Thursday, 19 January 2017

Irony lost on Oxfam


"8 people are richer than 3.6 billion, says Oxfam. So? My daughter, who has $20, is richer than 2 billion. So the problem is poverty, not inequality." ~ Johan Norberg


Guest post by Peter Kermode

Right up until last Monday I was a supporter of the charity organisation Oxfam.

I supported them right up until Monday when they sent me an email entitled "8 men have the same wealth as half the planet."
The email, which seemed to go out to half the planet and has since gone viral, went on to express outrage at the inequality in wealth distribution that this represents, and the obligation they say that these few have to helping the poorest and least fortunate.
The irony that seems lost on Oxfam is that, outside the riches garnered by what we might call the various members of the dictator class -- who quite literally take their wealth from others, and frequently and quite literally at the point of a gun -- the vast majority of those who have become wealthy have done so by creating businesses that make our lives better. They have used their enormous productive ability to identify and bring new value into the world, value which would not have existed without them and which has made other lives vastly better - made lives better as measured by the enormous wealth they have created, and which Oxfam so undeservedly disparaged.
They've been able to create this enormous wealth because of their own entrepreneurial talent, and because they have put their wealth-producing ability to work in countries where the rights of the individual and private property are generally enshrined in law, and so all individuals can (if they wish) invest in building businesses and creating new value, reassured that the fruits of their labour will be protected.
In most third world countries however, when most of those poor folk live who are poorer even than Johan Norberg's daughter, individuals lack these protections and are therefore subject to exploitation and oppression by the tyrant class.
Rather than directing their outrage at those who are busy creating a better world, Oxfam's time would be better spent understanding how wealth is created and protected, and directing their outrage instead at the tyrants that keep others in poverty.
RELATED POSTS:





Q: Where is PC?

A point to anyone with the correct answer ...

 

Wednesday, 18 January 2017

Quote of the Day: On not molesting capital


 
"“The quantity of employment in the country must depend, not only on the quantity of capital, but upon its advantageous distribution [among alternative productive uses], and above all, on the conviction of each capitalist that he will be allowed to enjoy unmolested the fruits of his capital, his skill, and his enterprise. 
“To take away from him this conviction is at once to annihilate half the productive industry of the country, and would be more fatal to the poor labourer than to the rich capitalist himself. This is so self-evident, that men very little advanced beyond the lowest stations in the country cannot be ignorant of it, and it may be doubted whether any large number even of the lowest would, if they could, promote a division of property."
~ David Ricardo

Tuesday, 17 January 2017

Alan Duff: Build a better dogbox–and your life may never be the same again

 

While many still wonder how they may ever afford even a dogbox in residential land, writer Alan Duff is wondering how the nation might ever acquire good taste in residential buildings. “House design, like life, can be a fuller experience,” he says. “Kiwis should try it.” 

You (should) want balance, cohesion, clever use of space; natural light is as important as artificial lighting. Everywhere you look (from inside) should reveal a different surprise each day ….

Instead, he bemoans, the only thing you can say for most of our house designs is their overall lack of taste in house.

Can't be called architecture as only a tiny minority of houses in this country use the profession.
    Homes here are, in the main, designed and built from a pragmatic perspective. No thought is given to having a house that blends in or coheres with others to give it that sense of community as well aesthetics. It's Bob the Builder mentality.
    Give our blokey Bob the cheapest materials and he'll give you the fastest, cheapest methods of construction; every shortcut taken. Good taste overtaken on the first blind bend. "There ya go, mate. Done before you knew it."
    Only have to add the budget furniture and Bob's your uncle too.
    Friends drove my wife and I through their township and it was no less than an Ugly House tour. Hideous does not describe it, though won't name the town as might get lynched next time back.
    We saw a competition on who can construct the country's ugliest, most garish-taste dwelling. First-equal prize could have been handed out to at least 500 dwellings.
    Be as rich or poor as you like, in this country, from a low-cost subdivision to an exclusive gated community, you'll see the national cultural trait: A public declaration of contempt for architects, the attitude: "Who needs one of them? Buggers only add to the cost."
    They can do, depending on their brief. … [But you should demand] balance, cohesion, clever use of space; natural light… A love affair with the sun, not a divorce. And so on… Everywhere you look (from inside) should reveal a different surprise each day as you realise how well trained is your architect.

New Zealanders, he reckons, “seem to see only the cost of architecture and not appreciate the value.”

Ask Bob the Builder to add a room or two, and you will get several very serviceable rooms. But ask a decent architect, and you’ll get something you never even thought was possible – maybe even a day-to-day experience that becomes life-changing, and certainly life-enhancing.

There’s more to life than “on sweets,” wall-to-wall carpets and coming home every night through an internal-access garage. There’s a whole world of experiences to be enjoyed. As he says, Kiwis should try it sometime.

.

Monday, 16 January 2017

Quote of the Day: On the aim of politics

 

Mencken’s words never lose their relevance; instead, they only gain – increasingly, every political cycle:

"The aim of politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all imaginary." 
~ H. L. Mencken

.

Sunday, 15 January 2017

Quote of the Day: On helping the child

 

Montessori

“We must help the child to act for himself, will for himself, think for himself;
this is the art of those who aspire to serve the spirit.” ~ Maria Montessori.

[Hat tip Maria Montessori Education Foundation (MMEF|NZ) ]

.

Friday, 13 January 2017

Hey Mr Tangerine Man

 

It had to be done.

Whatever else will happen, the new presidency will be a boon for satire.

.

‘Neoliberalism’? What the hell *is* that?

 

I’m always fascinated to see what it is that opponents like to characterise as “neoliberal.” I say “opponents” because as far as I know no-one ever at any time or place in history has characterised themselves as a neoliberal. It’s always a way of characterising “the other” (did you see what I did there?) – and, by noticing who shovels out the term, an  excellent way to identify an idiot.

And here’s one right here: Martyn Martin Bradbury, writing this afternoon that Bill English’s Big Idea of so-called ‘Social Investment’ “is simply mass surveillance of beneficiaries designed to limit the neoliberal welfare state even more.”

Now I know Bradbury hasn’t engaged brain and writing arm at the some time probably since some time in the early primers, but that just makes no sense whatsoever. It’s a sort of comic-book analysis.

First of all, Bill’s Big Idea is not really very big at all when you think it’s already shaping up to be “the centrepiece” of his premiership. Sure, it’s bigger than the centrepiece of, say, John Major’s premiership (when the best he could come up with by way of “This Shit Needs to Be Done and My Government is Just the One To Do It’ was a Cones Hotline. Which really was truly embarrassing.)

But (second of all) it’s little more really than keeping an eye on whether your welfare spending is doing very much at all that’s very positive, isn’t it. Which is fairly sensible, really, when you consider that in the last ten years alone NZ governments have taken upwards of $250 billion from taxpayers and thrown it in the welfare direction, spending it on a “war on poverty” that would have given every beneficiary in the country a massive $700,000 each to start their own individual campaign, but instead seems to have been largely been pissed up against a wall.

(Not that Bill and I would probably agree with what might be counted as a positive outcome -- getting beneficiaries to vote for me not rating highly on my own personal values scale.)

So, thirdly (if you’re taking notes) neither is it really correct to describe as “mass surveillance” what is little more than suggesting to people taking other people’s money that they shouldn’t be wasting it, and then monitoring if they are. Frankly, if you’re going to be taking other people’s money without their say-so then, you know, you’re somewhat obliged to at least throw a shape and pretend that you’re not taking it for granted.

