Equality

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It is widely believed in mainstream circles that equality between human beings, in one form or another, is some kind of virtue to which society ought to aspire and that rank inequality is a measure of severe injustice that needs to be corrected by state action. Equality between individuals has also been used as a primary weapon against those who favour capitalism and free exchange. Even though the worst excesses of inequality – such as the rising value of assets owned by the rich as a result of worldwide money printing – are in fact, products of a state corporatist system, it is true that proponents of the free market favour a system in which some people will be wealthier by virtue of their ownership of a greater number of resources than other people.

Our critique of equality here will be somewhat different from the usual free market or libertarian approaches towards tackling this issue, which normally explain the virtues of the free market and the ethics of private property and how these are better than striving for some kind of equality. Although we will certainly champion these arguments, our approach will be two-pronged. First of all, we will conclude that the aspiration towards some kind of perfect or immediate equality – i.e. the forced attempt to render all people absolutely equal now with today’s stock of wealth and resources – is undesirable, impractical and far from being a moral virtue. However, more importantly, we will go on to argue that, if someone desires a more approximate or gradual achievement of equality – such as the so-called “equality of opportunity” – statism, socialism and any kind of redistributionism must be abandoned and that those who seek to create such equality must instead embrace a social order that maximises the production of wealth. That social order is, of course, free market capitalism.

Perfect Equality

Our starting point in examining the advocacy for some kind of perfect or immediate equality is to acknowledge that nature places a formidable number of obstacles in the way of achieving such equality. One of these barriers is the fact of human action itself – the ability of each individual human to think, desire and consciously choose to devote the resources at his disposal in ways that he deems fit. In other words individual humans make decisions to act independently of one another. Some of these decisions will be good or better decisions while others will be bad or worse. Some people will make a greater number of bad or worse decisions than good or better decisions while others will make a greater number of good or better decisions than they do bad or worse decisions. The varying results of these decisions serve to place people in a state of inequality, with those that make good or better decisions ending up in a better condition than those who make bad or worse decisions. Any attempt to subvert these outcomes and to create, instead, a greater degree of equality between humans would subordinate all individually motivated behaviour to the directions of the state, lest anyone was to act in such a way as to put himself in a position better than that of his fellow human. Although this would be undeniably totalitarian and despotic the more crucial point is that any such drive towards equality would require a complete annihilation of the preeminent quality of human nature – that of rational action. It would render us all as nothing better than automated robots, unable to act upon our own feelings and desires while under the control of our political lords and masters. Hence, unless anybody is happy to become an unthinking cog in a society that represents mere machinery then we must conclude that equality is an inherently undesirable goal.

This formidable obstacle placed in the way of equality by nature – the fact that we think, choose, desire as individuals – renders perfect equality not only undesirable but also impractical. Let us say that even if we were able to stifle all individual human action and create a perfect material equality between every human being. It would still be the case, however, that individual people would value these possessions differently. A white stick, for instance, is likely to be very valuable to a blind man yet next to useless to a sighted man. If you give both of these men a white stick it is clear that, even though their physical, material possessions are identical, one has gained value more than another. Thus, if we have to strive for perfect equality it is useless to attempt to distribute resources equally, lest someone ends up more happy and content with the same possessions than somebody else and thus rendering them in unequal conditions. Perhaps such a problem could be resolved by simply giving them an equal amount of money? Wouldn’t everyone then be able to spend their equal amount of money on different things that are valuable to them? Unfortunately this would not work either because one person may need to spend more money to gain the same amount of satisfaction as another person. People who are more satisfied with spiritual and non-material needs may be content with spending very little of the money allocated to them whereas those who are materialistic and seek value in possessions may require a lot more for them to feel as happy as the non-materialistic folk. What the budding egalitarian would have to do, therefore, is to attempt to provide for each person’s needs regardless of the precise quantity of goods required for those needs. So in other words one person may receive a lot whereas another person would receive very little if they are both made equally satisfied by what they receive. This, however, turns the whole of economics on its head. Economising behaviour regulates needs to the goods available. Needs are insatiable whereas goods are scarce and we must choose which of our needs we value the most in order to allocate the goods available to them. There is not a fixed number of needs or a fixed quantity of happiness shared between all people which can be satisfied by an abundant stock of goods. Needs are also intangible entities, existing in only the mind. They cannot be measured with any yardstick and any attempt to do so would simply subordinate the real value of the needs as perceived by individual people to their value as perceived by some bureaucrat – and, of course, this bureaucrat will have his own motivations for determining who gets what. One’s own value of one’s needs is subordinated to the value of those needs as perceived by the state. Anyone who has needs deemed unworthy by the state, perhaps because they are “unpatriotic” or somehow not in keeping with the spirit of the “the people”, will be left far worse off than those who toe the state’s line, which is how redistributionist policy always works in practice.

If we look more broadly at the entirety of the natural state of human beings, things do not get much better for the budding egalitarian. Indeed so inherent is the natural state of inequality between human beings that we could even suggest that Mother Nature intended it to be so and that she willed such a state to be permanent. Individual people are born with different qualities – different heights, different weights, different physical and mental capabilities, and so on. So too are the environments into which they are born different. Not only will their parents and those around them also have varying characteristics and varying abilities at raising their offspring, but the precise climate, geography and availability of natural resources will differ from place to place. Hence, the Earth itself gifts different people differently and presents them with different degrees of challenge for them to live their lives. Some of these environmental differences are likely to have had a cumulative genetic impact as a result of natural selection that exacerbates further inequalities. A society which has developed in an area where resources are plentiful and where little work needs to be done to ensure survival will have had its physical and mental capabilities tested to a much lower degree than a society that has developed in a barren area where resources are scarce and what little the earth has to offer must be obtained through ingenuity and backbreaking physical work. Only the most intelligent and strongest will have survived and prospered in the latter society whereas practically anyone could have lived in the former society. After generations of reproduction, therefore, those who are born today in the latter society – the “difficult” one – are likely to have superior mental and physical attributes that are not enjoyed by those in the “easy” society. Ironically, therefore, those who descended from a society which originally had “less” are those who are likely to command greater wealth and income, by virtue of their superior strength and intellect, in today’s society characterised by global trade and the division of labour. Indeed, given that we have mentioned trade and the division of labour, we might as well point out that any drive towards an immediate and perfect equality would require the complete eradication of these elements for they are clearly founded on a rank inequality. The division of labour cannot exist unless people utilise different skills and different abilities to undertake different tasks. If two people wish to trade it is because they each start off with different things and each wish to obtain different things through the trade. In other words each partner to the exchange desires to be different and views himself as having gained something more than what he parted with.

The fact of all these inequalities alone does not, of course, prevent equality from being a virtue. Simply because something is does not been that it ought to be. However, the manifold extent of inequality that has been presented to us by nature indicates that, in order to reverse such a natural state, a considerable and extensive power of man over nature will be required. It is here where the notion of equality as an argument for some kind of socialism or redistributionism collapses. Creating a condition of equality will not require, as is typically supposed, a redistribution of existing wealth – that is, man’s existing power over nature – but, rather, the generation of more wealth in order to overcome the formidable barriers to equality that nature has put in our path. Those who desire equality should, in fact, not be dreaming up ways in which to rob the rich to give to the poor but, rather, should be finding the best possible way to ensure wealth creation. As we shall explore now it is in fact a society of private property and free exchange – i.e. of capitalism – which, by virtue of its superior productive ability, accomplishes this and which makes a tendency towards greater equality more likely.

The Equalising Tendencies of Capitalism

While we examine the equalising tendencies of capitalism, we must admit, lest w be accused of creating a straw man, that equality is not usually advocated in any perfect or absolute sense in the manner that we just subjected to criticism. Egalitarians do not typically strive for the complete eradication of all differences and idiosyncrasies between humans, even if social systems founded upon equality have tried to decimate all independent and unapproved opinions, culture, tastes, and personal habits. The staunchest of such egalitarians will still admit that the division of labour – upon which human prosperity depends – requires some people to be garbage collectors and others to be brain surgeons, for example, and that it would be a travesty for everybody to be garbage collectors or for everybody to practise brain surgery. Rather, the egalitarian strives for some kind of approximate equality. After all, approximate equality could be achieved so long as everybody is doing the job that he most enjoys and/or is best at, and surely people having some kind of access to roughly the same amount of wealth would be better than nothing at all? To implement such a programme through a socialist society would, however, produce the very opposite of equality. In a society governed by private property and free exchange, the ownership of all of the material wealth in existence is scattered between all of the private individuals who inhabit the Earth. As all persons are free to make their own decisions as to how best to deploy their wealth it is true that some people will have accumulated more while others will have accumulated less. However, those who accumulate more do so because they serve the needs of consumers better than anyone else – consumers entrust these resources to these particular people because the latter have, so far, proven themselves better at directing them to the most urgent wants of the consumers than anyone else. The wealthy in a capitalist society cannot abuse their position as their fortunes would soon begin to haemorrhage. Rather, they must continue to serve the needs of consumers better than anyone else, or consumers will drop them and their products in a flash while the productive assets that form their wealth will be transferred to other people. There also seems to be something of a limit on how much of societal wealth any individual can command in such a society. As of 2016 the wealthiest man in the world, Bill Gates, has a total fortune of $81.7 billion – a drop in the ocean compared to the $3.7 trillion budget of the federal government last year, and peanuts compared to the sums that central bankers like to print from thin air. Warren Buffett, widely regarded as the most successful investor in history, has admitted that achieving a significant annual return for his firm Berkshire Hathaway is now much more difficult than it used to be on account of the size that the firm has now achieved. It is typically believed that capitalism has a tendency towards monopoly, with more and more wealth being sucked into the clutches of a few powerful oligarchs. The opposite is in fact the case – one individual entrepreneur or investor can only direct his attention to so much before his talents are spread too thinly, or he has to delegate to lesser individuals. Hence, inefficiencies begin to creep in which provide an advantage to smaller, more nimble competitors and thus checking the growth of any established player. In a socialist society, however, matters are completely different. If you deprive all of the individual citizens of their ability to direct their labour and their resources to the employments that they feel are best then these decisions have to be made by somebody else. There must be someone who has de facto ownership and control over resources in order for these resources to be directed. These people are, of course, those who form the state and its planning bureaucracy. Clearly this amounts to an enormous concentration of wealth in the hands of a very small, political elite, a concentration which by far exceeds that of the wealthiest individual in a capitalist society. These elites will direct resources according to what they value rather than what is valuable for everyone else. Not only will you get parades of missiles accompanied by goose stepping troops, and the construction of vanity projects such as the unfinished 105 storey hotel in Pyongyang, but even if the direction of resources is for the benefit of other people this light will be refracted through the prism of the elites’ own preoccupations. If the minister of a particular socialist state or department thinks single mothers are hard done by then single mothers will get more; if he is an ex-railway worker then he is likely to account for the condition of railway workers more than someone who has no such background; if a relative of his died from cancer then he is likely to want to devote more resources to cancer research than someone who has had no such exposure, while those suffering from other illnesses and conditions must put up with lesser treatment. And, of course, he will have every incentive to direct wealth to personal favourites and political supporters that serve to keep him in his powerful position. No longer is his status and privilege determined by serving consumers who can choke off his supply of funds at any point they desire. Rather, he now depends upon currying favour with his political contemporaries. Furthermore, if he is able to maintain such favour he can simply resort, when directing resources to where he wants, to the use of force rather than the use of persuasion through offering a valuable service. Socialism does not eliminate any unequal, societal statuses; it simply changes the game of who rises to the top – and when you are at the top you are more unequal from the rest of society than in a capitalist economy. Moreover, socialism cements these statuses from a revolving membership determined by who best can serve consumers into semi-permanent and impenetrable political castes. All of this can be illustrated today in some of the so-called democratic socialist countries such as Venezuela, where the daughter of the late, former President Hugo Chavez enjoys a personal fortune of approximately $4.2 billion, while the country’s socialist policies have made basic necessities so scarce that the black market price for a dozen eggs have reportedly reached $150. According to The Daily Mail, at the Caracas Country Club the nation’s super rich socialists “enjoy lavish parties and gourmet cuisine, while middle-class people are forced to scavenge for food” at a membership cost of 458 times the average Venezuelan salary. The attitude of the elites is almost literally the modern day equivalent of Nero fiddling – “Should we stop enjoying ourselves just because the country is burning?” one is quoted as saying. Far from being a creator of any kind of approximate equality, socialism widens the gulf between rich and poor immeasurably, and to the extent that people are equal at all they languish in equal destitution.

