Book Reviews: Recent Episodes
None
David Gordon take a critical look at Markus Gabriel's Moral Progress in Dark Times, and although he finds parts that are disturbing, he also discovers important areas of agreement.
Original Article: "Outside the Universe?"
[Slouching Towards Utopia: An Economic History of the Twentieth Century by J. Bradford DeLong, Basic Books, 2022 viii + 605 pp.]
J. Bradford DeLong, who teaches economics at UC Berkeley and was a protégé of Larry Summer's dislikes Austrian economics, which he sometimes assails on his blog. You might reasonably expect that for this reason, I will lambaste his book, which, to no one’s surprise, defends Keynesian economics and the welfare state. But I’m going to disappoint expectations. The book contains a number of insights that merit highlighting, albeit accompanied by some bad arguments as well, and I will stress the former in what follows.
Before getting to the insights, though, I’d like to address a couple of gross distortions. DeLong asks, “Have I committed an error by lumping fascists in with Nazis? A great many people did (and some do) applaud fascists, after all. . . . Economist and darling of the far right Ludwig von Mises, born to Jewish parents in Austria-Hungary . . . wrote of fascism in 1927, ‘fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions . . . [and] their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history.’ . . . In 1940, the Jewish-born Mises, too, emigrated to the United States . . . acknowledging that fists trump intentions.”
This passage suggests that Mises in 1927 thought the Nazis, like the Fascists, had “good intentions” despite their anti-Semitic rhetoric but learned to his cost that was false when he had to emigrate owing to his Jewish origins. Mises, in fact, was always a bitter opponent of the Nazis and criticized the Austrian social democrats in the 1930s for insufficient vigor in the fight against Adolf Hitler. The passage has often been misunderstood by critics of Mises. For a fuller discussion, see my mises.org article “Mises and Fascism."
DeLong also makes up out of whole cloth an accusation against Herbert Hoover, who often features in the book, usually to his discredit. DeLong says: “Stalin and his subordinates saw, after the post–World War II consolidation, that there were five tasks they needed to carry out. First, they had to build the USSR up militarily to defend the territories of really-existing socialism because the fascist-militarist capitalists might well try once again to destroy world socialism by military means. That was a reasonable notion . . . [E]x-president Hoover thought the United States had quite possibly fought on the wrong side in World War II. Although Hoover deeply regretted that the war had advanced the development of weapons of unbearable power, a president who thought like him might well use those weapons.” Hoover, in fact, favored staying out of World War II, and it is a travesty to say he thought the United States should have entered the war on the Nazi side. Further, he opposed the use of atomic weapons and, along with Robert Taft, favored a defensive Cold War strategy that avoided overseas commitments.
After this, you might wonder what can be good about the book. But I would still claim it has many good insights. For one thing, DeLong has a firm sense of the immense power of the free market to achieve economic growth. He credits Friedrich Hayek, whom he calls a genius, for the widespread theoretical recognition of this: “Hayek was a farsighted genius Dr. Jekyll in one crucially important aspect of his thinking. . . . He was the thinker who grasped most thoroughly and profoundly what the market system could do for human benefit. All societies in solving their economic problems face profound difficulties in getting reliable information to the deciders and then incentivizing the deciders to act for the public good. The market order of property, contract, and exchange can—if property rights are handled properly—push decision-making out to the decentralized periphery where the reliable information already exists, solving the information problem. And by rewarding those who bring resources to valuable uses, it automatically solves the incentivization problem. . . . Overall, what Hayek got right is absolutely essential in making sense of the long twentieth century’s economic history.”
But Hayek, in DeLong’s view, did not get everything right: his insights need to be supplemented by the wisdom of John Maynard Keynes about macroeconomic policy and Karl Polanyi about the need for rights that go beyond property rights. I’ll forego an account of DeLong’s ideas about these two thinkers, because another insight of his enables us to forestall the case they made for intervention in the free market.
This insight is found not in the book, but in an interview of DeLong by Tyler Cowen in 2023. In the interview, DeLong says: “Back before 1870, there’s no possibility at all that humanity is going to be able to bake the economic pie sufficiently large that everyone can have enough. Which means that, principally, politics and governance are going to be some elite constituting itself and elbowing other elites out of the way, and then finding a way to run a force-and-fraud domination and exploitation scheme on society so that they at least can have enough. When Proudhon wrote in 1840s that property is theft, it was not metaphor. It was really fact.”
In other words, DeLong agrees with Franz Oppenheimer and Albert Jay Nock that the state is a predatory instrument of the ruling class to exploit society, but, unlike them, he limits this insight to the period in which the economy couldn’t generate enough wealth to feed everybody. But why does he think the predatory class will relent in its zeal for exploitation once economic growth generates a prosperous society? Even if Keynes is correct about macroeconomics and Polanyi about rights, which I do not for a moment believe, why trust a powerful state to shape the economy and society? Wouldn’t it be safer to limit the state drastically, or do away with it altogether, and leave it to people to solve their problems without state coercion?
