[First published on Free Life]

During an economic malaise one of the endless reams of statistics to which pundits glue their eyes is the number of jobs that are either created or destroyed. The state 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 fired buoys their hubristic impression that we must be on the road to recovery.

In the first place, we might as well point out that, for as long as humans strive to create more wealth, there will never be a shortage of demand for productive work. Labour is the ultimate scarce commodity – however much machinery we have and whatever our state of technological progress there is no production process that does not require an input of labour (any such process which did not require labour would essentially be producing free goods). Thus, the phenomenon of involuntary unemployment is made possible only by the artificial costs and restrictions that the state places upon employers – such as minimum wages, health and safety laws, working time restrictions, taxes, compulsory national insurance contributions, etc. – which mean that employers and employees cannot work together on terms that are acceptable to them. This is on top of the distortions and upheavals of state-induced business cycles which create clusters of bankruptcies and redundancies in the first place.

That aside, however, the 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 not the end result of economic progress; rather they are the means towards achieving our valuable ends with the scarce resources available. They are the toil and suffering that we have to undertake in order to get what we want because we do not live in the Garden of Eden.

Our ideal situation would be to have everything we want without having to have any jobs at all. How wonderful life would be if we could just sit back and have anything we desired at the touch of a button! Economic progress fuelled by greater capital investment moves us closer to this nirvana – it permits us to have more and more of what we want for less effort. Our focus, therefore, is not on jobs per se but, rather, on what these jobs can produce – the outcome of our labour and not that labour itself. We should not be aiming to create more jobs and more work without a view as to how they will increase our welfare.

The state, however, does not tend to take this view and ends up, instead, engaging in useless job creation programmes that waste resources rather than create them. The most deliberately ridiculous example of such a programme is the state paying people to dig holes in the ground and then fill them up again. This would cause the official unemployment figures to go down; the stock market would probably rally; the currency would strengthen. And yet these “jobs” have produced absolutely nothing whatsoever because no one has gained anything from those holes being dug and refilled. All of the time and effort put into administering and fuelling these jobs simply depleted the world of valuable resources rather than added to them.

In the real world, such programmes take the form of the state providing artificial stimulus or subsidies to industries that are not otherwise economically viable; state “job creation” programmes; and not to mention, of course, the endless ream of bureaucrats that the government employs directly. Creating artificial jobs – funded by the state’s payroll – that create no wealth whatsoever simply papers over the cracks of an unsound economy. Yes, more people feel better as they have more pounds in their pocket and are probably not worrying about where the next meal will come from. However, all that has happened is that those who were already working productively are now subsidising 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 the better the economy must be 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 the state look good. “Full production” and not “full employment” should be our mantle. The only way forward, therefore, is to reduce the stranglehold of the state over the economy so that businesses are free to invest more money to create more jobs that will produce more wealth.

[First published on Free Life]

The belief that economic progress is boosted by consumption is based upon the kind of misunderstanding that could be made only by intellectuals – the product of theorising that is completely detached from the common sense that everyone else possesses.

The misunderstanding is based on a conflation of the desire to consume on the one hand with the act of consumption on the other – or, in other words, it confuses motive with cause.

All economic progress is motivated by the desire to achieve consumption – in other words, to satisfy as many of our ends as possible. Without any desire to consume or to satisfy any ends there would never be any economic activity whatsoever. Thus, the bigger our desire for consumption then the greater will be our efforts to speed up economic progress.

However, economic progress is not caused, or brought into being, by the act of consumption. Rather, the act of consumption is the result of economic progress (i.e. of increased production). Actually consuming is what we to do in order to reward ourselves once we have produced something – it is not what we do in order to start production in the first place. Indeed, as is so often the case with realities that are hidden by myths, this truth is intuitive – you cannot consume a good unless it has first been brought into existence by production.

At any one moment in time there is an array of produced goods available to us. Each of us faces a basic choice as to what to do with these goods – consume them now, or turn them into productive capital goods that will yield a greater output of consumption goods in the future. The latter is the path to economic progress. If, however, we choose the first path – consumption – all we do is reduce the number of goods available to us and we are left with less. We may have achieved immediate satisfaction but we now have fewer resources left with which to produce more in the future.