Of course, after the twentieth century failures of communism and socialism, the aims of the equalisers and egalitarians have been watered down further into vaguer nuances such as the so-called “equality of opportunity” – i.e. that everyone may become richer and may become better off than other people as a result of their own talents and hard work so long as they all start off from the same supposed springboard. The idea is, in other words, that if an individual is born to wealthy parents resulting in a high quality of education and a comfortable upbringing he has a “head start” against someone from a poorer background who does not have these benefits, and that it is this kind of inequality that should be eradicated through redistribution. In the first place, any kind of birth into wealth and affluence does not by itself guarantee that the individual will have any talent or affinity for hard work. Indeed, the opposite is likely to be the case if he knows that, in order with stave off any hardship he encounters, Daddy will simply whip out his cheque book. Somebody who is less privileged, however, who has no alternative but to use his natural abilities and dedication to get ahead is more likely to do so. It is for this reason that most of the significant entrepreneurs and inventors were drop outs and rebels against the formal system of education and progression. The traditional path through school and elite university really only prepares one for a career in the establishment professions such as law, banking and the civil service – occupations which make you well off largely because the state ensures that your wealth is perpetuated. However, if we accept the premise that equality of opportunity through providing equal resources to the young will benefit the latter then it would not follow that the best manner to achieve this would be through redistribution. Rather, it would be better to follow a path of wealth creation so that the poorest in society are able to afford a high quality education – and an education of higher quality than the rich may have enjoyed in the recent past – sooner. The reason for this is that it is not the relative difference between rich and poor that is the significant factor – rather, it is whether the poor have enough to put them in a position in which they can compete effectively. While it is true that, in a capitalist society, the rich will get richer as the poor get richer and thus the rich will always be able to afford “more” than the poor, there is only a finite amount that they can spend productively on, say, educating themselves highly and sharpening their talents for entrepreneurship before any additional resources in this direction will produce diminishing returns. For example, a person can only read so many books in a day; if a rich person spends more on books he will not become more educated than a poorer person if he never has time to read those books. So if wealth creation results in the poor being able to afford as many books as the rich can read then both rich and poor will be equally well read. The rich may be able to afford more tutors than the poor, but they can only absorb so much information from so many tutors before all these mentors will drown themselves out in a cacophony of confusion. Therefore, if wealth creation permits the poor to afford as many tutors as the rich can absorb information from then both rich and poor will be equally well tutored. It is still true, of course, that the rich will spend more on educating themselves than the poor and it is also true that the rich will be the first to benefit from any innovations. However, as the poor get wealthier, this additional money spent by the rich tends to go towards additional pleasantries and luxuries rather than the substantial necessities of learning – for example, the classrooms may be nicer, the chairs comfier, the writing paper of a higher quality. But none of these things really matter a great deal when it comes to absorbing knowledge – or rather they matter far less than the poor being unable to afford any education at all. It is for this reason that wealth creation, through free market capitalism, rather than wealth distribution, produces a tendency towards equality and more adequately and permanently closes the gap between rich and poor, both in a very real sense but also in the sense of providing an “equality of opportunity”.

We can illustrate this further through examples in the wider economy. As Mises points out, when the automobile was first invented and only the rich could afford to purchase one, the gap between rich and poor was very wide. The rich had personal, motorised transportation while the poor had to go barefoot, put up with animal powered transport, or use the railway. Once, however, society became wealthy enough to mass produce cars that were affordable by the poor, both rich and poor now had access to motorised transportation. It is true that the rich spend more of their money on their cars than the poor do – and often a lot more. However, most of this additional money is spent on luxury additions such as higher quality paint and body work, sleeker aesthetics, leather upholstery and the fineness of the engine; the basic purpose of the car, to transport a person from A to B, is available to everybody and no amount of additional spending by the rich on their own cars can change this. This was not so before the poor could afford any car at all. Thus the gap between rich and poor has been narrowed through wealth creation. Similarly, the difference between a two bedroom terraced house and an enormous mansion is less than the difference between a house and no house at all; the difference between a gold plated toilet and a ceramic toilet is less than the difference between a toilet and no toilet. If a “poor” individual possesses a genuine talent his inability to afford champagne and caviar rather than bread and cheese is unlikely to prejudice his efforts to capitalise on this talent; but clearly he would be very disadvantaged if he could not afford food at all. What the rich spend on themselves goes towards luxuries and comforts which, while delightful, do not provide any significant material advantage to insulate themselves from a poorer person who can still afford the basics – and of course, the process of wealth creation soon places these luxuries in the hands of the poor anyway. Indeed, the rich, although they consume more goods and services than the poor, consume a lower percentage of their income than the latter do simply because more of their most urgent wants have been satisfied and additional consumption brings fewer and fewer benefits. The remainder of their resources therefore goes into investment or philanthropy – indeed, a wealthy society is awash with charitable giving simply because people have so much more to give. It is true, of course, that a poorer individual may have to demonstrate his talent if he is to persuade other people to fund him in his ventures, whereas a richer person could easily self-fund from his fortune. This, however, is arguably not a disadvantage. When you are risking other people’s money you have to rise to their standards and ensure that the decisions you are making are absolutely the right ones, decisions in which they will take a keen interest. Thus the talents and efforts of a poorer person are enhanced and focussed when he has to use other people’s money. Devoid of third party scrutiny, however, a rich individual, if he does not merely pursue his own flights of fancy without any check upon the hubris of his deluded conviction, is likely at the very least to be more slovenly and less disciplined in his approach. And in any case, if a poorer individual is genuinely talented then what is wrong with expecting him to establish this fact before others?

What we can see therefore is that any drive towards “approximate” equality or some kind of “equality of opportunity” is delivered not by a system of wealth redistribution but by a system of wealth creation. The only system that produces wealth creation, or at least produces it to its strongest possible degree, is a system of free market capitalism.

We might as well conclude with a final observation which is that people seem to be highly selective when it comes to advocating equality through wealth distribution. Apart from the occasional grumble it seems to be perfectly OK for elite sportsmen and women and movie starts to earn large amounts of money. Football enthusiasts in the UK are happy to wax lyrical about how many millions such-and-such a player is being “bought” for by a particular club, or how much one of them earns in a week, fully accepting the essence of the market and voluntary exchange in this arena. When it comes to the CEOs of multinational companies worth billions of dollars, however, it is always a different story – they are greedy fat cats, profiting off the work done by their underlings in the factories and production lines. This is so even though the multinational company may provide “essential” benefits to people such as food to eat and homes to live in, whereas the achievements of even the greatest athlete basically boil down to providing entertainment. The reason for this, of course, is that sporting and acting achievements are readily perceived by the individual, whereas the benefits of entrepreneurship and the stewardship of productive assets are not. If the cries for equality are to be consistent this should not really matter, of course – it should permeate all areas of human endeavour. However, if the ready perception of a wealthy person’s achievement is enough to justify it in the eyes of everybody else then clearly libertarians and free market enthusiasts should continue to extol the benefits of entrepreneurship and attempt elevate, to the level of sportsmanship and acting in front of a camera, the status of businessmen, investors and capitalists who provide goods and services which people want to buy at prices they can afford. This may be the surest way to purge mindless egalitarianism from mainstream social thought.


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Altruism, Freedom and Economic Progress

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The virtue of altruism is held in immeasurably high esteem in our society today. Selfless benevolence at one’s own expense is regarded as the pinnacle of human endeavours, with societies and cultures often reserving their most coveted honours and elevations for people who have apparently undergone acts of selflessness and generosity. Contrary to mainstream thought (and contrary to the thought of some free market proponents), there is nothing in either libertarianism or free market economics that disputes this view. It is true that, strictly speaking libertarians qua libertarians neither promote nor condone any voluntary act; rather, they simply take the position that such acts should not be countered with violent repressions. Whether such acts are good in and of themselves is another matter. Further, free market economists will note that although voluntary exchanges create net wealth (including gift giving in which the donor never “loses” as such but, rather, gains a psychic profit that, to him, must be worth more than what he gave up), there is no part of their science in and of itself that compels them to promote or encourage giving any more than they are required to promote any other type of exchange (although economists may of course note also that increased wealth creation usually goes hand in hand with increased generosity). Nevertheless, as a private individual, it is possible for libertarians and free market economists to regard such specific, overt acts of kindness and generosity – especially those that cause the donor to incur at least the risk of a great material cost, such as wading into a strong river to save a drowning child – as worthy of praise and adulation and that the congratulation of such individuals is far from being out of place.

On the other hand, mainstream thought has extrapolated, erroneously, from these individual, voluntary acts the conclusion that economic progress, the vanquishing of poverty and the path towards a greater and better society are themselves dependent upon altruism and self-sacrifice to the extent that these virtues can cohere into a social system – a system, that is of course, managed by state fiat, such as the welfare state. This belief is dependent upon a further error which is that, in the free market order, the fundamental interests of each member of society are pitted against each other and that one person’s profit must automatically transform into another person’s loss. In other words, the profit and loss system results in benefits to the few (or, at most, some) at the expense of the many. From this incorrect assumption one naturally leads to the conclusions that the only way to benefit more or the many is if these profits (or the wealth that is possessed by the few) are turned over to the many. It is these conclusions with which libertarians and, in particular, free market economists disagree. If that was not bad enough, however, we shall also see that the implementation of systemic methods of wealth distribution is, in fact, completely antithetical to and destructive of altruism and generosity.

