Book Reviews

The Economy in Mind

An unsung classic on free market capitalism from a bygone era that deserves revisiting.

The Economy in Mind – Warren T. Bookes

To this day, it still creeps me out how matter of factly most scholars talk about Marx. I’ve been sifting through all his and Engel’s works over the last few weeks (a review on those fine books to come later this summer), and I know this is how academia is supposed to work, but it’s unsettling how they sort of put him on the same footing with guys like Adam Smith. Granted, Marx’s views have had a profound impact on the world, but he’s been so wrong for so long it’s still bizarre to see him treated basically as a peer to the Smiths and Bastiats of the world.

Anyway, I needed an antidote from that specific form of delusion. So, on the recommendation of one of John Tamny’s editorials (the superlatively fantastic editor at RealClearMarkets), I found a used copy of 1984’s The Economy In Mind. If you’re an old hand and need a refresher about how economics and capitalism work, or if you’re a young mind that needs proper shaping, this book belongs on your bookshelf.

What the book is about, essentially, is the metaphysics of capitalism. Sounds airy and unimportant I know. But, as George Lucas says, your focus determines your reality, and this is a worldview worth digesting. This review has often argued the supply of goods and services—problem-solving, innovative creators of this world—is the place to look for the epicenter of economic bounty and that money is a psychological thing. But it’s tiresome to try and regurgitate the essence of already worthy prose. Instead here are a few tantalizing quotes from the introduction:

The underlying premise of this book is that most, if not all, of the economic mistakes we have made (and continue to make) over the last generation have resulted from a fundamental misconception about the real nature or substance of wealth...Since economic thought first became formalized over two centuries ago, there have been essentially two different views about wealth. One view, first defined by Adam Smith and Jean-Baptiste Say, is that wealth is primarily metaphysical, the result of ideas, imagination, innovation, and individual creativity, and is therefore, relatively speaking, unlimited...The other, espoused by Thomas Malthus and Karl Marx, contends that wealth is essentially and primarily physical, and therefore ultimately finite. The modern presentation of this view argues that since usable energy is steadily diminishing into entropy, all wealth is really cost to be shared more equitably.

For the first group, it is only natural that their preoccupation is with the supply side of economic activity and the creation and generation of new wealth and productivity. Thus, their approach to economics tends to emphasize the individual, or “micro”, aspects of economic policy and favors maximum economic freedom. After all, if wealth is truly metaphysical, the result more of mind than matter, “the wealth of nations” has to be seen as the direct result of the creative activity of individuals and the degree to which that activity is either liberated or restricted by governmental, trade, or societal structures and strictures.

For the second group, it is inevitable that their preoccupation is with the demand or distribution side of the economic process. If one believes that wealth is primarily a function of material resources, and is therefore limited (or declining), it is only natural that one would see the role of economic policy as the just and collective conservation, distribution, and redistribution of these limited resources until the end is reached. Marx’s “From each according to his abilities, to each according to his needs” was perhaps the first demand-side economic statement...the “just” reallocation of fixed substance in a “zero-sum” economy...

The primary and essential character of wealth is metaphysical, not physical, and is the direct result of the creativity of mind, not the availability of raw materials—the sum product of individual efforts, not the manipulated static resources of collective nations or governments or lands.

And this was just one page! There’s a whole book of this...which is often times dense but worth the effort.

Because a lot of finance and economics make claims to being a “science,” and because science mostly wants to be materialistic and grounded in “tangible” phenomena, there is a kind of invisible inertia for many in the field to “go Malthusian,” even if they don’t realize they’re doing it. But, as Brookes so forcefully demonstrates, capital creation and formation can’t ultimately be defined by the tangible, or even the logic of mathematics—there is a metaphysical, psychological dimension to how capitalism works day to day, even for stuff as basic as money. (Read here for more on how this works for money.) It’s from this viewpoint that wealth can be observed, and value created.

The other tremendous feature of Economy in Mind is how relevant it feels to now. My boss Ken often says society will figure out a way to wail about so-called over-indebtedness every other market cycle or so. Well, coming off the dismal 󈦦s, much of the early 󈦰s feels like a rerun of today: worries about the dollar, worries about inflation, about government spending and debt, about US competitiveness, about employment, and so on. Most of all, back in those days, folks fretted about a similar kind of “new normal”—an extrapolation of the recent past far into the future—as they do now. The amazing thing is how well most of Brookes’s words hold up—it’s as if he’s speaking to right now, and makes for a fascinating and important lesson: History consistently rhymes with the here and now, even if now still feels different this time.

This book isn’t in print any longer. But you can find copies online. Go out there and get this one—its views belong on the shelf of every long-term investor and thinker about the basics of wealth and how it’s created.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.