Monday, February 18, 2019

In Their Ignorance of All Business Problems, the Marxians Failed to see That the Present-Day Bourgeois Are in their Capacity as Bourgeois Not Selfishly Interested in the Preservation of Laissez Faire

In their ignorance of all business problems, the Marxians failed to see that the present-day bourgeois, those who are already wealthy capitalists and entrepreneurs, are in their capacity as bourgeois not selfishly interested in the preservation of laissez faire. Under laissez faire their eminent position is daily threatened anew by the ambitions of impecunious newcomers. Laws that put obstacles in the way of talented upstarts are detrimental to the interests of the consumers but they protect those who have already established their position in business against the competition of intruders. In making it more difficult for a businessman to reap profit and in taxing away the greater part of the profits made, they prevent the accumulation of capital by newcomers and thus remove the inducement that impels old firms toward the utmost exertion in serving the customers. Measures sheltering the less efficient against the competition of the more efficient and laws that aim at reducing or confiscating profits are from the Marxian point of view conservative, nay, reactionary. They tend to prevent technological improvement and economic progress and to preserve inefficiency and backwardness. If the New Deal had started in 1900 and not in 1933, the American consumer would have been deprived of many things today provided by industries which grew in the first decades of the century from insignificant beginnings to national importance and mass production.

--Ludwig von Mises, Theory and History: An Interpretation of Social and Economic Evolution, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2005), 97-98.

Capitalism, in Engendering Big-Scale Production for Mass Consumption, Is Essentially a System of Wiping out Penury as much as Possible

They are convinced that the conditions of the wage earners are desolate and horrible beyond any imagination. They shut their eyes to all things they do not want to see, and find only what confirms their preconceived opinions. They have been taught by the socialists that capitalism is a system to make the masses suffer terribly and that the more capitalism progresses and approaches its full maturity, the more the immense majority becomes impoverished. Their novels and plays are designed as case studies for the demonstration of this Marxian dogma.

What is wrong with these authors is not that they choose to portray misery and destitution. An artist may display his mastership in the treatment of any kind of subject. Their blunder consists rather in the tendentious misrepresentation and misinterpretation of social conditions. They fail to realize that the shocking circumstances they describe are the outcome of the absence of capitalism, the remnants of the precapitalistic past or the effects of policies sabotaging the operation of capitalism. They do not comprehend that capitalism, in engendering big-scale production for mass consumption, is essentially a system of wiping out penury as much as possible. They describe the wage earner only in his capacity as a factory hand and never give a thought to the fact that he is also the main consumer either of the manufactured goods themselves or of the foodstuffs and raw materials exchanged against them.

The predilection of these authors for dealing with desolation and distress turns into a scandalous distortion of truth when they imply that what they report is the state of affairs typical and representative of capitalism. The information provided by the statistical data concerning the production and the sale of all articles of big-scale production clearly shows that the typical wage earner does not live in the depths of misery.

--Ludwig von Mises, The Anti-capitalistic Mentality, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2006), 40-41.

As the “Progressive” Dogmatist Sees Things, There Are Two Groups of Men Quarreling about How Much of the “National Income” Each of Them Should Take for Themselves: “Management” Versus “Labor”

As the “progressive” dogmatist sees things, there are two groups of men quarreling about how much of the “national income” each of them should take for themselves. The propertied class, the entrepreneurs and the capitalists, to whom they often refer as “management,” is not prepared to leave to “labor”—i.e., the wage earners and employees—more than a trifle, just a little bit more than bare sustenance. Labor, as may easily be understood, annoyed by management’s greed, is inclined to lend an ear to the radicals, to the communists, who want to expropriate management entirely. However, the majority of the working class is moderate enough not to indulge in excessive radicalism. They reject communism and are ready to content themselves with less than the total confiscation of “unearned” income. They aim at a middle-of-the-road solution, at planning, the welfare state, socialism. In this controversy the intellectuals who allegedly do not belong to either of the two opposite
camps are called to act as arbiters. They—the professors, the representatives of science, and the writers, the representatives of literature—must shun the extremists of each group, those who recommend capitalism as well as those who endorse communism. They must side with the moderates. They must stand for planning, the welfare state, socialism, and they must support all measures designed to curb the greed of management and to prevent it from abusing its economic power.

--Ludwig von Mises, The Anti-capitalistic Mentality, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2006), 37.

Sunday, February 17, 2019

The Greater Part of Public Opinion Did Not Suspect at all that Sozialpolitik and Protection Were Closely Linked Together; Instead, They Bitterly Indicted the Greediness of Capitalists; the Marxians Interpreted It As That Concentration of Capital Which Marx Had Predicted

Thus Germany developed its characteristic system of cartels. The cartels charged the domestic consumers high prices and sold cheaper abroad. What the worker gained from labor legislation and union wages was absorbed by higher prices. The government and the trade-union leaders boasted of the apparent success of their policies: the workers received higher money wages. But real wages did not rise more than the marginal productivity of labor.

Only a few observers saw through all this, however. Some economists tried to justify industrial protectionism as a measure for safe-guarding the fruits of Sozialpolitik and of unionism; they advocated social protectionism (den sozialen Schutzzoll). They failed to recognize that the whole process demonstrated the futility of coercive government and union interference with the conditions of labor. The greater part of public opinion did not suspect at all that Sozialpolitik and protection were closely linked together. The trend toward cartels and monopoly was in their opinion one of the many disastrous consequences of capitalism. They bitterly indicted the greediness of capitalists. The Marxians interpreted it as that concentration of capital which Marx had predicted. They purposely ignored the fact that it was not an outcome of the free evolution of capitalism but the result of government interference, of tariffs and—in the case of some branches, like potash and coal—of direct government compulsion. Some of the less shrewd socialists of the chair (Lujo Brentano, for example) went so far in their inconsistency as to advocate at the same time free trade and a more radical pro-labor policy.

--Ludwig von Mises, Omnipotent Government: The Rise of the Total State and Total War, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2011), 88-89.

Marxian Myths Have Succeeded in Surrounding the Problem of Monopoly with Empty Babble; the Common Treatment of the Monopoly Question is Thoroughly Mendacious and Dishonest; No Milder Expression Can Be Used to characterize It

Marxian myths have succeeded in surrounding the problem of monopoly with empty babble. According to the Marxian doctrines of imperialism, there prevails within an unhampered market society a tendency toward the establishment of monopolies. Monopoly, according to these doctrines, is an evil originating from the operation of the forces working in an unhampered capitalism. It is, in the eyes of the reformers, the worst of all drawbacks of the laissez-faire system; its existence is the best justification of interventionism; it must be the foremost aim of government interference with business to fight it. One of the most serious consequences of monopoly is that it begets imperialism and war. . . .

Almost all the monopolies that are assailed by public opinion and against which governments pretend to fight are government made. They are national monopolies created under the shelter of import duties. They would collapse with a regime of free trade.

The common treatment of the monopoly question is thoroughly mendacious and dishonest. No milder expression can be used to characterize it. It is the aim of the government to raise the domestic price of the commodities concerned above the world market level, in order to safeguard in the short run the operation of its pro-labor policies.

--Ludwig von Mises, Omnipotent Government: The Rise of the Total State and Total War, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2011), 81-82.

