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Economic Myths #14 - Share the Wealth

Clement Attlee is, with little doubt, one of the more notable of Britain’s former Prime Ministers. Apart from the long lasting effects of his legacy he was, in 2004, voted the “Greatest British Prime Minister of the Twentieth Century” in a poll of 139 academics.

Needless to say, with such a high ranking in academic circles, almost every “accomplishment” of the post-war government that he led (with the possible exception of decolonisation) is likely to be an anathema to libertarians. Not only did he nationalise key industries such as the railways, canals, road haulage, coal mining, gas, electricity, telephones and steel manufacturing, he practically created the “cradle-to-grave” welfare state, the jewel in the crown of which was the now untouchable sacred cow, the National Health Service. Furthermore, he successfully entrenched the “Keynesian consensus” – the idea that full employment would be maintained by Keynesian fiscal policy – that was to unite all parties of any stripe for the three decades ending with the election of Margaret Thatcher’s government.

With such profound and fundamental changes to British society, many of which are still felt today, it is important to have an insight into Attlee’s motivations towards the legislation that his government passed.

Attlee’s own background, (not unlike that of most left wing intellectuals) was decidedly non-working class. The son of a solicitor, he was raised in Putney, an area of London populated by the professions. He was educated at an independent school and later read Modern History at University College, Oxford. He was not exactly born with a silver spoon in his mouth but neither was he consigned to a life of working in factories or down the coal pits.

According to Wikipedia, Attlee’s original political leanings were conservative. It was only after he spent three years managing a charitable institution for working class boys in Stepney, East London, that he “came to the view that private charity would never be sufficient to alleviate poverty and that only direct action and income redistribution by the state would have any serious effect”. Thereafter, he became a “full-fledged supporter of socialism”.

With such self-assuredness, can we expect Attlee’s post-war government to have come close to (as the infamous Beveridge Report that influenced his government’s policies put it) “abolishing want”? Unfortunately, the facts speak otherwise:

Coal production in 1947 fell seven million tons below the output of privately owned mines ten years earlier, resulting in a three week industrial power cut in London and the Midlands;
The government constructed 134,000 fewer homes per year at a higher cost per unit than were built in either of the two years preceding the war;
Wages were frozen to wartime levels while the cost of groceries soared as their supply declined;
When US and IMF loans dried up, the costs had to be borne by the British working man, leading to the “taxation and tears” budget of 1949.[1]

And summing up the welfare state:

The [Beveridge] plan merely furnished a thin cushion against total disaster for the most impoverished third of the population. True, every citizen (whether or not he needed it) was entitled to prenatal care, a birth subsidy, hospitalization and medical care of sorts, unemployment insurance, an old-age pension, funeral costs, and an allowance for his widow and dependent orphans. The subsidies and allowances were tiny, and, with mounting inflation, barely sufficed for the poorest – sixteen dollars at birth and eighty dollars for a pauper burial. Medical services were spread so thin that even at the price of nationalizing the existing medical profession, it was impossible to guarantee first-rate care. With food rations hovering near the starvation level, sickness became more frequent and national; production fell still lower. So poverty was not eliminated but increased to plague proportions, and life was a nightmare for everyone but the most dedicated bureaucrats. A man might have “social security,” yet he could not go out and buy a dozen eggs. After four years of Socialist government, he was only entitled to an egg and a half per week, as decreed by Marxist No.1, John Strachey, Fabian Minister of Food and Supply.[2]

The origin of Attlee’s political views betrays his belief in a common economic error, a belief that can clearly have disastrous consequences if its holder happens to one day become the leader of his country.

The view that either private charity or forced redistribution is the solution to poverty is based on the flawed notion that there is a fixed pool of wealth for everyone – that when one person possesses wealth it necessarily results in another person being without it. From this false premise it follows that the alleviation of the poverty of one person requires wealth to be disgorged from another.

The solution to poverty, however, is that wealth is created and not simply redistributed – the pie gets bigger and not just chopped up in a different way. Capitalism and the free market, far from creating haves and have-nots, involves the progressive accumulation of capital that produces more products at cheaper prices that everyone can buy. More factories, more machines, and more tools that produce a greater supply of goods for less and less effort serve to alleviate material poverty. All of us become better off as a result.

If, on the other hand, wealth is to be confiscated from some and redistributed to others, it retards this very process of wealth creation. While a specific redistribution may allow the beneficiaries to afford to purchase a bit more in the short term, in the long run there will be less work, less saving, and less capital investment and accumulation. The number of products produced will fail to increase and thus their prices will remain high and out of the reach of the poor. Redistribution is, therefore, a temporary solution at best. At worst, it traps the people permanently in the stagnant poverty that you are trying to get rid of.

Let us imagine ourselves, for one minute, as employees of the charitable institution of which Attlee was manager. How do we interpret that which we may see every day? From some kind of absolute standard, the poverty and destitution of the slums in the East End of London may have been “terrible” or “bad”. No one would ever seek to deny this.

However, it is important to realise that poverty, fundamentally, is not caused by humans but by nature. The Earth is not, and never has been, the Garden of Eden, full of delicious goodies that are ripe for our picking. The first person who trod the virgin soil of the Earth was in a position of absolute, crippling poverty by our modern standards. All he had was himself and his bare hands – no shelter, no food, no clothes, no tools, absolutely nothing. (Indeed, we might ask, how on Earth would “redistribution” have helped him when there was nothing to distribute!). But from the moment he dug the soil with his hands, from the second he picked up the first plank of wood to build into a shelter, from the day he fashioned a tool from basic materials such as a rock and a stick, so began the long, slow process of capital accumulation and wealth creation, a process that only really began to accelerate in the early 1800s.

