Time Will Run Back

by Henry Hazlitt

  The same sort of thing was happening every day, and in every line of production. New and more economical methods were constantly being superseded by newer and still more economical methods. Old products were constantly being displaced by new products.

  “Nothing approaching this process ever went on under the old state socialism, Adams,” Peter said, “because the commissars and bureaucrats had no such pressure put on them. They had no competition. They didn’t even have a way of finding out what the preferences of consumers were, or what their real wants were. They turned out a stock, drab, ‘utility’ product, the way they had always turned it out, the way it had been turned out for generations, because the consumers either had to take what the State gave them—or nothing.”

  But Peter had his difficulties even under the new system. For the owners and managers of the relatively inefficient firms kept sending delegations to the White House demanding “laws” to “protect” them from the “unfair competition” of the more efficient producers. Peter not only refused to give them any such “protection” but was constantly forced, both in his private talks and in his public speeches, to tell them why he was refusing it. In the long run, he repeatedly had to explain, penalizing the most efficient producers, the profit-making producers, doesn’t protect anybody; it merely impoverishes everybody.

  Even Adams, for a time, was on the side of the inefficient producers. “But isn’t it wasteful, chief, for these people to have to scrap all those old textile machines that still have a good life in them?”

  “No,” insisted Peter. “Because relative costs of production show that these machines are now worthless. They have been made obsolete. Far greater value—far greater worth—can be produced with the new machines.”

  But a few weeks later Adams returned to the subject, this time with exactly the opposite criticism.

  “Why doesn’t your private industry have nothing but these new model machines, chief? Why doesn’t it scrap, immediately, all the old machines? Why not let me issue an order, in the name of the Supreme Economic Council, forcing every enterpriser to change over immediately to the latest model machine?”

  “You want to force upon private industry something that socialist industry never did and never thought of doing,” retorted Peter. “Under socialism the new machine would never have been invented in the first place, because no one would have recognized the need for it. If it had been invented, it would never have been adopted. You asked me only a few weeks ago whether it wasn’t wasteful to scrap the old machines.”

  “But now I’ve changed my mind, chief.”

  “And I’m afraid you are wrong both times, Adams. It seems to me that a market economy, the private enterprise system, adopts exactly the right in-between solution—the solution of constant but gradual advance. It replaces old machines with new ones, and old models with better models; but it can’t make the entire change-over instantaneously, and that would not be economical even if it could.”

  “I don’t get your point, chief. Let’s put aside the question whether under our old socialist economy the new textile machine would ever have been invented. It now has been invented. It exists. It’s available. Surely you must admit that if it were now installed everywhere it would increase the production of cotton cloth, and cut the cost in half. Surely the latest technical improvement should be introduced immediately, everywhere. Surely we want to operate industry at the highest technical efficiency!”

  “You don’t seem to be aware of all the assumptions you are making, Adams. If all these new machines could be produced and installed overnight, without using up huge amounts of labor and machine tools for their own production; and if the cost of the new machines to each producer did not exceed the economies in producing cotton cloth that they later brought about; and if the new machines in fact represented the last possible word in technical improvement, and we could be sure that they would not in a short time be superseded by still better models; and if the cotton textile industry were the only industry in Freeworld—then everybody ought immediately to install the new machine.”

  “Do I understand you correctly, chief? Are you saying that the best technical method of production is not necessarily the method that brings the greatest profits for an individual producer or for an industry, and that therefore we shouldn’t use it but should retain technically inferior methods that bring more profits?”

  “Maybe I am incidentally saying something like that, Adams. But I am saying something broader and much more important than that. I am saying that the best technical method of producing any single commodity is not necessarily the most economical method of producing it.”

  “But aren’t you looking at the matter, chief, merely from the standpoint of the money-profit of the individual producer? And shouldn’t we look at it from the standpoint of the greatest productivity for the whole community?”

  “It is precisely because I am looking at the matter from the standpoint of all-around productivity, Adams, that I make the statement I do. It is you who are looking at the matter from the narrow standpoint of a single industry. What we have to consider is overall productivity—not the productivity of a single branch of industry, not the mere production, say, of cotton cloth, but the combined productivity of all lines of industry. Therefore we have to compare all input with all output. In figuring what net economies the new textile machines really bring, we must figure the cost of making the new machines themselves. We must consider the amount of labor, machine tools and time that must be diverted to making these machines. For the productive resources used in making the new machines must be taken from making something else—something else that may possibly be even more urgent. And then we must further consider, not merely what happens in the cotton textile industry, but what happens in every other industry. If we were to turn the whole machine-tool industry over to making the new textile machines, then there would be no capacity left to make new machines for any other industry. Yet some other industry may need new machines even more urgently.”

