technological progress

Productivity of labor absurd implications of connecting rise in, on a case-by-case basis with higher money wage rates, 659 businessmen and capitalists responsible for rise in, 622–642 continual rise in, the ongoing solution to the economic problem, 60 dependent on supply of capital goods, 132, 622 determines real wages, 618–622 foundations of, and real wages: capital

Productivity theory of profit accumulation and its causes, 622–642 economic degree of capitalism, 632–

634

INDEX 1033

Marxian exploitation theory, vs., 613–663 intensiveness, 784–786 See also Productivity of labor; Wage(s) net-consumption/net-investment the-

(rate[s]) ory of, 719–862 nonsacrificial character of under cap-Producers’ loans, 447 neutrality of technological progress italism, 639–641 Profit with respect to, 558, 818–819 other factors, above all economic freedom and respect for property rights, 634–636 saving: relative demand for and production of capital goods, 622–630 technological progress, 629–632 undermined by government intervention, 636–639 height of, in mining makes recycling wasteful, 74 lowness of, in past explains low real wages, long hours, child labor, and bad working conditions, 642–644 manmade power essential to rise in, 77–78 resumption of rise in, requires radical reduction in government intervention to raise relative demand for and productivity of capital goods, 638–639 rise in consistent with law of diminishing returns, 69–71 only possible cause of a sustained, significant rise in real wages, 646–

653 raises general standard of living through fall in prices, not rise in money wages, 620, 655 results in higher money wages only insofar as rise is relative to productivity of competitors and insofar as results in increase in quantity of commodity money, 655–656 underlies exploitation of less pure mineral deposits, 64 rise in, historically responsible for elimination of child labor, 645 improvement in working conditions,

645 rise in real wages, 644 shortening of hours of work, 644 See also Productivity theory of wages; Wage(s) (rate[s])

Productivity theory of profit and interest in its traditional from, 787–792

Productivity theory of wages, 613–668 connections of, to classical economics, 604; 664–666, 669(4–6)

critique of labor and social legislation in light of, 653–663 child-labor legislation, 661–662 forced improvements in working conditions, 662–663 labor unions, 655–659 maximum-hours legislation, 660–661 minimum-wage laws, 659–660 redistributionism, 653–655 employment of women and minorities in light of, 663–664 interpretation of modern economic history in light of, 642–646 marginal-productivity theory of wages, vs., 666–668 aggregate not based on demand and supply of accounting similarity to net invest-capital, but on the difference bement, 723 tween the demand for products and equals sum of net consumption plus the demand for factors of produc-net investment, 723, 747–748 tion, 721 increase in quantity of money as an raised by activities of demagogues element in explanation of, 762–774 and bandits, 744 increased by amount of increase in saving out of money income on con-quantity of commodity money, tinuing basis does not reduce, 836– 771–773 837 nature and problem of, 719–725 Say’s Law and, 569–573 net consumption as basic explanation “Say’s Law of,” 774–775 of, 570, 725–744 summary statement of determinants net investment as an explanation of, of, 773–774

