Amount of Capital Dependent on Volume of Production?

We must sharply distinguish between the question: is the volume of production dependent upon capital accumulation; and the reverse question: is the amount of capital dependent on the volume of production? The latter question is, of course, to be answered in the affirmative. If more is produced, other things being equal, there is an increase in the amount of capital, i.e. in the amount of goods simultaneously present in the economy—or, better, of goods which reach the future from the present. Such an increase in capital is often spoken of as an increase in the width of the capital structure—just as a river bed becomes wider when the inflow of water increases.
The flow of goods over time has indeed often been compared with the flow of water in a river. It is a useful comparison, and we shall use it to explain many problems in connection with capital.

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Expansion of Production Dependent on Capital Accumulation?

Capital is needed to keep the workers alive during the production period. We are therefore faced with the question: to what extent does any increase in employment actually depend upon an increase in capital? We shall deal with this question later in detail. Here we merely wish to make a brief remark on the so-called wage fund theory, which is the classics' answer to this question. This theory assumed that more workers could only be employed if a store of means of subsistence had been accumulated previously by production and abstinence.
This problem—like so many others in economics—is not a real one. The present does not live at all on a store of goods accumulated in the past. The present lives as a rule on goods that flow uninterruptedly from past production into present consumption; stores of goods are neither necessary nor would they be sufficient to enable new workers to be employed. Nor is an increase of production in the past a necessary condition for an increase of the labor force in the present.
What enables an increased labor force to be employed and production to expand is the fact that the entrepreneur obtains money with which to pay new workers. This money may be borrowed from other people who have not consumed all the goods which they were entitled to receive, but have saved some of their income. But even if there are no new savings, employment and production can increase. It is not at all necessary to think of such a thing as a fixed wage fund, as the wage fund theory in its monetary form supposes. The necessary capital can be supplied through savings in other capital needs, or money can simply be created by money-issuing banks, as we shall see in Part III when discussing inflation. Finally, increased employment may not require more capital at all if there is a proportionate fall in wages.
We shall discuss the supply of capital later in detail. Here it suffices to state that neither monetary nor real scarcities need prevent an increase in employment. In whatever way the money with which to pay new workers is made available, its expenditure for labor by the entrepreneurs enforces a redistribution of past products in such a way that the new workers can survive during the current production period.

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The Time Element

Production does not go on in a timeless world. The product is not ready for consumption at the same moment as labor is expended on it. Production takes time.
From this elementary technical fact it follows that the workers cannot consume the products of present labor, but only those of previous labor. In a money economy, the money which the workers receive from their entrepreneurs in wages and spend for their living during any given production period does not buy the products of this same period but those of an earlier period. And by the sale of these products of an earlier period the entrepreneurs receive back the money spent in that earlier period.
All this is unimportant in a stationary economy, where by definition outlays and production do not change from one period to another. But in the real world there are constant changes. Only a model clearly showing the time sequence of events is useful in analysis. It would not be necessary to stress this point were it not for the fact that, under the influence of Keynes' General Theory of Employment, Interest and Money, the tendency to use so-called circular analysis, which neglects the time element, has been strengthened.
Circular analysis presupposes that the current income of workers is spent on their current output. This would mean that current production in turn is influenced by current spending. But in reality current spending meets the products of past production which can no longer be influenced by current spending. On the other hand, the fact that a changed demand meets an as yet unchanged supply does lead to price increases and declines and to many other important changes. Only the so-called sequence analysis, as developed especially by Swedish economists, can give a satisfactory picture of these changes. For the analysis of equilibrium situations, for which they are meant in the first place, circular analyses remain permissible but dangerous because they serve very often, consciously or unconsciously, to analyze changes from one equilibrium situation to the other.
As production takes time, and we cannot therefore live from hand to mouth, a certain amount of goods in various stages of production must always be simultaneously present in the economy. Goods ready for consumption are, in the first place, essential for production by enabling the workers to survive during the production period; the other goods, as we shall see later, are essential by enabling the workers to be more productive. We shall call the total stock of these goods the capital of the community, and the individual goods capital goods.
The capital of the community is owned by people commonly called capitalists. For the time being we shall take the ownership situation as historically given. Later we shall inquire into the reasons for capital accumulation and changes in ownership.
In a money economy capitalists do not as a rule actually own the stock of capital goods. They own money and lend it to entrepreneurs, who use the money to pay their workers—who in turn use it to buy goods of a past production period.
As production goes on, new, half finished and finished goods accumulate in the hands of the entrepreneurs. Juridically these goods belong to the entrepreneurs, but economically they belong to the money capitalists because the money used for the production is owned by them. The entrepreneurs are, as it were, the trustees of the money capitalists.

FIG. 9
When the entrepreneurs of the past period sell their products to the workers of the present period, the money they receive enables them to repay their loans and thus to free themselves from their debts to the capitalists.
Figure 9 shows how the money borrowed by an entrepreneur in the current production period is used by his workers to buy the goods produced in a past period, thereby enabling past debts to be repaid.

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Money

Entrepreneur A can obviously exchange his apples with entrepreneur B, who produces pears, only if he himself needs pears for himself or his workers. If A should prefer butter, he cannot exchange his apples with B because B has produced no butter. Butter may have been produced by C. But if B owns something which is gladly taken by others in exchange for their products, then A can sell his apples to B against this medium and use it in an exchange with C for butter. Nowadays money, mainly paper money, serves as such a medium that is gladly taken by all members of the community in exchange for their products. Money is, therefore, the general medium of exchange.
The chief function of money is to enlarge the number of people between whom exchanges can take place. It is an enlarger of exchange possibilities. It enables any one member of the community to dispose of his goods to any other member, regardless of whether the latter produces anything the first wants; the money received enables him to get the equivalent in goods he wants from a third person.
We have seen above (p. 14) how division of labor increases the productivity of the work done. Division of labor in its turn depends upon the possibility to exchange. Even if B can produce pears at lower cost, this is of no benefit to A so long as B is not prepared to take A's apples in exchange for his pears. It follows that the introduction of money as an enlarger of exchange possibilities must result in increased division of labor and thus in higher output. Since higher output as a rule increases the amount of hours worked, the introduction of money raises living standards in two ways.
Money works not only as an enlarger of exchange possibilities, but also as an exchange act saver. Before the introduction of money apples wandered from entrepreneur A to entrepreneur B, who delivered them to his workers, while pears wandered from B to A, who delivered them to his workers—four exchange acts. Now the workers no longer receive the finished goods from their own entrepreneur, who is eliminated as a middleman between them and other entrepreneurs. With the money received from his entrepreneur each worker buys directly from other entrepreneurs—two exchange acts are eliminated.
Figure 8 shows, in very simplified form, the circulation of money in the case of apple production by worker A and pear production by worker B.
Besides being an enlarger of exchange possibilities and an exchange act saver, money has many other important functions. We shall here mention only one of them—that of an indicator of profits, as we can call it.
As we have already seen, there are no profits of the national economy as a whole. In a money economy this is even more obvious than in a barter economy. The same amount of money the entrepreneurs spend on the factors of production—the workers—comes back to them in exchange for their products. Taken as a whole, money received can neither exceed nor be short of money spent—at least so long as the flow of money is not interrupted. This latter assumption applies, by definition, to a stationary economy.
On the other hand, money is clearly the medium in which the private profits of individuals materialize. If an entrepreneur—as described earlier—can manage by his special knowledge and skill to produce 80 pears in one work-hour, instead of 50 as other entrepreneurs do, he spends 371/2 per cent less for the production of the same number of pears. The difference will show up as a stock of money not needed for the payment of wages and available for other expenditure. This is the kind of profit we have discussed above; the entrepreneur pays his workers less than the full yield of their work because this yield would be smaller if they worked in another enterprise.
Money is, however, also the indicator of another kind of private profit. It can happen that an entrepreneur makes a profit not, so to speak, at the expense of his workers but at the expense of other entrepreneurs. Entrepreneur A may receive more for his products than corresponds to his input, whereas entrepreneur B receives less. This can obviously not happen in the long run because no entrepreneur will continue spending money on production that he knows he will not get back. But in the short run it might turn out, owing perhaps to a change in tastes, that the consumer-workers spend more money on apples and less on pears than anticipated. The result will be that at the end of the production period the distribution of money among the entrepreneurs will be different from what it was at the beginning. A's stock of money will have grown by the amount that B's has become smaller.
We may, in this connection, add a remark on balance sheets and income statements. These show only the relative prosperity of individual economic subjects, i.e. the extent to which the income and wealth of some entrepreneurs have changed in relation to those of others. They give no information on the absolute wealth of the community because they do not indicate what can be bought with the money amounts shown. A scarcity of goods may lead to fancy prices and hence to higher incomes and capital appreciation for some entrepreneurs. This does not mean that the community's real income or wealth has increased. A community will, on the other hand, have become richer if two-horse carriages have been replaced by 100-horse-power automobiles produced with the same labor effort. But such things cannot be gathered from balance sheets. Simple addition of the balance sheets or income statements of all the members of a community does not, therefore, tell us anything about its real product or income. This should be remembered in appraising some of the usual national income calculations.