And finally, to conclude where I started before I started rambling about this particular idiot, what about this epithet “neoliberal” that idiots like him throw around? What exactly does it stand for, and how does the government raising welfare spending (which is what they’ve done as part of their political programme) fit into all that?

Self-described left-wing accounting teacher Deborah Russell has pontificated about this recently, which is useful if not really entertaining (I doubt she could be, to be frank), circulating what she calls “a useful summary of neoliberalism.” I have little interest in who Martinez and Garcia are (and I sense she doesn’t either), but, she claims …

C1MAgYmUUAAK1kE

If you can look around at the current state of New Zealand, or at the National Government, and use that description to label either as “neoliberal” then you’re an even bigger idiot than Deborah Russell’s students must be. As even the mild-mannered Pete George understates it, “That’s quite different to reality in New Zealand.”

Not with the left’s red-tinted glasses it’s not, however – which is both fascinating, and self-revealing. To them, you see, they’ve lost. To them, they’ve lost and they’re out of power, and the reins of power they’d like to hold are held instead by madmen in authority who are gutting regulation, selling off the silverware and (as Martyn Martin Bradbury seems by his comment to be fantasising about) ending welfare as we know it.

As if!

As Damien Grant noted to me recently, the Left don't seem to appreciate that they have won. That they are in power, if not in office.

I wonder how bad they’d be if they did. Because as long as their popular perceptions of Classical Liberalism are riddled with such straw man fallacies as these, they’re far less dangerous than they could be.

Quote of the Day: On ‘renewable energy’

 

“Suggesting that renewables will let us phase rapidly off fossil fuels .. is almost the equivalent of believing in the Easter Bunny and Tooth Fairy.”
~ former NASA scientist and current uber-climate-alarmist James Hansen (quoted in ‘James Hansen Smacks Renewable Energy’)

.

Rivendell et al, by Laurie Virr [updated]

 

img_04

Architect Laurie Virr has lived and worked in Canberra most of his life, where he has been something of an apostle for organic architecture, especially that practiced by Frank Lloyd Wright.

His first house in 1969 was (and still is)

an unusual Canberra example of the late twentieth century organic style of architecture based on a triangular module. The house was Laurie’s first commission in Canberra and displays the themes he would explore in his residential projects over the next three decades: the use of massing, geometric forms and deep roof overhangs in an energy efficient, solar house.

His own house, dubbed Rivendell and designed in 1975,

is an outstanding example of the late twentieth century organic style with its massing, use of geometric forms, deep roof overhang and energy efficient design. The successful implementation of a complex geometric plan based on a hemicycle is unusual if not unique for a mid-century Canberra house. The house has been published many times, in the U.S.A., Europe and Australia. Inexplicably, it is relatively unknown in Canberra.


img_01
The roofs and brick masses of Rivendell, looking north towards the Mount Taylor Nature Reserve

 

Convinced that government-financed housing had been a disgrace rather than a grace to the Canberra landscape, he set out to prove what was possible --

to design a house no larger in area than welfare housing of that time, 102.4m2,  but one in which the siting, the exploitation of space, the massing, the concern for the environment, and the details, expressed in unequivocal terms what I considered to be architecture.

Rivendell4
Dining area of another Laurie Virr hemicycle, at Valla Beach, New South Wales

 

Taking his brief from his wife (no architect should deliver his own brief, he reckons) and allowing the site to suggest the house that could deliver it, he began a study of hemicycle houses, first designed by Frank Lloyd Wright for the second Jacobs House, and designed this passive solar masterpiece for him and his growing family. Taking his cue from Louis Sullivan’s edict to “take care of the terminals and the rest will take care of itself” he held the public spaces of the hemicycle between the orthogonal cavity brick masses housing retreats, servicing spaces and study.

VIRR-rivendell

The French doors and stationary glass on the north face of the house encompass an arc of 90o [he explains], making it an architectural expression of the problem. This is also exemplified by the walls that define the terrace and mark the extent of the glazing.

Rivendell5
Courtyard of Laurie Virr design at Murrumbatemen, New South Wales

 

Built with his own hands, he has lived and worked there –very comfortably -- ever since.

There are just two people living in the house at this time and it is comfortable for us, but there was an occasion when 56 folk gathered within and there was room for all.

img_02

Beautiful!

[Images from Laurie Virr’s site, Canberra House, and Wright Chat. Cross-posted at the Organon Architecture Blog.]

NB: UPDATED 15 Jan to add corrected captions.

.

Thursday, 12 January 2017

Bonus #TopTen: Gareth Morgan goes full retard

 
henrymorgan-e1481508131473
One of these men is correct …

I CONFESS THAT THE ABOVE HEADLINE IS not totally accurate. Sam Morgan’s dad actually went full retard a long time ago. The latest manifestation of his retardness (and mind you it’s not even lunchtime yet, so there may be further incidents) is his response to Paul Henry’s confrontational interview with him and Jamie Whyte’s on-the-button critique of Morgan’s hoped-for tax grab from home-owners.

(Good advice may be not to feed the troll, since he’s only enjoying the attention. But since his sins are so egregious, and so fundamental, I can’t not.)

"No wonder Jamie Whyte and Paul Henry are whingeing" says Captain Morgan, "they and their rich mates love tax loopholes." So no trace there at all of the pandering to envy that both accused him of, is there. Nor of accuracy, since it is hardly a “loophole” that successive governments have elected not to take income tax from home-owners who may not even have one. It’s a policy. A fairly sensible one.

What’s not sensible is Morgen-pere’s response to his critics. A better word would be “unhinged.” What gets him most unhinged is them attacking him on what he thinks is his ground: on economics. He reserves special scorn for Whyte’s attack as coming from someone with only a qualification in philosophy (“he is a philosopher” he sniffs parenthetically, whose “lack of economics background leads him to a fundamental error”).

And yet a qualification in philosophy would be ideal to critique both Morgan’s claim and his whinging – since his whole argument is based on a fundamental philosophical error to which contemporary economists so frequently fall into, and his whole policy is aiming at what he claims is an ethical outcome – surely a province in which a philosopher should dare to tread, but must. (A fundamental economists’ error being to forget that their science, like every science, does have a philosophical base.)

SO TO CRITIQUE WHAT Morgenthau says is the philosopher’s “fundamental error”:

I am not proposing to tax the opportunity cost of assets as Whyte claims, I am proposing to tax imputed rental… Imputed rental is the benefit you actually (not potentially) get from owning an asset because you don’t have to rent it. Because no cash changes hands, it is far more tax efficient to own assets rather than put the money in the bank and use the interest to rent the asset (like a house). Hence the rich store their wealth in lots of assets that they can use, and legally avoid paying tax. Why join an expensive tennis club when you can put a tennis court in the back yard?

But as one wag says, “If you pay to build a tennis court in your backyard, you get the benefit of not having to pay membership fees to the tennis club. If you join a tennis club, you get the benefit of not having to pay to build a tennis court in your backyard.
Why does Morgan want to tax one of these benefits but not the other?” And as Whyte responds,

How can you have a "deemed rate" if you are taxing actual benefits received and not the some assumed opportunity cost?