744–762 taxation of, causes rise in pretax, vertical integration and, 570 826–829 average rate of See also Marxian exploitation theory; achieving full employment does not Productivity theory of profit and reduce, 583–586 interest in its traditional form; addition to, caused by increases in Time-preference theory of profit quantity of money, 762–773 and interest in its traditional form addition to, accompanies perpetua-earned by the labor of businessmen and tion of saving out of money in-capitalists despite variation with size of come, 836–837 capital invested, 462–464, 480–484 balance of trade and, 831–834 fallacy of converting, into a source of ad-capital accumulation does not cause ditional wage payments, 654–655 or presuppose falling, 809–820 inflation and, 228–230 critique of Ricardo’s version of fall-inventory repricing case, 231 ing, doctrine, 799–801 tax effects and overconsumption, determinants of, different from deter-931–934 minants of rate of profit of individ-motive ual company or industry, 721–722 dependence on private ownership of elevation of, in long run by hoarding, the means of production, 137–138, 837–838 267–269, 279–282 equals sum of net-consumption plus foundation, as, of price system and net investment rates, 750 rational economic planning, 137– fall in, does not raise demand for 138, 172–218, 267–269, 279–282 money for holding when is result of gives consumers the power to deter-fall in rate of net consumption, 820 mine the relative size of the various fall in, raises demand for money for industries, 174, 275 holding when is result of fall in keeps the various branches of indus-quantity of money and volume of try in proper balance, 173–174, 275 spending, 820 makes businessmen act as agents of falling, not the result of either of cap-the consumers, 174–175, 275–276 ital accumulation or falling prices operates contrary to doctrine of caused by increased production, planned obsolescence, 214–216 58, 569–580, 809–820, 825–826 promotes safety, 79, 174–176, 642– falling prices due to increased pro-644, 645 duction do not reduce, 569–580, represents pursuit of material self-in-809–818, 825–826 terest under division of labor and government budget deficits raise pre-money, 27 and aftertax, 829–831 underlies connection between prices inverse relationship between, and and costs of production, 200–201 economic progress, 736, 828, 830 underlies continuous economic prog-Keynesianism vs., 891–892 ress, 176–179, 275, 635 lack of need for continually falling underlies free market’s allocation degree of time preference to principles, 201–214 achieve capital accumulation, im-underlies uniformity-of-price principlies no need for falling, 58 ples, 187–199 lower, favors capital intensiveness, underlies uniformity-of-profit princi-778–787 ple, 172–187 monetary component in, and capital original and primary form of income

1034 INDEX

See, below, this main entry, primacy of monopoly, 385–387 permanent inequalities in rate of, 185–187 unfair competition, 385 primacy of, 478–480 measures artificially encouraging a production for, is production for use—by high birthrate, 362 the consumers, 174 importance of excluding immigrants real rate of, dependent on increases in pro-from, 985 duction and supply of goods, 774–778 potential to decline to point where worth uniformity-of-, principle, 172–187 no more than its zero price, 386 applications of: consumers’ power to See also Education determine the relative size of the Purchasing-power price premiums in the rate various industries, 174, 275; im-of interest petus to continuous economic contradiction between, and Böhm— progress, 176–180 (which contrib-Bawerk’s doctrine of the “first cause,”

utes to capital accumulation by per-794–795 manently raising productivity of implications for, of fact that falling prices capital goods and reducing mainte-caused by increased production do not nance proportion, 635); effect of reduce the average rate of profit, 8, 825– business tax exemptions and their 826 elimination, 183; effect of repeal of Pure-and-perfect competition, alleged histori— price controls, 180–183; keeping cal existence of, 391–392 the various branches of industry in Pure-and-perfect-competition doctrine proper balance, 173–174, 275; denounces business as monopolistic for makes businessmen act as agents of refusing to sustain unnecessary losses, the consumers, 174–175, 275–276 425, 434 foundations of, 172–173, 183–185 essential role in, of alleged desirability of permanent exceptions to, 185–187 price equal marginal cost, 426–427 See also Businessmen and capitalists; Cap-alleged significance of the equality, italism; Harmony of interests; Invariable-426–430 money/net-consumption analysis, implied treatment of fixed costs, 427– applications/implications of; Net con-430 sumption; Net-consumption/net-invest- failure to charge price equal to marginal cost ment theory of profit and interest; Net is basis of claim by, that economic system investment; Private ownership of the lacks price competition, 434–436 means of production; Self-interest(s) consequences of having to charge price Profit management vs. bureaucratic manage-equal to marginal cost, 432–434 ment, 304–305 movie theater example of, 431–432 Profit-push doctrine presuppositions of, 425–430 See Rising prices, inflation of the money rationing theory of prices, 426–428 supply vs. alternative theories of tribal concept of property, 425–430 Profitability, inherent springs to, 778–787 stands to left of Marxism, 434 blocked by wage-rate rigidities, 784 Pyramid-of-ability principle, 366, 370 Profits of oil companies, campaign against application of, to employment of women See Oil companies, profits of, campaign and minorities, 664 against integrates with law of comparative advan-Progress tage, to imply general gain from the See Economic progress existence of others, 357–358 Property rights underlies gains from freedom of immigra-See Individual rights, including property tion, 362–363 rights See also Economic competition; Monop-Proudhon, Pierre, 6 oly, economic concept of, and the Pla-Prounion legislation tonic competition of contemporary See Government intervention, labor and economics; Rand, Ayn social legislation; Labor unions