This error is similar in nature to another error encountered in mainstream economics – that of supposed shortages of “demand” on an economy-wide sale. In the particular situation of an individual firm or industry, a withdrawal of demand from the firm’s products will result in a slowdown of business for that firm. If the firm is to recover then it is obvious that a recovery of demand for its goods and services is necessary. However, from this entirely correct conclusion regarding a particular circumstance is extrapolated the utterly false conclusion that increases in demand must benefit the economy as a whole. Or, in other words, that where there is a general economic malaise the effective response is to encourage a general increase in demand for an alleged “glut” of supply. As we know from Say’s Law, however, demand and supply are opposite sides of the same coin – the demand for one product is formed by the supply of another. Therefore, one cannot increase general demand without also increasing general supply, i.e. the production of real products. Simply printing more money or lowering borrowing costs does nothing to increase demand; it simply raises the prices of what is already available and shifts the purchasing power over these existing resources from the last or later recipients of the new money to the first or earlier recipients. The real problem in an economic bust is a relative glut of some products, namely, capital goods that are further up the chain of production, and a relative shortage of other products, namely consumer goods and capital goods lower down the chain of production. So too is a similarly false conclusion drawn with regards to altruism and self-sacrifice – that what may be good in one, specific situation is good for society as a whole; and so good, moreover, that the state should systematically force us all towards altruism and self-sacrifice. Let us now explore the reasons why this is false.

First, with particular, individual acts of kindness or generosity it is possible for a bystander to appreciate and form judgments concerning the variables that are weighed in the consideration of whether someone has performed a virtuous deed; the initial helplessness or the “worthiness” of the recipient; the magnitude of relief that the voluntary act of kindness provides; and the magnitude of at least the material cost to the donor. One can therefore form a personal judgment, based on empathy, of the positions of the particular giving and receiving parties as to whether the act of altruism is a good thing. On an economy-wide scale in a society of tens (may be even hundreds) of millions of people, however, it is not possible to form such judgments with any degree of specificity, and much blunter tools such as “income” are needed in order to judge who should be donors and who should be recipients. But such blunt tools tell us nothing about why, for example, someone’s income is low, whose responsibility it is and who should bear the burden of doing something about it. Moreover, there is no reason to suppose that someone who has a “high” income necessarily has cash to spare and does not have other commitments for those funds which the government wishes to redistribute – commitments which, even to others, may be valued as worthy, such as investing in his children’s education.

Second, in the long run massive transfers of wealth from the class of “haves” to the class of “have nots” does not benefit the latter in the long run. One of the most serious misconceptions concerning the ownership of wealth is that one must own it in order to benefit from it and thus only divesting wealth from those that have it and giving it to those that do not have it can ameliorate the plight of the poor and needy. What benefits the latter, however, is not the turning over of wealth to their hands so that it can be consumed and lost forever. Rather, what really hauls the poor up from the depths of despair is the investment of wealth in capital goods which are then able to produce more and more products and services at increasingly lower prices so that the poor can afford to buy them. We can illustrate this by adapting a well-known proverb: give a man a fish and he will feed himself for a day; invest that fish in a business that will produce fishing tackle that the man can afford and he will feed himself for a lifetime. The man in need never owned that original fish nor the capital goods that were produced from consuming it, yet it is clear that his life benefitted from its investment in a productive enterprise to a far greater extent than if he had ever gotten his hands on it directly.

Third, the very motivation towards altruism is most often dependent upon a close family or friendly relationship between donor and recipient where the welfare of the latter is of great importance to the former. Such a motivation is destroyed when your money disappears into a bureaucrat-run black hole. The result is that, as people lose their ability to spend their money in ways that they want, the motivation to producing wealth in the first place is destroyed. There is therefore less wealth to distribute anyway. Critics may, of course, argue that such a result is owing to the alleged “selfish” and self-centred nature of humans and that surely we – i.e. the state – has a duty to attempt to overcome this? There are at least two responses to this. First, it is part of the natural condition of humans that the primary ends and values that they hold are concerned with their immediate environment – that is, the welfare of themselves, their friends and their family; in other words, people whom they know, care about and have the ability to form empathetic judgments about. It is the stimuli from these sources that most potently determine our desires and choices. Everything else that goes on in the world is, for the most part, out of sight and out of mind, or at least very remote and can be brought to us only electronically through the media. But one does not even need to go that far, as most people are unlikely to even be able to appreciate the conditions, needs and desires of people in another neighbourhood in the same town – or even in the same street. People do, of course, devote themselves to causes that aim to help people far away about whom they may know very little; but these are specific causes towards which one may have a specific motivation. Wealth redistribution, however, aims at ameliorating hundreds, if not thousands of afflictions across many millions of faceless people. It is simply not possible for any human to form empathetic appreciations of all of those individual circumstances and, thus, neither will they be able to appreciate any kind of amelioration of these afflictions if they happen hundreds of miles away (this is before we get into any discussion of whether wealth distribution does, in fact, accomplish such ameliorations). Therefore, it is not possible for the typical human to motivate himself towards striding towards providing for a giant pot that aims to solve these problems, or at least not to the same degree he motivates himself towards providing for ends of his choosing. Moreover, we may ask whether a person with the ruddiest bleeding heart would, if it came to a choice, prefer to work towards contributing to the tax pot ahead of, say, caring for his sick and dying mother. Second, the very fact that wealth redistribution is forced (by the threat of imprisonment) rather than undertaken voluntarily does nothing to promote altruism in any way at all. Indeed, we might say that genuine altruism and selfless behaviour worthy of praise and recognition relies upon the fact that someone could have chosen, freely, to have done something “worthy” with his time and money. When I am forced to hand over my money, however, I have in no way “behaved” altruistically; in fact I haven’t really “behaved” at all – rather the money was simply taken from me. Further, rather encouraging any feelings of generosity the forced appropriation of my property it is likely to make me bitter and resentful and, moreover, to curb any desire to be generous with the remainder of the funds that I have left. To make matters worse, the welfare state does not leave the recipients of welfare spending as kindly and grateful beneficiaries who feel they were lucky to have avoided misfortune. Rather, the welfare state begets a sense of “entitlement” and dissolution of personal responsibility – that it is the state’s responsibility to provide for their needs and that they have a right to the state’s assistance. Ironically, therefore, the welfare state itself increases antagonism and selfishness rather than promoting their antitheses.

The attitude of selfless altruism can also be seen also in the elevation of those who devote themselves to so-called “public service” above those who compete in the allegedly greedy and grubby business of the private marketplace. Although positive views of politicians have soured considerably in the past generation, it is still widely believed that private industry is where people go to make lots of money to keep for themselves, while those who seek public office shun such squalid and base motivations and, with their visions of a “greater” society, can almost single-handedly make everyone better off without a thought of any benefit to themselves. Indeed, to the present author, it beggars belief that people are gullibly hypnotised by the illusion that all of their hopes and dreams are dependent upon a tiny minority, or even (when you witness the almost messianic reverence devoted to presidential candidates) a single person out of a society of millions gaining a job ahead of somebody else. It is in no doubt true, of course, that many people seek to enter politics with the desire, albeit the naïve one, to help people and to improve society. It may also be true that they could have amassed greater private fortunes by seeking employment in the private sector. Nevertheless, all political accomplishments (other than the few and far between measures that seek to roll back the interference of the state) necessarily produce a negative sum result – negative because what is given by government to one set of people must be taken by government from another, minus a cut to pay the salaries of the politicians and bureaucrats. This is before we consider the destruction of the incentives to create wealth that we outlined above. Even if, therefore, we stretched credulity and viewed politicians as truly angelic and selfless they would still not accomplish anything that would produce a net gain to society.

It is not the aim of our discussion here to suggest that a society distinguished by capitalism and free enterprise would suddenly create some kind of utopia where rank selfishness is without any negative consequences. Rather, it is simply to point out that, in the long run, the vanquishing of poverty is achieved by the investment of more capital goods in order to make more products affordable to people with the existing money that they earn themselves; not through giving them more money that is earned by and forcibly confiscated from somebody else. In such a society the high incidence of people needing the help of others would be prevented, not just cured. Nevertheless we might also note that it is a society that is highly prosperous and without a systematic welfare state that encourages rather than obliterates charitable endeavours. Overwhelmingly this is because people simply have more to give – it is no great mystery as to why most of the world’s great charitable foundations and societies originated in the nineteenth century, the era of the relatively most capitalistic progress and the least intervention by a formal welfare state. Ironically, it is the welfare state that has squeezed out private charity and genuine altruism from having any mainstream role in society. Additionally, however, in the absence of a compulsory so-called “social safety net” people rely on maintaining good relationships based on trust, reliability and selflessness with family and friends precisely so that they may be there for each other to cushion the consequences of the occasional unforeseen circumstance. Far from provoking any atomistic and individualistic existence freedom promotes and encourages a strong community and family spirit. If the virtue of altruism is to be nurtured then there cannot be a better place for it than there.

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“Capitalism – A Treatise on Economics” by George Reisman – A Review

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It is not often that the present author is moved to review any particular publication by a specific author, let alone one that was published nearly twenty years ago. However, Capitalism by George Reisman, at more than one thousand pages long, is the first major treatise that is at least related to the “Austrian” tradition since the publication of Murray N Rothbard’s Man, Economy and State in 1962.

Although Reisman is a contemporary of Rothbard and a fellow student of Ludwig von Mises, Reisman’s approach to economics is markedly different from either. Indeed, armed solely with knowledge of his pedigree one might be forgiven for wondering why more attention has not been directed towards to Reisman’s work from within “Austrian” circles. It is only after having read this treatise that one can see why. Although Reisman claims that Mises is his primary intellectual influence, there is very little of this treatise that could be regarded as distinctly Misesian. Rather, Reisman’s direct influences are the classical economists (especially Smith, Ricardo and J S Mill, upon whom he relies for support to an extent far beyond his reliance upon Mises) and Ayn Rand. Reisman specifically rejects the categorisation of economics as the science of human action, and prefers, instead, to regard it as “the science that studies the production of wealth under the division of labour”. He therefore willingly abandons any analysis of individual values, means, ends, and choices, and restores economic theory to the study of holistic aggregates; indeed we might say that his definition of economics, which views wealth as an entity possessing some kind of objectively determinable magnitude, demands such a restriction. Reisman positions the businessman, rather than the consumer, as the centre of the economic system, stating that consumers (as a whole) are largely dependent upon businessmen (as a whole) rather than vice versa. While, according to Reisman, consumers provide the direction of economic activity (i.e. the precise direction of resources to fulfilling specific industries), businessmen and capitalists are responsible for its extent, i.e. the limits of saving and capital investment. In other words, it is the decisions of capitalists that determine the extent of “economic progress” (a term Reisman prefers to “economic growth”) rather than those of consumers. A corollary of this is that production and producers are reinstated as the keystones of economic activity rather than consumption and consumers (there is at least an implication in parts of the treatise that production is good and proper whereas consumption is bad and wasteful, although this is much muted compared to the same in Reisman’s classical influences). Furthermore, it is clear that Reisman does not regard his approach to economics as a wertfrei science and, instead, believes his economic theory to be a rigorous promoter and defender of the capitalist system – an attitude that cannot be avoided by his definition of economics as the study of the accumulation of wealth under the division of labour, a division that he says is only possible under private ownership of the means of production. Thus, in Reisman’s world, a discussion of economics is a discussion of capitalism which, presumably, explains the book’s title.

