The thing about economics is its almost universal vulnerability to subjectivity. Subjective Economics – an oxymoronic concept if ever there was one. Those serious about it though, understand empiricism not only leads to credibility, it allows one to
separate wishes from reality. Sometimes what we wish/hope to be true, simply isn’t, and usually for good reason.
From the editor: please welcome Jeff Brown to AGbeat. Jeff is a real estate investment expert specializing on helping people retire with full pockets, is well known as the “Bawld Guy” and is a second generation broker who became licensed in 1969 and has already trained the third generation in his family. Jeff is a personal friend of ours and we are among those who call him to discuss the business of real estate as he is one of the few who has weathered every storm and remains standing in a very successful position. Please welcome him in comments.
There are basically two schools of thought in economics, though seemingly endless shades of each. One is what I’ll simply call the Collectivist school of thought. The other is the Austrian school. There’s a gigantic ocean between them, including those who’d love us to think they’re not simply a variation of Collectivism or Austrian Economics. For the record, this is my personal view of economics – these two schools.
All effort is for the good of the group
It all boils down to the power of the individual being allowed to act in their own self interest on one hand – OR – all things being based upon the good of the collective group on the other hand.
The former believes if we all act for our own benefit, we’ll adjust our behavior based upon how the market responds to our efforts. The latter believes all things economic should be considered in terms of, as their hero, Karl Marx put it, “From each according to his ability, to each according to his need.”
In other words, all effort to produce is for the good of the group, not ever the individual, and the individual is granted only what they need, nothing more. The ability (freedom) for the individual to choose – even to fail – is simply not a factor in the equation.
Individuals decide for themselves
The Austrian school of thought allows individuals to decide what’s in their best interest. Friedrich Hayek is probably the most widely known economist from that school.
The various would-be schools found between those two disciplines, ultimately favor one or the other.
Besides the obvious difference in emphasis – The Individual vs The Group – one can discern shades of so-called moderation, by testing what the proffered system deems more important: Equality of opportunity – OR – Equality of Results. The Austrians are staunch believers in the former, while the Collectivists are equally committed to the latter.
Austrians allow you and I the opportunity to succeed OR fail on our own merits. They believe it’s axiomatic that you and I are not created equal in the literal sense. That is, IQs vary. Desire and motivation differ. Each individual has different aptitudes.
Two different aptitudes:
You’re a math whiz, while your brother excels in the arts. You’re 7’ 2” tall, with world class hand/eye coordination, while your best friend can’t walk and chew gum at the same time, but can solve architectural problems in minutes. He’ll never play for the Lakers, and you’ll never build the next generation of skyscrapers.
Given the obvious differences between individuals, they opt to let us choose to be pro athletes or architects. Then they teach us to let each individual rise to the level their efforts, skill, and the market allows. Equal opportunity also allows each of us to fail miserably. One might say, “To each according to their own efforts, to each according to their own strength of character.”
The value of the farmer
Collectivism says the farmer who successfully produces higher quality wheat, more abundantly, isn’t valued by the group any more than his neighbor who’s barely competent to sweep out the barn.
The Austrian says the individual’s value to the economy is in direct proportion to the level of difficulty required to replace them. A janitor is more easily replaced than a highly trained heart surgeon. Therefore, the janitor is paid less – as determined by market demand — for his skills than is the doctor.
What about the middle of the road?
That’s where you find road kill, another article altogether. Bottom line? We must all decide whether we prefer equality of results – Collectivism – or equality of opportunity – the right of the Individual to succeed – or fail – on their own merits. Do we like living off of the efforts of others? Or would we rather earn our own way?