Although DeLong is firm in his loyalty to Keynes, he recognizes the grave dangers posed by inflation, and it is difficult to deny that Keynesian policies have often led to this. DeLong says, “From an economist’s perspective, an inflationary episode like what happened to the United States in the 1970s might not seem to matter much. . . . Some lose, but others gain as much. With no strong reason to think that the losers are in any way more deserving than the gainers, economists might ask, why should anyone, including economists, care very much? This view is profoundly misguided. . . . [W]oven through this passage [from Keynes about inflation] is another effect of inflation: one can usually pretend that there is a logic to the distribution of wealth—that behind a person’s prosperity lies some rational basis, whether it is that person’s hard work, skill, and farsightedness, or some ancestor’s. Inflation—even moderate inflation—strips the mask. There is no rational basis. . . . And a government that generates such inflation is obviously not competent.” Again we ask, Even if one accepts Keynesian macroeconomic policy, doesn’t the danger that the inflation would undermine social acceptance of the logic of distribution outweigh the supposed economic benefits of the policy?
DeLong would no doubt dissent, averring that the market economy cannot deal effectively with severe depressions. He challenges the view, which he wrongly ascribes to the Austrians, that “neutral” money suffices to prevent economic calamity. “Right-wingers trying to hold tight to their belief that the market could not fail but only be failed, claimed that the Great Depression had been caused by government interference with the natural order. Economists such as Lionel Robbins, Joseph Schumpeter, and Friedrich von Hayek claimed that central banks had set interest rates too low in the run-up to 1929. Others claimed that central banks had set interest rates too high. Whatever. What they agreed on was that the central banks of the world had failed to follow a properly ‘neutral’ monetary policy, and so had destabilized what, if left alone, would have been a stable market system. Milton Friedman was chief among them. But dig into Friedman’s thesis that the Great Depression was a failure of government and not of market, and things become interesting. For how could you tell whether interest rates were too high, too low, or just right? According to Friedman, too-high interest rates would lead to high unemployment. Too low interest rates would lead to high inflation. Just-right interest rates—those that corresponded to a ‘neutral’ monetary policy— would keep the macroeconomy balanced and the economy smoothly growing. Thus theory became tautology” (emphasis in original).
This criticism of Friedman leaves Austrian theory unscathed. In the Austrian view, the task of the central bank is not to strive for “neutral” money (some early missteps by Hayek to the contrary notwithstanding). This cannot be its task, because Austrian theory regards the very existence of a central banking system run by the government as interfering with the operation of the free market. There is, then, no problem of finding the “correct” interest rate that balances inflation against unemployment. The free market rate just is the correct rate.
Many readers may think I have been too easy on DeLong; a few may deem me too hard. I do not claim to be “neutral,” but I have tried to be fair; with what success you must judge for yourself.
Jesús Huerta de Soto, who is professor of economics at the Rey Juan Carlos University of Madrid, is the leading representative of the Austrian school of economics in Spain. He is a renowned teacher, and two of his many doctoral students, David Howden and Philipp Bagus, both now themselves professors of economics, have edited a festschrift in his honor. The contributors include students, colleagues, friends, teachers, two of his daughters, and his son. The two-volume festschrift contains many valuable essays, but I cannot do more here than comment on a few of them, as there are no less than twenty-seven essays in the first volume and twenty-four in the second, as well as two introductory essays by the editors, “Jesús Huerta de Soto: A Biographical Sketch” in the first volume and “Jesús Huerta de Soto: An Appreciation” in the second.
The contributors include reminiscences of Huerta de Soto, and the reader will gain from these a vivid sense of his impact as a teacher, his devotion to Austrian economics and libertarian political philosophy, and his immense knowledge of the literature of economics, law, and history. Few know the work of Ludwig von Mises as well as he does, and the festschrift aims to show that he has made creative contributions to both Austrian economics and libertarian legal and political theory.
A theme from Mises that Huerta de Soto has stressed in his work is the importance of uncertainty in human action and the efforts by people to cope with that uncertainty by establishing trust through a network of free market institutions. The uncertainty is of the radical Knightian kind and cannot be dealt with through application of the probability calculus. Several of the festschrift’s contributors carry this theme further. David Howden, in “Defining Money,” argues that because of the uncertainty inherent in economic exchange, it is vital to have an asset that can always be traded at par, and money is the only asset that can fulfill this function. Nothing else, not even very reliable bonds, can serve this purpose. Because this is so, Howden says, the common definition of money as “the most general medium of exchange,” though not wrong, is not complete. To define money this way is to put it at one end of a continuum, since there are other media of exchange that are less general; but if this is done, the uniqueness of money has not been brought out. Howden says, “Money is not first and foremost the most general medium of exchange, though that statement is not entirely wrong. Money is a special financial asset that emerges to alleviate the definite economic problems of (1) plan disruption caused by uncertainty and (2) to facilitate the completion of previously conceived plans. The only way to fulfill these roles is to sell at par value and on demand.”
In their efforts to cope with uncertainty, Jörg Guido Hülsmann points out in “Financial Markets and the Production of Law,” actors in the free market will establish financial markets as they think best. Because they have established these markets themselves, they will find it easy to rely on them, and in this way a network of trust can be built up. Not so, however, if the government interferes by legislation with these market arrangements. Market participants’ trust will be shaken if they are compelled to use financial markets they have not chosen for themselves. Hülsmann uses to great effect the work of the Italian legal theorist Bruno Leoni to show that legislation by the government introduces unnecessary uncertainty and instability. Hülsmann remarks, “Leoni’s analysis of the consequences of statutory law can be summarized by saying that statutory law tends to destroy the law. More precisely, under the impact of legislation, the law tends to become disconnected from the opinions and the will of their citizens, undermining their autonomy. . . . Most importantly, legislated law undermines the stability of the law, and thus one of its basic functions.”