Saturday, February 16, 2019

There Is No Meaner Attitude toward Human Nature Than Is to be Found in the Moralists of the 18th Century: Men Needed a Superior Authority to Maintain Internal Balances; Today We Call That Authority “Social Planning”

If the lives of the great majority--before the nineteenth century--were brutish, nasty, and short (under the manorial system, under the cottage system, under American plantation slavery), it is exactly because, despite the alleged securities of status and custom, there was no interest in betterment. There is no meaner attitude toward human nature than is to be found in the moralists of the eighteenth century (I cite Defoe and Mandeville) who regarded men as incapable of achieving their own salvation. Men needed a superior authority--of custom, law, and punishment--in order to maintain that prescription which assured internal balances; today we call that authority “social planning.” Both attitudes essentially distrust the capacities of men, exercising their intelligence, to order their lives harmoniously.

--Louis M. Hacker, “The Anticapitalist Bias of American Historians,” in Capitalism and the Historians, ed. F.A. Hayek (Chicago: University of Chicago Press, 1963), 64.

The Fundamental Thesis of Methodological Individualism Is Ideas Held by Individuals Determine Their Group Allegiance, and a Collective No Longer Appears as an Entity Acting of Its Own Accord and on Its Own Initiative

There is no need to add anything to what has already been said by praxeology and economics to justify methodological individualism and to reject the mythology of methodological collectivism. Even the most fanatical advocates of collectivism deal with the actions of individuals while they pretend to deal with the actions of collectives. Statistics does not register events that are happening in or to collectives. It records what happens with individuals forming definite groups. The criterion that determines the constitution of these groups is definite characteristics of the individuals. The first thing that has to be established in speaking of a social entity is the clear definition of what logically justifies counting or not counting an individual as a member of this group. . . .

The rejection of methodological individualism implies the assumption that the behavior of men is directed by some mysterious forces that defy any analysis and description. For if one realizes that what sets action in motion is ideas, one cannot help admitting that these ideas originate in the minds of some individuals and are transmitted to other individuals. But then one has accepted the fundamental thesis of methodological individualism, viz., that it is the ideas held by individuals that determine their group allegiance, and a collective no longer appears as an entity acting of its own accord and on its own initiative.

--Ludwig von Mises, The Ultimate Foundation of Economic Science: An Essay on Methoded. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2006), 73-74.

Collectivism Is Political, Not Scientific; What It Teaches Are Judgments of Value; the Collective Will Cannot Originate as the Sum or Resultant of Individual Wills

How little Collectivism was able to surmount the difficulties in the way of amplifying its doctrine is best shown by the manner m which it has treated the problem of social will. To refer again and again to the Will of the State, to the Will of the People, and to the Convictions of the People is not in any way to explain how the collective will of the social associations comes into being. As it is not merely different from the will of separate individuals but, in decisive points, is quite opposed to the latter, the collective will cannot originate as the sum or resultant of individual wills. Every collectivist assumes a different source for the collective will, according to his own political, religious and national convictions. Fundamentally it is all the same whether one interprets it as the supernatural powers of a king or priest or whether one views it as the quality of a chosen class or people. Friedrich Wilhelm IV and Wilhelm II were quite convinced that God had invested them with special authority, and this faith doubtless served to stimulate their conscientious efforts and the development of their strength. Many contemporaries believed alike and were ready to spend their last drop of blood in the service of the king sent to them by God. But science is as little able to prove the truth of this belief as to prove the truth of a religion. Collectivism is political, not scientific. What it teaches are judgments of value.

--Ludwig von Mises, Socialism: An Economic and Sociological Analysis, trans. J. Kahane (Indianapolis: Liberty Fund, 1981), 56.

Inflation Is the True Opium of the People and It Is Administered to Them by Anticapitalist Governments and Parties

The Marxian socialists once indulged in reveries concerning a fabulous increase in riches to be expected from the socialist mode of production. The truth is that every infringement of property rights and every restriction of free enterprise impairs the productivity of labor. One of the foremost concerns of all parties hostile to economic freedom is to withhold this knowledge from the voters. The various brands of socialism and interventionism could not retain their popularity if people were to discover that the measures whose adoption is hailed as social progress curtail production and tend to bring about capital decumulation. To conceal these facts from the public is one of the services inflation renders to the so-called progressive policies. Inflation is the true opium of the people and it is administered to them by anticapitalist governments and parties.

--Ludwig von Mises, The Theory of Money and Credit, trans. H. E. Batson (Indianapolis: Liberty Fund, 1981), 484-485.

Private Property Is Not a Privilege of the Property Owner, but a Social Institution for the Good and Benefit of All

In order to determine whether an institutional arrangement is to be regarded as the special privilege of an individual or of a class, the question one should ask is not whether it benefits this or that individual or class, but only whether it is beneficial to the general public. If we reach the conclusion that only private ownership of the means of production makes possible the prosperous development of human society, it is clear that this is tantamount to saying that private property is not a privilege of the property owner, but a social institution for the good and benefit of all, even though it may at the same time be especially agreeable and advantageous to some.

It is not on behalf of property owners that liberalism favors the preservation of the institution of private property. It is not because the abolition of that institution would violate property rights that the liberals want to preserve it. If they considered the abolition of the institution of private property to be in the general interest, they would advocate that it be abolished, no matter how prejudicial such a policy might be to the interests of property owners. However, the preservation of that institution is in the interest of all strata of society. Even the poor man, who can call nothing his own, lives incomparably better in our society than he would in one that would prove incapable of producing even a fraction of what is produced in our own.

--Ludwig von Mises, Liberalism: The Classical Tradition, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2005), 11-12.

What Is Always Criticized in the Capitalist System Is the Fact That the Owners of the Means of Production Occupy a Preferential Position; They Can Live without Working

What is always criticized in the capitalist system is the fact that the owners of the means of production occupy a preferential position. They can live without working. If one views the social order from an individualistic standpoint, one must see in this a serious shortcoming of capitalism. Why should one man be better off than another? But whoever considers things, not from the standpoint of individual persons, but from that of the whole social order, will find that the owners of property can preserve their agreeable position solely on condition that they perform a service indispensable for society. The capitalist can keep his favored position only by shifting the means of production to the application most important for society. If he does not do this—if he invests his wealth unwisely—he will suffer losses, and if he does not correct his mistake in time, he will soon be ruthlessly ousted from his preferential position. He will cease to be a capitalist, and others who are better qualified for it will take his place. In a capitalist society, the deployment of the means of production is always in the hands of those best fitted for it; and whether they want to or not, they must constantly take care to employ the means of production in such a way that they yield the greatest output.

--Ludwig von Mises, Liberalism: The Classical Tradition, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2005), 43.

Friday, February 15, 2019

What Pushes a Man toward Social Behavior and Law Abidance Is His Own Rightly Understood Selfishness; What Speaks in Favor of International Peace Is Precisely the Consideration of a Nation’s Own Rightly Understood Selfish Interests

From the point of view of “natural law” the only just state of affairs is equality of income. The unfathomable decrees of Heaven have brought about inequality. It would be tantamount to a rebellion against divine and human law for the underprivileged to resort to violence in order to abolish this injustice. By such methods they could profit on earth, but they would imperil their spiritual salvation. On the other hand, the rich have only one means to atone for their questionable riches. They must make the proper use of their wealth, that is, they must be charitable and must subordinate their greed to justice and fairness.