Humans, in other words, have to work to overcome the natural state of poverty in order to build up a civilisation as prosperous as the one we have today. To view a snapshot of this process at any one moment in history and to declare, self-righteously, that “those people over there are in poverty!” is to judge this march of progress against an ideal – as if the earth should be the Garden of Eden. The appropriate standard against which to make a judgement, however, is the best that can be done given the eternal condition of scarcity.

If, therefore, one was to cry “something must be done” upon witnessing an “appalling” condition, one ignores the possibility that something is already being done and has currently reached its best possible stage before moving forward to bring greater things. Wealth creation and capital accumulation takes time – we did not get refrigerators and cars the very moment the first person on earth decided to get off his backside and start working. But this process has caused the percentage of people living on one dollar a day to fall from 85% to 20% in two hundred years – and that achievement has been accomplished while the population has multiplied five or six times.

The only way, then, by which we can judge that there is “too much poverty” at any one time is to ask a single question – is there anything that is slowing down or causing an artificially imposed constraint upon the process of wealth creation?

The answer can only be what Franz Oppenheimer referred to as the “political means” for an individual to gain wealth – that, rather than work oneself to use unowned resources, or to trade goods voluntarily with others, one confiscates them violently from people who already own them.

Although we can see that Attlee’s solution – redistribution through the welfare state – is a major part of the “political means”, so too is any restrictive and regulatory encroachment upon private property. In Attlee’s day, we can point to the fact that the decade of his birth, according to historian David Cannadine, marked the peak of aristocratic power and influence in British society. Today, it is the power of the privileged financial barons of Wall Street that benefit from cheap, freshly printed money, robbing the poor of the their purchasing power and ploughing it into fake assets, causing bubbles, malinvestments, booms, busts, unemployment and misery.

If we really want to solve poverty, we should be removing these barriers to wealth creation that favour the privileged elites rather than compounding the entire sorry state of affairs with further economic evils.

Next week’s myth: Unemployment

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Notes

[1] Rose L Martin, Fabian Freeway – Highroad to Socialism in the USA 1884-1966, Western Islands Publishers (1966), Ch. 7.

[2] Ibid., 76.

Wealth Redistribution Charity Poverty Socialism Welfare

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Life and Liberty

20 марта, 2023 17:51

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Economic Myths #11 - The Mixed Economy

[First published on Free Life]

The world’s political systems today are, generally, neither fully despotic on the one hand nor completely free on the other. Instead, most of us languish under so-called “social democracy”, a curious mixture in which a degree of sovereignty in the form of voting rights reside in the citizenry while political leadership and control remains distinct in the form of various functionaries such as Presidents, Prime Ministers, Congressmen and Members of Parliament.

A libertarian might contend, of course, that such a social democratic system ends up being worse for individual liberty than a dictatorship or monarchy. The important point, however, is that the ideological extremes have been blended into some kind of soup which, at least from the de jure point of view, represent neither total freedom on the one hand nor total despotism on the other.

In exactly the same way, neither do our economic systems represent any ideological purity. We are neither fully capitalist nor are we completely socialised. Instead we have to put up with some kind of “mixed” economy that contains both capitalistic and socialistic elements.

Although the relationship between economic and political systems is one joined at the hip, the justification of social democracy on the one hand and of the mixed economy on the other appears to come from different directions.

Democracy, rightly or wrongly, is believed to a good and noble thing in its own right – a positive and independently justifiable improvement over any other option. The mixed economy, however, appears to be based on little more than the intellectually slothful adage that “the truth lies somewhere in the middle”.

Capitalism will bring us massive economic prosperity and improvement in the standard of living – but, so it is alleged, it leads also to unstable business cycles and encourages greed, selfishness and extensive inequalities in wealth and income. Socialism, on the other hand, may make things “fairer” and more equal; yet, in the face of a hundred years’ worth of evidence, it is difficult not to conclude that it decimates the productive capacity of a nation and the standard of living stagnates or even reverses. The “correct” system “must”, so the argument goes, lie in between these two points so that we can take the best of both systems while avoiding the alleged pitfalls. Hence we end up with the mixed economy.

The first question we might as well ask when tackling this fallacy is that if we adopt a position somewhere in between the two “extremes” then what argument is there to suggest that we will end up with the best aspects of each system rather than the worst? In spite of the socialistic element of our economy income inequality and wealth concentration in the hands of a few elites seems to be worsening, not getting better; and in spite of the capitalistic element we have failed to have any meaningful growth since at least the onset of the global financial crisis ten years ago. May be it is the alleged good parts of each system that are cancelling each other out rather than the bad?

The fundamental flaw, however, is that the assessment of capitalist and socialist economies that identifies their good and bad characteristics is partly wrong. These wrongly diagnosed parts are then exaggerated in making the case for a mixed economic system.

The good aspects of capitalism, private property and free exchange – such as economic progress and marked increases in the standard of living – are, as we know from “Austrian” economics, entirely true; the bad aspects, on the other hand – selfishness, inequality, greed, the business cycle, and so on – are largely false or misstated.

