Lecture #3, The Principle of Prosperity

Principles of Human Action
February 26th, 1995
Lecture Number Three

Ladies and gentlemen, we’ll continue now with lecture three. Earlier I asked you to identify the primary cause of human failure. What failure, you might ask? Well, you name it. The cause of the failure to build peace in the world, or to build peace in your own home, the cause of the failure to build prosperity in the world, or to build prosperity in your own home. And so, the failure of the individual, the primary human failure, is the failure of the individual to apply science and rationality to identify correctly the causes of those effects that he likes and dislikes.

The truth and consistency of this generalization will be confirmed in the sessions ahead. From time to time I will give you generalizations in advance of the support of those generalizations, but the support will come in future sessions. If we could support everything, if we can support all of optimization theory in one lecture, then we’d only have to give one lecture. Here again are the seven super problems caused by this primary human failure – international war, world starvation, widespread poverty, economic depression, monetary inflation, epidemic crime, failing education, and a lot more. We’ll have a lot more to say about other failures, numbers 8, 9, 10, 11 and 12, and other problems.

If we want to transform these seven super problems into super solutions, what must we do? If we want to go from international war to international peace, we apply science. To go from international war to international peace we have to apply the methods of science to correctly identify the causes of at least two things; One, war. Two, peace. To go from inhumanity and slavery to world humanity and freedom, we have to apply more and better science. To go from world poverty to world prosperity, again, we have to apply more and better science to identify the causes of poverty and the causes of prosperity. To understand the cause of one is to understand the cause of the other.

It’s important to know that if you are the average individual who is educated, intelligent and successful, your interest in solving any of these super problems is not large. If you live where there is relative peace, and the nearest wars are thousands of miles away, you are more likely to be interested in inner peace than you are in world peace.

If I were to give a course on inner peace, wow. Inner peace? They’d be jammed up to the door trying to get in because those kinds of things are popular. If you live in America and the slave labor camps are in Asia or Eastern Europe or what have you, it’s not the quest for world freedom that likely compels you, but the quest for more personal freedom. When poverty and famine are far away from your door, your main focus is on winning prosperity for you and your family rather than winning prosperity for some nameless, poor, starving, wretch.

Let me make it very clear from the beginning, the aim here is not to motivate you to join a crusade to solve these world problems that I call super problems. The aim here is to learn how to apply science to solve these super problems. That’s not the same. There’s no crusade here. In so doing, you can also learn how to apply the same science to solve the lesser problems that do have your immediate interest.

I claim you cannot learn too much about the process of problem solving and solution building. If you think you’ve learned everything that you ought to know on those subjects, that tells me you don’t know the first thing about it. These can be world problems or local problems, business problems or personal problems, super problems or mini problems. The salient question is, and will remain, what is your method of problem solving and solution building? Is your method any good? And if you think it’s good, how do you know?

What is the quality of your method? Is your method capable of solving a problem? Is your method capable of building the solution? If this does not sound like the most entertaining question I can ask then it’s the most important question I can ask. Why is it so important? This thing we call human life is primarily one thing, it’s a lifetime exercise in problem solving. As soon as you are expelled from the womb, you are confronted with one problem after another. You no sooner solve one problem and two more take its place. You’ve noticed this?

Your success in life cannot be greater than your success at problem solving. There are no exceptions. This is true of all humans in all places at all times. You say, “but I’m not interested in problem solving” Of course most people are, but I am not interested. You can’t even take Problem Solving 1A in a university. They don’t offer it. The more important the subject, the less likely it will be taught at a university.

Both reason and experience should tell us that if our success as a human being depends upon our success at problem solving, then a smart thing to do would be to examine the effectiveness, the usefulness of the very method we apply in the first place to solve problems to build solutions and to understand causality. What could be more important?

The most effective, practical, workable method of problem solving and solution building ever developed is known by name to at least every educated adult. It’s simply called the scientific method. It is also the best method ever developed to identify causality. And it is also a little-understood, little-appreciated method of problem solving, solution building, and causality identification.

It is so little understood that many of those trained in the sciences have difficulty articulating the scientific method. Of those who can articulate it, most of these people believe the scientific method can only be successfully applied to problem solving in the physical and the biological sciences, but not to problem solving in the social sciences or, what we call here, the human action sciences.

Another aim of this seminar is to show that the scientific method has a much broader application than is generally recognized. Since the term ‘science’ has been in your vocabulary for a long time, what do you mean by ‘science’? Write me an essay. Give me a lecture. What do you mean by it? Especially if you have a degree in one of the sciences – in any science. Give me a lecture, what is science?

Science means different things to different people. What one person calls science another person may call pseudo-science. The difference between science and pseudo-science can be found in the method each person claiming to be scientific employs in identifying causality. It’s important to state in this introduction the approach to science, or the method of science, applied to the construction of optimization theory on peace, prosperity, freedom, and progress.

For those of you who already have some understanding of the scientific method, this is essential because there is so much non-science and pseudo-science put forth in the name of science. If you can explain the scientific method, then the only way that you and I can determine if we’re talking about the same scientific method is if I explain the method I’m using. In science courses and in textbooks the scientific method is often presented as a three step or four step method.

The scientific method, or scientific approach, or scientific guideline, is described by me in six steps. Now, essentially when I go through this, there are two possibilities, either you already understand it, or you don’t. If you have no knowledge of the scientific method, my brief explanation of it here is not going to enhance your understanding of it significantly. The important part is for me to communicate to those of you who already claim to have an understanding of the scientific method to determine if we’re talking about the same thing.

Now the only way we can find that out is what I’m going to do now. Each step of this method is a part of a procedure designed to accomplish an end result, which is a correct identification of the causes of physical effects, biological effects, and human action effects. That is the purpose of the scientific method. A correct identification of causality is the foundation of understanding. In contrast, an incorrect identification of causality is the foundation of misunderstanding.

Let’s look at the method. It could also be called the causality identification method. You begin by identifying physical, biological, or human action problems that interest you. What are you interested in?

Two, you precisely define these problems and all associated fundamental terms.

Three, you observe and record physical facts, biological facts, and human action facts related to the problem in which you are interested.

Four, you generalize hypotheses, or principles, or laws concerning the phenomena in which you are interested.

Five, you extrapolate. In other words, you infer an unknown from an earlier known. You make predictions from hypotheses or principles or laws, i.e. predictions about some future event relative to the laws or principles.