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The Entrepreneur

We now take a further step toward reality by introducing the most important person within the framework of a free economy: the entrepreneur.
His functions are manifold; we note only the most important at this point:
(1) The entrepreneur is a sort of exchange center. He intercedes in all the exchange activities which we have described so far in our simplified models.
In our isolated single-producer economic model, the worker exchanged his work-hours with nature against the proceeds of his work, the finished products. In the case of a two-producer economy these goods were then exchanged, at least partly, between the workers. A schematic view of this exchange is pictured in Figure 5.
In the real world the workers generally do not exchange their services directly with nature or with other workers. The entrepreneurs intercede in both exchange activities. Our model of an economy of two producers becomes one of an economy of two workers and two entrepreneurs, as schematized in Figures 6a and 6b. In Figure 6a the workers first exchange directly with nature. Entrepreneur A then receives the products of the work of worker A and exchanges them with entrepreneur B for the products of worker B. Entrepreneur B delivers products of worker A to worker B in payment for worker B's products, whereas entrepreneur A delivers products of worker B to worker A in payment for worker A's products. In Figure 6b the entrepreneurs have also taken over the workers' exchange with nature. The workers deliver to the entrepreneurs not their products but their work, and it is the entrepreneurs who exchange the workers' work with nature.

Each worker, as before, receives for his work the products of the other worker. (Neither model is, as yet, complicated by the existence of money; we are still in a barter economy.)
(2) The entrepreneur is furthermore the beneficiary of production cost differentials. We have assumed above (p. 12) that workers, for various reasons, produce with varying degrees of productivity. To produce the same amount of goods some need a greater, some a smaller, number of work-hours: or, what comes to the same thing, some produce greater and some smaller amounts of goods in the same time. In the real world the greater productivity of the work done is not generally due to some special quality of the worker, but of the enterprise in which he works. It is therefore not the worker but the entrepreneur who reaps the benefits of the higher productivity.

FIG. 7
Let Figure 7 represent the hourly output of two workers. Suppose worker A produces 50 pears an hour while worker B produces 80 pears in the same time. Rectangle I then represents worker A's output per hour, that is 50 pears. Rectangle I and rectangle II together represent worker B's output per hour, that is 80 pears. If it were the difference in the workers' efficiency which leads to the differential of 30 pears, the wage of worker A would have to be 50 pears, and that of worker B 80 pears.
But if not worker B but the enterprise B in which he works is responsible for the higher output per hour, the owner of this enterprise, entrepreneur B, has no reason to pay his workers more than they would produce and receive if they were working in an enterprise of lower productivity—say in enterprise A, where 50 pears are produced in an hour. The surplus hourly production of 30 pears, represented in our graph by rectangle II, entrepreneur B will keep as a reward for the greater productivity of his enterprise. All workers receive a uniform wage of 50 pears, regardless of the productivity of the enterprise by which they are employed. This is what actually happens in reality. Uniform wage rates are, in principle, paid for the same work.
(3) We have defined profits as income that accrues to some individuals because others do not receive the whole output of their work in special circumstances of a temporary nature. The entrepreneur who keeps as income for himself the additional output of his workers which is due to the higher productivity, not of the workers but of his enterprise, is the profit-maker par excellence.
(4) The entrepreneur, however, is also the profit destroyer par excellence. If entrepreneur A sees that entrepreneur B can produce pears at lower cost than he can, he will try—and in the long run he will generally succeed in the attempt—to imitate his competitor's methods of production. As a result entrepreneur A, too, will be able to produce 80 pears an hour. The output curve of enterprise A in Figure 7 will rise to the level of enterprise B. Entrepreneur A, too, will make a profit.
This, however, will not be the end of the story. Under the assumption of free competition A, as well as B, will begin to bid up wages so as to attract workers because any increase in production would enlarge their total profits. The competition for workers will clearly go on until profits are swallowed up by wage increases. Workers will then receive not 50 pears an hour but their whole output, 80 pears an hour. The whole hourly product of labor (rectangle I plus rectangle II) will be paid out as wages. This situation will change only if and when some entrepreneurs succeed in raising the productivity of their enterprises once more.
In a stationary economy, a theoretical model of an economy which goes on each day as it did before, by definition productivity does not change. There can, therefore, be no entrepreneurial profits.

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Exchange and Profits

Exchange increases output through division of labor. We defined profit above (p. 6) as a surplus of output over input. We showed that in the case of the single producer an increase in output can never be considered a profit, because his entire output of goods is always the exact result of his input of labor, regardless of the size of the output per unit of input.
We are now dealing, however, with more than one producer, so that the problem of the distribution of the output between them arises. The term profit could now have two meanings: (a) it could mean a surplus accruing to the whole two-man community of producers, a profit for their national economy, so to speak; (b) it could also mean a surplus accruing to one of the producers by an altered distribution of output, a private advantage for one individual producer over the other.
An increase in output as such cannot be considered a profit for the entire national economy, just as an increase in output cannot be considered a profit in the case of a single producer. The economy, as a whole, is nothing but the sum of all individual producers. It does not make any difference whether the increase in output is due to greater productivity of individual producers or to exchange and division of labor. Therefore exchange, too, cannot lead to a profit for the national economy as a whole.
But how about the increases in the income of the individual producer-consumers resulting from a changed distribution of output among them? Such increases do exist, but not all of them are profits. If an individual producer-consumer's share of the total product rises because his own output increases, this cannot be called a profit—at least not if we are to distinguish profits clearly from other forms of income earned by the factors of production. Profit is only that form of income which accrues to one individual because another individual fails to receive, in certain special circumstances, the entire output to which the “demand curve of nature” entitles him, according to his productivity.
Profit is a slice of somebody else's output. We shall often come back to the question of how such profits arise and how they disappear, because this is of fundamental importance for many other problems. We shall see that profits are children of change and uncertainty and that they are temporary in character. Here we only wish to stress that exchange, as such, does not lead to private profits.
It is true that in our example producer A obtains more pears through exchange with B than he could have produced himself at the same expenditure of work-hours. But this only means that his output per unit of input, his productivity, has increased, even though only indirectly. Nothing accrues to him to which he would not be entitled by his work. And nothing is withheld from B, who retains more apples than if he had not entered into exchange with A.
It is furthermore true that A receives more pears for his apples than would be needed to make the exchange worthwhile to him. But this, too, is not profit. It is an advantage comparable to the advantage that accrues to the isolated producer to whom nature yields a greater return for his intramarginal working hours than would have been necessary to overcome his tendency to do nothing. Such an advantage in exchange does not mean that one receives more than one gives. It means only that one receives more than the minimum necessary to make the exchange possible.