Capitalism does not encourage anyone to be greedy or selfish at all – it just gives you the freedom to be either as greedy or as altruistic as you like, provided that you fulfil those ends through voluntary trade and do not engage in outright theft or fraud. The aspect of capitalism that its opponents do not like is that people, when set free, usually choose to pursue their material welfare as the first priority. However, the resulting increase in productivity confers upon people the wherewithal to be more charitable out of choice. Thus we should not be surprised to learn that many of the great charitable or humanitarian institutions – such as the Salvation Army, the YMCA, the Scout Movement and the Rotary Club – were founded in the nineteenth or early twentieth centuries, the relatively most capitalistic period in history.

Moreover, the business cycle, as we know, is not an inherent feature of a free market economy, but is caused instead by the artificial creation of credit, something that is only sustainable with state central bank sponsorship.

However, in spite of these truths, whenever some justification is made for the “mixed” economy, we will still hear “greed”, “selfishness”, “inequality” and “boom and bust” being cited and emphasised in an attempt to cajole people into accepting a blended economic system.

Turning to socialism, we know that such a system would obliterate all productivity and the standard of living would sink far below that to which we are now accustomed. Its bad aspects are, therefore, all true. Yet the good aspects – greater equality, fairness, and anything that can be categorised under the current, in-vogue term of “social justice” – are all patently false.

Socialism does not create any equality at all; it does not result in every portion of wealth in existence being carved up into equal shares for everyone to then enjoy. Instead, it transfers the power over whole resources from private producers (who must maintain their ability to satisfy consumers in order to retain that privilege) to politicians and bureaucrats. Nationalising an industry does not give you, the average citizen, any greater access to the goods and services tied up in that industry. Rather you are pushed further to the bottom of the heap than before as the political lords and masters decide what that industry will produce, what prices you will pay and what level of service you will receive. You are stuck with whatever they decide to give you – providing that the inefficiency and waste of state run industries has anything left to give.

Nor will you have any greater ability to control how resources are used in a socialised economy compared to in a capitalist economy. The very reason why property rights and exclusive ownership exist is precisely because there is no agreement on how resources should be used. This problem exists under socialism as it does under capitalism and one person’s decision must, at some point, overrule all others. If you are to have any influence in this regard in a socialised system then it will be restricted to a handful of catch-all elections every four or five years or so. In the meantime you have to suffer whatever it is that the electoral victors throw down from their table.

Under capitalism, however, your voting influence is felt all the time in a highly specific manner through your spending habits. If a producer fails to produce what you want at a price that you can pay then he loses you there and then, while resources at his disposal are transferred to other producers who can meet your needs. Not so under socialism where you have to put up with whatever the upper elite, controlling all resources, decides will be produced.

Furthermore, providing social safety nets and welfare states in pursuit of some kind of “social justice” does not result in a society that is more caring and sharing. If anything, the adage “from each according to his means to each according to his needs” completely disintegrates any moral fervour. By separating individual productivity from individual reward, wealth creation is no longer an endeavour in which each person tries to better his own life and the lives of his friends and family. Instead, it becomes an exercise in “stockpiling” – the digging of a communal trough to which a person contributes that which he is able according to his “means” and from which he slurps out according to his “needs”. Unsurprisingly, every person seeks to minimise the amount he has to put in through toil and sweat while maximising that which he can take out in goods and services that he can enjoy in return for minimal effort.

The result of this is a population that fails to cultivate its talents towards increasing wealth such as hard work, responsibility and self-reliance and replaces them with characteristics that make them needy and pitiful, with an added layer of laziness, corruption and freeloading. This is precisely the problem faced by our bloated welfare states today and why they are completely bankrupt – demand has swollen to such an extent while supply has been hopelessly dwindled. None of this is exactly the antidote to “greed” and “selfishness” that advocates of the mixed economy might expect.

Moreover, the resulting shortages in a socialist system usually spawn black markets and underground trade, increasing the scope of legally defined criminality and, in worst case scenarios, penalising the population for attempting to acquire what should be every day goods and services – as has happened in the social democratic paradise of Venezuela.

A further fallacy that is often used to justify the mixed economy is the assertion that private enterprise does some things “better” than the state while the state does other things “better” than private enterprise. Thus we are encouraged to look at the “evidence” to decide who can do what better.

The obvious retort to this is by what standard do you conclude that something is being done “better” by either the state or by private enterprise – and, moreover, by what standard do we judge whether a certain activity should be carried on at all?

Private enterprises make this judgment through the profit and loss test; the quantity and quality of resources devoted to production of a good and service is rationed by its ability to make a profit, indicating the relative height of its demand by consumers. If a service is of low quality or unavailable to certain sections of the population it is simply because consumers are not willing to support a more extensive level of production in that particular industry.

For example, the fact that broadband internet was not, in the UK, extended to all rural communities leads our evidence-obsessed policymaker to conclude that this is a case of “market failure” – an instance where the private enterprise has rendered itself unable to provide something that it “should” provide, and so the state must step in.

This is utter nonsense. If the “free market” has failed to provide broadband internet to rural areas then it simply means that the more extensive resources necessary to do so compared to urban areas were required more urgently to produce other goods and services that people wanted to buy. Any “evaluator” who determines from the “evidence” that the state is needed for rural broadband cabling is necessarily substituting his own value judgments for everyone else’s, denying them the goods that they really demand and giving them those that they do not (or, more accurately, denying resources to one set of people who are willing to pay for them in favour of another set who are not).