The obvious remedy is to restore free market institutions; but Bagus argues in “The Disinterventionist Spiral” that once the government has interfered with the economy, many difficulties arise in reversing their interventions. Bagus ingeniously applies Mises’s critique of interventionism in an unexpected way. Mises argued that measures of government intervention are inherently unstable because they fail to achieve their ostensible purpose and have undesirable side effects. For example, minimum wage laws do not secure higher wages for all workers but on the contrary cause unemployment. Faced with this consequence, the government must either withdraw the intervention or press on with corrective interventions, which will in turn fail and confront the government with these options again, in a spiraling process. Bagus argues that repeal of an interventionist measure while other government interventions remain in place will lead to an unstable situation that requires either retreat or additional action. “As we can observe, there is not only an interventionist spiral but also an anti-interventionist spiral. Reforms collide with still existing interventions leading to problems from the (official) point of view of reformers and non-reformers alike. There is pressure to abolish further interventions and reduce the role of the state. When further interferences are abolished, there arise new tensions with still existing ones. The reform path is unstable. Either the path is followed through to anarcho-capitalism or reforms are eventually undone by accumulating interventions anew. There is no third path.”
In order to understand the role of uncertainty in the economy, it is necessary to use the Austrian tool of praxeology rather than seek mechanically to discover statistical correlations between macro aggregates. Doing the latter obliterates the individual decision-maker as he endeavors to assess uncertain market conditions. Joseph T. Salerno, in “Milton Friedman’s Views on Method and Money Reconsidered in Light of the Housing Bubble,” subjects to devastating criticism the methodology of Milton Friedman, ever the faithful follower of his mentor Wesley Clair Mitchell, for precisely this failing. Friedman relied on inductive inference, contradicting the strictures of Karl Popper against induction, though he professed to be a follower of Popper’s philosophy of science. Friedman’s faulty methodology led him to make numerous inaccurate predictions about the housing bubble and other issues. Salerno says, “Thus, Friedman’s monetary theory as delineated and ‘tested’ in the Monetary History is a highly aggregative and mechanical version of the quantity theory of money with very few variables and relationships.”
Careful attention to the individual actor is thus a key theme of Huerta de Soto’s economic theory, and the same emphasis is also crucial to the libertarian political philosophy of which he is so distinguished an advocate. In “William of Ockham: An Unknown Libertarian Philosopher,” Lorenzo Bernaldo de Quirós sees the great fourteenth-century Franciscan as an important political thinker. Ockham denied the Thomist view that natural law can be derived by reason from human nature, arguing that the doctrine of fixed essences contradicted the absolute power of God to decide according to his will. Ockham found the Thomist view that what is moral cannot be changed by God an unacceptable constraint on God’s power. But he also held that individuals, who are created in God’s image, should also be free to make arrangements as they prefer, so long as they respect the rights of others to do so, and that attempts to impose legislation on them based on the false doctrine that human reason can discern essences or natures are impermissible. Because it is difficult to know God’s will, those who profess religious doctrines should be tolerant of conflicting views. Bernaldo de Quirós finds in this Ockhamist teaching a precursor of the freedom of thought and expression taught by John Milton in the seventeenth century. But Bernaldo de Quirós also says that “Ockham’s nominalism leads him to undertake an energetic defense of human rights and, specifically, of one fundamental right: that of private ownership. This is not a conventional arrangement created by a social decision but a natural one born of free human action. It is, therefore, a natural right, willed by God, and, thus, inviolable.” One wonders whether this view of private ownership, however welcome we may find it, is consistent with Ockham’s own teaching of God’s absolute power.
In “A Republican Defense of Anarchism,” Juan Ramón Rallo criticizes the influential Careful attention to the individual actor is a key theme of Huerta de Soto’s economic theory, and the same emphasis is also crucial to the libertarian political philosophy of which he is so distinguished an advocate. republican school, of which Philip Pettit and Quentin Skinner are leading advocates, for a false conception of individual autonomy. The republicans are right to say that individuals should be free from domination by others, but they wrongly seek the remedy for domination in democratic decision-making that restricts the free choices of market participants. Democratic decision-making, even under ideal conditions, imposes the will of the majority on dissenters. Respect for individual autonomy mandates the right of secession from the political community and culminates in anarchism. “The key question that republicanism must confront is what to do with those minorities who, even after having scrupulously respected impartial procedures to which they themselves have not voluntarily adhered, feel that the collective decisions agreed upon contravene their conception of the common good and constitute, consequently, an arbitrary interference by majorities in their lives.”
The Emergence of a Tradition is an indispensable contribution to Austrian economics and to libertarian thought, and readers will also gain a clear sense of Huerta de Soto’s major contributions in these areas.
J. Bradford DeLong, who teaches economics at UC Berkeley and was a protégé of Larry Summer's dislikes Austrian economics, which he sometimes assails on his blog. You might reasonably expect that for this reason, I will lambaste his book, which, to no one’s surprise, defends Keynesian economics and the welfare state. But I’m going to disappoint expectations. The book contains a number of insights that merit highlighting, albeit accompanied by some bad arguments as well, and I will stress the former in what follows.