The selfish earthly interests of individuals and of groups of individuals are antagonistic. If left alone, they would result in violent conflicts. Social cooperation and peace are possible only where men are motivated—either by voluntary obedience to the moral law or by compulsion on the part of the powers that be—to curb their egoism.

Utilitarianism and classical economics have entirely overthrown this philosophy.

Their reasoning runs this way: The means of subsistence are scarce, and their limited quantity puts a check upon the number of animals that may occupy the surface of the earth. But, while the beasts know no method of improving their own conditions other than to snatch food away from their rivals, man is in a much more propitious position. Reason taught him the advantages of social cooperation and its corollary, the division of labor. Labor performed under the system of the division of tasks is much more productive than the isolated efforts of self-sufficient individuals. Every step forward to a higher degree of the division of labor directly and immediately improves the material well-being of the individuals and groups concerned. The advantages of social cooperation are so manifest that nobody can ignore them. Their acknowledgment is the motive that pushes man toward social behavior.

It is, therefore, a mistake to assume that an individual in adjusting his conduct to the requirements of life within society and a nation in renouncing war to avoid endangering the international division of labor, sacrifice, for the sake of a heteronomous morality, their own selfish interests for reasons not open to rational explanation. What pushes a man toward social behavior and law abidance is his own rightly understood selfishness. What speaks in favor of international peace is precisely the consideration of a nation’s own rightly understood selfish interests. If a man abstains from robbing a fellow man or if a nation abstains from aggression against other nations, each forgoes a smaller immediate gain in order to reap a bigger indirect profit. Society is for every individual the foremost means for the attainment of all ends sought.

--Ludwig von Mises, "Economics as a Bridge for Interhuman Understanding," in Economic Freedom and Interventionism: An Anthology of Articles and Essays, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 1990), 254-255.

The Freedom of Man under Capitalism Is an Effect of Competition; the Exchange of Goods and Services Is Mutual; It Is Not a Favor to Sell or to Buy; It Is a Transaction Dictated by Selfishness on Either Side

The freedom of man under capitalism is an effect of competition. The worker does not depend on the good graces of an employer. If his employer discharges him, he finds another employer. The consumer is not at the mercy of the shopkeeper. He is free to patronize another shop if he likes. Nobody must kiss other people’s hands or fear their disfavor. Interpersonal relations are businesslike. The exchange of goods and services is mutual; it is not a favor to sell or to buy, it is a transaction dictated by selfishness on either side.

--Ludwig von Mises, "The Individual in Society," in Economic Freedom and Interventionism: An Anthology of Articles and Essays, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 1990), 18.

All Those Rejecting Capitalism on Moral Grounds as an Unfair System Are Deluded by Their Failure to comprehend What Capital Is; Capital Is the Outcome of a Provident Restriction of Consumption

All those rejecting capitalism on moral grounds as an unfair system are deluded by their failure to comprehend what capital is, how it comes into existence and how it is maintained, and what the benefits are which are derived from its employment in production processes.

The only source of the generation of additional capital goods is saving. If all the goods produced are consumed, no new capital comes into being. But if consumption lags behind production and the surplus of goods newly produced over goods consumed is utilized in further production processes, these processes are henceforth carried out by the aid of more capital goods. All the capital goods are intermediary goods, stages on the road that leads from the first employment of the original factors of production, i.e., natural resources and human labor, to the final turning out of goods ready for consumption. They all are perishable. They are, sooner or later, worn out in the processes of production. If all the products are consumed without replacement of the capital goods which have been used up in their production, capital is consumed. If this happens, further production will be aided only by a smaller amount of capital goods and will therefore render a smaller output per unit of the natural resources and labor employed. To prevent this sort of dissaving and disinvestment, one must dedicate a part of the productive effort to capital maintenance, to the replacement of the capital goods absorbed in the production of usable goods.

Capital is not a free gift of God or of nature. It is the outcome of a provident restriction of consumption on the part of man. It is created and increased by saving and maintained by the abstention from dissaving.

--Ludwig von Mises, The Anti-capitalistic Mentality, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2006), 50-51.

We Are No Longer Living in a World of Laissez-Faire, Laissez-Passer; In the Utopia of the Old Liberals, the Government Concerns Itself with the Protection of Life, Health, and Private Property against Force or Fraud

But, unfortunately, we are no longer living in a world of laissez-faire, laissez-passer; in a world of free trade, private ownership, capitalism, and goodwill among the nations. Our world is very different, and in this world you cannot say that war is useless. It is not true that the individual citizen cannot derive any advantage from a victorious war.

In the utopia of the old liberals, the government concerns itself with the protection of life, health, and private property against force or fraud. The state ensures the smooth working of the market economy by the weight of its coercive power. It refrains, however, from any interference with the freedom of action of the people engaged in production and distribution so long as such actions do not involve the use of force or fraud against the life, health, or property of others. This very fact characterizes such a community as a market or capitalist economy. . . .

The optimism of Bentham, Cobden, and Bastiat was not justified. History went another way. Today we are living in a world of government interference with business and, in some countries, of socialism. There are everywhere trade barriers and migration barriers. In domestic policy, the governments are anxious to interfere in order to benefit some groups at the expense of other groups. “Nationalism” is the characteristic feature of modern foreign policy.

--Ludwig von Mises, The Political Economy of International Reform and Reconstructionvol. 3 of Selected Writings of Ludwig von Mises, ed. Richard M. Ebeling (Indianapolis: Liberty Fund, 2000), 4-5.

Carl Menger’s Slim Volume Grundsätze der Volkswirtshaftslehre (Principles of Economics) Completely Revolutionized Economic Science; Everything That Has Been Achieved Since Then Is Built upon Menger’s Works

Most exciting, however, is the grounding of the general theory of value on the basic idea of the subjective value of goods, as worked out by Menger. Menger’s slim volume Grundsätze der Volkswirtshaftslehre [Principles of Economics] completely revolutionized economic science. Everything that has been achieved since then is built upon Menger’s works. In Austria, marginal utility theory found its most important representatives, besides Menger, in the contributions of Friedrich von Wieser and Eugen von Böhm-Bawerk (who departed from us at much too early an age). It is customary to unite these three under the designation “the Austrian School.” Under this name they gained a worldwide reputation. In Germany they were able to find some minimal recognition; their success was incomparably greater in England, Italy, the Netherlands, and the Scandinavian countries. Modern American economics is based on the works of the “Austrian School.”

--Ludwig von Mises, Monetary and Economic Policy Problems Before, During, and After the Great Warvol. 1 of Selected Writings of Ludwig von Mises, ed. Richard M. Ebeling (Indianapolis: Liberty Fund, 2012), 245-246.

Thursday, February 14, 2019

Capital-Based Macroeconomics Rejects the Keynes-Inspired Distinction between Macroeconomics and the Economics of Growth; the Distinction Derives from Inadequate Attention to the Intertemporal Capital Structure

Capital-based macroeconomics rejects the Keynes-inspired distinction between macroeconomics and the economics of growth. This unfortunate distinction, in fact, derives from the inadequate attention to the intertemporal capital structure. Conventional macroeconomics deals with economy-wide disequilibria while abstracting from issues involving a changing stock of capital; modern growth theory deals with a growing capital stock while abstracting from issues involving economy-wide disequilibria. With this criterion for defining the subdisciplines within economics, the thorny issues of disequilibrium and the thorny issues of capital theory are addressed one at a time. Our contention is that economic reality mixes the two issues in ways that render the one-at-a-time treatments profoundly inadequate. Economy-wide disequilibria in the context of a changing capital structure escape the attention of both conventional macroeconomists and modern growth theorists. But the issues involving the market’s ability to allocate resources over time have a natural home in capital-based macroeconomics. Here, the short-run issues of cyclical variation and the long-run issues of secular expansion enjoy a blend that is simply ruled out by construction in mainstream theorizing.

