The Rural Voice, 1981-07, Page 27VOICE OF A FARMER
Economics is not a science
BY ADRIAN VOS
The thrust of the government of Canada in increasing interest
rates with the aim of beating inflation is, to say the least,
contradictory.
This is not really surprising if we
remember that economics is an art, and not a
science. Just as there are numerous ap-
proaches to painting or poetry, so is the case
with economics.
Economics is also a matter of logic. The
problem arises again on which basis the
logic is founded. All economic theories are in
themselves based on the opinion of someone
who may, or may not have been correct at his
time in economic history.
The monetarist theories practised today
by Brit ain's Thatcher, US's Reagan and
Canada's McEachen, were developed in the
18th century by Adam Smith, a Scottish economist. Through the
following centuries it has been better known by the names
"laissez faire". or "free enterprise". The new name was
probably coined because of the disrepute in which the laissez
faire concept was held.
Smith's theory has never been effective in preventing inflation
or depression, as our problems of the 1930 s have most recently
shown.
That they are tried again and again in modern history doesn't
give us much confidence in modern economists, like Bouey and
Volcker.
If laissez faire ever did work. it was under a completely
different set of circumstances. As Trudeau said a few years ago:
there is no free enterprise left in our western world. If there was,
wages would go down because of competition for jobs.
Multinationals couldn't use their monopolistic powers to keep
prices high in the face of low demand. and neither could
supply -management marketing boards.
If there was free enterprise welfare would be limited to
prevention of starvation, as it was in grandfather's time when
churches and communities handed out bags of coal and boxes of
groceries.
This time has, thank God. passed, but our politicians don't
seem to realize that a modern illness can't be cured with an
out-of-date poultice.
Higher interest rates increase the cost of goods, contributing
to inflation. High interest draws money into the country by
propping up our dollar value, thus increasing the money supply,
which is the cause of inflation 9'P'`ej e K t'.t g PRn..
It limits people in buying higher priced goods, thus causing
unemployment, which necessitates support in the form of taxes,
which causes more inflation.
The artificially high priced dollar makes our own products
more expensive on the world market, also preventing job
creation here.
The only way out of the inflationary spiral is to increase
productivity. Instead of the present negative measures, which
after five years are still not working in Britian, we should have
positive measures. Give incentives to produce more. Farmers
know that more production than is necessary will bring prices
down fast. That must have been the real theory of Adam Smith.
Produce more and the inefficient will go out of business. thereby
beating inflation.
Continued on page 35
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THE RURAL VOICE/JULY 1981 PG 25