Pseudoeconomic thought, 6–9

Public education, 31, 604, 888, 969, 976 abolition of, an essential step toward achievement of a capitalist society, 986 Quantity theory of money how to be accomplished, 986 See Money, quantity theory of critique of external-benefits doctrine as a Quesnay, Francois, 1 support for, 335–336 destroys freedom of opportunity with reR spect to education, 342 destroys profit-and-loss incentives to improve, 386 Racism, 119(118)

equality-of-opportunity doctrine as a sup-acceptance of “speciesism” undercuts opport for, 337, 342 position to, 113 example of, as implicit racism of view that capitalist

Profit management

(Western) civilization is civilization of the white man, 48–49, 62(17)

See also Capitalism, vs. racism; Government intervention, racism promoted by Rand, Ayn, xliv-xlv, 295(41)

acknowledgment of her influence on this book, xlvi-xlvii application of her

“benevolent universe” premise, 37(11)

concept of man’s right to life to describe the nature of capitalism, 19 concept of the good to availability of economically useable natural resources, 65–66 principles concerning identification of censorship to development of distinction between rational and anarchic concepts of freedom, 23– 26, 37(26)

views concerning man’s life and his need to use reason, as the source of value, 119(122)

credit, explicit or by way of reference, for (discussion/identification/recognition of/that)

actual nature of the economic relationship between the “weak” and the “strong,” 373(102–103) altruism and self-sacrifice, nature of, 118(91)

axiomatic concepts, nature of, 716(2) capitalism as barring initiation of physical force from human relationships, 971 capitalism, provision of philosophical foundation for, and for current spread of procapitalist ideas, 2 capitalism’s development, accurate description of, 670(100)

context dropping, fallacy of, 879 ecology movement as representing the decline of the left, 118(89), 987–988 ecology movement, telling descriptions of, 78, 105 forcing people to act for their own good, nature of, 175

“from each according to his ability to each according to his need,” critique of doctrine of, 170(22), 295(39)

government, limited, arguments on the necessity specifically of, 37(19) government, proper, arguments on the nature and necessity of a, 37(18–21)

governments that do not recognize individual rights have no moral legitimacy, 990(25)

ideas and formulas as inexhaustible gift, 360, 374(112)

independence of man’s mind and his need for private property and private ownership of the means of production, connection between, 169(1)

Rate of profit INDEX individual as standard of value and Rent controls judgment, 333, 373(85), 440(75) cause conversion of rental housing to Kant’s version of reason and reaction coops and condominiums, 226 to it, 107, 118(99), 119(102) conversion to coops or condominiums as left as being on the side of mysticism, means of escaping from with support of and capitalism on the side of rea-tenants, 980 son, 987–988 cause deterioration in housing subject to money, moral nature of, and proposi-them, 240 tion that it is the root of all good, create hatred between tenants and land-170(20) lords, 240 objective code of values with man’s destroy supply of rental housing starting life as the standard, 61(16) with that of the poor, 222, 384 patent and copyright protection, prin-destroy tenants’ power over landlords, ciples underlying limitation of, 239–240

438(21) internal passports and compulsory assign-principle that force and mind are op-ment of boarders as result of, 249–250 posites, 986 prohibit construction of rental housing, pyramid-of-ability principle, 357 226–227