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Exchange of Goods

So long as both A and B produce at the same cost, each sacrificing the same number of working hours for the same quantity of the same product, no exchange takes place between A and B no matter how different their individual relative valuations of apples and pears may be. Production simply follows the demand and consumption of the individual producers. But if the production costs of A and B differ, exchange will take place as soon as they are no longer isolated from each other but able to exchange goods.

FIG. 4
As an isolated producer, A could produce 5 pears only by exchanging 15 apples with nature, since his production costs for pears are those shown by curve S2 in Figure 4 (1 pear for 3 apples). It would obviously be advantageous for him to produce no pears at all but only apples, and to exchange some of the latter for pears with B, whose production costs for pears are those shown by curve S3 (1 pear for 1/3 apple). So-called division of labor would be the result. No one any longer produces everything. Labor is divided according to what is to be produced. It should be noted that in our example both A and B produce apples at the same cost. What differs is the production cost of pears in terms of apples. It is the difference in the relative production cost of apples and pears which makes exchange advantageous.
How could an exchange of products between A and B be made under the cost condition described? We see that A produces 1 pear in the time it takes him to produce 3 apples, and that B produces 3 pears in the time it takes him to produce 1 apple. The most advantageous exchange for A would be to receive 3 of B's pears in exchange for each of his own apples; and the most advantageous exchange for B would be to receive 3 of A's apples in exchange for each of his own pears. Both exchanges are possible, but in either case only one of the producers would gain; by an exchange at any level in between both producers could gain.
If A gives less than 3 apples for each pear he receives, he gains by the exchange, for his production costs are such that he must sacrifice 3 apples for every pear he produces. On the other hand, if B receives more than 1 apple for every 3 pears, he also gains by the exchange, for in his own orchard he must sacrifice 1 apple for every 3 pears he produces. The range within which exchange is advantageous for both producer A and producer B is therefore between 1/3 and 3 apples per pear, or between 3 and 1/3 pears per apple.
The actual exchange rate of apples for pears at which the deal will go through depends, in our two-producer economy in which there are no competing parties in the market, upon the respective bargaining ability of A and B. All that can be stated with certainty is that the rate is bound to be within definite limits, and even that is contingent upon a rational behavior of both producers—meaning that both try to maximize the advantages to be obtained.
Let us assume that the price of pears expressed in apples will be somewhere between the two extremes, say 1 apple for 1 pear. How many apples and pears will A and B produce and eventually consume? According to Figure 4 producer A obtained his 5 pears by sacrificing 15 apples. The possibility of exchange with B, whose production cost of pears in terms of apple production time is lower, makes it advantageous for A to obtain his 5 pears by exchange with B rather than to produce them himself. He will produce only apples—50 as before. Of these he exchanges 5 for 5 of B's pears. Besides his 5 pears he will now have 45 apples, instead of 35 as before. He is better off by 10 apples.
Producer B got his 28 pears, according to Figure 4, by sacrificing just over 9 apples. He now exchanges 5 of his pears for 5 apples. He has 23 pears and 46 apples, instead of 28 pears and 41 apples. He, too, gains by the exchange because he could have produced the additional 5 apples himself only by sacrificing 15 pears—instead of 5 as he now does.
Some effects of exchange become immediately evident:
(1) Producer A now produces only apples and gets all his pears through exchange with B; division of labor is complete as far as he is concerned. Producer B still produces 41 apples himself, even though his productivity is much greater for pears than for apples. The reason is that A offers him no more apples at a price of 1:1. Owing to his lower average productivity A is too poor to buy more pears from B.
(2) The division of labor resulting from differences of productivity in turn increases differences and degree of productivity by specialization of production and work.
(3) The living standard of both A and B has risen. This is due to the fact that each producer's own more expensive production has been replaced by the other's cheaper production. In the same way international trade raises the living standard when expensive domestic production is replaced by less expensive foreign production. More expensive production of all goods, on the other hand, does not lead to increased exchange of goods either in internal or in foreign trade, but merely causes a fall in the living standard.
(4) The reward for the work done by both A and B has risen as a result of exchange. The labor demand curve (cf. Figure 1) moves up. Ceteris paribus the number of work-hours will be greater. Thus exchange increases the total output not only through increased productivity due to division of labor, but also through an increase in the amount of work done, due to its higher remuneration.

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Differences in Production Costs

We can now take another small step towards reality. It is most unlikely that production costs will be the same for two or more producers. Differences in the ability to produce various goods may be the result of tradition (a man learns the art of producing apples from his father), or of natural conditions (apples grow better on his land than pears). But whatever the reasons, the fact remains that the cost of production of goods in terms of work-hours normally is different for different people.
Figure 2 has shown us what a single producer would produce and consume at various production cost levels, given a certain demand curve, i.e. a certain judgment of the comparative utilities of apples and pears. Suppose now that A can produce pears only at higher cost, i.e. by more work, than B. A may, for instance, be working under conditions represented by the supply curve S2 in Figure 2 (1 pear can be produced by sacrificing 3 apples), while B may be working under the conditions of supply curve S3 (1 pear can be produced by sacrificing 1/3 apple). If the demand curve for A and B were that of our original single producer (D), producer A would now do as the single producer did when faced with supply conditions S2, i.e. produce 10 pears and 20 apples; at the same time producer B would do as the single producer did when faced with supply conditions S3, i.e. produce 23 pears and 42 apples.
But the demand curves of A and B differ from those of our single producer; the demand curves now are as Da and Db in Figure 3. To demonstrate what will happen, we have only to amalgamate Figures 2 and 3 in Figure 4, which shows: Producer A, with demand conditions Da and supply conditions S2, produces 5 pears. To do so he must sacrifice 15 of the original total of 50 apples, leaving him with 35 apples. Producer B, with demand conditions Db and supply conditions S3, produces 28 pears at a sacrifice of just over 9 apples, leaving him with nearly 41 apples. A thus produces only 1 pear for every 7 apples—a result of his being both a man with a weaker taste for pears and a poorer producer of them. B produces just over 7 pears for every 10 apples, the result of both greater liking for pears and greater proficiency in their production.

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Differences in Utility Judgment

We have so far been analyzing the behavior of a single producer or Robinson Crusoe. However, an economy does not consist of a single producer but of innumerable producers. If all made the same value judgments and produced goods at the same costs—meaning, in our simplified model, that each producer would be devoting the same number of hours of work to the production of the same goods as every other producer—then the output of all producers would have the same composition. The whole economy would be no more than the sum of all the similar, even if separate, activities of its members. No new problem would arise. But men do not all have the same tastes, nor do they all produce the same goods with the same expenditure of work-hours.
Let us, therefore, turn to an examination of an economy with more than one single producer-consumer. For simplicity's sake we assume that there are two, A and B. Our single producer valued pears in terms of apples in the manner shown in Figure 2. Suppose that the value, in terms of apples, which A attaches to pears is less than our single producer's. Producer B, on the other hand, attaches greater value to pears in terms of apples than did our single producer. This situation is pictured in Figure 3. The curve Da (A's demand for pears in terms of apples) now runs to the left of curve D, the demand curve of our single producer. The demand curve Db of producer B runs to the right of the former demand curve D.
We can now immediately see how many apples and pears A and B produce, if we assume that the production costs of apples and pears are the same (supply curve S1), and if we also assume that the original work-rest choice remains valid, i.e. that each works the number of work-hours that is required for the production of 50 apples. A then produces and consumes 15 pears and 35 apples, while B produces and consumes 25 pears and 25 apples. Our single producer produced and consumed 20 pears and 30 apples. A now concentrates more on the production of apples, B more on the production of pears. Even though the production costs of pears, in terms of apples, are the same for both, differences in taste have resulted in a different proportion of pears to apples in each of the two producers' total output.

