CHAPTER XIII. Monetary Calculation as a Tool of Action

Chapter Summary

1. Monetary Calculation as a Method of Thinking

Monetary calculation is the guiding principle of action in any society with a division of labor. It transforms the very thought process of anyone considering action that involves the property of others. Potential actions are evaluated on the basis of expected costs and revenues, while past actions are evaluated with the accounting of profit and loss.

Got it?

From the Washington Times: “Farmers and food executives appealed fruitlessly to federal officials yesterday for regulatory steps to limit speculative buying that is helping to drive food prices higher.... ‘Something is wrong,’ said National Farmers Union President Tom Buis, adding that the CFTC’s refusal to rein in speculators will force farmers and consumers to take their case to Congress.

1. Monetary Calculation as a Method of Thinking

Monetary calculation is the guiding star of action under the social system of division of labor. It is the compass of the man embarking upon production. He calculates in order to distinguish the remunerative lines of production from the unprofitable ones, those of which the sovereign consumers are likely to approve from those of which they are likely to disapprove. Every single step of entrepreneurial activities is subject to scrutiny by monetary calculation.

I surely should have heard about J.B. Say’s Catechism on Political Economy, but in fact I don’t recall knowing about it. It appears in this newly uploaded and bookmarked volume Letters to Malthus. So a short sample:

At the beginning of the eighteenth century, fifty years before the time of Quesnay, Bandini of Sienna had shown, both from reason and experience, that there never had been a scarcity of food, except in those countries where the government had itself interfered to supply the people.

– Jean-Baptiste Say, Treatise on Political Economy

In recent weeks, pictures of people queuing restively beside piles of rice sacks have supplanted those of polar bears frolicking on icebergs as the iconic image of the global alarmists.

Below is a recent exchange I had with Peter Schiff. Mr. Schiff is the president of Euro Pacific Capital and a frequent commentator on financial news networks such as CNBC and FBN. In addition, he has written numerous articles for various trade publications and has been quoted extensively by mass media outlets.

Michael Shermer is the gadfly head of the International Skeptics Society (which meets at the California Institute of Technology), a columnist for Scientific American and the author of a number of books on science and belief. He is also one of the rarest of rare birds - a scientist who promotes the free market. Shermer arrived at this position through his parents and the courses of Andrew J. Galambos.

Like Atlas holding the sky on his shoulders, our federal representatives hold the weight of the Earth and our future on theirs — an awesome and sobering responsibility.

Its Significance

Fifty years ago, an exuberant American people knew little and cared less about economics. They understood, however, the virtues of economic freedom, and this understanding was shared by the economists, who supplemented common sense with sharper tools of analysis.