--Roger W. Garrison, Time and Money: The Macroeconomics of Capital Structure, Foundations of the Market Economy (London: Routledge, 2002), 34.

Wednesday, February 13, 2019

Piketty's Thesis Rests on a False Theory of How Wealth Evolves in a Market Economy, a Flawed Interpretation of U.S. Income-Tax Data, and a Misunderstanding of the Current Nature of Household Wealth

Thomas Piketty has recently attracted widespread attention for his claim that capitalism will now lead inexorably to an increasing inequality of income and wealth unless there are radical changes in taxation. Although his book, Capital in the 21st Century (Piketty 2014), has been praised by those who advocate income redistribution, his thesis rests on a false theory of how wealth evolves in a market economy, a flawed interpretation of U.S. income-tax data, and a misunderstanding of the current nature of household wealth.

--Martin Feldstein, "Piketty's Numbers Don't Add Up," in Anti-Piketty: Capital for the 21st Century, ed. Jean-Philippe Delsol, Nicolas Lecaussin, and Emmanuel Martin (Washington, DC: Cato Institute, 2017), Kindle e-book.

People Believe That in the Absence of Government Intervention in the Form of Pro-Union, Minimum-Wage, Maximum-Hours, and Child-Labor Legislation, and Laws Regulating Working Conditions, the Greedy Capitalists Would Create a Nightmarish World

The resurgence of Marxist/Socialist ideas should not be surprising. Despite the fall of Communist regimes around the world, the essential ideas of Marxism/Socialism remained, and still remain, largely untouched and unchallenged. These ideas pertain to the relationship between capitalists and wage earners, and they are accepted by the great majority of people in the United States and throughout the world.

They are accepted not as being descriptive of the way conditions actually are in the United States or in any other advanced country of the present day, but as descriptive of the way conditions would be in the absence of major government intervention. And they are accepted as both descriptive and explanatory of the way conditions were in the nineteenth century.

Thus, people believe that in the absence of government intervention in the form of pro-union, minimum-wage, maximum-hours, and child-labor legislation, and laws regulating working conditions, the capitalists, in their greedy pursuit of profits, would drive wages down to, or even below, minimum physical subsistence, lengthen the hours of work to the maximum possible, force small children to work in factories and mines, and make working conditions unbearable for all. All that allegedly stands in the way of this nightmare-world ready to be unleashed by the unrestricted operation of capitalism and the profit motive is legislation inspired by Marxism/Socialism. This view of things appears to be held¸ and to have been held for more than a century, by virtually all Democrats and perhaps half or more of the Republicans.

--George Reisman, introduction to Marxism/Socialism, A Sociopathic Philosophy Conceived in Gross Error and Ignorance, Culminating in Economic Chaos, Enslavement, Terror, and Mass Murder: A Contribution to Its Death (Laguna Hills, CA: TJS Books, 2018), Kindle e-book.

Tuesday, February 12, 2019

Purges Are the Necessary Consequences of the Philosophical Foundation of Marxian Socialism; the Only Method to “Settle” Disagreements Was to use Force and Liquidation

There were two groups of Russians, both of whom considered themselves proletarians—the Bolsheviks and the Mensheviks. The only method to “settle” disagreements between them was to use force and liquidation. The Bolsheviks won. Then within the ranks of the Communist Bolsheviks there arose other differences of opinion—between Trotsky and Stalin—and the only way to resolve their conflicts was a purge. Trotsky was forced into exile, trailed to Mexico, and there in 1940 he was hacked to death. Stalin originated nothing; he went back to the revolutionary Marx of 1859—not to the interventionist Marx of 1848.

Unfortunately, purges are not something which happen just because men are imperfect. Purges are the necessary consequences of the philosophical foundation of Marxian socialism. If you cannot discuss philosophical differences of opinion in the same way you discuss other problems, you must find another solution—through violence and power. This refers not only to dissent concerning policies, economic problems, sociology, law, and so on. It refers also to problems of the natural sciences. The Webbs, Lord and Lady Passfield, were shocked to learn that Russian magazines and papers dealt even with problems of the natural sciences from the point of view of the philosophy of Marxism-Leninism-Stalinism. For instance, if there is a difference of opinion with regard to science or genetics, it must be decided by the “leader.” This is the necessary unavoidable consequence of the fact that, according to Marxist doctrine, you do not consider the possibility of dissent among honest people; either you think as I do, or you are a traitor and must be liquidated.

--Ludwig von Mises, Marxism Unmasked: From Delusion to Destruction (Irvington-on-Hudson, NY: Foundation for Economic Education, 2006), lecture 2.

Zum Abschluß des Marxschen Systems Concluded That It “Bear[s] Evident Traces of Having Been a Subtle and Artificial Afterthought Contrived to make a Preconceived Opinion seem the Natural Outcome of a Prolonged Investigation”

Disputes with socialism soon went beyond the labor theory of value and brought the “socialist state” into question in many respects. Böhm-Bawerk, for example, regarded interest as an economic category wholly independent of the social system; interest would exist even in the “socialist state.” Wieser criticized socialist writers for their inadequate teaching of value’s role in the socialist state. He came to the conclusion that “not for one day could the [socialist] economic state of the future be administered according to any such reading of value.” For Wieser, “in the socialist theory of value pretty nearly everything is wrong.” . . .

In one perceptive essay, Komorzynski tried to prove that Marxist theories were “at the greatest possible odds with the real economic processes.” The contradiction stemmed “from the basic principle, not from the utopian thinking.” In his famous Zum Abschluß des Marxschen Systems (1896) (Karl Marx and the Close of His System, 1949), Böhm-Bawerk summarized his previous critique and came to the conclusion—based on the well-known contradictions between the first two and the third volumes of Das Kapital —that the final Marxist theory “contains as many cardinal errors as there are points in the arguments.” They “bear evident traces of having been a subtle and artificial afterthought contrived to make a preconceived opinion seem the natural outcome of a prolonged investigation.”

--Eugen Maria Schulak and Herbert Unterköfler, The Austrian School of Economics: A History of Its Ideas, Ambassadors, and Institutions, trans. Arlene Oost-Zinner (Auburn, AL: Ludwig von Mises Institute, 2011), 91-92.

Monday, February 11, 2019

The Warnings of Professor von Mises Carried No Weight in the European Central Bank (ECB) Council: "There Is Not, and There Cannot Be, such a Thing as Quantitative Economics!"

The Deutsche Bundesbank, now under the presidency of a renowned econometrics professor (Axel Weber), seemed to be putting more emphasis than ever before on the output of the models. Otmar Issing, the eminence grise in the ECB at the start, and to a moderate degree sceptical of econometrics according to his autobiographic account (see Issing, 2008), had retired in autumn 2006.

