Menger on Wealth and Prosperity

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger and the Teleological Nature of Economics

The following are Menger's main points in his discussion on wealth:

• A person's wealth, as defined by Menger, is the sum of economic goods at that person's command.
• Things with no economic character, even if they are goods, are not wealth.
• Wealth, according to this definition, does not measure quantity of goods or human welfare. An increase in goods (and thereby an increase in welfare) can lead to a decrease in wealth.
• Trust funds are not wealth, because they are not economized.
• "Public wealth" are economic goods owned by the state and economized for the ends of the state.
• "National wealth" is a misnomer, because the composite of individual economic actors is not itself an economic actor. What is called "national wealth" is really what Menger calls "a complex of wealths linked together by human intercourse and trade."

One of the most destructive misconceptions held by economic thinkers today is the conflation of wealth and prosperity. It is thought that the fewer economic goods (the sum of which is wealth) on the market there are, the worse-off people must be. This is one of the motivations behind the constant demands for the state to "stimulate" the economy into producing more economic goods, and thereby, purportedly, greater prosperity. As Menger here shows, wealth (the sum of economic goods) is NOT prosperity. Advancing techniques and technology, as Menger earlier showed, do indeed tend to turn non-economic goods into economic ones. But that is the result of finding ways of using resources more effectively, which increases welfare by more abundantly providing for real needs. More economic goods qua economic goods do not make people more prosperous.

(A) Vibrancy and prosperity in a society leads to (B) technical innovations which lead to (C) certain particularly useful economic goods (and thereby an increase in wealth) which lead back to (A). But (C) only leads to (A) because the new goods are particularly useful, not by virtue of the mere fact that they are economic goods. The muddle-headed economist sees the conjunction of prosperity, technical innovation, and economic goods, and concludes that an increase in economic goods (ANY economic goods) will in-and-of-itself magically give rise to the other two. And thus, according to this completely backward theory, the government can "stimulate" a virtuous circle of growth by funneling resources mindlessly into the creation of more economic goods. In reality, all this "pushing on a string" does is waste resources and thereby destroy true prosperity for the sake of a meaningless increase in the statistics of wealth.

This is the kind of folly endemic to the economic profession's ridiculous fascination with equilibrium models and complete abandonment of the careful study of causation.

Next in this series: Value Theory Before Menger

Menger and the Teleological Nature of Economics

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Economic Character of Higher Order Goods and the Deductive Method of Menger

Thus far, Menger has established that higher order goods only have goods character and economic character by virtue of the goods character and economic character of their corresponding lower order goods. Before Menger, many economists had this exactly backwards, perhaps falling for the common vanity of wanting to give their science the airs of physics. Perhaps they thought that, since a higher order good is prior to its corresponding lower order good, then the former must impart its value to the latter, like a cue ball imparting its energy to an 8-ball. As Menger showed, the proper way of thinking about economics is not the mechanistic analysis of impulsion and impact, but the teleological analysis of ends and means.

Next in this series: Menger on Wealth and Prosperity

Economic Character of Higher Order Goods and the Deductive Method of Menger

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Natural Communism

the existence of requirements for goods of higher order is dependent upon the corresponding goods of lower order having economic character.

If goods of lower order do not have economic character, then there would be no need to produce more of them (there are already plenty), and therefore, there is no requirement for the higher order goods used to produce them. And a good with no requirements necessarily can have no economic character, since quantities necessarily exceed requirements. Therefore...

the economic character of goods of higher order depends upon the economic character of the goods of lower order for whose production they serve. In other words, no good of higher order can attain economic character or maintain it unless it is suitable for the production of some economic good of lower order.

This is a nice, simple example of Menger's use of formal logic, and how Menger's method (like all good economics) is deductive. Let the following letters represent the following corresponding terms:

A: Higher order goods with non-economic corresponding lower order goods
B: Goods with no requirements
C: Goods with more available quantities than requirements
D. Non-economic goods

What Menger is saying is basically the following syllogism:
All A's are B's. All B's are C's. All C's are D's. Therefore, all A's are D's.

Next in this series: Menger and the Teleological Nature of Economics

The Racket and the Cult

As I argued in my post The Sword and the Lie, the state is a symbiosis of violent criminals (the sword) and propagandizing intellectuals (the lie).