“right to enslave,” advocated by stat-property taxes and, 252 ists, 380 raise rents on uncontrolled housing, 250– rights, nature of, 119(116) 252 socialism’s promise of future pros-repeal of perity, indefinite postponement of, effect of, on rate of profit in, and on 295(42) supply of, rental housing, 182 “the tribal premise,” 440(75) how would restore harmony between voluntary taxation, advocacy of, landlords and tenants, 240–241 37(20) immediate, case for, 252–254 words “the intellectuals are dead” and unseen victims of, 253 the expression “new intellectuals,” See also Land rent; Price system, free-110 market; Price controls, maximum; writings on irrationalism and its deRents, freemarket structive influence, 38(47) Rents, freemarket importance of reading her works, balance demand and supply of rental hous-119(111), 373(86), 970, 983 ing, 203, 204 leading advocate of reason in modern enable poorer buyers to outbid wealthier times, 970 buyers, 204–205 lesson to be learned from, by intellectuals, establish harmony between tenants and 104 landlords, 240–241 philosophy of, ignored by great majority expand and progressively improve supply of contemporary intellectuals, 100 of rental housing while reducing rents Rate of profit in real terms, 182

See Profit, average rate of, uniformity-of, give tenants power over landlords, 240– principle 241

Rational expectations, 11(15) Representative-firm doctrine, 7–8

See also Hazlitt, Henry See also Marshall, Alfred; Pure-and-per-Reagan administration, 227, 321, 830, 944, fect-competition doctrine

949 Representative government, inflation and def-Real demand icits vs., 927–928

See Demand, real Reproductive consumption, 131

Real wage rates See also Capital; Capital accumulation; See Wage(s) (rate[s]), real Capital goods; Production, universal as-Reason pects of; Productive expenditure See Human reason Retailing and wholesaling, productive role of, Recycling, 72–74, 111 467–471 garbage police to enforce, 74 See also Businessmen and capitalists, pro-wastefulness of, 73–74 ductive role of

Redistribution of wealth and income, 300–303, Reynolds, Lloyd G., 678, 680

653–655, 928–930 Ricardo, David

See also Capital accumulation; Net con-actual meaning he attached to “a fall in sumption; Net-consumption/net-invest- wages,” 495–496 ment theory of profit and interest; appears to prepare ground for Marxian Productivity theory of wages exploitation theory, xli, 5, 478, 495 Reisman, George, l(25), 12(21), 37(7, 29), credit, explicit or by way of reference, for 116(20), 170(39), 218(21, 25, 27), 265(8), (identification/demonstration/recogni 373(97), 438(14–15), 808(151), 990(7, 38) tion of/that)

Regulation changes in the rate of profit change See Government intervention the relative prices of consumers’

1035 goods, 795 competition of sellers, based on cost of production, as direct determinant of price of manufactured or processed goods, below point corresponding to direct utility, 9, 171(65), 218(28), 414, 416 (See also Böhm-Bawerk, Eugen von on this subject)

contribution (implicit) to overthrow of conceptual framework of the Marxian exploitation theory, 4, 479 distinctive nature of value and riches, 4, 487, 495–496, 539, 540, 715, 819 (See also Invariable money; Invariablemoney/net-consumpti on analysis, applications/implications of)

exposition of “Say’s Law” superior to that of Say, 599(3)

insights on capital accumulation, 3, 634, 819–820

law of comparative advantage, 350 limitless desire to consume, and economic problem as creation of purchasing power through increased production, 559–560 preparing ground for net-consumption theory, 787, 797–798 principle of invariable standard of value (invariable money), 4, 495– 496, 537 technological progress as reducing prices, not raising the average rate of profit, and, implicitly as being a source of capital accumulation, 3– 4, 495, 819 criticism of Say by, 414 errors of (his belief in/that)

concerning effects of changes in demand for labor, propounded in contemporary economics texts in form of balanced-budget-multiplier doctrine, 671(109)

concerning effects of population increases, 358–360 confusions concerning “iron law of wages,” 494–495, 799–801 contradiction of his doctrine of the distinction between value and riches in errors concerning effects of changes in the demand for labor, 639–641, 648–650 cost of living determines wage rates independently of supply and demand for labor, 494–495 denial of ability to tax wage earners, 497 equivocations on meaning of wages, 798 falling rate of profit unless offset by fall in cost of wage earners’ necessities, 495, 799–801 food becomes dearer with progress, 799 misleading use of terms monopoly and competition in reference to the