Nor can we fall back on the assertion that the state should run “essential” industries for there is no such thing as an “essential” industry. Humans do not evaluate goods and services in whole, homogenous concepts such as “fire services”, “health services”, “electricity”, and so on. Rather, each good or service is demanded in specific quantities in specific times and places.

For instance, while we may think of “medicine” as “important” we can easily imagine ourselves in a situation where we would prefer to do something “unimportant” like watching television rather than produce another bottle of penicillin. Moreover, some people may not want penicillin at all if they maintain their health. The difficult task is not, therefore, determining whether penicillin is generally more “important” than television – it is identifying the precise point at which we stop devoting resources to the production of penicillin (and, thus, the point at which continuing to do so would be a waste) and move them instead towards producing television sets. This is something that can be done only by the profit and loss test of the free market. Any other judgment is necessarily arbitrary and at variance with the demands of consumers.

In any case, as libertarians, we might also ask if an industry is really critical then why on earth would you want it in the hands of the state where it can be royally screwed up? And why would it even need to be under state control? If the good or service produced is heavily in demand then profit opportunities will abound and private entities will have no problem in meeting that demand. It is, in fact, the unessential industries with low demand that struggle to stay afloat without state support.

The real reason why we have ended up with the mixed economy is, in fact, pragmatic rather than principled. Capitalism is the goose that has laid the golden egg and any decimation of capitalism would very quickly destroy the standard of living of the citizenry, prompting a swift revolution. Yet the state yearns for power and control and cannot be content with letting things be; it therefore has to paint capitalism as this necessary evil that must be stewarded and supervised – like a dangerous pet which, if managed “correctly”, will cuddle and comfort us instead of biting us on the backside.

Ironically, of course, it is state interference attempting to inject a socialistic element to the economy that brings about the chaos and injustice that is blamed on capitalism. We have boom and bust precisely because of state-sponsored credit creation, while the rich are getting richer and the poor poorer because the government bails out these cronies from the resulting disarray at the expense of the rest of us. Indeed, having a “safety net” against the alleged “sink or swim” nature of capitalism has turned out very well if you are an investment banker. None of this would happen in a genuine, capitalist economy.

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

Next week’s myth: The Deflation Danger

Capitalism Socialism Mixedeconomy Welfarestate Socialdemocracy Democracy

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Life and Liberty

30 янв., 2023 11:49

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Economic Myths #4 – Profits are Evil!

[First published on Free Life]

One of the elements of a capitalist system that induces purple-faced rage amongst statists and progressives is the existence of profit. This residual – the amount left over once an entity has deducted its costs from its revenue – is said to line the pockets of greedy shareholders while exploiting labourers and consumers.

First, it is important to understand what we mean and what we do not mean by “profit”. Here we will be discussing only profits that an entity may earn purely as a result of voluntary trade and free exchange; we do not mean those “accounting” profits that companies may rake in as a result of favourable state regulations, direct subsidy from the state, or any other kind of residual of a trade relationship based upon force. These profits – including bank bailouts and stimulus funding – are rightly to be condemned as unjust and immoral, sustaining the power base of the incompetent, wealthy elite at the expense of everyone else. But such a condemnation must not be allowed to throw out a very precious baby with repulsively filthy bathwater – for profit is one of the most vital elements that gives life to an economic system that relies upon the division of labour.

For the praxeologist profit is, of course, endemic in any human action and not just those based upon monetary calculation. All actions seek to produce better circumstances than those that would prevail if the action had not occurred. For instance, I “profit” from making a ham sandwich for lunch and satisfying my hunger instead of languishing with an empty stomach. All humans in everything they do seek this kind of psychic profit – making more money than before is only one possible form that profit takes, rather than its definition.

Strictly speaking, therefore, any condemnation of profit would be a performative contradiction as, in the mind of the critic, the satisfaction of disseminating a condemnation of profit would be a better circumstance than not having done so. Although such a technical, theoretical argument is unlikely to appeal to the mass of lay persons who view profits as evil and unjust, it is important to understand these roots of the concept for here we can see the importance of the profit motive – the stimulus for engaging in enterprise in the first place. Without the possibility of earning profit – i.e. a better circumstance than that which prevailed before – no entrepreneur or inventor would ever bother developing and bringing to market all of the wonderful products that make our standard of living so high.

Abandoning for a moment our commitment to wertfrei economics and embracing the belief that anything that benefits the consumer or labourer is “good” while anything that harms him is “bad”, let us examine two or three specific, recurring myths concerning the concept of profit.

First, let us deal with the allegation that businesses are “fleecing” consumers and workers by overcharging for their products and underpaying wages in order to line the pockets of the fat cats. Profits are not, in fact, achieved by “fleecing” anybody. The amount of profit is only ever determinable in retrospect after all of the consumers have purchased their wares and all of the workers have been paid their wages. At the time that the consumers bought the products and the workers negotiated their terms of employment nobody knew what the profit was going to be. Indeed, nobody knew whether there would be any profit at all and whether the business was heading for a loss. Employers do, of course, have an aim for profitability and their initial calculations may form the motivation to engage in a particular enterprise as well as determining the boundaries of their productive action. However, what they cannot do is to force the outcome to agree to their projections. Rather, they must be prepared to be the highest bidder for inputs and the lowest seller for outputs in order to ensure that they can purchase resources on the one hand and then sell the resulting products on the other. This process is fraught with uncertainty, and a certain line of production which may, hitherto, have been profitable may find itself in a sudden state of generating losses. All it may take for this to occur is a marginal increase in costs as a result of competing entrepreneurs bidding away resources to other uses, coupled with no corresponding increase in sales; or, consumer tastes may change and competing products and services become more attractive options.