The sword needs the lie. Rulers always outnumber the ruled, so a reign predicated on bald criminality (like a protection racket) would shortly be overthrown. To maintain its power, a regime must transmute murder into justice, tribute into taxation, and slavery into citizenship in the minds of its subjects. To do that, it needs intellectuals.

The lie needs the sword. Elaborate scams based on lies and manipulations (like cults) are difficult to maintain. Eventually some people begin to see through the lies and speak out. To keep its hold on its flock, an elite must be able to silence or coerce dissenters. To do that, it needs thugs.

So which came first in the original state, the racket or the cult? And how did the first-comer bring its partner into the scheme?

Let us consider the sword preceding the lie. Thomas Paine speculated that:

“It could have been no difficult thing in the early and solitary ages of the world, while the chief employment of men was that of attending flocks and herds, for a banditti of ruffians to overrun a country, and lay it under contribution. Their power being thus established, the chief of the band contrived to lose the name of robber in that of monarch; and hence the origin of monarchy and kings.”¹

But how exactly could the bandit chief have established such false legitimacy? The easiest thing to do what have been to brainwash the children. While the banditti’s first “subjects” would never forget the criminal basis of their subjugation, the malleable minds of their children could be molded to accept just about anything. And as keeping brains sufficiently washed became a bigger part of the enterprise, some of the bandits may have come to specialize in it. Thus, through division of labor, might the sword have begotten the lie.

How, then, might the lie have given rise to the sword? That question is easier to answer, because we’ve seen this happen in our own age. After the cult leader Jim Jones had acquired enough influence over his flock and managed to lead it into isolation from the rest of the world, it was quite easy for him to arm his most loyal supporters and thus gain coercive control over the rest. One can imagine a similar development happening in antiquity.

In fact, as I will argue in my next post, I believe just such a development was indeed the origin of the very first state in the world.

---

¹ Thomas Paine, excerpted from Liberty and the Great Libertarians, edited by Charles T. Sprading

 

Brigands as Hunters of Men; Magistrates as Farmers

Hunting and livestock farming are both ways of coercively exploiting animals. The fundamental difference is that farming is stationary and involves the "breaking in" of the animal.

Aristotle thought of brigands as basically hunters.

Others support themselves by hunting, which is of different kinds. Some, for example, are brigands¹

This makes perfect sense. And if brigands are hunters, then statesmen are farmers.
Watch the video below by Stefan Molyneux to see how:

1. Nation-states are farms
2. Citizens are livestock
3. Public schools are training pens
4. States allow certain freedoms only because of the greater productivity of "free-range livestock"

It is a crime against natural justice that we be treated as livestock. As Thomas Jefferson said,

"the mass of mankind has not been born with saddles on their backs, nor a favored few booted and spurred, ready to ride them legitimately."

¹ Aristotle, Politics, Book 1

Menger on Natural Communism

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Economic vs. Non-Economic Goods

As discussed before, economic goods (goods for which requirements exceed available quantities) necessitate the existence of property in a society. Non-economic goods (goods for which available quantities exceed requirements), on the other hand, do not. A man will not feel the need to secure non-economic goods as property, because "even if all other members of society completely meet their requirements for these goods, more than sufficient quantities will still remain for him to satisfy his needs." Thus only with non-economic goods is true communism possible (not the false communism of modern times in which the effective property-holding of the ruling caste simply goes by other names), and indeed generally actual. Hesiod and his fellow Boeotians were communists when it came to the forests of Mount Helicon. And we are all communists when it comes to air and light.

Next in this series: Economic Character of Higher Order Goods and the Deductive Method of Menger

Menger on Economic vs. Non-Economic Goods

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Property

If a good is scarce (that is, if requirements for it exceed its available quantities), then it is an economic good, which is to say it is economized.

If a good is not scarce (that is, available quantities exceed requirements for it), then it is a non-economic good, which is to say it is not economized.

