Saturday, July 13, 2019

The Classical Meaning of Say's Law and the Modern Meaning (the Division of Say's Law into “Walras' Law,” “Say's Identity” and “Say's Equality”) Are Very Different

In the professional journals, the single most influential article has been Becker's and Baumol's 'The Classical Economic Theory: The Outcome of the Discussion' (1952), which was a summing up of a journal debate conducted during the late 1940s and early 1950s. The importance of this article lies in its introduction into economic theory of the three-part division of Say's Law into 'Walras' Law', 'Say's Identity' and 'Say's Equality'. It is these terms which have become the basis for the modern interpretation of Say's Law. While these terms will be more fully explained as part of the evolution of the modern interpretation of Say's Law, it is important to have some familiarity with them as modern discussion of classical theory often conceives of the issues in their terms.

'Walras' Law' generally means that total demand, including the demand for money, is equal to total supply, including money. This is merely a definition and has no economic implications. 'Say's Identity' refers to the proposition that the total demand for goods is always equal to the total supply of goods. Therefore, variations in the demand for money do not affect the level of economic activity. It is this proposition which is generally seen as the meaning of Say's Law contained in the General Theory. Finally, 'Say's Equality' means that while the demand for goods may move out of equilibrium with the supply of goods, the processes of the economy will rapidly bring the two back into equilibrium. This proposition is generally seen as the meaning of Say's Law held by classical economists.

The significant point is that the classical meaning of Say's Law and the modern are very different. And in this it is important to recognise that, although there is a modern meaning to Say's Law, if it is not what classical economists meant by it, then it has no intrinsic value as a means to understand pre-Keynesian economic theory. Say's Law should have only the meaning attached to it by economists who believed it was a valid principle of economic analysis. Sowell (1972: 5, 37), for example, argues that the modern interpretation is as valid as any other. Modern interpretations, which do not explain what classical economists actually meant, may have value in their own terms, but they should not be confused with the classical meaning of the law of markets.

--Steven Kates, introduction to Say's Law and the Keynesian Revolution: How Macroeconomic Theory Lost its Way (Cheltenham, UK: Edward Elgar, 2009), 5.


A Government Cannot Act for “the Good of Society” by Implementing Socialistic Policies; Socialism Merely Provides a Specific Cause to Which the Individual Is Supposed to Sacrifice Himself

Socialism is based on the altruist code of morality. Altruism says it is a virtue for the individual to sacrifice himself to others. Socialism merely provides a specific cause to which the individual is supposed to sacrifice himself. Under socialism, people are told to sacrifice themselves for the good of the state, the race, the nation, future generations, and so on. In practice, socialism has succeeded tremendously in sacrificing people. Literally hundreds-of-millions of people have been sacrificed on the altar of socialism. It has been estimated that almost one-hundred million people have starved, been murdered, or been worked to death in labor camps under socialist regimes that have existed, and still exist, around the world. This figure does not include the suffering of the hundreds-of-millions of people who have been forced to live in abject poverty and misery under socialist dictatorships. Based on this, it is clear that both in theory and in practice socialism is destructive to human life. . . .

Many people think that the mixed economy combines the best of the two economic extremes. They think it combines what they consider to be good about capitalism (such as the incentive to produce an abundance of wealth), but allows the government to intervene with socialistic policies (such as to redistribute income) to act for “the good of society.” Based on what has been said above, however, it should be apparent that this statement is completely false. There is nothing morally or economically good about socialism or socialistic elements in a mixed economy. When the government interferes in the market to, for instance, redistribute income or enact worker and product safety legislation, it violates individual rights and thus acts in a manner that is inconsistent with the requirements of human life.

The government cannot act for “the good of society” by implementing socialistic policies. When the government initiates physical force it benefits some members of society at the expense of others. For example, when the government redistributes income, it gives income to some people by taking it from others. When the government initiates force, someone is being sacrificed. Believing it is good for the government to initiate force to sacrifice some people to others is based on an acceptance of the validity of the morality of sacrifice. However, as was shown above, the morality of sacrifice, in any of its variations, is destructive because it stands in opposition to the requirements of human life. It does not matter whether a more virulent form of sacrifice is being implemented through socialism or a milder form is being implemented through the mixed economy. Either way it is destructive to human life.

--Brian P. Simpson, Markets Don't Fail! (Lanham, MD: Lexington Books, 2005), 22-24.