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A Multitude of Products

We have so far assumed that our man has the choice only between rest and producing a single product, apples. In our example he was prepared to work five hours to produce fifty apples.
We now take a small step away from the simplest model of economic life toward the enormous complexity of the actual economy by assuming that he can produce and consume more than one product. In order to simplify the presentation, however, we shall assume that our individual has only the alternative of producing and consuming one more product, pears. So far it was a choice between rest and work; now there is the additional choice between the production and consumption of several goods. In analyzing the basic principles of this choice we are faced with one of the most important problems in economics—namely the problem of how mankind allocates available resources to various possible productions.
In our example our producer worked five hours to achieve a total production of fifty apples. Let us suppose that he wants to work neither more nor less than before. To what extent will he replace the production and consumption of apples with those of pears, now that he has the choice between the two? The answer depends on the one hand upon his valuation of the relative utilities of pears and apples, and on the other hand upon the relative production costs of apples and pears. The question arises whether more or less time is needed to produce pears rather than apples.
When the choice is between work and rest, the utility of the products of work is, as we have seen, valued exactly according to the law of diminishing marginal utility: the utility of additional apples appears less as their number increases. The same law governs the decisions relating to the consumption of two products, apples and pears. Our man will, therefore, value pears lower in relation to apples, as soon as the quantity of the former increases. This also because the utility of apples now appears greater to him. For if we assume that our producer wishes to produce pears only by sacrificing some of the time hitherto employed in the production of apples, the latter become scarcer.
Our man might, for instance, consider the utility of the first 5 pears as equivalent to that of 15 apples (1 pear = 3 apples); the utility of the next 5 pears as equivalent to that of 10 apples (1 pear = 2 apples); and the utility of the next 5 pears as equivalent to that of 5 apples (1 pear = l apple). The next 5 pears might drop in his valuation to less than 5 apples.
These valuations are, of course, the result of the psychological fact that the appetite for pears decreases with increasing satisfaction, whereas the appetite for apples increases with decreasing satisfaction. We are assuming that the individuals are aware of this fact when making their production plans for a certain time period.
Anyone who is prepared to forgo apples if he can produce pears instead, demands from himself, as it were, pears in exchange for apples. The valuation of pears in relation to apples can, therefore, be represented by a demand curve in the usual way. On the assumption just mentioned, this curve will have the shape pictured in Figure 2.
It has become usual in recent years to present the distribution of a given income (or effort) between two consumption (or production) possibilities with the help of so-called indifference curves. Since this technique is generally less accessible to laymen than simple demand and supply curves, we have tried to do without it, especially as we believe that the introduction of the indifference curve technique does not involve any substantial change or progress. The method of presentation adopted here reaches essentially the same results.
Now how many pears will actually be produced, and how many apples sacrificed? This obviously depends upon the supply of pears. Pears are, so to speak, supplied by nature when work previously devoted to the production of apples is transferred to the production of pears. The supply of pears in terms of apples is, therefore, dependent upon the relative production costs of apples and pears—in other words upon how much more or less time it takes to produce pears rather than apples.
Our graph with its several supply curves shows how many apples and pears our man will produce, provided the assumptions underlying the demand curve remain unchanged.

FIG. 2
If we assume that it takes the same time to produce pears and apples, the horizontal supply curve is situated at the price of one apple, or curve S1. If it takes three times as much time to produce a pear as it does to produce an apple, the horizontal supply curve will run at the price of three apples, or curve S2. If to produce pears takes one-third of the time that it takes to produce apples, the supply curve will run at the price of one-third of an apple per pear, or curve S3. The position of the intersection points between the demand curve and the three supply curves immediately provides the answer to the question of how many pears and apples will be produced on our various assumptions. In the first case (represented by S1), our man produces 20 pears and sacrifices 20 apples in order to do so. Instead of having 50 apples he will now have 30 apples. In the second case (represented by curve S2), 10 pears are produced at a sacrifice of 30 apples. Instead of 50 apples there will now be 20 apples. In the third case (represented by curve S3), where only one-third of an apple need be sacrificed for the production of each pear, 23 pears will be produced at a sacrifice of nearly 8 apples. Instead of the original 50 apples there will now be 42.

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THE STATIONARY ECONOMY - Some Preliminary Consequences

This is, of course, a very simplified model of what would happen in the real world even within an isolated economic unit. Yet for all its simplicity it shows quite clearly certain fundamental facts about the economic world which we will encounter again and again as we proceed to the examination of the more complicated real conditions:
(1) Production never expands beyond the point where the worker demands more for his work-hour than he produces during this work-hour. Any expansion of production depends upon the worker not demanding more in payment than he produces.
(2) At a given schedule of prices at which the worker offers various quantities of work-hours, that is at a given particular supply curve for labor, production can expand only if the productivity of labor increases. Higher productivity of labor enables nature to pay greater compensation, in terms of product units. The extra-marginal work-hours, which had so far been too expensive, can now be used.
In our model the work-hours were supplied by one single worker. If there are several workers it is now possible also to use work-hours of other workers, who had so far not been employed at all because even their first hour was too dear. Higher productivity, therefore, leads not only to longer working time for individual workers, but also to the employment of more workers.
(3) At given productivity of labor, and hence given demand for labor, production can expand only if the supply price of labor decreases. This will happen if the workers either value the utility of consumer goods more or the disutility of work less than they did in the past. Workers will then offer the same amount of work at lower prices, or more work at the same prices. Individual workers' hitherto idle hours or hitherto idle workers will be drawn into the productive process.
This means that a population can consume more if it is willing to work more and to rest less. This truth is often forgotten nowadays, although it is self-evident to common sense. The comparatively low living standards of tropical countries are admittedly at least partly due to their peoples' greater appreciation of rest and lesser appreciation of the comforts of life to be produced by work.
(4) The over-production problem, one of the major problems that has intrigued economists, does not exist in our simplified Robinson Crusoe world. So far as it occurs in reality, overproduction has its roots in conditions not present in the case of the isolated producer. Here there can never be separate decisions on consumption and production. Production and consumption are so closely linked that neither can ever exceed the other. Never can anything be produced that is not consumed. Jean-Baptiste Say's law, according to which any production creates a corresponding consumption, is unconditionally valid. As soon as the utility of consumption goods no longer compensates for the disutility of the work of producing, production stops.
(5) Our model also allows us to make certain preliminary remarks on the important subject of profits. Our man receives a uniform compensation of ten apples for his work-hours, although it is only for the fifth hour that he demanded this compensation. He demanded substantially less for the first, second, third and fourth hours. He receives in fact more than what he considered sufficient to compensate him for his work. This is his good fortune and results from the fact that nature, exercising demand for his labor, values one work-hour at ten apples. For this reason nature pays, for all hours, more than the minimum compensation which he required for his first intra-marginal work-hours. But this surplus is not a profit in the usual sense of the word.
A profit is a phenomenon of distribution. It is a surplus arising when part of the output is withheld from other production factors for special reasons. No such surplus exists in the case of an isolated producer. His own input (of work-hours) is always both necessary and sufficient to produce the whole output (of apples). The two are always equal, and neither can exceed the other. Even if more is produced through improved techniques, there will still be no surplus, A given input can always result only in the output corresponding to the technique employed. If our man were to save or hoard his output, the apples, he would indeed end up with a stock of apples. But this would be not because he had made a profit from his production but because he had saved or hoarded part of the output.
An isolated producer can never make a profit, nor as we shall see later (p. 16) can an economy as a whole. We shall have to keep this in mind in our later examination of the true nature and origin of profits.