1036 two patterns of price formation, 390; 438(22–23)

natural price of labor as subsistence, 492 rise, a, in demand for labor is always of benefit to wage earners, and thus that war and government spending

INDEX Ricardo effect implies all income is profit, not prices, not raising the average rate wages, in Adam Smith’s early and of profit, and, implicitly as being a rude state of society, 479 source of capital accumulation, net-consumption theory implicit in 495, 819 proposition if taken in conditions of time factor as a determinant of rela-an invariable money, 797–798; tive value, 488–489

807(131–133) use of invariable standard of value in can be of benefit to them, 648–650, quotations from concerning/showing/stat-his economic analysis, 537

671(109)

rise, a, in demand for machinery at the expense of the demand for labor is against the interests of wage earners, 639–641 rise, a, in wage rates reduces profits rather than raises prices, 800 use of fixed quantity of labor to produce an ounce of gold as basis of invariable standard of value, 537 view that land rent would constitute an ever increasing share of national income, 310–316

See also, below, “iron law of wages”; profit theory of quotation, in, from J. A. Hobson, 865 quotation, in, from John Stuart Mill on demand for commodities is not demand for labor, 684

“iron law of wages” xlvii-xlviii confusions and errors concerning, 494–495, 799–801 reservations concerning, 492–493 rent doctrine of, partly based on, 312, 473 labor theory of value, limitations set by, on, xlvii-xlviii, 486, 500(100), 604 differences in wage rates as a determinant of relative value, 489–490 exclusion of scarce goods, 487, and, logically, of labor, 488, 500(102) implicit recognition of changes in the rate of profit as a determinant of relative value, 489, 795 recognition of the time factor as a determinant of relative value, 488– 489 land-rent doctrine of, used by contemporary economics in treatment of recovery of fixed costs, 430 leading classical economist, 1 principle of resort to lands of progressively inferior fertility, 68, 311–312 profit theory of, merit, deficiencies, and errors in 797–801 profits and wages inverse relationship between, xlviii, 803 actual meaning of, 495–496 application of proposition in this book in critique of productivity theory of profit and interest in its traditional form, 798 connection with John Stuart Mill’s proposition “demand for commodities is not demand for labor, 479, 485, 798 contribution to critique of conceptual framework of Marxian exploitation theory, 479, 485 ing wages based both on demand and actual meaning he attached to “a fall supply and on cost of living, 494 in wages” and inverse relationship wage earners have ultimate power between profits and wages, 496 over wages, 495 capital can be increased without its Ricardo effect, critique of, 798–799 value increasing, even decreasing, Rights

819 See Individual rights, including property capital increased by rise in productiv-rights ity of labor as well as by saving, Rising prices, inflation of the money supply vs. 819 alternative theories of, 895–922 capital increased in same manner as demand/supply test for rising prices, elim-wealth, 634, 819 ination of falling supply, 897–907 changes in the rate of profit as a de-actual influence of supply has been to terminant of relative value, 489 reduce prices, 898 competition of sellers, based on cost falling supply as the cause of inflation of production, as direct determi-implies rapid disappearance of ma-nant of price of manufactured or terial civilization, 898–899 processed goods below point corre-falling supply as the cause of inflation sponding to direct utility, 414 implies that rising supply is a cause exclusion of scarce goods from labor of deflation and depression, 907 theory of value, 487 falling supply cannot explain the fall in rate of profit checked by fall in range of price increases that exists prices of wage earners’ necessities, under inflation, 899, 901