For example, if I burn a log of wood to keep warm I cannot then use that log to build a fishing boat later on. Rather that log is gone forever and I will now have to labour in order to search for fresh building materials if I am to make good this loss. A farmer who decides to eat the seeds for crops in the spring will then have nothing to sow come harvest time, and will be left with barren and empty fields rather than lush acres full of wheat. Beyond the point of providing nourishment and sustenance to the human body the act of consuming of these goods will not provide any economic progress.

Consumption, for the most part, is the destruction of what we have. Economic progress is the transformation of what we have into something that will produce more for us in the future. If we choose the second option – that of turning our goods into productive resources – rather than destroying the resources available to us we will invest them in productive enterprises that raises the yield of consumer goods in the future.

The key to promoting economic progress, therefore, is not to encourage the act of consumption, which equates with an act of destruction. Rather it is to encourage production and a direction of a greater proportion of our resources available today towards saving and investment so that we may consume more in the future.

This is particularly important following a bust that results from a boom or bubble inflated by credit expansion. With so many malinvestments left starved of resources the best thing we can do to minimise the pain is to increase the proportion of saving and investing so that at least some of the doomed projects may realise a degree of viability. Instead our economic lords and masters misdiagnose the problem as a “lack of demand” and encourage us to borrow, spend and consume which only exacerbates the losses experienced by those projects that were started in the boom.

Nothing that has been said here should be taken as a condemnation of consumption or an exaltation of saving and investment. We all have to consume in order to live and it is ultimately up to the individual how much he desires to consume and how much he desires to save. However, once one has made the choice to achieve more wealth then this must begin with production, saving, and sound investment which is rewarded by greater consumption later on. Consumption will never lead to growth, and it is important for Austro-libertarians to point out this grave fallacy.

[First published on Free Life]

One of the positive indicators of our so-called economic recovery bandied about not only in the media but also by our monetary lords and masters at the head of central banks is the idea that rising prices are a sign of economic recovery. This mistaken belief is part of a wider myth that views the economy as little more than a giant number – a number which, if going up, means things are good and getting better, and if going down means the situation is bad and getting worse.

Theoretically the market price for any good is never “good” or “bad”; it is simply a function of the supply and demand for that good. The only way in which we can say that the market price is “good” is that both parties to a transaction are satisfied with that price and, thus, both have received an increase in welfare as a result.

That aside, however, surely economic progress is marked by an increasing abundance of goods and services – that more and more stuff is being produced for each hour of work? Therefore, if goods and services are increasing in supply then shouldn’t this lead to decreasing prices rather than increasing prices? If so, then increasing prices must indicate the opposite – a decreasing supply of goods relative to the money used to buy them and, consequently, greater impoverishment.

Contrary to the “wisdom” of so-called experts, such facts are intuitive – stop any number of strangers in the supermarket and they will almost certainly tell you that they want everything on the shelves to be cheaper, not more expensive. They will tell you also that they would be better off if they could buy more with the money they have in their pockets rather than less. Thus it is a travesty for economists and talking heads to call for even a “modest” degree of price inflation unless they are keen to promote destitution. Such inflation means that those of us with fixed incomes are forced to sit by and watch the purchasing power of our wages drop, unable to continue to afford to buy things because the “recovering” prices put them out of our reach.

The “recovery” of rising prices is just as ridiculous when it refers to rising asset prices rather than consumer prices. This kind of “recovery” has nothing to do with whether life is getting better for Joe and Jane Average. Rather, it means that there has been a localised recovery and improvement for a select group of people – those who borrowed cheap money heavily during the boom (mostly the politically connected big banks and investment houses) and ploughed it into stocks, bonds, property, etc. They can now breathe a sigh of relief as the prices of those assets once again begin to rise with the new round of monetary inflation.

In the UK this can be seen most clearly in the specific arena of house prices. Rising house prices are great for those who already own houses, boosting their wealth and allowing them to take out second mortgages or other equity release schemes to finance increased spending on their lifestyles. At some point, however, the prices rise so much that purchasing a property becomes an almost impossible expense for those who are not yet on the so-called “property ladder”. Government schemes to help “first time buyers” simply exacerbate the situation as they permit more money to chase the existing stock of housing.