Friday, July 12, 2019

The “Demand for Money” Is Not and Cannot Be Unlimited; Demand on the Market Refers to “Effective” Demand (By the Fact That Something Else Is “Supplied” for It)

A popular fallacy rejects the concept of “demand for money” because it is allegedly always unlimited. This idea misconceives the very nature of demand and confuses money with wealth or income. It is based on the notion that “people want as much money as they can get.” In the first place, this is true for all goods. People would like to have far more goods than they can procure now. But demand on the market does not refer to all  possible entries on people’s value scales; it refers to effective demand, to desires made effective by being “demanded,” i.e., by the fact that something else is “supplied” for it. Or else it is reservation demand, which takes the form of holding back the good from being sold. Clearly, effective demand for money is not and cannot be unlimited; it is limited by the appraised value of the goods a person can sell in exchange and by the amount of that money which the individual wants to spend on goods rather than keep in his cash balance.

Furthermore, it is, of course, not “money” per se that he wants and demands, but money for its purchasing power, or “real” money, money in some way expressed in terms of what it will purchase. (This purchasing power of money, as we shall see below, cannot be measured.) More money does him no good if its purchasing power for goods is correspondingly diluted.

--Murray N. Rothbard, Man, Economy, and State with Power and Market, 2nd ed. of the Scholar's ed. (Auburn, AL: Ludwig von Mises Institute, 2009), 772-773.


Say's Law Was Specifically Formulated to Deny the Relevance of Demand Deficiency As a Cause of Depression

Aggregate demand has since 1936 played the central role in the theory of recession. Recessions are attributed to an absence of demand, and even where they are not, overcoming recessions is seen as dependent on the restoration of demand, which is the active responsibility of governments.

Until 1936, no mainstream theory of recession had so much as glanced at the notion of demand deficiency as a cause of recession. It was specifically to deny the relevance of demand deficiency as a cause of recession that Say’s Law had been formulated in the first place. Accepting the possibility of demand deficiency as a cause of recession was then seen as the realm of cranks. How the world does change.

This, it cannot be emphasized enough, did not mean that the possibility of recessions was denied. There was, and is, no end of potential causes of recession that have nothing to do with demand failure.

Indeed, no one explains the causes of the present economic downturn, the global meltdown we are in the midst of, in terms of deficient aggregate demand. It would be absurd to suggest that the problems now being experienced have been caused by consumers no longer wishing to buy more than they have or savings going to waste because investors have run out of new forms of capital into which to invest their funds.

Classical theory had taught that whatever might cause a recession to occur, it would never be a deficiency of aggregate demand. Production could never exceed the willingness to buy, and therefore treating the symptoms of a recession by trying to raise demand through increased public spending was utterly mistaken.

--Steven Kates, “The Crisis in Economic Theory: The Dead End of Keynesian Economics,” in Macroeconomic Theory and its Failings: Alternative Perspectives on the Global Financial Crisis, ed. Steven Kates (Cheltenham, UK: Edward Elgar Publishing, 2010), 113-114.


Thursday, July 11, 2019

According to Kornai, the Fundamental Cause of Shortages Was the “Soft Budget Constraint” that Faced Firms in the State-Socialist Countries

The behavioural explanation concerns the patterns of behaviour that characterise the state-socialist countries, their causes and consequences. For example, according to Kornai (1980, 1985), the fundamental cause of shortages was the soft budget constraint that faced firms in the state-socialist countries. The term ‘soft budget constraint’ refers to a type of behaviour within a particular social relationship. Firms with a soft budget constraint are not constrained by their financial situation. If they run into financial difficulties, their superiors will always bail them out. This results from the fact that they are state enterprises for whom the central bodies are responsible. Hence, in place of economic considerations, the dominant factors which determine the behaviour of enterprises are bureaucratic factors. This enables them to give free rein to typical bureaucratic objectives such as the desire to expand. The soft budget constraint thus implies a virtually unlimited demand for all products, and this is the underlying cause of the shortages that so plague consumers. The only way of overcoming the shortages, according to this line of reasoning, is a radical economic reform (e.g. the expansion of the private sector, the end of directive planning, real self-financing, allowing the possibility of bankruptcies, etc.) which introduces hard budget constraints for the enterprises.

--Michael Ellman, Socialist Planning, 3rd ed. (Cambridge, UK: Cambridge University Press, 2014), 306-307.


Wednesday, July 10, 2019

Marx Was a More Audacious Forger than Engels; Marx Falsified a Sentence from Gladstone's Budget Speech; Marx Falsified Quotations from Adam Smith

