by Benjamin Marks, Economics.org.au editor-in-chief
Last Thursday’s documentary Dick Smith’s Population Puzzle and the subsequent debate was devoid of economic reasoning and cutting analysis. The following points out some of the oversights, errors and one-sided reasoning from the documentary and debate.
Ignorance of the Division of Labour
Dick Smith’s most famous political crusades are those in favour of protectionism and of government-imposed immigration limits. Both these issues stem from many misunderstandings of economics (including misattributing blame to the market rather than government for supply and demand imbalances, which we will go through later), but the main one is ignorance of the division of labour. One might think Dick Smith would see fit to criticise rather than ignore it. Either Dick Smith is sincere about defending his position, or he isn’t. If he is sincere, then why has he not addressed such an important argument? In his defense, I struggle to find anyone who has actually put the argument to him. So here it is. What is the division of labour? (Get through the hugely important and clear explanation below, and if that is not incentive enough in its own right, you’ll get the bonus of jokes in the next section.) Ludwig von Mises explains:
Historically division of labour originates in two facts of nature: the inequality of human abilities and the variety of the external conditions of human life on the earth. These two facts are really one: the diversity of Nature, which does not repeat itself but creates the universe in infinite, inexhaustible variety. The special nature of our inquiry, however, which is directed towards sociological knowledge, justifies us in treating these two aspects separately.
It is obvious that as soon as human action becomes conscious and logical it must be influenced by these two conditions. They are indeed such as almost to force the division of labour on mankind. Old and young, men and women co-operate by making appropriate use of their various abilities. Here also is the germ of the geographical division of labour; man goes to the hunt and woman to the spring to fetch water. Had the strength and abilities of all individuals and the external conditions of production been everywhere equal the idea of division of labour could never have arisen. Man would never of himself have hit upon the idea of making the struggle for existence easier by co-operation in the division of labour. No social life could have arisen among men of equal natural capacity in a world which was geographically uniform …
Once labour has been divided, the division itself exercises a differentiating influence. The fact that labour is divided makes possible further cultivation of individual talent and thus co-operation becomes more and more productive. Through co-operation men are able to achieve what would have been beyond them as individuals, and even the work which individuals are capable of doing alone is made more productive. But all this can only be grasped fully when the conditions which govern increase of productivity under co-operation are set out with analytical precision.
The theory of the international division of labour is one of the most important contributions of Classical Political Economy. It shows that as long as — for any reasons — movements of capital and labour between countries are prevented, it is the comparative, not the absolute, costs of production which govern the geographical division of labour. When the same principle is applied to the personal division of labour it is found that the individual enjoys an advantage in co-operating not only with people superior to himself in this or that capacity but also with those who are inferior to himself in every relevant way. If, through his superiority to B, A needs three hours’ labour for the production of one unit of commodity p compared with B’s five, and for the production of commodity q two hours against B’s four, then A will gain if he confines his labour to producing q and leaves B to produce p. If each gives sixty hours to producing both p and q, the result of A’s labour is 20p + 30q, of B’s 12p + 15q, and for both together 32p + 45q. If however, A confines himself to producing q alone he produces sixty units in 120 hours, whilst B, if he confines himself to producing p, produces in the same time twenty-four units. The result of the activity is then 24p + 60q, which, as p has for A a substitution value of 3 : 2q and for B one of 5 : 4q, signifies a larger production than 32p + 45q. Therefore it is obvious that every expansion of the personal division of labour brings advantages to all who take part in it. He who collaborates with the less talented, less able, and less industrious individuals gains an advantage equally as the man who associated with the more talented, more able, and more industrious. The advantage of the division of labour is mutual; it is not limited to the case where work is done which the solitary individual could never have carried out.
The greater productivity of work under the division of labour is a unifying influence. It leads men to regard each other as comrades in a joint struggle for welfare, rather than as competitors in a struggle for existence. It makes friends out of enemies, peace out of war, society out of individuals.
Why doesn’t Dick Smith, Ross Gittins and other advocates of government limits on growth tackle this central issue? We know they’ve got plenty of time and money up their sleeve to spend on this topic.
Blame Government, Not Capitalism, for Bad Growth
There’s a classic joke in the movie Wonder Bar (1934). Al Jolson speaks with one of the guests at his club. The guest says he is very depressed. His wife is pregnant again, and considering the pain and hardship that her many previous pregnancies caused, promised her that if she ever got pregnant again, he would kill himself. Al Jolson tells him not to do that, as he may be killing an innocent man.
There’s another classic joke that Dave Allen used to tell:
You get a priest and a nun, and the nun turns to the priest and she says: “Do you ever think that the Holy Father will allow us members of the clergy to marry?” And he says: “I don’t think so, Mother Superior. Not in our lifetime. Or our children’s. But perhaps in our children’s children’s.” [The Essential Dave Allen, ed. Graham McCann (London: Hodder, 2005), p. 156-57.]
