Manufacturing Myopics Miss Role of Finance

Over at Capitalism Magazine, economist Donald Boudreaux argues that "Tariffs Don't Save Industries," and takes Oren Cass to task over recent arguments to the contrary.

The entire thing is worth a read, but one point is worthy of noting on its own:

Part of Cass's skepticism of financial markets is rooted in the superstition that there's something uniquely important in actually making things -- that is, in producing physical outputs as opposed to producing services such as financing. But if it weren't for financiers and the markets in which they operate, too few resources would be directed into building, maintaining, and modernizing those particular factories and mills that are most productive.

Cass's notion seems to be that if we shrink the number of workers and resources employed in finance, these would be used to strengthen manufacturing. This notion, though, is akin to assuming that manufacturing would also be strengthened if we shrink the number of workers and resources employed in transportation -- unaware that delivery vehicles and the many services that keep them moving are a necessary complement to manufacturing. Just as manufacturing would shrink if there were fewer transportation services to support it, manufacturing would shrink if there were fewer financial services to support it.

In short, Cass is inconsistent to allege both that the US industrial base is too small and that financial markets are too large. The industrial base is capital, and therefore an extensive and efficient industrial base requires an extensive and efficient capital -- i.e., financial -- market to create and support it. [bold added]

I love the labeling of today's en vogue obsession with physical plants a superstition, because -- outside of some special cases (which Boudreaux acknowledges in passing) -- that's exactly what it is.

But that's just the icing on the cake here. As Boudreaux indicates, our industrial capacity is at an all-time high, so even the concrete facts on the ground that allegedly motivate today's ignoramus Republicans contradict them. (Apparently, many are also ignorant of such things as division of labor, opportunity costs, and even that, amazingly, unused factories -- or (gasp!) parts of factories -- quickly get repurposed for more productive uses in a free economy.)

I recommend the whole thing, and -- if there is such a thing as a Republican who won't just babble Fake news! or a Democrat who won't simply dismiss it as Propaganda! -- passing it along to one of them.

Lord knows, the need for knowledge has not disappeared simply because so many spurn it now.

-- CAV