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THE STATIONARY ECONOMY - The Isolated Producer

Everybody tries to live. In order to live one has to consume goods. Goods for consumption are not generally obtainable without work. They are the products of labor. This holds true for individuals, for communities and for the whole of humanity.
When somebody produces consumption goods by his own work he exchanges, so to speak, work-hours, of which he has plenty but which he cannot consume directly, for goods which he can consume but which he lacks until they are produced. This is exchange in its simplest form. We have to understand it thoroughly in order to understand other forms of exchange which, though somewhat more complicated, are all based upon the same principle.
Our ability to exchange work for goods, to produce, rests upon the fundamental fact that nature offers the technical possibility of transforming work into goods—say of transforming one hour of work into ten apples. Given this technical possibility there arises the question of how many hours men will actually use to produce the apples they wish to consume. The answer is that each individual decides how many hours of leisure he is willing to sacrifice in order to satisfy his appetite for apples. It is up to each individual to decide when the point has come at which the disutility of work is no longer compensated by the utility gained by more apples.
If a man considered the utility of every additional apple, as compared with the disutility of every additional hour's work, to be the same as that of all previously acquired apples and previously worked hours, he would obviously work himself to death—provided he started out by wanting any apples at all. He would be killed by an insatiable appetite for apples and a flagrant disregard for his physical limitations. He would never stop working, and we could never know his relative valuation of apples and work-hours.
Fortunately this never happens. The famous law of diminishing marginal utility, or better, the law of diminishing valuation of additional quantities of goods, comes into play. The utility of each new apple which even the most passionate lover of apples acquires appears to him less than the utility of apples previously produced. On the one hand the need for apples becomes less pressing and is finally limited by the individual's consumption capacity. Even utmost greed is satisfied. On the other hand the remaining rest and play hours become fewer and therefore more urgently needed. The individual's valuation of leisure increases. This means that our man will demand an increasing amount of apples for each additional work-hour; or, looking at it from another angle, his supply price of work in terms of apples will be higher for every additional hour. If the working day is to lengthen, nature must pay him a higher price for each working hour. Inevitably the price at some point will be more than nature can pay.
Our man may be prepared to work one hour each day in return for only two apples. This one hour is needed neither for rest nor for play, whereas he values the apples highly because they are his first. He may be willing to work the following hour for a return of four apples, the next for six apples, and so on. The eighth hour, maybe, he will sell only for a return of say sixteen apples. He may not be prepared to work at all the ninth hour, even for much greater compensation, because his appetite for apples may be satiated by those already obtained and his desire for rest may have become very urgent.
It is usual to represent willingness to supply work by a graph in which the quantities offered are measured on the horizontal axis, and the price at which they are offered on the vertical line. The resulting supply curve then slopes upward from the left to the right.
The assumptions referred to above can thus be represented by the supply curve shown in Figure 1.
The supply curve slopes upward to the right up to the eighth hour. It shows how the hours of work offered increase with the price paid. From the eighth hour onward the curve rises vertically: the supply of work-hours no longer increases with rising prices. No matter how much the price is raised it no longer has the power to lengthen the working day.

FIG. I
Our assumption that until the eighth hour the supply of labor increases with the wage demanded is broadly in conformity with reality. According to the general law, the higher the price the greater the supply.
In the particular case of labor supply, however, we must note a peculiarity. A higher wage level, and the resulting higher living standard of the workers, may cause a change in their value judgments. The workers may prefer additional rest to additional consumption goods. We then speak of the supply curve of labor moving upward or to the left. This indicates that less work is now forthcoming at each of the various compensation levels. On the other hand when the wage level, and with it the living standard, falls the workers may prefer to have more consumption goods rather than more rest. The supply curve of labor then moves downward or to the right, indicating that more work is forthcoming at each of the various compensation levels. This renders the effect of wage changes somewhat unpredictable, especially in the long run. History shows that the higher wages resulting from the increased productivity of the economy have been used by labor partly to increase leisure and partly to buy more goods. In insisting on shorter working time labor went without a certain amount of consumption goods which it could otherwise have obtained. We shall, nevertheless, assume that in the general case higher wages lead to an increase in the supply of work-hours.
Let us return to our diagram. How many hours will our man actually work on the assumption underlying our curve? The answer obviously depends upon the price, in terms of apples, which the demand for labor is prepared to pay. In our simplified model it is nature herself who demands labor in exchange for apples. But nature, working neither at a profit nor at a loss, offers for a work-hour exactly what an hour's work produces. Suppose this is ten apples. Then nature offers ten apples as a reward for every hour of work. We represent this demand situation in our graph in the usual way by a horizontal line at the wage level of ten apples an hour. We immediately see that on the given assumptions our man will work five hours and produce fifty apples—not more and not less—because nature's offer of ten apples for an hour's work is exactly the compensation which our man demands for his fifth hour. In other words his work stops at the so-called marginal work-hour where the price, at which its supply is offered, is still just covered by the price which the demand is prepared to pay.

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The Fundamental Problems of Economics

The fundamental problems with which economics is concerned can be summarized in two sets of questions. First, what goods and how many of them are produced; by what methods and by whom are they produced? And second, what goods and how many of them are consumed; by what methods and by whom are they consumed?
In a capitalist and competitive economy production and consumption are dependent on each other. Production creates income for the factors of production, and the spending of this income leads to consumption. The size and distribution of income of individuals as well as of whole groups depend on the size of total production, on what each contributes to production, and on the remuneration for this contribution. Consumption, in its turn, depends on the size and distribution of income from production. Production again depends on consumption, because the consumer by his demand determines what is to be produced. Production influences consumption, and consumption influences production.
The fact that the elements of the system are interdependent does not, however, make the system undetermined. Given certain supply schedules for the factors of production and certain demand schedules for finished products, the quantity and nature of the goods to be produced and consumed are perfectly determined. A logical chain leads from production to consumption and back. To determine the beginning of that chain is just as impossible as to establish the priority of the chicken or the egg. Every phase presupposes a preceding phase—which, however, can only be described subsequently. Since a beginning has to be made with some link of the chain, we shall for convenience sake begin by describing the production exchange. We shall inquire first what and how much is produced, by whom and by what methods production is carried on, and how the factors of production are remunerated.

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Economics for Boys and Girls

Train up a child in the way he should go: and when he is old, he will not depart from it.

    Proverbs 22:6
 

  Time and again we have been asked to devise economic instruction for the youngsters, the thought being that it’s the oncoming generation that counts. And, just as often, we have shaken our heads, pleading ignorance of how to go about it.

  Trying to devise economic lessons for grownups has seemed difficult enough, for only now and then is there an adult who shows any interest in or aptitude for the subject. But we have tried, and over the years of trial and error, it has seemed that our best approach to adults is to leave them alone until they seek such instruction or light as we may come to possess. In other words, our job, as we now see it, is to concentrate on improving our own understanding and practice of freedom, with faith that others will be attracted precisely to the extent that we are able to show self-improvement.

  Thus, we are constantly striving to better understand and explain and apply the economics of specialization and the division of labor, freedom in transactions, the marginal utility theory of value, and reliance on the orderliness of the free market as a guide to creativities and exchange.

  Is there a way to present such complex ideas to children so that they might be attracted toward the free market way of social behavior? Perhaps. But first, let us consider our raw material, the youngsters we would teach.