Six, you employ observation to verify the predictions, the hypotheses, the principles, the laws, and the conclusions and you continue this verification forever. As soon as you stop verifying, it’s not science.

That sixth step is the grand test of the correctness of all scientific endeavor.

In other words, do all the predictions extrapolated in the fifth step from the earlier generalizations induced in the fourth step come true? Do the direct or indirect observational data, in other words, the totality of the empirical evidence gathered in the sixth step, does it confirm, does it verify, does it corroborate and support all of the claims presented in the first through the fifth steps?

Every test that produces a yes answer, in other words a successful test, increases our confidence, our trust, in the correctness of the claimed scientific hypothesis, theory, law, principle, what have you. In contrast, every test that results in a no answer, in other words a failed test, decreases or may even destroy altogether our confidence, our trust in the correctness of everything claimed in the first through the fifth steps.

A continual and persistent testing for confirmation, verification, and corroboration, all different terms for essentially the same thing, you continually test for all of these, all of the predictions, all of the hypotheses, all of the principles, the laws, and the conclusions. It’s an ongoing process that is an essential feature of science. This feature sets science apart from all other fields of knowledge.

As a method of understanding causality, science, following the central contributions of Newton, Galileo, and Kepler, has had no equal. The effectiveness then of this causality identification method, the scientific method, a different way to say the same thing, is not limited to merely solving physical action and biological action problems. That’s why we’re here. It will be shown in the sessions ahead that the scientific approach to identifying causality can be effectively applied to solve human action problems.

This includes society’s most recalcitrant, pervasive, and harmful human action problems. By applying the scientific method to identify causality, we can understand the specific human actions necessary to cause world peace, prosperity, progress, and freedom. I gave you this guideline from the economist and historian, the late professor, Ludwig von Mises, who said, “One must study the laws of human action, of social cooperation, as the physicist studies the laws of nature.” That’s the whole theme of this seminar.

This means we have to follow the leadership of the physicists who have built the physical sciences. A physicist is one who studies the laws of physical action. A biologist studies the laws of biological action. And so, in the science presented here, we study the laws of human action. The most fundamental knowledge a physicist can study is a physical law of nature. A law of nature is a generalized description of some repeating natural phenomenon, presumed to repeat again in the future as it has in the past.

Once a law of nature is discovered and described by its discoverer, the law can be independently observed by any other interested observer. It’s most important to note that at no time are we required to accept the existence of a law of nature on blind faith. If we’re interested in this phenomenon of nature, then we can observe it ourselves. In science we never have to accept a law of nature on faith because some scientific authority claimed it was a law.

This approach separates science from everything else. In the sciences, you never have to accept what someone else claims to be true. You observe it, you test it, you verify it. If you don’t it’s your own damn fault. If you do not have the knowledge, or facilities, to independently observe, test and verify it, then you can wait for those who do. And so the scientific method of understanding the causes of physical action has given us our present world of technology.

This amazing technology is built upon just a few laws of nature. You’ve been hearing about these laws since you were a child. From the time you were a child you heard about the law of gravitation. Any exceptions? Who didn’t hear about this as a child? Am I correct? Who didn’t hear about it as a child? Anyone? You’ve heard about the laws of motion. You’ve heard about the law of conservation of mass, the law of conservation of energy?

Even though these and a few dozen other laws of nature are the generalizations upon which modern technology is built, please note carefully, there is no popular interest in any of these laws. Why is there little interest in the significance and profoundness of these natural laws, when everything from your automobile to your television set is based upon them? Why does almost everybody say, “I couldn’t care less, buddy.” Why?

Here is why. The more important the subject, the more difficult it is to excite people about understanding it. Because of the supreme importance of the laws of nature, don’t expect very many people to get excited about understanding them or you will be greatly disappointed. Nevertheless, the general disinterest does not prevent those few who are interested from applying these laws to build super solutions to super problems.

Saturn and its Largest Moon Reflect Their True Colors

It only took, for example, a few people understanding the physical laws of nature to send a vehicle to Saturn to take this astonishing photograph. I’m a photographer and have been since my youth, but I’ve never taken anything as impressive as that.

But when the subject turns from physical action problems to human action problems, are there any laws of human action that can be applied to take us from, let’s say, world war to world peace, from world poverty to world prosperity?

In any case, if we are searching for a law of nature or a principle of nature we are attempting to identify some fundamental constant. Fundamental means essential to the foundation of science, constant means unchanging. To build a useful science, we must begin with an unchanging foundation. To give you an analogy, if you’re a builder of skyscrapers you will want to build your skyscraper upon an unchanging foundation, that is, a constant foundation.

A building with a changing, inconsistent or unstable foundation has got a problem. If you’re in the building, you’ve got a problem. Because it will eventually what? Collapse. By applying the laws of nature, we know how to build buildings that will not collapse into the streets of New York. And we know how to build bridges that will not collapse, for example, into the waters of San Francisco Bay. We know how to do this.

But building stable bridges, building stable buildings involves the solving of physical action problems. When the subject shifts to solving human action problems, for example, how can we go from world peace to world war? How do we do this? Because before there were wars, at one point there were no wars. Does that make sense? There was a first war, we don’t know when that was it was so long ago. So at some point there was peace, until we got wars. How did this happen? How can we build world peace that will not collapse into world war? How can we build world prosperity that will not collapse into world poverty?

Well, the same methods of science that are successfully applied to build skyscrapers and bridges that will not collapse can also be successfully applied to build peace and prosperity that will not collapse. The first question of course, is where do we begin? If your goal is to build a 101 story skyscraper, you don’t begin with the first story. Am I right? If you do begin with the first story, what will happen? Long before you reach the 101st story, the entire structure will collapse. The only workable place to begin construction is on the foundation.

In a like manner, in building a science of human action the place to begin is with the foundation, and so the foundation takes the form of a few fundamental constants. I’m going to identify one of these foundation principles or fundamental constants that will enable us to build a science on the attenuation of poverty and the optimization of prosperity if that is of interest to you. But I have to lay some groundwork first.

It’s unlikely that poverty touches your life unless you have maybe some impoverished relative who lives in Asia, or Latin America, or Eastern Europe. You hardly ever think about the problem of poverty because the problem is too remote from your daily focus. The aim here is not to motivate you to suddenly join a crusade to save the poor. There is not likely material poverty in your life that has to be attenuated but almost everyone in the room might be interested in the optimization of prosperity.

