George Reisman 75 years

My favorite economist (and one of my favorite human beings), George Reisman turned 75 on the 13th of January. As a token of appreciation, I will quote my review of his magnum opus, Capitalism: A Treatise on Economics:

George Reisman’s Capitalism: A Treatise on Economics is perhaps the greatest treatise on economics of all time; it certainly ranks with such works as Adam Smith’s The Wealth of Nations or Ludwig von Mises’ Human Action; and in one respect I think it surpasses them: even the great pro-capitalist economists in the past have had contradictions and/or inconsistencies in their reasoning that undercut their message and make it weaker than it could and should be. If there are contradictions or inconsistencies in Reisman’s treatise, I have yet to find them.

An achievement of this kind is always an integrated whole. But if I were to single out one insight as the greatest one, it would be the “primacy of profits” principle, the insight that wages are a deduction from profits, not vice versa. This lays the ground for the most thorough and fundamental refutation of the Marxian exploitation theory that is possible; it also lays the ground for what actually constitutes economy-wide profit (the “net consumption” theory of profits) and the actual relationships between profits, wages and investment, and for many other things as well. To make a comparison, I think this discovery ranks with Adam Smith’s original discovery of the principle of division of labor, or the early Austrians’ discovery of marginal utility. I sincerely hope that this principle gets thoroughly understood by economists in the future.

Some other highlights I could mention merely because I have not seen them mentioned by other reviewers:

The demonstration that the rise in the average standard of living rests entirely on lower prices for goods and services. This fact is obscured by the presence of inflation, and other economists (notably the Keynesians) have managed to create a lot of fog around this issue. Reisman’s analysis completely dissolves the fog. And this point also has a positive corollary. The only thing that actually does raise the average standard of living is a rise in the productivity of labor; behind such a rise stand saving, technological progress and capital accumulation; and behind these stands man’s reasoning mind.

Understanding the extent of the gulf between a pre-capitalist, non-division of labor society and a modern division of labor society. (E.g.: understanding why a rise in population would be a threat in the former kind of society, but a source of great benefit in the latter kind.)

The demonstration that one of the things capitalism is regularly denounced for – the concentration of great fortunes in relatively few hands – is actually to the benefit of everybody, not merely the owners of those fortunes.

The demonstration of what is wrong with modern “national income accounting”. To make a long story short, the “modern” accounting method makes it look like almost all expenditure in the economy is consumption expenditure, while the truth is that most expenditure in a modern advanced economy is expenditure for the sake of further production.

And those are just a few of the highlights.

Capitalism is not always easy reading, and a beginner would be well advised to start with The Government Against the Economy (the whole of this book, however, is incorporated into Capitalism as chapters 6–8), or with some of Reisman’s shorter pamphlets (or with one of Reisman’s own favorites, Henry Hazlitt’s Economics in One Lesson). Some previous knowledge of Classical and Austrian economics is a great help. But, particularly in the first chapters, dealing with the role of material wealth in man’s life, there are passages that made me cheer aloud when I first read them, and possibly others will cheer aloud, too. (One such observation is that we value automobiles and other means of transportation for basically the same reason that we value having legs over not having legs.)

As is probably known, George Reisman was not only a student of Ludwig von Mises but also a student of Ayn Rand, and her influence permeates his book in more ways than I have space to tell. You may recall that one of the strikers in Atlas Shrugged was “a professor of economics who couldn’t get a job outside, because he taught that you can’t consume more than you have produced”. Well, this is what George Reisman teaches, for a thousand double-column pages and better than anyone has done before him.

(An earlier version of this review was published on Amazon in 1999. It was originally published under my own name, but for some reason my name has since disappeared.)

75 is a respectable age, but let us still hope that he has many productive years before him.