Reisman1This is the incoherence of Morgan’s incoherence. This is the crux. Morgan claims to be taxing actual benefits, yet he needs someone to deem what these benefits actual are because, well, they don’t actually exist. This indeed is the very problem at the very heart of the whole concept of imputing incomes: that these incomes don’t actually exist, and in glossing over this point – or trying to – Morgan wants people to pay his tax who have no actual income with which to do so.

Which means they will need to take out either a reverse mortgage on their house in favour of the IRD, or to ship out.

ECONOMIST GEORGE REISMAN EXPLAINS the mote in Gareth’s eye, which (being about the crucial difference between existence and non-existence) as much philosophical as economic:

The doctrine of imputed income openly and systematically avows that the absence of a cost constitutes income… Contemporary economics thus deals in non-existent incomes … which it treats as though they existed.  It’s formula is that money not spent is money earned… [this position] turn[s] out to be riddled with contradictions and absurdities. [Capitalism

Being riddled with contradictions and absurdities is a fair description of Morgan’s policy proposal, in large part for the reason that Reisman lasers in on. It amounts to:

It seems to be 'you own a house, so we'll tax you on the money you're not paying in rent'. I can't see how that's any different from 'you have a vegetable garden so we'll tax you on the money you're not spending at the supermarket' or 'you walk everywhere so we'll tax you on the money you didn't use to buy a car or catch the bus'.*

It’s true, as Morgan says, that contemporary economics measures these fantasy incomes as part of its national accounting.

Many countries in Europe [says Morgan] tax imputed rental already alongside other imperfect wealth and housing taxes. Imputed rental is even in our national accounts – so that we can compare our national income with that of Germany or Switzerland which have much lower rates of home ownership.
    Imputed rental is income like any other, but we don’t tax it... If Henry or Whyte could demonstrate they have even a basic grasp of national accounts … I’d consider them worthy commentators. They can’t.

Well, speaking for the philosopher, they can. Economist George Reisman’s knowledge of national accounts on this score is both impeccable, and highly critical. The fact that contemporary economics measures them as part of its national accounting does not make the fantasy incomes any more real. It just makes the error more egregious. I won’t labour the point here (but I will direct you if interested to pages 456-459, 461-462, and 476 of Reisman’s free online book for the wider and most fascinating econo-philosophical discussion). Instead, I will simply point out that once the conceptual error is imbibed, the economic and moral error committed by Morgan made by follows as a matter of course:

At the base all these absurdities is the failure to realise the importance of earning money as the means of living in a division-of labour society. As a result of this failure, contemporary economics [and contemporary economists like Morgan and those on his payroll] does not consider the earning or non-earning of money to be a significant matter.

But it is. It is of crucial importance. Says Whyte:

[Morgan] says he is offended by the fact that some incomes are taxed and others (such as living in your own home) are not. So he claims he is doing the opposite of what you say. He is taxing assets so as to tax [fantasy] incomes.

Whyte offers an example to make the absurdity plainer:

As the basis of tax policy … the idea leads to absurdity or even atrocity. A woman might benefit from having voluntary sex with her husband. She could have bought that sex from a prostitute. If she had, the government would have received tax from the prostitute’s income. So a woman who has sex with her husband is a “tax loophole cowboy”, as Morgan puts it. I am keen to meet someone who will say that people who have untaxed sex with their wives are enemies of the people and that the government should tax sex between husbands and wives.
    Dr Morgan has no plan to tax sex with non-prostitutes, of course. But it is an arbitrary violation of the principle that allegedly motivates his policy. The principle that all “income” should be taxed, whether it comes in cash or kind, will still be violated all over the place if Dr Morgan wins the next election. The only difference is that these violations will more closely match Dr Morgan’s views about what people should do for themselves and what they should buy.

Do we really want to be violated by Dr Morgan’s views about what we should and shouldn’t do, based on a fantasy of his profession’s making?

AND WHAT OF SO-CALLED FAIRNESS? – that illusive claim for which Morgan says makes his proposed tax grab so all-fired necessary (it apparently being “fair” to steal from folk on the basis of an income that doesn’t exist).

Reisman nails that himself in pointing out that what creates the inequality through capital gain that Morgan decries is the rampant monetary inflation that Morgan, in other writing, so strongly supports. [READ: ‘How Inflation Creates Inequality Through Capital Gains’]

And Whyte nails it too in his response, which addresses the “distortion” that Morgan confuses for a loophole:

There is an element of truth in the Morgan … position. Our current tax system is “distortionary”, most notably, by favouring consumption over saving and DIY over paying for labour. The culprit in the case of the pro-consumption distortion is the double taxation of capital income (you earn it from savings made from your already-taxed income). The pro-DIY tax incentive is created by the fact that income tax and GST apply only to observable monetary transactions. (Minimum wages also encourage DIY). The answer is to eliminate capital income taxes (a standard view in the economics of public finance, btw) and to reduce income taxes/GST (which are almost the same thing over the long-run, since all income is eventually spent).
This would also help the poor, who Dr Morgan seeks to benefit. These reductions in taxation would encourage productive investment, employment and, thereby, economic growth. Which is the only thing that has ever seriously improved the lot of the poor.
Dr Morgan often says that economic prosperity is impossible without “fairness”, by which he means equality of income and wealth. Ask someone from China if she agrees. 50 years ago, all Chinese were equally poor (except Communist Party big-wigs). Today, inequality is far greater. Yet even the relatively poor in China are far better off.

Game, set and match to Whyte and Reisman?


* So as Reisman argues, this false concept of imputed incomes “constitutes a kind of conceptual bridge” that helps support the whole Marxian exploitation theory on which Morgan relies for his very concept of fairness. Not an accident then.

Making a late run that top-ten most-popular posts at the country’s fourth-most read political blog was this end-of-year offering on the retarded father of Sam Morgan … which you have reposted today as a special start-of year bonus. (Don’t thank me, just throw money.)


Quote of the Day: On ‘sense of life’

 

“There are two aspects of man’s existence which are the special province and expression of his sense of life: love and art.”
~ Ayn Rand, The Romantic Manifesto

.

Did Ludwig von Mises create today's cronyism?

 

Did Ludwig von Mises create today's ‘crony capitalism’? The Guardian’s favourite environmentalist seems to think so. Which is odd, because if anyone argued against cronyism more eloquently than Mises they would be part of a very small group indeed. But perhaps Monbiot just has no idea what he’s talking about, suggest Hunter Lewis in this guest post …

Mises

George Monbiot of Britain’s Guardian newspaper seems to think that Mises is indeed the progenitor of today's crony capitalism and more.

It is not Mises alone, however, who by this account is the cause of just about every imaginable contemporary scourge, from the Crash of 2008 to loneliness to obesity. It is all the “neoliberals” who schemed together from the 1930’s on, principally through the Mont Pelerin Society, to take over the world and who, we are told, succeeded beyond their wildest dreams.

Who knew, for example, that Big Money and Big Business got behind the Mont Pelerin program and used it to rationalize their exploitation of the common folk? Apparently they did this without Mises, Hayek, or Rothbard even having a clue it was happening, since the three got by on such very modest means.

This is, to say the least, an interesting fantasy. Apparently Mises, who died a man crying in the wilderness, just did not realise he was not only well funded, but virtually seated on the throne of power, supported by people who would today be described as billionaires, but in those pre-inflation days only qualified as mega-millionaires.

