The Hazlitt Series
This latest stewardship post is a continuation of our monthly exploration and modern application of the economic writer Henry Hazlitt, and his seminal work, Economics in One Lesson. This work draws heavily upon the insights of the great French economist Frederic Bastiat. His key insight was to look at that which is not seen. So, for example, do not simply look at the benefits of a trade restriction of say wool, but also look at the costs to the rest of the economy. Hazlitt updates this insight with a more modern take to look not just at the short-run effects on a small group, but also the long-term effects for the whole economy. Hazlitt then applies this lesson to a variety of topics. Each installment will pay homage to this superbly clear economic thinker and writer by applying each of his applications to our world today.
The Fallacy
The fallacy discussed in this month’s lesson is that the goal of an economy is full employment. That sounds reasonable enough. I mean, we all want jobs for people. Everyone wants to feel productive, and useful. We all admire those who produce something of value and provide for themselves and their families. We, of course, want all those things for our neighbors as well. It may be counterintuitive to state this, but this idea is a fallacy.
The Reality
The preeminent economic goal is not full employment, but rather full production. The production of more goods and services is the sine qua non of economic prosperity. Progress toward that goal is measured by more production with less effort. This is why humanity invented and utilizes labor saving devices.
The rational goal is full production. The by-product of this is full employment. Full employment, at least for those who wish it. In fact, much of human economic development since the start of the industrial revolution around 1750 has been about reducing employment. Humanity got productive enough to get rid of child labor, as well as dramatically reduce the length of the average workday, and week.
Production of goods and services to consume is the goal, and employment becomes the means. We cannot have full production without full employment (again, as full as people voluntarily choose). Conversely, we can have full employment without full production. Primitive societies have full employment. There is a task for everyone, just not much in the way of produced goods to consume. Authoritarian societies usually have full employment. Everyone had a job in the Soviet Union. Too bad the shops were mostly empty.
There is an anecdote, which may not be true, but is apocryphal. Milton Friedman was touring China shortly after they began to liberalize their economy in the late 1970s. He was visiting a construction site. He asked why the workers were using hand shovels rather than bulldozers and other similar equipment. He was told by the Chinese official that this was so they could provide more people with jobs. Friedman replied that if it is just about jobs, then equip more workers with spoons. This anecdote clearly reveals the fallacy in all its silliness.
The truth of human history, as we saw in the previous lesson about The Curse of Machinery, is that there is not a fixed amount of work to do, and becoming more productive has not cost us jobs, as billions more people are employed today than in the past.
A Rational Response
A rational response would be to recognize “the fetish of full employment” as just that, a fetish. It is an idea that superficially has appeal but is in reality intellectually bankrupt. If we fall prey to this fallacious fetish, we will end up with silly make work programs that act in the same deleterious manner as we saw in the lesson regarding “spread the work schemes”.
These erroneous policy prescriptions will do damage to the only way we can generate full employment, the ever-greater production of more goods and services. This increase in goods and services production will come about by the provision of more and better tools that make us more productive. These tools go by the economic term capital. Capital formation occurs when people first save some of their current production to provide the resources to create these tools (capital). This process (of increasing per capita capital investment) is maximized when you liberalize markets and allow people to freely interact in such a way as to allow for capital formation, and thus wealth creation. In short, leave people alone to do what humans have always done, truck and barter.
As people seeking to emulate Christ, we strive to do what is right and just. The corollary to this is that to do what is just, we must do what works, trusting that what works is also in alignment with the Golden Rule. Exploding silly fallacies and turning instead to practices that provide material prosperity for an increasing number of God’s children is such good stewardship in practice.
Praise Be to God