The warnings of Professor von Mises (1971) carried no weight in the ECB Council:
There is not, and there cannot be, such a thing as quantitative economics. The usual method employed in business forecasts is statistical and thereby retrospective. They depict trends that prevailed in the past and are familiar to everybody. They in no way answer the questions that all people, and especially businessmen, are asking. People know that trends can change; they are afraid they will change; and they would like to know when the change will occur. But the statistician knows only what everybody knows, namely, that they have not changed!
The data which was being fed into the econometrics model on which the ECB prided itself, supplemented by the ECB’s analysis of the ‘second pillar’ of its monetary framework, did not produce any hint of serious recession risk ahead. Instead it was the amber or even red inflation light which was blinking! 

--Brendan Brown, Euro Crash: The Implications of Monetary Failure in Europe (Houndmills, UK: Palgrave Macmillan, 2010), 95-96.

Greenspan Largely Followed the So-Called “Blinder Doctrine”; the Bank of Japan under Governor Sumita also Followed the Advice of Friedman and Schwarz and Ignored the Bubbles

In the late 1990s, the Federal Reserve under Chairman Greenspan largely followed the advice of Friedman and Schwarz, reformulated in the so-called ‘Blinder doctrine’ (ignore the bubble; but when it bursts follow a policy of aggressive ease as needed to avoid financial crisis). Some critics argue, indeed, that the Greenspan Federal Reserve made the opposite error to the Federal Reserve of the late 1920s. Whilst Alan Greenspan warned of irrational exuberance at the beginning of the boom, by the end he and his colleagues had become cheer-leaders for the new economy. In the late 1980s, the Bank of Japan under Governor Sumita also followed the advice of Friedman and Schwarz and ignored the bubbles in the land and equity markets (tolerance stemmed in part from concern at the huge rise of the yen since the Plaza Accord and the damage that this might inflict on the Japanese economy). Unlike Alan Greenspan, Governor Sumita did not engage in any substantial commentary to either restrain or justify the exuberance at large. Some window guidance was given to banks with respect to reining back their lending to the property sector, but this was largely circumvented by routing loans via financial subsidiaries. The Bank (operating in conjunction with the Ministry of Finance, which at that time still had a voice in monetary policy-making) only started to tighten monetary policy in 1989 out of anxiety about incipient inflation pressures.

--Brendan Brown, The Yo-Yo Yen and the Future of the Japanese Economy (Houndmills, UK: Palgrave, 2002), 123.

Sunday, February 10, 2019

Union Leaders Always Talk about Getting Higher Wages at the Expense of Profits but That Is Impossible because Corporate Profits Are Around 6% of National Income after Taxes

Union leaders always talk about getting higher wages at the expense of profits. That is impossible: profits simply aren't big enough. About 80 percent of the total national income of the United States currently goes to pay the wages, salaries, and fringe benefits of workers. More than half of the rest goes to pay rent and interest on loans. Corporate profits--which is what union leaders always point to--total less than 10 percent of national income. And that is before taxes. After taxes, corporate profits are something like 6 percent of the national income. That hardly provides much leeway to finance higher wages, even if all profits were absorbed. And that would kill the goose that lays the golden eggs. The small margin of profit provides the incentive for investment in factories and machines, and for developing new products and methods. This investment, these innovations, have, over the years, raised the productivity of the worker and provided the wherewithal for higher and higher wages.

--Milton Friedman and Rose Friedman, Free to Choose: A Personal Statement (San Diego: Harcourt Brace and Company, 1990), 234.

The Source of Coercion Is for Max Stirner Not Only the State and Its Institutions but also Morality, Religion, Natural Law and Even Freedom Itself If It Is Understood as an “Idée Fixe”

Thus, Stirner doesn’t limit his conception of coercion to the objective, common-sense character of it, present i.e. in the formal authority of the State’s power. He finds sources of coercion much deeper, in a subjective plane of individual’s existence. The coercion is for Stirner everything, what limits an individual and subjects her or him to an external will, even if it is simply an objective vision of a proper conduct, which is inherent in social conventions, contracts or other social institutions. What’s more, according to Stirner the source of coercion can be even your own idea or opinion, if it is strong enough, that you can’t emancipate yourself from it when needed. Therefore, the source of coercion is for him not only the State and its institutions but also morality, religion, natural law - paradoxically – the freedom itself can become it, if it is understood as an “idée fixe”, the idea at implementation of which one should necessarily aim. In other words, all what gives you no possibility of change can be the source coercion.

--Maciej Chmieliński, "Self-ownership and Spontaneously-Evolved Order: The Core of Max Stirner's Individualist Anarchism," Res Publica: Revista de Historia de las Ideas Políticas 19, no. 2 (2016): 462.

Saturday, February 9, 2019

The Excuse for the Government to Spend and to Run a Perpetual Deficit Has Taken on Different Forms: “Prime the Pump,” “Theory of Secular Stagnation,” and the “Balance Wheel Theory”

Ever since the New Deal, a primary excuse for the expansion of governmental activity at the federal level has been the supposed necessity for government spending to eliminate unemployment. The excuse has gone through several stages. At first, government spending was needed to “prime the pump.” Temporary expenditures would set the economy going and the government could then step out of the picture.

When the initial expenditures failed to eliminate unemployment and were followed by a sharp economic contraction in 1937-38, the theory of “secular stagnation” developed to justify a permanently high level of government spending. The economy had become mature, it was argued. Opportunities for investment had been largely exploited and no substantial new opportunities were likely to arise. Yet individuals would still want to save. Hence, it was essential for government to spend and run a perpetual deficit. The securities issued to finance the deficit would provide individuals with a way to accumulate savings while the government expenditures provided employment. This view has been thoroughly discredited by theoretical analysis and even more by actual experience, including the emergence of wholly new lines for private investment not dreamed of by the secular stagnationists. Yet it has left its heritage. The idea may be accepted by none, but the government programs undertaken in its name, like some of those intended to prime the pump, are still with us and indeed account for ever-growing government expenditures.

More recently, the emphasis has been on government expenditures neither to prime the pump nor to hold in check the specter of secular stagnation but as a balance wheel. When private expenditures decline for any reason, it is said, governmental expenditures should rise to keep total expenditures stable; conversely, when private expenditures rise, governmental expenditures should decline. Unfortunately, the balance wheel is unbalanced. Each recession, however minor, sends a shudder through politically sensitive legislators and administrators with their ever present fear that perhaps it is the harbinger of another 1929-33. They hasten to enact federal spending programs of one kind or another. Many of the programs do not in fact come into effect until after the recession has passed. Hence, insofar as they do affect total expenditures, on which I shall have more to say later, they tend to exacerbate the succeeding expansion rather than to mitigate the recession. The haste with which spending programs are approved is not matched by an equal haste to repeal them or to eliminate others when the recession is passed and expansion is under way. On the contrary, it is then argued that a “healthy” expansion must not be “jeopardized” by cuts in governmental expenditures.

--Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1982), 75-76.

