Economics: A Branch of Moral Philosophy; L.E. Read

Carl Snyder, longtime statisti cian of the Federal Reserve Board, exemplifies an economic "scien tist." He wrote an impressive book, Capitalism the Creator.l I agree with this author that capitalism is, indeed, a creator, providing untold wealth and ma terial benefits to countless millions of people. But, in spite of all the learned views to the contrary, I believe that capitalism, in its sig nificant sense, is more than Snyder and many other statisticians and economists make it out to be - far more. If so, then to teach that capitalism is fully explained in mathematical terms is to settle for something less than it really is. This leaves unexplained and vul1 Carl Snyder, Capitalism the Creator (New York: The Macmillan Company, 1940; Arno Press, 1972), 492 pp.

1972 ECONOMICS: A BRANCH OF MORAL PHILOSOPHY 23 nerable the real case for capital ism. Snyder equates capitalism with "capital savings." He explains what he means in his Preface: "The thesis here presented is simple, and unequivocal; in its general outline, not new. What is new, I would fain believe, is the proof; clear, statistical, and fac tual evidence. That thesis is that there is one way, and only one way, that ,any people, in all his tory, have ever risen from barbar ism and poverty to affluence and culture; and that is by that con centrated and highly organized system of production and exchange which we call Capitalistic: one w,ay, and one alone. Further, that it is solely by the accumulation (and concentration) of this Capi tal, and directly proportional to the amount of this accumulation, that the modern industrial nations have arisen: perhaps the sole way throughout the whole of eight or ten thousand years of economic history."

No argument - none whatsoever - as to the accomplishments of capitalism, or that it has to do with "capital savings." But what is capital? The Ideas Behind Capital The first answer that comes to mind is that capital means the tools of production: brick and mortar in the form of plants, elec tric and water and other kinds of power, machines of all kinds in cluding computers and other auto mated things, ships at sea and trains and trucks and planes - you name it! These things are indeed capital, but is capital in the sense of material wealth sufficient to tell the whole story of capitalism and its creative accomplishments or poten tiali ties'? Merely bear in mind that all of this fantastic gadgetry on which rests a high standard of living has its origin in ideas, inventions, dis coveries, insights, intuition, think of-thats, and such other unmeas urable qualities as the will to im prove, the entrepreneural spirit, intelligent self-interest, honesty, respect for the rights of others, and the like. These are spiritual as distinguished from material or physical assets, and always the former precedes and is respon sible for the latter. This is capital in its fundamental, originating sense; this accumulated wisdom of the ages - an overall luminosity - is the basic aspect of "capital savings."

It is possible to become aware of this spiritual capital, but not to measure, let. alone to fully under stand it - so enormous is its ac cumulation over the ages. Aware ness? Sit in a jet plane and ask what part you had in its m,aking.

24 THE FREEMAN January Very little, if any, even though you might be on the production line at Boeing. At most, you presssed a button that turned on forces about which you know next to nothing. Why, no man even knows how to make the pencil you used to sign a requisition. These "capital sav ings" put at your disposal an en ergy perhaps several hundred times your own. This accumulated energy - the workings of human minds over the ages - is capital! "Truly Scientific ll With this concept of capital in mind, reflect on how unrealistic are the ambitions of the "scien tific" economists. Carl Snyder phrases their intentions well in the concluding paragraph of his Pref ace: "It was inevitable, perhaps, that anything like a "social science" should be the last to develop. Its bases are so largely statistical that it was only with the development of an enormous body of new knowl edge that anything resembling a firmly grounded and truly scien tific system could be established.

It is coming ; already the most fundamental elements of this knowledge are now available, as the pages to follow will endeavor to set forth." (Italics added) Snyder is, indeed, statistical. He displays 44 charts. Nearly all of these show the ups and downsmostly ups - of physical assets in dollar terms. This, in his view, is a "truly scientific system." But how scientific can a measurement be if the units cannot be quanti fied and the measuring rod is as imprecise in value as is the dollar or any other monetary unit? And what is truly scientific about showing the growth in coal production, for instance, if there be a shift in demand favoring some other fuel? This would be only a pseudo-measurement with no more scientific relevance than a century-old chart showing the dol lar growth in buggy whip produc tion. Professor F. A. Hayek enlight ens us: "All the physical laws of produc tion" which we meet, e.g., in eco nomics, are not physical laws in the sense of the physical sciences but people's beliefs about what they can do.... That the objects of economic acti vity cannot be de fined in objective terms but only with reference to a, human pur pose goes without saying. Neither a 'commodity' or an 'economic good,' nor 'foods' or 'money,' can be defined in physical terms but only in terms of views people hold about things."2 2 See The Counter-Revolution of Sci ence by F. A. Hayek (New York: The Free Press of Glencoe, The Crowell-Col lier Publishing Co., 1964), p. 31.

1972 ECONOMICS: A BRANCH OF MORAL PHILOSOPHY 25 National Accounting Economic growth for a nation cannot be mathematically or sta tistically measured. Efforts to do so are highly misleading. They lead people to believe that a mere increase in the measured output of goods and services is, in and of it self, economic growth. This fallacy has led to the forced savings pro grams of centrally administered economic systems - programs which decrease the range of vol untary choice among individuals. This is the heart of the· failure of the socialistic policies of the un derdeveloped nations of Asia,Af rica, and Latin America. As Prof. P. T. Bauer has written so elo quently: "I regard the extension of the range of choice, that is, an increase in the range of effective alternatives open to people, as the principal objective and criterion of economic development; and I judge a measure principally by its probable effects on the range of alternatives open to individuals."3 Indeed, even an individual's eco nomic growth can no more be measured, exclusively, in terms of historical statistics than can his intellectual, moral,and spiritual growth. These ups and downs can not be defined in physical terms 3 P. T. Bauer, Economic Analysis and Policy in Underdeveloped Countries (Duke University Press and Cambridge University Press, 1957), p. 113.

