What Economics Is Not About

by Faustino Ballvé

Production, distribution, and consumption. Equilibrium. Homo economicus. Types of “business associations.” Social justice.

We have seen briefly how the economy is constituted by the exercise of man’s innate faculty of choice, how it functions when it is allowed to operate freely, how it reacts when it is hampered, and how it can be understood, not by resorting either to arbitrary dogmatism or to merely routine factual description, but by means of critical reflection directed toward the discovery not only of apparent regularities in the phenomena under observation but also of the conditions determining their occurrence. Let us now glance briefly and in very summary fashion at what economics is not about.

Let us take any of the best-known treatises of economics: the Principles of Charles Gide,¹ a highly esteemed work of which thousands and thousands of copies have been printed in France and many other countries; the Grundriss der politischen Oekonomie of Philippovich,² a fundamental textbook in the education of so many German and foreign economists; the well-known treatises of Benham,³ Lutz,⁴ Cannan;⁵ and even that of the English mathematical economist Marshall⁶ or the little manual by his disciple, Chapman;⁷ etc., etc. All of them, to a greater or lesser extent, treat production, distribution, and consumption as separate things that have almost nothing to do with one another. Yet the economy cannot be understood in this fashion; for production, distribution, and consumption are not three independent activities nor even three separable phases of a process that can be examined by themselves or by means of a provisional abstraction made for purposes of study or instruction.

The economic process is an integral and continuous whole in which production, distribution, and consumption are essentially concurrent and coincident, so that it is not even intellectually possible to focus attention on any one of these phases to the exclusion of the others. Especially since credit has become generally available, he who produces anything is, in the very process, already distributing what is produced among the human factors of production, and the latter are consuming their respective shares, and so on successively. Production, distribution, and consumption are phases of the same cycle, which repeats itself, but never in identical form. Thus, the economic process is a succession of acts of production, distribution, and consumption, not in the form of successive or concentric circles, but in the form of a spiral. The economic process is living and dynamic: it never repeats itself exactly; it always moves on to a new position.

Hence, the attachment of so many economists for the evenly rotating economy is utopian rather than scientific. This was also the ideal of the classical economists and continues to be that of many economists who consider themselves liberals, to say nothing of those who profess themselves adherents of the different varieties of “welfare” or “labor” economics. This longing for a condition of static and beatific tranquillity is essentially reactionary. It is in conflict with the very essence of economic life and, indeed, of human life in general. It seeks, in the words of Heine’s poem, to turn the world into a paradise, but turns it instead, to use Abraham Lincoln’s apt expression, into a hell by choking off initiative and putting creativity into a straitjacket. The hallmark of all attempts to achieve economic stability is always rationing and coercion; it is essentially static and quantitative, whereas man’s faculty of choice, as exercised in regard to economic goods, is essentially dynamic and qualitative.

The essential principle of the economic process is not equilibrium, but disequilibrium. Equilibrium would bring about economic stagnation and death; disequilibrium is the motive force that keeps the economy alive and progressive. Economic life is not a condition of peace and security; it involves daring and adventure. There is no such thing as exact economic calculation, as some mathematical economists have maintained, because the economic data that are at our disposal always refer to the past, and we do not know what tomorrow will bring. Every economic activity is a bill presented to the future, and there is always a question whether or not it will be paid. One could say of economic life what Goethe says at the end of the second part of Faust:

Alles Vergängliche
Ist nur ein Gleichnis;
Das Unzulängliche,
Hier wird’s Ereignis;
Das Unbeschreibliche,
Hier ist es getan⁸

That is to say:

All we see before us passing
Sign and symbol is alone;
Here, what thought could never reach to
Is by semblances made known;
What man’s words may never utter
Done in act—in symbol shown.⁹

Economics is not about anything that could be expressed in mathematical terms; its domain is rather that of imagination and invention, of adventure into the unknown, of a hazardous enterprise that is not for the cowardly.

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Hence, it is no less necessary to banish from economics the classical myth of the homo economicus. Man is, to be sure, an egoistic being; such is his earthly lot, for no other mode of existence is possible to him; he is actuated by the instinct of self-preservation. But egoism is not the same as avarice; it is, rather, the desire for well-being. And well-being is not always expressible in terms of material goods.

