Economic Harmonies: Chapter 5 Review – Value and Utility

How And Why They Differ, And The Dangers In Conflating Them.

By Scott Albright


When we think of how the word value is used, both as a noun and as a verb, it is very important to not conflate it (as a noun) with utility, to know the differences between the two, and always remember that value, as a verb, in describing economic principles through voluntary exchange does indeed imply an evaluation and a comparison of services in barter/direct exchange, or their equivalent of such with money in indirect exchange.

What has been thought to be the principle determining factors of value has gone through an evolution throughout the centuries but what remains today in various schools of thought does have fragmented pieces of older ideologies, especially from those classical economists who embraced value as being objective and determined by labor inputs in production, not by the level of output.

In chapter five of the Harmonies, I personally think Bastiat parsed, compared and contrasted the concepts of value and utility very cogently with solid logical consistently outside of his assumptions of labor spared being more influential than labor expended in his famous water/diamond paradox. More on this later but first, the early definitions that he gave to both value and utility lay sound groundwork for the whole chapter’s exposition.

“And yet I must say: From the viewpoint of political economy society is exchange. The primary element of exchange is the notion of value, and consequently the connotations that we give to this word, whether true or erroneous, lead us to truth or error in all our social thinking. …

…But, to succeed in my effort, I must explain two things, namely:

1) Utility-that is, the service a thing renders tends to cost less and less, to become more generally available, as it gradually passes outside the domain of individual ownership.

2) Value, on the contrary, which alone can be claimed as a possession, which alone, in law and in fact, constitutes property, tends to decrease in proportion to the amount of utility it represents.

Consequently, if I base my demonstration both on private ownership but exclusively on private ownership of value, and on public ownership, but exclusively on public ownership of utility, I should be able, provided my reasoning is valid, to satisfy and reconcile all schools, since I recognize that all have had a glimmering of the truth, but only of a part of the truth seen from different points of view.” [1]

This excerpt highlights the main points of the chapter:

-the primary element of exchange is the notion of value.

-the differences between value and utility, and why they are important.

-where some of the past economists went wrong in their understanding of value, and where they were right.

-why and how some of the classical economists errors gave dangerous fuel to the fire of the communists and socialists. Continue reading “Economic Harmonies: Chapter 5 Review – Value and Utility”

Economic Harmonies: Chapter Four Review – The Expediency of Exchange

The Expediency of Exchange, Its Evolution, Efforts Behind Facilitating and Extending It, and The Wall of Popular Restrictions That It Is Up Against, Then and Now

By Scott Albright


The evolution of exchange, of voluntary trade, has advanced so far beyond the depths of what we can imagine and we take it for granted all too often. When you see clearly how an increased population allows for a larger and more dynamic workforce, and that advances in science and technological innovations in capital investments that can perform more complex services and utilities emerge in the market, the range of your ability to exchange is immeasurable, providing that exchange is voluntary. As Bastiat so concisely put it, “the capital savings due to exchange surpass one’s imagination.”[1]

Ultimately, the effects of an extended division of labor with in sourced labor or outsourced production are essentially the same as capital investment/machinery used in production in that they all free up labor to be available for newer wants, talents to fulfill desires of goods and services of a higher order. This was first discussed in chapter two of the Harmonies but the quotes most noteworthy in chapter four, summing up it’s main principles and thesis are:

“In the state of isolation, our wants exceed our productive capacities.  In society, our productive capacities exceed our wants.”[2]

“There are two great incontrovertible truths. The first is: The better man exploits the forces of Nature, the better he provides himself with all that he needs. …

…The second truth is: The resources of Nature are unequally distributed over the earth.”[3]

What is so plain and clear at the individual level is often so heavily disputed at the larger and national level. When we think of how hardly no individual household attempts to produce all that they consume and that this would be too impoverishing to try, the plain as day in every way of life’s details show us the basics of economic principles that make textbook econ look like featherbedding to protect salaries of the tenured at our universities today!

When Marco Rubio campaigned for president last year, he advocated a continuation of import quotas on sugar so that a relatively few number of U.S. farmers would be protected from international competition. This is the typical status quo of most politicians but why not better exploit the forces of nature to render the benefits more accessible to all. We don’t produce “ice at the equator and sugar at the poles” (p.70) so to speak, and although that would be an extreme case of economic isolationist production or definitely not exploiting the forces of nature with sensible applications of our faculties where they are more conducive to richer results, what Rubio and others are proposing with these import quotas do restrict our ability to consume, on better terms, produce that grows more abundantly in climates more favorable to their gratuitous flourishing.

