Economics and wealth

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Economics and wealth
By José Luis Tapia (*)

Professor Mark Skousen in his book “Economic Logic” defines economics as the study of
how people improve their standard of living through the creation of wealth. This modern,
realistic and suitable concept displaces other pointing to the economy as a resource
allocation, holding economists thought arrogant.

In the past, who brought this mistaken idea ran from the government central planning of the
economy that caused lack of economic freedom, increased poverty, social exclusion and
injustice. With this new concept, the economy is limited to studying the economic
development of the population, and assesses and analyzes the application of economic
laws to make the system convenient and economic policies do not fail.

Another aspect of this new concept is the unit of analysis. People individually analyze the
behavior by which people act to survive and achieve their goals. Only human action may
enable the economy, so that everything produced, invested, consumed, exported and
imported is motivated by this factor. Therefore, those wishing to better understand the
economics are advised to be aware of the principle of causality, which will be discussed
later.

As the standard of life it is given according to their components such as: quality, quantity
and variety. People are given the label of poor when it has none of these three elements.
On the other hand is not enough that people have goods and services, most importantly,
these are quality in order to raise their quality of life. Another basic condition is the variety
of products and services, for instance, the alternative of choice.

Finally, what is wealth? In this new concept of economic wealth are all goods and services.
And why are called goods to products that meet the needs?. They are so called because
they generate comfort to people and improve their standard of living. To the extent that
people have more goods and services will be richer in material terms, psychological and
even spiritual.

Therefore, it must be given the importance it deserves the employer, meaning the person
"who discovers profit opportunities that others have not noticed, and acts accordingly to
take advantage." This concept comes from two eminent economists Israel M. Kirzner and
Jesus Huerta de Soto, representatives of the Austrian School of Economics, a school of
thought that promotes and defends economic freedom and entrepreneurship.

Having considered the definition of economy and stressed the importance of wealth as the
natural effect of human action, we must explain how causal reasoning.

Everything we see around us: objects, machinery, buildings, food, clothing, education,
services are products of creative action business. The human being is creative and
productive and what it does not by chance but because of the causality of human action,
which is the phenomenon by which relate causes with effects. The hard part is to establish
cause and effect relationships from front to back so we can appreciate the different human
actions that have been part of this complex reality of the commercial division of labor that
Adam Smith noted over 200 years ago in his treatise "The Wealth of Nations ".

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Consequently, none of the processed products could be sooner if they had not been for the
business process of wealth creation. Therefore, if there is no corporate action creating
wealth. For instance, a factor causing the other's existence.

The right environment for business process

Economy operates on the insubstantial. Economic actions of individuals operating in an
environment that ensures the production of wealth to sustain their lives. If there is no
minimum guarantee of protection for entrepreneurs, failed to realize these goods or
services.

In this context there is need for an entity that protects the right to life, liberty and private
property and this is called Government. The famous economist Murray Rothbard in his
book “Power and Market” considered the governmental agency that monopolizes the legal
use of violence to protect the freedoms. However, if the state is exceeded in this way,
causes serious damage to the commercial tissue causing poverty, unemployment, inflation,
bankruptcies, changes in exchange rates, all due to abuse of its mechanisms and
instruments to intervene in the economy.

Poverty is defined as the absence of wealth and there are two reasons why people are
poor. The first is the impediment of an external entity (government) and the second by
choice of people. In both cases, it is inevitable poverty. As for the latter is unusual, because
it's the same people who do not aspire to create wealth. So common is it realistic to
consider that the external factor is the predominant or government to be a predator of the
produce and thus causing this misfortune.

Although it is rarely used in current approaches on the economy, in my opinion, the law is
the instrument by which the state intervenes to impoverish. With the legality controls,
regulates plans, supervises, and implements interventions in the free actions of individuals,
preventing them to achieve their goal of being prosperous. As pointed out by political
scientist Alberto Mansueti in his book out, is the legislative hyperinflation that produces
hipe inflation of poverty.

