The War in Viet Nam and the "War" on Poverty

Abstract

Generations of students have learned from their professors of economics that productive resources are limited, and that, as a result, everything cannot be done at once. Producing more of any one good or service generally requires that less of some other(s) be produced; such is the venerable law of scarcity. Societies, unable to do everything, must somehow choose what things to do first; scarcity requires economizing, or choosing the best use of limited resources. A superficial reading of recent economic thought might appear to qualify this law. The presence of unemployed labor and capital makes it possible to increase outputs of some things without diminishing the outputs of anything else. Thus it might seem that under conditions prevailing in the I930s or, to a lesser degree, in recent years, the law of scarcity fails to hold. This is, as we have suggested, only a superficial view. A closer examination of the matter will reveal that the necessity for choice still stands. Under conditions of general unemployment of labor and capital, most present-day economists would prescribe monetary, fiscal, and other policy actions designed to raise the effective demand for goods and services, and thus put idle productive resources to work. Various monetary and tax devices, for example, might be (and recently in the United States have been) used to increase private business investment. Other types of tax reduction can stimulate consumer demand, while governments, particularly the federal government, may directly increase the demand for produced goods and services by raising government spending for collective consumption or investment. In other words, there are many different ways to increase demand and put unemployed productive resources to work. Even though unemployment means that we have room to expand demand and thus get more of everything, we must still make a decision as to more of what; the necessity for choice is as urgent as ever. We may have more consumer goods, more capital goods or more public goods, but we must somehow choose how much of each. As usual, choosing more of one thing involves choosing less of another. Every selection of policies to increase demand and to reduce unemployment is also a choice as between various kinds of goods: public or private goods, consumer or investment goods. In summary, when the economy is at full employment, the traditional view of scarcity prevails; spending more on something (say defense) means spending less on something else (say poverty