There Is As Much Sense in Saying That Capital Exploits Labor As in Saying That Labor Exploits Capital, or That Electricity Exploits Roofing Tiles

One of the many fateful consequences of marginal productivity is that it sweeps away such theories as Marx's which see interest as consisting of 'unpaid labor.' Under competitive market conditions, a worker tends to be paid what his labor contributes to output, no more and no less. The same goes for the owner of a machine or a piece of real estate. The analysis demonstrates the symmetry of all types of inputs: there is as much sense in saying that capital exploits labor as in saying that labor exploits capital, or that electricity exploits roof tiles. Of course, this does not touch the ethical arguments of socialists who acknowledge that non-labor factors make a determinate contribution to output, analytically separable from labor's contribution, yet still contend that it is illegitimate for anyone to own capital or land and reap the payment for their services. But that is not the position of Marx, nor of many other socialists. They specifically contend that, given a resource-owner's right to the product of the resource he contributes to production, positive net incomes to non-labor resource-owners are entirely created by owners of labor resources. It certainly clarifies the discussion to recognize that this position is untenable.

--David Ramsay Steele, From Marx to Mises: Post-Capitalist Society and the Challenge of Economic Calculation (La Salle, IL: Open Court Publishing, 1992), Kobo e-book.

Thursday, February 7, 2019

"Democratic National Planning" Stemmed from a Faith in Expert Knowledge based on Social Scientific Research; Planners Retained a Disproportionate Faith in Presidential Power

Congressional critics were striking out at a false god--regimented, totalitarian state planning. No such beast existed in America. The planners' notion of advisory national planning did not contain the rigidities of fascist, Nazi, or Soviet command-style economic planning dominated by the state. Their idea of "democratic national planning" stemmed from an inordinate faith in the utility of expert knowledge based on social scientific research by participants in the organizational nexus built since the 1920s. The planners retained a disproportionate, at times almost irrational, faith in presidential power as exercised by Franklin D. Roosevelt. Liberal Democrats in the postwar period carried this faith in the presidency, little realizing the implicit dangers of what eventually came to be called the imperial presidency.

--Patrick D. Reagan, Designing a New America: The Origins of New Deal Planning, 1890-1943, Political Development of the American Nation: Studies in Politics and History (Amherst, MA: University of Massachusetts Press, 1999), e-book, 232.

Wednesday, February 6, 2019

Corporate Income Tax Is a Hidden Tax That the Public Pays in the Prices It Pays for Goods and Services; Personal Tax Rates Are Highly Graduated on Paper but It's Pure Window Dressing

The personal income tax is sadly in need of reform. It professes to adjust the tax to "ability to pay," to tax the rich more heavily and the poor less heavily and to allow for each individual's special circumstances. It does no such thing. Tax rates are highly graduated on paper, rising from 14 to 70 percent. But the law is riddled with so many loopholes, so many special privileges, that the high rates are almost pure window dressing. A low flat rate--less than 20 percent--on all income above personal exemptions with no deductions except for strict occupational expenses would yield more revenue than the present unwieldy structure. Taxpayers would be better off--because they would be spared the costs of sheltering income from taxes; the economy would be better off--because tax considerations would play a smaller role in the allocation of resources. The only losers would be lawyers, accountants, civil servants, and legislators--who would have to turn to more productive activities than filling in tax forms, devising tax loopholes, and trying to close them.

The corporate income tax, too, is highly defective. It is a hidden tax that the public pays in the prices it pays for goods and services without realizing it. It constitutes double taxation of corporate income--once to the corporation, once to the stockholder when the income is distributed. It penalizes capital investment and thereby hinders growth in productivity. It should be abolished.

--Milton Friedman and Rose Friedman, Free to Choose: A Personal Statement (San Diego: Harcourt Brace and Company, 1990), 306.

The Three Dimensions of Capital and Capital Structure: A Value Dimension, a Time Dimension, and the Jevons-Cassel Composite Dimension Called “Aggregate Production Time”

One of the most distinctive features of Austrian macroeconomic theory is its use of the concept of a "structure of production." This concept was formulated to give explicit recognition to the notion that capital (and the capital structure) has two dimensions. It has a value dimension which can be expressed in monetary terms, and it has a time dimension which is an expression of the time that elapses between the application of the "original means of production" (labor and land) and the eventual emergence of the consumption goods associated with them. The development of the notion of two-dimensional capital has its roots, of course, in the writings of Jevons. It can be traced from Jevons to Cassel and Böhm-Bawerk and then to Mises, and from Mises to Hayek, Rothbard, and other contemporary Austrian theorists. This view of capital, then, is neither new nor is it strictly Austrian, yet the notion of two-dimensional capital is by no means readily accepted by capital theorists in general.

A third though not independent dimension of capital can be envisaged which represents a composite of the two dimensions described above. Again, Jevons was the first to synthesize this third dimension. He made the distinction between the "quantity of capital" and the "length of time during which it remains invested." He then devised the third dimension of capital by" ... multiplying each portion of capital invested at any moment by the length of time for which it remains invested." The compounding of interest was ignored for the sake of simplicity. The resulting composite dimension was shown to have the units of "dollar-years." (The units are Americanized here. Jevons, of course, used "pound-years.")

Cassel followed thirty years later with a similar formulation: " . . . interest is paid in proportion to the capital lent and in proportion to the duration of the loan, i.e., in proportion to the product of value and time" (emphasis added). Cassel's product and Jevons's composite dimension measure the same thing. They are indications of the extent to which capital is "tied-up" in the production process. No claim is made here that this product can be calculated directly, but if we can conceive of interest income and of the rate of interest, then we can conceive of this composite dimension of capital--the amount of "waiting" or postponement of consumption brought about by the payment of interest.

This composite dimension will be referred to as "aggregate production time" or simply as "production time." For sure, there are problems in aggregating (even conceptually) the production time associated with different pieces of capital just as there are problems with all macroeconomic aggregates. Much ambiguity will be avoided, however, by using the concept of aggregate production time rather than average production time or average period of production.

--Roger W. Garrison, Austrian Macroeconomics: A Diagrammatical Exposition, Studies in Economics 5 (Menlo Park, CA: Institute for Humane Studies, 1978), 5-6.

The First New Deal Was a Scheme to turn the U.S. Economy into One Massive, Government-Run System of Cartels; the NIRA Was an Economy-Wide Minimum Wage and Maximum Hour Program

In The Roosevelt Myth, John T. Flynn devotes his sixth chapter to "The Dance of the Crackpots," which describes many of the quite literally crackpot ideas that were widely discussed in Washington during the early 1930s. Unfortunately, FDR adopted one of these crackpot ideas as the primary basis of his economic policy. The central idea was based on an interpretation of the Depression that had cause and effect exactly backward. The main cause of the Depression, FDR and his advisers believed, was low prices. The Depression did not cause low prices and wages, then contended; low prices and wages caused the Depression. Therefore, the "obvious solution" to the Depression was government-mandated price and wage increases (to ostensibly increase "purchasing power"), which is what the National Industrial Recovery Act (NIRA) and the Agricultural Adjustment Act attempted to do. The former act sought to cartelize virtually every industry in America under the auspices of the federal government (while suspending the antitrust laws); the latter act sought to do the same for agriculture.

The First New Deal was essentially a scheme to turn the U.S. economy into one massive, government-run system of industrial and agricultural cartels. At a time when underemployment or unemployment of resources, including labor resources, was of tragic proportions, the focus of the government was to restrict output and employment even further with supply-reducing cartel schemes and limitations on hours worked.

The scheme was always destined to fail, of course, because of several major confusions. First, if wages are forced up by government fiat, the effect is to reduce the demand for labor, which creates more unemployment.

