Saturday, July 13, 2013

Economics Matters

. . .for social stability. If you do not believe that, you should ask Egypt's former President Morsi. As Steve H. Hanke explains Morsi never had a consistent and sustainable economic policy which therefore resulted in recession, unemployment, and social disintegration. Bad economic policy necessarily hampers the market economy, constraining the division of labor and inducing relative poverty.

As Ludwig von Mises often noted, the fundamental social phenomenon is the division of labor. In his mind, it was one of the important things that distinguishes us from the animals.
It is by virtue of the division of labor that man is distinguished from the animals. It is the division of labor that has made feeble man, far inferior to most animals in physical strength, the lord of the earth and the creator of the marvels of technology (Liberalism, p. 18).
In fact the rise and maintenance of civilization is dependent upon the division of labor.
Civilization is a product of leisure and the peace of mind that only the division of labour can make possible (Socialism, p. 271).
As I explain in my book, Foundation of Economics, a functioning, well-developed division of labor requires entrepreneurial coordination so that saved capital is not squandered in wasteful and destructive activity which thereby impoverishes a society. Such successful coordination requires monetary market prices, because such prices alone provide economic decision makers a way of calculating profit and loss in a common unit. The beauty of it all is that free market money prices are not only in a common unit, but the prices themselves are manifestations of subject value. The market price system provides a way for entrepreneurs to make objective decisions about subjective preferences that are demonstrated by action.

When the market price system is hampered, however, by price controls, government largesse, monetary inflation, and economic regulation, the result is relative economic chaos and the inefficiency that follows. It is a short trip from there to political unrest.

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