Showing posts with label Frederic Bastiat. Show all posts
Showing posts with label Frederic Bastiat. Show all posts

Sunday, September 25, 2011

The Religious Underpinnings of Economics

Jeffy Bowyer has an insightful little piece at Forbes entitled, "Classical Economics and Its Religious Underpinnings." He cites Jacob Viner's unfinished work The Work of Providence and the Social Order while documenting that classical economists such as Adam Smith and Frederic Bastiat embraced a belief in "optimistic providentialism." Bowyer notes that Bastiat argued "that peaceful labor and abundance was the Edenic intention, but that there had arisen a 'misunderstanding between God and mankind,' in which the latter chose the path of coercion."

As Bowyer puts it,
The idea of providential abundance was extremely important to the defense of the market order. God made a world which is fit for us, and He made us fit for the world. Resources are abundant and responsive to our touch. To use a modern analogy, commerce and technology work so well because we run on the same software, the mind of God.  Man and nature are, therefore, compatible because we have the same designer.
This is very similar to what I argue in the opening chapter of my Foundations of Economics. I draw upon the epistemology of Gordon H. Clark when noting that we only have the ability to know anything because God fit us with certain mental categories as part of being made in His image. At the same time, these mental categories are compatible and harmonize with the rest of the created order because they were all made by the same Creator.

Similarly, economic laws are not merely ephemeral behavior patters that could change on a whim. They are social regularities that necessarily derive from our nature as rational actors, a nature put in place when God made us. Economic laws, therefore, are part of the created order. Not only should we have confidence in such law, we seek to violate it at our peril. Our economic experience since 2006 testifies to that.

Wednesday, August 31, 2011

Was Hurricane Irene a Stimulus Package?

Irwin Keller at MarketWatch thinks so. As MSM reports:
Kellner compares this kind of stimulus to President Roosevelt's Works Progress Administration. "The fact that more money was in circulation resulted in more income, spending, jobs and eventually more purchases of capital goods by business," he adds. "While it lasted, it helped us climb out of the depths of the Great Depression."
Can this expand the economy?
Keller is so wrong. It is maddening that we have our economic intelligence insulted like this every time a disaster hits. It is no doubt true that some forms of spending increased and will continue to increase as people rebuild from destruction by the hurricane. That does not mean, however, that people are left more wealthy or that the economy will be more healthy.

Henry Hazlitt, in his Economics in One Lesson, has a more accurate take on such assertions by applying Bastiat's example of the broken window fallacy to the supposed blessings of destruction. "No man burns down his own house on the theory that the need to rebuild it will stimulate his energies" (p. 27). "Plants and equipment cannot be replaced by an individual or a socialist government) unless he or it has acquired or can acquire the savings, the capital accumulation, to make the replacement. But war [or a hurricane] destroys accumulated capital" (p. 30).

Hazlitt was also provides a more accurate assessment of the economic efficacy of the WPA. "When we had our WPA, it was considered a mark of genius for the administrators to think of projects that employed the largest number of men in relation to the value of the work performed--in other words, in which labor was least efficient" (p. 72).

Even if the destruction wrought by Hurricane Irene causes some people to increase spending on construction and, therefore, not hold as much cash as they otherwise would (Keynes' unpardonable sin of hoarding), they are still left worse off, because they would rather hold a certain cash balance that they now cannot because they must make house repairs. 

Thursday, June 30, 2011

Frederic Bastiat

Frederic Bastiat (1801-1850)
210 years ago today, Frederic Bastiat was born. Most famous for the broken window fallacy, and for years thought of as primarily an economic journalist, his under-appreciated economic theory has recently become more highly regarded. His great theoretical work is Economic Harmonies in which he reveals himself to be an earnest Christian economist and profound theorist. Early on in that work, he has a wonderful passage explaining why good economists must never shirk from their duties.

