The Road toPermanentProsperity
DEWEY B. LARSON
Introduction The Scientific Approach Economic Objectives Value Concepts and Definitions The Money Economy Wealth and Capital The Economic Mechanism The Markets Price Levels Production Money Inflation Cost Inflation Business Cycles Money and Credit Foreign Trade The Dollar Abroad Wartime Economics Who Reaps the Harvest Economic Controls From Theory to Practice Dealing with Recessions Boom Dampeners Stabilization Methods
CHAPTER 1
Introduction
Modern man,
homo sapiens,
as he calls his species with a characteristic lack of modesty,has left evidence of his presence in various locations on earth for fifty thousand years ormore. During this long interval his fortunes have fluctuated widely, periods of relativeprosperity have alternated with grim struggles for survival, but there has been anunmistakable general trend towards a better understanding of the problems of existence,and human life is far different today from what it was in the Old Stone Age. When we stopto analyze this progress, however, it is apparent that the forward movement has been farfrom uniform. In most fields of activity the gains have been meager and painfully slow.Indeed, in some of these fields it is questionable whether we have advanced much beyondthe point where our ancestors stood at the dawn of recorded history. Politically, war andthe threat of war are still the same psychological and material burden on the nations of today as they were on the rival tribes of the prehistoric era. Economically, the greatmajority of the human race still live under one version or another of the same primitive
communal economic organization that developed from man‘s first awkward efforts at
group living, and where more advanced systems have evolved they are imperfectlyunderstood and ineptly handled. Ethically, the conduct of the populace in general is still farbelow the standards of even the earliest of the great moral and religious teachers.In striking contrast, progress toward understanding and control of the physical environmenthas been outstanding, and during the last few centuries knowledge in this field, theprovince of physical science and its applied branches, has been expanding at a rate thatmight well be termed explosive. Recent spectacular achievements in certain special areashave merely dramatized this rapidly accelerating forward movement which is taking placeall along the physical front. This situation wherein one branch of knowledge is continuallyreaching out for new worlds to conquer while its fellows still grapple unsuccessfully withthe problems of the Cave Dwellers is a strange anomaly in our present-day society, and thereasons for the extraordinary disparity deserve much more serious consideration than theyare commonly given.A comparison like this is usually shrugged off with the assertion that the problems in theseother fields are more difficult than physical problems, and that the slower rate of progressis due to this factor. We are entitled, however, to take this kind of a contention with a grainof salt. It is one of those statements that can neither be proved nor disproved, the kind of anexplanation that is made to order for those who wish to rationalize failure to reach theirgoals. From a purely detached point of view it is hard to understand why the maintenanceof full productive employment, for instance, should warrant being classified as a moredifficult task than the design and manufacture of an airplane. If exactly the same methodshad been applied to the solution of both problems we might perhaps be justified inconcluding that the problem which resisted these methods was the more difficult, butwhere totally different methods have been utilized we are certainly not out of order insuspecting that failure in one case and success in the other is a reflection of the relative
adequacy of the methods used, rather than of the relative difficulty of the problems.
One of the most significant discussions now in progress turns on how far the methods bywhich the astonishing results in pure and applied science have been achieved may betransferred to other human activities.
-James B. ConantOf course, many economists contend that scientific methods are not applicable in theirfield. Frank H. Knight, a prominent economist of the post-World War I era, wrote
extensively on the subject, and expressed the opposing view clearly. He characterized ―the
notion that social problems can be solved by applying the methods by which man has
achieved mastery over nature‖ as ―false, and illusory.‖ In support of this conclusion,however, he makes this statement: ―But obviously, the basic problems are value problems,
to which natural science has little relevance... It [science] shows
how
to do things, how to
of this statement is that the identification of ―what objectives to pursue‖ isthe primary task of economics, and that the issue of ―how to reach a concretely definedobjective‖ is irrelevant. Paul Samuelson makes the same point by defining the objective
of economics as obtaining the answers to three questions, all of which are addressed to the
issue of ―what objectives to pursue.‖ He lists the following:
1.
What commodities shall be produced and in what quantities?2.
How shall goods be produced?3.
For whom shall goods be produced?
We need look no further to see why progress in economics has been so slow compared tothe rate of advance in the scientific fields. The inevitable result of the policy of concentrating attention on identifying the objectives is that economics is now long oncommendable objectives and short on methods by which to reach those objectives. Clearlythere is a wide gap here that needs to be filled by systematic study of the factual side of economics, which we may define as obtaining the answers to two very different questions,as follows:1.
How does the economic system operate?2.
How can we manipulate it to attain our defined objectives?The economists challenge the assertion that there are factual answers to these questions,and even deny that there are factual data that can be applied to a resolution of the issues.From Heilbroner and Thurow we get this assessment of the situation:One of the most important attributes of modern history is lodged in a striking differencebetween two kinds of knowledge: the knowledge we acquire in physics, chemistry,engineering, and other sciences, and that which we gain in the sphere of social or politicalor moral activity. The difference is that knowledge in some sciences is cumulative and
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CHAPTER 26 for The Road to Permanent Prosperity by Dewey B Larson
Modern man, homo sapiens, as he calls his species with a characteristic lack of modesty, has left evidence of his presence in various locations on earth for fifty thousand years or more. During this long interval…
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