What can we say about Reisman’s approach? Without beating about the bush we must state at the outset that Reisman, who is thoroughly acquainted with “Austrian” economics, has jettisoned a tremendous degree of sound theoretical understanding from the science. Although Reisman, who self-identifies as an “Austro-classical” economist, endeavours to restore to economics many of the (in his opinion) sound doctrines of the classical economists that were allegedly rejected following the discovery of the law of marginal utility and the backlash against Marxism, we must conclude that the result is something of a retrogression rather than a synthesis of two, hitherto quite disparate, schools of thought. In Reisman’s world, the achievement of all ends and their associated costs never advance deeper than the objective measurement of exchanges for money. He never advances any exposition of individual ends and subjective costs (indeed, he explicitly rejects the doctrine of opportunity cost). Hence the entire purpose of the economic system as serving the needs of individuals and the types of decisions that individuals must make in order to achieve these ends is missing, subsumed by the supposedly limitless need of man as a whole to accumulate “wealth” in perpetuity. In other words, Reisman’s restoration of the primacy of the production of “wealth” overlooks the fact that all production is ultimately aimed at providing for consumers and that it is the ends of consumers to which the economic system is geared. It is perfectly consistent to state, as does the wertfrei “Austrian” school, that the purpose of all economic endeavour is to provide for consumption while on the other hand remaining firm that the means of achieving this consumption can only be served by increased production. Therefore, while we can hold that the desire for consumption is the ultimate cause of economic progress, we can also state that production is the proximate cause. Thus, while Reisman’s categorisation of economic theories under the headings of either “productionism” or “consumptionism” – the former of which involves the promotion and encouragement of increased production as the means towards economic progress, the latter the promotion and encouragement of increased consumption – provides an instant and convincing cognitive aid, it obscures the clarity afforded by this insight of the “Austrian” school.

Furthermore, Reisman’s repositioning of the capitalist/businessman as the driver of economic progress relies upon capitalists providing the bulk of investment funds, i.e. that it is the consumption/saving decisions primarily of businessmen that determines the extent of economic progress. He argues that the wages of labourers do not provide a significant source of investment funds and are usually consumed either immediately or are saved in order to purchase durable consumer goods such as housing or automobiles. Any investment saving that labourers do happen to undertake is likely to be wholly disinvested at retirement, thus netting out the saving of younger generations. However, there is no reason for Reisman to think that this this must be the case. It is just as possible for investment funds to come from the savings of everyday individuals that are then lent to businessmen for them to deploy in their enterprises via a conduit such as bank savings accounts (and such a view would greatly undermine any opinion that capitalism keeps the masses in servitude as wage labour). The distinctive role of the businessman is that he provides entrepreneurial talent in order to generate economic progress by directing those saved funds to where they are most urgently desired by consumers. Yet Reisman’s treatise lacks any extensive theory of entrepreneurship and only passively recognises the need for superior decision-making in order to fulfil the ends of consumers. This lacuna in Reisman’s theory means that in order to position the businessman as the driver of economic progress he has to paint him as the primary provider of investment funds. This contrasts greatly with Reisman’s mentor, Mises, who makes entrepreneurship a hallmark of Human Action, thus giving us an insight into the economic significance of the businessman that extends far beyond the fact that he simply didn’t consume his wealth. (Some of Reisman’s views on what determines an individual’s consumption/investment preferences, which inform his theory here, are also incorrect and we will explore these below). In any case, however, Reisman seems to support his theory through a blurring of economic categories, such as labourers, consumers, capitalists, etc. (something which, irritatingly, is done all too frequently). In reality, all individual people in the economy participate in different categories at different times – a man is clearly a labourer when he goes to work, a consumer when he spends his wages in the shops, and a saver when he buys a corporate bond. However, when we are discussing, for the purposes of conceptual clarity, the roles of individuals in these economic categories, we isolate those specific roles from other categories and thus we always talk of labourers qua labourers and consumers qua consumers, etc. So even if it may happen be true that the particular people who are businessmen are responsible for the greater part of saving and investment, businessmen are consumers too and considering them as consumers qua consumers it is their decision to refuse to consume their wealth today in favour of accumulating greater wealth for consumption tomorrow that provides the source of investment funds. It is therefore true to state that it is the choices of consumers who determine both the direction and extent of economic progress. Moreover, as Mises also recognises, any consumer who is currently a wage earner can transform himself into a businessman, entrepreneur or capitalist by saving and investing his wages (while, equally and oppositely of course, any businessman who decides to consume his fortune may end up as a wage earner).

Finally, it is one thing to state that the preoccupation of the economic activity of any one (or even most) individuals may be with the accumulation and augmentation of their own wealth. But it does not follow from this that the science of economics itself concerns the accumulation of wealth. Animals preoccupy themselves with the need to attain food and shelter but this does not mean that the focus of zoology is with the achievement of these things.

Examining Reisman’s treatise on its own, non-wertfrei terms as a rigorous defence of the capitalist system, much of its earlier part is a detailed offence against the fallacies of socialism, collectivism, interventionism and environmentalism (and later, Keynesianism and inflationism). These devastating, if often heavy handed, critiques are likely to be viewed as by Austro-libertarians as Reisman’s greatest achievement in this work, even if some of it was previously published as The Government Against the Economy. A specific and lengthy chapter is possibly the most passionate assault against the ecology movement, a chapter that could easily be expanded and published as a separate treatise (Reisman’s stress of the anti-human zeal of environmentalism resonates with that of environmentalists, such as former Greenpeace Canada President Patrick Moore, who have become disillusioned with the movement). Reisman’s explanation of various forms of government intervention, such as price fixing, with reference to specific notable examples such as the oil recession of the 1970s, in which he traces out all of the effects (and effects of alternatives to) government meddling have rarely been matched. Yet much of the remainder of Reisman’s exposition does not in fact read as a promotion or a defence of the capitalist system; rather it is more akin to an aggregative, accountancy-laden explanation of what the capitalist system does, much like a description of some giant machine that swallows up inputs measured in numbers and churns out some kind of output, also measured in numbers. Reisman categorises an endeavour as productive according to its ability to earn money voluntarily through exchange. Hence all government functions, relying upon taxation, must necessarily be classified as consumption and not production. In other words, government can never produce and must always be a leech on the genuinely productive, capitalist system. Moreover, his excellent critique of socialism recognises that socialism must entail tyranny and a replacement of the ends sought by individuals with the ends sought by leaders. However, Reisman’s aggregative, accountancy approach never builds upon this insight. In the depths of the latter half of the treatise one almost forgets any connection between these accounting entries and how the capitalist economy serves the needs of individual people. One of Reisman’s stated aims in the treatise is to show how a proper understanding of the capitalist system should prevent one from feeling any kind of “alienation” from or subjugation by the capitalist system – something which Reisman comes closest to achieving through his analysis of the division of labour. Yet in the main it would appear that the Mises-Rothbard approach of detailing the economy as a network of bilateral, voluntary exchanges between individual people striving to meet their own needs through voluntary co-operation (and how these disparate and often conflicting goals and purposes nevertheless mesh into a harmonious, productive society) is much more conducive to achieving this than is Reisman’s aggregative, accountancy method. While it is true that the ability of capitalism to manifestly increase the standard of living and the degree of material wealth lends it a tremendous amount of moral weight, we can suggest here without too much elaboration that any rigorous defence of capitalism and, moreover, freedom can proceed only by focussing on the primacy of the needs of each individual person, not all of which can be measured or attained though objectively viewable exchanges for money. This omission in Reisman’s work also weakens the distinctly economic flavour of this treatise, as individual choices, desires, wants, decisions and actions do not seem to matter.

Turning now to some of Reisman’s theoretical contributions to the science of economics, there are two that stand out in particular. The first is his attempted demolition of the “conceptual framework” of the Marxist exploitation theory by asserting the primacy of profit rather than of wages. In Reisman’s view, critics of Marxism, including Böhm-Bawerk, have accepted the categorisation, originating with Adam Smith, of profits paid to capitalists as deductions from wages, and have sought explanations in order to justify this deduction. Reisman, however, asserts that wages, paid to labourers, are, in fact, a deduction from profits. If profits are calculated by subtracting business costs from business revenue, it is clear that if a person undertakes an enterprise to achieve, say, 100 units of revenue then every monetary outlay he expends in order to achieve that 100 units of revenue must count as a deduction from it. The fewer costs he has the more profit he is left with. Thus it is profits that represent the primary economic income, not wages. It is conceivable for the economic system to have profits but not wages in the event that every individual person operated as a sole trader and employed no other individuals. If, however, a businessman hires labourers to assist in his enterprise, the wages he must pay to these workers for their assistance are deducted from the ultimate sales revenues. Therefore, according to Reisman, wages only appear in the economic system on account of the help that other people provide to a businessman’s enterprise, and their help stakes a claim on his revenue. Thus it is wages that are deducted from profits, not vice-versa.

Whatever the merits of this view we must conclude that, to the dyed-in-the-wool Marxist, it is likely to be beside the point. The source of contention in the exploitation theory is that the businessman doesn’t do anything and simply leeches off the productivity of the worker; in other words by hiring labourers the businessman simply abdicates any participation in the act of production yet still gains an income. Reisman himself provides the answer to this by pointing out that labour is not the only source of productivity in a division-of-labour society and that it is, in fact, decision making, risk-taking, management and oversight that are also essential – in other words, entrepreneurship. And yet, as we noted, any extensive treatment of entrepreneurship is precisely what is missing from Reisman’s theory. Therefore, it must be submitted that an understanding of entrepreneurial profit and loss and the insulation of the labourer from business risk coupled with the time preference theory of interest provides a more effective demolition of Marxism than the primacy of profit theory which, if correct, provides only additional ammunition for it.

This brings us to Reisman’s next theoretical contribution which is his net-consumption/net-investment theory of aggregate profits, profits which he tries to explain in an environment of an unchanging supply and flow of money. The attempt to explain profit in terms of physical goods is relatively straightforward. Goods, of course, can increase or decrease and thus there can be absolutely more (profits) or fewer (losses) of them across society as a whole. We can also understand clearly, across the time structure of production, how the consumption of a smaller quantity of physical goods can be foregone today in order to produce a larger quantity of goods tomorrow. This is not so when it comes to accounting for profits and losses in terms of money which is assumed to be fixed in supply and flow. For every transfer of money that represents a credit to ones businessman’s income must show up as a corresponding debit to another businessman’s costs. Hence, while some individual businesses would earn profits and others would suffer losses, all profits and losses across the economy as a whole would net out and hence any question of aggregate profit would be impossible. The only method of solving this conundrum is to somehow, on the societal balance sheet, create a credit entry to income/equity without a corresponding debit entry to costs. It is the explanation of how this is possible that Reisman sets out to achieve.