  Developing the Potential

  There are those who contend that every baby starts life as a little savage; that he is equipped, among other things, with organs and muscles over which he has no control, with an urge for self-preservation, with aggressive drives and emotions like anger, fear, and love over which he likewise has practically no control, and that in the process of growing up, it is normal for every child to be dirty, to fight, to talk back, to disobey, to evade. “Every child has to grow out of delinquent behavior.” So runs this argument. For my part, however, I take small comfort in this Freudian view of the genesis of the human race. I would much prefer to think of the child as a budding plant with all the potential for beauty and happiness which such a growing organism portends. In each case, of course, there may be from the adult point of view, apparent disorganization, lack of coordination, and disharmony. Yet, the potential for harmony and beauty is there.

  Whether the child be considered a brutal barbarian or a budding beauty, the challenge is to help him emerge from a state of ignorance as to his relationship with others and into harmony with the universal laws which govern the human situation. The child is an extension of the parent’s responsibility, and that responsibility includes pointing the child in the direction of sound economic understanding. I shall hint at, but by no means exhaust, the possibilities:

  If you drop something, pick it up.

  This is easily taught, especially by parents who observe this dictum themselves. It is elementary training in assuming a responsibility for one’s own actions, that is, of not burdening others with one’s behaviors. A child who takes this simple first step in self-control—should the steps continue and become habitual—will likely, when attaining adulthood, look to himself rather than to the rest of us to bail him out of economic difficulties brought on by his own mistakes. He will, more than likely, not be a burden on society.

  A genuine mastery of self-control tends to develop a rare and valuable faculty: the ability to will one’s own actions. Such a person will not be tempted to shift his position by reason of pressures, fickle opinions, popular notions, and the like. He will become his own man.

  Picking up what you drop has its reward in orderliness of mind. When it becomes second nature, it is a joyous habit and on occasion leads to picking up after others. Projected into adult life, this shows up as a charitable attitude—in the Judeo-Christian sense—one’s personal duty toward the less fortunate.

  If you open a door, close it.

  This is a sequel to the above; it is merely another practice that confirms the wisdom of completing each of life’s transactions.

 
    An inevitable dualism bisects nature, so that each thing is a half, and suggests another thing to make it whole; as spirit, matter; man, woman; subjective, objective; in, out; upper, under; motion, rest; yea, nay.1
 

  For child training, I would add: drop, pick up; open, close; and others.

  If you make a promise, keep it.

  Social chaos has no better ally than broken promises. Children not brought up to keep their word will be the authors of treaties written not to be observed; they’ll run for office on bogus platforms, cancel gold contracts, use the political means to expropriate property; they’ll sell their souls to gain fame or fortune or power. Not only will they fail to be honest with their fellow men; they will not even heed the dictates of their own conscience. On the other hand, children brought up to keep their promises will not go back on their bond, come hell or high water. Integrity will be their mark of distinction!

  Whatever you borrow, pay back.

  This is an extension of promise keeping. An adherence to these admonitions develops a respect for private property, a major premise in sound economic doctrine. No person, thus brought up, would think of feathering his own nest at the expense of others. Welfare statists and social planners are not born of this training, that is, if the training really sinks in. True, a socialist will honor debts incurred in his own name but will disregard any indebtedness he sponsors in the name of “the public.” He has not been brought up to understand that the principle of compensation applies “across the board.”

  Play the thank-you game.

  It will take a brilliant parent and a mighty perceptive child to get anywhere with this one. I can set forth the idea but not how to teach it. The idea, once grasped, is simple enough, yet so evasive that, in spite of the 33,000 years since Cro-Magnon man, it was only discovered a bare century ago: The value of a good or service is determined not objectively by cost of production, but subjectively by what others will give in willing exchange. Economic science has no more important concept than this; the free market has no other economic genesis than this subjective or marginal utility theory of value. Indeed, it is most accurately identified as the free market theory of value.

  To repeat an illustration used earlier: When mother exchanges 30¢ for a can of beans, she values the beans more than the 30¢ and the grocer values the 30¢ more than the beans. If mother valued the 30¢ more than the beans, she wouldn’t trade. If the grocer valued his beans more than the 30¢, he wouldn’t trade. The value of both the 30¢ and the beans (excluding other considerations) is determined by the two subjective judgments. The amount of effort exerted (cost) to obtain the 30¢ or to acquire the beans has nothing to do with the value of either the beans or the 30¢.

  I repeat, the value of any good or service is determined by what it will bring in willing, not forcible or unwilling, exchange.2 When the 30¢ is exchanged for the beans, the grocer concludes the transaction with “Thank you,” for, in his judgment, he has gained. There is precisely the same justification for the mother to say, “Thank you,” for, in her judgment, she has gained. It wouldn’t be at all amiss to describe this as “the thank-you way of economic life.”

  This concept of value, be it remembered, was practiced off and on by the common man ages before economic theorists identified it as the efficacious way of mutually advancing economic well-being. And, by the same token, the child can be taught to practice it before he can possibly grasp the theory. In exchanging toys or marbles or jacks or whatever with another, can he not play the thank-you game? Can he not be taught to express the same “thank you” himself as he expects from his playmate? That something is wrong with the trade if this is not the case? That both have gained when each says, “Thank you”? Accomplish this with a boy or girl and you have laid the groundwork for sound economic thinking.

  Do nothing to a playmate you wouldn’t enjoy having him do to you.

  Moral philosophy is the investigation into and the study of what’s right and wrong. Economics is a division of this discipline: the study of right and wrong in economic affairs.

  The free market is the Golden Rule in its economic application, thus free market economics is dependent on the practice of the Golden Rule.

  That the Golden Rule can be phrased and taught so as to be completely perceived prior to adolescence is doubtful. Its apprehension requires a moral nature, a faculty rarely acquired earlier than teen-age—in many instances, never!


But the effort to teach the Golden Rule to boys and girls will, at a minimum, result in a better observation of it on the parent’s part. Children—highly impressionable—are far more guided by parental conduct than by parental admonishments. Thus, the attempt to teach this fundamental principle of morality and justice, resulting in highly exemplary behavior, may lead the child first to imitation and then to habitual observance and practice.

  Writing the above, which only hints at how boys and girls may get off to a good start in economic thinking, has supplied the missing explanation to something I have known for several years: women are more hopeful prospects than men in the contest between free market and authoritarian ideas! In our seminar activities, we have found the distaffers better students than the mill run of males, as well as more idealistic and less compromising. Beyond this, it is the mothers, rather than the fathers, in whose care the citizens of tomorrow are largely committed. It is primarily the mothers who will refine the methods for getting boys and girls on the track of sound thinking.

  But mothers or fathers, it is the parents who are responsible for the generations to come and who also are responsible for the kinds of people who assist in teaching their children.

  The problems are numerous and deeper than you think. Finding better answers is what parents are for, now and always!

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A Formula for Happiness

A West Coast physician had spent a day at FEE. On returning home, he wrote, “Probably no one is more conscious of what’s happening to our country than you folks. Yet I found all of you calm and in good spirits. I, on the other hand, get literally ill whenever I read the newspapers. How come?”

  The Greeks observed sagely that “those whom God wishes to destroy, he first deprives of their senses.” It is impossible to be in full possession of one’s faculties when angry, distraught, depressed, unhappy, hopelessly pessimistic. No man, in such a state, can work effectively for sound principles; it is appropriate, therefore, to reflect on how not to get this way. Or, better yet, how to mature into a rationally structured optimist.

  I suspect the desired improvement rests partly with orientation, that is, how a person permits himself to look at things. For instance, the pessimist dejectedly remarks, “The cup is half empty,” while the optimist elatedly observes, “The cup is half full”!