In fairness to Monbiot, he is not a bad person. He is against crony capitalism. He wants to preserve the beauties of nature. No quarrel with any of that. [No quarrel, if he were only to preserve them through means other than government force – Ed.]

Politically he sounds much like Bernie Sanders. Unlike Sanders, he is in search of new ideas. He acknowledges that his side, the political left, has not had a new idea since Keynes’s General Theory. ( Of course, the General Theory did not actually contain any new ideas, but that is another story.)

As a progressive, Monbiot is frustrated. He cannot blame society’s ills on his own creed, so he lashes out at "neoliberalism" as a darkly secret society of human haters who have managed to keep themselves anonymous and who, unbeknownst to everyone, are really running the world.

Monbiot  presumably became a progressive for the right reason: he was idealistic and wanted to help the human race. But like Sanders and Clinton and so many others, he totally  ignores the progressive paradox, which is that as government takes more and more control of the economy, allegedly to provide "expertise" or to right wrongs, it leads private special interests to put more and more effort into taking over government. All too often they succeed, because government does not exactly resist. Indeed, as often as not, it is government that is leading this toxic dance.

In Monbiot’s world, crony capitalism is condemned, but it is absolutely taboo to acknowledge its roots in progressivism. Consequently, he and others just keep on proposing more and more government control,  thereby tying  themselves up in logical as well as real world knots.

As the author of Where Keynes Went Wrong, I myself cannot exactly be described as a fan of Keynes. But Monbiot not only makes a complete hash of Mises and Rothbard, the economists he attacks. He cannot even get Keynes right. He describes Keynes as an apostle of consumerism when Keynes actually loathed consumerism. The last thing Keynes wanted was for the “ lower orders” to buy whatever they wanted or to run the economy.

Well, in some respects all of this represents real progress. A prominent British public intellectual is talking about Mises and Rothbard, if only in a desperate effort to avoid admitting to the failure of his own ideas.

** The gist of Monbiot’s argument is in this column. There are also YouTube videos of Monbiot’s lectures if you want more detail or full flavour.


Hunter Lewis is author of nine books, including including Where Keynes Went Wrong, Free Prices Now! and Crony Capitalism in America: 2008-2012. Lewis is co-founder of Against Crony Capitalism.org as well as co-founder and former CEO of Cambridge Associates, a global investment firm. He has served on boards and committees of fifteen not-for-profit organizations, including environmental, teaching, research, and cultural organizations, as well as the World Bank.
His post previously appeared at the Mises Wire.

.

Wednesday, 11 January 2017

Bonus quote of the Day: Mises on “the fateful efforts of the mathematical treatment of economic problems”

 

Ludwig Von Mises dismisses “the fateful efforts of the mathematical treatment of economic problems”:

The mathematical economist attempts to ignore the difference between physical phenomena, on the one hand, the emergence and consummation of which man is unable to see the operation of any final causes — and which can be studied scientifically only because there prevails a perceptible regularity in their concatenation and succession — and praxeological phenomena, on the other hand [i.e, the phenomena of human action], that lack such a regularity but are conceivable to the human mind as the outcomes of purposeful aiming at definite ends chosen…
    Mathematical equations … are appropriate and useful where there are constant quantitative relations among unmotivated variables; they are inappropriate in the field of conscious behaviour.
    The equations of physics describe a process through time, while those of economics do not describe a process at all, but merely the final equilibrium point, a hypothetical situation that is outside of time and will never be reached in reality.
    Furthermore, they cannot say anything about the path by which the economy moves in the direction of the final equilibrium position. As there are no constant relations between any of the elements which the science of action studies, there is no measurement possible, and all numerical data available have merely a historical character; they belong to economic history and not to economics as such. The positivist slogan, "science is measurement," in no way refers to the sciences of human action; the claims of "econometrics" are vain.

..

Cold weather kills

 

Nature is not naturally benevolent. We have to work to make it so, for us. The point of human production – the reason we get up in the morning and go to work, if we can – is to make our lives better. If human life is our standard, then making human lives better and the natural environment more humane is a good thing.

So when you see dozens killed by Europe's coldest weather in years you may realise that cold weather kills – kills vastly more than warmer weather does – and that human production that makes the human environment warmer may not be a totally bad thing. And, therefore, that the fossil fuels people burn to stay warm are not a bad thing.

“Most of the Northern Hemisphere is now in the throes of the deadliest time of the year [writes Jane Brody in the ‘New York Times’]. Cold kills, and I don’t mean just extreme cold and crippling blizzards. I mean ordinary winter cold, like that typically experienced, chronically or episodically, by people in every state but Hawaii from late fall through early spring.
    While casualties resulting from heat waves receive wide publicity, deaths from bouts of extreme cold rarely do, and those resulting from ordinary winter weather warrant virtually no attention. Yet an international study covering 384 locations in 13 countries, including the United States, found that cold weather is responsible, directly or indirectly, for 17 times as many deaths as hot weather.

Cold weather kills vastly more than warmer weather does. Think about that.

According to Alex Epstein: “Fossil Fuels don’t take a safe climate and make it dangerous, they take a dangerous climate and make it safe.” So as the northern hemisphere is in the grip  of its deadliest time of year he asks of those afflicted,

How habitable is the world outside your door right now? Are fossil fuels keeping you safe from the climate, or are they making the climate dangerous for you? Is it time to re-evaluate our relationship with the fossil fuels and our environment?

Is it?

.

Fallingwater

 

Does this animation of Frank Lloyd Wright’s ‘Fallingwater’ (set to Smetana’s ‘Moldau’) ever get old?

No, I don’t think it does.

 

Fallingwater from Cristóbal Vila on Vimeo.

.

Ethics at the Oscars

 

I generally don’t care what modern film actors say, either in or out of their movies. But as long as others so unfathomably do, this (from screenwriter Paddy Chayefsky, just after Vanessa Redgrave received hers) would be my own attitude towards their awards ceremonies:

 

[Hat tip James Valliant]

.

Quote of the Day: Rand on the “bourgeois spirit”

 

“It is not the ‘bourgeois spirit’ that creates civilisation, but the rational spirit. It is not trade that is primary here, but production. And the base of production is thought. And the base of productive action is the pursuit of rational values. Before there could be any ‘bourgeois’ there had to be all the enormous philosophical thinking that led to  individualism and private property.”
~ Ayn Rand, commenting on Human Action, as published in her Marginalia [emphasis in the original]

.

Tuesday, 10 January 2017

Trump’s Trade Catastrophe?

 

At the ‘Casey Daily Despatch’ yesterday, Bill Bonner talked about President-elect Donald Trump's apparent aversion to free trade. But as Bill explained, free trade isn't the problem… our fake money system is. Today, in this guest post he digs deeper into this serious problem…


Trade3It is worse than “voodoo economics,” says former Treasury Secretary Larry Summers. It is the “economic equivalent of creationism.”

Wait a minute…

Larry Summers is wrong about almost everything. Could he be right about this?

“Trade Cheaters”

Summers is referring to the paper written by two members of Trump’s trade team: his pick for secretary of commerce, billionaire investor Wilbur Ross, and the director of Trump’s new National Trade Council, Ph.D. economist Peter Navarro.

It calls for a turn away from free trade and toward managed trade – or what is vaguely described as “fair” trade.