The exercise of man’s faculty of choice, which is the pivot on which the whole of economic life turns, is not confined to the kind of goods that are bought and sold in the market. Sometimes the objects of man’s preference have no exchange-value at all. A worker prefers, at certain times, leisure, from which he derives no material benefit, to well-paid labor. An engineer who could earn a great deal of money by productive employment for the market prefers to live in a secluded hovel, in the utmost poverty, in order to solve some baffling scientific problem; this makes him happier, just as the laborer mentioned above was made happier by leisure than by paid employment. Or a nabob leaves his fortune to his family or gives it to the poor in order to go and preach the Gospel. We know of a notary who was earning large sums of money in the practice of his profession and abandoned it to become a monk, and of the owner of a great newspaper who left it to become a priest. And there are also cases in which the opposite occurs, and we find old clerics and philosophers turned into captains of industry.

Now these cases that we have cited are not instances of altruism in opposition to the egoism of the entrepreneur. They too are cases of egoism, for everyone who seeks his own happiness is egoistic. Some find it in money, others in science, and still others in simple renunciation. All exercise their faculty of choice.

Hence, in the market, if we may be permitted to use the expression, there is competition not only among vendible goods, but also among things that are, as we commonly say, “beyond price.” There is no such being as an “economic man” or a “noneconomic man”; there are only men who exercise the faculty of choice, sometimes preferring vendible goods, sometimes goods without any exchange-value.

The latter are a more important factor in economic life than is generally believed. They are some of the many unknown facts about the future that make economic calculation such a hazardous adventure. The retirement of an entrepreneur of genial disposition can bring fortune or misfortune to many other entrepreneurs, just as the indifference of a truth-seeker to monetary considerations can, at a given moment, make both him and others wealthy.

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There are many other things which one finds in treatises on economics, but which likewise have nothing to do with the subject. In many of them we find pages and pages devoted to corporations, trusts, cartels, mergers, and other forms of business associations, combinations, and “communities of interest.” These matters have nothing whatever to do with economics; they are strictly legal questions connected with the technical problems of organizing business. Neither is economics concerned with the problem of costs, which is so much in vogue at the moment. So-called “costs” economics is nothing but a branch of industrial calculation, and one of lesser importance than is commonly believed, because it is only of auxiliary value to the entrepreneur; his economic calculation, however many data the study of costs provides him with, always has to contend with an unknown factor that will, in any case, render it essentially inexact and hazardous: tomorrow, time, the future.

But if there is anything that, above all else, has nothing to do with economics, it is the question of the “just distribution” of wealth, or what is called today, in a phrase that is as seductive as it is empty, “social justice.” To speak of social justice or of the just or unjust distribution of resources is like speaking of surrealist astronomy or of musical chemistry, because justice and the conduct of economic affairs are entirely distinct matters, neither related nor opposed, but simply indifferent to each other. The goal of economic activity is a continual increase in the production of commodities, and the only just distribution of resources is that which best serves to attain this end. All that “just” means, at bottom, is “fit,” “suitable,” “appropriate.” The aim of justice, properly so called, is, as the Romans used to say, to give each his due (ius suum cuique tribuendi), and in order for each to be given what is his, it is necessary that it already belong to him; to “give,” in this sense, means to protect the right of possession. Each man gets “what belongs to him” in the course of voluntary exchanges that constitute the economic process, and, by virtue of the operation of the market, each receives for his contribution precisely the amount that will impel him to increase the supply of the most urgently demanded commodities. Thus, each one ends by getting his due only when he finally obtains it at the completion of a cycle in the economic process, and precisely by virtue of this process and nothing more. Only when each man thereby gets what belongs to him, and someone wants to take it away from him, does a question of justice arise, and not before.

“But,” it will be said, “even though this economic process of constantly increasing the supply of goods and services may, on the whole and in the long run, be able to resolve the problem of providing for the needs of everybody, yet in subjecting men to its own requirements, it could become, at certain times, a veritable Procrustean bed for some of them by imposing on them conditions harder than they could bear. Ought society to remain indifferent to such conditions and console the victims by telling them that later on they or their descendants will be rolling in wealth?” Evidently not, but this is not an economic problem; it is a moral problem—a problem of human solidarity. But why seek to solve it only by political means—by passing laws and establishing governmental institutions? We are here in the realm of public opinion, of education, and, above all, of the example set by the elite. These are the forces that can solve the grave problems of relief and security, by leaving to the interested parties, in free association, the responsibility of managing as they think best the resources they decide to pool in voluntary, co-operative institutions designed with these ends in view. There is no more reason for the state to intervene in such matters than in the economic sphere. When it does so, under the pretext that no confidence is to be placed in individual initiative, it simply deprives men of their constitutional rights and liberties without giving them anything but an illusory security and substitutes government omnipotence for the democratic system.