It is well-known that the minimum wage law causes unemployment, especially among lower-skilled workers. But at least the minimum wage law primarily applies only to entry-level employees and is therefore limited in the amount of harm it can do. The NIRA was an economy-wide minimum wage (and maximum hour) program that rendered the job-destroying effect of the minimum wage law universal.

Second, higher prices caused by a government-run cartel scheme may increase the incomes of some sellers, but only by reducing the incomes of buyers by an equivalent amount. On net, the economy is not "stimulated." The NIRA was the public policy equivalent of a Rube Goldberg machine.

--Thomas J. DiLorenzo, "Franklin Delano Roosevelt's New Deal: From Economic Fascism to Pork-Barrel Politics," in Reassessing the Presidency: The Rise of the Executive State and the Decline of Freedom, ed. John V. Denson (Auburn, AL: Ludwig von Mises Institute, 2001), 430-431.

Monday, February 4, 2019

The Distortions Created by Central Banks Go Beyond Those Considered by the Traditional ABC Theory; Financial Bubbles and Crashes Can Be Linked to the Action of Central Banks

The Austrian School of Economics has historically put its focus on the relationship between monetary expansions, not backed by a voluntary increase of savings, and the productive structure. Thus, the ABCT [Austrian Business Cycle Theory] has analyzed how monetary expansions distort the allocation of resources between consumer and capital goods, generating periods of boom and busts (Mises [1912] 1981, Hayek 2008 and Huerta de Soto 2009). However, little attention has been paid to the distortions created by monetary expansions on the financial structure of the economy.

In this paper, I will try to describe the different links between monetary expansions and the financial structure of an economy, argue that the financial effects of monetary expansions play a significant role in the development of business cycles, and explain why the distortions created by central banks go beyond those taken into account by the traditional ABCT. Specifically, I will discuss how financial bubbles and crashes can be linked to the action of central banks, through the impact of monetary expansions in the agents’ balance sheets, which generate an excessively fragile financial structure that is, at the same time, reliant on an unsustainable productive structure.

--Rafael García Iborra, "Financial Effects of Monetary Expansions," Procesos de Mercado: Revista Europea de Economía Política 15, no. 1 (Spring 2018): 76.

Say’s Law Applied to a Monetary Economy of n Goods, x1, x2, x3 ,…, xn-1, M, Where M Is the Money Good; Of Course, This Is Precisely the Way Free Markets Work

The principle that has come to be known as Say’s law is considered to be an essential element of classical economics. Properly understood, there are two aspects to Say’s law: 1) there can never be a glut of goods in general; 2) there can be a glut of some goods matched by an insufficiency of other goods. Say himself understood this principle to apply to monetary as well as barter economies. It is the case of monetary economies that is relevant for the purposes of this paper.

Say’s Law applied to a monetary economy of n goods,  x1,…, xn-1, M, where M is the money good. Say (1880) maintains that there can never be a glut of the n goods combined; however, there can be a surplus of any subset of the n goods, in which case there necessarily would be a paucity of the goods in the complementary subset. More simply put, there cannot be too many goods in general, but there can be too many of some goods and not enough of others (Sowell, 1972). In such cases, there is a misallocation of resources. Producers have misjudged consumers’ sentiments and produced a suboptimal mix of goods. What is required is a realignment of relative prices such that prices of those goods in excess be decreased relative to the prices of those of which there is a dearth. Of course, that is precisely the way free markets work. The producers of the «glut goods» make actual losses and the producers of «dearth goods» forego potential profits. Their response is to adjust prices altering the structure of prices and reallocating resources more in accord with the desires of consumers. And, it makes no difference if M is the sole good for which there is an insufficiency.

--William Barnett II and Walter Block, "On Say's Law, Keynes's Money, and Post Keynesians," Procesos de Mercado: Revista Europea de Economía Política 4, no. 2 (Autumn 2007): 140-141.

Sunday, February 3, 2019

Time and Again, Utopian Attempts to Form Institutions or Societies Exempt from the Iron Law of Oligarchy Have Fallen Prey to That Law; Instead We Should “Circulate” the Elites

One of the most important sociological laws is the “Iron Law of Oligarchy”: every field of human endeavor, every kind of organization, will always be led by a relatively small elite. This condition will hold sway everywhere, whether it be a business firm, a trade union, a government, a charitable organization, or a chess club. In every area, the persons most interested and able, those most adaptable to or suited for the activity, will constitute the leading elite. Time and again, utopian attempts to form institutions or societies exempt from the Iron Law have fallen prey to that law: whether it be utopian communities, the kibbutz in Israel, “participatory democracy” during the New Left era of the late 1960s, or the vast “laboratory experiment” (as it used to be called) that constituted the Soviet Union. What we should try to achieve is not the absurd and anti-natural goal of eradicating such elites, but, in Pareto’s term, for the elites to “circulate.” Do these elites circulate or do they become entrenched?

The free market economy provides an unparalleled example of a continuing healthy circulation of elites. In this dynamic economy, failure to keep up with competitors, failure to satisfy the demands of consumers in the best possible way, will topple elites quickly and establish new ones who do the job better. Ludwig von Mises wrote frequently of the inappropriateness of leftists referring to so-and-so as the “Steel King” or the “Automobile King”; for consumers frequently uncrown these alleged monarchs. Dethroning of financial monarchs on Wall Street is a frequent phenomenon. There are innumerable striking examples of big businesses failing to grasp the importance of a new product or new development, and of losing out to newer upstarts. I will refer to only two glaring cases experienced in my lifetime: the cry of leftists to “break up A&P” in the 1930s because of its alleged “monopoly” of the retail grocery business; and the failure of the old-time photography “monopolist” Eastman-Kodak to grasp the enormous significance, after World War II, of either instant photography or xerography, thereby leaving the field to newer, and more alert competitors.

--Murray N. Rothbard, "Bureaucracy and the Civil Service in the United States," Journal of Libertarian Studies 11, no. 2 (Summer 1995): 4.

Opponents of the Market Economy Have Shifted Their Ground; They Now Oppose It on "Social" rather than Economic Grounds; They Accuse It of Being Unjust rather than Inefficient

Everywhere today in the free world we find the opponents of the market economy at a loss for plausible arguments. Of late the "case for central planning" has shed much of its erstwhile luster. We have had too much experience of it. The facts of the last forty years are too eloquent.

Who can now doubt that, as Professor Mises pointed out thirty years ago, every intervention by a political authority entails a further intervention to prevent the inevitable economic repercussions of the first step from taking place? Who will deny that a command economy requires an atmosphere of inflation to operate at all, and who today does not know the baneful effects of "controlled inflation?" Even though some economists have now invented the eulogistic term "secular inflation" in order to describe the permanent inflation we all know so well, it is unlikely that anyone is deceived. It did not really require the recent German example to demonstrate to us that a market economy will create order out of "administratively controlled" chaos even in the most unfavorable circumstances. A form of economic organization based on voluntary cooperation and the universal exchange of knowledge is necessarily superior to any hierarchical structure, even if in the latter a rational test for the qualifications of those who give the word of command could exist. Those who are able to learn from reason and experience knew it before, and those who are not are unlikely to learn it even now.