Before getting to the insights, though, I’d like to address a couple of gross distortions. DeLong asks, “Have I committed an error by lumping fascists in with Nazis? A great many people did (and some do) applaud fascists, after all. . . . Economist and darling of the far right Ludwig von Mises, born to Jewish parents in Austria-Hungary . . . wrote of fascism in 1927, ‘fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions . . . [and] their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history.’ . . . In 1940, the Jewish-born Mises, too, emigrated to the United States . . . acknowledging that fists trump intentions.”
This passage suggests that Mises in 1927 thought the Nazis, like the Fascists, had “good intentions” despite their anti-Semitic rhetoric but learned to his cost that was false when he had to emigrate owing to his Jewish origins. Mises, in fact, was always a bitter opponent of the Nazis and criticized the Austrian social democrats in the 1930s for insufficient vigor in the fight against Adolf Hitler. The passage has often been misunderstood by critics of Mises. For a fuller discussion, see my mises.org article “Mises and Fascism."
DeLong also makes up out of whole cloth an accusation against Herbert Hoover, who often features in the book, usually to his discredit. DeLong says: “Stalin and his subordinates saw, after the post–World War II consolidation, that there were five tasks they needed to carry out. First, they had to build the USSR up militarily to defend the territories of really-existing socialism because the fascist-militarist capitalists might well try once again to destroy world socialism by military means. That was a reasonable notion . . . [E]x-president Hoover thought the United States had quite possibly fought on the wrong side in World War II. Although Hoover deeply regretted that the war had advanced the development of weapons of unbearable power, a president who thought like him might well use those weapons.” Hoover, in fact, favored staying out of World War II, and it is a travesty to say he thought the United States should have entered the war on the Nazi side. Further, he opposed the use of atomic weapons and, along with Robert Taft, favored a defensive Cold War strategy that avoided overseas commitments.
After this, you might wonder what can be good about the book. But I would still claim it has many good insights. For one thing, DeLong has a firm sense of the immense power of the free market to achieve economic growth. He credits Friedrich Hayek, whom he calls a genius, for the widespread theoretical recognition of this: “Hayek was a farsighted genius Dr. Jekyll in one crucially important aspect of his thinking. . . . He was the thinker who grasped most thoroughly and profoundly what the market system could do for human benefit. All societies in solving their economic problems face profound difficulties in getting reliable information to the deciders and then incentivizing the deciders to act for the public good. The market order of property, contract, and exchange can—if property rights are handled properly—push decision-making out to the decentralized periphery where the reliable information already exists, solving the information problem. And by rewarding those who bring resources to valuable uses, it automatically solves the incentivization problem. . . . Overall, what Hayek got right is absolutely essential in making sense of the long twentieth century’s economic history.”
But Hayek, in DeLong’s view, did not get everything right: his insights need to be supplemented by the wisdom of John Maynard Keynes about macroeconomic policy and Karl Polanyi about the need for rights that go beyond property rights. I’ll forego an account of DeLong’s ideas about these two thinkers, because another insight of his enables us to forestall the case they made for intervention in the free market.
This insight is found not in the book, but in an interview of DeLong by Tyler Cowen in 2023. In the interview, DeLong says: “Back before 1870, there’s no possibility at all that humanity is going to be able to bake the economic pie sufficiently large that everyone can have enough. Which means that, principally, politics and governance are going to be some elite constituting itself and elbowing other elites out of the way, and then finding a way to run a force-and-fraud domination and exploitation scheme on society so that they at least can have enough. When Proudhon wrote in 1840s that property is theft, it was not metaphor. It was really fact.”
In other words, DeLong agrees with Franz Oppenheimer and Albert Jay Nock that the state is a predatory instrument of the ruling class to exploit society, but, unlike them, he limits this insight to the period in which the economy couldn’t generate enough wealth to feed everybody. But why does he think the predatory class will relent in its zeal for exploitation once economic growth generates a prosperous society? Even if Keynes is correct about macroeconomics and Polanyi about rights, which I do not for a moment believe, why trust a powerful state to shape the economy and society? Wouldn’t it be safer to limit the state drastically, or do away with it altogether, and leave it to people to solve their problems without state coercion?
Although DeLong is firm in his loyalty to Keynes, he recognizes the grave dangers posed by inflation, and it is difficult to deny that Keynesian policies have often led to this. DeLong says, “From an economist’s perspective, an inflationary episode like what happened to the United States in the 1970s might not seem to matter much. . . . Some lose, but others gain as much. With no strong reason to think that the losers are in any way more deserving than the gainers, economists might ask, why should anyone, including economists, care very much? This view is profoundly misguided. . . . [W]oven through this passage [from Keynes about inflation] is another effect of inflation: one can usually pretend that there is a logic to the distribution of wealth—that behind a person’s prosperity lies some rational basis, whether it is that person’s hard work, skill, and farsightedness, or some ancestor’s. Inflation—even moderate inflation—strips the mask. There is no rational basis. . . . And a government that generates such inflation is obviously not competent.” Again we ask, Even if one accepts Keynesian macroeconomic policy, doesn’t the danger that the inflation would undermine social acceptance of the logic of distribution outweigh the supposed economic benefits of the policy?