Therefore, it is difficult to understand how someone feels “fleeced” at the time they purchased a product or took on a job when no one, at that time, has any idea whether the prices and wages paid were contributing to either a profit or a loss. Indeed, if a firm is cheating and stealing from consumers and workers when it ends up with a profit then isn’t it also the case that, if the firm ends up with a loss, the consumers and workers have fleeced the firm? Have they not “underpaid” for its products? Should the firm be able to go back to a customer who may have purchased an item, say, six months ago and take more from him to wipe out the deficit? And let us not forget that we aren’t just talking about big, multinational corporations – it could be the dishevelled, middle aged man struggling to make ends meet through his little corner shop. Aren’t the greedy, heartless consumers exploiting this poor fellow by demanding the lowest possible price for what they want and leaving him with nothing?

Instead of this all of this claptrap, the truth is that profits benefit the worker because they a) provide a fund that permits the worker to be paid before the product is sold so he does not have to wait for his money; and b) consequently serve to insulate him from the risk of loss as he can keep his previously paid wage regardless of the ultimate success of the firm. Profits benefit the consumer by ensuring that scarce productive resources are devoted to their most highly valued ends – industries and production lines where profits are abnormally low will have resources reduced and redirected to areas where they are abnormally high, thus decreasing supply in the former and increasing it in the latter. Ironically, the combined action of entrepreneurs has the ultimate effect of eliminating all profit by balancing resources throughout the economy. It is only because consumers’ tastes and preferences are constantly changing that profit opportunities continue to exist and the deployment of resources must be assessed repetitively and altered accordingly. Ultimately, therefore, it is the consumer who is responsible for the existence of profit, not the capitalist-entrepreneur.

Second, even if one accepts the necessity of profit for ensuring the correct deployment of resources, what of the allegation that profits are used to “extract” money from the industry to pay shareholders – money that would otherwise be invested back in the business? In other words, that profits line the pockets of the capitalists at the expense of workers and consumers.

This is, of course, complete nonsense. In the first place, profits are the source of funds that enable capitalist-entrepreneurs to invest in further capital equipment, job creation and expand the business, thus increasing supply and lowering prices. To the extent that it is worthwhile to do so then profits will be invested back into the business that generated them. If, on the other hand, a distribution is made to owners or shareholders in the form of dividends or share buybacks it is because the entity has already invested in the business to the extent that is economically viable and any further expansion would, in fact, be wasteful. While the firm may retain some additional earnings as a buffer in anticipation of a poor performing year or for some other kind of insurance, masses of retained earnings are otherwise wasted by lying around in corporate bank accounts. It is better to distribute those funds to the shareholders so that they can be reinvested in other productive enterprises that are still in need of investment. Thus the consumer is benefited by this fresh investment in other products and services that ensures that the supply of these can also be increased and their prices lowered.

This leads us onto our final myth which is that profits exist only in a capitalist system and would otherwise be wiped out if we adopted some kind of socialisation or nationalisation of industry. Profits would not, in fact, disappear in the latter types of economic management. Regardless of the specific economic system adopted, if there is to be any economic progress whatsoever then there must be a surplus of production over consumption. There has to be an excess of funds which can be invested in creating more capital goods that expand production – there is simply no other way. In a socialised economy this surplus must come either from an excess of business revenue over business costs (as in a capitalist economy) or it must come from general taxation (either directly or from borrowing/printing money). If it comes from the former then consumers would still be paying more than costs for the product and workers would still be paid less than revenue for their labour. If the surplus comes from taxation then, obviously, everyone is fleeced in order to prop up inefficient and failing industries. Moreover, as we mentioned earlier, this surplus from a prior round of production must still exist if the workers want to be paid in advance of the products produced today being sold. It is precisely because labourers desire this speedy payment and to be insulated from the risks of business failure that the wage system flourished. All in all, socialisation or any kind of other state control over industry does not eliminate profit – it simply changes the people who have it. Ironically, it is actually a capitalist system that gives ordinary workers and consumers the opportunity to partake in the profit making process by doing something as simple as depositing some money in a savings account which will earn interest by being lent out to productive enterprises. In a socialist system, however, which is devoid of capital markets and all proceeds of production are claimed by the state this opportunity would not exist.

Far from being the embodiment of all evil and exploitation, therefore, profit is, in fact, the very life blood of the economy – lifeblood that is required in any economic system if it is to invest more capital goods, create more jobs and, ultimately, more wealth that enables more products to be produced at lower and lower prices that we can all afford.

Next week’s myth: Banking is Capitalist

Profit Greed Socialism Capitalism Surplusvalue Capital

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Life and Liberty

16 дек., 2022 18:20

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Making the State Irrelevant

Much of the pro-liberty movement (myself included) tends to focus on the role of education as the prime driver towards a freer world. Given that, ultimately, any regime is cemented in place by the will of the people, such a world is unlikely to thrive unless people are motivated to embrace their freedom while rejecting all forms of force and coercion.