The first element of aggregate profits – “net consumption” – derives from the fact that business revenues from consumption spending by labourers (and, as we noted, Reisman categorises all spending by labourers as consumption spending) shows up also as a business cost in the form of wage payments. Therefore, revenue and cost cancel each other out on the societal income statement. Similarly, business to business spending will be counted as both an equal and opposite revenue and cost and will net to zero. However, “the payment of dividends by corporations, the draw of funds by partners and proprietors from their firms, and the payment of interest by business firms” (which Reisman regards as “transfers”) to business owners, which provide the latter with a source of consumption spending, does not show up as a business cost yet does, once spent, show up as a business revenue. Thus the rate of profit is determined solely by the desire of the capitalists to consume. This element of profit has, Reisman claims, the ability of providing continued aggregate profits in an environment of unchanging money. For example, if the volume of spending is 1000 units of money each period, business costs could be 900 while business revenues could be 1000 and profits 100 in each and every period. (Reisman uses similar reasoning to explain how the rate of profit is increased by taxation as all taxation is consumption spending). The second element, “net investment”, derives from the fact that business spending on assets to produce business revenue are capitalised as assets and only later depreciated incrementally as a business cost. Thus, in an environment where the volume of spending is the same, business revenue exceeds business cost. For example, if 100 units of money are expended on capital assets, 800 units are spent on business costs, and there are 1000 units of business revenue, profits would be 200 as the 100 units spend on capital assets are not charged as a cost. Reisman believes that net investment provides a finite outlet for aggregate profit because, eventually, depreciation charges from assets previously capitalised will equal the value of new assets capitalised. For example, if 100 units of monetary spending on assets per year are capitalised and then depreciated at an uncompounded, annual rate of 10%, depreciation charges will be 10 units in year one, 20 units in year two, 30 units in year three, and so on until, in year 10, depreciation charges will exactly equal the 100 units of additional investment and so net-investment will provide no source of aggregate profit in that year. Thus, Reisman believes, only net consumption is capable of providing continuous, aggregate profits period after period. Net consumption and net investment are, however, joined at the hip. Reduced net consumption provides increasing funds for net investment to be capitalised on the balance sheet and charged as business costs only at increasingly remote points in the future.

What can we say about this theory? It should not be surprising to “Austrians” that Reisman’s theory is based upon net-consumption and net-investment as it those elements that are determined by the “Austrian” theory of time preference, which affects the rate of interest. (What Reisman refers to as “profit” is what most “Austrians” would refer to as “interest” – Reisman offers no explicit distinction between entrepreneurial profit and loss on the one hand and what “Austrians” would regard as interest on the other). Yet Reisman regards his theory as standing in opposition to the time preference theory and, moreover, the older productivity theory of interest. However, Reisman’s approach, characterised as simply a description of accountancy practices and the summation of money flows, does not challenge the time preference theory at all. The primary question of profit and interest that is answered by this latter theory is why do businessmen not impute the full value of the final product to the factors of production. In other words, why, even after businessmen are compensated for their managerial or oversight activities as a factor of production, is there always a further residual surplus that is not eliminated by competitive bidding amongst entrepreneurs? Why is there, to use Reisman’s terminology, a “going rate of profit” at all? The net-consumption/net-investment theory, while explaining that rises in net consumption will increase the rate of profit while reductions in them will lower it, only really explains how, from an accounting point of view, profits are possible. Reisman offers no extended treatment of the motivations of capitalists in paying (and of labourers in accepting) a sum lower than the total of business revenues and thus it is difficult to regard this as a distinctly economic theory. A more convincing explanation of his theory would detail how, with decreasing time preference, more funds are advanced to factors of production yielding revenue in the future, thus diminishing net consumption and the rate of profit, while these expenditures will be capitalised at increasingly higher amounts, depending on the time period when they come to fruition, relative to the ultimate business revenue that is earned. Thus Reisman’s accountancy-laden approach would, in this way, be fully reconciled with the “Austrian” approach to profit, or, rather, to what “Austrians” would call interest.

When Reisman does address the motivations that determine net-consumption and net-investment he does so erroneously. Reisman defines time preference as the determinant of “the proportions in which people devote their income and wealth to present consumption versus provision for the future.” It is Reisman’s link between this posited desire to provide for the future and net-investment that causes him to declare that net investment can provide only a limited contribution to net profit. To quote: “As capital and savings accumulate relative to income, the need and desire of people to increase their accumulated capital and savings still further relative to their income diminishes, while their desire to consume their income correspondingly increases”. In other words, the more saving and capital people possess the more they have provided for the future and thus productive expenditure will fall and consumption will rise, choking off net investment in the form of further additions to the asset side of the balance sheet. Thus depreciation charges begin to equalise new investments and aggregate profits from net-investment begin to fall. This view, however, is mistaken. Time preference has nothing to do with the desire of people to provide for the future. The need to provide for the future is always a present end just like any other and could be achieved by plain saving rather than investment. Time preference, rather, is the rate at which individuals prefer a larger quantity of goods available at some point in the future ahead of a smaller quantity of goods available today. It is perfectly possible for people to continue to invest sums of capital that will not produce consumer goods for well after they are deceased. Indeed, this is precisely why people have inheritances to bequeath. Many of the buildings, factories and infrastructure we have today were created not in our own lifetimes but were handed down to us from past generations. And it is further possible that capital accumulation and technological progress, which Reisman himself stresses enhances the ability to produce capital goods, will enable the production of capital goods that last further and further into the future. People would not even need to create capital goods that last so long with the purpose that they do so – in other words they could be perfectly limited in their own time horizons and yet still produce capital goods that yield a product well after the elapse of this time horizon. Let’s say, for example, that the current rate of time preference means that the produce from all assets appearing after thirty years hence is fully discounted to zero. In other words, only what the assets can produce in the next thirty years is valuable to present persons. If a capital good was created that could yield produce for sixty years, after the elapse of each year, another year’s discounted produce would be capitalised as this year is drawn into the thirty year time horizon. Therefore, such assets will provide a continued source of credits to business equity (and, thus, profits) without corresponding business costs. This is precisely the case with some of the most valuable patches of urban land which, for all intents and purposes, will go on producing well beyond the lifetimes and time horizons of any living person. Thus there is no reason for net-investment to be so limited in its contribution to aggregate profits in the environment of unchanging money. Moreover, we can see in this way how accumulating, aggregate profits that are capitalised for longer and longer periods is the hallmark of an economically progressing society – one where more and more capital is invested for longer – while the opposite, aggregate losses, represents retrogression through capital consumption.

Finally, as we noted above, there is no reason to discount saving by labourers a source of investment funds. This would divert spending from business revenue as the funds would be lent to businesses who would then spend it on “productive expenditure”. Without any corresponding business revenue the rate of profit would fall. (Thus we can see why increased funds that are made available for lending must be made at increasingly lower rates of interest).

There are one or two further disagreements we can cite here. First, “Austrian” business cycle theory, the jewel in the crown of “Austrianism”, is never explained at length and instead takes its place in a wider treatment of the effects of inflation. Second, his treatment of neoclassical price theory is too aggregative and does not explain how individual bidders and suppliers bring about a harmony between the quantity demanded and the quantity supplied. Third, as in his critique of the time preference theory of interest, Reisman often perceives differences or disagreements where there are none, such as that alleged between his productivity theory of wages and the marginal productivity theory of wages, the latter of which he describes incorrectly. And finally, in spite of having been the translator of Mises’ Epistemological Problems of Economics, Reisman has little to say concerning method – something which perhaps descends from his rejection of economics as the science of human action, which underpins Mises’ methodological dualism that divides economics from the natural sciences.

Overall, therefore, the question of whether Reisman’s approach to economics has successfully synthesised the “Austrian” and classical schools, and, moreover provided a progressive outlook for the science of economics must, regrettably, be answered in the negative. Rather, Reisman’s positive economic theory in this treatise comes across more as a restatement and re-polishing of classical economics (with some corrections to that school of thought), peppered with insights from neoclassicism and the “Austrian” school. Reisman’s rejection of the primacy of human action as the subject matter of economics has been at the expense of not only losing a great deal of theoretical understanding in the wertfrei science that this affords, but also weakening any positive promotion for capitalism and freedom.

Nevertheless, while this review has been mainly been critical of Reisman’s positive economic theory, we must end by celebrating the fact that our author has, in this treatise, many great things to say concerning socialism, environmentalism, interventionism, inflationism, Keynesianism and all other manner of false doctrines rejected by “Austrians” and libertarians alike. What Reisman has put to paper here are among the finest critical analyses of these areas ever written and, even if one cannot agree with Reisman’s specific, economic outlook, these contributions alone place Reisman in the top rank of economists whose work should be studied avidly.

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The Myth of Overpopulation

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Overpopulation, either locally or globally, is often blamed on a number of apparent problems from the shortage of particular (usually “essential”) resources all the way up to the outright poverty of entire continents. Although few governments, most notably the Chinese, have enacted any strict policies in order to control their populations (except with regards to immigration), factoids such as the allegation that, if every single human wanted to enjoy a Western lifestyle we would need something like a dozen earths, attempt to create an unwarranted degree of hysteria.

The myth of overpopulation rests on the belief that humanity is akin to some kind of cancer which, as it grows exponentially, devours a fixed or arithmetically growing pool of resources that must be shared between everyone who has been unfortunate enough to have been born. This would have been the case in a hand-to-mouth society that preceded capitalism and the division of labour. There was effectively no production and the birth of each individual person constituted merely another mouth to feed. In other words, an increase in population led to an increase in demand for consumption without any corresponding increase in production, thus putting pressure on the existing stock of resources that had to be shared by everyone. Nevertheless, when it comes to shortages of goods in local markets today we can surmise that even if there was a fixed or otherwise relatively limited pool of resources that everyone had to share we couldn’t pin the blame for shortages on such a fact. In a free society, a particular good might be very expensive but it should never be the case that we cannot find anything. As the population increases the price of resources would rise and thus choke off demand for the least valuable uses. Shortages, rather, are always the result of government price controls that try to create the illusion of abundance without the reality, decimating the current supply and obliterating any incentive to produce more. That aside, however, the blatant reality for a capitalist society marked by the division of labour is that there is not a fixed or arithmetically growing pool of wealth and resources, and that the whole purpose of such a society is to grow, exponentially, the amount of wealth that is available. Indeed, as we shall see, humanity has succeeded in this endeavour to only a fraction of its capacity.

