Comes The Dawn

12

HOW MEASURE GROWTH?

The student of history must avoid that error which the proverb calls measuring other people’s corn by one’s own bushel.

—E. B. TYLOR

A correspondent from Pakistan asked: “How can one tell whether a nation is experiencing economic growth?” A bit of reflection brought this thought: Really, a nation experiences no more than a corn crib; only individuals have experiences. So, if we would measure progress—or regress—it must be with respect to individual human beings, never a nation.

One of the Bicentennials being celebrated in 1976 is Adam Smith’s Wealth of Nations. This great moral philosopher should not be blamed for allowing the line of collectivists, tracing through Marx and Keynes, to prolong the myth of national wealth and material income most commonly designated today as the Gross National Product (GNP). But the Bicentennial could well serve as occasion to examine those ideas.

Any individual’s economic wealth is generally expressed as his net worth, and changes in net worth show how much he is gaining or losing in wealth.

As to nations, some are more economically advanced than others, and a major reason for the difference is the degree of freedom exercised by individuals to the point that capital is accumulated and put to productive use. Real wages tend to be higher in countries with the most savings invested per worker. But this is most likely to happen where private ownership and control of property is respected and upheld through limited government—where there is freedom to trade in open competition—where prices are free to fluctuate in response to supply and demand in the unhampered market—where the money to facilitate trade is left to the market rather than printed by government to serve political purposes—where charity is personal and private as distinguished from welfare state plundering of the productive to subsidize the wastrels—where entrepreneurial response to change and opportunity is encouraged rather than frustrated and forbidden.

It is true that in a free market economy there is no need for any such measurement as GNP or national wealth or full employment or percent of income taken in taxes. All that is needed is the information freely available to every potential buyer and seller in the form of market prices. Individuals and businesses can act intelligently on the basis of that information. They have no need for and should be free to ignore whatever GNP or other statistics governments want to assemble.

I can’t get very excited about the fact that such statistics are gathered and published. But if they are being used in such a way as to interfere with personal choices and actions—which they are—that is serious and should be explained.

In taking this position, I find myself in contention with Hegel, Marx, Comte, and many of our own time, who embrace the notion that only the nation or society is real and that the individual is the abstraction. Today, these socialist sophists have followers by the millions, collectivists who are but copycats of ancient and medieval forms of coercion—those who favor a Charlemagne, Napoleon, Hitler, or in today’s terms, the planned economy and the welfare state.

Summarized, the argument is between those who pose society or the nation as the prime unit and those of us who believe that all meaningful comparisons in progress or regress must be made in terms of individual or business units.

Conceded, the problem of measuring growth is partly an accounting problem, but the measurement, to make sense, has to do with the unit in question, be the unit an individual or company. Each unit has different goals, values, aspirations, ambitions. Thus, there can be no single measuring rod for social or national or collective growth.

In the free market each unit does its own calculating. This is known as economic calculation—business accounting—determination of profit or loss. It is this that leaves each unit free to choose what to produce, what and with whom to exchange, and what to buy or consume.

Dr. Ludwig von Mises was the first to demonstrate the impossibility of economic calculation under socialism.1 Economic calculation is automatically supplied in a system of free competitive pricing. Leading communist “economists” concede his point. Their words, my italics:

The best methods of producing a given output cannot be chosen [by socialist methods] but are taken from outside the [socialist] system . . . i.e. methods of production used in the past, or so-called “advanced” methods of production, usually taken from the practice of more advanced countries and used as data for plan-building by the [socialist] country under consideration.2

As more and more countries, including the United States, succumb to socialism, upon what information are the communist “economists”—or anyone, for that matter—to base their plans? Upon the GNP? Wrote Henry Hazlitt of this political fantasy:

It is impossible . . . to arrive at a precise, scientific, objective, or absolute measurement of the national income in terms of dollars. But the assumption that we can do so has led to dangerous policies, and threatens to lead to even more dangerous policies.3

It is the catastrophic situation into which an acceptance of GNP leads that warrants—indeed, demands—our examination.