Colleague Karim Rahemtulla, on an investment scouting trip in India and China, sends this note:

I met with a factory owner in China. He pays his workers 2,000 renminbi a month, about US$300. He thinks it’s too expensive and is now opening factories in Vietnam and Cambodia, where he can pay half of what he’s paying just outside Shanghai.
    In India, I saw two ads in the newspaper. One was for call centre workers with a university degree as a requirement. The pay range was between 9,000 rupees (US$132) and 15,000 rupees (US$220) a month. The other ad was for a chartered accountant with three years’ experience for the Nehru Foundation – a big Indian NGO. The pay for that was 29,000 rupees per month, about US$426.
    What kind of “fairness” is it that denies a job to a man in Calcutta to pay a man in San Jose 10 times as much for the same work?

Less than US$200 a month for a job in an Indian call center.
(Source: Karim Rahemtulla)

Ross and Navarro call China a “trade cheater.”

Imagine a town with a bar on every corner. One of these gin joints gets an idea of how to increase his customer base: Offer free drinks!

There’s a “cheater” for sure… and a moral conundrum for a nitwit.

What should a serious drinker do?

Turn up his nose… turn away his face… and take his business to another place in the name of fairness?

No. Not really.

Bad Engineers

If the new Trump administration follows the advice laid out in the Ross-Navarro plan, it will almost certainly lead to disaster.

Of course, there will probably be a disaster anyway. But as it is, you can’t fault the hotel mogul, reality TV star, and president-elect. He didn’t build this railroad; it won’t be his doing when it goes off the rails.

But Ross and Navarro are bad engineers… They’re twisting the tracks!

Specifically, they’re advising the new administration to abandon free trade in favour of crony trade – deals designed to reward or punish certain industries or countries depending on which direction the political winds and lobbyists’ money are blowing.

As far as we know, all human economic progress has been made by a combination of technological advances, specialisation, and an elaboration of the division of labour made possible by property rights, honest money, and free-market capitalism.

Anything that stands in the way of these things – for instance, crony trade deals – reduces output, wealth, and choice.

But alert readers are right: Just as free immigration can be incompatible with a zombie welfare system (it attracts immigrants who become parasites)… free trade can cause problems in a fake financial system (it causes imbalances that threaten the world economy).

Out of Hand

An honest money system has feedback loops that keep things from getting out of hand.

Under the Bretton Woods system, for instance, a nation that imported more than it exported soon found its gold reserves – and therefore its money supply – shrinking. A recession was sure to follow.

But the post-1971 fake money system has no such natural limits.

Americans bought products from overseas with the feds’ fake dollars. Foreigners – particularly the Chinese – took these dollars and used them to build out their economies… and compete with U.S. manufacturers to provide cheap products for credit-fueled U.S. consumers.

TRade4As we reported yesterday, America’s trade deficit with China (the dollar value of imports we buy from China unmatched by exports to China) now runs at $1 billion a day.

And since 1980, when trade with the Middle Kingdom really got going, we have accumulated a trade deficit of about $10 trillion with China.

That is the money that built the factories that now undercut American manufacturers… that created a $225 trillion pile of global dry debt… and that corrupted and corroded the whole world’s financial system.

Still, we wonder if Ross and Navarro really know what they are doing.

They say they aim to reduce America’s trade deficit. That is to say they want the U.S. to export more and import less… thus keeping more dollars at home.

Do they realize that our whole world economy is built on fake money, giant U.S. trade imbalances, and a mountain of debt?

Take away the trade imbalances and the whole system collapses.

The fake dollars go overseas… then come back home and buy U.S. Treasuries, lowering yields. (In the bond market, yields move “inversely” to prices.)

If the fake money stays home, Treasury yields – and the government’s borrowing costs – go up… and the whole shebang comes down. Interest rates rise. Stocks fall. The economy goes into recession… and probably depression. China is devastated. And jobs disappear everywhere… in Mexico, China… and the U.S. Is that what they really want?

Regards,


Bill Bonner is an American author of books and articles on economic and financial subjects, the founder and president of Agora Publishing, co-founder and regular contributor to The Daily Reckoning, and author of a daily financial column,Diary of a Rogue Economist.
    He is author and co-author of Financial Reckoning Day: Surviving The Soft Depression of The 21st Century; Empire of DebtMobs, Messiahs and Markets and the recent Hormegeddon: How Too Much of a Good Thing Leads to Disaster.
    This post originally appeared at the Casey Daily Despatch.

 

RELATED POSTS:

.

#TopTen | No. 1: Why Mises “should be awarded an immediate posthumous Nobel Prize indeed, more than one”

 

Last year’s most popular post here at New Zealand’s fourth-most read political blog was … a surprising one. A post from October about as far from clickbait as you could get: a noble post about an unlikely hero; a noble post. You might even say it was a post about a Nobel here, or should have been …
Why Mises “should be awarded an immediate posthumous Nobel Prize indeed, more than one”
Tributes by Lawrence Reed and Richard Ebeling

_Mises

As the Nobel committee considers who it may name on Monday as this year’s recipient of the  The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel –and others debate who should receive it now and in the past -- two tributes are paid to the economist who most deserved the award but was never be so honoured, and to his magnum opus with which every thinking human being should be familiar.

What Mises’s Human Action Means to Me
From the foreword to the new digital edition of Human Action,
by Lawrence Reed

Forty-six years ago, I enrolled as a freshman at Grove City College in Pennsylvania for one reason. His name was Dr. Hans F. Sennholz, one of only four individuals ever to earn a PhD under the tutelage of Ludwig von Mises [the other three were Israel Kirzner, Murray Rothbard, and George Reisman – Ed.]. Sennholz was himself an extraordinary and inspiring professor, but the special magic of his lectures came from knowing that I was getting my economics just one generation removed from the master himself. I was enthralled on a daily basis. [I felt something of the same by undertaking Reisman’s suberb Programme of Self-Education in EconomicsEd.]

Mises1Ludwig von Mises remains not only the pre-eminent economist of the Austrian school, but also a towering figure within the science of economics itself. It is a tragic oversight that a Nobel Prize never came his way while the award has often been bestowed upon individuals of fewer insights and lesser consequence.

If only the world appreciated how he brilliantly and thoroughly demolished socialism nearly a century ago, millions of early deaths and untold misery could have been avoided in the decades since. Fifty Nobels would be insufficient to appropriately honor the man, but the world we know is hardly fair.

Mises and FEE

Diving into Human Action as a student of Sennholz in the 1970s, I found Mises challenging. I had little if any prior knowledge of such terms as “praxeology,” “a priori reasoning,” “catallactics” and a host of others I was confronting for the first time. I found many of his other works more accessible, such as The Theory of Money and Credit; Socialism; Bureaucracy; Planned Chaos; and The Anti-Capitalist Mentality.

Mises2But with Human Action, his magnum opus, [a new digital edition now available for free downloadEd.] Mises was aiming at high-brow intellectuals who exercised great influence by animating others, namely, the so-called “second-hand dealers in ideas” who sway the masses that make up the general public. So when you read Human Action, you’re not reading newspaper column material; you’re reading the original wisdom that a professor absorbs before he teaches the student who becomes the columnist.

Mises occupies a special place in the history of the organisation I lead, the Foundation for Economic Education (FEE). Human Action itself was published only when our founder Leonard E. Read agreed to buy nearly the entire first print run and distribute it. This is what kicked off the book to become a big seller for many decades. Read gave Mises writing projects and kept his books in print, and boosted his professional standing among many donors and journalists in America.