DeLong would no doubt dissent, averring that the market economy cannot deal effectively with severe depressions. He challenges the view, which he wrongly ascribes to the Austrians, that “neutral” money suffices to prevent economic calamity. “Right-wingers trying to hold tight to their belief that the market could not fail but only be failed, claimed that the Great Depression had been caused by government interference with the natural order. Economists such as Lionel Robbins, Joseph Schumpeter, and Friedrich von Hayek claimed that central banks had set interest rates too low in the run-up to 1929. Others claimed that central banks had set interest rates too high. Whatever. What they agreed on was that the central banks of the world had failed to follow a properly ‘neutral’ monetary policy, and so had destabilized what, if left alone, would have been a stable market system. Milton Friedman was chief among them. But dig into Friedman’s thesis that the Great Depression was a failure of government and not of market, and things become interesting. For how could you tell whether interest rates were too high, too low, or just right? According to Friedman, too-high interest rates would lead to high unemployment. Too low interest rates would lead to high inflation. Just-right interest rates—those that corresponded to a ‘neutral’ monetary policy— would keep the macroeconomy balanced and the economy smoothly growing. Thus theory became tautology” (emphasis in original).
This criticism of Friedman leaves Austrian theory unscathed. In the Austrian view, the task of the central bank is not to strive for “neutral” money (some early missteps by Hayek to the contrary notwithstanding). This cannot be its task, because Austrian theory regards the very existence of a central banking system run by the government as interfering with the operation of the free market. There is, then, no problem of finding the “correct” interest rate that balances inflation against unemployment. The free market rate just is the correct rate.
Many readers may think I have been too easy on DeLong; a few may deem me too hard. I do not claim to be “neutral,” but I have tried to be fair; with what success you must judge for yourself.
Scalia: Rise to Greatness, 1936–1986by James RosenRegnery Publishing, 2023496 pages
James Rosen, who has written biographies of John Mitchell and Dick Cheney, and was for many years a reporter for Fox News, is a neoconservative and Reagan Republican. He has found an ideal biographical subject in Antonin Scalia, a Reagan Republican, who served for thirty years on the Supreme Court. The volume under review, the first of two, covers the time from Scalia’s birth to his appointment to the court; it concludes with Scalia’s installation ceremony. Rosen has made much more extensive use of Scalia’s papers than two previous biographers, as he never ceases to remind us; and it is easy to see why he has been granted this access. His attitude toward Scalia falls little short of adulation.
The book also conveys, though, a fact about Scalia that one doubts Rosen had in mind in writing the book. Although Scalia made many effective criticisms of the excesses of the Left, in particular of the use of the “living Constitution” doctrine to promote judicial usurpation of power, he was not someone who saw the need for fundamental change in the system by which America is governed. Instead, he wanted to succeed within that system. In this respect, his career contrasts sharply with that of Ron Paul, who although a member of Congress for many years, was always an outsider. Their attitudes toward congressional investigation of the Central Intelligence Agency (CIA) and other intelligence agencies, to be discussed below, illustrate these different political approaches.
In Scalia’s years as a student at Harvard Law School, beginning in 1957, the faculty emphasized judicial restraint. In 1959, when Herbert Wechsler, a professor at Columbia Law School and one of the most influential legal theorists of the time, delivered the Oliver Wendell Holmes Lecture at Harvard, Scalia was attracted to his view that the law consists of a strict body of procedural rules from which judges should not deviate in efforts to achieve various social ends. “In his address, entitled ‘Toward Neutral Principles of Constitutional Law,’ Wechsler argued the benefits of the legal process’s ‘transcending the immediate result that is achieved.’ He asked the audience to consider whether Brown v. Board of Education (1954), the landmark Supreme Court ruling that struck down separate-but-equal treatment in public education for black students, reflected such a process. ‘For me, assuming equal facilities, the question posed by state-enforced segregation is not one of discrimination at all,’ Wechsler said.” (There is some doubt whether Scalia attended the lecture, but it generated great attention and was later published.)
Given his acceptance of judicial restraint and strict adherence to procedure, Scalia viewed with alarm the radical departures from precedent of the Warren court. The “living Constitution” of Justice William Brennan was abhorrent to him. At his confirmation hearing for Supreme Court justice in 1986, in answer to then senator Joseph Biden, Scalia said, “The Constitution is obviously not meant to be evolvable so easily that, in effect, a court of nine judges can treat it as though it is a bring-along-with-me statute and can fill it up with whatever content the current times seem to require. To a large degree, it is intended to be an insulation against the current times, against the positions of the moment that may cause individual liberties to be disregarded, and it has served that function valuably very often. So I would never use the phrase ‘living Constitution.’”
Scalia was much more committed to procedure and restraint than to individual liberty, and this led him to accept many of the incursions of the Leviathan state. One of the chief means by which our freedoms have been trampled on is administrative law, in which unconstitutionally broad legislation delegates to administrative agencies such as the Fair Trade Commission and the Food and Drug Administration the power to enact binding regulations that have the force of law. Scalia was not altogether blind to abuses of delegation, but his primary emphasis in this area was that courts must accept the procedures these agencies use to reach their decisions. Thus, “judicial restraint” became an instrument of judicial tyranny. In one instance, he praised an opinion by the Supreme Court that “rebuked the D.C. Circuit, one rung below the Supreme Court, for having ‘improperly intruded into the agency’s decision-making process.’”