  The pessimist views the current vandalism, racial strife, political chicanery, moral looseness, disrespect for the rights of others as he would cigarette burns on a tablecloth—irreparable blemishes; the optimist thinks of these depredations as only stains that fade in the presence of light. The pessimist and the optimist may agree that a blight exists, but they differ in their reactions to it: the former concedes defeat; the latter sees a challenge.

  The pessimist insists that “time is running out; it is too late!” The optimist thinks of each new moment as a blessing and an opportunity of which he should take an ever greater advantage; now is the time.

  What accounts for the rash of current pessimism? A possible explanation: Persons who blame their country’s ills on the masses, the man in the street, the teachers, preachers, politicians, communists—in short, on the ignorance and misinformation of others—blind themselves to any remedy beyond setting straight these deficient souls; in a word, reforming others. Unaware of any alternate remedy, these reformers initiate personal and institutional mass-education programs, one after another. But their intended correctives have no more effect on the masses than yapping dogs have on a passing parade—there being no mass mind. Eventually, the recurring failures leave our reforming friends in the doldrums, angry, distraught, discouraged, distressed—bereft of their highest senses—hopelessly pessimistic, and useless insofar as enlightenment is concerned. And all because of an incorrect orientation of self—tilted toward repairing the human situation!

  How, then, can one become a rationally structured optimist? The formula may go something like this: I have not been given mankind to manage; I am not the Cosmic Author. What then? Let’s see what I can do about becoming my own man, flexing and strengthening those faculties uniquely mine. Consciously, even prayerfully, strive to stretch and expand awareness, perception, consciousness—explore how much I can see, determine how nearly I can bring myself into a harmony with Creation. Can there be any higher reason for existence than this?

  If one orients himself in this manner, he must inevitably experience growth. Success, in some measure, is certain to attend such efforts. And will he not learn that the more he pursues this course, the more he will grow? Knowing this, how can he be other than optimistic? Is not his eye then centered on what he most desires and on what is demonstrably attainable? And all because of a correct orientation: the improvement of self! Growth! “Every living creature is happy when he fulfills his destiny, that is, when he realizes himself, when he is being that which in truth he is.”1

  The Essence of Growth

  Optimism and happiness are of a piece, and they are the by-products of growth. Let us, then, reflect on growth, for, in this context, it is the key reality.

  Growth is implicit in the evolutive process, and how it might and should project itself in one’s life span can be deduced from simple observations. The first observable event in the earthly life of a human being is the union of microscopic seeds. During gestation, with Creation or Nature in charge, growth—size, weight, cells—undergoes a multiplication measured in billions. Following birth, this physical growth slows down to the point where its multiplication is measured in tens; it comes to a halt at adulthood.

  At birth, however, a supraphysical faculty, having growth potential, puts in an appearance: consciousness. With Nature in command at the outset, it shows first as simple consciousness, growing, rather quickly, into self-consciousness. But observe that Nature gradually withdraws her authority in favor of parental direction which, in turn, retires during adolescence, leaving the individual to his own resources and on his own responsibility. The adolescent does or does not take it from there; he does or does not heed the instructions which Creation has already given so clearly: the evolutive process is to take the form of a growth in consciousness, a growth of the individual mind—but self-managed growth! Indeed, evolution would seem senseless were its aim less than self-improved souls: men coming to think for themselves and to will their own actions, and so to share in Creation.

  Evolution, as related to species, appears to have had no truck with failures. Many have ceased to exist. Nor is there any reason to believe that its stern ways are modified as pertaining to individual consciousness, evolution in its most advanced stage. Grow or face dismissal, seems to be its dictum. And why not? Evolution, logically, cannot consist of anything less than perpetual development. In short, growth in individual consciousness appears to be harmonious with the Cosmic Design. And were we in need of any more persuasion than these simple observations, we have only to review some exemplary figures, men who have clearly pointed the way, individuals who managed their own growth after Nature and parental authority relaxed their powers, persons who caused themselves to grow in thinking and willing, to the very end of long lives.

  Aristotle put it well: “Happiness is activity of soul.” This is to say that happiness is activity in thinking and willing, such activity itself being growth. Growth and happiness are less cause and effect than concomitants, forming together a rationally structured optimism.

  The Power of Attraction

  Why is the developing, happy, optimistic individual importantly related to sound principles? Only these individuals exert that power of attraction which causes others to seek such enlightenment as they may possess. The discouraged, distraught, angry, pessimistic person is in a disharmonious, nondeveloping state and repels seekers after Truth, as daily experiences attest. Nor does the IQ or level of knowledge have any bearing on the matter—what counts is growth. Any person, even a baby, when growing in awareness, exercises attractive influences—excites the desire to embrace. While an angry or power-drunk man of intellectual attainments may gain converts, the followers are not seekers of light. Sound principles are revealed only in light.

  As mentioned in Chapter XV, one of the greatest civilizations sprung up in Athens twenty-four centuries ago, so remarkable that it is said that we ourselves are part Greek. Suffice it to say, Socrates and his remarkable lot did not have the eye on “a little centre of white-hot spiritual energy” or on “a new civilization.” These things were not even seen by them; they were only recapitulations as seen by historians, evaluations in retrospect. Had these things been their conscious, overriding aim, these things would not have come to pass. Each eye, rather, was on the pursuit of Truth, on individual growth. Cast the eye aright, so goes the promise, and “these things shall be added unto you.” These things are but delayed, impersonal, inevitable responses to right individual activities.

  I cannot reverse the decline of our civilization or retrieve a waning freedom. Nor can you, whoever you are. But each can, if each so decides, improve in thinking and willing, that is, increase “activity of soul.” Herein lies happiness in its highest form, a rationally structured optimism. Give us enough optimists of this stripe and we may rest assured that freedom with its concomitant, a higher civilization, will follow, sooner or later, as a matter of course. That’s the promise.

  Self-Improvement Is Possible

  And that’s the lesson which history teaches so clearly: Waste no time or energy on repairing mere recapitulations—humanity, society, civilization, the masses—over which the individual is utterly powerless. Dismiss the impossible! Instead, fasten the eye on that enormously potential entity which falls within one’s own control, namely, self. Concentrate on the possible!

  And time? Instead of running out, it is now in more abundant supply than ever—but only for those who know how to take advantage of this precious resource.

  In far too many instances, our thousands upon thousands of time-saving devices have only induced an unprecedented busy-ness. Most moderns fritter away time; they find less of it than their ancestors did for affairs of the mind, for growth in consciousness. In short, they are hypnotized and thus enslaved by the gadgets.

  But these same creations serve to free, release, make available more and more time for thoughtful pursuits to those who can think for themselves and will their own actions. These individuals are, by definition, the rationally structured optimists, the happy libertarians—progenitors of the good society, this being but a recapitulation of growing individuals.


 
    A final question: How can we measure or test ourselves as libertarian thinkers, writers, talkers? Perhaps the best test, and the one that has the harshest answer in store, is to observe how much one’s tutorship on the freedom philosophy is sought by others. Is it one person on one point on one occasion, or are the ones slightly or greatly multiplied? And perhaps the most sobering of all: How are we doing in our efforts to teach freedom principles and behaviors to children? For, in part, upon us depends their future. . . .

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Darkness Recedes as Light Increases

As we here approach the conclusion of the case for self-improvement. I am reminded of the last half hour of a FEE Seminar; I imagine my readers to be in about the same state of doubt or skepticism as the sixty intelligent, searching, seminar participants. Few if any questions remain about the free market, private property, limited government philosophy; in fact, there is much enthusiasm for this way of life—it is the practice of freedom as well as the Golden Rule in its day-to-day economic manifestations. And that’s good enough for these inquiring spirits.

