In the world of ideas, starting with human survival on planet earth, words mean things. In the primordial world of human awareness, those words were “do something”. To choose to live is volitional, reality exists, and man must act rationally. Our capacity for reason is our only means of survival, and rational self-interest leads to positive action. To do something means production; the creation of values for managing risk and improving lives.
Over 2000 years after Aristotle Ethic’s was published, in 1803, French classical economist Jean-Baptiste Say codified production as the Law of Markets – production creates its own demand. He identified entrepreneurs as the producers who anticipate consumer wants and the business risks of production and distribution. The successful ones become consumers with their earnings, and replace their soft money with useful goods before its value erodes.
Political economist Richard Salsman explains this principle with brevity, “Say’s Law is the root of all other economic law,” and with levity, “the Supply-Side is the only side.”
While the economics of production, trade and sound money was building a world on the solid foundation of objective Enlightenment ideals, the politics of consumption, force and soft money was fabricating a house of cards framed by subjective Postmodern ideology. The former was rooted in self-creation, the latter in self-sacrifice. Reason or hope. Purpose or guilt. Pride or mediocrity. Either-Or.
Choosing life over death, Poetic Justice Warriors do not sanction their own victimhood. Instead, borrowing Ludwig von Mises call to action, “do not give in to evil but proceed ever more boldly against it”, Libertarian entrepreneur and supply-side economist Mark Skousen is doing something, starting with his book, The Structure of Production.
Pandering Politicos vs. Producers
During the early 20th century’s Great Depression (caused by hamfisted intrusion in markets), John M. Keynes General Theory became the dominant force for central economic planning. Philosophically, politics is downstream from ethics, and authoritarian leadership knew that control of American universities was essential for public relations. With proponents of Keynesian theory in charge, government and bank economists became enraptured with the demand-side politics of Gross Domestic Product (GDP) and Consumer Price Index (CPI) metrics.
In response, and standing on the shoulders of Henry Hazlitt and Murray Rothbard, Mark Skousen had better ideas, and did something. He promoted Gross Output (GO) as an objective method for measuring economic strength. As he describes it, GO is the top line of economic income accounting, like gross revenue is the top line of the income statement for a business. In contrast, GDP is the bottom line. It only measures end-user spending by consumers, government, and business investment (less depreciation).
The significance of the GO achievement in fighting political force cannot be overstated. Contrary to popular Keynesian dogma, consumer spending does not dominate total economic activity (70% in the GDP calculation), and its trends are not the primary indicator of economic growth. Economics professor Ken Schoolland summarizes,
Skousen’s GO model demonstrates that business investment, not consumer spending, drives the economy, thus confirming Say’s Law. In April 2014, the Bureau of Economic Analysis began publishing GO, the first new macro statistic since GDP in the 1940s.
Gross Output proves that business supply chain spending is double that of consumer spending, not the other way around. The reason why GDP and CPI dominate Fed policy, academic research, and financial media is because consumers vote, politicians pander, and influence peddling pays well. In soft money, of course.
Objectively speaking, the supply-side of private sector production creates wealth and pays for everything, including government. In its role as an end-user consumer, government can only destroy wealth and trade influence. It’s a closed system of bribes and threats. Independent, problem-solving innovation need not apply. To do this, the political class triangulates fellow consumers as victims, themselves as benefactors, and the private sector as villains. The most insidious gambit of all is to coerce producers into accepting the fallacy of unearned guilt for their earned profits.
Skousen was not fooled, and did something unique. His college economics textbook opens with the Austrian profit model, and showcases profit as the basis for market processes, entrepreneurship, and savings. As the publisher of Economic Logic explains,
They said it couldn’t be done. Austrian economics is so different. That it couldn’t be integrated into standard “neo-classical” textbooks. Consequently, college students learn nothing about the great Austrian economists. Economic Logic aims to change that.
In order to effect positive change, its necessary to identify the false premises of problems in need of correction. In the case of college economics courses, the dominant text is Paul Samuelson’s Economics, despite its false perfect competition model for microeconomics, and aggregate supply and demand models for macroeconomics. In response, Skousen dismisses them with sound principles based on evidence, propositions, and the testing of his Austrian school predecessors such as Carl Menger, and his own business experience. In other words, logic, and the title of the text.
In the chapters on macroeconomics that deal with interest rates and money supply, Schoolland summarizes,
Economic Logic also has chapters missing in other textbooks: the origin of money, an international gold standard, the Mises/Hayek theory of the business cycle, entrepreneurship, financial markets, and a review of major schools of economics.
It is in this section that Skousen integrates top-line Gross Output and bottom-line Gross Domestic Product with Friedrich Hayek‘s economic model, and gives his words meaning for the first time in a college textbook.
The Pits and the Pendulum
In his 2009 book The Making of Modern Economics, Skousen skewers Robert Heilbroner’s The Worldly Philosophers, and sets the record straight about economic virtue and vice. Heilbroner had conveniently placed Keynes’ war-and-welfare government spending in the ideal center (the pits) of a hypothetical pendulum’s arc. The extreme left and right ends were Karl Marx’s communism and Adam Smith’s capitalism. To American education and media propagandists, this made sense.
To active minds that actually have sense, Heilbroner was ripping off Aristotle’s model for virtuous behavior – the left extreme is excess, the right extreme is defect, and Aristotle’s ideal center was moderation. In Heilbroner’s case, he is equivocating Marx and Smith as marginal extremists in order to rationalize demand-side redistribution as the ideal center. This is how the subjective morality of Postmodernism works. Virtue and vice are indistinguishable, those with ability owe a duty to anyone who claims need, and risk must be eliminated through the power of the state, in the name of social justice.
In reality, government attempts to eliminate risk only increase risk. If an entrepreneur makes a mistake, he pays. The private sector can’t afford to avoid reality. If a bureaucrat makes a mistake, you pay, they operate in a closed system. There is no doubt that we will all pay for today’s subjective, Wuhan virus fear inspired, forced shutdown of supply-side, life-sustaining production. Their feeble replacement, demand-side spending through the CARES Act, will only extend and magnify the consequences of avoiding reality.
Frederic Bastiat declared in the 1830s, Pick up the torch of Say’s Law! And as Poetic Justice would have it, Mark Skousen is doing just that. His FreedomFest world of ideas is in three months, in Las Vegas, and none too soon. It’s time, as always, to do something productive.