Marx cannot have been unaware of the weaknesses, indeed dishonesties, of Engels’s book since many of them were exposed in detail as early as 1848 by the German economist Bruno Hildebrand, in a publication with which Marx was familiar. Moreover Marx himself compounds Engels’s misrepresentations knowingly by omitting to tell the reader of the enormous improvements brought about by enforcement of the Factory Acts and other remedial legislation since the book was published and which affected precisely the type of conditions he had highlighted. In any case, Marx brought to the use of primary and secondary written sources the same spirit of gross carelessness, tendentious distortion and downright dishonesty which marked Engels’s work. Indeed they were often collaborators in deception, though Marx was the more audacious forger. In one particularly flagrant case he outreached himself. This was the so-called ‘Inaugural Address’ to the International Working Men’s Association, founded in September 1864. With the object of stirring the English working class from its apathy, and anxious therefore to prove that living standards were falling, he deliberately falsified a sentence from W. E. Gladstone’s Budget speech of 1863. What Gladstone said, commenting on the increase in national wealth, was: ‘I should look almost with apprehension and with pain upon this intoxicating augmentation of wealth and power if it were my belief that it was confined to the class who are in easy circumstances.’ But, he added, ‘the average condition of the British labourer, we have the happiness to know, has improved during the last twenty years in a degree which we know to be extraordinary, and which we may almost pronounce to be unexampled in the history of any country and of any age.’ Marx, in his address, has Gladstone say: ‘This intoxicating augmentation of wealth and power is entirely confined to classes of property.’ Since what Gladstone actually said was true, and confirmed by a mass of statistical evidence, and since in any case he was known to be obsessed with the need to ensure that wealth was distributed as widely as possible, it would be hard to conceive of a more outrageous reversal of his meaning. Marx gave as his sources the Morning Star newspaper; but the Star, along with the other newspapers and Hansard, gives Gladstone’s words correctly. Marx’s misquotation was pointed out. Nonetheless, he reproduced it in Capital, along with other discrepancies, and when the falsification was again noticed and denounced, he let out a huge discharge of obfuscating ink; he, Engels and later his daughter Eleanor were involved in the row, attempting to defend the indefensible, for twenty years. None of them would ever admit the original, clear falsification and the result of the debate is that some readers are left with the impression, as Marx intended, that there are two sides to the controversy. There are not. Marx knew Gladstone never said any such thing and the cheat was deliberate. It was not unique. Marx similarly falsified quotations from Adam Smith.

--Paul Johnson, Intellectuals: From Marx and Tolstoy to Sartre and Chomsky, rev. ed. (Pymble, NSW: HarperCollins e-books, 2008), 66-67.


Monday, July 8, 2019

Ludwig von Mises Looks at the Central Thesis of Marxism, the Doctrine of the Inevitability of the Great Social Revolution that Will Transform Capitalism into the Everlasting Bliss of Socialism

Thus Marxism is the most radical and unconditional rejection of all the ideals of freedom and liberty. It does not acknowledge any dissenting opinion's right to existence. In its endeavors to extirpate all traces of any view it deems heretical, it is in no way inferior to any persecutors, inquisitors and witch-hunters of the darkest ages. But it parades as the only legitimate continuation of all the past struggles for freedom.

That Marxism could, in spite of all its inherent deficiencies, attain the powerful position it holds in the present-day world is due to the fact that statesmen, politicians and the immense majority of our intellectuals and businessmen are entirely ignorant of the most blatant defects of the Marxian reasoning. Let us look at the central thesis of Marxism, at the doctrine of the inevitability of the great social revolution that will transform capitalism into the everlasting bliss of socialism.

The coming of this revolution, says Marx, it unavoidable because the “immanent laws of capitalistic production” must make “the mass of misery, oppression, slavery, degradation and exploitation” of the working-class grow to such a degree that the proletarians are finally driven into rebellion, expropriate their oppressors, and establish the socialist system that will last forever. Thus the progressing impoverishment of the working masses, that is allegedly inherent in the capitalistic mode of production, leads to the great social catastrophe out of which the final radical revolution and thereby the age of everlasting bliss are born.

Now let us first compare Marx's unconditional forecast with the facts of these one hundred years that have passed. Nobody will deny that in all capitalistic countries the average standard of living of the earners of wages and salaries has improved to an unprecedented and unexpected degree. These people enjoy amenities of which the richest princes and lords of ages gone by could not even dream.

Marx and all the others who developed similar doctrines entirely failed to realize that the characteristic feature of capitalism is that it is mass production for the satisfaction of the needs of the masses. In the precapitalistic ages the processing trades worked only for supplying the well-to-do. The innovation that capitalism brought consisted in the establishment of shops producing for the many. Thus, e.g., the textile industries and the garment industries where not substitutes for activities of artisans who had previously done spinning, weaving and tailoring for the common man. Such a class of businessmen selling to the “lower strata”of the population did not exist in precapitalistic ages. The activities the textile and the garment industries displaced were those of the female members of the family. In the early stages of capitalism factories turning out consumers' goods worked almost exclusively for the poorer strata of the population. And also today only a fraction of all the products of industry is consumed by those in the upper income brackets. The much greater part is consumed by the same people who are working in the factories, shops and offices.

