The Study of Economics

Alexander M. Goldfinger

[Reprinted from The Gargoyle, June 1958]

The United States, together with most other countries in the Western free world, is now experiencing what is sometimes called a "recession" or a "depression". Business concerns find that there is less of a market for goods and services than last year *r two years ago, profit statements shrink or show a loss and millions of workers are unemployed and find difficulty in satisfying their daily wants.

In Congress and in the Executive Branch of our government, much thought has been utilized as to what part Government may, can or must play in remedying these deplorable facts.

Millions of people daily, in their business and social life, discuss the problem of whether Government should take affirmative steps or let the economy rectify its own unbalance, whether, if Government is to intervene, it is better to lower taxes or to engage in a vast public works program.

Heated arguments are heard on all sides, and Congressional Committees have amassed millions of words of testimony of witnesses appearing before them, who advocate or oppose suggested legislation.

Many sincere people advocate the lowering of income taxes, not because the taxes, per se, are a burden or dampen incentive to produce, or siphon off so large a part of wealth production, but solely to put purchasing power into the hands of consumers, who, they argue, will spend it and thus stimulate sales, which will stimulate production of goods, which will require greater man-power, etc. Opponents of this argument point significantly to the fact that there is ample purchasing power in the economy not being used to buy consumer goods. They point to the statistical facts that savings of all kinds, instead of decreasing in this period of economic unbalance, are actually increasing. They also argue that this country became great and powerful with the highest standard of living in the world, not by consumers spending what they had produced for consumer goods, but by the risk-takers, the railroad pioneers, the men who risked the financing of production of goods for which there was no market -- no consumers, telephones, electric lights, automobiles, radio, television, washing machines, refrigerators etc. They point to the fact that in previous recessions or depressions, economic conditions became better when costs of production, including rent and labor costs, were reduced so as to yield a profit when the goods sold at lower prices or because a new industry such as radio or television created a demand which had not existed, and thus absorbed an increasing part of the unemployment. They point to the rigidity of labor costs in our present condition, influenced largely by the determination of labor unions to maintain, the high wages paid in unionized industries, usually requiring an increase in wages at stated periods, regardless of a commensurate increase in the productivity of labor -- the production of one man per-hour in units of goods. They point to the facts that for several decades the deficit spending by Government, the monetization of the mounting debt and the manipulation of our monetary system have caused an inflation of our currency which has caused prices to rise, increased the cost of living, and now when, following the pattern of previous recessions prices should be falling, they are in fact rising, and month by month the index of the cost of living rises. They argue that just reducing taxes and giving taxpayers the ability to buy more will not have any tangible effect upon the present conditions.

Those who advocate the Government sponsoring large scale public works argue' that expenditures for this purpose will not alone put spendable income in the hands of those working on such projects, but will cause an increase in the production of all the machinery and raw materials used in such public works. They anticipate a boom in such industries as earth-moving equipment, lumber, cement, iron and steel, trucks, contractors, engineers, etc., and argue that in these industries and in the public works themselves a vast labor force would be required, thus stimulating the exchange of goods and services in our economy.

Some others, who see nothing in the contemplated moves by Government intervention but the accumulation of large deficits in our Federal budget, the monetization of this increasing debt requiring the payment for years to come of "interest" thereon, and the inflation of our currency, thus reducing the purchasing value of our dollars, which seriously affect those whose savings, pensions or insurance is or will be their source of income, argue that any; move by Government which will result in deficits in the the Federal budget, whether by decreasing taxes or spending, will harm rather than help the economy.

Each of you has heard these arguments vehemently advocated by "the man in the street". Each one who holds an opinion as to what should be done and each one who argues for his favorite method is, consciously or unconsciously, applying economic principles. In all Nature, there is a relationship of cause and effect, of sequences and chains of causes and effects. As we delve more deeply into the study of these recurring causes and effects in Nature, and in human behavior, we find a recurring pattern emerging. Some call these "natural laws".

How incongruous it now seems to us that our ancestors tried to cure human illnesses with incantations, appeasements of a multitude of angry gods or by bloodletting? We, in our enlightenment (?) think it only reasonable to find the cause of the illness by study and the acquisition of knowledge and then treat the cause and eliminate the illness. Thus has medical science been able to practically eliminate cholera, small pox, diphtheria, and many other diseases in large areas of the world.

But in economics, the science which also embodies cause and effect and the chain reactions of the effect being the cause of another effect, etc., each individual, without study, without reasoning out the alternatives and implications of a given proposal, has firm convictions as to what "ought" to be done.

Is economics still in the state where medicine was when incantations and bloodletting were its remedies? One fact about a recession or depression becomes evident. It causes some people who have intellects to use them, to try to learn why conditions are as they are. If enough people had the curiosity to learn the answer to the "why" in our economic life, then perhaps the course of human existence would not be subject to the economic ills which now beset it.

All the answers to economic behavior are not yet known to man, just as all the answers to the cause of cancer are not known. In medicine, engineering, physics, chemistry, in fact in most of the physical sciences, the search for the answer to the eternal "why" is an incentive producing goal to many people of every nationality in all parts of the globe. But in the science which could, at least in the material sense, help man to live a full and richer life, there has not been an awakening of the curiosity which has led to the answers or the enlightenment of countless millions of human beings.

So we still have "business cycles", booms and busts", "recessions" and "depressions". We still have the "have" and the "have-not" nations with the animosities and covetousness of the latter because man has not learned that in a free exchange of goods and services, the initial locus of the natural resources plays but a small part in the relative prosperity of even the "have-not" peoples (Switzerland is a good example). We still have wars, tariff barriers, threats of socialism or communism, poverty and misery, all because ignorance rather than knowledge motivates most of mankind, particularly in the science of economics.

We are not destitute of hope, however. Every bit that man has learned about this world in which we live came after centuries, sometimes eons of time, and because, man is different from the animals in having a brain capable of reason (tracing cause and effect) and because man by the use of language and books is capable of learning by the experiences of all those who preceded him, we can expect that by gathering data as to man's economic behavior, by tracing causes and effects, eventually our progeny will live in peace and harmony with their fellow-man and will enjoy the bounties of earth and their own toil by applying the economic principles which will be most beneficial.