When the first human being trod the virgin soil of the earth, he found himself in a situation of almost unrelenting poverty. Mother Nature, as anyone trapped for an extended period of time in the wilderness has discovered, is far from a kind host, providing very little (except air to breathe and fruit on wild trees) by way of resources that can be consumed immediately for very little effort. Yet all of the matter contained in every resource that we enjoy today – buildings, cars, refrigerators, televisions, computers, clothing, medicines, and so – was, give or take a little, right there at the beginning of the world’s existence. Strictly speaking, no human being has ever created anything – rather he has merely transformed matter from one thing into another. So why, if all this matter was there from the very start, weren’t these wonderful things available to our first human? The reason is, of course, that a human must apply his labour in order to change the matter available in the world into useful resources that fulfil his ends. Yet the work of one man with his unaided body alone was not sufficient to create all of the wonderful things that we enjoy today. Indeed, it might take a single human being an entire day to hunt or catch enough fish for just one meal before the process must be repeated the following day. How can this be limitation be overcome?

The first answer is quite simply the very bugbear that is complained about – an increased population. A greater number of humans can together lift and carry a far greater amount than one man alone. Several or many men building a house would accomplish the task in a far shorter time than one man alone. More importantly, however, the widening of the division of labour as the population grows ensures that production stays ahead of population growth. Additional humans constitute an additional demand for consumption – ten humans may require ten houses whereas one human would require only one. But the fact that these men are also producers means that each can now fill his day by specialising in a particular task. One man, devoid of the ability to specialise, may take a year to build one house and he would have to undertake every single activity related to the building work on his own. With ten men, however, two may specialise in lumber felling, another two in transport, some in building, and the task of one the men may be solely to produce food and other supplies for the men doing direct work on the houses. The result of this is a greater degree and concentration of knowledge and an increased perfection of technique and expertise in each task. The resulting time saving means that, whereas one man would take one year to build one house, ten men would less than one year to build ten houses. Thus the rate of house building overtakes the rate of the increase in population. We therefore see that the quantity of labour has a marked effect on the accumulation of wealth and the transformation of matter into useful economic resources, provided that a society is distinguished by capitalism and the division of labour. To further emphasise this point, it is the twin effect of the consumption demand of the additional people coupled with the fact that these people are also producers that makes an ever increasing widening of the division of labour possible. If ten houses have to be produced then it might not be possible for one man to concentrate on any single task in order to fill his day; he might have to work in installing the wiring, the plumbing and the wallpaper. If one hundred houses have to be built then he might be able to concentrate on plumbing alone. If one thousand houses are built then he might be able to specialise on plumbing just bathrooms whereas someone else works on plumbing kitchens, for instance. The ever increasing volume of demand from an increasing population therefore begats an ever increasing division of labour when that population is put to work, and with it come all the benefits of specialisation and expertise.

Second, although it is flexible, the human body is a relatively weak and feeble creature, capable of moving and lifting only a tiny amount of matter at any one time. Regardless, therefore, of the quantity of labour available we can see that fifty men carrying sacks on their back would fail to transport as many goods in as short a space of time as, say, a railway locomotive hauling some wagons. The power of labour is therefore a further limiting factor on the number of resources that can be enjoyed. This power can only be increased by accumulating ever greater amounts of capital. All such goods – machines, tools, vehicles, and so on – are, fundamentally, merely extensions of the human body that enable its labour to accomplish more than it otherwise would. A man with an axe can fell a greater a number of trees than a man whose body is unaided by this implement. For centuries, humans could not labour to extract oil from the ground and refine it into petroleum. Yet with the capital available to construct drilling apparatus, oil rigs and refineries this is no longer the case. Indeed, most direct labour today is not concerned with the production of consumption goods at all. Rather, it is devoted to the production, augmentation and improvement of capital goods. In short, it is directed towards increasing the power of labour.

What we begin to see, therefore, is that it is not necessarily the scarcity of resources burdened by an ever increasing population that is the real obstacle to the growth of wealth and economic progress; rather, it is the scarcity of labour and the power of that labour as represented by the stock of capital goods which serve to enhance it. Goods are, to be sure, the original source of scarcity. We apply our labour only because the available quantity of a given resource exists in insufficient supply relative to the ends to which it could be devoted. Yet the power of our labour is a significant compounding factor on the degree of scarcity that we must endure. My body may only have enough capability in order to fetch a few buckets of water from a nearby stream – yet more than three quarters of the globe is covered in water. It is because the power of my labour is relatively weak that most of this water is either too far away or of insufficient quality to serve me any practical end. Only be improving the power of my labour – by being able to move greater distances, lift heavier volumes and develop processes of purification – could I hope to enjoy more water.

Such a circumstance is not limited to such a clearly abundant resource such as water. The entire world, right from the depths of the core of the Earth all the way up to the stratosphere is densely packed with matter. Our labour has only ever been able to harness a mere fraction of these resources, mostly skimmed from the Earth’s crust. As time goes on however, as population increases and with it capital accumulation and the widening of the division of labour, we harness the ability to tap into more and more of these resources. Hence, mines and oil fields that were once too costly to drill are now drilled (and, indeed, are more productive than the most productive fields of yesteryear); such mines could eventually reach depths of miles rather feet; and valuable elements can now be extracted from more complex ores. There is no reason to believe that this process cannot continue. Even today, the sea contains traces of elements such as gold which, in their totality, amount to a far greater quantity than all of that ever mined from beneath the land – 20 million tons compared to 175,000 tons respectively. Yet our labour is insufficient to take advantage of this fact. Indeed the sea remains one of the greatest untapped resources available to us. Unlike private land settlement which led to a prosperous agriculture and exploitation of the land, government has pretty much closed off areas of the sea to the possibility of settlement, preventing the development of a full-fledged aquaculture and robbing us of the ability to exploit this wonderful gift of nature.

It is for this reason – the increasing power of labour – that all predictions of resource depletion as a result of overpopulation (not to mention the ridiculousness of disingenuous “facts” such as the allegation that twelve earths are required to give everyone a Western lifestyle) – have failed. In the well known Ehrlich-Simon wager, for instance, economist Julian Simon made a bet in 1980 with biologist Paul Ehrlich that the price of five metals of Ehrlich’s choosing would have declined in price ten years later – indicating increasing availability of resources rather than increasing scarcity. Simon won the bet outright, in spite of a population increase of 800 million during that decade. Other peddlers of the overpopulation thesis, such as Albert Allen Bartlett, have labelled the views presented here as “cornucopian” or “the new flat earth” – mythical, whimsical and not based on any serious scientific understanding. What these people share in common is that they simply do not account for the future economic viability of production from what are currently viewed as uneconomic resources. For the clear result is that as population has increased we have been able to apply more labour with a greater power of that labour to a greater number of the world’s resources in ways that we were not able to do before. The ultimate goal, needless to say, would be something akin to molecular engineering – the ability to transform worthless matter such as dirt, trash or even air – into valuable resources. The futuristic “replicators” on TV shows such as Star Trek can apparently conjure goods such as a fully cooked meal out of thin air; yet the science behind would not be too difficult to imagine. We have already harnessed the ability to transform matter into energy through processes such as combustion. We can envisage that one day we could do the reverse and transform energy into matter. An inedible sack of coal could end up as a fabulous meal on your dining table.

Overpopulation does, however, give the appearance of being a problem as a result of government interference. Above we noted above, additional consumption demand represented by an increasing population serves in increase wealth provided that the additional population are also producers and therefore will act so as to widen the division of labour and the accumulation of capital. Yet the actions of government serve to swell consumption while choking off production. Pressure on resources and industries therefore arises from government control of these things. Britain’s decrepit healthcare, energy and transport systems are bursting at the seams as a result of demand and increasing costs, a direct result of inefficiency combined with prices that are too low which serve to swell consumption demand in these industries. Government pays its citizens to produce babies and thus increase the population, while an increasing immigrant population today is induced not by the freedom to pursue one’s own goals and to better one’s own life for oneself through hard work and productivity, but, rather, by generous welfare states. All of this causes a rising population that contributes to consumption but very little by way of production. In other words, if you set up the economic system to make consumption as care free as possible and production as costly as it could be then the excess of consumption and a deficit of production will give the illusion of overpopulation. Government therefore begins to look on its citizens as pests and parasites, wanton consumers of precious resources that are desperately running out. Yet the problem is not with resources; rather the problem is with the ability of the government to swell the ranks of consumers and its inability to increase the power of labour, together with its incessant stifling of anyone else who tries to do so. Every additional person who is born in the world is another mouth to feed, another person who will demand the consumption of resources. Yet that person could also be a producer who will widen the division of labour and help to grow the capital stock. Government succeeds only in breeding the consumer in a man while totally destroying in him the producer.

Turning to a related aspect, the fact that whole continents, such as Africa, are mired in poverty has nothing to do with the allegation that the richer countries refuse to “share” their wealth. If the richer countries did not have their wealth, it would not mean that poorer countries would have more – the wealth simply would not have been produced, period. Indeed, whatever wealth that does exist in poor places is often the result of Western enterprise or outright gift. These places do not lack resources; rather, they lack the institutions of private property and voluntary exchange that enable capitalism and the division of labour to flourish, and with them a greater command of labour over resources. Indeed, many of these countries are proceeding down the wrong path by setting up welfare states, trade unions and Keynesian economic (mis)management overseen by democratic institutions which are, of course, the very things that are destroying the standard of living in the West. The West achieved its greatest accomplishments in a pre-democratic, pre-welfare state and pre-union age before Marxism and socialism succeeded in leading the onslaught against capitalism and private property.

What we can see, therefore, is that overpopulation is not a fundamental economic problem. It is only an apparent problem in a society that is hampered by government intervention and the stifling of private property rights, the division of labour and capital accumulation. However, even if population started to put pressure on resources when, in a capitalist society, we reached the (unlikely) point where we were regularly turning over all of the matter in existence to meet our ends – we would still conclude that this would not be a problem worthy of any serious attention. Or at the very least, it would certainly not be a problem that merited any centralised, government control. For as population increases relative to the supply of resources, the latter become more expensive. The cost of raising a child therefore itself becomes prohibitively more expense and people would need to choose between devoting ever more valuable resources to themselves or to their children. Indeed one of the first of such resources to exert this pressure may well be land, assuming we have not, by then, invented the ability to produce more of it artificially. We could, of course, build upwards and end up living in skyscrapers but people may prefer to breed less and have more land available to themselves rather than to their children. Such choices may serve to relieve, naturally, any exponential growth in population figures. Even if, though, people desired to keep on having more children it would only indicate that they prefer the company of children to enjoying more resources for themselves. There is no objective standard by which to complain about the result of such a choice. Nevertheless, even when it comes to the question of land, humanity is currently so far from this point that we hardly need to bother mentioning it, except to try and concede to the overpopulation thesis its best possible case.