Within a decade after his emigration to the U.S. in the wake of the Nazi onslaught in Europe, he felt “at home” in our ancestral mansion in Irvington, New York, where he was a frequent lecturer. FEE, notably trustee Lawrence Fertig, helped support Mises in the years he taught classes and seminars in nearby New York City.

Read was profoundly influenced by the man and his ideas, as was long-time FEE staff member and Mises biographer, Bettina Bien Greaves. In all the years that the name “Mises” was virtually synonymous with “Austrian economics,” FEE and Mises were joined at the intellectual hip. His image prominently adorns a wall of honor in our new Atlanta, Georgia headquarters.

The Legacy of a Masterpiece

In 1978, five years after Mises passed away, Nobel laureate and fellow Austrian economist F. A. Hayek reflected on his late mentor:

Though I learned that he (Mises) usually was right in his conclusions, I wasn’t always satisfied by his arguments, and retained to the end a certain critical attitude which sometimes forced me to build different constructions, which however, to my great pleasure, usually led to the same conclusions. I am to the present moment pursuing the questions which he made me see, and that, I believe, is the greatest benefit one scientist can confer on one of the next generation.

So it is indeed with great pleasure that we at FEE present this digital version of a classic in economics, Human Action, to new generations of readers.

Human Action: A Timeless Masterpiece
From the introduction to the new digital edition,
by Richard Ebeling

Ludwig von Mises’s majestic magnum opus, Human Action: A Treatise on Economics, was published on September 14, 1949. In the nearly seven decades since its appearance, Human Action has come to be recognized as one of the truly great classics of modern economics.

Mises3Often a "classic" means a famous book considered to have made important contributions to a discipline that is reverentially referred to but is rarely ever read. In economics, Adam Smith’s Wealth of Nations is the typical example of such a work. Every economist has heard of the "invisible hand" and the notion of self-interest furthering the public interest through the incentive mechanism of the market, but probably few economists nowadays have actually read more than a handful of snippets and brief passages from Smith's treatise. [More’s the pity – Ed.]

However, Human Action uniquely stands out as a classic in the literature of economics. Not only among Austrian economists but also for a growing number of other people, Mises's brilliant treatise continues to be read and taken seriously as a cornerstone for understanding the nature of the free society and the workings of the market economy.

It has taken on even more significance in these early decades of the twenty-first century precisely because of the economic crises through which the world has been passing. It rings just as relevant today as when it was published in 1949 because the issues that Mises dealt with in Human Action and in many of his other works still dominate the public-policy discourses of our own time.

The World When Human Action was Published

It is perhaps useful to recall the state of the world when Human Action appeared in 1949. The Soviet system of central economic planning had been imposed on all of Eastern Europe. In Asia, Mao Zedong’s communist armies were just completing their conquest of the Chinese mainland. In Western Europe, many of the major non-communist governments were practicing what one free market critic called “national collectivism” – a form of repressed inflation with price and wage and foreign exchange controls, and Keynesian influenced “full employment” policies with deficit spending and “easy money.”

Mises5In Human Action, Ludwig von Mises opposed every one of these trends and policies, plus many others in contemporary social philosophy, philosophy of science, and economic theory and method. He challenged the foundations, logic, and conclusions of every facet of twentieth century collectivism.

In 1949, Mises’s arguments were often ignored or scorned as the reactionary misconceptions of a man out-of-step with the more “progressive” ideas and economic policies of the postwar period. In this second decade of the twenty-first century, however, it is evident that it was Mises who understood far better than the vast majority of the contemporary economists and policy advocates the fundamental flaws in socialism, interventionism, and the welfare state.

Mises, the Enlightenment-Like Philosopher

Human Action was the revised and improved outgrowth of an earlier German-language treatise, Nationalökonomie, which Ludwig von Mises had published in May 1940 while he was still living in Geneva, Switzerland, after fleing the Nazis and shortly before he permanently moved to the United States.

Mises’s friend and fellow Austrian economist, Friedrich A. Hayek, said in a review of the earlier German version:

There appears to be a width of view and an intellectual spaciousness about the whole book which are much more like that of an eighteenth century philosopher than that of a modern specialist. And yet, or perhaps because of this, one feels throughout much nearer reality, and is constantly recalled from the discussion of technicalities to the consideration of the great problems of our time . . . It ranges from the most general philosophical problems raised by all scientific study of human action to the major problems of economic policy of our time.

A few months later another review appeared, this one by Walter Sulzbach, a prominent free market German economist then living in the United States. He, too, emphasised the uniqueness of the man and the work. “Mises has written a remarkable book,” Sulzbach said.

Few economists of our generation can boast of a similar achievement. It is the work of a man who combines an immense knowledge of economic history, economic theories and present-day facts with a thoroughly logical mind.

And as Mises’s American student and friend, Murray Rothbard explained many years after the first appearance of Human Action:

‘Human Action’ is it: Mises’s greatest achievement and one of the finest products of the human mind in our century. It is economics whole . . . In addition to providing this comprehensive and integrated economic theory, ‘Human Action’ defended Austrian economics against all of its methodological opponents, against historicists, positivists, and neoclassical practitioners of mathematical economics and econometrics. He also updated his critique of socialism and interventionism.

Another friend and student George Reisman was more direct in his tribute paid on the 100th anniversary of Mises’s birth:

Von Mises is important because his teachings are necessary to the preservation of material civilisation…
    [W]hen von Mises appeared, there was virtually no systematic intellectual opposition to socialism or defense of capitalism. Quite literally, the intellectual ramparts of civilisation were undefended. What von Mises undertook, and which summarises the essence of his greatness, was to build an intellectual defense of capitalism and thus of civilisation…
    Von Mises's two most important books are ‘Human Action’ and ‘Socialism,’ which best represents the breadth and depth of his thought. [These are not for beginners, however. They should be preceded by some of von Mises's popular writings, such as ‘Bureaucracy’ and ‘Planning For Freedom.’] …
Mises8    Von Mises must be judged not only as a remarkably brilliant thinker but also as a remarkably courageous human being. He held the truth of his convictions above all else and was prepared to stand alone in their defense. He cared nothing for personal fame, position, or financial gain, if it meant having to purchase them at he sacrifice of principle. In his lifetime, he was shunned and ignored by the intellectual establishment, because the truth of his views and the sincerity and power with which he advanced them shattered the tissues of fallacies and lies on which most intellectuals then built, and even now continue to build, their professional careers…
    Today, von Mises's ideas at long last appear to be gaining in influence …
    Von Mises's books deserve to be required reading in every college and university curriculum not just in departments of economics, but also in departments of philosophy, history, government, sociology, law, business, journalism, education, and the humanities. He himself should be awarded an immediate posthumous Nobel Prize indeed, more than one. He deserves to receive every token of recognition and memorial that our society can bestow. For as much as anyone in history, he laboured to preserve it. If he is widely enough read, his labors may actually succeed in helping to save it.

Ludwig von Mises’s Life and Career

Ludwig von Mises was born in Lemberg, Austria-Hungary on September 29, 1881. Though originally interested in history, shortly after entering the University of Vienna in 1900 he turned to economics after reading Principles of Economics by Carl Menger, the founder of the Austrian School of Economics. While at the university he studied with Eugen von Böhm-Bawerk, the person perhaps most responsible for establishing the internationally respected reputation of the Austrian School in the late nineteenth and early twentieth centuries. In 1906 Mises was awarded a doctoral degree in jurisprudence (at the time economics was studied as part of the law faculty at the University of Vienna).