At this point, if we had time, I would ask you to write down, or come to the lectern, and ask you what you believe to be the fundamental causes of both poverty and prosperity. Write me an essay. What do you think they are? Such a list would represent a statement of your fundamental premises on the causes of the effect, poverty, that most people dislike, and the causes of the effect, prosperity, that most people like.

Now, it’s quite possible that your list of causes will be in conflict with my list of causes. Whenever I put forth a new identification of the causes of poverty and prosperity be careful that your ideological immune system doesn’t kick in and reject it before you’ve given it careful consideration. So kind of pull in the reins a little bit on your ideological immune system. I know you can do that. When I present a new explanation of causality, beware that your mental computer does not instantly point out an error message, error message, premise error, premise error. That can’t be the cause, error number 59. Go to your manual and look up error number 59. That’s meaningful if you fool around with computer software.

Let’s apply science to identify the causes of poverty. We’re going to use, again, science, not opinions, not hearsay, not anecdotes, but science to identify the causes of poverty. Why is poverty so much more common than prosperity? Why isn’t it the other way around? Why isn’t prosperity much more common than poverty? Over a third of the world’s population experiences hunger, malnutrition, starvation. That’s a lot of poverty generating a lot of misery. Why? Who needs this? Who wants this? What’s the cause of all this widespread poverty?

Before we can answer the question, a more elementary question can be asked, namely, what is poverty? Now we can make some progress simply in the first instance by defining it, by providing a precise definition of what it is. Poverty prevails where people have access to the bare minimum of food, clothing and shelter necessary to their survival. Even the dictionary can tell us what poverty is, and this is a direct dictionary quote, “the state or condition of having little or no money, goods, or means of support.”

But the dictionary does not tell you this point. Incidentally, I shouldn’t tell you this but I’ll tell it to you anyway. I was going to say a major point, but all the points here will be major. Some will just be more major than others, that’s all. Okay, here is the point. The overwhelming majority of all people throughout all history have lived in the state of poverty because they have had few products to consume.

The reason these people have had few products to consume from the beginning is because nature is not in the business of producing products. Humans produce all the products, 100 percent of all products, through the process we call human action. Nature provides us with resources, but not products. A banana for example growing on a tree in the wilds of some tropical forest is a resource that may or may not be eaten by a human. But the banana on your breakfast cereal is a product. It was grown where? On a banana plantation. Plantations are not a derivative of nature. Nature has never given us a single plantation. Do you see that?

Your banana was trucked from the plantation to a ship. It was then shipped to a port where it was then trucked to your supermarket. It was both the plantation technology, no technology exists in nature, it was a plantation technology, the transportation technology, and the distribution technology that brought you the banana. And what is it that makes it a product?

If the banana is still only a resource in the wilds of a tropical forest then the price you will have to pay to eat the banana will be very high. The price will include the journey to the forest, and even perhaps hacking your way through the jungle, likely a jungle of unfriendly vegetation, unfriendly animals, unfriendly insects, and perhaps even unfriendly natives.

The banana in nature, which is merely a resource, could be a very expensive banana to eat. Do you see that? You might risk your life over this banana. Maybe a gorilla was about to eat the same banana you wanted to eat. Could that be a problem between you and the gorilla?

Let’s make an important generalization about human action. Without human action, without humans creating products, poverty is a natural condition. To further illustrate, nature grows trees, but a tree is not a product. It’s only when man applies human action to the tree that he can create let’s say a two-by-four, known as a 2-by-4. That is 2 inches by four inches, except it isn’t quite two inches by four inches is it? Nature creates the natural resource, the tree. Man creates the product, the 2-by-4. Branches grow on trees, 2-by-4s do not.

I’ll now give you another important generalization based upon the observable fact that 2-by-4s and the tools that shape the 2-by-4s do not grow on trees. Nature bequeaths to all mankind poverty, thus, poverty is natural and prosperity is unnatural. All right, where then does this unnatural prosperity come from? The first step in answering the question involves the realization that prosperity is an effect that has a single cause, namely certain kinds of human action.

But first let me give you a simple equation that measures the prosperity level for any given society of people. Take the quantity of products and divide that by the number of people and this equals quantity of products per person. Anywhere you find that the quantity of products per person is high, the people there have acquired a relatively high level of prosperity. Conversely anywhere you find that the quantity of products per person is low, the people there have acquired a relatively low level of products, hence they live in a state of poverty.

This is perhaps better illustrated from this simple curve that I call the prosperity effect curve. As long as the quantity of products continues to increase at a faster rate than the number of people continues to increase, the net effect will always be continuing prosperity. Wherever this trend continues, the quantity of products available per person continues to increase. This means that prosperity continues to prevail and to increase.

But what happens where people are being produced at a faster rate than products are being produced? You attain a dramatically different effect that I call the poverty effect curve. As long as the quantity of people continues to increase at a faster rate than the quantity of products, the net effect will always be continuing what? Poverty. Wherever this trend continues, the quantity of products available per person continues to decrease. This means that poverty continues to prevail.

And what is the terminal conclusion of this trend if it continues indefinitely? You can figure that out. The products per person will be so few over time that death by starvation is a foregone conclusion. When the number of people dying from starvation reaches epidemic magnitude, the popular term for the condition is famine. Wherever you find famine you will also find a lot of people who do not understand the causes of things. They don’t understand the cause of probably much of anything on any subject all the time. Especially you will find a lot of people who don’t understand the causes of famine.

I will demonstrate later, ladies and gentlemen, that you can only have a famine where you have a lot of people who don’t know what they’re doing when it comes to the efficient acquisition of food products. If you know what you’re doing, famine is not only improbable, it is impossible. I will demonstrate this later. This means there are entire nations of people, more than that there are entire continents of people, who don’t have the foggiest idea of what they’re doing. Other than that, they’re doing great.

Now, my friends, I’m going to warn you early in this seminar not to be misled by the simplicity of both the prosperity effect curve and the poverty effect curve into thinking, well, these concepts are perhaps beneath your intellectual dignity. The full significance of these concepts will come later. I am now going to discuss another popular view on the source of prosperity. That popular view happens to be another mislabeling of the causes of things.