A general economic recovery is not based upon rising consumer or asset prices buoyed up by paper money. It is created by a sound monetary order that allows entrepreneurs to allocate resources to where they are most urgently desired by consumers and to, slowly but surely, increase the economy’s accumulation of capital goods. The result should be a gradual secular price deflation as more and more goods are produced, meaning that the money in the hands of the lowest earners gradually increases in value. Consequently, everyone grows wealthier and more prosperous instead of just the super rich.

Browsing through a single day’s worth of articles on the libertarian website lewrockwell.com is enough to confront one with a smorgasbord of despair:

The website – amongst the best read of all libertarian websites in the world – is almost unique in its unfailing commitment to draw attention to many of these important aspects. But it is difficult to quell a swelling of pessimism when faced with this kind of line up.

Nevertheless, it is vital not to lose optimism in the face of such adversity. And while it may seem that the noose of retrogression into tyranny and oppression is tightening its stranglehold on the average citizen, there are several key reasons for us to remain optimistic.

The first is that – in spite of the increased efforts of censorship and “cancel culture” – it is far easier to disseminate alternative ideas and information today than it was just a generation ago. True enough, the dominance of “big tech” and traditional media outlets may mean that such ideas seldom come to the direct attention of the masses. But they can can be obtained within seconds from any corner of the globe by those who are prepared to look for them.

We must remember, of course, that technological development is not the be all and end all. After all, digitisation and instant communication in particular are in the process of being deployed in the service of regimentation and control as much as freedom. Moreover, a specific problem with the internet is that people can go looking for the answers they want rather than for the truth. Ultimately, whether technology is beneficial depends upon whether the people that use it are motivated towards good or towards ill.

Nevertheless, now that it is out of the bag, it is unlikely that the relative increase in the freedom of information will ever be brought entirely back under the thumb of the establishment/mainstream in quite the same way as it was before. Indeed, the very reason that the state and its big tech minions have had to resort to beavering efforts at censorship is because the truth is now something that they are struggling to keep a lid on. In fact, these efforts often have the opposite effect from that intended. For instance, anything debunked by a comical “fact checker” is fast becoming a marker for something that the state doesn’t want you to know.

The second and more important reason, however, is that – in spite of an accelerating cost of living crisis – we are still enjoying an extraordinarily high standard of living. In spite of the plunder and pillage of more than a century of marching statism, we are clearly not living in the Stone Age. Indeed, it is reasonable to characterise the relative descent of Western civilisation as being one into a state of “luxury barbarism” – cultural and spiritual depravity in a milieu of relative, material prosperity.

The achievement of this level of prosperity is unique in human history. Whereas pre-industrial generations could only accept their meagre lot in life, it is difficult to comprehend how this attitude could be repeated today. For the average Western citizen in 2022 lives far more luxuriantly than did a king of the Middle Ages. Not only is our time that of the PC, the iPhone, and other gadgets but also of such "humbler" wonders such as cars, refrigerators, supermarkets stacked full of food, clothes shops, and an almost endless array of products that can be bought from some outlet somewhere for a relatively modest (if now increasing) price. Critically, however, these items are not viewed as luxuries. Rather, they appear to us almost as a phenomenon of nature, a given. Indeed, the common suggestion that people should have “rights” to food, housing, healthcare, clean drinking water and so on is, however misguided, a demonstration of this attitude.

This standard of living requires the maintenance and growth of its underlying capital structure – all of the machines, tools and factories that are used to produce everything that we want to a buy at a high enough volume to make them affordable. As we know from "Austrian" economics, this structure can be produced and nurtured only under a regime of private property and free exchange. In spite of an assault from all sides, both practically and ideologically, it is because this order has remained relatively intact that its productive tendency has often been able to mask much of the statist rot. During the 1920s, for instance, productivity was so high that prices still managed to decline in the face of excessive increases of the money supply. And even today the fact that the world still holds together suggests that capitalism and freedom are, for the most part, still working as best as they can.

The upshot of this is that the elites’ room to manoeuvre in effecting grand, societal transformations towards some kind of different order may be altogether rather limited.

For one thing, it is doubtful that building and maintaining the infrastructure required to run their own digital gulag could be accomplished without leaving the productive capacity of the economy relatively intact.