For Hesiod, in Works and Days, grain is an example of an economic good. He warns Perses to:

1. try not to lose it ("measure it and store it in jars. And so soon as you have safely stored all your stuff indoors...")
2. try not to break it ("if you plough the good ground at the solstice, you will reap sitting, grasping a thin crop in your hand")
3. try to prioritize what he uses it for ("Let a brisk fellow of forty years follow them, with a loaf (of bread) of four quarters and eight slices for his dinner")
4. try to use it as efficiently as possible ("No younger man will be better than he at scattering the seed and avoiding double-sowing")

And for Hesiod, good wood during the autumn is a non-economic good ("There are lots of bent timbers: search for one on the mountains or through the fields").

He does NOT bother instructing Perses to:

1. try not to lose it by gathering a bunch of it for future use
2. try not to break it by storing it away safely in a shed
3. try to prioritize what he uses it for by only limiting a certain wood to a certain use
4. try to use it as efficiently as possible by taking care to not waste any of the forest's wood

A thing's economic character (its status as an economic good) is not intrinsic to the thing--just as its goods character (its status as a good) is not intrinsic either. Both are determined by the changeable relationship between the thing and rational actors who may or may not use it. Any given thing may be an economic good in one situation and a non-economic good in another.

there can be only two kinds of reasons why a non-economic good becomes an economic good: an increase in human requirements or a diminution of the available quantity.

In the example of Hesiod's Works and Days, the woods of Mount Helicon would change from non-economic to economic goods if

• A. a technological revolution occurred which made the trees highly useful as fuel (an increase in requirements, and an example of what Menger calls, "advances in the knowledge men have of the causal connection between things and their welfare, as the result of which new useful purposes for goods arise.") or
• B. there was a great forest fire (a diminution of the available quantity).

Conversely, there can only be two kinds of reasons why an economic good becomes a non-economic good: a diminution of human requirements or an increase in the available quantity.

For Hesiod, grain would change from an economic to a non-economic good if

• A. men became gods who needed no bread for sustenance (an diminution of requirements) or
• B. the blessed Golden Age were to return to men, and once again the fruitful earth, unforced, bore "fruit abundantly and without stint" (an increase in available quantity).

My examples above of non-economic goods becoming economic goods were quite realistic, and my examples of the reverse happening were quite fanciful. It actually makes sense that this would be the case. As Menger claimed, in real life, as civilization advances, the trend will be that of non-economic goods becoming economic goods...

chiefly because one of the factors involved is the magnitude of human requirements, which increase with the progressive development of civilization. If to this is added a diminution of the available quantities of goods that previously did not exhibit economic character (timber, for instance, through the clearance or devastation of forests associated with certain phases of cultural development), nothing is more natural than that goods, whose available quantities on an earlier level of civilization by far outstripped requirements, and which therefore did not show economic character, should become economic goods with the passage of time.

There are some goods, Menger notes, which are of special classes regarding whether they are economic or non-economic. Firstly, there are goods which would naturally be economic, but are artificially made non-economic by governments taking them over and offering them for free. He gives the example of water transported by the government from wet to dry areas. To my mind however, the general scarcity of the water still gives it economic character. In this case, the government has appropriated it as its effective (though not rightful) property. And due to its scarcity the government

1. tries not to lose it
2. tries not to spoil it
3. tries to prioritize what they use it for (by transporting it to its favored constituents)
4. try to use it as efficiently as possible (although they are limited in this endeavor by their lack of price signals)

Menger also gives the example of public education. Again, even in this case, there is still a scarcity of teaching services, and the government economizes (however incompetently) the teaching services in its command.

The second special class for Menger are goods which are naturally non-economic, but which are commandeered by a powerful party and made economic. He gives an example of a forest which reminds me of an ancient story.

In the Mesopotamian Epic of Gilgamesh, the Sumerian king Gilgamesh travels to the "cedar mountain" (Lebanon) to cut down trees for use in construction in his city of Uruk. He is confronted by the monster Humbaba who has an asserted claim on the trees. Humbaba couldn't possibly use all of these trees himself, so he hardly meets the Lockean criteria of property rights. But again, Menger seems to only consider effective property, and not rights. Since the available quantity of cedar trees exceeds the requirements of the entire near east at the time, they would naturally be non-economic goods. But since Humbaba has acquired a forceful monopoly on them, they are treated as economic goods.

Next in this series: Menger on Natural Communism