All of the American laborers and workers who were born into this century, the 20th century, through the accident of birth, were born into the most prosperous nation on earth. Almost all of these workers take their relative high standard of living completely for granted, as if it were granted to them. For the most part they are ignorant of the fact that surrounding them on the same planet, more than a third of their fellow humans have so few products to consume that hunger and starvation is a lifetime reality. In other words, you hope you don’t starve to death before you’re forty.

They are ignorant of the fact that they enjoy luxuries that were not even available to the most prosperous Americans of an earlier generation. And these same workers believe that there is a continuous and irrepressible tendency toward an increase in the productivity of labor. Without any understanding of the prosperity effect curve, they believe that prosperity just naturally takes place. They are certain that it is a natural thing for the production of products to always increase and for progress to always continue.

American workers, American laborers and Americans in general have acquired a grossly distorted view of the cause of prosperity. For example, let’s look at a popular myth, namely, a main cause of a greater increase in production per worker comes from a greater increase in skills per worker. The fact is, the increasing of a worker’s skills is not a main cause of increasing production of products.

To illustrate this point, what if you make a comparison between the level of skills attained by today’s factory worker versus the level of skills attained by the medieval artisan who lived a thousand years ago in the 10th century? You’ll find that during the thousand-year period from the 5th century to the 15th century, known as the Middle Ages, the proficiency and skill of the average artisan towered far above the level of the skill of today’s average factory worker. These artisans not only possessed more refined skills than today’s average factory worker, they also worked both harder and longer.

All of this brings us then to an important question: If the medieval artisan had greater skills, worked both harder and longer, why is he only able to produce a tiny fraction of what the less-skilled factory worker produces? In less than a quarter of a century the American factory workers out-produced the combined efforts of all the medieval artisans during a thousand years of production. How was this done? I will show you in a picture, one picture tells it all. Is this picture interesting?

Most of the production of products was not accomplished by these factory workers. It was accomplished by what? By the factory workers’ tools. Please note, there are so many tools in this picture you can hardly find any workers. Am I exaggerating? You literally have wall-to-wall tools. The difference in the output of products in terms of both quantity and quality is dramatic. The significant lesson to learn from this illustration is that higher production per worker has one cause. It is not caused chiefly by increasing the efficiency of the worker. Higher production per worker comes primarily from increasing the efficiency of the worker’s tools.

Now, to be sure, it’s true that if there are two machine operators operating identical machines, the more-efficient operator will out-produce the less-efficient operator. But what if the less-efficient operator is in possession of a more-efficient machine? Then the less-efficient operator can easily and always out-produce the more-efficient operator. The less-efficient operator with a better tool can always out-produce the more-efficient operator with a less-effective tool.

For example, compare the most efficient typist of fifty years ago whose assignment is to type a letter with ten copies, versus an average typist of today with the same identical assignment. How many of you have ever tried to type a letter on let’s say one of those old Royal or Smith-Corona mechanical typewriters? Let me see, you’ve actually used a mechanical typewriter, no electricity? That’s about half the people or more in the room. And you’ve tried to do maybe five to ten carbon copies? How many have tried to do at least five carbon copies? Yeah, you’re laughing, aren’t you. If you make just one lousy mistake, oh, no!

It’s a project to correct it. Am I exaggerating? Not only do you have to erase each little mistake ten times, you have to insert other pieces of paper to prevent the erasure from going to the carbon and not having erasure marks on all ten copies. Right? You have to do that, don’t you? And furthermore, if you will recall, it is almost impossible to read the ninth or tenth carbon copy. I mean, it’s so fuzzy and blurry it is almost illegible.

In sharp contrast, look at the ease with which, for example, an average, or even below average typist today can solve the same problem. Even a decade ago or two decades ago, if she had an old IBM Correcting Selectric, when she makes a mistake she pushes a button, presses a key, and the mistaken letter literally is lifted right off the page. When the letter is corrected, she can then run off ten copies on a photocopier. This is twenty years ago.

And if it is a state-of-the-art copier it is difficult to tell any one of the ten copies from the original. Furthermore, if the typist has a computer-operated word processor, she can make all the corrections electronically, and have as many originals as she wants printed out on a high-speed printer. She can print out a hundred originals. True? What’s my point? It is even more important to increase the efficiency of the machinist’s machines than it is to increase the efficiency of the machinist.

This means that higher production per worker is not a natural occurrence. Nature had nothing to do with it. Man has to make it happen through two kinds of human action. One, you increase the quality of tools of production and two, you increase the quantity of the tools of production. Now, virtually every worker would like to have a higher standard of living, but that can only happen where there is a higher production per worker. And, most important, higher production per worker can only happen where there is the continuing accumulation of both more and better tools of production per worker.

Now thus far I’ve discussed the essential role of accumulating the tools of production on our quest for both progress and prosperity, but I’ve not yet given you a formal definition of the tools of production.

A tool of production is any mechanism or concept employed as a means to the production of tangible or intangible products. This definition includes many things that people in general would not think of as a tool of production.

For example, one of the most important and indispensable tools of production is the factory itself.

Another tool of production is a barn. This is one of my favorite barns, which I photographed in Southern Canada.

Another tool of production is a hospital. A hospital is what? It’s a tool. We’re in one right now. We are inside a tool. We are inside a tool that houses the tools of health production, aren’t we? A soundstage is a tool that houses the tools of motion picture production. A symphony hall is a tool that houses the tools of music production. What is a tool of production? Any mechanism or concept employed as a means to the production of tangible or intangible products.

Now, ladies and gentlemen, if I paid $4,000 dollars to publish a full-page ad in the Los Angeles Times announcing I’m going to be giving a lecture on the essential importance to each individual of understanding the importance and significance of the tools of production, a full-page ad, nobody would show up. Nobody. A full-page ad. Nobody. As I’ve said more than once, and you’ll hear it again and again, the more important the subject, the harder it is to get people’s attention on that subject.

Much of this lecture concerns showing you how to build a foundation or a science of human action. All foundations have this in common, they do not appear to be very exciting. If all you could see the foundation of the famous Empire State Building on Manhattan Island, the foundation for sure is not very glamorous. How many have ever gotten a postcard from a friend that just visited Manhattan Island, and on the postcard was the foundation of the Empire State Building? You didn’t get such a card. Such a card I doubt ever existed because it’s not perceived to be very interesting.

