Op-Ed: The first step to growth – Reject pseudo-economics


How The U.S. Fell Dangerously Behind In Coronavirus Testing

The deadly coronavirus pandemic has stopped the world in its tracks, and exposed a weak spot in the United States’ preparedness for a public health emergency. Experts say aggressive diagnostic testing is essential in order to learn where and how an

Abdul Samad Rabiu’s BUA Group pledges N1bn to fight COVID-19 in Nigeria

Entrepreneur Abdul Samad Rabiu's BUA Group has joined corporates and business leaders from Africa in donating money...

Tony Elumelu’s United Bank For Africa donates $14mn to COVID-19 relief across Africa, this is how it will be used…

Entrepreneur Tony Elumelu's UBA has joined corporates and business leaders from Africa in donating money to fight...

Murray Rothbard, economist and political philosopher, wrote in an essay that there is nothing wrong with being ignorant of economics, given the science’s specialised and often complex nature. However, Rothbard noted, “it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”

In a country facing dire economic prospects like South Africa, it is always important to return to basic principles. For this, Occam’s Razor – the simplest explanation is usually correct – is a useful rule of thumb, but it is one that has long been abandoned. Nowadays it appears that there is only one accepted ‘economic’ theory: government intervention will solve the problem.

This nation-wide notion has come about after years of us absorbing frequently-sounded mantra and legitimising pseudo-economics. Our economic growth and stability have suffered consequently.

Accepted truisms

For example, a dominant meme is that workers are being ‘exploited’ by employers. This is accepted as a truism without further contemplation.

Marxists believe in the so-called “labour” and “surplus” theories of value. Taken together, these theories dictate that the value of a product is determined by the labour of the producer (the worker), yet the capitalist pays the worker only a subsistence wage. The difference between the “real” value of the product and the wage the worker earns is “surplus” value, which the capitalist keeps for himself. In other words, workers are not paid their fair share and their greedy capitalist bosses keep the bulk of the loot – and thus exploitation is taking place.

These Marxist theories are false – objectively so – and no sincere economist, perhaps excluding some academic economists, would say otherwise. Value is assuredly not determined by the labour put into a product. An individual may spend a month assembling a rickety chair, yet it is the stable, mass-produced chair that will fetch a higher price on the market. Consumers pay for the product they believe is worth their money, regardless of how much labour effort was put into the production. Furthermore, labour often plays a small role in determining the price of a good or service, with the cost of machinery, overheads, and management also playing a decisive role.

Water in the desert scenario

This is based on the principle of value subjectivity, which is illustrated well by the ‘water in the desert’ scenario. If someone who has been stranded in the desert for days comes across two large containers, one containing water and the other blocks of gold, which is more valuable? In most cases (but this is not guaranteed, due to the subjectivity of value), the man in the desert will choose to carry the water with him. Gold is not objectively more valuable than water, as value is in the eye of the beholder.

The “labour” and “surplus” theories of value are drops in an ocean of pseudo-economic fallacies. Another fallacy is the idea that public works programmes create employment, a popular notion from Apartheid days.

The idea of paying people with their own tax money should elicit only scepticism. What happens is that competitive private sector contractors who would have been paid with earned money to undertake the “public” works project and employ workers, are robbed of that opportunity and tax funds are extorted from taxpayers to fund something government need not be directly involved with.

Detrimental results of nationalisation

Nationalisation also makes a consistent appearance in South African pseudo-economics, right from the nineteenth century railways to the present. It is also the pet proposal of the new rock-star of left wing “economics”, Chris Malikane. But nationalisation has consistently produced detrimental results.

At best, once a company or industry is nationalised, it is marked by inefficiency and a distinct lack of respect for consumers (think Canada’s national health service queues, ditto South Africa’s Post Office), and, at worst, a complete collapse of the sector and destruction of the economy (think Zimbabwe’s mines and the Soviet Union’s agriculture). Privatisation, on the other hand, has produced more positive if inconsistent results, depending on how it is implemented.

When privatisation is done in a non-corrupt fashion whereby cronies do not simply replace their government friends, it leads to efficiency. If privatisation is merely a transfer from the formal to the informal political class – with a dash of monopolistic protection – inefficiency ensues. But bad privatisation is still preferable to nationalisation, as these companies become accountable to market forces, and will surely go bankrupt if they continue to perform as they did under state control.

White monopoly capital

South Africans now know that “white monopoly capital” was a phantom threat concocted by the political class to draw attention away from the failures of government and its private sector associates. Why we continue to dance to the tune of this self-evidently false narrative boggles the mind. But we started dancing to the tune of false economics long before white monopoly capital burst onto the scene, and this actively contributes to slowed economic growth and worsening destitution.

Rejecting nonsensical pseudo-economics is not going to put South Africa on the freeway to growth and prosperity, but it is certainly a necessary departure point.

Author Martin van Staden is Legal Researcher at the Free Market Foundation and Academic Programmes Director at Students for Liberty in Southern Africa. 

- Advertisement -
- Advertisement -


Moody’s downgrades SA to junk

The action will result in South Africa's expulsion from the World Government Bond Index (WGBI), as a consequence those funds tracking this index as a benchmark will become forced sellers.

Subscribe to our newsletter

Sign up for free newsletters and get more CNBC AFRICA delivered to your inbox

Motsepe family & associates join Rupert and Oppenheimer families in donating R1bn to deal with COVID-19 pandemic

On Monday South Africa's President, Cyril Ramaphosa revealed that South Africa's richest families the Rupert and Oppenheimer families had each contributed ...

Government’s response to Moody’s downgrade of SA to junk status

Covid-19 and South Africa's downgrade to junk will truly test South African financial markets.

Moody’s downgrades SA to junk

The action will result in South Africa's expulsion from the World Government Bond Index (WGBI), as a consequence those funds tracking this index as a benchmark will become forced sellers.

COVID-19 UPDATE – Top cop Cele slams drinking in the face of death.

“These people don’t have the good will and were doing something they were told not to do. Some were opening up a street bash at midnight. Some were taking bush chairs and sitting under trees to drink.
- Advertisement -

More Articles Like This

- Advertisement -