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Christian Economics in One Lesson, Chapter 24

Written by Gary North on September 12, 2015

Thou shalt not steal (Exodus 20:15).

Hazlitt’s version of the lesson was different from mine.

What was the lesson, according to Hazlitt, that he was trying to teach? Here is his first paragraph of Chapter 24:

Economics, as we have now seen again and again, is a science of recognizing secondary consequences. It is also a science of seeing general consequences. It is the science of tracing the effects of some proposed or existing policy not only on some special interest in the short run, but on the general interest in the long run.

The trouble with this summary is this: most members of scientific guilds claim exactly the same thing that Hazlitt claimed for his version of economics. They claim to follow the implications of the science’s truths. They claim to look at the overall picture, which they call the general view, which is supposedly based on general laws. They also claim to deal adequately with specific cases. So, what is it that distinguishes economic science from political science or educational science or psychology or sociology or physics?

I gained a different lesson from Hazlitt’s book: Follow the money . . . backwards.

This phrase, “follow the money,” came into the American vernacular because of the movie, All the President’s Men (1976). This was a movie on President Nixon’s forced resignation in 1974, which came because of two diligent reporters for The Washington Post, Woodward and Bernstein. This three-word phrase was the recommendation given to the reporters by an anonymous tipster whom they called “Deep Throat.” (That was in turn a reference to a famous pornographic movie of the era.) What is not widely understood is this: the two reporters do not remember their source ever saying this. The phrase does not appear in their book. The screenwriter, William Goldman, is probably the source.

I regard my four-word phrase as the essence of Bastiat’s general analytical principle: the broken window. What he told us in 1850 was simple: follow the money . . . backwards. Every time somebody recommends that the government intervene in order to protect an industry, or a special group, and the advocate does this in the name of helping the general public, we can be sure that the person making the recommendation has not followed the money backwards. Anyway, he has not told the general public the truth, the whole truth, and nothing but the truth. He may persuades the public, and he may also persuade politicians, that the state should intervene to help this group in the name of helping the general public. But if an economist follows the money backwards, he will find that the claim regarding the benefits for the general public is false. The only reason why the promoter successfully makes this claim is because the public refuses to follow the money backwards.

If you follow the money backwards, you will find out that there were benefits associated with that money before the window was broken. The promoter who wants the government to intervene wants the voters to follow the money forward to all the benefits the money will produce. The money will stimulate the economy, he says. But if we follow the money backwards to the person who owned it prior to the envy-driven action of the person who threw a stone through the window, we will find that there were other things that the window’s owner preferred to do with the money.

In chapter 23, “The Assault on Saving,” we discover a more fundamental truth than might have been the case in 1850. The money was already being used for productive purposes. Today, an individual has the money in a bank. The bank is providing services for this deposit. The bank is also lending the money to a borrower. The money is being used for one set of purposes, and these purposes are highest on the list of the person who owns the money. So, when the stone goes through the window, and the owner calls the window repair shop, he will have to pay for this by taking money out of the bank. This is bad for the person who owned the window. This is bad for the local bank that took in his deposit. This is bad for anybody who expects to get a loan from that bank.

(For the rest of my chapter, click the link.)

Continue Reading on www.garynorth.com

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