Confronted with this situation the opponents of the market economy have shifted their ground; they now oppose it on "social" rather than economic grounds. They accuse it of being unjust rather than inefficient. They now dwell on the "distorting effects" of the ownership of wealth and contend that "the plebiscite of the market is swayed by plural voting." They show that the distribution of wealth affects production and income distribution since the owners of wealth not merely receive an "unfair share" of the social income, but will also influence the composition of the social product: Luxuries are too many and necessities too few. Moreover, since these owners do most of the saving they also determine the rate of capital accumulation and thus of economic progress.

--L. M. Lachmann, "The Market Economy and the Distribution of Wealth," in On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises, ed. Mary Sennholz (1956; repr., Auburn, AL: Ludwig von Mises Institute, 2008), 175-176. 

Saturday, February 2, 2019

The Fascist, Communist, and Islamic Movements All Learned That It Is Not Enough to Seize State Power, Private Property, and Subordinate Markets to the Demands of the “Common Good”

Stirner's critique of humane liberalism presents an eerie warning about the totalitarian ideologies, movements, and regimes of the twentieth and twenty-first centuries. The ideologues and apparatchiki of the fascist, communist, and Islamic supremacist movements and regimes all learned that it is not enough to seize state power, private property, and subordinate markets to the demands of the “common good,” as they define it. Thanks to the theoretical contributions by intellectuals such as Antonio Gramsci and Georg Lukacs, totalitarians realized that they must also seize the “hearts and minds” of their subjects. Gramsci and Lukacs theorized that Marxism failed as a revolutionary ideology because it underestimates the importance of culture and consciousness in the revolutionary transformation of society and individuality. In practical terms, this means that revolutionaries must not only seize state power and confiscate private property, they must control as many forms of communication, cultural production, and symbolic interaction as possible. Those who witnessed history since the rise of the totalitarian states in the twentieth century, have seen the concrete meaning of “humane liberalism” and the consequences of the appropriation of property, particularity, and subjectivity on behalf of the state, society, and humanity. Stirner's warnings about the reduction of persons to ragamuffins or nullities anticipates the historical facts that appeared with the rise of the Soviet Union and Nazi Germany, and continue in the totalitarian Islamic states and the consumerist welfare states. To the extent that contemporary science and philosophy function as propagandists for political, social, and humane liberalism, Stirner's exclusion from polite discourse becomes understandable. 

--John F. Welsh, Max Stirner's Dialectical Egoism: A New Interpretation (Lanham, MD: Lexington Books, 2010), 79n39.

The AS / AD Model Is Logically Inconsistent; It Has Two Inconsistent Supply Analyses: One Implicitly Built into the Slope of the AD Curve, the Other Explicitly Behind the AS Curve

In short, the logical problem here is that one cannot derive an AD [aggregate demand] curve from the Keynesian model, because the Keynesian model includes a dynamic interactive effect between supply and demand in the form of the multiplier. The Keynesian model has embodied in it what Robert Clower (1994) calls Hansen's Law—the proposition that demand creates its own supply. This analysis of supply might be totally wrong, but there is no denying that the Keynesian model has assumptions of supply responses in it. As you move along the 45-degree line, supply is changing independently of any change in the wage/price ratio.

Given that the Keynesian model includes assumptions about supply, one cannot logically add another supply analysis to the model unless that other supply analysis is consistent with the Keynesian model assumption about supply. The AS [aggregate supply] curve used in the standard AS / AD model is not; thus the model is logically inconsistent. It has two inconsistent supply analyses: one implicitly built into the slope of the AD curve, the other explicitly behind the AS curve.

--David Colander, “The Stories We Tell: A Reconsideration of AS / AD Analysis,”Journal of Economic Perspectives 9, no. 3 (Summer 1995): 176.

The Aggregate Supply / Aggregate Demand (AS / AD) Model Is Seriously Flawed. It Does Not Fulfill the Minimum Requirement of a Model: Logical Consistency

An Incorrectly Specified AD Curve

The logical specification problem concerns defining the AD curve that was derived from the Keynesian model. An appropriate definition of the AD curve derived from the Keynesian model would be as follows: The AD curve is the combination of points at which the Keynesian model is in equilibrium, given the relationship between price level and real output specified in the price-level thought experiment. The standard intro book does not give this definition; instead it gives a definition that parallels the definition of the partial equilibrium demand curve. A typical definition of an AD curve presented in an intro text is the following: Aggregate demand is a schedule, graphically represented as a curve, which shows the various amounts of goods and services that society as a whole will desire to purchase at various price levels, other things being equal. Notice that this definition parallels the definitions of the partial equilibrium demand curve, making appropriate distinctions between relative price and price level and quantity of a good and real output.

This textbook definition is a reasonable one of what the AD curve should be, although it is somewhat vague about what other things are being held constant. Typically, the explanation of what determines the slope of the AD curve, which focuses on the four effects discussed above, clarifies that everything except the direct effect of changes in the price level on output is being held constant.

The problem with this definition and delineation of what determines the slope of the AD curve is that it is not consistent with the derivation of the AD curve from the Keynesian model, because that Keynesian model–derived AD curve does not hold other things constant. The Keynesian model is quite explicitly a model of expenditures and production; it does not hold other things, specifically supply, constant.

--David Colander, “The Stories We Tell: A Reconsideration of AS / AD Analysis,” Journal of Economic Perspectives 9, no. 3 (Summer 1995): 174.

Friday, February 1, 2019

Virtually Every Aspiring Monopolist in the Country Tried to be Designated a "Public Utility," Including the Radio, Real Estate, Milk, Air Transport, Coal, Oil, and Agricultural Industries

Legislative "regulation" of gas and electric companies produced the predictable result of monopoly prices, which the public complained bitterly about. Rather than deregulating the industry and letting competition control prices, however, public utility regulation was adopted to supposedly appease the consumers who, according to Brown, "felt that the negligent manner in which their interests were being served [by legislative control of gas and electric prices] resulted in high rates and monopoly privileges. The development of utility regulation in Maryland typified the experience of other states."

Not all economists were fooled by the "natural monopoly" theory advocated by utility industry monopolists and their paid economic advisers. In 1940 economist Horace M. Gray, an assistant dean of the graduate school at the University of Illinois, surveyed the history of "the public utility concept," including the theory of "natural" monopoly. "During the nineteenth century," Gray observed, it was widely believed that "the public interest would be best promoted by grants of special privilege to private persons and to corporations" in many industries. This included patents, subsidies, tariffs, land grants to the railroads, and monopoly franchises for "public" utilities. "The final result was monopoly, exploitation, and political corruption." With regard to "public" utilities, Gray records that "between 1907 and 1938, the policy of state-created, state-protected monopoly became firmly established over a significant portion of the economy and became the keystone of modern public utility regulation." From that time on, "the public utility status was to be the haven of refuge for all aspiring monopolists who found it too difficult, too costly, or too precarious to secure and maintain monopoly by private action alone."

In support of this contention, Gray pointed out how virtually every aspiring monopolist in the country tried to be designated a "public utility," including the radio, real estate, milk, air transport, coal, oil, and agricultural industries, to name but a few. Along these same lines, "the whole NRA experiment may be regarded as an effort by big business to secure legal sanction for its monopolistic practices." Those lucky industries that were able to be politically designated as "public utilities" also used the public utility concept to keep out the competition.

--Thomas J. DiLorenzo, "The Myth of Natural Monopoly," Review of Austrian Economics 9, no. 2 (1996): 48-49.