The opinion of the foremost authority on administrative law, Philip Hamburger of Columbia Law School, was entirely different: “In sum, the conventional understanding of administrative law is utterly mistaken. It is wrong on the history and oblivious to the danger. That danger is absolutism: extra-legal, supra-legal, and consolidated power. And the danger matters because administrative power revives this absolutism. The Constitution carefully barred this threat, but constitutional doctrine has since legitimized this dangerous sort of power. It therefore is necessary to go back to basics. Among other things, we should no longer settle for some vague notion of ‘rule of law,’ understood as something that allows the delegation of legislative and judicial powers to administrative agencies. We should demand rule through law and rule under law. Even more fundamentally, we need to reclaim the vocabulary of law: Rather than speak of administrative law, we should speak of administrative power—indeed, of absolute power or more concretely of extra-legal, supra-legal, and consolidated power. Then we at least can begin to recognize the danger.”
There is an even more glaring instance in which Scalia’s views were at odds with individual freedom. He supported the CIA and other spy agencies after the Vietnam War, when revelations of abuses led to demands for congressional oversight and investigation. More generally, he favored a “strong” foreign policy, viewing this area as under the jurisdiction of the executive branch. Nor were his views merely a matter of academic interest. In the period under consideration, Scalia worked for the Office of Legal Counsel in the Justice Department and had a major impact in drafting the presidential responses to congressional efforts to limit executive discretion.
Scalia was especially concerned to counter attempts by Congress and members of the public to use the Freedom of Information Act to ferret out abuses of power. Defending Scalia, Rosen endeavors to counter those “who thought that every proposal that expanded the obligations of the federal government to release the records of the executive branch, no matter how voluminous or highly classified, was . . . wise and urgent, a bulwark against what Arthur Schlesinger, Jr., the former Kennedy adviser, called ‘the imperial presidency.’”
Never mind the abuses: for Scalia, at stake were historical tradition and the separation of powers. “As ‘the president’s lawyer’s lawyer’ at the dawn of an accidental presidency [Gerald Ford’s], it fell to Scalia to defend traditional executive authority precisely when Congress, the courts, and the news media made it the least fashionable. Scalia also thought the CIA was justified in engaging in illegal operations abroad: this too was a matter for the executive branch to decide, though not without some vague limits. For him, the CIA and FBI were not power-mad rogue agencies, but defenders of America.”
Ron Paul, a true champion of freedom, has a different opinion. He wrote last December in protest against the FBI’s use of Twitter to silence dissent: “As we learn more and more from the ‘Twitter Files,’ it is becoming all too obvious that Federal agencies such as the FBI viewed the First Amendment of our Constitution as an annoyance and an impediment.”
Despite his mistakes, Scalia was an impressive figure who showed himself more than a match for the left-wing elites who dominate the major law schools. The intelligence and wit manifest in his opinions made him one of the major jurists in the history of the Supreme Court, and if we must sometimes dissent from this great dissenter, we should not lightly dismiss him.
No one will read For a New Liberty and not see the world with very different eyes afterward.
Original Article: "Hans-Hermann Hoppe on For a New Liberty at 50"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Conservative AffirmationBy Willmoore KendallRegnery, 2022 (Originally published in 1963)lxix + 362 pp.
Willmoore Kendall was the most important political theorist of the brand of conservatism associated with William F. Buckley Jr.’s National Review during the 1950s and 1960s. To some of us, this will be not altogether a positive recommendation, but as Daniel McCarthy suggests in his excellent foreword to this reissue of Kendall’s book, Kendall had a powerful intellect, and the “populism” that he championed makes it likely that he will become an intellectual voice for the revolt against elite dominance which has characterized the American right wing in recent years. In his criticism of the elites and emphasis on the political wisdom of the American people, Kendall shows interesting parallels and differences with the thought of Murray Rothbard, and that is what I shall concentrate on in this review.
According to Kendall, the elitist intellectuals of the Left favor a revolution in support of a principle that “looks to the overthrow of an established social order. The principle in question is the egalitarian principle—not the equality principle of the Declaration of Independence which ‘holds’ merely that all men are created equal…. The egalitarian principle says that men are not merely created equal, are indeed not created equal at all, but rather ought, that is have a right, to be made equal. That is to say equalized, and equalized precisely by governmental action, so that if they end up other than actually equal—in political power, in wealth, in income, in education, in living conditions—no one shall ever be able to say that government has spared any effort that might conceivably have made them equal” (emphasis in original).
Kendall sees Abraham Lincoln as a source of this destructive egalitarianism. In a review of Harry Jaffa’s Crisis of the House Divided, Kendall says, “As for the status of Abraham Lincoln vis-à-vis the Signers [of the Declaration] and Framers, Jaffa’s Lincoln sees the great task of the nineteenth century as that of affirming the cherished accomplishment of the Fathers by transcending it. Concretely, this means to construe the equality clause as having an allegedly unavoidable meaning with which it was always pregnant but which the Fathers apprehended only dimly” (emphasis in original). Kendall fears that Jaffa’s reading of the equality clause might lead to “a political future the very thought of which is hair-raising: a future made up of an endless series of Abraham Lincolns, each persuaded that he is superior in wisdom and virtue to the Fathers.” Perhaps in reaction to Kendall’s review, Jaffa in his later work changed his interpretation of the equality clause so that Lincoln became the faithful expositor of the Fathers.
