Economics: Work and Prosperity

Economics: Work and Prosperity
by Russell Kirk
(Pensacola: Pensacola Christian College, 1989), 398 pp.

Rating: A-/B

General Comments: The late Russell Kirk was a historian, not an economist, but this book is an excellent introduction to the principles of economics. It is readable and short, and gives students a clear grasp of prices, costs, and the roles of entrepreneurs and governments. The book is especially useful for its many illustrations of economic ideas from history and literature. Kirk is a storyteller and high school students will appreciate learning economics through stories rather than graphs. Kirk’s book has not been revised since its release in 1989. The mixed rating of A-/B reflects the need for updating the book to include the fall of communism and other developments of the 1990s.

Criterion 1: Costs and Prices: How Production is Determined

The opening section on costs and prices begins a useful discussion. Kirk differentiates between needs and wants; and he points out that some person had to work to produce any good. People produce goods, government taxes and distributes some of the production. Kirk describes what makes something valuable and concludes that "it is scarcity, rather than the amount of labor required to produce a good, that usually determines the value of any good" (p. 21).

Throughout this book, Kirk uses clear examples from history and literature to make his points. In this section, he tells the story of the Pilgrims and how they dealt with scarcity, labor, and production in the early 1620s. Governor Bradford at first had a socialist economy, but food shortages resulted; then he assigned private property rights to the pilgrims and production went up in his second season at Plymouth.

Criterion 2: Competition and Monopoly

Kirk’s chapter "The Good that Competition Does" is a clear and useful analysis of competition. He makes an interesting distinction between healthy competition, which "leads people to work hard and produce good things" and evil competition, or "strife," which produces "deception, fierce quarrels, and war" (p. 123). Healthy competition, Kirk argues, is rooted in human nature and is what makes market economies so prosperous. He quotes from Samuel Johnson, the British writer of the first dictionary, that "a man is seldom more innocently occupied than when he is engaged in making money" (p. 124) and Irving Babbitt that "There is something in the nature of things that calls for a real victory and a real defeat. Competition is necessary to rouse man from his native indolence, without it life loses its zest and savor."

Kirk then describes efforts inherent in any economic system to stifle competition. Even in a market economy, as Adam Smith observed, businessmen will meet together and try to set prices. Kirk points out that the U. S. Congress has passed antitrust laws to try to prevent "combinations in restraint of trade." He seems to approve of this intervention, but admits that the free market itself is an important element in preventing monopolies.

Kirk’s analysis would benefit from specific examples. The Sherman Antitrust Act, written in 1890, for instance, was first applied to the American Sugar Refining Company, which bought the E. C. Knight Company and thereby controlled 98 percent of the sugar market. The Supreme Court refused to break up American Sugar Refining because it was not restraining trade—anyone else could have entered the sugar market. In fact, that happened during the next 30 years and by 1927 American Sugar Refining controlled only 25 percent of the U.S. sugar market. U. S. Steel is an example of another large company that lost business in the early 1900s because other companies, such as Bethlehem Steel, entered the steel market and made a better product.

Criterion 3: Comparative Economic Systems

In his study of comparative economic systems, Kirk compares mixed economies (e.g., the U. S., Taiwan, and Kenya) with command economies (e.g. China, Tanzania, and Russia). His book was written in 1989, before the fall of the Soviet Union, but his comparisons of the performance of market and command economies are still valid.

Kirk lists the strengths of market economies and emphasizes the creative results that occur when millions of people compete to provide the best and cheapest goods and services for others. The command economy has the advantage of being able to target resources for quick results. But it has inherent inefficiencies, Kirk argues, that result when people are not free to own property and accumulate wealth. He uses Alexander Solzhenitsyn’s experiences recorded in The Gulag Archipelago to show the problems with bureaucracies, black markets, and lack of consumer support in Russia’s command economy of the 1950s.

In any future edition of this book, the author will want to describe Russia and Eastern Europe in the 1990s, after the fall of communism.

Criterion 4: The Distribution of Income

Kirk has an interesting section on how the politics of envy affects the distribution of income in market economies. Some people see their neighbors getting rich in business and they envy this wealth and the possessions it can buy. Eventually, the "have nots" and their lobbyists appeal to government for higher taxes on the "haves." Kirk uses Holland after World War II as a historical example of the politics of envy in action. Government taxation on wealth had so reduced the gap between rich and poor that entrepreneurs no longer had incentives to take risks and create new products. Kirk cites Prime Minister Andries van Agt’s recent efforts to stifle the politics of envy and restore rewards to those who succeed in business.

Kirk describes the moral basis of income distribution and poverty. He recognizes that some people are poor because of bad luck, but he stresses hard work and careful planning as the keys to success. In a market economy, talents in different areas of life do indeed vary, so income stratification is an inevitable result. Command (or socialist) economies, Kirk notes, sometimes try to equalize incomes, but often with negative results. The work ethic diminishes; shortages of goods and services plague the economy.

Criterion 5: The Role of Government

Kirk notes that the role of government often determines a nation’s prosperity or poverty. All economists agree that government needs to enforce contracts and laws. Government also provides for the national defense. Should there be any other functions of government in a free society, Kirk asks. He reviews the changing role of government in history from the times of Plato and Adam Smith to the late 20th Century.

