Reading about economics

Last week I read Hillaire Belloc’s Economics for Helen which was a big help to me. I’m going to read it again with my big kids as soon as we’re finished with Chesterton’s What’s Wrong with the World, so we can discuss it. I learn things much better when I can discuss what I’m reading, so since I haven’t talked through the book much yet, I may not be able to write well about it, but I’ll give it a shot while some things are fresh on my mind.

Belloc covers all the basics, defining wealth, explaining land, labor, and capital, and the process of production, and introduces a new-to-me concept, the fact that there are three kinds of wealth: subistance, rent, and interest. He discusses exchange (both domestic and international), free trade and protection, money, banking, and national debts and taxation. He also describes the three economies that have been pretty widely practiced in history: the servile (that is, slave-holding) state, the capitalist state, and the distributist state, frankly discussing the strengths and weaknesses of each. He discusses socialism briefly, mainly because in his time (the book was written in 1923) it hadn’t been successfully practiced anywhere and he said he thought it wasn’t possible for it to succeed. Of course we’ve had time to see that the only place it ever “succeeds” is at the end of a gun.

Something I really appreciated about the book was that at the beginning where he defined economic wealth, and at the end in his summary, he differentiated it from other kinds of very good things, like a beautiful painting or a good book or any of those intangibles that makes life pleasant. So many articles on the economy completely ignore this part of life and make it sound like economic wealth is the only kind of wealth, and make the mistake of thinking that if a nation has greater economic wealth at one point in their history, then they must necessarily be better off.

People confuse the word “Wealth” with the idea of well-being….

It is not so. Economic Wealth is a separate thing from well-being. Economic Wealth may well be increasing though the general well-being of the people is going down. It may increase though the general well-being of the people around it is stationary.
(p.35)

Another thing was that after a few chapters he pointed out that what he was talking about in the first half of the book was economic law, not moral law — i.e. the way things work, not whether it’s good or bad. He then made this astute observation: “Some people are so shocked by the fact that Economic Law is different from Moral Law that they try to deny Economic Law. Others are so annoyed by this lack of logic that they fall into the other error of thinking that Economic Law can override Moral Law (p. 47).” The moral law aspect came up in the second half of the book when he started talking about political applications.

The last chapter, Economic Imaginaries, is a brief look at what Belloc calls a new subject in Economics, and is terribly important in helping me see what’s going wrong and how it’s going wrong in our own time. An economic imaginary is “a value which appears on paper but has no real existance (p. 164).” He gives several examples of what causes this sort of thing to happen, the funniest of which is worth quoting in full:

Supposing two men, one of whom, Smith, has a loaf of bread, and the other of whom, Brown, has nothing. Smith says to Brown: “If you will sing me a song I will give you my loaf of bread.” Brown sings his song and Smith hands over the bread. A little later Brown wants to hear Smigh sing and he says to him: “If you will sing me a song I will give you this loaf of bread.” A little later Smith again wants to have a song from Brown. Brown sings his song (let us hope a new one!) and the loaf of bread again changes hands and so on all day.

Supposing each of these transactions to be recorded in a book of accounts. There will appear in Smith’s book: “Paid to Brown for singing songs two hundred loaves of bread,” and in Brown’s book: “Paid to Smith for singing songs two hundred loaves of bread.” The official who has to assess the national income will laboriously copy these figures into his book and will put down: “Daily income of Smith, 200 loaves of bread. Daily income of Brown, 200 loaves of bread. Total 400 loaves of bread.” Yet there is only one real loaf of bread there all the time! The other 399 are imaginary.

Belloc admits that this example is “an extreme and ludicrous case,” but goes on to show how that sort of transaction actually makes up a pretty good portion of our economic activity. He also mentions three other types of economic imaginaries, and I’ll bet modern readers can come up with several others.

I’d definitely recommend that anyone interested in the study of economics read this — both relative beginners like me, but also more knowledgeable people who might benefit from Belloc’s perspective, which is rather different from free-market capitalism.