Second, their own standards of living are now dependent on goods and services which, in turn, rely on a high degree of capital accumulation stretching back through many stages of production. Corporate jets aren’t assembled out of nowhere (Leonard Read’s I, Pencil shows how even the simplest of goods relies upon a fiendishly complex chain of production). It cannot simply be the case that they could achieve a transition to a more centrally controlled economy while guaranteeing that their own luxuries would remain easily available. Indeed, one of the reasons why socialism has always been born out of capitalism is because it is only when free individuals are able to become so productive that the state has a source of wealth for it to confiscate. Once that wealth runs out, even the state’s apparatchiks can become disillusioned with the system.

And finally, when people have become accustomed to living as they do, then it is difficult for the power hungry to tread a path that would severely diminish that standard of living. This does not mean to say that such a policy will be not be pursued, nor does it suggest that people will not clamour to the existing elites for “solutions”. But it is an extremely risky path to tread, not because people will necessarily storm the parliament buildings with pitchforks and torches, but because it makes people receptive to other ideas that could solve the problem. As such, the elite control over the narrative becomes vulnerable, particular if people are willing to search for other answers. Indeed, we have seen this happen twice already before the present crises even got going: with the vote for Brexit and the election of Donald Trump as US President.[1]

In fact, it is each of these events that likely led to elite panic, waking them up to the fact that they are not as in control as they thought they were. There is no reason why, as things get worse, these kinds of victory cannot be repeated. It may be the case that these elites have a stranglehold over the top echelons of government, industry and commerce so as to ossify the official business of public policy making. But in the long run, every regime, at any time and place, cannot survive without at least the passive acceptance of the majority of the population it claims to rule.

For this reason, therefore, I remain a relative, if cautious, optimist for the cause of freedom and prosperity in the long term. Cautious because, even though any plans for global socialism will not succeed in the long run, the attempt to make them work can cause a terrifying amount of damage in its own right. But I am optimistic in that the capitalistic structure of the Western world is still mostly all there, and that - fingers crossed - our "leaders" will be forced to abandon plans for any radical transformation long before any major collapse.

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Notes

[1] Such a search is not limited to alternative economic ideas. It is quite possible that the entirety of secular liberalism will be brought into question, prompting something of a religious or spiritual revival. Indeed, such a revival may be essential to secure a firmer foundation towards the rejuvenation of a freer world.

Conventional thinking about social, political and economic matters tends to narrow the options available to a set of policies advocated by two, possibly three political parties of scarcely dissimilar ideologies. Any genuinely radical approach concerning these topics is abandoned given that the fundamentals are deemed to be beyond question. Thus, alternatives to these entrenched matters – such as whether the state should have any positive role at all in anything – are seldom given the light of day, let alone the opportunity of being debated.

This phenomenon, presenting a distinct challenge to anyone with radical views, is known as the “false dilemma”: the illusion that the only choice is between a very constricted range of possible options, preserving the status quo in favour of the state and its cronies while at the same time bestowing the illusion of control on a gullible electorate.

One effect of this ossification is to obliterate a very basic, but critical truth: that all humans are able to flourish while co-existing peacefully. For instance, those pundits and politicians claiming to be either “conservative” (or otherwise leaning to “the right”) may believe that business should be “helped” in order to boost “economic growth”; at the same time, they may say that cuts should be made to welfare and to public services in order reduce the government “deficit” while slimming down the cash cow that the benefits system has become to the allegedly lazy and unproductive. Those identifying with “the left”, on the other hand, may believe that a strong welfare state, heavy taxes on the wealthy and increased government spending are needed to end the scourge of poverty.

Each of these points of view contains a kernel of truth. It is true, for instance, that business needs to flourish if there is to be any economic progress at all, while the need of the state to reduce its profligate borrowing, taxing and wasting with all due haste is beyond question. On the other hand, it does not seem just that a society should apparently produce vast quantities of wealth for a few while leaving others to languish in stagnating poverty. Moreover, even though their own economic prescriptions are dire, the left is correct to point out that wealth creation is not a “top-down” (or, to use the more familiar phrase, “trickle down”) process; prosperity will not result from stocking the tables of the rich with plenty so that everyone else can catch the falling crumbs. But the constraint of these narrow views tends to channel all political choices into being between two broadly defined groups of people in society: those who are “rich” and those who are “poor”, with what is gained by one group necessarily being lost by the other.