Edmund Burke, Kirk notes, said that government should not "provide for us in our necessities," (p. 241) yet has done so to an ever-increasing degree over the course of the 1900s. The 20th Century has witnessed the growth of government across the globe in both market and command economies. Kirk does not explain why this is so, but he does look at its consequences in higher taxes, increased regulation, and the decline in individual liberty. American society, Kirk notes, has prospered in the 20th Century, but he sees the growth of government as a potential brake on economic growth.

This text would have benefited from a stronger analysis of public goods, the free rider problem, and externalities.

Criterion 6: Public Choice

There is no special section on public choice in this text. Since most public choice research is relatively new, and since this text was written in 1989, Kirk may not have thought public choice ideas were worth including in his text. None of his writing, however, conflicts with the best available research on public choice theory.

Criterion 7: The Role of Entrepreneurs

Kirk’s section on the role of entrepreneurs is useful. He defines the entrepreneur as a person with "a gift for thinking up new undertakings and getting them accomplished." (p. 59) This definition is helpful because it emphasizes risk and imagination—two interesting qualities that few people have. Kirk points out that the entrepreneur "needs to imagine economic developments that have not yet come to pass. . . ." (p. 165). Henry Ford, for example, imagined a low priced car in every garage 12 years before he could produce one. Kirk gives several examples of entrepreneurs in action. Most prominent is his discussion of E. I. duPont de Nemours, the French immigrant to the U.S., who made gunpowder cheaply and capably in the early 1800s.

Criterion 8: Taxation

The discussion of taxes is light on specifics but strong on theory. Taxes do alter behavior and increases in taxation often have unintended consequences. Kirk describes the sequence of events that follows when governments levy high taxes: (1) individuals can’t save, (2) businesses can’t invest (in capital goods or material goods), (3) supplies of goods diminish, (4) incomes drop, and tax rates must be raised again.

Kirk does not discuss tax incidence or the dynamics of tax reduction. In the 1920s, 1960s, and 1980s, tax rates in the U. S. were slashed on all groups. These cuts helped boost economic growth during these decades; also, revenue into the government sharply increased. These empirical developments support Kirk’s conclusion that "it seems unwise to expect government to perform economic functions for which sound and free government never was designed" (p. 246).

Criterion 9: The Business Cycle

The section on the business cycle is good as far as it goes. Kirk describes historic business cycles—especially the Great Depression of the 1930s—and how they effect market economies. He also describes the Federal Reserve System—its history, its function, and its role in modern economic life. He needs to make a further point: Recent research suggests a strong connection between the manipulations of the Fed (lowering interest rates in the mid-1920s and raising them sharply in 1929) and the onslaught of the Great Depression. Readers might also benefit from a description of Austrian economics and how economist Ludwig von Mises and Nobel laureate F. A. Hayek looked at human behavior.

A more thorough discussion of the Great Depression would also give Kirk another chance to illustrate the harm done by interest groups in the political arena. Kirk likes to show how interest-group politics can undermine liberty. In the Great Depression, farmers, veterans, and silver miners (just to name three) were groups that extracted special favors from government at the expense of taxpayers.

Criterion 10: Wages, Unions, and Unemployment

Kirk strongly links wages to productivity and not to political action. He also cites many verses in the book of Proverbs in the Bible to argue that Jews and Christians have historically linked hard work to higher wages and economic success.

In the short section on unions, Kirk describes the role of unions, collective bargaining, and right-to-work laws. He implies that government help to labor unions in the U. S. (through mandatory collective bargaining) has tilted the balance of power in favor of organized labor. The increase in prosperity in the 20th century, Kirk argues, is not the result of organized labor, but "principally because of the increase of skilled labor as contrasted with unskilled labor" (p. 50) Skilled labor is more productive than unskilled labor and provides more and quicker goods and services.

Criterion 11: Trade and Tariffs

The section on tariffs is short, but is reliable as far as it goes. Tariffs restrict free trade and results in higher prices for consumers. "Competition from abroad," Kirk argues, "tends to keep prices low and quality high" (p. 132).

Kirk does not get into the infant industry argument, nor does he discuss the disastrous historical consequences of high tariffs historically. The Smoot-Hawley Tariff of 1930, for example, was the highest in U. S. history. When we refused to accept foreign imports, other countries retaliated and refused to buy U.S. goods. The collapse of the American auto industry, for example, in part occurred because Europeans refused to buy American cars after 1930.

Criterion 12: Money and Banking.

Kirk’s section on money and banking is thorough. In explaining the origins of money, he stresses the role of private businesses, not government. The origin of paper money, Kirk shows, was in bills of exchange from one merchant to another.

Kirk discusses the gold standard and the more recent development of paper money under government control. The French and American Revolutions provide Kirk with illustrations of inflation when no backing existed for the government’s paper currency.

The book has a competent discussion of the Federal Reserve system and the emergence of a managed paper currency instead of a gold standard. Most of the discussion on the Fed explains its function and impact, not its technical operation. The text would be more useful if it had described how the Fed’s manipulation of currency affected the business cycles in the 1930s and inflation in the 1970s.