Beginning in 1909, Mises was employed at the Vienna Chamber of Commerce, Crafts and Industry as an economic analyst within the department of finance, rising to the position of a senior secretary with the Chamber in the years between the two World Wars and played a prominent role in the economic policy discussions in the Austria of the 1920s and 1930s. Living in an ideological environment dominated by socialist, interventionist and increasingly totalitarian ideas, his was mostly a rearguard defense of classical liberal and free market policies.

Mises7In 1934, Mises was offered and accepted a position as Professor of International Economic Relations at the Graduate Institute of International Studies in Geneva, Switzerland. It was shortly after arriving in Geneva that he set about a project that he had long had in mind, the writing of a comprehensive treatise on economics that finally became Nationalökonomie, and then Human Action, in its final and finished form.

After arriving in the United States in 1940, he settled in New York City, eventually being appointed as a visiting professor in the Graduate School of Business at New York University a position he held until retirement at the age of 89, in 1969. Ludwig von Mises passed away on October 10, 1973, at the age of 92.

The Meaning and Logic of Human Action

In the late 1920s and early 1930s, Mises wrote a series of essays in which he argued that economics was a distinct science derived from the insight that all social processes arise from the choices and actions of the individual participants in the social and market order. Attempts to reduce conscious and intentional human conduct to the physical methods of the natural sciences would not merely distort any real understanding of human decision-making and activity, it would create a serious false impression that social and market processes could be manipulated and controlled in more or less the same manner as inanimate matter in a laboratory experiment.

Mises21In Human Action, this theme was refined and fully developed. All of the social processes have their origin in and can be reduced to the actions and reactions of individual human beings. Being human himself, the social scientist can draw upon a source of knowledge unavailable to the natural scientist: introspection. That is, the social scientist can look within and trace out the logic and formal characteristics of his own mental processes.

As Mises expressed it, “action” is reason applied to purpose. By understanding the logic of his own reasoning processes, the social scientist can comprehend the essentials of human action: that man, as a conscious being, invariably finds some aspects of his human condition unsatisfactory; he imagines ends or goals that he would like to attain in place of his present or expected circumstances; and he perceives methods or means to try to achieve them.

But he soon discovers that some of the means with which he could attain ends are limited in quantity and quality relative to their potential uses. Hence, man is confronted with the necessity to choose among the desired ends and has to set some aside either for a day or forever, so those means may be used for the pursuit of other ends to which he has assigned greater importance or significance.

Mises22Few human decisions, however, are completely categorical, that is, either/or. Most are incremental, that is, giving up a little bit of one attainable end so as possibly to attain a little bit more of some other desired end; thus, most choices are made at the “margin.”

From these elementary and self-evidently true foundations, Mises argued, all the complex theorems of economics can be, in principle, traced out. And this he attempts to do in Human Action with razor-sharp reasoning and often biting rhetoric in response to critics.

The “laws” of economics, Mises insisted, are not open to quantitative verification or falsification or prediction. The laws of economics, in other words, as Mises explains in careful detail in Human Action, are logical, not empirical, relationships. Why? Because man has volition, free will, the ability to change his mind and imagine new possibilities that make his actions and responses in the future different in their concrete form from what they were yesterday or today. Hence, the search for a quantitative economics for deterministic prediction of what men and markets will do today, tomorrow, or a year from now is the pursuit of the unattainable.

The Law of Human Association and the Market Economy

For Mises, one of the greatest accomplishments of mankind was the discovery of the higher productivity arising from the division of labour. The classical economists’ analysis of comparative advantage, under which specialisation in production increased the qualities, qualities and varieties of goods available to all participants in the network of exchange, was more than merely a sophisticated demonstration of the mutual gains from trade.Mises23

In Mises’s view, as he expressed it in Human Action, the law of comparative advantage is in fact “the Law of Human Association.” The mutual benefits resulting from permanent and extensive specialisation of activities was the origin of society and the starting point for the development of civilisation.

That is why a central concept throughout Human Action is Mises's insistence on the essential importance of economic calculation.

The rationality of the market economy arises from its ability to allocate the scarce means of production in society for the most efficient satisfaction of consumer wants in a complex system of division of labour: that is, to see to it that the means at people’s disposal are applied to their most highly valued uses as expressed in the free choices of participants in the market. This requires some method through which alternative uses for those scarce means and their relative value in those competing applications can be discovered.

Economic Calculation as the “Compass” of Market Action

In the early decades of the twentieth century, socialists of almost all stripes were certain that the institutions of the market economy could be done away with – either through peaceful democratic means or violent revolution – and replaced with direct government ownership or control of the means of production with no loss in economic productivity or efficiency.

Mises's landmark contribution in his earlier work, Socialism (1922) was to demonstrate that only with market-based prices expressed through a medium of exchange (money) could rational decision-making be undertaken for the use and application of the myriad means of production to assure the effective satisfaction of the multitudes of competing consumer demands in society.

"Monetary calculation is the guiding star of action under a system of division of labour," Mises declared in Human Action, where he refined his argument and replied to his collectivist critics. "It is the compass of the man embarking on production." 

The significance of the competitive process, as Mises had expressed it in his earlier volume, Liberalism (1927), is that it facilitates "the intellectual division of labor that consists in the cooperation of all entrepreneurs, landowners, and workers as producers and consumers in the formation of market prices. But without it, rationality, i.e., the possibility of economic calculation, is unthinkable."

Economic Irrationality of Central Planning and Interventionism

Such rationality in the use of means to satisfy ends is impossible in a comprehensive system of socialist central planning, once again he insisted in Human Action. Mises asked, how will the socialist planners know the best uses for which the factors of production under their central control should be applied without such market-generated money prices?

Mises24Without private ownership of the means of production, there would be nothing (legally) to buy and sell. Without the ability to buy and sell, there would be no bids and offers, and therefore no haggling over terms of trade among competing buyers and sellers. Without the haggling of market competition there would, of course, be no agreed-upon terms of exchange. Without agreed-upon terms of exchange, there are no actual market prices. And without such market prices, how will the central planners know the opportunity costs and therefore the most highly valued uses for which those resources could or should be applied? With the abolition of private property, and therefore market exchange and prices, the central planners would lack the necessary institutional and informational tools to determine what to produce and how, in order to minimise waste and inefficiency.

It was for this reason that Mises had declared back in 1931:

From the standpoint of both politics and history, this proof [of the ‘impossibility’ of socialist planning] is certainly the most important discovery by economic theory  . . . It alone will enable future historians to understand how it came about that the victory of the socialist movement did not lead to the creation of the socialist order of society.

At the same time, as Mises demonstrates in Human Action the inherent inconsistencies in any system of piecemeal political intervention in the market economy. Price controls and production restrictions on entrepreneurial decision-making bring about distortions and imbalances in the relationships of supply and demand, as well as constraints on the most efficient use of resources in the service of consumers.

The political intervener is left with the choice of either introducing new controls and regulations in an attempt to compensate for the distortions and imbalances the prior interventions have caused, or repealing the interventionist controls and regulations already in place and allowing the market once again to be free and competitive. The path of one set of piecemeal interventions followed by another entails a logic in the growth of government that eventually could result in the entire economy coming under state management. Hence, interventionism consistently applied could lead to socialism on an incremental basis.

