A paragraph published by the Associated Press in late January made an impression on me:
A build-up in business inventories — which in calculating GDP adds to economic activity — masked the fourth-quarter's true weakness. When inventories are stripped out, the economy would have contracted at a 5.1 percent pace in the fourth quarter, closer to the 5.4 percent drop that economists expected. Businesses couldn't cut production fast enough in response to waning customer demand and got stuck with excess inventories, economists explained.1 (Emphasis mine)In other words, symptoms of economic sickness include excess inventory — too many things sitting on shelves. I picture store shelves stacked with goods and no one around to buy them. This is essentially what the Associated Press is suggesting, that able-bodied people are going without, living in the midst of an untouchable surfeit.
Could it be that after years of consumerism, everyone is finally satisfied and we all went home? If that is true, why do I begin to hear reports of increasing poverty?
Perhaps no one ever wrote more appropriate words for our time than G.K. Chesterton did during the early part of the 20th century:
"No creed or dogma ever declared that there was too little food because there was too much fish. But that is the precise, practical and prosaic definition of the present situation in the modern science of economics. And the man of the Nonsense Age must bow his head and repeat his credo, the motto of his time, Credo quia impossible."2It requires only a few moments' reflection on the mortgage crisis to realize how far this contradiction has gone. In America, we very seriously regard the condition of paying a mortgage as "ownership" of Real property. If you can qualify for a sufficiently large loan, then congratulations; you can now "own" a home!
The truth is that banks own most homes. It seems that Capitalism is also a collectivist theory, at least in practice.
How is it that "to own" now means the same thing as "not to own?" Is it so we can claim that the "American Dream" is somehow still a reality even for people who do not actually own the type of property that John Locke once considered fundamental to being free?
Today we see that homelessness is on the rise, but not for lack of houses. They increasingly sit empty. I occasionally hear news on the radio of how the present poor economy wreaks equal havoc on the general quality of nutrition, but not for lack of nutritious food!
"The Irish have sometimes been accused of unbalanced emotion or morbid sentiment. But nobody says that they merely imagined the Great Famine, in which multitudes starved because the potatoes were few and small. Only suppose an Irishman had said that they starved because the potatoes were gigantic and innumerable. I think we should not yet have heard the last of the wrong-headed absurdity of that Irishman. Yet that is an exact description of the economic condition to-day as it affects the Englishman. And, to a great extent, the American"3Chesterton went on to discuss the hypothetical orchard farmer who grew nothing but apples. His business plan was to make a profit by selling apples to the whole world. Unfortunately, his neighbor's orchard was full of apples too, resulting in a glut of apples on the market. Apples being so worthless, the farmers couldn't make a profit to buy pears and peaches at the grocer.
What if, instead of selling apples, the farmer could reach out his hand and pluck all types of food from his own trees and from his own garden? And then eat it?
Cynics may cast into doubt whether this is entirely relevant to the present catastrophe. They will call the idea too simplistic. Things are never so simple as this, which is true enough; and finally, we do not all want to become farmers anyway. Of course, such cynics lack sufficient imagination, or perhaps do not understand that the paradox of over-production only serves to illustrate what the right premise of economy ought to be.
It really is as simple as that when we put things in their right perspective and, in any case, "we must understand things in their simplicity before we can explain or correct their complexity."4
I once invited a salesman in from the cold. The gentleman was training a neighbor of mine in the arts of entrepreneurship, and so I had previously agreed to the presentation which included an interesting discussion on how one ought to properly use other people's money to "grow wealth" for one's self. We reviewed my financial situation, including the status of my mortgage. In the shelter of my warm and cozy dining room, this salesman proceeded to show me, by infallible mathematics, the ways in which my money did not work for me. It turns out that in those days I might have used my house as a type of leverage to get even richer — which is apparently what houses are good for.
Had I taken his advice then, my family and I might very easily be homeless today. This brings us to the rotten heart of the modern notion of economy, the root of the paradox that Chesterton describes in the following way:
"When God looked on created things and saw that they were good, it meant that they were good in themselves and as they stood; but by the modern mercantile idea, God would only have looked at them and seen that they were The Goods. In other words, there would be a label tied to the tree or the hill, as to the hat of the Mad Hatter, with "This Style, 10/6." All the flowers and birds would be ticketed with their reduced prices; all the creation would be for sale or all the creatures seeking employment; with all the morning stars making sky-signs together and all the Sons of God shouting for jobs. In other words, [certain mystics, in the American business world] are incapable of imagining any good except that which comes from bartering something for something else. The idea of a man enjoying a thing in itself, for himself, is inconceivable to them. The notion of a man eating his own apples off his own apple-tree seems like a fairy-tale...Of course, it does not begin nor end with apples.
The last result of treating a tree as a shop or a store instead of as a store-room, the last effect of treating apples as goods rather than as good, has been in a desperate drive of public charity and in poor men selling apples in the street."5
What is the permanent solution for a broken economy? It is simply that we put first things first, to understand that "the only way to proceed through a complex situation is to start with the right first principle." 6
Houses are first valuable because they are good for living in. Apples are first valuable because they can be eaten. Books are first valuable because they can be opened and read. Clothes and shoes are first valuable because they can be worn.
A bank has no interest in houses for their own sake, only as leverage for something else. To a bank, houses and food and clothing are first valuable because they can be bought and sold.
Insisting that the real value of things is the same thing as the purely abstract monetary value represents a fundamentally flawed premise that will never produce enduring prosperity. This is the Big Lie implicit in modern economics.
In nature, ownership is determined by intrinsic value, not by price. This is the correct first principle that has been forgotten.
In the next essay, I will write a little bit about what property really is and how it is important to the state of freedom.
1. Economy shrinks at 3.8 percent pace in 4Q, by Jeannine Aversa, Associated Press, Friday, Jan. 30, 2009
2. Works of Gilbert Keith Chesterton, Kindle edition. From the Essay, "Reflections on a Rotten Apple" found in "The Well and the Shallows," beginning at position 111763, by G. K. Chesterton.