The countless little Caesars who man our present socialistic structure have decisions to make. Economic calculation is impossible under socialism. Their single recourse? Statistics! Wrote Murray Rothbard:

Statistics are, in a crucial sense, critical to all interventionist and socialistic activities of government. . . . Only by statistics can the Federal government make even a fitful attempt to plan, regulate, control, or reform various industries—or impose central planning and socialization on the entire economic system.4

To the extent that an economy is controlled by government, it is no longer a reflection of freedom of choice and competitive forces but rather of bureaucratic edicts. These edicts decree this or that according to the statistical data which they compile. While numerous data are contrived for their use, the usual statistic for measuring economic growth is gross national product: GNP. Absurd?

• If a man divorces his wife and hires her as a cook at $50 a week, the GNP will increase by $2,600 annually.

• The dollars paid farmers not to grow crops boost the GNP as do the dollars paid farmers for things produced.

It is useless to give other examples, for the input statistical “guidelines” are forever changing, not only with the passing whims of each dictocrat but also with the whims of the others as they come and go. This explains why there is so little agreement on what GNP really is. I don’t know; they don’t know!

Only this we know for certain: GNP—always expressed in the monetary unit—enlarges whenever the medium of exchange is diluted; that is, GNP expands in an inflationary period. Contemplate what Germany’s GNP was in 1923 when billions of marks wouldn’t buy a loaf of bread! GNP reached its peak just before total collapse!

In view of its absurdity, why is GNP employed as a measuring rod? When economic calculation—automatic in competitive pricing—is rejected, errors follow as a consequence. At least, GNP is consistent with the absurd premise of the interventionists: the notion that they can run our lives better than we can. How can they be expected to know there isn’t any measuring rod!

Further, interventionists naively believe in the Keynesian notion that increased government expenditures lead to prosperity. Were this true, we should repeal the laws against counterfeiting. The fact? Exploding government expenditures foretell catastrophe, nothing else.

Here is a rarely understood fact: Free market performances do not lend themselves to mathematical analysis any more than do intellectual, moral and spiritual values. This is to say that the economic status of individuals cannot be measured by any objective standard—none whatsoever! Statistics are nonsensical—Achilles’ heel, indeed.

National objective standards—devices of the dictocrats—are, of course, erroneous. What then for a free society? Subjective judgments! This is not to say that the individual can have no awareness of his own economic improvement; it is only to assert that such growth cannot be reckoned by any objective standard.

For instance, what I want to do is forever changing and what I want in exchange is like a bird on the wing—I don’t stay put. More to the point, no two human beings are alike; all of us are in flux, not only as individuals but relative to each other.

It so happens that my highest aspiration is to write and lecture on behalf of the freedom way of life. I prefer this to other employments, even though the other jobs available may pay ever so much more. And in exchange I desire above all else a working acquaintance with the best of freedom thinkers in the world, along with the economic means—food, transportation, and the like—for realization. To me, this is the ultimate in progress. Who has any right to set a standard for me other than these unusual but nonetheless self-chosen goals? Not a person on this earth!

But here’s another fellow who, above all else, prefers to strum a guitar. And in exchange his heart’s desire is “a Loaf of Bread . . . a Flask of Wine, a Book of Verse—and Thou.” To him this is the ultimate in progress. Where is the superman who has any logical, moral, or ethical basis for decreeing otherwise? No such person exists or ever will!

The above gets at the crux of the matter: evaluation of progress is individual and subjective; gain or loss cannot be objectively measured; that is, neither I nor anyone else can devise a standard that can accurately assess what is or isn’t a gain to any other.

What is progress to one individual may very well be regress to another. Examples: There are persons who would prefer an audience with the President of the U.S.A. to $10,000, and vice versa; a hoola hoop to $5, and vice versa; a Ph.D. to $5,000, and vice versa—and so on ad infinitum. Objective standards simply cannot be used to measure subjective judgments! GNP is a fraud, in most instances an innocent one! No freedom devotee should ever refer to it except disapprovingly.

When we discover that each of us is unique and is the best judge and master of his own growth, we will try to so structure our society that freedom of choice is maximized—liberty for one and all.

• 1In Roman mythology, Aurora is the goddess of dawn.
• 2These examples paraphrase ideas from Economics In One Lesson by Henry Hazlitt, available from FEE.
• 3For a detailed explanation of my differences, see “Looking in the Mirror,” a chapter in To Free or Freeze (FEE, 1972), pp. 48-55.
• 4“Statistics: Achilles’ Heel of Government,” The Freeman, June 1961.