It is at this point in Kendall’s argument that populism enters the scene. The American people do not want the radical egalitarianism of the elites, and, Kendall argues, this is shown particularly in congressional resistance to the egalitarian proposals of the executive branch, which is often dominated by leftist elites entrenched in bureaucratic agencies. The conflicts between the branches “all involve matters of policy which … bear very nearly indeed upon the central destiny of the United States—on the kind of society it is going to become (‘open’ or relatively ‘closed,’ egalitarian and redistributive or shot through and through with great differences in reward and privilege, a ‘welfare state’ society or a ‘capitalist’ society); on the form of government the United States is to have (much the same as that intended by the Framers or one tailored to the specifications of egalitarian ideology).”
This is a decisive point of contact with Rothbard, who also takes the side of “populism” against the leftist elites. In an article published in the Rothbard-Rockwell Report in January 1992, he says, “The reality of the current system is that it constitutes an unholy alliance of ‘corporate liberal’ Big Business and media elites, who, through big government, have privileged and caused to rise up a parasitic underclass, who, among them all, are looting and oppressing the bulk of the middle and working classes in America. Therefore, the proper strategy of libertarians and paleos is a strategy of ‘right-wing populism,’ that is: to expose and denounce this unholy alliance, and to call for getting this preppie-underclass- liberal media alliance off the backs of the rest of us: the middle and working classes.”
There is an objection that supporters of populism need to confront, and Rothbard has a better answer to it than Kendall. The objection is that the fact the majority of the population supports a political position does not by itself show that the position is morally justifiable, and this remains so even if the majority reflects what Kendall calls “the deliberate sense of the community.” Kendall’s response would be to deny that he equates political morality with majority support. He supports natural law and regards the American people, historically shaped by the traditions of the Christian West, as in their wisdom the best judges of how to apply the precepts of natural law, which are, after all, not self-executing, to the concrete circumstances of the day.
Unfortunately, Kendall has what from a Rothbardian perspective is a defective understanding of natural law. Following Leo Strauss, whom he calls his greatest teacher, Kendall understands ancient natural right, with its stress on the city-state, as a principal instrument in promoting virtue among citizens, and contrasts it with individualism, conventionalism, and relativism, which deny natural law. He locates John Locke firmly in the latter camp, thus failing to consider the position that Lockean self-ownership and property rights provide an objective basis for natural law as applied to politics. Locke’s individualism, far from being a corruption of classic natural law, is an improvement on it, so far as politics is concerned.
Had Kendall accepted this, he could have avoided what seems to me a serious mistake in his thought. He rightly says that a society need not, and ought not to, regard all questions as unsettled. If, for example, radicals today propose to abolish what they call the “hierarchical” family and to bring into question the distinction between men and women, we are not required to respond to them on their own terms but can ignore them. As Kendall finely says, criticizing the view he opposes, “Whatever the private convictions of the society’s individual members concerning what Plato teaches us to call the important things—that is, the things with which truth is primarily concerned—the society itself is now by definition educated to a national religion of skepticism, to the idea that all questions are open questions, to the suspension of judgment as the exercise of judgment par excellence.… It can, to be sure, tolerate all expression of opinion that is predicated upon its own view of truth; but what is it to do with the man who steps forward to urge an opinion, to conduct an inquiry, not predicated on that view? What is it to do with a man who with every syllable he utters challenges the very foundations of society? What can it say to him except, ‘Sir, you cannot enter into our discussion, because you and we have no common premises from which discussion between us can be initiated’?” Kendall is here describing how the Left viewed Joseph McCarthy, but though Kendall of course rejects their position, he accepts their view of how people should respond to a challenge to society’s public orthodoxy.
Unfortunately, reflecting what I take to be his statist view of natural law, Kendall argues that dissenters may not just be ignored but may be forcibly suppressed. Rothbard’s resolution of free speech issues into questions of property rights avoids the extreme to which Kendall is driven: you are free to say what you want on your own property but not, lacking the permission of the owners, on that of others.
In his relentless campaign against the “open society,” Kendall misunderstands John Stuart Mill, whom he takes to be the foremost proponent of the position he wishes to combat in what I can only call a fantastic way. He says that “Mill’s freedom of speech doctrine has its very roots in dogmatic skepticism—in, that is to say, denial of the existence, at any particular place and at any moment in time, not only of a public truth but of any truth whatever unless it be the truth of denial itself.” If I may be “dogmatic,” Mill definitely did not deny the existence of objective truth, and I suspect that Kendall’s failure to understand this is an example of a besetting sin among political theorists. Kendall was a pupil of the great philosopher R.G. Collingwood at Oxford, and Kendall’s references to F.H. Bradley and José Ortega y Gasset suggest that he was widely read in philosophy, but like many of his fellow political theorists, he appears unaware of most work by analytic philosophers. Had he studied Mill in the context of analytic philosophy, he would have quickly discovered that the position he foists on Mill is a travesty.
It is also necessary to say that as with a number of his colleagues at National Review, Kendall’s apocalyptic calls for a global crusade—involving the use of nuclear weapons if needed—against world communism have not aged well. Though he was right in his uncompromising condemnation of the evils of communist totalitarianism, it does not follow from this condemnation, as Kendall wrongly thought it did, that a noninterventionist foreign policy needed to be abandoned. And though he is again right that there are situations in which one ought to risk death to avert conquest by a tyrannical regime, one gets the impression that this CIA operative relished the prospect of ending his life in such sacrifice a little too much.