In the introduction he entitles, "To the Youth of France," Bastiat lays out the intellectual contest between economists and socialists. He identifies specific errors made by Ricardo and Malthus that socialists point to in an effort to turn political economy against itself. Bastiat could have rhetorically circled the wagons, justifying their errors by descending into mere politics. His devotion to truth, however, required another path.
I have already said that in Political Economy every erroneous proposition must lead ultimately to antagonism. On the other hand, it is impossible that the voluminous works of even the most eminent economists should not include some erroneous propositions. It is ours to mark and to rectify them in the interest of science and of society. If we persist in maintaining them for the honor of the fraternity, we shall not only expose ourselves, which is of little consequence, but we shall expose truth itself, which is a serious affair, to the attacks of Socialism.

A wise lesson for us all. The task of the economist is to get the analysis right, regardless of who is shown to be in error on a particular point. This is one of the great services the good economist provides to society.

Saturday, April 9, 2011

BBC on Japan and the Broken Window Falacy

Steve Fritzinger of the BBC agrees with me about the fallacious notion that Japan's natural  and nuclear disaster will result in economic expansion in Japan. In his outstanding commentary on Business Daily Fritzinger gets it right as he cites Frederic Bastiat's explanation of the broken window fallacy. He makes the following insights:

  • Larry Summers' claim that spending on rebuilding will boost the economy is akin to the claim that a family can improve their economic situation by burning down their house.
  • It is a big mistake to equate GDP with economic wealth.
  • Krugman's hope that such spending could get Japan out of an alleged liquidity trap is crazy.
You can listen to the entire program by clicking here. The commentary begins at 12:17 in the program.

Friday, December 24, 2010

Bastiat--Christian Economist

Frederic Bastiat (1801 - 1850)
One hundred sixty years ago on this date, Christmas Eve, Frederic Bastiat breathed his last. There are some who think Economics and Christianity are and will remain in eternal conflict. Bastiat, like myself, was not one of these. He is most well know for his Economic Sophisms and his brilliant essay "That Which Is Seen, and That Which Is Not Seen," in which he refutes the economic beneficence of Keynesian-style economic stimulus decades before Keynes was born.

The opening chapter of his Economic Harmonies is a sort of exhortative prologue directed to "the Youth of France." In this chapter he says this:
In these days in which a grievous skepticism would seem to be at once the effect and the punishment of the anarchy of ideas that prevails, I shall esteem myself happy if this work, as you proceed in its perusal, should bring to your lips the consoling words, I BELIEVE—words of a sweet-smelling savor, which are at once a refuge and a force, which are said to move mountains, and stand at the head of the Christian’s creed—I believe. “I believe, not with a blind and submissive faith, for we are not concerned here with the mysteries of revelation, but with a rational and scientific faith, befitting things that are left to man’s investigation. I believe that He who has arranged the material universe has not withheld His regards from the arrangements of the social world. I believe that He has combined, and caused to move in harmony, free agents as well as inert molecules. I believe that His over-ruling Providence shines forth as strikingly, if not more so, in the laws to which He has subjected men’s interests and men’s wills, as in the laws He has imposed on weight and velocity.

In the concluding chapter of the book entitled "The Relationships Between Political Economy and Religion," he says
[I]t is not true that as science advances, the idea of God recedes. On the contrary, what is true is that, as our intelligence increases, this idea is enlarged, and broadened, and elevated. When we discover a natural cause for what we had imagined an immediate, spontaneous, supernatural act of the Divine will, are we to conclude that His will is absent or indifferent? No, indeed; all that it proves is that that will acts by processes different from those it had pleased us to imagine. All that it proves is,that the phenomenon we regarded as an accident in creation occupies its place in the universal frame; and that everything, even the most special effects, have been foreseen from all eternity by the divine prescience. What! Is the idea we form of the power of God lessened when we come to see that each of the countless results which we discover, or that escape our investigations, not only has its natural cause, but is bound up in an infinite circle of causes; so that there is not a detail of movement, of force, of form, of life, that is not the product of the great whole, or that can be explained apart from that whole.

For those interested in learning more about he economic contributions of Frederic Bastiat, I recommend, Guido Hulsmann's "Bastiat's Legacy in Economics" in the Quarterly Journal of Austrian Economics.