496 falling supply is incompatible with food becomes dearer with progress, the debtor/creditor effects associ-799 ated with inflation, 900, 901–907 implicit exclusion of labor from labor falling supply is the by-product of theory of value, 488 rapid increases in aggregate de-limitless desire to consume, and eco-mand, 899 nomic problem as creation of pur-where falling supply has contributed chasing power through increased to rising prices, its role has been production, 559–560 relatively minor, 898 market wages can be above subsis-critique/refutation of the cost-push doctence indefinitely, 492 trines natural price of labor as subsistence, cost-push doctrine in general, 907– 492 909 profits fall as wages rise, interpret-crisis-push variant, 913–915 able as preparing ground for net-profit-push variant, 911–913 consumption theory, 797 wage-price spiral variant, 915 rate of profit falls because of rising wage-push variant, 909–911 cost of living of wage earners, 496 critique/refutation of the velocity doc-rise in demand for labor always of trines benefit to wage earners, and thus basic velocity doctrine, 915–916 war and government spending can consumer-greed doctrine, 920 be of benefit to them, 648 consumer-installment-credit doc-rise in demand for machinery at the trine, 919 expense of the demand for labor is creditcard doctrine, 917–919 against the interests of wage earn-inflation-psychology doctrine, 916– ers, 639 917 rise in population raises cost of living Rivière, Mercier de la, 1 and wages, 494 Robertus, Karl, 6 rise in wage rates [italics supplied] Robinson Crusoe, 15, 125, 130, 326–327, 329, reduces profits rather than raises 426, prices, because of foreign trade, contrast of conditions of, with those of 800 division-of-labor society in connection rise in wages reduces profits, 495 with concept of productive activity, 466 subsistence has variable meanings, economics would not be helpful to, 15 492 Friday, and technological progress as reducing illustrate analysis of economic in—

Robinson, Joan INDEX equality, 326–327, 329 claims Stalin was devoted to peace, illustrate gains from concentrating on 11(13)

individuals’ productive advan-time-preference theory held by, 792 tages, 125 accepts conceptual framework of lack of money necessitates producing at Marxian exploitation theory, 792– level between, and inhabitants of To-793 bacco Road, 443 Russell, Bertrand, 35 quotation, in, from economics textbook, Russia

426 See Soviet Russia universal aspects of production apply to, Rust belt, 30, 885, 889

130 See also Capital accumulation, undermining analysis of allegedly excess invento-of, by government intervention and social-ries helped by examination of con-ism; Government intervention; United ditions of, 596 States, current economic decline of Robinson, Joan, 7, 787, 802–803, 808

Robinson, Swiss Family, 662

Rockwell, Llewellyn H., 116(18–20)

Romanticism, 107–108

Roosevelt, Franklin Delano, 288, 302, 593, Saccharin, 86

941 Sacrifice, 72–73, 82, 91, 103, 110, 114 Roscher, Wilhelm, 6, 787, 789 See also Altruism

Rothbard, Murray N., xliv, xlv, xlvi Safety

Austrian school member, 1 capitalism, price system and profit motive credit, explicit or by way of reference, for of, promote, 55, 79, 174–176, 642–644, analysis of role of government inter-645 vention in preventing fall in wage consumer-safety legislation raises costs rates in 1929 Depression, 589, and can reduce safety, 118(80), 176 602(87, 90) Sagan, Carl, 80, 95 discussion of monetary unit as a St. Francis of Assisi, 82, 112, 114, 281 weight of precious metal, 966(110) Saint-Simon, Henri de, 6 discussion of parallel standards, Sale, Kirkpatrick, 118(88)

966(118) Samuelson, Paul (and Nordhaus, William), pattern of achieving a 100–percent-textbook Economics, il reserve gold standard, 966(123) alleges technological progress raises and recognition of role of “hoarding” in lowers the average rate of profit, 558 speeding the adjustment process of claims technological progress, as opposed the fall in wages and prices that is to capital accumulation, deserves credit necessary to restore full employ-for most of the increase in production, ment, 717(39) 630–631, 777 recognition that a greater demand for conceals frequency with which following money for holding increases real marginal-cost pricing would entail stock of money and is only thing losses, by assumption concerning that can do so, 966(115) height of marginal cost, 434, 440(96) error of regarding changes in rate of critique of use of normal curve by, as profit/interest as affecting prices of argument against economic inequality, means of production only, 795, 336–337