What is glamorous and exciting about the Empire State Building? What is glamorous about it? It’s the 102 stories that rise 1,248 feet above the foundation that nobody ever sees. It’s hidden from view. In a like manner, the foundations of science are never glamorous, at least not until you understand the whole science. You have to pretty much understand the whole thing to begin to realize the importance of the foundation.

The foundations of science are made up of a few simple principles. Therefore, I have to explain why simple principles are difficult for all of us, including me, to understand. I gave you in lecture one this illustration. In 1881 Dr. Carlos Finlay explained to his peers in medicine that yellow fever is caused by, transmitted by, the bite of an infected mosquito. But Finlay’s correct explanation of causality was rejected by, first and foremost, who? His peers!. It was rejected by the professionals in medicine and biology who said, “that can’t be the cause.” These physicians had all been indoctrinated in medical school to believe what? To believe that poor sanitation was the cause of yellow fever and malaria. All schools are institutions of indoctrination.

But there is much more behind their rejection that the mosquito was the cause than the fact that in school they were taught that something else was the cause. There’s still more to it. Many of Finlay’s critics believed his explanation of causality was too simple. Whenever anyone poses a simple solution to a complex problem, one of the most common objections that you will almost always hear is this. “Sir, you have over-simplified.” Now, when you say you have over-simplified, you are saying in effect that there can’t just be one single cause. There must be many causes. You have over-simplified. You’re a nice person, I’m sure, but you’ve over-simplified.

Well, let me ask you this, did Carlos Finlay over-simplify on his identification of the transmitter of yellow fever? No. The transmission of yellow fever has only one single cause, the bite of an infected female aedes aegypti mosquito. We know of no other cause. The mere fact that Finlay’s revolutionary explanation of the cause of yellow fever is so simple made it very, very difficult for him to get the idea across.

Anyone who discovers a new, simple solution to an old, seemingly complex problem is immediately confronted with three new problems for which he was never prepared. The simpler the concept, the more difficult it is to explain. Whenever any effect you like or dislike has only one cause, that is the simplest explanation possible, but it is also the most difficult explanation to explain.

Please note, if you are the discoverer of a simple solution to a complex problem, the solution is obvious to whom? To you. But it’s not obvious to everyone else or to anyone else. If it had been obvious to others, they might have discovered it before you did, right? For this and other reasons, the simpler the concept the more difficult it is for the explainer to explain to intelligent people, educated people, successful people. Nothing has to be explained to the uneducated, unintelligent, unsuccessful people. Now, if that sounds elitist, don’t worry about it. We’ll come to that later.

Only one thing matters about beliefs. All that matters is what those people who think they’re educated, who perceive themselves to be successful and intelligent, it only matters what they believe to be causation. That’s all that counts.

There is a second problem related to getting the idea across. The simpler the principle, the more difficult it is to comprehend. When people are confronted with any complex problem, they tend to look for a complex solution. The physicians and biologists at the International Sanitary Conference of 1881 were, for the most part, looking for a complex solution to the apparently complex problem of yellow fever. They’re not alone. When confronted with a complex problem, we are all programmed to look for a complex solution.

When you’re programmed to look for complex solutions, what will you do? You will reject all simple solutions as not being solutions. The more complex a problem, the more likely the few people who are looking for a solution in the first place will also be looking for a complex solution.

Therefore, Finlay and others were confronted with a third problem related to getting the idea across. The simpler the solution, the more difficult it is to accept. But what if the grand solution to a major complex problem happens to be a simple solution? What then? Do you see a problem? What if your ideological immune system is programmed to attack every simple solution to every complex problem. You say, that can’t be the solution.

I will share with you one of the most important lessons we’ve learned in the history of science and technology. In both the physical action sciences and biological action sciences, when scientists have been confronted with great complex problems, the greatest solutions have turned out to be simple solutions rather than complex solutions. Nevertheless, even with this knowledge, please note it is difficult for all of us to explain simple concepts, comprehend simple principles, and accept simple solutions. That’s difficult for whom? Everybody, me, you, everybody. It’s difficult for me.

The term simplex is in your vocabulary if you have a background in science. Simplex is a useful antonym for complex so we’re going to talk about simplex versus complex. Simplex means consisting of one action. A complex solution is one that is made up of many complicated parts or requires many actions. How many have seen Rube Goldberg cartoons? I don’t think they’re around anymore. The Rube Goldberg cartoon was a technological way to most inefficiently and incompetently perform some kind of work or operation. It worked, but they were hilarious. It was the most complicated way of doing something.

With this introduction I will now share with you the greatest simplex solution to the greatest complex problem of your century. This magnificent simplex social solution is also a fundamental constant of this science and optimization theory. The lesson I want to give you here, and the warning I want to give you, is that when you miss the significance of the simple solutions, what have you missed? At the same time, you have missed the significance of the major solutions to the major problems throughout history.

Because the simple solution to the complex problem is so easy to miss, I’ve found it useful to name them something other than simple solutions. I call them simplex solutions. Simplex means consisting of one action. Dr. Finlay’s explanation of causality was simplex. Only one action, not three, not seven, one action transmits yellow fever from old victim to new victim, the bite of an infected female aedes aegypti mosquito. And so we have then two opposing concepts, simplex versus complex.

Again, to reiterate, a complex solution is one that’s made up of many parts and requires many actions. Simplex means a solution that requires only one action. This simplex social solution that I’m going to name is a fundamental constant of this science. It will be called the principle of prosperity. The principle will be stated in one sentence. I do not expect you to fall off your seat when I show it to you. There will be no oohing and aahing.

The reason there won’t be any oohing and aahing is because it’s a principle, and if you’re intelligent, principles are difficult to understand. If you’re unintelligent it’s impossible to understand any principle. That’s one way you can measure the effectiveness of someone’s intelligence, can you understand a principle?

Don’t expect any major simplex principle to make a large impact upon you when you first see it. There will not likely be a, Wow! How did I miss this all these years? There’s a reason for this and I’ve been explaining it. All simplex principles are difficult for intelligent people to understand. Now without the benefit of searchlights and trumpets, I will give you the first fundamental constant of this science. It is called the Principle of Prosperity.

There is only one means to societal prosperity, the accumulation of the tools of consumer production at a faster rate than the accumulation of consumers. The principle has 24 words and can be read in a few seconds. However, it will take many lectures for me to convey the significance, the importance of this simplex principle.