--Ludwig von Mises, “A Hundred Years of Marxian Socialism,” in  Money, Method, and the Market Process, ed. Richard M. Ebeling (Auburn, AL: Praxeology Press of the Ludwig von Mises Institute, 1990), 218-219.


It Is Whimsical to Suggest that to Increase Surplus Value, the Capitalist Cuts Down That Part of Capital Which Yields Surplus Value and Replaces It By That Part of Capital Which Can Yield None

Along these lines, then, capital seeks to satisfy its insatiable lust for increased surplus value. But here we encounter the first of the two snares which, quite apart from many other besetting difficulties, in the end brought the Marxian system, on this side· at least, to irremediable confusion. The capitalist, thirsting for surplus value, introduces more and more machinery, in order thereby to cut down the time required for the worker's maintenance and so increase the number of hours available for the production of surplus value. But, as we have seen, constant capital [machinery] yields no surplus value, which can be derived only from variable capital [wages]. There is something whimsical in the suggestion that, in order to increase surplus value, the capitalist thus cuts down that part of capital which yields surplus value, replacing it by that part of capital which can yield none. The contradiction is glaring, and Marx's explanation will resolve it only for those who can humbly say: Credo quia impossibile.

--Alexander Gray, The Socialist Tradition: Moses to Lenin (London: Longmans, Green, 1946), 312.


Sunday, July 7, 2019

Even If a Socialist System Were Not Controlled by Dictators But Instead by Human “Angels,” the Institutional Structure of a Socialist Regime Made It Impossible for It to Produce a “Heaven on Earth”

The primary goal of practically all socialists in the nineteenth century and most of the twentieth century was the abolition of private property, market competition, and money prices. In their place, the State would nationalize the means of production, and as the “trustee” of the interests of the “working class” would centrally plan all of society’s economic activities. The central planning agency would determine what got produced, how and where it was produced, and then distribute the resulting output to the members of the new “workers’ paradise.”

Mises showed that the end of private property would mean the end to economic rationality. Without private ownership of the means of production—and no competitive market upon which rival entrepreneurs could bid for those resources based on their profit-motivated estimates of their respective values in producing goods desired by the consuming public—there would be no way to know real and actual opportunity costs among the potential alternative uses for which they might be applied. How, therefore, would the central planners know whether or not they were misusing and wasting the resources of society in their production decisions? As Mises summarized the dilemma,“It is not an advantage to be ignorant of whether or not what one is doing is a suitable means of attaining the ends sought. A socialist management would be like a man forced to spend his life blindfolded.”

Even if a socialist system were not controlled by brutal dictators but instead by human “angels” who only wanted to do “good” for humanity, and even if the incentives for work and industry were not reduced or eliminated through the abolition of private property, Mises was able to demonstrate that the very institutional structure of a socialist regime made it impossible for it to produce a material “heaven on earth” for mankind superior to the productive and innovative efficiency of a functioning free-market economy. It is what enabled Mises to declare in the early 1930s, when the appeal of socialist planning around the world was reaching its zenith, that,“From the standpoint of both politics and history, this proof is certainly the most important discovery made by economic theory. . . . It alone will enable future historians to understand how it came about that the victory of the socialist movement did not lead to the creation of the socialist order of society.”

--Richard M. Ebeling, introduction to Marxism Unmasked: From Delusion to Destruction, by Ludwig von Mises (Irvington-on-Hudson, NY: Foundation for Economic Education, 2006).


The Notion of the State Doing Everything, Until Finally It Replaces All Private Existence, Is the Great Leftist Dream; So the Left Tends to Have a Ministry of Education to Control All Aspects of Education

Concerning education, the leftist is always a statist. He has all sorts of grievances and animosities against personal initiative and private enterprise. The notion of the state doing everything, until finally it replaces all private existence, is the Great Leftist Dream. Thus the leftist tends to have city or state schools—or a ministry of education—control all aspects of education. As an example there is the famous story of the French Minister of Education who pulls out his watch and, glancing at its face, says to his visitor, “At this moment in 5,431 public elementary schools, they are writing an essay on the joys of winter.” Church schools, parochial schools, private schools, personal tutors, none is in keeping with leftist sentiments. The reasons are manifold. Not only is delight in statism involved, but also the idea of uniformity and equality—the notion that social differences in education should be eliminated and all pupils be given a chance to acquire the same knowledge, the same type of information, in the same fashion, and to the same degree. This should enable them to think in identical or at least in similar ways. Quite naturally, it is especially true in countries where “democratism”—democracy as an ism—is promoted, where pains are taken to ignore differences in IQs and in personal effort, where marks tend to be eliminated and promotion to the next grade becomes automatic.

--Erik von Kuehnelt-Leddihn, Leftism Revisited: From de Sade and Marx to Hitler and Pol Pot (Washington, DC: Regnery Gateway, 1990), 27.