A Morning at the Club

 

“Smith,” I said, lowering the Wall Street Journal to address the gentleman seated in the easy chair opposite mine. “This headline says, ‘Trump tariffs likely to hit consumers mostly.’ Is that true?”

Smith didn’t look up from the chess problem he had set up on the board in front of him, but only grimaced in a way that meant that I had just asked a stupid question. To my right, another fellow said, “Oh, Camper! I was so absorbed in this book I didn’t even see you come in. Shouldn’t you be home with that beautiful wife of yours at this time of the morning?”

“As soon as the mechanic is finished with my motorcar. I stayed at the club last night because the thing wouldn’t start.”

Adam Smith, still pondering the opening, which appeared to be some variation on the Ruy Lopez, asked “Who wrote it?”

“Greg Ip,” I replied.

To my right, I heard a quiet snort of derision from Ludwig.

“Camper,” Smith continued. “First, I have a question for you. What is the purpose of production?”

I strained mentally to recall the answer. I’d never actually read “The Wealth of Nations,” and I think that Adam knew this little secret; I had only read P.J. O’Rourke’s amusing summary of it. Luck, and the caffeine in George’s as-always well-brewed coffee (George’s or Lelita’s: they run the club’s kitchen as a husband-and-wife team) were with me this morning, and the answer popped out of my mouth. “Consumption,” I said nonchalantly, as if it were a fact that any child would know. Where was he going with this?

“Then who is mostly affected by a change affecting production?”

“I guess mostly the consumer…but then it’s the wrong question, isn’t it? The tariffs don’t mostly affect customers, but rather only affect customers.

“Quite so,” murmered Adam Smith, as he captured a pawn on the King’s side, clearly preferring a wide-open game.

“So, Smith,” I said, “then the question ‘Who is affected by the Trump tariffs?” is answered?”

Adam’s brow suddenly betrayed unease. Something wasn’t right. He finally looked over to von Mises. Ludwig must have sensed this, though he appeared to be once again absorbed in his book. “Right answer, but once again the wrong question, Smith. Camper, please help our Classical friend. What is the right question?”

When the conversation started down this path, it usually ended up having something to do with what Ludwig called the “missing dimension” in Classical Economics. There are only so many dimensions, and so the right question came to me almost immediately.

When will the Trump tariffs affect consumers?” I blurted out.

Von Mises graded this answer with the highest score he ever gave, a barely perceptible smile. “And when our Keynesian-variant friend, Mr. Ip, foolishly answered his doubly confused question with “mostly the consumer, rather than mostly the producer” what economically correct fact was he grasping for?”

“Trumps tariffs will affect the consumer mostly sooner, rather than mostly later,” I uttered, allowing myself the gift of a moment’s self-satisfaction. I had realized that

  • all production is for eventual consumption.
  • production of consumption goods and services takes many steps which must occur in the correct logical order
  • each step requires time.

So, if the production process is interfered with from the outside, whether by a cyclone, or a terrorist attack, or an economic intervention like a tariff, it will hurt the consumer later (/sooner) if the production steps interfered with are farther from (/closer to) delivery of final consumption goods.

Production is like an assembly line, I had mused. If a workstation suffers a damaging attack, whether by nature’s violence or by man’s (government intervention), then if the workstation is at the end of the line, consumers will suffer the loss of output immediately. If the workstation is far back from the end, say five years back at the current speed of the conveyor belt, then the rest of the line will continue to deliver outputs to the consumers for a long time, until the spot on the belt where the capital goods are missing hits the last workstation, and less final output is produced because that workstation lacks the inputs needed.

Each of us returned to his studies, having experienced the pleasuring of learning or teaching or both. The car was fixed very soon after; the Triumph had experienced another electrical failure, and the mechanic had wisely brought the parts with him. I drove home and am dashing this off before returning to the routines of suburban life.

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There are 11 comments.

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  1. Arahant Member
    Arahant
    @Arahant

    My, my, my. Quite some club you have there.

    • #1
  2. WillowSpring Member
    WillowSpring
    @WillowSpring

    Mark Camp: The car was fixed very soon after; the Triumph had experienced another electrical failure, and the mechanic had wisely brought the parts with him.

    I had both a Triumph (TR-3) and Austin Healy Sprite in my youth – both with Lucas ‘electrics’.  There was a good reason Lucas was called the “Prince of Darkness”

    oh – and I loved the post.

    • #2
  3. Al French, sad sack Moderator
    Al French, sad sack
    @AlFrench

    WillowSpring (View Comment):

    Mark Camp: The car was fixed very soon after; the Triumph had experienced another electrical failure, and the mechanic had wisely brought the parts with him.