The illusion of overpopulation is exacerbated today by a fundamentally antagonistic attitude from what Murray Rothbard called the “professional foes of humanity”, the environmentalist movement1. Apart from this movement’s interference in one the most crucial markets for capital accumulation – the production of energy – the fundamentals of their philosophy view the earth as inherently beautiful and sacred, and any of humanity’s attempts to exploit it as sacrilege. Such a view is radically anti-human and can only hold that the problem with the Earth is that there are too many of these stupid, dirty, polluting, and wantonly consuming human beings. Given the influence that this movement holds it is no small wonder that such thinking permeates into more mainstream views. That aside, however, we can conclude from what we have learnt here that humans need not fear increases in population. What they should fear, however, is their government turning additional people into spoon fed eaters with shackled hands – consumers who cannot produce. It is this fact that puts a very real pressure of resources. It is therefore not overpopulation that is the real problem but, rather, “over-government”.

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1Murray N Rothbard, Government and Hurricane Hugo: A Deadly Combination, Llewellyn H Rockwell Jr, (ed.), The Economics of Liberty, pp 136-40.

Economic Myths #11 – The Mixed Economy

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The world’s political systems today are, generally, neither fully despotic on the one hand, nor are they completely anarchical on the other. Instead most of us languish under so-called “social democracy”, a curious mixture in which a degree of sovereignty in the form of voting rights reside in the citizenry while political leadership and control remains distinct in the form of various functionaries such as Presidents, Prime Ministers, Congressmen and Members of Parliament. A libertarian might contend, of course, that such a social democratic system is worse for individual liberty than a dictatorship or monarchy, but the important point is that the ideological extremes have been blended into a kind of soup which is, at least from the de jure point of view, really neither total freedom on the one hand nor total despotism on the other. In exactly the same way, neither do our economic systems (which amount to pretty much the same thing as political systems) represent any ideological purity. We are neither fully capitalist nor are we completely socialised but, rather, have to put up with some kind of “mixed” economy with capitalistic and socialistic elements.

Although the relationship between economic and political systems is one joined at the hip, the justification of social democracy on the one hand and of the mixed economy on the other appears to come from different directions. Democracy, rightly or wrongly, is believed to a good and noble thing in its own right – a positive and independently justifiable improvement over any other option. The mixed economy, however, appears to be based on little more than the intellectually slothful adage that “the truth lies somewhere in the middle”. Capitalism, it is alleged, while bringing massive economic growth and improvement in the standard of living, leads to unstable business cycles and encourages greed, selfishness and extensive inequalities in wealth and income. Socialism, on the other hand, may make things “fairer” and more equal yet it totally decimates the productive capacity of a nation and the standard of living stagnates or even reverses. The “correct” system “must”, so the argument goes, lie in between these two points, somewhere that can seemingly take the best of both systems while avoiding the alleged pitfalls. Hence we end up with the mixed economy.

The first question we might as well ask when tackling this fallacy is that if we adopt a position somewhere in between these two alleged extremes what argument is there to suggest that we will end up with the “best” aspects of each system rather than the worst? In spite of the socialistic element income inequality and wealth concentration in the hands of a few elites seems to be worsening, not getting better; and in spite of the capitalistic element we have failed to have any meaningful growth since 2008. May be it is the alleged good parts of each system that are cancelling each other out and not the bad? The fundamental flaw, however, is that the assessment of the characteristics of capitalist and socialist economies that identifies their good and bad aspects are partly wrong and it is the wrongly diagnosed parts that are exaggerated in making the case for a mixed economic system. The good aspects of capitalism, private property and free exchange – such as economic growth and marked increases in the standard of living – are, as we know from “Austrian” economics, true; the bad aspects, on the other hand – selfishness, inequality, greed, the business cycle, and so on – are largely false or misstated. Capitalism does not encourage anyone to be greedy or selfish at all – it just gives you the freedom to be as greedy or altruistic as you like, provided that you fulfil those ends through voluntary trade and do not engage in outright theft or fraud. What opponents of capitalism don’t like is that people, when set free, usually choose to pursue their material welfare as the first priority, while also overlooking the fact that the resulting productivity usually reduces poverty anyway. Even if it didn’t, however, it confers upon people the wherewithal to be more charitable out of choice and it is no mystery that many of the great charitable foundations – such as the Salvation Army, the YMCA, the Scout Movement and the Rotary Club – were founded in the nineteenth century or early twentieth centuries, the relatively most capitalistic period in history. Moreover, the business cycle, as we know, is not an inherent feature of a free market economy, but is caused by credit creation, something that is only sustainable with government and central bank sponsorship. Yet when justifying the “mixed” economy it is these bad aspects that are cited and emphasised in an attempt to cajole people into accepting a blended economic system. Turning to socialism, we know that such a system would obliterate all productivity and the standard of living would sink far below that to which we are now accustomed. Its bad aspects are, therefore, all true. Yet the good aspects – greater equality, fairness, and anything that can be categorised under the current, in-vogue term of “social justice”, are all patently false. Socialism does not create any equality at all; it does not mean that every portion of wealth in existence will be carved up into equal shares for everyone to then enjoy. Instead, it transfers the power over whole resources from private producers, who must maintain their ability to satisfy consumers in order to retain that privilege, to politicians and bureaucrats. Nationalising an industry does not give you, the average citizen, any greater access to the goods and services tied up in that industry. Rather you are left even more at the bottom of the heap than before as the political lords and masters decide what that industry will produce, what prices you will pay, what level of service you will receive and you are stuck with whatever they decide to give you – providing that the inefficiency and waste of state run industries has anything left to give. The very reason why property rights and ownership exist is precisely because there is no agreement on how resources should be used. This problem exists under socialism as it does under capitalism and one person’s decision must, at some point, overrule all others; any equal “voting” influence that you might have in this regard may be restricted to a one off, catch-all election every four or five years and in the meantime you have to suffer whatever it is that the electoral victors throw down from their table. Under capitalism, however, your voting influence is felt all the time in a highly specific manner through your spending habits. If a producer fails to produce what you want at a price you can pay he loses you there and then. Not so under socialism where you have to put up with whatever the upper elite, controlling all resources, decides will be produced. Furthermore, providing social safety nets and welfare states in pursuit of some kind of “social justice” does not result in a society that is more caring and sharing. If anything, the adage “from each according to his means to each according to his needs” completely disintegrates any moral fervour. By separating individual productivity from individual reward, wealth creation is turned into an stockpile to which a person contributes that which he is able according to his “means” then takes out according to his “needs”. Unsurprisingly, every person seeks to minimise the amount he has to put in through toil and sweat and maximise what he can take out in goods and services that he can sit back and enjoy without effort. This results in a population that fails to cultivate its talents towards increasing wealth such as hard work, responsibility and self-reliance and replaces them with characteristics that make them needy and pitiful, with an added layer of laziness, corruption and freeloading. This is precisely the problem faced by our bloated welfare states today and why they are completely bankrupt – demand has swollen to such an extent while supply has been hopelessly dwindled. None of this is exactly the antidote to “greed” and “selfishness” that advocates of the mixed economy might expect. Additionally, the resulting scarcity usually spawns black markets and underground trade, increasing the scope of legally defined criminality and, in worst case scenarios, penalising the population for attempting to acquire what should be every day goods and services.

A further fallacy is the assertion that private enterprise does some thing” better than government while government does other things better than private enterprise and we should look to the “evidence” to decide who should do what. But by what standard do you conclude that something is being done better by one or by the other – and by what standard do we judge whether a certain activity should be carried on at all? Private enterprises make this judgment through the profit and loss test; the quantity and quality of resources devoted to production of a good and service is rationed by its ability to make a profit, indicating the height of its demand by consumers. A service will be of low quality or unavailable to certain sections of the population simply because consumers are not willing to support a more extensive level of production in that particular industry. The reason why broadband internet was not, in the UK, extended to all rural communities without the force of government was not evidence of “market failure”. It simply meant that the more extensive resources necessary when compared to urban areas were required more urgently to produce other goods and services that people wanted to buy. Any “evaluator” who determines from the “evidence” that government is needed for rural broadband cabling is necessarily substituting his own value judgments for everyone else’s, denying them the goods that they really demanded and giving them those that are not. Nor can we fall back on the assertion that government should run “essential” industries for there is no such thing as an “essential” industry. Humans do not evaluate goods and services in whole, homogenous concepts such as “fire services”, “health services”, “utilities” and so on – rather they are demanded in specific quantities in specific times and places. What is most highly valued by an individual changes from moment to moment. While we may think of “medicine” as “important” we can easily imagine ourselves in a situation where we would prefer to do something “unimportant” like watch television rather than produce another bottle of penicillin – and some people may not want medicine at all if they maintain their health. Precisely the point where we stop devoting resource to the production of penicillin and move them towards producing televisions can only be judged by the profit and loss test of the free market. Any other judgment is necessarily arbitrary and at variance with the demands of consumers. In any case, as libertarians, we might also ask if an industry is really critical why on earth would you want it in the hands of the government where it can be royally screwed up? And why would it even need to be? If it is heavily in demand then profit opportunities will abound and private entities will have no problem meeting it – it is the unessential industries with low demand that struggle to stay afloat without government support.

The real reason, of course, why we have ended up with this system is, in fact, pragmatic rather than intellectual. Capitalism is the goose that has laid the golden egg and any decimation of capitalism would very quickly destroy the standard of living of the citizenry, prompting a swift revolution. Yet government yearns for power and control and cannot be content with letting things be; it therefore has to paint capitalism as this necessary evil which, like a dangerous pet, somehow brings good things when controlled in the right way. Ironically, of course, it is government interference in an attempt to provide a socialistic element that brings about the chaos and injustice that is blamed on capitalism. We have boom and bust because of government-sponsored credit creation, and the rich are getting richer and the poor poorer because the government bails out these cronies from the resulting disarray at the expense of the rest of us. Indeed, having a “safety net” against the alleged “sink or swim” nature of capitalism has turned out very well if you are an investment banker. None of this would happen in a genuine, capitalist economy.

The mixed economy is therefore nothing but an unjustifiable charade, built upon alleged weaknesses of capitalism and supposed strengths of socialism that simply do not exist.  Genuine economic prosperity for everyone in a fair and just society populated by morally healthy individuals can only come through unfettered private property and free exchange – not through government’s attempt to meddle with it.

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Economic Myths #3 – We Need More Jobs!

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During the economic malaise one of the most frequently watched figures in the economy is the number of jobs that are either created or destroyed. Government makes “job creation” a central plank of its economic policy to put people back to work and the impression that more people are being hired and fewer are being fired buoys their hubristic impression that we must be on the road to recovery.

Unfortunately this obsession with jobs is another example of the error of looking at an isolated aspect of economic achievement rather than at the entire picture – much like trying to boost consumption in order to further growth which we explored in myth #2. Jobs (or work, or labour) are simply what we have to do in order to achieve our valuable ends with the scarce resources available. It is the toil and suffering that we have to undertake in order to get to what we want because we do not live in the Garden of Eden. Our ideal situation is to have everything we want without having to have any jobs at all and economic growth fuelled by greater capital investment permits us to have more and more of what we desire for less effort. Our focus, therefore, is not on jobs per se but, rather, on what these jobs produce – the outcome of our labour and not that labour itself.

