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… is from pages 71-72 of Thomas Sowell’s monumental 1980 volume, Knowledge and Decisions [2]:
Many of the products which create a modern standard of living are only the physical incorporation of ideas – not only the ideas of an Edison or Ford, but the ideas of innumerable anonymous people who figure out the design of supermarkets, the location of gasoline stations, and the million mundane things on which our material well-being depends. It is those ideas that are crucial, not the physical act of carrying them out. Societies which have more people carrying out physical acts and fewer people supplying ideas do not have higher standards of living. Quite the contrary. Yet the physical fallacy continues on, undaunted by this or any other evidence.
DBx: Indeed so.
What Sowell calls the “physical fallacy” is especially visible today in the many lamentations over the decline in the United States of manufacturing employment, and in the accompanying proposed schemes for using government power to artificially create more manufacturing jobs. Such lamentations and proposals reflect deep economic ignorance.
As Sowell points out a few pages prior to the above-quoted passage, true physical creation is performed only by nature. All that we humans do is to take the atomic and molecular structures created by nature and rearrange these into structures more useful to us.
Nature, for example, creates trees (although we humans have creatively cross-bred and cared for trees in ways that improve them for our purposes). But trees, as such, aren’t very useful to humans beyond their ability to cast shade. Trees become useful only by being transformed, in cost-efficient ways, into items such as firewood, canoes, hammer handles, toy choo-choos, two-by-four studs, plywood, flooring, household furniture, paper, maple syrup, and rubber. Every one of these useful items is the product of human creativity and ideas, as is each of the processes for transforming trees into such items. To identify as productive only those actions that involve the physical handling of trees and lumber is to fail to identify not only a set of other necessary steps in production, but what are the most important steps – most important in the sense of being the steps that are the ultimate source of value-creation: the creativity and ideas.
Recognition of this reality, of course, demolishes the Marxian (and many other dogmas’) notion that value-creation is done only, or chiefly, by physical labor. Physical labor, of course, is necessary. But it is downstream from the ideas that put it into motion. Indeed, that which gives human labor its value are these ideas. Toiling to rearrange matter into forms that are useless to human beings creates no value; in fact, such toil is wasteful and, hence, harmful to society. Human work effort becomes valuable – becomes truly productive – only if and when someone figures out how to conduct that effort in ways that transform physical matter into things useful to human beings.
The ‘someone’ who performs this creative task might be the same individual who toils to do the physical transformation. In a modern economy, however, that someone is almost never the physical worker. It’s typically an entrepreneur or a firm manager. In addition, no manufacturing worker’s toil would be worth much absent the complex processes of contract formation and enforcement, transportation, wholesaling, retailing, marketing, financial intermediation and risk management, insurance, and communications – all activities of the much-derided service sector.
Those persons and organizations – in the U.S., from the Economic Policy Institute on the left to American Compass on the right – who ridicule financial markets and free trade while scheming to create more jobs in manufacturing – are simply economically ignorant. They fall victim to the physical fallacy, and remain mired in it. And their proposed policies, to the extent that these are enacted, inevitably reduce the living standards of the ordinary men and women who are the objects of these organizations’ concerns.