April 10, 1995

Trickle Up Economics

We have lived to witness one of the most extraordinary paradoxes that have ever puzzled the world: general poverty produced by universal plenty!

Hannah More, 1793

The linchpin of any economy, be it a market driven or a controlled one, is the customer. If the customer wants things, there will always be entrepreneurs who will attempt to meet those wants. These people range from inventors to manufacturers to wholesalers to retailers. Given a sufficient number of customers, there will be plenty of suppliers and vendors.

What makes someone a customer? To begin with, a customer has to have money to spend. If the vendor is selling luxury yachts, his customer has to be very rich, or have lots of credit. If the vendor is selling beans, his customers will be people who range from well off to poor. Even the rich buy beans -have you never heard of Beans Bourguignon with caviar?

Where does a customer get the money? He can earn it, provided that there is someone who wants to employ him. He can beg for it, or he can steal it. He can also trade. A farmer can trade his produce for money. A person who has property of any kind can trade that. An artist can sell his art, and a teacher, musician or scientist can sell his skills. A person who has nothing to sell or trade is not really a customer and does nothing to help to drive the economy. If someone gives him money, then he becomes a customer and contributes to the system. Am I saying that he doesn't really have to earn it in order to contribute? Yes, that is exactly what I am saying. In terms of the economy, all that he has to do is have money and spend it.

That someone on welfare spends money is repugnant to some people. That people in illegal enterprises have money is also repugnant to others. That thieves and swindlers have money is repugnant to many. But economics has no morals -it doesn't care where the money came from; whether it was honestly earned, stolen, inherited, a gift --money spent is money spent! If lots of people spend lots of money, as they are doing now, we have a prosperous economy.

There is a story about a mythical country in the depths of a depression. It was so bad that people were starving. A couple of enterprising young men counterfeited large amounts of money, opened a bank and started making loans to anyone who wanted one. Before long the country was so prosperous, that they redeemed all of the counterfeit currency.

Why is Mexico in economic trouble? One reason is that potential customers don't have money to spend. Why not? Mexican workers are paid lousy wages and farmers get low prices for their agricultural products. The same system that makes for cheap beans and corn also keeps the economic system crippled. It was that way in our country when I was growing up during the great depression. That you could buy a dinner for a quarter and a dollar a day was considered good pay, was a symptom of a moribund economy.

The great depression in our country ended when people started making money and spending it. It was small money during the New Deal, and big money during W.W.II. Farmers made money and they bought tractors and automobiles and refrigerators and milking machines, which made the industrial part of the economy prosperous. Manufacturers needed steel and other metals and so on. Pretty soon almost everyone was doing well -with one exception.

That exception was people who needed servant or slaves to work for practically nothing. And it was just too damn bad for them. Everyone worth employing was too busy making money and spending it. Nowadays servants who will work for very little are hard to come by, so they have to be imported from Mexico, where people are used to being paid very little for their labor. That won't last in this country, because the Mexican's children who are born and reared here will refuse to work for peanuts.
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