Excepting pure despotism, it is customary for a government to offer the public some plea of imperative national necessity for inordinate taxation. As men could not be worse off in anarchy or brute savagery than with a government which strips them to the bone, obviously there is a rational limit to theproper expense of government. And even politicians do not quite like to admit that they are making a tax grab solely for their own pockets, or to win the next election. But the validity of the pretext given for government spending always varies by inverse ratio to the unchecked power of government to take what it pleases regardless of injury to the taxpayer. The theory of the Mature Economy is the latest excuse offered in a period of dizzy increase of the political power, of taxes, borrowing and spending.
Mr. Terborgh* undertakes to demolish this theory, though it is no easy task to boil down the economic jargon to a definite meaning, and quite impossible to refute a string of words that mean nothing whatever. What could be extracted from such a phrase as “a society geared to a high peakload of capital goods production”? (The phrase belongs to Dr. Alvin H. Hansen, and he can have it.) A high peakload is a tautology, since the peakload is the highest load; and you just don’t gear to a peakload anyhow; try it. It is nothing but a mixed metaphor. But Mr. Terborgh gives the statement of the theory from its proponent’s verbatim in order to be fair. It may be best to make a briefer résumé in English.
An economy then would be fully “mature” if it ever got to the point beyond which there could be no further increase of productive capital assets. That would mean there would be no further investment of net savings in the economy. This condition must be understood clearly. It does not refer to the savings of an individual who may invest in previously existent capital assets, seasoned securities; but to a possible net surplus of savings in the economy, accumulated when or after there could be no further use for venture capital, because there would be no field for new enterprise at all, no undeveloped territory, inventions, or anything. And before reaching full or absolute “maturity,” the rate of increase of total capital assets might be expected to slow down. It is assumed that total capital wouldn’t increase faster and faster or even at a steady rate until it came to a sudden stop instanter. Then from the moment it did begin to slow down, of course the rate of entirely new investment, venture capital from savings, must decline commensurately.
But when savings go into venture capital, the process generally requires new buildings, new machinery and so forth, by which part of such savings invested becomes new income as wages and salaries of workers who do the building or make the machinery. Therefore a declining rate of venture capital investment means a direct decline in jobs, an increasing unemployment with no hope of a future upturn.
To take up the slack of such unemployment, the Mature Economists contend, it is necessary or desirable for the government to grab by taxation that margin of net surplus savings for which no venture capital investment is open, and spend the money. It is also asserted or implied that the American economy is already on the down curve toward “maturity”; therefore such savings ought to be expropriated from now on. It is not explained why the citizens couldn’t just as well spend their own savings on themselves for consumption goods. They need a lot of stuff right now, including food, clothes, motor cars, houses, and maybe a vacation in the loony bin to think things over. Mr. Terborgh notes these oddities of present application.
But most of Mr. Terborgh’s effort is directed toward showing the basic fallacy of the whole theory by facts and logic. Of course there is a catch in it, which dodges all conditions of proof. No economy has ever yet become “mature.” In the past many economies have certainly declined to the verge of extinction under government control, taxation, and spending; but never because a free economy could not have found use for venture capital. Then how is it to be known when a decline would actually indicate imminent “maturity”? There is no way, since previous declines could not show any clue, to match up. The theory therefore by its nature simply cannot fit any facts of previous record. All genuine scientific prediction has to rest on facts of record in the past, the thing which has already happened, in a known sequence. A system of mathematics that came out wrong when applied to yesterday’s data couldn’t very well be correct in relation to future operations.
The fallacy in the assumption of an investment standstill in the future is that new industrial investment arises from technological progress, discoveries and inventions which, being discoveries and inventions, are by their nature utterly and forever unpredictable. They are precisely the incalculable element in economics. A calculation based on the incalculable goes one better than unscrewing the inscrutable. That factor has always made a monkey of the gloomy forecaster of the total future. There were self-appointed prophets who didn’t see how there could be any new capital development after the canals and railroads and steam engine. Mr. Terborgh sums up these premature economists neatly: “Because they cannot see what is coming, they assume that nothing is coming.”
But in conclusion Mr. Terborgh turns on himself, by saying that there must be “economic statesmanship, both public and private to create under the altered social, political and economic conditions of today an environment hospitable to enterprise.” Might as well point to a slab of concrete and suggest that one must create under it an environment hospitable to raising vegetables. It can’t be done. The concrete would have to be removed. The social, political and economic conditions at any time are just what constitute the environment of enterprise. They will have to be “altered” back again, to permit enterprise, or else. That can be done, but it means that the necessity must be recognized.
Because of Mr. Terborgh’s conclusion, this book presents a tough problem in itself, being an example of a prevailing practice by which relevant facts and rational argument are suddenly brought to a flat non-sequitur. Do not such attempts at an impossible compromise tend to more danger or harm than the errors they set out to combat? History indicates that even clear refutations of foolish theories don’t take much effect, being negative. What finally disposes of a fallacy is a positive and correct theory in the same field, provable in application, which simply displaces previous error and leaves it to be forgotten. Fallacies flourish in the absence of exact knowledge; and the processes of production need to be understood thoroughly, on positive axioms and principles.
Mr. Terborgh comments on the rapid spread of the notion of Economic Maturity, and seems to imply that it is altogether new. It isn’t. It is a revamped version of the Marxist Communist theory of the relation of industrial capitalism to undeveloped colonial areas and the presumed final exhaustion of the latter. That is why it has got around so fast in the channels of Communist propaganda. It serves the Communist purpose perfectly for the time being.
|* “The Bogey of Economic Maturity,” by George Terborgh. Machinery & Allied Products Institute, Chicago.|
American Affairs VII, no. 3 (July 1945), pp. 159-160.