  “I think I begin to see your point, chief. Other things being equal, goods should be produced by the methods that are technically most efficient. But technical efficiency isn’t the only factor to be considered.”

  “Right, Adams—though I should prefer to put the matter a little differently. What must be kept in mind, in choosing the best or most economical methods of production, is not merely the most efficient technical method of producing one particular commodity at one particular stage of one particular industry, but the most economical use of all available resources of labor and time and means of production to achieve the greatest general all-around production for a uniform satisfaction of consumer wants. And this doesn’t necessarily mean the use of the most perfect technical equipment at one particular point when this can only be achieved at the cost of robbing other industries and making them technically more inefficient.”

  “So, as you see it, chief, an engineer or other technician wouldn’t necessarily be able to decide what really was the most efficient means of producing a product?”

  “No. He would only be able to answer the engineering question. But the individual enterpriser must take into consideration the most economical method of producing that product when everything is considered.”

  “From his own standpoint,” said Adams.

  “Yes, from his own standpoint,” agreed Peter. “But what is most economical from his standpoint happens to be also what is most economical from the standpoint of the whole community. In other words, by what looks at first like an amazing coincidence the individual enterpriser makes the same kind of decision that an economic dictator—if he could take into consideration all the needs of consumers and all branches of production—would try to make. The economic dictator would have to decide how up-to-date and perfect the machines and productive resources could afford to be at any one point. The difference is that the economic dictator, as we discovered, would not know how to solve the problem. In fact, he wouldn’t even recognize
clearly what the problem was. And if he did see it, he wouldn’t be able to solve it, because he wouldn’t have a free market system and a free price system to enable him to measure his costs of production against the value of his product—to measure his input against his output.”

  “And he—meaning you and I—didn’t have double-entry bookkeeping and cost accounting to help him either, chief.”

  “No,” agreed Peter. “And I must admit that it was an inspiration on your part, Adams, to think of bringing Baronio and Patelli along with us to Freeworld. Patelli’s invention of double-entry bookkeeping and cost accounting will go down as two of the great triumphs of the human mind. Such discoveries were not possible under Wonworld’s socialist system. They enable the individual enterpriser to calculate with the greatest nicety, not only for his organization as a whole but for each department within it and for each product, whether resources are being wasted and misdirected or whether they are being used to produce the maximum return.”

  Chapter 34

  BUT these men, these enterprisers,” persisted Adams, “are not trying to do the best thing possible for the community. Each of them is merely interested in maximizing his own profit!”

  “That is true, Adams, and that is precisely the great miracle. Each of these men is ‘selfishly’ seeking merely his own private profit. And yet under this new system we have invented, under this private ownership of the means of production, each of these men acts as if he were being led by an invisible hand to produce the things that the whole community most wants, to produce them in the right proportions, and to produce them by the most economical methods.”

  “An invisible hand!” exclaimed Adams. “What a marvelous phrase, chief! For that phrase alone you deserve to be remembered by humanity.”

  Peter blushed. “I hope not,” he said. “After all, it’s only a metaphor, and I only mean it as a metaphor. If people thought I really believed that there was some occult and mysterious and supernatural force guiding the actions of enterprisers and workers—or some inevitable harmony between short-run private interest and long-run public welfare—they might ridicule me for it; and I would wish forever afterwards that I had never resorted to figures of speech. No, the new system that we have invented—”

  “You invented it,” said Adams generously, “over my objections to everything.” “Thank Marx for your objections, Adams. They steered me away from false solutions and blind alleys and helped us to find the truth.... Anyway, regardless of who invented it, the new system of free markets and private ownership of the means of production is miraculous. I stand by that. It is a miracle. But once it’s been discovered, there’s nothing occult or mysterious about the explanation. For under this system every enterpriser, every workman, is under the greatest incentive to do his utmost to please the consumer. He has to make what the consumers want, otherwise he cannot sell it; he cannot exchange it for the particular things that he wants. And not only does he have to make what the consumers want, he has to make it at least as well as most of those who are already making it; and he has to sell it at least as cheaply as most of those who are already selling it. And if he wants to make more than a bare living, or if he wants to make more than an average wage, he has to make a product better than others do, or sell it cheaper than others can sell it. For that reason, what a man makes in the hope of selling it will have to be even better than what he might make merely for his personal use.”

  “You mean, chief, that production for profit is even better than production for use?”

  “Precisely, Adams; because the man who is merely producing a chair for his own use is not competing with everybody else’s production; but if he produces a chair in the hope of selling it, he must compete with the chairs that others are offering to the consumers. Production for profit is production for use—for if consumers do not find that a product is good in use, they will soon cease to buy it, and the enterpriser will soon be bankrupt.”

