Guns and Butter

In every high school economics textbook that I have seen is the classic production possibilities problem known as “guns and butter”.
First a definition:
A production possibility frontier (PPF) or production possibility curve (PPC) is a graph that compares the production rates of two commodities that use the same fixed total factors of production. The commodity compared can either be a good or a service. Anywhere along the curve is a series of trade-offs but all are considered efficient. Outside of the curve is not possible without some new discovery of resources or technology. Inside the curve is inefficient use of resources.
The first problem with a “guns and butter” analogy is that it violates the parameters of the definition. Guns and butter do not use the same fixed total factors of production.
The second problem is that most of the time the book includes the idea that “society” must make the decision, which only works in collectivist imaginations. As I have said before, society doesn’t decide anything.
The third problem is the false choice between military goods and domestic goods, which is the real idea behind the analogy. The manufacture of military goods does not create wealth in the long run. In the short run, perhaps for the manufacturing companies, but not in the long run. This is because military goods are purchased by governments, whether ours or a foreign government. Government spending does not create wealth, it destroys it. Government can only spend what it takes from others – through taxation or by borrowing, which just pushes the taxation into the future. Either way it is confiscation from wealth creators.
I am not saying that military spending is unnecessary. At times it is since national defense is a constitutional duty of our government. I am just saying it is wrong to think that military spending is in and of itself beneficial spending. The myth that FDR got us out of the depression has been replaced with the myth that World War 2 did. There are several books out that address that so I won’t do that here. Suffice it to say it just isn’t true. See The Forgotten Man: A New History of the Great Depression by
Amity Shlaes and America’s Great Depression by Murray Rothbard.

A PPC can be beneficial in determining the best mix of goods or services for a particular firm using identical or nearly identical factors of production, say bread and pastries.
They are also used in classroom practice problems with such items as fish and coconuts (the Robison Crusoe type problem). Beyond that they have little use except to muddle the minds of the masses.


One thought on “Guns and Butter

  1. weight loss says:

    Great posts you post here, i have shared this post on my twitter

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