And they see a post-war worldmade certainly prosperous by an enormous "accumulated" re-or "backed-up" demand.. In-But if we get past this point, there is a chance for other fallacy, and
Trang 1by learned statisticians using the most refined techniques,
by professors of economics in our best universities In theirvarious ways they all dilate upon the advantages of de-struction
Though some of them would disdain to say that thereare net benefits in small acts of destruction, they see almostendless benefits in enormous acts of destruction They tell
us how much better off economically we all are in war than
in peace They see "miracles of production" which it quires a war to achieve And they see a post-war worldmade certainly prosperous by an enormous "accumulated"
re-or "backed-up" demand In Europe they joyously count
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the houses, the whole cities that have been leveled to theground and that "will have to be replaced." In Americathey count the houses that could not be built during thewar, the nylon stockings that could not be supplied, theworn-out automobiles and tires, the obsolescent radios andrefrigerators They bring together formidable totals
It is merely our old friend, the broken-window fallacy,
in new clothing, and grown fat beyond recognition Thistime it is supported by a whole bundle of related fallacies
It confuses need with demand The more war destroys, the
more it impoverishes, the greater is the post-war need dubitably But need is not demand Effective economicdemand requires not merely need but corresponding pur-chasing power The needs of China today are incompa-rably greater than the needs of America But its purchas-ing power, and therefore the "new business" that it canstimulate, are incomparably smaller
In-But if we get past this point, there is a chance for other fallacy, and the broken-windowites usually grab it.They think of "purchasing power" merely in terms ofmoney Now money can be run off by the printing press
an-As this is being written, in fact, printing money is theworld's biggest industry—if the product is measured inmonetary terms But the more money is turned out in thisway, the more the value of any given unit of money falls.This falling value can be measured in rising prices of com-modities But as most people are so firmly in the habit ofthinking of their wealth and income in terms of money,they consider themselves better off as these monetary totals
Trang 3THE BLESSINGS OF DESTRUCTION 15
rise, in spite of the fact that in terms of things they mayhave less and buy less Most of the "good" economic re-sults which people attribute to war are really owing to war-time inflation They could be produced just as well by anequivalent peacetime inflation We shall come back to thismoney illusion later
Now there is a half-truth in the "backed-up" demandfallacy, just as there was in the broken-window fallacy.The broken window did make more business for the glazier.The destruction of war will make more business for theproducers of certain things The destruction of houses andcities will make more business for the building and con-struction industries The inability to produce automobiles,radios, and refrigerators during the war will bring about
a cumulative post-war demand for those particular products.
To most people this will seem like an increase in total
demand, as it may well be in terms of dollars of lowef purchasing power But what really takes place is a diversion
of demand to these particular products from others Thepeople of Europe will build more new houses than other'wise because they must But when they build more housesthey will have just that much less manpower and produc-tive capacity left over for everything else When they buyhouses they will have just that much less purchasing powerfor everything else Wherever business is increased in onedirection, it must (except insofar as productive energiesmay be generally stimulated by a sense of want andurgency) be correspondingly reduced in another
The war, in short, will change the post-war direction of
Trang 4i6 ECONOMICS IN ONE LESSON
effort; it will change the balance of industries; it willchange the structure of industry And this in time will alsohave its consequences There will be another distribution
of demand when accumulated needs for houses and otherdurable goods have been made up Then these temporarilyfavored industries will, relatively, have to shrink again, toallow other industries filling other needs to grow
It is important to keep in mind, finally, that there willnot merely be a difference in the pattern of post-war ascompared with pre-war demand Demand will not merely
be diverted from one commodity to another In most tries it will shrink in total amount
coun-This is inevitable when we consider that demand andsupply are merely two sides of the same coin They are thesame thing looked at from different directions Supplycreates demand because at bottom it is demand The sup-ply of the thing they make is all that people have, in fact,