This impression is exacerbated by the fact that the political parties whose rhetoric represents these different points of view never end up achieving their aims (assuming they ever intend to do so in the first place, of course). State subsidy, “bailouts” and the cartelisation of businesses will never create any genuine economic prosperity ahead of perpetuating malinvestment and waste (although they do manage to save the politically connected from the consequences of their actions while leaving everyone else to foot the bill). On the other side, increased government spending and a burgeoning welfare state only siphon funds from the productive sector to be equally consumed and wasted by the state. Moreover, by providing a cash cushion for poverty, unemployment and sickness, the welfare state ends up becoming a permanent, industrial scale enterprise. If neither side is able to achieve its stated aims, then they each provide plenty of ammunition for the opposition, leading to a negative feedback loop that ends up exacerbating this apparent basic gulf between “rich” and “poor”.

If we are ever to establish genuine, sustainable prosperity, we must seek for a repudiation of this false choice and a restoration of the understanding that everyone can prosper side by side.

At the heart of the problem is the equally false belief that the state itself has a necessary part to play, and, as such, must do something for somebody in order to create a better world. Each faction tends to deploy a curious mixture of economic and ethical arguments to select whom government should help on the one hand and to whom it should deny that help on the other.

Take, for example, the supporters of big business. They will say that it is right to use taxpayers’ money to, say, bail out the banks in order to avoid a complete financial meltdown. Conveniently their “chums” in the city will reap fat rewards from doing so. But they then deny this very same method – the diversion of taxpayers’ money – to welfare programmes aimed at helping the poor on the grounds that people should work for what they earn without leeching from the productive. In other words, so-called “benefits scroungers” should get off their backsides and find a job. Thus, they emphasise economic arguments in justifying corporate welfare while using ethical ones to deny personal welfare.

Their “lefty” opponents, on the other hand, will argue that throwing cash at the rich who made mistakes is unjust, and that they should be left to foot the bill themselves. Yet they then state that welfare spending is needed to eliminate poverty and fuel growth from the “bottom up”. So they too deny the flowing of taxpayer’s cash to certain groups based on ethical grounds, but then promote it’s payment to others based on economic grounds. Each side, will of course, pepper their ethical arguments with economic ones and vice versa – the “right”, for example, will, as we have said, argue that welfare spending needs to be cut in order to reduce government outlays, while the left will argue that alleviating poverty is a just and noble cause. But the main thrust of each side’s opinion cannot be denied.

If we unscramble all of this by looking at the ethical and economic arguments separately, we will find that there are no grounds whatsoever for any state involvement. If it is unjust to violently confiscate tax revenue from innocent citizens to fund the lifestyle of bamboozling bankers then it is equally unjust to do the same to fund the lifestyles of those who are poorer. The difference is one of degree rather than of kind. Nobody, whether he is a prince or a pauper, a saint or a sadist, or a capitalist or a labourer has the right to wrestle away the property of other people for his own benefit. From the economic side, bailing out bad business will simply perpetuate the moral hazards and malinvestments that need to be eliminated from the economy; at the same time, continuous funding of “the poor” through welfare spending will only exacerbate poverty as it reduces the incentive for people to lift themselves out of that position, while, at the same time, diminishing the role of benevolence and charity for the genuinely needy. And, in any case, the state would do a lot more for the poor if it stopped interfering in wealth creation in the first place; prosperity, not charity, is what truly eliminates poverty.

The real choice, therefore, is not between “rich” and “poor”, “left” or “right”, “employer” and “employee”, “Conservative” or “Labour”, “Republican” or “Democrat”, or whichever other faux division that the establishment throws at us. The real choice we have to face is, on the one hand, continuing with a political and economic system that will only result in a parasitic existence for whomever happens to secure political favour in the moment; or, on the other hand, we could choose a system in which nobody has the violently enforceable right to live at the expense of everyone else, and where everyone is free to trade and produce whatever he wants with his own private property – a system that will raise the standard of living for everyone, not just a select few.

Only by considering radical options, and by overcoming the belief that certain assumptions of our society are beyond debate, can we hope to build a world that is both truly just and economically prosperous.