  However, as you conclude the 20-hour session with some thoughts on methodology, you detect an uneasiness. In spite of your best efforts, the old, old question still persists: “But, what do we do now?” Your unfamiliar thesis that advancing this way of life is not a selling or a marketing but, rather, a learning problem, is greeted with something less than all-out approval; you sense in each hesitant, half-hearted assent a skepticism that won’t down. “Do you really mean to imply, dear teacher, that my part in repairing the world’s woes is limited to improving my own understanding and expositions? That there is nothing more important for me to do than to upgrade me? No friends, no associates, or neighbors to set straight?”

  In any event, your ministrations and the quizzical reactions leave the uncomfortable feeling that you are near the end of your explanatory rope. As you ponder what to do—in the dark, so to speak—it occurs to you that the use of symbolism may help to clarify your theory as to right method. Turn off the lights, reducing the lecture room to darkness. Then light a candle. Call attention to the obvious fact that every eye is on that tiny glow in the darkness. Now, challenge anyone to increase the total light by peddling or selling or marketing or distributing it. There’ll be no takers! With your point thus defined, suggest that the single light may help some other to locate and light a candle of his own. If only one other succeeds, the light in the room will be increased 100 per cent; if all find and light their own candles, each can then read a book, perhaps even write one! Now, repeat an inscription found on an old tombstone in Scotland: “There is not enough darkness in the whole world to put out the light of one wee candle.”

  Assuming the use of a 60-watt incandescent candle, fitted with an electronic dimmer, increase the light from a barely perceptible level to its full brilliance, calling attention to the fact that darkness cannot be pushed or beaten back but recedes easily and naturally as the candle power increases. Of one thing you can be certain: each participant, for the rest of his conscious days, will remember the wee light becoming a brilliant light in that darkened room. And, should some of them have initial doubts about candle-power light being analogous to enlightenment, this dramatization will start them reflecting on the matter; and the more reflection, the more similarly structured will light and enlightenment seem.

  The thoughtful person will discover that both are radiations which exert an energizing force, as does a magnet. Eyes that can see and minds that can perceive are energized by light whether it be of the candle-power variety or of the wisdom kind. The reason for this seems obvious: It is light that brings forth the eye. Living forms in the ocean’s depth, or subterranean animals—those committed to utter darkness—have no eyes. Powers of perception increase in the presence of light! When development of these faculties depends on light, it is in the nature of the evolutive process that the eye is attracted to that which creates it.

  I may be able to see a beacon light but it cannot see me. You may perceive the wisdom of a Shakespeare, but that wisdom is unaware of and indifferent to you. The radiating force of a magnet is unseeing. And so is the radiating force of any light you or I may possess. Our lights can no more find their way into the consciousness of another than a candle’s light can be found in two places at the same time. Light cannot see; it can only be seen! Thus, another may light his own candle by the light of yours, but that is all! Isn’t it clear that unless your candle is aglow, no others can be lit from it?

  Let’s assume, now, that your light does in fact shine forth. Are you fretful as to who will see it? One does well to forget this tantalizing and diverting thought. For, if a person begins to focus on and find out the effect he is having, you can count on it, his answers will be wrong. Furthermore, to the extent that he becomes merely results-minded, he will send scurrying the real seekers of truth; they’ll note that his eye isn’t cast aright and will cross him off as “not worth the candle.” The ones who count will only mutter to themselves something about “a phoney” and go on their quiet quest of those rare souls who are trying only to brighten their own lights. And how well advised they are!1

  The rare souls, be it noted, those who concentrate on increasing their own candle power, and look not for praise among men, experience an inner satisfaction and let it go at that. Having acquired this power of creativity is gratification enough. Indeed, is there any greater richness than this?

  Enlightenment or Regression

  The idea of employing the term light to mean enlightenment and darkness to symbolize ignorance is not new; such usage may well go back to the dawn of human consciousness. Light, in this sense, is used time and again in the Bible:

 
    Thou wilt light my candle: the Lord my God will enlighten my darkness.

    The Lord shall be unto thee an everlasting light.

    In thy light shall we see light.

    I am the light of the world: he that followeth me shall not walk in darkness.

    God is light, and in him is no darkness at all.

    I am come a light into the world.
 

  Governor Bradford of Plymouth Colony expressed himself in similar vein:

 
    As one small candle may light a thought, so the light here kindled hath shone unto many. . . .2
 

  We must now inquire as to why this increasing-of-candle-power theory is so hard to come by, so seldom grasped. I believe the difficulty stems from a confusion of categories. Most people are thinking in terms of securing conformity, when the real goal is to achieve creativity.

  Communists can and do teach the party line; millions can be taught to read and write words, or to repeat the multiplication table, or to sing songs, fix motors, stew prunes. Monkeys can be taught tricks. Duplicated things like autos, cornflakes, facial veneers, or whatever, can be sold. This sort of thing bulks large in the category of our experience, but it has nothing whatsoever to do with the theory at issue. Even more: Whatever is in the category of things that can only be sold or taught won’t advance the practice of freedom one whit! Creativity is not in the same realm as imitation, repetition, conformity, selling.

  Skilled musicians can play a Brahms’ Concerto, but who has the light to compose such a work? Many can act the parts in Macbeth, but where are the Shakespeares? A third grader knows the answer to 12 times 12, but where are the geniuses among us who could have conceived of zero? A child can be taught to recite “All men are endowed by their Creator with certain unalienable rights,” or eloquently to repeat the Preamble to the Constitution, but who among our contemporaries has the candle power to do this level of creative thinking?

  A Continuing Requirement

  Freedom is declining, despite the fact that previously conceived principles and practices can be and are being taught. The point is that freedom can never be sustained by imitation or repetition or preservation of the status quo, or by the recovery of a past accomplishment. Light is Creation’s first and most important means, and its corollary is the freedom to be enlightened, progress being measured by the growth in candle power of the individual—continuous enlightenment. Individuals and thus the species decline whenever light fails to pierce the darkness. Freedom dies on the vine whenever darkness is not giving way to light. Think of freedom not as a static condition but as a flowering process, the life-giving source of which is not mere light but a perpetually increasing enlightenment. It is difficult to conceive of any ideal value which, to confer its blessings, demands so much of its beneficiaries.

  Now then, does this mean that we do not qualify as effective workers in the vineyard unless we attain the creative stature—the candle power—of a Milton, Bacon, Da Vinci, Beethoven, Goethe, Adam Smith, Bastiat, Menger? Perish the thought! I firmly believe that were every citizen to attain the level of these few, but with their creativity at a standstill, freedom would decline as it is presently declining. It is not the level that matters; what counts is a constantly rising level—the light getting brighter! The meaning of this for the individual who would help? Primarily that he light his own candle and do his best—go in pursuit of excellence in all things.


This self-improvement method is no Trappist Monk theory. Indeed, it requires of the individual that he not “hide his light under a bushel.” It is a well-known fact that the more one shares his ideas with others (as distinguished from shoving his ideas at others) the more and better are his own ideas, that is, the greater becomes his own candle power. Using your light to help those attracted by it to find and light their own candles is the effective way to advance freedom and, thus, to serve the interest of others as well as self.

  Candle-lighting in this area consists of an increasing perception of authoritarian fallacies and of freedom truths. It means, also, a strengthening of the will to stand, four square, for what one in his innermost soul believes to be right. Do these things—they are the candle power!

 

    The realist, the one who sees clearly the extent to which our liberties are suffering political erosion, will, unless he takes command of his attitudes and emotions, become despondent and ineffective. Is there a way rationally to overcome such a plight? . . .

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