807(124) displays modest awareness that potential errors concerning average period of pro-increases in competitors’ output can induction and capital accumulation, 824, crease elasticity of demand for given 860(29) firm, 439(49)

falling-rate-of-profit doctrine held by, erroneous application of mathematical xlvii, xlviii, 802, 860(29) economics to determination of con-disagreements with, concerning, sumer spending patterns by law of di-played important role in develop-minishing marginal utility, 62 ment of net-consumption theory falling prices held to constitute deflation, and related theory of capital accu-558 mulation, xlvii, xlviii, 802 ignores von Mises and Austrian school, fiduciary media, viewed issuance of, as 11(15)

fraudulent, 514, 541(18) “monopoly” and associated concepts of inflation, contradictory definitions of, “imperfect competition,” “marginal 964,(27) revenue,” and “marginal cost” the cen-marginal-physical-productivity doctrine ter of his analysis of price theory, 434 held by, 666 pricing based on marginal revenue 100–percent-reserve gold standard advo-and its comparison to marginal cost cated by, 514, 541(18) nevertheless admitted to be virtu-self-professed anarchist, 5 ally nonexistent, 416–417 supporter of Soviet Russia, l, 5, 11(13) whole significance of “monopoly”

1037 problem conceded to be trivial, 434 quotation(s) from admitting pricing based on marginal revenue and comparison to marginal cost virtually nonexistent, 417 admitting triviality of monopoly problem, 434 advocating government subsidies to producers to cover losses resulting from following marginal-cost pricing, 433 claiming capital accumulation results in diminishing returns, which drives down the rate of return unless offset by technological progress, 558 claiming deflation is falling prices [which technological progress operates to produce] and is associated with deep depression, 558 claiming technological progress deserves credit for most of the increase in production, as opposed to capital accumulation, 630–631, 777 claiming technological progress raises the rate of profit, 558, 630 distorting the essential claims of Keynes, 867 presenting contradictory statements about nature of GNP, 677 presenting imputed-income doctrine and alleged need to incorporate value of housewives’ services in measure of “net economic welfare,” 458 presenting multiplier doctrine, 690 presenting opportunity-cost doctrine and claiming that a profit is a loss, 459 presenting productivity theory of profit/interest, 788 propounding paradox-of-thrift doctrine, 884 reference(s) to, concerning alleged ideal of marginal-cost pricing and its violation by assorted “imperfect competitors,” according to, 427, 432–433 alleged significance of marginal cost, according to, 440(80)

assumption by, that marginal cost continuously rises, 440(87) balanced-budget-multiplier doctrine, 718(71)

behavior of “oligopolists,” according to, 390–391, 438(25–27)

belittling of the gold standard by, 600(38)

capital-output ratio, according to, 372(19)

claiming that profit/interest is determined by the supply of and demand for capital and that capital is a factor of production, 803(6)

“collusive oligopoly,” according to, 440(98, 100)

discussion/derivation of supply

1038 INDEX curves by, 171(62) source of capital accumulation, in-error of, that economies of scale pro-dependent of technological prog-vide the only economic justifica-ress, 557, 630, 838–840 tion for mergers, 438(35) reduced by budget deficits, 638, 829– examples by, of “monopolistic com-831, 927–928 petition,” 391 reduced by inflation, 110, 638, 930– exposition of investment-opportunity 937 doctrine by, 861(75) reduced by social security system, externalities doctrine in, 118(76) 22–23, 37(23), 638 government spending and taxes, di-reduced by taxation, especially of the vorce of connection between, in “rich,” 306–310, 636–637, 826– treatment by, 717(34) 829, 931–933 imputed-income doctrine in, 458 rise in relative demand for capital investment treated by as “autono-goods beyond maintenance propor-mous,” 717(33) tion caused by higher degree of, Keynesian-cross diagram in, 717(56) accelerates rate of capital accumu-Keynesian MEC-and-IS-curve doclation, 623–628, 809–812 trines held by, contradict warning role of, in, as that of force to acceler-by, against confusing increase in ation, not one to one, 622–630, quantity demanded with increase in 710–711, 809–814, 836, 839–840 demand, 879–880 cannot outrun the uses for, 56–58, 839, marginal-productivity theory of 856–859 wages in, 672(152) “distribution factor” depends on, 632–634 multiplier doctrine in, 690, 717(61), economic degree of capitalism depends 893(41) on, 478–480, 632–634 opportunity cost-doctrine in, 459–460 high rates of, out of high incomes ex-Phillips curve in, 602(85) plained, 741–743 relationship of national income and hoarding of cash as the cause of a reduc-NNP to GNP, 717(54) tion in, 693 saving treated by, as hoarding, 691 hoarding, vs., 691–694 treatment by, of inflation as caused how brings about greater capital inten-either by “demand pull” or by “cost siveness, 759–762 push” and consignment by, of in-land values as outlet for, 856–857 creases in the quantity of money to makes possible division of payments, the demand-pull category, 963(1), 140–141