It’s a very lopsided argument without any logical consistency. Continue reading “Economic Harmonies: Chapter Four Review – The Expediency of Exchange”

Man, Economy, and State: Chapter One Review

What we can learn from Crusoe on an Island, a Stagecoach, and Your Favorite Meal

By Scott Albright


After finishing chapter one of Man, Economy and State, the two prominent concepts that I learned more about are those of marginal utility and time preference.

Murray Rothbard elaborates on isolationist economics to elucidate upon the discovery of economic principles that are derived from the actions of Robinson Crusoe (a fictional character used for illustrative purposes) who is stranded on an island.

To simplify the matter, Rothbard uses two goods that Robinson desires as his most highly valued ends, that of consuming berries and leisure. If Robinson can pick 20 berries an hour and works 10 hours a day, he can consume 200 berries a day and 14 hours of leisure.

If he decides to construct a stick, so that he can pick the berries more efficiently, increasing both his total output of berries and output per unit of time (say, per hour), he can only do this at the expense of forgoing some of his production and consumption of berries, and allocating time to produce the stick. This means that he has to lower his time preferences, preferring to save some of his berries for the time period that he will be constructing the stick, in that he will either have to pick more than he normally consumes, to have for the production of the stick, or to eat less of it than he normally does, or a combination of both.

Either way, this simple isolationist story elucidates on the principle of capital accumulation in society and what is logically necessary for its accumulation; the exercise of foresight, restraint of appetites, anticipation of future demand, and a lowering of time preferences, foregoing and delaying the consumption of some goods and/or leisure in order that you can consume more in the future, hence the saying that “savings is delayed consumption.” It does show us fundamental principles of human action and allows us to build upon them, starting at the individual level and moving towards society. Continue reading “Man, Economy, and State: Chapter One Review”

Economic Harmonies: Chapter Three Review – The Inexhaustible Nature Of Wants and What Keeps Them In Check

By Scott Albright


The process of how man’s wants are satisfied as described by Bastiat in chapter two of Economic Harmonies may seem a little dry and methodical to some, but chapter three goes deeper into the depths of a mans essence and being on top of elucidating on some causal relationships.

There have always been deep seated fears that automation emerging in the market via innovative capital investments would make people lazy and create many idle hands. Coupled with this fear is the claim that unfettered capitalism and the full unleashing of free market forces would give rise to immorality and a societal degradation, so to speak.

Chapter three highlights that although suffering is inevitable in our world, it also can and often does act in a manner that tends to rid itself of its own causes.

The study of the natural laws of society will reveal that the role of suffering is gradually to destroy its own causes, to restrict itself to narrower and narrower limits, and, finally, to guarantee us, by making us earn and deserve it, a preponderance of the good and the beautiful over the evil. [1]

Part of the reason that people seem to fear that capital investment and wealth creation will eventually lead us to become lazy and idle is that they tend to assume that mans wants and desires are a fixed quantity beyond which people will just consume leisure. They forget that self-interest is the mainspring force that drives humanity and that the well of desires in man is endless.

On the subject of human wants I have an observation to make that is important, even fundamental, for political economy: they are not a fixed, immutable quantity. By nature they are not static, but progressive.

This characteristic is to be noted even in the most material of our wants; it becomes more marked as we advance to those intellectual tastes and yearnings that distinguish man from beast. [2]

Also, there is much to be learned from one of the most poignant statements concerning the problems that arise when people believe that wants are a fixed quantity to be desired:

It is impossible to find a good solution to the problem of the machine, foreign competition, and luxury, as long as wants are considered as an invariable quantity, or their capacity for indefinite multiplication is not taken into account.

But if man’s wants are not fixed quantities, but progressive, capable of growth like the inexhaustible desires on which they constantly feed, we must conclude, granting that a balance between the means and the end is the first law of all harmony, that Nature has placed in man and about him unlimited and constantly increasing means of satisfaction. This is what we shall now examine. [3]

Not everyone desires solely economic and monetary gains as their most valuable ends, as the essence of one’s being often desires to enjoy more nobler goals, such as the continual learning and expanding of knowledge, the cultivation of ones intelligence and sensibilities to become more learned and refined, the charitable giving to their less fortunate brethren, close relationships with family, friends, community and extended ranges of society beyond the individual are high on the lists of many.