While the role of education is, therefore, indispensable, thought needs to be given also to another critical aspect: the actual method of defeating and rejecting state power. While the political arena will be a critical forum, we should pay attention also to a seemingly more mundane possibility: making the state, and everything it does, simply irrelevant. Such irrelevance could be achieved by circumventing the state rather than seeking to actively overthrow it. How might we go about this?

Some examples are quite evident already. In spite of censorship, the internet (and increased accessibility to the world wide web through portable devices) has already rendered state control over the flow information much more difficult than it once was – at least, that is, for people who are willing to go searching for it. Indeed it is possible to suggest that any person today has quicker, better access to information than Presidents Reagan, Bush and Clinton did thirty to forty years ago.

Second, while digital technology is becoming increasingly synonymous with regimentation and control, we cannot overlook the fact that it provides us also with the wherewithal to circumvent the state. While the long term efficacy of cryptocurrencies such as Bitcoin can be doubted, it is not impossible to envisage how this or similar technology could make the private movement of wealth (or rights to wealth) possible, rendering state control over currency and capital less effective.

Finally, there is the increased possibility of both hard and soft secession – the former meaning a formal decoupling of a territory from a state’s jurisdiction, the latter referring to the kinds of things we have already discussed: ignoring, circumventing, or otherwise rendering the state inert through building alternative institutions and economies. The latter could even involve taking over parts of the existing state-corporate infrastructure. While, for instance, Elon Musk’s intention to restore Twitter as a true free speech platform is still in its infancy, wresting away the primary tool of state sponsored censorship is certainly a promising step forward.

The marvellous thing about most of these mini-revolutions is that they can occur without violence and bloodshed; there is no fighting, no overthrow, no killing. If civil strife and conflict is focussed on who controls the centralised state, violence is likely to become inevitable at some point. If, however, the objective is to simply get the state out of the way, then a multitude of small, decentralised, peaceful revolts will simply cause the state to wither away in helplessness. In that event, the death of the state will come from a thousand cuts.

This is not to suggest, of course, that today’s large, powerful nation states will fail to fight back. As their collapse from over-borrowing, overspending and eventual bankruptcy draws nearer, states will be ever more desperate to enforce increased controls while plucking all of the remaining feathers from the golden geese of their citizenry. But the more those geese are plucked the more they flap towards an escape hatch. Independently minded individuals and groups have, historically, been better at what we might call the "invention of circumvention" than the state has been at stopping it.

With this in mind, let us focus on the one area of the state that is both its method of function and it's raison d'être: the monopoly over force and violence. The state commits its horrendous abuses while enriching its participants through the use of force against others. But it is also supposed to protect the common citizen from criminal acts so as to maintain law and order - hence the state is still regarded as necessary by the vast majority of people.

But what if this very function could itself, in some way, be circumvented? What if there was an invention or device that would enable any person, at extremely low cost, to protect his or her person and property from all forms of force and violence? I have very little idea as to what this could be – an invisible force field around each object you own, perhaps. But imagine the result: in one swoop we will have eliminated both the ability of government to tax, steal, imprison, kill, maim and live off the fat of everyone else, and eradicated its reason for existence. For if people could protect themselves from invasion of their person and property at very low cost, why would anyone bother turning to the state? Why would anyone pay taxes for an army or police force when this new, cheap, method renders the very existence of those institutions superfluous?

Of course, some people may continue to pay "taxes" voluntarily for the services of their existing states. But there is nothing wrong with this if that is what people want to do with their own money. The bite of force, however, will be lost, with the state being relegated to the same level as every other player in the marketplace – having to offer people a valuable service in return for voluntarily paid revenue. To that end, it would cease to be a state entirely.

We should, therefore, urge all inventors to dust off their drawing boards and get to work on such a marvellous invention. The recent strides we have made in technological development may well be encasing us in a digital prison. But they may also contain the seeds of an invention that would enable our jailbreak – an escape that will become all the more necessary before the world drowns in a sea of statist despotism.

Invention DigitalTechnology Statism Socialism Tyranny Totalitarianism

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Life and Liberty

08 дек., 2022 18:37

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Is the Free Market Uncaring?

A distinct disadvantage of advocating for a society free from state interference is that winning either the rhetorical or emotional battle is a lot more difficult. Democratic socialists and redistributionists can effectively wear their bleeding hearts on their sleeves, forever declaring their care for the poor, the sick, the elderly, or whichever group is in need of their pitiful platitudes at any particular time. Libertarians, on the other hand, appear to advocate for nothing more than greed and selfishness by calling for the right of every person keep own his/her income. Surely this would be the slippery slope to each of us ferreting ourselves away in an increasingly atomised existence?

This misunderstanding is common not only among the opponents of libertarianism but also, occasionally, among those libertarians who mistake freedom for libertinism. How can we counter these straw man attacks?

Libertarianism as a philosophy – by which we mean the theoretical endeavour to determine what are valid legal rights – neither is nor has ever pretended to be a complete blueprint of how a person should live his life. It only states that each person should be given the freedom to choose what he does with his person or property. Having that choice does not mean that it is a good thing for him to, say, decide upon keeping everything he has for himself. One could easily argue that he should, for example, give some of his money to the poor. Simply because a person cannot be forced to make one choice or the other does not mean that his choices are immune from all other forms of moral scrutiny; it's just that libertarianism a) states that these choices cannot be forced, and b) stops short of discussing these other aspects. So as long as any positive, moral obligation is not enforced with violence then it is in accordance with the libertarian ethic.