964(14) necessity of, to make possible division of was student of Alvin Hansen, 600(32) labor, 139–141

See also Consumptionism; Capital accu-net, out of money income mulation, undermining of by govern-aggregate, tends to disappear under ment intervention; Government an invariable money, 834–835 intervention; Inflation; Keynesianism automatic adjustment of rate of, to Sargent, Thomas, 11(15) need for capital, 858–859

Saudi Arabia, 189, 235 illusion of variation of rate of, with Saving(s) height of income, 739–743 actual significance of, lies at gross level, perpetuated by increase in quantity of 835–836 money and volume of spending, capital accumulation, and 834–835 cause of rising productivity of labor perpetuation of net, out of money inand rising real wage rates, 132, come, accompanied by addition to 622–646, 809–824, 826 rate of profit, 836–837 degree of, determines demand for and operates to reduce demand for money for production of capital goods relative holding and thus to raise velocity of to consumers’ goods, 622–629, money, 518

809–812 productive expenditure, and thus the de-dependence of, on private ownership mand for capital goods and labor by of the means of production and re-business depend on, 478–480, 626, spect for property rights, 139, 300– 682–691, 694–695

303, 306–310, 622–641, 642, 644, ratio of accumulated, to consumption, in-651–654, 743–744, 826–829 come, sales revenues, and wages, sig-error of inadequate appreciation of nificant, 299, 302, 372(20), 631, role of, in, and simultaneous over-669(63), 670(71)

emphasis on role of, in, 556–558, role of, in spending, 682–708

622–636, 709, 836 source of increasing aggregate de-necessary to adoption of more ad-mand, both monetary and real, 698 vanced technologies, 132, 631– source of most spending, 694–696 632, 824 source of rising consumption, 698– prevailing error of viewing, as sole 699

Sargent, Thomas underlies productive expenditure, and thus the demand for capital goods and labor by business, 478–

480, 626, 682–691, 694–695 wage earners, of, used to finance purchase of consumers’ goods or has counterpart in such purchases, 699 time preference and, 58, 743–744

See also Capital accumulation; Capital intensiveness; Capital intensification, process of; Investment-opportunity doctrine, critique of; Keynesianism; Productionism; Productive Expenditure; Underconsumption/oversaving doctrine, critique of Saving function

See Keynesianism

Say, Jean Baptiste, xlvii, 1, 414, 599(3), 684 See also Say’s (James Mill’s) Law Say’s (James Mill’s) Law, xlii, 559–580 applies to errors in attack on piecework, 133(8), 656 average rate of profit, and, 569–573 implication of falling prices caused by increases in production and supply do not increase the demand for money for holding, 541(28), 574–

576 confirmation of, by cases apparently contradicting, 561–564 answer to objection concerning other goods not being exchanged for each other, 600(43)

confirms benevolent nature of economic competition, 373(100), 568 holds more supply to be the necessary and sufficient condition of more aggregate real demand, 171(50, 55), 559–561 how all adopters of an innovation can gain, even though effect is to cause decline in relative size of the industry as a whole, 568–569 implies that saving increases aggregate real demand, 698 invariablemoney concept validates, 538 marginal utility, law of diminishing and, 53–54, 568 partial, relative overproduction, never general or absolute overproduction, 564–569 referents of, 561–564

Capitalism: A Treatise on Economics

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