to offer in exchange for the things they want In this sensethe farmers' supply of wheat constitutes their demand forautomobiles and other goods The supply of motor carsconstitutes the demand of the people in the automobile in-dustry for wheat and other goods All this is inherent inthe modern division of labor and in an exchange economy.This fundamental fact, it is true, is obscured for most, people (including some reputedly brilliant economists)
through such complications as wage payments and the direct form in which virtually all modern exchanges aremade through the medium of money John Stuart Mill andother classical writers, though they sometimes failed to take
Trang 5in-THE BLESSINGS OF DESTRUCTION IJ
sufficient account of the complex consequences resultingfrom the use of money, at least saw through the monetaryveil to the underlying realities To that extent they were inadvance of many of their present-day critics, who are be-fuddled by money rather than instructed by it Mere in-flation—that is, the mere issuance of more money, with
the consequence of higher wages and prices—may look
like the creation of more demand But in terms of theactual production and exchange of real things it is not Yet
a fall in post-war demand may be concealed from manypeople by the illusions caused by higher money wages thatare more than offset by higher prices
Post-war demand in most countries, to repeat, will shrink
in absolute amount as compared with pre-war demand cause post-war supply will have shrunk This should beobvious enough in Germany and Japan, where scores ofgreat cities were leveled to the ground The point, in short,
be-is plain enough when we make the case extreme enough
If England, instead of being hurt only to the extent shewas by her participation in the war, had had all her greatcities destroyed, all her factories destroyed and almost allher accumulated capital and consumer goods destroyed.,
so that her people had been reduced to the economic level
of the Chinese, few people would be talking about thegreat accumulated and backed-up demand caused by thewar It would be obvious that buying power had beenwiped out to the same extent that productive power hadbeen wiped out A runaway monetary inflation, liftingprices a thousandfold, might none the less make the "na~
Trang 6i 8 ECONOMICS IN ONE LESSON
tional income" figures in monetary terms higher than fore the war But those who would be deceived by thatinto imagining themselves richer than before the warwould be beyond the reach of rational argument Yet thesame principles apply to a small war destruction as to anoverwhelming one
be-There may be, it is true, offsetting factors Technologicaldiscoveries and advances during the war, for example, mayincrease individual or national productivity at this point
or that The destruction of war will, it is true, divert war demand from some channels into others And a cer-tain number of people may continue to be deceived in-definitely regarding their real economic welfare by risingwages and prices caused by an excess of printed money.But the belief that a genuine prosperity can be broughtabout by a "replacement demand" for things destroyed
post-or not made during the war is none the less a palpablefallacy
Trang 7C H A P T E R I V
P U B L I C W O R K S MEAN T A X E S
THERE is no more persistent and influential faith inthe world today than the faith in government spend-ing Everywhere government spending is presented as apanacea for all our economic ills Is private industry par-tially stagnant? We can fix it all by government spending
Is there unemployment? That is obviously due to ficient private purchasing power/' The remedy is just asobvious All that is necessary is for the government tospend enough to make up the "deficiency."
"insuf-An enormous literature is based on this fallacy, and, as
so often happens with doctrines of this sort, it has becomepart of an intricate network of fallacies that mutually sup-port each other We cannot explore that whole network
at this point; we shall return to other branches of it later.But we can examine here the mother fallacy that has givenbirth to this progeny, the main stem of the network.Everything we get, outside of the free gifts of nature,must in some way be paid for The world is full of so-called economists who in turn are full of schemes for get-ting something for nothing They tell us that the govern-ment can spend and spend without taxing at all; that it cancontinue to pile up debt without ever paying it off, because
19
Trang 82O ECONOMICS IN ONE LESSON
"we owe it to ourselves/' W e shall return to such dinary doctrines at a later point Here I am afraid that we shall have to be dogmatic, and point out that such pleasant dreams in the past have always been shattered by national insolvency or a runaway inflation Here we shall have to say simply that all government expenditures must eventu- ally be paid out of die proceeds of taxation; that to put off the evil day merely increases the problem, and that infla- tion itself is merely a form, and a particularly vicious form,
extraor-of taxation.