In Carry On Sergeant (1958), on inspecting the troops, Sergeant Grimshawe (William Hartnell) sees that one of the men (Kenneth Williams) is not standing straight and that his stomach is sticking out. He asks, “Why are you standing like that; are you pregnant?” The response: “Well, I wouldn’t be surprised, considering the way you’ve mucked us about.”
Look at how government has mucked with the market, sabotaging the ability of market prices to deter unsustainable population and industry increases. In fact, every government intervention into the market does this. Principled capitalists want the elimination of the welfare state, of pensions, baby bonuses, paid parental leave, everything. So the practical compromises that Dick Smith attributes to capitalists are actually not ideologically congruent with capitalism, and so as a criticism of capitalism Dick Smith’s documentary is misdirected.
It is amusing that in the documentary public transport and roads are suggested as proof that we are overpopulated. No, what it shows is that government can’t handle capitalism. What is needed is the privatisation of roads and highways. That is the only principled position. Is it radical? Well, Dick Smith said that a radical change of thought may be required.
Capitalists Welcome Unsustainable Industry Collapse
Dick Smith mentions in his documentary that advocates of capitalism don’t want there to be limits on immigration, because that would mean that the building industry would collapse. It is not fear of unsustainable industries collapsing that bothers principled free market advocates. We would like to see it. The longer that the unsustainable industry continues, the worse the inefficient use of resources and the eventual inevitable layoffs. (Dick Smith may be right in attributing the fear of industry collapses to self-proclaimed capitalists, but no principled capitalist would hold that position.)
Capitalism Does Not Require Growth
It is perfectly compatible with capitalism for a business or industry to wind down its operations or limit its output. Many people choose to not work on their business 24 hours a day. Knowing when to stop growing your business is something that all capitalists attach great importance to. But then, if this is true, how can Growth be the God of capitalism? Or is Dick Smith claiming that capitalism is polytheistic? Equally, increased immigration is not necessarily congruent with capitalism. Immigration, according to the principled capitalist position, is not something government should control or have anything to do with. It is a question of who property owners allow on their own land. If you don’t want to allow any extra people or new faces entry to your property, that is your right in a capitalist society.
It is a socialistic economy that may require growth, to feed demagogic and union demands for higher wages and more jobs, and then increases in the money supply or immigration supply are needed to fund it, and then higher wages, etc., are needed to afford the increasing cost of the same standard of living. But the complaint here is against a socialistic economy, not a capitalist one. Those concerned about this empty growth should be favouring capitalism, not opposing it.
Against Population Targets
Government-imposed population targets are an example of price-fixing. If Dick Smith endorses it in such an important area as population, why not in every other area, and abolish the market altogether? It was amusing to hear Tim Flannery suggest that an RBA-like organisation be set-up to determine population rates, as if the RBA is not a destructive influence on the economy, on saving for the future, etc.
Population depends on resource-levels and resource-levels depend on population; they are interdependent. Without the addition of labour to natural resources, in a free market they would tend not to be as productive to humans. Productivity of resources can increase with increased labour. Productivity of labour can increase with increased resources.
Not only should government not set a population figure, but government should have nothing to do with immigration whatsoever and should eliminate its constant interference with a free market in immigration, which would tend to harmonise supply and demand better than a central planner.
Are Resources Finite?
Well, for one thing, the sun constantly provides new energy. But the most important point to comprehend is how the division of labour makes for more efficient use of resources, not according to any magical formula, but simply according to supply and demand. In a free market, unsabotaged by government intervention, price of resources will increase to prevent them running out, redirecting consumption and innovation to other resources. There is no shortage of materials that could potentially be exploited.
One common misunderstanding is that soil takes a hundred years to develop. P.A. Yeomans called bluff on that one.
The Partiality of Environmentalists
Environmentalists admit that capitalism has brought great rewards so far. But they say that in the future it will be different. This is because they fail to foresee the innovations of capitalism. This is understandable, since no one can foresee them with any certainty. But it is odd that they are happy to extrapolate graphs showing increased use of resources, but refuse to extrapolate graphs showing increased innovations to thrive in scarce conditions.
Environmentalists are forced to talk about breaking points, critical masses and nearing precipices, when, all of a sudden, the abundance of capitalism will collapse under its own weight. Despite many past attempts to guess when this reversal of the fortune of capitalism will be, they have all been wrong — except, of course, for those predictions about what will happen in the future.
Environmentalists complain that defenders of capitalism do not understand the complexities of nature. Yet where is the environmentalist who understands the division of labour or the ability of price to harmonise supply and demand? And where is the environmentalist who acknowledges that pollution is a property rights issue?
Environmentalists argue falsely that we do not have the right to use resources now at the expense of future generations to use resources. But if we don’t have the right, then neither do future generations. There will always be future generations whose rights will trump the ability of present generations to use resources. So this particular argument is anti-future generations just as much as it is anti-current generations. See Murray Rothbard’s “Conservation in the Free Market” for more of this kind of thing.
There are many other issues, but these should keep Dick Smith and his sympathisers busy.
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