    I had both a Triumph (TR-3) and Austin Healy Sprite in my youth – both with Lucas ‘electrics’. There was a good reason Lucas was called the “Prince of Darkness”

    oh – and I loved the post.

    Why do the English drink warm beer? Because their refrigerators are made by Lucas.

    • #3
  4. JoelB Member
    JoelB
    @JoelB

    It seems to me that with today’s speculative markets and instant information, anything affecting production affects the consumer with price increases almost immediately. Even things that don’t necessarily affect production, but just might seem to affect prices. Yes the headlines are ridiculous. 

    • #4
  5. PHCheese Inactive
    PHCheese
    @PHCheese

    Instructions on how to tune up a Jaguar, put a Chevy engine in it. Good post. 

    • #5
  6. Mark Camp Member
    Mark Camp
    @MarkCamp

    JoelB (View Comment):

    It seems to me that with today’s speculative markets and instant information, anything affecting production affects the consumer with price increases almost immediately. Even things that don’t necessarily affect production, but just might seem to affect prices. Yes the headlines are ridiculous.

    Well, that makes sense to me.  Perhaps I will remember to bring it up next time I pop in.

    I have a sense of foreboding about it…a premonition of being scolded for forgetting the “missing dimension” again, and other words…”time preference”, and the “present value of investment cash flows”.  But no matter.  It doesn’t hurt to ask.

    • #6
  7. unsk2 Member
    unsk2
    @

    Mark, Have you ever tried to read “The Wealth of Nations”.? Tried it once. Couldn’t do it.  Prose way too dense. Too many ideas and thoughts packed tightly in almost every sentence for hundreds of pages going on and on. Way too heavy  for my feeble mind  that has been conditioned for  instant gratification and sound bites.

    • #7
  8. Bob Thompson Member
    Bob Thompson
    @BobThompson

    Since Trump’s tariffs affect our trade relationship with China, and some consider the overall relationship with China to be one of conflict, even war, can this line of inquiry be satisfied by economic principles alone?

    • #8
  9. WillowSpring Member
    WillowSpring
    @WillowSpring

    unsk2 (View Comment):
    Mark, Have you ever tried to read “The Wealth of Nations”.? Tried it once. Couldn’t do it. Prose way too dense.

    Try Sowell.  I have the same problem with “The Wealth of Nations”, Sowell writes in sentences that still have a lot of meaning in them, but at least for me, are much easier to digest.

    • #9
  10. Arahant Member
    Arahant
    @Arahant

    unsk2 (View Comment):

    Mark, Have you ever tried to read “The Wealth of Nations”.? Tried it once. Couldn’t do it. Prose way too dense. Too many ideas and thoughts packed tightly in almost every sentence for hundreds of pages going on and on. Way too heavy for my feeble mind that has been conditioned for instant gratification and sound bites.

    I love Eighteenth and Nineteenth Century writers for that reason.

    • #10
  11. Mark Camp Member
    Mark Camp
    @MarkCamp

    unsk2 (View Comment):

    Mark, Have you ever tried to read “The Wealth of Nations”.? Tried it once. Couldn’t do it. Prose way too dense. Too many ideas and thoughts packed tightly in almost every sentence for hundreds of pages going on and on. Way too heavy for my feeble mind that has been conditioned for instant gratification and sound bites.

    You and me both, @unsk2.

    I may have tried once.  Couldn’t do it.  Poorly written, goes off at length on detailed tangents.  I learned more about Smith from reading P.J. O’Rourke’s book “On the Wealth of Nations” than I have from reading sections of “The Wealth of Nations“.  I would recommend that method to everyone here.

    The problem you mention–many pages densely packed with ideas–I experience with all of the scientific economists, and with the pre-scientific ones (Cantillon, Mill, Say, [EDIT Bastiat], etc.).  With some of them–Mises, Hayek, Kirzner, Machlup, Huerta de Soto, Hoppe, Wicksell, and others–I have sometimes ploughed on through, in one case all the way through an extremely tough 1,000 pages (Mises’s “Human Action“).

    Nearly all of what I have learned so far about basic economics I attribute to that experience.

    It takes intelligence to read economic science texts, and when trying to force my way through them I am continually thrown back by my lack of sufficient intelligence.

    When I am determined to read all the way through a book or lengthy paper, I simply keep up day after day, week after week, until I understand the sentence or paragraph or chapter that threw me.  I will often wake up at 2:00 or 3:00 AM and think for hours when I can’t understand something.  I think about it the whole day through, even in the midst of doing other tasks.   Ask my wife how well this works, with respect to those other tasks.

    I come out of the struggle more intelligent.  This has been one of the most satisfying benefits of my studies.  Learning economics makes you more intelligent.

    • #11
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