But we must not forget that enjoying these said desires of a higher order can only be realized after we can provide for our own basic needs. Continue reading “Economic Harmonies: Chapter Three Review – The Inexhaustible Nature Of Wants and What Keeps Them In Check”

Economic Harmonies: Chapter Two Review – The Sensations That Drive Economic Growth

By Scott Albright


Chapter two delves into the cause and effect of satisfying wants by explaining actions determined by subjective valuations of ends and how their fulfillment comes about.

Man has scarce resources to utilize as means to his ends. It is only natural that he desires to harness the forces of nature to ease his efforts and make them more productive so that he can have both more leisure and time to pursue the satisfactions of ever-changing, newer, more refined wants.

The soul (or, not to become involved in spiritual questions, man) is endowed with the faculty of sense perception. Whether sense perception resides in the body or in the soul, the fact remains that as a passive being he experiences sensations that are painful or pleasurable. As an active being he strives to banish the former and multiply the latter. The result, which affects him again as a passive being, can be called satisfaction. [1]

In light of the chapter title, “Wants, Efforts, Satisfactions”, it is very important to note that the sensations of want and satisfaction are most often in society felt by one individual but the effort is mostly performed (and therefore felt) by others in terms of the satisfactions that we enjoy but do not produce directly, because we rather are most likely a producer of one or a limited number of other goods and/or services that we produce in order to exchange for. With an expanded division of labor and growth in capital accumulation, man is able to satisfy his wants on continually better terms and therefore, fulfill more wants he formerly did not have as new ones emerge. It is only in the state of isolation that man always feels all three of these sensations; wants, efforts, and satisfactions.

Of the three terms that encompass the human condition-sensation, effort, satisfaction-the first and the last are always, and inevitably, merged in the same individual. It is impossible to think of them as separated. We can conceive of a sensation that is not satisfied, a want that is not fulfilled, but never can we conceive of a want felt by one man and its satisfaction experienced by another.

If the same held true of the middle term, effort, man would be a completely solitary creature. The economic phenomenon would occur in its entirety within an isolated individual. There could be a juxtaposition of persons; there could not be a society. There could be a personal economy; there could not be a political economy. [2]

Continue reading “Economic Harmonies: Chapter Two Review – The Sensations That Drive Economic Growth”

Economic Harmonies: Chapter One Review – Hegemony and Spontaneity

By Scott Albright


Today, our political leaders believe that the excesses of self-interest lead to gross inequalities and that liberty must be restricted due to the inherent inequalities resulting from self-interest, unfettered market forces, and the nature of economic progress. These inequality hucksters seem to mostly believe that man’s self-interest is inherently antagonistic with the general interests of society.

The wrongheaded nature of this attempt to facilitate a kind of equality of outcomes, in which man’s self-interest will be restricted so that there is justice or equality, is a belief that man is like clay, to be molded by his impartial benevolent political leaders for the betterment of society.

Excerpts that Bastiat quotes from the Social Contract shows the gross inconsistency in Rousseau’s reasoning.

“We should have gods to give laws to men….. He who dares to institute a society must feel himself capable, so to speak, of changing human nature itself…. of altering man’s essential constitution, so that he may strengthen it. …. The lawgiver is, in every respect, an extraordinary man in the state.”

Bastiat soon follows up with his classic witty rebuttal, “And what, then, is mankind in all this? The mere raw material out of which the machine is constructed.” [1]

Rousseau was double-minded to think that since men are like beasts, they need to be tamed by a superior, selfless and impartial lawgiver while simultaneously believing that these lawgivers were worlds above the sentience, trust and intellectual development of the laymen. Some things never change!