The most oft-cited example of useless job creation is government paying people to dig holes in the ground and then fill them up again. The unemployment figures would go down; the stock market would probably rally; the currency would strengthen. And yet these “jobs” have produced absolutely nothing whatsoever. All of the time and effort put into administering and fuelling them simply depleted the world of resources rather than added to it. In the real world, what this looks like is government providing artificial stimulus or subsidies to industries that are not otherwise economically viable; government “job creation” programmes; and not to mention, of course, the endless ream of bureaucrats that the government employs directly. Creating artificial jobs that do nothing funded by a government payroll simply papers over the cracks of an unsound economy. Yes, more people feel better as they have dollars in their hands and are probably not worrying about where the next meal will come from; but all that has happened is that those who were already working are now being forced to subsidise those whose employment creates no productivity.

A related fallacy is that if somebody somewhere is carrying out some kind of economic activity and the more of that activity there is then, so it is concluded, the better the economy is doing. To the central planners it doesn’t matter whether there is a housing boom, a construction boom, a tech boom or a stock market boom as long as there is lots of stuff going on, regardless of whether people actually want the products that are churned out by those enterprises. It is for this reason why we have the business cycle in the first place. Obsessed by creating some kind of “output” the artificial stimulus of credit expansion pushes the economy onto a path which, while brimming with activity, is ultimately not in harmony with the desires of consumers.

Job quality is more important than job quantity. The correct focus of any economic policy should be to ensure that we are labouring to direct the scarce resources available to the ends that we desire – and not simply on wasting those resources by doing some kind of fundamentally useless activity just to make government look good. “Full production” and not “full employment” should be our mantle.

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Liberty in our Lifetime

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Perusing many libertarian and “Austrian” oriented websites, podcasts and newsreels, it is very easy for one to lapse into despair when considering the possibility of ever achieving a world of liberty. The stories and the commentary are always the same – of collapsing economies, increasing government interference in our private lives, and the increased propensity for war and conflict. Indeed, at times, the state can seem so overwhelming in its march towards total domination that the typical libertarian, normally isolated as he is, can only sink into despondency over how any of this may be stopped let alone reversed.

There are, however, five reasons to be optimistic for the prospect of gaining liberty, even in our lifetime. Furthermore these are not mere fleeting trivialities but, rather, relate directly to aspects that are pertinent and essential to the existence and strength of government. Let us consider each of them in turn.

1. Government is Small

As government is parasitic upon the productive element of the economy it can never, in its totality, consist of more than a mere fraction of the total population. If the majority become the parasite and the minority the host then the latter will simply collapse under the weight of the burden. Government cannot continue to siphon labour and capital from the productive sector and divert it to the unproductive. Even if we live in an era when all of our emails and telephone calls are stored, the government will always be in the position of having only a handful of people who will be able to scrutinise and read these emails. It takes even more than that – talent and intelligence – to analyse these communications and to put two and two together. In short there will never be enough man-hours in order for the government to manage and spy on the lives of everyone from dawn until dusk. Even before we had mass electronic communication and had to rely on snail mail the government still failed to crack down on black markets, drug shipments, smuggling, and all of the other free market responses to the non-crimes that it created, the circumvention of which was successful because it served the needs of the majority. Government will forever be burdened by the fact that it is in the minority and this is a major obstacle towards both its growth and the effectiveness of its meddling.

2. Government is Stupid

Why was Great Britain the biggest imperial superpower of the nineteenth century and why was that role taken on by the United States in the twentieth? By contrast, why did the Soviet Union fail to make any headway at all in international dominance after World War II up until the point it collapsed? Both Great Britain and the US were internally liberal countries in their respective eras, both accumulating a massive amount of capital that enabled a vast number of goods to be produced and the resulting standard of living to rise. There was, therefore, a plentiful store of wealth into which the government could tap in order to fund its foreign ventures. The Soviet Union, on the other hand, with its centralised, socialised economy, could not produce the wherewithal necessary to enable it to enforce itself imperialistically on foreign nations. In other words, government relies on keeping the society on which is leeches relatively free in order to guarantee the productivity that will enable government to expand its operations. In contrast, government itself, as has often been said, cannot even run the post office. Indeed government has failed to invent anything valuable or worthwhile during its entire existence and is only able to take over and operate industries that were kindled and developed in the private sector. This is true of every government operation that is, today, taken for granted – roads, healthcare, communications, utilities, and so on. The only thing that government has ever been able to do with modest efficiency is construct gallows and develop nuclear weapons, i.e. to invent the machinery that kills millions of people. Because of the absence of prices, profits and losses, totally socialised societies failed to harmonise the stages of production that is necessary in order to produce a vast amount of wealth, and very quickly these societies had to revert to at least a kernel of market activity. Indeed, it was a running joke among Soviet economists that they needed at least one country to remain free of international socialism so that the planners and bureaucrats would know what the prices of goods should be. Government without the free market is blind and stupid, unable to generate the resources it needs to carry on its overreaching activities. Therefore, if government was to extend itself to an all-encompassing dominion the only thing it could be certain of achieving is suicide.

3. Government is Greedy

Libertarians often point out that what is often forgotten in mainstream discussion of government is the fact that it too is populated with human beings who have desires, choices and ends and that they will happily use the legitimated violence through the mechanism of the state in order to achieve these ends. It follows, therefore, that as soon as that system fails to enable them to grab the wealth and riches that they desire, then they too, the government officials and the bureaucrats, will lose faith in their own organisation. One of the reasons why the Soviet Union collapsed is not because the people revolted but because the inner circle themselves began to see that the very system they were operating was not even giving them a particularly high standard of living. They were simply (to use a clichéd phrase) rearranging the deck chairs on the Titanic, playing around vainly with an ever diminishing pool of wealth on the path to destruction. It is, therefore, a mistake to suggest that any post-Cold War politician is a “socialist” or a “communist” in the true sense of those words. Rather, they have to keep the capitalist means of production going in order to blood suck from the wealth that is furnished by private industry. The most we are likely to get today is government partnership with big business, a form of fascism (minus, perhaps, the excessive nationalistic overtones of Hitler and Mussolini) rather than strict forms of socialism or communism. Ironically, therefore, government’s own greed for luxury and largesse will itself stop government from becoming too powerful and overreaching.

4. Government Cannot Risk Revolution

All governments, being a minority of the population, require, at least, the tacit acceptance of the majority of the population in order to remain in power. As soon as this acceptance is lost and there is active resistance then government ceases to function and will simply collapse. One of the reasons why the majority of the population today has become so tacit is because the standard of living, compared to previous ages, is so high. Although this standard would be much higher in the absence of any government at all, it is still the case that capitalist production and free exchange is able to both fund all of government’s boondoggles and also ensure that even an average wage earner in the Western world can live in relative comfort. It must be admitted that, on balance, in spite of the proportion of their productivity that is siphoned off by the government being at its highest point in history, people are relatively content. Although we are not yet quite as soma-induced as the inhabitants of Huxley’s Brave New World, the attractions of entertainment and leisure time that are made possible by capital accumulation through the free market provide a permanent and satisfying distraction from all of the nasty things that government is doing. Indeed some people’s thoughts never move much beyond analysis of the last football game or of the latest participants in The X Factor. The resulting apathy towards political and social matters, we might say, is the very bedrock of the tacit acceptance of government. Government, therefore, cannot risk destroying the origin of the production of the standard of living that makes this possible if it is to continue to gain its tacit acceptance. Whereas in previous ages there was nothing much to lose from the tightening of a king or emperor’s grip, today there will be a very marked change in the efficacy of production if the government’s tentacles strangle the capitalist system. Deprived of supermarket shelves stocked full of food, water that runs as soon as the tap is turned on, lights that illuminate with the flick of a switch, and televisions that flood their living rooms with Strictly Come Dancing, people would flock to overthrow the government that had so obviously failed. Indeed, it has been said that any nation is only three meals away from revolution but with our standard of living so much higher now it might not even take an empty stomach to arouse the masses. Hence any government worldwide could be less than a single day away from being toppled if its citizens are deprived of some comfort that was, hitherto, taken for granted. Food for thought, one might say, for any politician in power.

5. Government will be Out-Innovated

It is something of a truism amongst military historians that generals are always fighting the last war. They fail to adapt their methods of assault and defence to the new technologies and methods of fighting that have emerged since the previous conflict. Hence the mechanised horror and destruction of World War I made possible by twentieth century technology was met with strategies and tactics that dated from the nineteenth. This points to what is, perhaps, the biggest hope that we have for liberty in our lifetime – that government will not be able to keep up with the pace of free market innovation. The free market is necessarily heterogenous, decentralised and unbureaucratic whereas government is the precise opposite – big, unwieldy and burdened by procedure in a lengthy chain of command which always puts it on the back foot compared to the scattered mass of private citizens. We have already stated that government cannot create anything useful and must largely rely on the innovation of capitalists from which to draw its expertise and technological know-how. And further, we have also already pointed out that government has always failed to control black markets and underground trading that emerge in response to government induced shortages and prohibitions. These aspects can only accelerate in the technological age, when it is possible to transfer wealth and information to the other side of the world at the click of a button. Already innovations such as virtual currencies have emerged in response to the debt-laden and corrupt government-approved financial system and no doubt, in the wake of the scandal of the US’s spying program as revealed by a former NSA contractor and CIA operative, Edward Snowden, there will be increased market innovations to provide for privacy and security. Indeed we might even say that the internet itself caught government on the back foot – with a worldwide network of information and resources emerging and developing successfully before they were even aware of it, it’s difficult to believe that government wouldn’t want to turn back the clock and put strangleholds on such a boon to freedom. In short, government always has to react to the obstacles that are put in its way by innovative forces that are far superior. If the free market invents letter writing government has to find a way to intercept letters. If the free market invents the telephone it has to find a way to tap phone lines. And if the free market invents email then the government must determine how it can download and read these. The ultimate achievement will be when each individual person will be able, at very low cost, to protect his/her person and property from the aggression of others – perhaps through some kind of invisible force field or other such futuristic invention. The precise means are not as important as the concept; for if this could be achieved it would, in one fell swoop, eliminate both the means through which government leeches off its productive citizenry (force) and its very raison d’être – the production of security and the protection against private criminals and foreign, invading states. Indeed the latter might prove to be more important than the former given that the very justification of government for most people lies in the fact that society would be consumed by plundering and pillage in the absence of government. Take that alleged necessity of government away and what reason is left for it to exist? The fact that it would not even be able to exist in such a world where it would obviously be deprived of tax revenue might just be the icing on the cake.

Conclusion

Far from sinking into depression or despair at the state of the world today, we have demonstrated that there is, in fact, much to be hopeful for in the prospect for liberty. Furthermore, if the last point we noted above is true, then we should also be optimistic of the chances that there will also be very little violent revolution and we can look forward to a libertarian world emerging peacefully and with little bloodshed.

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