Collectivism, however, is markedly different. For when a collectivist posits a certain, forced redistribution of wealth and income amongst society, this is usually based on an all-encompassing moral and political theory. So, for example, a collectivist might state not only that a person should donate a portion of his income to the poor, but that also he should be forced to do so. It is this aspect that makes collectivists look more “caring” and “sensitive” to the needy – the fact that they are prepared to “enforce” their moral outlook seems to show that they mean business. So even if libertarians manage to defuse accusations of selfishness, they can still come across as cold and uncaring through their reliance on only a vaguely defined notion of voluntary charity to take care of society's ills.

There are three possible ways in which view this may be countered.

The first is to admit that libertarians are somewhat guilty of contributing to this view, as few have developed an additional moral philosophy on top of their commitment to individual freedom (although, having said that, challenging state violence in today’s world is more than enough to be getting on with). We must be prepared to turn our attention to developing not only our own, private, moral philosophies, but also to understanding which positive behaviours are conducive to sustaining a free society on a sociological and psychological level so as to craft a resonating political strategy.

Second – and contrary to popular opinion – the history of ideas has seldom been one of “liberty” versus “collectivism” or of “freedom” versus “tyranny”; rather it has been that of one version of collectivism versus another. As Ludwig von Mises points out, every planner has his own, mutually exclusive grand plan when it comes to determining how society should be shaped:

In the eyes of Stalin, the Mensheviks and the Trotskyites are not socialists but traitors, and vice versa. The Marxians call the Nazis supporters of capitalism; the Nazis call the Marxians supporters of Jewish capital. If a man says socialism, or planning, he always has in view his own brand of socialism, his own plan. This planning does not in fact mean preparedness to coöperate peacefully. It means conflict.[1]

By pointing out this fact libertarians can demonstrate how, in a free world, each person and community can pursue, in harmony, the peaceful ends that they believe are morally right with their own property. To pursue those ends violently wouldn’t breed a proliferation of care and compassion. Instead, it would just mean endless antagonism with everyone else who happens not to share your view.

Third, if a collectivist claims to care about the needy in society then we are entitled to ask why he favours a system that is almost guaranteed to make everyone poorer than they already are. In other words, why do they oppose the very system – capitalism and freedom – that has been responsible for the most significant increase in the standard of living in the whole of human history?

It is easy to forget that poverty is the natural state of human existence outside the Garden of Eden. A political system can certainly perpetuate this natural state. But only when our ingenuity has been allowed to flourish through individual freedom have we been able to harness the powers of nature so as to increase the amount of wealth and satisfaction that we gain from them. If we compare the condition of human existence in 1800 (where 85% of the world’s population was living on $1 a day) to that of today (down to 20%) then we can see that freedom has been exceedingly good to the poor.

Perhaps smart libertarians, accused of ignoring the plight of the needy, should raise this point and query whether, in fact, it is their ideological opponents who are really the ones who don’t care?

--
Notes

[1] Ludwig von Mises, Omnipotent Government: The Rise of the Total State and Total War, Liberty Fund/Ludwig von Mises Institute (2010), 242-3.

Poverty Welfare Redistribution Socialism Planning Collectivism

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Life and Liberty

13 сент., 2022 17:40

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Free Choices or Forced Choices?

The “nanny state” is one of the most irritating traits of statism affecting people’s daily lives directly, and one that has been growing ever more matronly over the past generation or so. In fact, if you think it is bad today, The Academy of Medical Royal Colleges (which, apparently, presents a "united front" of the medical profession) was complaining nearly ten years ago that doctors were seeing the consequences of unhealthy diets. Needless to say they recommended whole raft of interventionist measures to curb this apparent problem:

A ban on advertising foods high in saturated fat, sugar and salt before 9pm;
Further taxes on sugary drinks to increase prices by at least 20%;
A reduction in fast food outlets near schools and leisure centres;
A £100m budget for interventions such as weight-loss surgery;
No junk food or vending machines in hospitals, where all food must meet the same nutritional standards as in schools;
Food labels to include calorie information for children.

For the purposes of this article, we will ignore the question whether these medical mandarins have, in fact, managed to identify the “right” choices for people to make with their own bodies. (As we saw with COVID-19, our current, materialist society always seems to hold bodily preservation as the highest possible value; however, it is by no means obvious that a statistically longer life devoid of innocent pleasures should be preferable to a shorter life that is more enjoyable.)

Instead, the problem we wish to address here is rather more grievous: that whenever members of the public make supposedly “bad” choices there is the ever present assumption that, as these choices are made with apparent freedom, that it is the free market that has “failed” in preventing the emergence of the "undesired" outcomes. What is never discussed, or even raised, is the possibility that people's choices are influenced by existing state interferences into that market. If that should be the case, it is impossible to say that the same choices would be made in a genuine free market. Worse still, if the state itself is the ultimate cause of the undesirable choices, then any call for more state intervention is likely to either exacerbate the original problem or lead to the emergence of entirely new problems in the future.

The present author has examined in detail why socialising healthcare will lead to greater ill health in the long run. There is little need to repeat all of this here except to say that people tend to prefer doing that which comes at a lower cost, all else being equal. Lowering or removing the cost of becoming ill will tend to lead to more people leading lifestyles that will result in poorer health. As such, it is state control of healthcare that is causing people to do things that are likely to make them sicker. But the same ignorance of the state’s role can be seen in many other cases where the proximate cause of a problem is people's apparent free choices. Let's examine some of the most popular.