“…We must nonetheless recognize that the social order is composed of elements that are endowed with intelligence, morality, free will, and perfectibility. If you deprive them of liberty, you have nothing left but a crude and sorry piece of machinery. … Yet, for myself, I say: Whoever rejects liberty has no faith in mankind.” [2]

Continue reading “Economic Harmonies: Chapter One Review – Hegemony and Spontaneity”

The Realities of the Harmony of Capital

A Reflection of Bastiat’s Economic Harmonies

by Scott Albright


As much as the progressive statist left decries income and wealth inequality with their rants against capitalism and the “1 percent”, instead of branding them as socialists, commies, or in the tank for positive rights, let’s ask the honest question of why their said rants are misguided and anger misdirected. After having just read Economic Harmonies by the great Frederic Bastiat, his insight can show all of us a way of looking at utility in a light that poses serious questions for the whole concept of wealth inequality.


[1]


Seeing this chart that shows the near polar opposite of the anti-capitalist claims- although it is a hypothetical chart-, you may think that it is crackpot economics or just super idealistic albeit slightly possible. Regardless of what any of us think, I must admit that I thought at first that it couldn’t be true because wealth is heavily concentrated among a small percentage of the population; I now believe that I was wrong and am glad to have been enlightened. These claims are mostly viewed by the anti-capitalists through the lens of annual income and net worth and thus can only possibly be true in so far as what is accumulated and owned individually, one’s private property. According to Frederic Bastiat, in terms of wealth, we must measure not only personal wealth that one owns but common wealth, what becomes common to all through advances in intellectual and technological applications in production. This takes into account entirely the gratuitous utility that is part of real or absolute wealth, since said utility adds to our satisfactions. As Benjamin Franklin once said, “a penny saved is a penny earned”, and once you understand the concepts of onerous utility and gratuitous utility, you can appreciate this statement and the economic truth behind it much more wholesomely.

As mankind advances intellectually, technologically, economically and morally, he learns to harness the forces of nature to his benefit to work smarter, and not harder; to increase his productivity and therefore, serve his fellow man with more satisfactions that society can consume. It is all about increasing the ratio of gratuitous to onerous utility and decreasing the effort to produce or acquire any given unit of goods and service. This is the essence of economic growth.


[2]


Onerous utility is from the physical labor that man employs in satisfying his needs, wants, desires and tastes. An example would be utility from a carpenter’s labor, that of a farmhand or from the tractor operator on a farm. Gratuitous utility is that which we get from either Nature itself, i.e., the sunshine and rain that we need for produce to grow and to sustain life nevertheless, or the utility that we get from innovative capital created and employed to harness the forces of nature to mans benefit, decreasing his ratio of onerous to gratuitous utility. This is what increases output, productivity per worker, higher living standards for all, and ultimately more choices and lower prices for consumers. Some examples of this would be as simple as that which we get from the basic of designing a sailboat so that the wind will do some of the work in sea navigation, to the more complex automobile, the tractor, the crane and caterpillar, the washer and dryer, and yes even the kiosks employed in fast food restaurants; all of these are labor saving and output enhancing methods and machines of production. Continue reading “The Realities of the Harmony of Capital”

The Formula For The Trade Balance Is Backwards

By Scott Albright

You probably remember these lines from President Donald Trump starting about 19 months ago when he announced his running for the oval office:

“I’m gonna build a waaaall, I’m gonna be tough on Chiy-na”

(in his own idiosyncratic annunciations LOL).

To think that these lines along with the famous (or infamous, depending on whether you love or hate The Donald) “Make America Great Again” campaign logo could heavily aid in catapulting an unprecedented outsider to the White House is dumbfounding, to say the least. President Trump certainly is no fan of free trade although he may say otherwise. But as many Americans that voted for him may believe we have an unsustainable problem with trade deficits, how consistently do they apply this logic to their own individual trading and consumption patterns? If you buy your groceries at Wal-Mart and don’t grow any of the produce you eat or raise and eat livestock, you run a 100% trade deficit with your consumption of food. If you buy your own clothing at a department store and don’t sew or knit any of it, the same is true in this category of your consumer goods as well.

When President Trump says that we are going to build and buy American concerning labor and parts, just imagine if he used this same logic and took it to it’s conclusion and said “You, as American (individuals and households), are going to produce everything you consume.” Do you think that he would have attained over 61 million votes had he campaigned on this? Now my point here is to show the logical fallacy of his protectionism, although he certainly isn’t demanding we attempt such an impoverishing feat as individuals and households. But it does show the direction that you are going in. Continue reading “The Formula For The Trade Balance Is Backwards”