Knowledge And Decisions

When economics is mentioned, many people think of money, and in fact the word “resources” is often used simply as a genteel synonym for money. But in reality, a nation’s economic success is far more likely to depend upon its real resources — land, machinery, work skills, etc. — rather than on the number or denomination of the pieces of green paper printed by the government. For an individual, the amount of money at his disposal determines his wealth, but for a nation as a whole, its wealth is its food, housing, transportation, medical care, etc. — not the green paper used to transfer this wealth around within its population. A nation is wealthier, its standard of living is higher, when it has more of these real things, not when bigger numbers are printed on its currency.

Since an economy functions with scarce resources which have alternative uses, there must be some method of coordinating the rationing process and getting the most output from the available input. There are as many different ways of doing this as there are different economic systems. All of these involve the use of knowledge, and how effectively that knowledge is used is crucial. After all, the cavemen had the same natural resources at their disposal as we have today, and the difference between their standard of living and ours is a difference between the knowledge they could bring to bear on those resources and the knowledge used today. Although we speak loosely of “production,” man neither creates nor destroys matter, but only transforms it — and the knowledge of how to make these transformations is a key economic factor. Even among contemporary nations, differences in their economic conditions are often far more related to differences in their technological and organizational knowledge than to their respective endowments in natural resources. Japan, for example, has achieved a relatively high level of prosperity while importing many of its inputs and exporting much of its output. What they are essentially doing is selling their knowledge and skills to the rest of the world. Although it is physical material that consumers are buying, this material could have been shipped directly from the supplying country to the consuming country, without passing through Japan — except that the Japanese can transform it from inputs to outputs more efficiently than the consuming nation could.

More pervasively than is generally appreciated, economic transactions are purchases and sales of knowledge. Even the hiring of an “unskilled” worker to pump gas involves the purchase of a knowledge of the importance of dependability, punctuality, and an ability to get along with customers and co-workers, quite aside from the modest technological knowledge required to operate the gasoline pump. This is sometimes dramatically brought home when American corporations attempt to set up businesses in less developed countries, and find that they cannot adequately fill their “unskilled” jobs, even though the country may be full of people who are both poor and unemployed.

Even within an economically advanced nation, where certain skills are so taken for granted that those with them are labeled “unskilled,” there are still such differences in the degree of mastery of these forms of knowledge that some employees are preferred to others, and some have to be fired for failure to apply the necessary knowledge. For example, a gas station attendant who does not show up promptly and dependably to help with rush hour business can cause some drivers to take their cars to another gas station, where they can get filled up without waiting in such a long line. By the same token, another gas station attendant who is especially efficient, attentive or pleasant to the customers can add to the volume of business. The gas station owner is therefore in a position to make significant distinctions among employees who are lumped together as “unskilled” workers by distant “experts.”

Of course, everyone “knows” the importance of punctuality, dependability, etc., in the abstract or intellectual sense of knowing — just as we “know” in a general sense how to milk a cow, though most of us could not actually go out to the barn with an empty pail and come back with milk. But in an economy, it is not the superficial possession of knowledge in the abstract that counts, but the effective application of it. As in the case of Pearl Harbor, the abstract existence of knowledge means nothing unless it is applied at the point of decision and action.