  “Then the ‘invisible hand’ you speak about,” said Adams, “is really competition?”

  “Competition is certainly the palm of it.”

  “But this means that we in the government, chief, must make sure that competition dominates our economic life.”

  “Precisely, Adams. We must absolutely forbid coercive monopoly. Perhaps that was the central evil of state socialism. The state’s monopoly of power, and its monopoly of production. But we must do more than fight monopoly and encourage competition. We must draft our laws in such a way as to raise the level of competition. We must so draft them that a man who seeks his personal profit cannot attain that selfish goal except by promoting the public welfare.”

  “And how are we going to do that?”

  “We must forbid him, Adams, to do anything that injures the public welfare. Therefore we must forbid theft, fraud, deceit and all misrepresentation of goods. We must illegalize every form of force, violence, extortion, intimidation, coercion. We must compel men to keep their contractual promises, to pay their just obligations and to fulfill their contracts. The corollary to private property is private responsibility. We must not allow a private industry to thrive at the cost of killing or maiming its workers, or injuring consumers of its products, or menacing the public health, or polluting public streams, or polluting the air, or smudging whole communities with the residue of smoke. We must force every industry to pay the costs of the injury it inflicts on the person or property of others.”

  “All that isn’t easy to do, chief.”

  “It is extremely difficult to do,” agreed Peter, “Especially to do rightly. By our new system we have saved ourselves from the thousand needless headaches of planning. But there is never-ending work to be done in perfecting the system of free enterprise. And it can only be done if, in doing it, we adhere to the principles of freedom. But if we do this, if we make it impossible for people to grow rich by violence or force or theft or fraud or sharp practice, then the only way in which they will be able to succeed in business will be precisely by competition and rivalry in serving the consumers.”

  “Are you sure that laws will be enough, chief, however good they may be?”

  A heavy rain was coming down. Peter went to the window and looked steadily out at it.

  “No,” he said at last, “laws won’t be enough, however good. If the people were so corrupt that they were constantly trying to evade the law, and if the police and judges and government were so corrupt that they made no impartial effort to enforce the law, then even an ideal set of laws would be futile.... No, the majority of individuals must be moral. The society must live by a moral code. The individual enterpriser or trader or workman must not only fear the police, or private retaliation; he must himself believe in honest dealing, in fairness, in justice, in truthfulness, in honor.... Perhaps the greatest vice of the communist system, worse even than its failure to produce goods, was that it destroyed all sense of justice and truth, and made its only ‘morality’ consist in absolute obedience to the commands of the dictator.... But individual freedom is impossible without individual responsibility.”

  “In other words,” said Adams, “despotism may govern without faith, but liberty cannot.”

  Peter looked at him with startled admiration. “Now you have coined a wonderful aphorism which should earn you the gratitude of mankind.”

  “People will probably remember the aphorism, chief, and forget the author. Or worse, they will continue to remember the aphorism after they have forgotten its meaning.”

  “Anyway,” concluded Peter, “it sums up perfectly what I have been trying to say. If we want our new system to endure, we must not only create an institutional framework of law and order, but each of us must contribute toward building up a moral code to which all of us will adhere, not through fear of legal punishment, or even through fear of what other people will think of us, but solely through fear of what each of us would otherwise think of himself.”

  “Could we ever develop such a moral code, chief, would we ever live up t
o it, unless we revived those very religions that communism has been reviling and despising and trying to stamp out all these years?”

  Peter looked out again at the rain. “I don’t know. I don’t know.... We can’t just invent such a religion. We can’t just throw together some arbitrary credo about the supernatural and then try to force everybody to subscribe to it. But your question stops me, Adams. I’ll admit this much, even now. I’m not sure that men will accept and abide by a moral code, however rational, based on purely utilitarian grounds. Perhaps the masses of mankind will never abide by a moral code unless they feel a deep sense of reverence for something....”

  “For the universe itself?”

  “At least a deep sense of humility, a recognition of their own littleness in the universe, a profound sense of their own bottomless ignorance before the mystery and the miracle of existence Perhaps we need at least a conviction, a faith, that beyond the seemingly blind forces of nature there may be, there must be, some Great Purpose, forever inscrutable to our little minds.”

  “Isn’t it an example of the pathetic fallacy, isn’t it very unphilosophic anthropomorphism and anthropocentrism, chief, even to use such a term as ‘purpose’ in connection with nature or the universe as a whole? Isn’t it presumptuous, and perhaps meaningless, to say either that the universe has a Purpose or that it has no Purpose? ‘Purpose’ describes a purely human attitude—the use of present limited means to attain future ends.”