The laws of nature and man

Since, we identified the government as the cause of the massive destruction of wealth, we
must know its main instrument negative for the business economy: positive law.

Nobody can deny that the free market economy is self-regulating with its natural laws.
These laws were not created by humans either intentionally but arose from the interaction
itself, for instance, spontaneously, as Hayek says in his book “The Fatal Conceit”. We refer
to the laws: supply, demand, opportunity cost, time preference, non-discrimination,
incentives, minimum waste, economy of scale, diminishing returns, marginal productivity,
marginal utility derived demand, profit and loss budget constraint, substitution effect, effect
of competition, accountability among others.

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You cannot modify or abolish these principles. If we try to do this would cause damage,
inconvenience and discomfort. This found that when a government seeks to control prices,
for example, imposing a minimum wage, the effect it creates is rising unemployment and
cost of production or when decreed wage increases threatens the job security of thousands
of workers and pushes to micro and small enterprises to the informal sector because
otherwise disappear from the market

The natural laws of economics have one purpose: to guide individuals to perform acts that
are successful production. If you follow these laws you have ensured business success by
creating wealth.

When we pointed out that the only purpose of existence of government is to protect the
right to life, liberty and public and private property, it is understood that it must enact rules
that prevent human conduct can come to peaceful acts and cooperative. It should be noted
that any government regulation has its coercive and coercive as natural law.

Government laws should not only protect those acts cooperative economic market but also
to punish those who violate aggressive and violent economic order. With violence there
can be productivity, let alone the business may occur if they violate their rights to liberty
and private property.

The coercive and coercive part of natural law is a threat to the economic meltdown that
deliberately inflicts the decision maker. Failure to follow the economic laws, failure is a fact.
The fear of frustration prevents you violate these rules. There is no government
bureaucracy to monitor and punish the breach of an economic law. In terms of positive law
this government has a cost because it requires more bureaucracy to prevent and control
predators. If we were respectful of the moral law would have a minimal presence of
government, therefore we would assume a lesser extent the cost.

The market order needs of economic laws to operate the exchange. The market is a
complex network where individuals in their roles as consumers, producers, investors,
exporters, importers and savers exchange values. In that environment works well self-
regulation does not need more laws of nature. This complex commercial network is largely
independent of political society which has its own market. Economists at the Public Choice
School have identified different incentives where human actions in this market have
negative sum (zero sum).

When political society superimposes its positive laws on the market two things can happen:
1) government regulations match the economic and 2) government regulations impede the
proper functioning of the economy.

In the first case the effects are: increased wealth, savings, investment, employment,
income, exports, imports, this due to the economic laws have not been interfered with but
rather protected by artificial rules of government. It means that it has not been forcibly
entered the merchant network, making it possible that human actions have deployed their

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full economic potential within the framework of respect for freedom and private property.

However, when the laws penetrate the commercial network violently, economic laws are
affected and do not fulfill their function of guiding human actions. This displays all perverse
distortive economic coordination creating unnatural phenomena as informality,
unemployment, low income, low savings, low consumption, low production, low investment,
dishonesty, corruption and pollution which would prevent the government if not legislate on
economic .

It should be mentioned that the government as an entity legal monopoly on the use of
violence can be legitimate acts in defense of life, liberty and private property. The mission
of government is to protect the citizen and not interfere in economic matters that are private
in nature. While human actions are peaceful, cooperative and there is no economic reason
for government intervention, may do so only when life, property and personal freedom are
endangered by the actions of others.

They are illegitimate because their actions beyond the limits of protection and enters the
surgery. It interferes when there are not cases of deception, fraud, robbery or kidnapping. It
is unfair, because all governmental intrusion is violent and causes damage to the economic
fabric, which is counter to the very essence of government. So what is the real work of
government in the economy? Course, is to ensure that every individual can exercise their
freedom without harming others with their economic activities, activity peaceful principles.

(*) ILE’s General Director, economist and university professor.

Economics and wealth

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