First of all, why is it a simplex principle of human action? Let’s zero in on this question. How many means are there to improve the standard of living of the people? When all of society prospers, the standard of living for everyone goes up. Are there thirty-six different human actions we have to take to raise the standard of living? No. Are there a dozen actions we have to take? No. Are there as few as three actions we have to take to achieve prosperity? No. The answer is one means, one human action. When there is just one action to take what is that called? Anyone? Simplex means consisting of one action.

I’ll use this science to prove that to improve the material prosperity of mankind takes one action. If the goal is prosperity then there is only one thing that must be accomplished, that is to accelerate the total growth of production tools at a faster rate than the growth of the population. That’s another way of saying the same thing.

For example, if the goal is to achieve a dramatic increase in the production of food, how do you do that? Well if we follow the principle of prosperity, what is the very first thing that we should learn not to do? If we’re now following a principle, what should we not do? The first thing you should learn to not do if you want to produce a lot of food per eater of food is what? One thing is do not make a dramatic increase in manpower. Make a dramatic increase in what? Tool power.

A great step in this direction was achieved by the American Cyrus Hall McCormick. In 1847 McCormick launched the large-scale production of his famous reaper, seen here, drawn by a team of horses.

And by the end of the 19th century, as you can see in this picture, the farm tools were more advanced and there’s even more tools per farmer.

This self-propelled steam engine is being used to operate a grain threshing machine. It’s not a very clear picture but you can see the driving belt from this steam engine driving the grain threshing machine.

And this was at the turn of our century.

The Americans continued to accumulate the tools of farm production at a faster rate than the accumulation of farmers. We did that in America. By the middle of the 20th century, these sophisticated threshing machines pictured here tell the whole story. During the century that passed between McCormick’s reaper and these modern combines, what was the significant change? What caused farm production per farmer to rise sharply? Did the farmers work harder? In general, no. What worked harder? Their machinery, their tools worked harder.

Now, here’s a good question for you. Did the farmers get smarter? In general, no. What got smarter? The tools got ‘smarter.’ Do you see the difference? For example, a bag of chemical fertilizer is smarter than a pile of manure. In other words, it was not so much the efficiency of the farmer that increased, but rather it was the efficiency of the farmer’s tools that increased. And so this has been the main source of America’s ability to out-produce the rest of the world in food production.

And so, the Americans accelerated the growth of tool production at a faster rate than the growth of baby production. To illustrate this point, I will pose this question. What is the fundamental difference between the Chinese coolie and the American truck driver? There is only one fundamental difference, it’s the truck.

Here you can just barely see the truck driver, if you take away his truck then he cannot move any more goods with a pushcart than can the Chinese coolie. In fact, the Chinese coolie can move more. Why? Because he’s used to the heavy labor and the truck driver is not. The American sits there in his air-conditioned cab listening to his stereophonic system. Am I exaggerating? An automatic transmission and a bed and a place to wash up and a toilet and the whole thing in the back are all available.

Here is another lesson, a simple verbal explanation explains it all. One American truck driver minus one truck equals one American coolie. Conversely, if the goal is to transform Chinese coolies into Chinese truck drivers, then there is another very simple equation. One Chinese coolie plus one truck equals one Chinese truck driver. And so there’s only one road from coolie to truck driver, and that is to what? Accumulate more trucks per coolie until there are no more coolies.

Once the simplex formula is discovered, all that has to be done is duplicate it. For example, accumulate more cranes per worker, accumulate more flatcars, seen here, per worker, accumulate more pneumatic jack hammers per worker.

And look at this magnificent scene that dramatizes the principle of prosperity all in one photograph.

Look at that for a second. Focus on that for a minute. Accumulate what? More airplanes per worker, accumulate more trucks per worker, accumulate more factories per worker, accumulate more freight trains per worker, accumulate more freight trains per worker, accumulate more cargo ships per worker, and so forth.

You see, any deviation from this principle, and there will be much less prosperity. What if you get it backwards? What if you accumulate people at a faster rate than you accumulate tools? The result is another human action principle. This is the second fundamental constant of our optimization theory, the principle of poverty. There is only one means to societal poverty, the accumulation of consumers at a faster rate than the accumulation of the tools for consumer production.

To illustrate this major point, let’s compare the major difference between a rich nation, the United States, and, let’s say, a poor nation. We could use any number of them, but because Mexico is our next door neighbor we’ll compare these two nations for two centuries. A rich nation, the USA, versus a poor nation, Mexico.

If you were to identify the one outstanding distinction between these two nations, what might that be? Well, an obvious difference is that the United States is a rich nation, Mexico is a relatively poor nation. But what has caused the difference is not obvious. Both rich nation and poor nation are effects. For every effect there’s a cause. What are the causes that have produced much prosperity in one nation, and much poverty in another?

I’ve given you two principles that enable us to go from mere opinions on the subject to scientific conclusions. These principles are the principle of prosperity and the principle of poverty. For the past 200 years the people of the United States have done only one thing differently than the people of Mexico. Just one thing accounts for most, if not all, of the 200 years of American prosperity. Americans have applied the principle of prosperity. The Americans have accumulated the tools of consumer production at a faster rate than they’ve accumulated consumers.

In sharp contrast, for much, if not all, of the 200 years the Mexicans have applied the principle of poverty. The Mexicans have accumulated consumers at a faster rate than they’ve accumulated the tools of consumer production. Any nation that applies the principle of poverty will guarantee its masses a life of destitution and squalor. There’s only one salvation for the poor nation. They must apply, without reservation, what principle? The principle of prosperity.

The poor nations can try to escape their desperate circumstances by appealing to the rich nations for emergency aid, but of course they wouldn’t do that, would they? Is it not true that our neighbor to the south, Mexico, is demanding what? More aid because they’re in desperate circumstances. Well, what will happen to them if they accept this aid? It will always worsen their condition. Always. How often? Always. How many exceptions? Zero. If it’s not apparent now, it will be proven in this seminar.

As a matter of fact, if you really have it in for somebody, the most effective thing you can do to that person to destroy them is to give them a handout. There is no more effective thing you can do. If you really have it in for somebody, give them a handout. That means give them something for nothing. I’ll prove this.