Monetary Manipulation and the Business Cycle

Mises26The most pernicious form of government intervention, in Mises's view, was political control and manipulation of the monetary system. One of Mises’s most important contributions to economics had been in 1912 with his book, The Theory of Money and Credit, followed in 1928 by Monetary Stabilization and Cyclical Policy.

Contrary to both the Marxists and the later Keynesians, Mises did not consider the economy-wide fluctuations experienced over the business cycle to be an inherent and inescapable part of the free-market economy. Waves of inflations and depressions were the product of political intervention in money and banking. And this included the Great Depression of the 1930s, Mises argued.

He offered a richer and more systematic exposition of his theory in Human Action. Under various political and ideological pressures, governments had monopolised control over the monetary system. They used the ability to create money out of thin air through the printing press or on the ledger books of the banks to finance government deficits and to artificially lower interest rates to stimulate unsustainable investment booms.

Such monetary expansions always tended to distort market prices resulting in misdirection of resources, including labour, and mal-investments of capital. The inflationary upswing that is caused by an artificial expansion of money and bank credit sets the stage for an eventual economic downturn. By distorting the rate of interest — the market price for borrowing and lending — the monetary authority throws savings and investment out of balance, with the need for an inevitable correction.

The "depression" or "recession" phase of the business cycle occurs when the monetary authority either slows downs or stops any further increases in the money supply. The imbalances and distortions become visible, with some investment projects having to be written down or written off as losses, with reallocations of labor and other resources to alternative, more profitable employments, and sometimes significant adjustments and declines in wages and prices to bring supply and demand back into proper order.

Mises27The Keynesian revolution of the 1930s, which then dominated economic-policy discussions for decades following the Second World War, was based on a fundamental misconception of how the market economy worked. What Keynes called "aggregate demand failures" (to explain the reason for high and prolonged unemployment) distracted attention from the real source of less-than-full employment: the failure of producers and workers on the "supply side" of the market to price their products and labour services at levels that potential demanders would be willing to pay. Unemployment and idle resources were a pricing problem, not a demand-management problem. Mises considered Keynesian economics basically to be nothing more than a rationale for special-interest groups, such as trade unions, who didn't want to adapt to the reality of supply and demand, and what the market viewed as their real worth.

No Alternative to a Functioning Free Market Economy

Thus Mises's conclusion in Human Action from his analysis of socialism and interventionism, including monetary manipulation, was that there is no alternative to a thoroughgoing, unhampered, free-market economy — and one that included a market-based monetary system such as the gold standard.

Both socialism and interventionism are, respectively, unworkable and unstable substitutes for capitalism. The classical liberal defends private property and the free-market economy, Mises insisted, precisely because it is the only system of social cooperation that provides wide latitude for freedom and personal choice to all members of society, while generating the institutional means for coordinating the actions of billions of people in the most economically rational manner.

But the heart of the interventionist system is government control of the monetary system — indeed, it a system of monetary central planning through the institution of central banking. During the Second World War, the German free-market economist Gustav Stolper, then in exile in America from war-torn Europe, pointed out in his book, This Age of Fables (1942):

Hardly ever do the advocates of free capitalism realise how utterly their ideal was frustrated at the moment the state assumed control of the monetary system…. A ‘free’ capitalism with government responsibility for money and credit has lost its innocence. From that point on it is no longer a matter of principle but one of expediency how far one wishes or permits governmental interference to go. Money control is the supreme and most comprehensive of all government controls short of expropriation.

Stolper went on to say,

There is today only one prominent liberal theorist consistent enough to advocate free, uncontrolled competition among the banks in the creation of money. [Ludwig von] Mises, whose intellectual influence on modern neo-liberalism was very strong, has hardly made one proselyte for that extreme conclusion.

Mises28It is in the pages of Human Action that Mises details the advantages and benefits of a private competitive banking system based on a commodity such as gold. Fortunately, over the last thirty years or so, Mises's analysis and defense of gold-backed, private competitive banking in place of government-monopoly central banking has finally begun to win over a growing number of Austrian economists and other advocates.

Too Big to Fail Means Moral Hazard

Since the financial crisis of 2008-2009, the argument often has been made that some banks are too big to fail, that depositors need to have their various types of bank accounts protected and guaranteed, and that the repercussions of allowing the financial markets to adjust to the post-boom reality would be too harsh. Mises responded to these types of arguments in 1928 even before the Great Depression began and again in the pages of Human Action, with a warning about what today is understood as "moral hazard," the danger of reinforcing the repetition of bad decisions by the government bailing out mistakes made in the market:

In any event, the practice of intervening for the benefit of banks, rendered insolvent by the crisis, and of the customers of these banks, has resulted in suspending the market forces which could serve to prevent a return of the expansion, in the form of a new boom, and the crisis which inevitably follows. If the banks emerge from the crisis unscathed, or only slightly weakened, what remains to restrain them from embarking once more on an attempt to reduce artificially the interest rate on loans and expand circulation credit?
    If the crisis were ruthlessly permitted to run its course, bringing about the destruction of enterprises which were unable to meet their obligations, then all entrepreneurs — not only banks but also other businessmen — would exhibit more caution in granting and using credit in the future. Instead, public opinion approves of giving assistance in the crisis. Then, no sooner is the worst over, than the banks are spurred on to a new expansion of circulation credit.

The Continuing Relevance of Mises’s Human Action

Just as there was a huge shift toward more and bigger government in the years leading up to Mises's writing of Human Action, so today there are still many across the political spectrum who a call for a similar expansion of governmental presence and domination of even more of social life, especially in health care, education, and the energy sector — as well as a much greater control over the financial and capital markets.

But where will all the money come from to fund this new gargantuan largess for expanded political paternalism? In the Austria of the interwar period of the 1920s and 1930s, Mises had witnessed and explained the consequences from unrestrained government spending that finally resulted in the "eating of the seed corn" — capital consumption.

Mises29Mises warned of this danger, too, in Human Action, and the fact that there must be a point at which the interventionist welfare state will have exhausted "the reserve fund" of accumulated wealth, after which the consumption of capital becomes the only basis upon which to continue to feed the fiscal demands of the redistributive state. Those currently in political power in the world’s capitals seem hell-bent on bringing this about in the decades ahead.

Many of the political-economic trends since the original appearance of Human Action in 1949 have done nothing, therefore, to diminish the importance of Ludwig von Mises’s insight and profound analysis of the market order and its collectivist alternatives. Indeed, the social, political, and economic conditions of our world today give Ludwig von Mises's treatise a refreshing relevance matched by few other works written over the last century. That is why it is being read by more and more people today, rather than simply being one of those many "classics" collecting dust on a shelf.

If enough people discover and rediscover the timeless truths in the pages of Human Action, the ideas of Ludwig von Mises may well assist us in stemming the growing tide toward an even larger Leviathan State.

 


Lawrence W. Reed is President of the Foundation for Economic Education and the author of Great Myths of the Great Depression and the forthcoming book, Real Heroes: Inspiring True Stories of Courage, Character and Conviction.
Richard M. Ebeling is BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was president of the Foundation for Economic Education (FEE) from 2003 to 2008.
These posts first appeared at the Foundation for Economic Education (FEE), with which Mises was associated, and who have just released a new digital edition of Mises’s classic for both iBook and Kindle:

Mises30
Mises31

.