but only in terms of views people hold about things. These views highly personal - are in constant fl ux ; you may care nothing to morrow for that which you high ly prize today. Once we grasp the point that the value of any good or service is whatever others will give in will ing exchange) and that the j udg ments of all parties to all ex changes are constantly and for ever changing, it should be plain that even physical assets - money, food, or whatever - do not lend themselves to measurements in the scientific sense. And when we further reflect on the fundamental nature of "capi tal savings,"- that they emerge out of ideas, inventions, insights, and the Iike-the idea of scien tific measurement becom~s pat ently absurd. In any event, it is this penchant to make a science of political econ omy, to reduce capitalistic be havior to charts, st.atistics, theo rems, arbitrary sysmbols, that leads to such nonsense as the Gross National Product (GNP), "national goals" and "social gains."4 The more pronounced this 4 For more on the GNP fallacy and how economic growth cannot be "factu ally" reported, see "A Measure of Growth" in my Deeper Than You Think (Irvington-on-Hudson, N. Y.: The Foun dation for Economic Education, Inc., 1967), pp. 70-84.

26 THE FREEMAN January trend, the less will the economics of capitalism and the free society be understood - "a dismal sci ence," for certain. Indeed, could the ambitions of the "scientific economists" be realized, dicta tor ship would be a viable political sys tem. At the dictator's disposal would be all the formulae, all the answers; disregarding personal views and choices, he would simply run his information through com puters and thus meet production schedules. When we grasp the point that no man who ever lived has been able to foresee his own future choices, let alone those of others, economic scientism, as it might be called, makes no sense. Man' 5 Arrogance How did we ever get off on this untenable course? Perhaps we can only speculate. A flagrant display: At one point in a recent Seminar discussion I repeated, "Only God can make a tree." And then this exclamation by a graduate student, "Up until now!" This, it appears to me, is the reflection of a notion, so prevalent in the eighteenth and nineteenth centuries, that every facet of Creation, even life itself, lies within the powers of man.

Merely a matter of time! To tear human action asunder and then to assign symbols or labels to the pieces, as the scientists properly do with the chem ical elements, is no service to eco nomic understanding. This meth od makes understanding impos sible for the simple reason that it presupposes numerous phases of human action that can be mathe matically or scientifically distin guished one from the other when such is not the case. Why am I moti vated to write this or you to read it? Doubtless, each of us can render a judgment of sorts but it will not be, cannot be, in the lan guage of science. Political economy is as easy or, perhaps, as difficult to understand and practice as the Golden Rule or the Ten Commandments. Econom ics is no more than a study of how scarcity is best overcome, and the first thing we need to realize is that this is accomplished by the continued application of human action to natural resources.

Natural resources are what they are, no more, no less - the ulti mate given! The variable is hu man action. Political economy, then, re solves itself into the study of what is and what is not intelligent human action. It should attempt to answer such questions as:. Is creative energy more effi ciently released among free or co erced men? Is freedom to choose as much a right of one as another?

1972 ECONOMICS: A BRANCH OF MORAL PHILOSOPHY 27 Who has the right to the fruits of labor - the producer or nonpro ducer? How is value determined - by political authority, cost of produc tion, or by what others will give in willing exchange? What actions of men should be restrained - creative actions or only destructive actions? How dependent is overcoming scarcity on honesty, respect of each for the rights of others, the entrepreneurial spirit, intelligent intepretation of self-interest? Viewed in this manner, politiFreedom, an Illusion cal economy is not a natural sci ence like chemistry or physics but, rather, a division of moral phi losophy - a study of what is right and what is wrong in overcoming scarcity and maximizing pros perity - the problem to which it addresses itself. Once we drop the "scientific" jargon and begin to study politi cal economy for what it really is, then its mastery becomes no more difficult than understanding that one should never do to others that which he would not have· them do unto him. II IDEAS ON LIBERTY FREEDOM is an illusion, though an important one; in any society, restraints and restrictions, obligations and compulsions are the realities.

"Free as the wind" is such an illusion. Consider the restraints and restrictions and obligations and compulsions. For wind is nothing but air being pushed from areas of high pressure to low, cold and heavy air displacing warmer and lighter air, its course modified by solid objects of nature and man in its path, subject to all the laws of gases, gravity, mass, matter, and so on. The illusion of freedom has been broad indeed in America with its unique government of limited and specific powers - limiting the restraints and restrictions, the obligations and compulsions to which Americans might be subjected. No such illusions of freedom persist in totalitarian societies, be they Communist, Fascist, So cialist or whatever. For it is made abundantly clear that the people subject to these regimes are free only to support and serve the state, with ample restraints and restrictions to shatter any other illusions of freedom.

Why is this illusion of freedom so vitally important? Because the more free men feel to serve. themselves, their fellows, and their Creator, the better they do in fact serve all. J. KESNER KAHN, Chicago, Illinois MORALITY and CONTROLS MOST DISCUSSION of the wage price freeze and the coming Phase II controls has been strictly eco nomic and operational: were they needed, will they work, how will they operate. I have recorded my own opposition to them in three columns-in N eW8week. There has been essentially no discussion of a much more funda mental issue. The controls are deeply and inherently immoral. By substituting the rule of men for the rule of law and for voluntary cooperation in the marketplace, the controls threaten the very foundations of a free society. By encouraging men to spy and re port on one another, by making it Dr. Friedman, Professor of Economics, Uni versity of Chicago, needs no introduction to FREEMAN readers.