When the politicians of a rich nation use tax funds to buy wheat for the starving masses in a poor nation, what is the effect? The wheat will not be converted into tools of production in the poor nation. What will happen? All of you know what will happen? The wheat will be converted into babies. Am I exaggerating? No. From wheat to babies. And it’s not just that we convert wheat into babies, we convert wheat into impoverished babies, babies that very likely will die of not having enough food to eat. I’ve never experienced this personally, but I’m certain it’s not pleasant.

In the long run, the politicians of the rich nation have made conditions worse for the masses of the poor nation by fostering the successful application of what principle? The principle of poverty. The amazing thing is that the people of these poor nations are only doing one thing wrong. It’s not like they’re doing twelve things wrong, or seven or two, just one. But if it’s only one thing you have to understand, that’s the hardest one to get. Getting just one thing is hard.

The poor nations are accumulating people at a faster rate than they’re accumulating the tools of production. By continuing to apply the principle of poverty, perpetual crisis is a certain effect. There is just one means of escape from this predicament. They must emulate the example of those nations that have applied the principle of prosperity. There will never be another source of escape, not in this decade or in a thousand decades. And this is more than mere opinion, it’s a scientific conclusion. Now we are building on principles. Opinions are out. They are worthless. All opinions are worth zero. Except it’s worse than that. There is a negative downside to opinions.

To further illustrate the importance of applying the principle of prosperity I will pose this question. What is the major difference between any modern industrial nation today versus that same nation 200 years ago? Most people, if they were to try to list the differences, would list the effects that differ. These are easy to see but the causes of these effects are largely hidden from view. Anyone with a little knowledge of history could identify thousands of products that we have today that were unknown to our ancestors 200 years ago. Everything from electric washers and dryers to television sets and automobiles have come into existence during those 200 years. But the fundamental causes of these remarkable products that are available to nearly every adult in the United States are hidden from view. People don’t know where things come from. Which means, as I will demonstrate, they don’t really know anything about anything all the time on all subjects. In other words, their perception of reality is such a gross distortion they don’t have a clue as to what’s going on.

What’s happened in 200 years is there has been a dramatic increase in the amount of the investment per worker in the tools of production. This increase changes everything. The difference between the United States in 1795 and 1995 is a 200-year accumulation of the tools of production.

Now, at this point, some might ask, but Mr. Snelson, what about the great advances in technology that’s taken place in the last 200 years? Isn’t the technological improvement the main cause of the increase in production? Well, technological progress has been a factor, but even the most significant technological improvement will achieve nothing unless something else comes first. The something else is an essential foundation of prosperity that every schooled adult has heard about but few understand.

The technological achievements are worthless unless some people are willing to save some of what they have produced. This must be done. There must be savings set aside for investment in the tools of production. The paramount importance of saving to invest in tools has not been clearly understood even by members of the business and financial community. I claim even they don’t understand the importance of this.

It has not been understood that every step forward on the road to prosperity is the effect of saving. Professor von Mises pointed it out. He said, “the most ingenious technological inventions would be practically useless if the tools of production required for their utilization had not been accumulated by saving.”

It’s important to note that the savings we are talking about does not involve saving for a rainy day, or saving to put your savings into a savings and loan association. When the goal is prosperity the only savings that count are those savings that are converted into investment in the tools of consumer production. How do we make the transition from the primitive savage and his awkward search for food into today’s advanced food production technology?

How do we go from this fellow, ready to launch an arrow into a fish, to what we have today? This required the step by step saving of property that was then converted into the accumulation of the tools of production. It’s the accumulation of the tools of production that transforms, step by step, a one room hut for seven people or more into a seven room house for four people.

Very few of your fellow Americans appreciate the difference between the one room hut with a dirt floor versus the average American home with floors of hardwood, carpet, tile. But it’s more than the floor that’s different. Most of the Americans you know have plumbing systems indoors, don’t they? They have heating systems, sound systems, video systems, disposal systems, cooking systems, cleaning systems, washing and drying systems, illumination systems, external communication systems and much more. Is that not true of most of the people you know? Am I exaggerating? No. Well, my friend Margaret doesn’t have a telephone. Well, that’s probably not true, is it? If you know a Margaret she’s probably got a telephone.

Most of you have all of these systems. Contrast your house and all of these truly marvelous systems versus the one room hut with a dirt floor. Is that a big contrast? You bet. Whenever you find a nation of people who live mostly in huts, there is only one means of converting all these huts into houses with all of these systems. To reemphasize, there aren’t a dozen actions. You don’t even have to take three actions, only one. The people who want prosperity must accumulate tools faster than they accumulate people. This means they cannot afford to consume everything they produce.

They must what? Save. Save, save, save. Then they must what? Invest. Invest, invest, invest. But investment alone will not bring them prosperity either. They must invest in just one thing. What is that? The accumulation of the tools of consumer production. Investment alone in the tools of production will not bring them prosperity either, if the investment is in the tools of war production. It’s important to understand that if we invest in the tools of war production this is not the same as investing in the tools of consumer production. I want to make that clear.

When we say invest in the tools of production we don’t mean investing in the tools that make tanks or shoot shells. We’re talking about investment in the tools of consumer production. You don’t consume tanks. You’ve never bought a tank, am I right? How many of you have you ever bought a tank? How many of you have ever bought a shell for a tank’s cannon?

Now, what I’m telling you here is not merely my arbitrary opinion. In fact, if you ever come to some points and say, Snelson, that’s only your opinion, bring it up and we’ll discuss it. Fair enough? We will have discussions. What we’re saying here is an indisputable scientific conclusion. Opinions again are worthless. You can’t get to the moon on opinions. You can, however, get to the moon on scientific conclusions. That’s how it was done.

If you want to visit a nation of huts, go to the Third World. How many of you have ever been to the so-called Third World? How many who have been to the Third World have noticed any huts? Especially if you travelled outside of the cities. If you stay at the downtown Hilton in some major city in some Third World nation and you don’t leave the lobby of the Hilton, you probably won’t see much poverty. But if you get out and travel around you will see what? A lot of huts.

A nation of huts, with an occasional palace, is a nation of paupers. This is not the same as a nation of palaces with only an occasional hut. Few Americans in the United States are sensitive to the fact that America is a nation of palaces with only an occasional hut. Such a bold statement may appear to be perhaps a gross exaggeration, but it’s not. You can test this out for yourself. Go find any hut-dweller who lives in a nation of huts. Have him or her take a tour of your house or apartment and he or she will think they’ve been invited into what? A palace.

