Surest Way To Overthrow Capitalism

One of the most important problems in economics is: How do we know if an enterprise is creating or destroying wealth? The line between the two is objective, black and white. It should be clear that if business managers can’t tell the difference between a wealth-creating or wealth-destroying activity, then our whole society will be miserably poor.

Any manager will tell you that it’s easy. Just look at the profit and loss statement. Profit is so powerful an incentive for managers, that one could never persuade them to operate based on any other indicator. And it would work—if economists had done their jobs properly.

But have they?

As we have argued many times, economists have given their apologia for the regime of irredeemable currency. Millions of trees have sacrificed their lives, so that economists could print their books and papers arguing in favour of debasement to promote employment, debasement to promote exports, debasement to boost GDP, and debasement in a crisis.

It reminds us of the old Steve Martin comedy routine, where he said he only smoked marijuana in the late evening. As he went on and on, he added more and more times when he would smoke it. So in the end, he conceded well at least he didn’t smoke pot at dusk.

So, as you can imagine all this debasement causes a problem for anyone who tries to use the dollar as a unit of measure. So economists have proposed a solution. They adjust the dollar.

Like physicists who assume that pulleys are frictionless and massless, only with less realism, they assume that consumer prices would be constant but for the relentless debauchery of the central bank. So they use consumer prices to adjust the dollar.

Prices are measured in dollars, which are adjusted using prices. If this seems circular, well, it is.

There are many problems with developing a consumer price index. First is what to include. A 20-year old may not care much about the cost of health care, but if he drives a muscle car, he may care a lot about the price of gas. A professional who lives in the central business district may not drive, but the majority of his income goes to pay rent.

But assume that, somehow, economists agree on the right items to include in the basket, and this basket can somehow determine monetary debasement. For example, they add apples, oranges, gasoline, and fuel. Never mind what Mrs. Lowell said in fourth grade math class. You absolutely can add apples and oranges! The license to commit this crime against mathematics is granted with one’s economics PhD.

Anyways, next come the so-called hedonic adjustments. Sure, the argument goes, a car in 2019 is more expensive than a car was in prior years. But the car today has a gazillion air bags, a satellite navigation system, and Bluetooth. So the price is somehow adjusted for these extra features.

We would call the consumer price index a farce, but we would not want to be unkind to Monty Python. If you are getting a picture of pseudoscience, that’s it. The adjusted dollar gives all the appearances of providing a reliable measure of value, the way Hollywood gives all the appearances of a battle in space. We have news for you, Star Trek physics isn’t real.

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