Unsurprisingly, people with only a cursory familiarity with economics are especially prone to get economics wrong. What is surprising, however, is the frequency with which people who possess only a cursory familiarity with economics are able to con other people into thinking that they – those with only the cursory familiarity – are deep and knowledgeable thinkers about the economy. Douglas Rushkoff is one such person who, having no more than a cursory familiarity with economics, convinces uninformed readers that he is a deep and knowledgeable thinker.
A good example is from pages 212 and 213 of Rushkoff’s latest book, Throwing Rocks at the Google Bus. I quote:
Economists have long understood that it takes more than money to create goods and services. Labor, land, and capital – together – have been recognized as the “factors of production” since even before the classical economics of Adam Smith. Some add entrepreneurship as a special category of labor, but it was obvious to all that enterprise requires work and physical resources in addition to seed money….Thanks to the rise of the finance industries, capital has diminished the market value of the other two factors. Money is the only one that counts as investment anymore. Labor and land have been reduced to externalities – rented, disposable commodities….Moreover, of the three factors of production, only money is unbound.
Wow – as in ‘Wow! What a combination of word salad and misinformation promoted by a pretentious and mistaken use of terms!’
Rushkoff’s most obvious error (to someone who actually knows economics) is that the “capital” in “land, labor, and capital” commonly listed as factors of production is not money. It’s machines, tools, processed chemicals, and other intermediate goods that are useful for producing final outputs. The fact that we economists are partly to blame for this confusion – because we use “capital” sometimes to mean “investments or investable funds” and other times to mean capital goods (or “producer goods“) – doesn’t excuse Rushkoff. It’s clear to anyone who studies basic economics even with no more attention than that of a C- student that the “capital” in “land, labor, and capital” means capital goods. Money is not a factor of production (which is not to say, as Rushkoff often comes close to saying, that money is useless to, or superfluous for, the process of market-guided production).
The most word-salady part of the above-quoted passage is “Labor and land have been reduced to externalities – rented, disposable commodities….” What does this string of word mean? It’s incomprehensible despite its conformity to rules of grammar. Even if we grant, for sake of argument, the empirically incorrect assertion that “capital has diminished the market value of the other two factors [labor and land],” what does it mean to say that “Labor and land have been reduced to externalities”? Rushkoff apparently knows that “externalities” is a term that economists use and so he here seems to have yanked the term from somewhere in his brain and inserted it without bothering to ask if this term is used here according to its accepted meaning (or, indeed, according to any plausible meaning whatsoever). I cannot begin to guess what idea Rushkoff’s thinks he is sharing here with his readers. It’s word salad. It is meaningless.
I add here a third complaint about the above quotation. Rushkoff begins his book with the observation that real-estate prices in the San Francisco Bay Area have, over the past few decades, risen to extraordinary heights. Indeed, it’s this rise in Bay Area real-estate prices that is responsible for the title of Rushkoff’s book. This rise in real-estate prices is alleged to have prompted disgruntled Oaklanders to throw rocks at a bus driving Google employees from their homes in Oakland to their Google jobs in Mountain View. So, therefore, early on in the book we’re informed that one of the lamentable costs of the new digital economy (that plays by the rules of the older, industrial economy) is that it is so jacking up the price of real estate that many ordinary people can no longer afford to buy or to rent homes. Yet on page 213 of the same book we’re told that modern capitalist markets have diminished the market value of land.
It’s impossible to square these two assertions about reality.
Rushkoff’s book is so bad – on every level and in every dimension – that I actually wonder if it isn’t written as an intentional spoof on modern “Progressivisms” many inconsistent and mistaken mantras. If that is Rushkoff’s real purpose, then Throwing Rocks at the Google Bus is a truly brilliant achievement!
The above originally appeared at Cafe Hayek.