But we were not always a nation of palaces. Two hundred years ago, we were a nation of huts with only an occasional Georgian or plantation palace. Remember, the American log cabin that we like to romanticize was a hut with a dirt floor. In fact, it even had a dirt roof, a sod roof, and it had no systems. How did we turn this around? We turned it around by applying a principle. There is only one road from hut to palace. Accumulate the tools of production at a faster rate than you accumulate people.

It’s important to make a sharp distinction between a rich nation and a poor nation. The rich nations have applied the principle of prosperity by accumulating tools faster than people. In sharp contrast, the poor nations have applied the principle of poverty by accumulating people faster than tools. This is the only difference between rich nations and poor nations. There is no other of any consequence. There is no other difference.

I’m illustrating social cause and effect. In the poor nations, when they apply the principle of poverty, it works. The result is always the same, destitution and squalor. In these pauper nations the principle of poverty provides the average pauper with a one-room hut. It is common to find several families living in a one-room hut. To witness this at first hand you only have to travel to any Third World nation. By applying the principle of poverty they’ve produced the condition I call ‘huttism,’ the condition that exists where production per worker is so low that almost everybody lives in a hut, or worse. Worse than a hut is no hut. You live under a tree or in the grass or in a hole. There are no systems in those holes.

Does this mean there is something necessarily wrong with living in a hut or living in a hut-istic society? Is there anything wrong with this? No, there’s nothing wrong with this at all. But the application of the principle of poverty creates something worse than hut-ism, namely, hunger and starvation. There is one single source of escape from this privation. It is a simplex solution. Where poverty prevails, there is only one action people have to take. Apply the principle of prosperity. This principle is a fundamental constant that cannot be changed, altered, or repealed.

By learning how to optimize the application of the principle of prosperity, we are on the road to a major social transformation, a transformation of all of these super problems into super solutions. And even if you don’t care about solving the world’s super problems, by understanding how to solve them, you will advance your understanding of how to solve your own personal problems, which you do care about, many of which seem like super problems to you.

Now, at this point some might ask the question, well, if all that is necessary to progress from hut to palace is to accumulate tools faster than people, then why don’t the people in these pauper nations get off their rear ends and start producing the tools of production now, fast, get on with it? Why don’t they do this?

Why don’t the poor nations speed up tool production and slow down baby production? I will answer the question now in part. Other parts of the answer will come later. To gain value from the principle of prosperity, everyone does not have to understand it. I’m coming to a point I made earlier. The impoverished peoples of the world do not have to understand it. A common explanation for the cause of Third World poverty is that the great masses of paupers are too ignorant to understand, too uneducated to escape from their misery and destitution.

This is a false explanation of causality. The main reason for the continuation of world poverty is this. Most of the educated, intelligent, and successful adults in the impoverished nations have mislabeled the causes of poverty. To illustrate this point, when the educated people mislabel causality the mislabeling can cause more problems, far more, than when the uneducated classes mislabel causality. In those parts of the world where malaria and yellow fever are endemic, it would not matter so much if the uneducated classes believe that the mosquito can’t cause malaria and yellow fever. It really doesn’t matter at all. Why?

But it most certainly would matter if the educated classes still believe the mosquito can’t cause malaria and yellow fever, especially if the educated classes include the medical doctors. Furthermore, an educated man who knows that mosquitoes transmit many diseases can hire an uneducated man to spray kerosene on mosquito infested swamps to kill mosquito larvae. Please note, the uneducated man does not have to know one thing about the metamorphosis of the mosquito and the cyclic transformation from egg to larva to pupa to adult that all of you presumably learned in grade school.

The biological term, metamorphosis, does not even have to be a part of his vocabulary. All the educated man has to tell the uneducated men is, spray here, from here over to there, spray here. Am I exaggerating? That’s all. Isn’t that beautiful? That’s all he has to say is, spray here. And when you’re finished with this swamp, I’ll pay you to spray another swamp, the swamp over there. Spray there now that you’ve sprayed here and done a good job. Spray there. This is very important, don’t lose it. This is a giant concept. It’s part of the whole solution.

Please note, the fact that this uneducated man still believes the mosquito can’t transmit disease does not prevent the same uneducated man from protecting himself and his family and others from disease, even though he has totally mislabeled causality. But if the educated man still believes the mosquito can’t cause disease, then he won’t be giving the order to the uneducated man to spray the swamp. Do you see that point? His only order may be to fill the kerosene lamps, and when you’re finished fill the kerosene stoves. Because it’s kerosene or coal oil that they spray on these swamps to kill the larvae. If you kill the larvae there are no mosquitos. Dead larvae means there are no dead mosquitos because they didn’t get to be mosquitos.

There are a number of points to this illustration but the problems of poverty in the Third World are not so much caused by the lack of education of the masses. They are largely caused by the miseducation of the educated classes. That’s in fact the worst thing that can ever happen anywhere. The worst thing that can ever happen is if you have a miseducated class of people who think they’re educated. That can destroy the whole planet.

In these pauper nations you don’t have to educate the majority of people who are uneducated. You only have to educate the minority of people who are miseducated. In a larger sense, the same is true for the First World nations. The major problems of the First World nations are not caused by the uneducated, but rather by the miseducated among those who perceive themselves to be educated. You may treat all of this as good news. I have a lot of good news for you in this seminar and that is, we don’t have to educate the masses. One reason this is good news is that we can’t do it, it is hopeless.

Many of the miseducated are educable and can be educated if one thing, if you can get their attention. But then that’s a problem because in general the longer a man or a woman has gone to school, the harder it is to get their attention on important subjects. To educate these people you present them with just one thing and hopefully you can get their attention. You present them with better explanations of causality than they presently hold and embrace.

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Free the People publishes opinion-based articles from contributing writers. The opinions and ideas expressed do not always reflect the opinions and ideas that Free the People endorses. We believe in free speech, and in providing a platform for open dialog. Feel free to leave a comment!

Jay Stuart Snelson

For more than half a century Jay Stuart Snelson studied, thought, lectured, and wrote about freedom; personal, individual freedom.

Snelson envisioned a viable solution to build a sustainable society based on win-win interaction: In order for one party to win, the other must win. This is diametrically opposed to the way it has always been done.

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