10.3 Review: Economic Progress

Lecture 10: Economic Progress
  • Labor, Capital, Technology, Trade and the division of labor, Indirect exchange and money, and Entrepreneurship are all humans actions driven by reason, survival, and the pursuit of the possible.
  • Humans aren't the strongest animal.  The reason humans mastered other species and we live protected from them is our reason, and the economic action it allows us to perform.
  • Forsaking free economic action does not mean giving up a few trinkets and accessories from our life, or a slightly slower pace of technological advance. It means the destruction of our ability to provide our most basic needs for ourselves, to protect ourselves from nature. 
  • The capitalist economy is not a political system, or an invention of the human mind. It is the state of affairs of humans acting based on reason to improve their own life. Reason naturally drives man to conclude he can improve his life by producing, accumulating capital, developing new technologies, trading, using a medium of exchange, and initiate new production processes.
  • Humans being able to deal with each other based on consent results in the proliferation of these six actions, resulting in the accumulation of capital, growth in market size, technological advances, and continuous increases in labor productivity. All of these lead to the subjective improvement of the quality of life.
  • The prevalence of peace leading to continuous increases in capital stock, productivity, and division of labor across generations is the process of civilization. It depends on people respecting each other's sovereignty over their body and their property.
  • The only person who can judge the value of an action is the acting person.
  • Economic progress is distinct from "economic growth" as measured by GDP. Economic progress is subjective, only determined by the person acting. Growth is (or, more accurately, pretends to be) an objectively determined number.
  • Economic progress, being subjective cannot be measured with a number.
  • Does this mean that economic growth is good? No, not absolutely, and not for its own sake.
  • Economic growth comes at a real cost. The scarcity of time means all actions have an opportunity cost. There are real trade-offs involved with every single action humans partake to progress economically.
  • Labor means foregone leisure. Saving means delayed gratification. Trading involves foregoing a price.
  • Entrepreneurship is uncertain and carries the risk of loss.
  • Not all work, saving, trade, or entrepreneurship is successful. The cost foregone might be higher than the reward.
  • "Infrastructure spending" and "public investment" are done to promote economic growth, but in reality, they rely on taxation, public debt, and inflation for financing. But taxation, public debt, and inflation all serve to raise time preference, reduce the incentive for saving; they lower the incentive to work; they lower the incentive to engage in entrepreneurship.
  • "Stimulating investment by lowering interest rates" does not actually provide more capital for production.It lowers the incentive for saving, and increases the demand for borrowing, resulting in a mismatch between savings and investments which will show up with an inflationary boom and a deflationary crisis,as detailed in Austrian business cycle theory, to be covered in ECO12.
  • "International free trade agreements" sound like they would encourage trade, but in reality, they just place more hoops and barriers in the face of individuals looking to trade with people outside their country. The only free trade policy needed is the absence of a trade policy.
  • The key thing to remember about these economic actions is that they are done to achieve subjective ends. It is thus essential that the individual carrying them out can do them freely to achieve their end.
Last modified: Monday, July 26, 2021, 2:35 PM