"There is not enough food in the world! If the free market has brought such widespread hunger then states much intervene!"

The allegation here is usually some variant of the rich world refusing to “share” its wealth with the poor world. Leaving aside the fallacious, zero-sum belief that if one person has wealth another person must have gone without it, just why is it that we have widespread poverty in the age of the smartphone?

The plight of poor nations has nothing to do with the absurd suggestion that they cannot “understand” technological development, nor, in most cases, are they unable access to raw materials. Rather it stems from the lack of capital investment per head of the population compared to the developed world. Richer nations have more machines and better tools that can churn out more and better goods per person than can be done in poor nations. So in one sense, it is true that investors and capitalists have not invested in poor countries. But the precise reason why the West has benefited from the wealth produced by capitalist investment is that it has long cherished institutions that have allowed the free market to flourish, in particular, strong legal rights to private property and relative political freedom. These are precisely the conditions that tend to be lacking in poorer nations, conditions that cause entrepreneurs to seek other havens for their investments.

To make matters worse, poorer nations began to model themselves on their Western counterparts just at the point that the latter started to turn away from a social order based on private property towards interventionism, welfare and redistribution. The result is that the wrong lessons are being implemented in poorer nations as they develop policies and institutions that can only retard rather than enable economic progress. This is in addition to direct interventionism, for their own benefit, of large and powerful nations in the affairs of foreign nations, stifling the domestic prosperity of the latter.

The persistence of poverty and hunger is therefore a failure of the state, not of the free market.

"The forests are disappearing! The free market, seeking ever greater profits, is decimating our natural resources! The government must stop it"

Let's go even farther than this complaint by adding to the list of depleting resources fish stocks, elephants, whales, and any other of the countless number of "endangered" species that you like. Yes, there is a tremendous problem, and yes, looking at the issue at face value, it appears that capitalists are running down these resources.

However, if the free market is responsible for having decimated all of these things, then it raises a pretty obvious question: why has the “greed” of capitalists not created similar shortages of other resources? The dairy industry, for instance, exploits cows for profit but we never hear of a shortage of cows, nor do we seem to be in short supply of chickens to supply us with eggs for our breakfast plates. So why is it only some resources that seem to be in danger of depletion? What is the difference between the endangered groups and all the others?

The reason is that people are not permitted to own the capital value of forests, parts of the sea, elephants, tigers, etc. If an entity is able to own the capital value of a resource then exploiting it for present revenue has to be balanced against the loss of capital value in doing so. For instance, extracting copper from a copper mine will reduce the amount of copper left available to be extracted in the future, thus reducing the mine’s capital value. The firm operating the copper mine has to ensure that this reduction is offset by sufficient revenue from selling the mined copper, otherwise it will make a loss. If the copper does not sell for a high enough price, then it indicates that too much copper has been extracted. Thus, a signal is sent to the owner of the mine to reduce its mining operations, conserving more for the future.

If, however, an entity does not own the capital value of a resource then its only concern will be for the present revenue it can extract; there is no cost incurred as a result of exploiting resources to their fullest now. In fact the only cost is that someone else might get to the resource before you can, taking it for himself. Thus, in the absence of any balancing mechanism, resources are depleted far quicker than they otherwise would be. So instead of instituting a myriad of state restrictions and regulations in order to "cure" alleged free market greed, all that is needed is to extend full private property rights to endangered resources, and they will be conserved in line with the present and future preferences of consumers. Once again the problem is not too much free choice but the fact that people have been prevented by the strong arm of the state from having a reason to make the "right" choices.

Finally, let us conclude with the most pertinent of all alleged market failures, the phenomenon of "boom and bust":

"Free market greed has caused capitalists to invest in wasteful projects! Clearly they need the Government to give them speed limits!"

Once again, looking at only the proximate causes of boom and bust will reveal that entrepreneurs invested too heavily in a particular sector, inflated a bubble which, once it pops, leads to widespread misery and unemployment. In the 2007-8 financial crisis – the effects of which have still not been resolved – a summary of the charges is that greedy bankers lent money to people who could not afford to pay it back. End of story. But what is not told by peddlers of this narrative such as Paul Krugman is the moral hazard created by the so-called "Greenspan put" which had the effect of financial institutions expecting their profits to be retained while their losses to be borne by an influx of monetary liquidity during any risk of collapsing asset prices (i.e. paid for by inflation). If one can keep one's profits and socialise one's losses is it any wonder that people took wild risks? If there is only ever an upside then wouldn't you have done the same? This is before we consider the fact that credit expansion is the cause of the business cycle in the first place; by falsifying societal time preference rates, the result is a plethora of unsustainable investment projects that must be rendered wasteful as soon as the inflation stops.

Therefore, next time you read that the "free market" has caused this problem, that problem, or some other societal ill, stop and think as to precisely which options the free market participants were presented with. More often than not you will trace the source of a bad decision to some kind of state interference.

Nannystate Welfarestate Interventionism Statism Socialism Poverty

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Economic Myths #14 - Share the Wealth

Economic Myths #11 - The Mixed Economy

Economic Myths #4 – Profits are Evil!

Making the State Irrelevant

Is the Free Market Uncaring?

Free Choices or Forced Choices?

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