Having put aside for later consideration the network of fallacies which rest on chronic government borrowing and inflation, we shall take it for granted throughout the pres- ent chapter that either immediately or ultimately every dollar of government spending must be raised through a dollar of taxation Once we look at the matter in this way, the supposed miracles of government spending will appear
in another light.
A certain amount of public spending is necessary to form essential government functions A certain amount of public works—of streets and roads and bridges and tun- nels, of armories and navy yards, of buildings to house legislatures, police and fire departments—is necessary to supply essential public services With such public works, necessary for their own sake, and defended on that ground alone, I am not here concerned I am here concerned with public works considered as a means of "providing em- ployment" or of adding wealth to the community that it would not otherwise have had.
Trang 9per-PUBLIC WORKS MEAN TAXES 21
A bridge is built If it is built to meet an insistent publicdemand, if it solves a traffic problem or a transportationproblem otherwise insoluble, if, in short, it is even morenecessary than the things for which the taxpayers wouldhave spent their money if it had not been taxed awayfrom them, there can be no objection But a bridge builtprimarily "to provide employment" is a different kind ofbridge When providing employment becomes the end,need becomes a subordinate consideration "Projects" have
to be invented Instead of thinking only where bridges must
be built, the government spenders begin to ask themselves
where bridges can be built Can they think of plausible
reasons why an additional bridge should connect Eastonand Weston? It soon becomes absolutely essential Thosewho doubt the necessity are dismissed as obstructionistsand reactionaries
Two arguments are put forward for the bridge, one ofwhich is mainly heard before it is built, the other of which
is mainly heard after it has been completed The first ment is that it will provide employment It will provide,say, 500 jobs for a year The implication is that these arejobs that would not otherwise have come into existence.This is what is immediately seen But if we have trainedourselves to look beyond immediate to secondary conse-quences, and beyond those who are directly benefited by agovernment project to others who are indirectly affected,
argu-a different picture presents itself It is true thargu-at argu-a pargu-articu-lar group of bridgeworkers may receive more employmentthan otherwise But the bridge has to be paid for out of
Trang 10particu-2 particu-2 ECONOMICS IN ONE LESSON
taxes For every dollar that is spent on the bridge a dollarwill be taken away from taxpayers If the bridge costs
$1,000,000 the taxpayers will lose $i,ooo,ooo They willhave that much taken away from them which they wouldotherwise have spent on the things they needed most.Therefore for every public job created by the bridgeproject a private job has been destroyed somewhere else
We can see the men employed on the bridge W e canwatch them at work The employment argument of thegovernment spenders becomes vivid, and probably for mostpeople convincing But there are other things that we donot see, because, alas, they have never been permitted tocome into existence They are the jobs destroyed by the
$1,000,000 taken from the taxpayers All that has
hap-pened, at best, is that there has been a diversion of jobs
because of the project More bridge builders; fewer mobile workers, radio technicians, clothing workers,farmers
auto-But then we come to the second argument The bridgeexists It is, let us suppose, a beautiful and not an uglybridge It has come into being through the magic of govern-ment spending Where would it have been if the obstruc-tionists and the reactionaries had had their way? Therewould have been no bridge The country would have beenjust that much poorer
Here again the government spenders have the better ofthe argument with all those who cannot see beyond theimmediate range of their physical eyes They can see thebridge But if they have taught themselves to look for in-
Trang 11PUBLIC WORKS MEAN TAXES 23
direct as well as direct consequences they can once moresee in the eye of imagination the possibilities that havenever been allowed to come into existence They can seethe unbuilt homes, the unmade cars and radios, the un-made dresses and coats, perhaps the unsold and ungrownfoodstuffs To see these uncreated things requires a kind
of imagination that not many people have We can think
of these non-existent objects once, perhaps, but we not keep them before our minds as we can the bridge that
can-we pass every working day What has happened is merelythat one thing has been created instead of others
I do not intend to enter here into all the pros and cons
of public housing I am concerned only to point out theerror in two of the arguments most frequently put for-ward in favor of public housing One is the argumentthat it "creates employment"; the other that it createswealth which would not otherwise have been produced