Despite his mistakes, Kendall is usually insightful and provocative.
Lutheran theologian Reinhold Niebuhr attracted numerous followers in postwar America in part because of his attacks on the free market. Perhaps he should have read Mises.
Original Article: "Niebuhr, My God, to Thee"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Typical discussions about the fate of our planet center around issues like war, climate change, and sovereignty. Peter Zelhan says "the halcyon days of 1980–2015 are over."
Original Article: "Can We See the End of the World from Here? Will We Still Feel Fine?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In last week’s article, I discussed some of the arguments Yoram Hazony gives in his book Conservatism: A Rediscovery in favor of an empiricist procedure in ethics that supports working within a particular national tradition and against the rationalist deductive method of those who without empirical evidence defend the supreme value of freedom by postulating it arbitrarily as an axiom. I tried to show that one could support the self-ownership principle by an empirical argument that appealed to human nature. In this week’s article, I’d like to look at how Hazony applies his view of tradition to American history.
Before doing so, though, I want to comment further on Hazony’s deprecation of “rationalism” in ethics. He says,
Enlightenment liberalism is a poorly constructed framework for understanding political affairs, and the poor quality of the theory stems, first and foremost, from the fact that it is a sub-species of the failed philosophical enterprise of Cartesian rationalism. Descartes believed he had uncovered the method for unfailingly ascertaining universal truth…. But it was all folly. There is no way to reach a final determination of the nature of the physical universe by moving from self-evident premises through infallible deductions to unassailable conclusions. Descartes’ Principles of Philosophy is today regarded as such an embarrassment that it is not studied anywhere. The same is true of Kant’s a priori physics. (p. 127)
Hazony contrasts this failed method with the successful “empiricist method of Newton’s Principia (1687).” Hazony is right that Newton’s physics was more successful than Descartes’s, but he exaggerates the badness of Descartes’s physics; Newton was influenced by Descartes’s laws of motion. It’s odd that Hazony would suggest Kant’s physics is not studied anywhere; hasn’t he heard of Michael Friedman’s massive Kant’s Construction of Nature (2013)?
But I don’t propose to challenge Hazony about physics. Suppose that he is entirely right about physics. Why would it follow from the failure of a priori physics that a priori deduction is the wrong procedure for metaphysics and ethics? Hazony might reply that philosophy is part of natural science, as Willard Van Orman Quine famously argues in “Epistemology Naturalized.” In my view, an unresolved problem with that view is that the thesis that philosophy is part of science is not itself part of science. If Hazony disagrees, I would ask him which science says that philosophy is part of science? Physics certainly does not.
Let us put this aside and turn to Hazony’s defense of tradition. By no means, Hazony says, is he a relativist who merely catalogs various traditions and denies that there is an objective truth about ethics.
I have proposed a theory of truth that is based on a real capacity of the individual human mind—the capacity to discern an improvement in the scheme of things that is applied in explaining and permitting relevant action in a given domain. A political theory based on such an account of truth recognizes that truth in the political and moral realm is real. It is found in those norms, or rules of behavior, that permit the causes of human health and prosperity to be effective within a nation, tribe, or family, thereby allowing its members to grow strong and the community itself to propagate through the generations…. There is no relativism, nihilism, positivism, or historicism here. (p. 204)
Hazony’s confidence is misplaced. Group survival and prosperity seems an implausible criterion for morality: what helps the survival of a bad society would seem rather to be bad and not good.
Hazony applies his ideas about group survival and prosperity to America through an interesting argument. The British system of government was a good one, and the American Federalists, under the intellectual leadership of Alexander Hamilton, aimed to emulate the British system as much as possible. The policies the Federalists favored continued in the “American System” favored by Henry Clay and Abraham Lincoln, and these policies should guide us today. He says,
But in the wake of war with Britain from 1812 to 1815, a new generation of nationalists emerged calling for a renewal of Hamiltonian economic policies…. This nationalist coalition supported what Clay called the “American System” which sought to end economic dependence on foreign imports … the nationalist economic ideas of Hamilton and Clay were taken up by the American Whig Party and then put fully into effect by Abraham Lincoln…. Economic nationalism guided the policies of Lincoln’s Republican Party during the long period of ascendancy from the Civil War into the twentieth century. (pp. 89–90)
Readers of Tom DiLorenzo will be startled by this, as the very programs that he shows in books such as Hamilton’s Curse to be economically harmful are the ones Hazony praises. It will come as no surprise that I agree with DiLorenzo, but rather than go over the controversy here, I’d like to raise two other points. First, although Hazony has firm views about economics, he deems it unnecessary to discuss economic theory. Perhaps he would respond that he need not do so, because America grew prosperous during the era under consideration, when the policies he favors were followed; but this leads us to my second point. Hazony has not shown that America prospered because of these policies, and the truth of this point does not depend on acceptance of the economic theory I take to be correct. For all Hazony has shown to the contrary, America might have done better with other policies.
I shall conclude with something that leaves me puzzled. A glance at the book’s notes suffices to show that Hazony is a scholar of considerable learning, but it is curious that he fails to mention two authors. In the section “Paradigm Blindness” at the beginning of chapter 3, he closely follows the famous account of paradigms given by Thomas Kuhn in The Structure of Scientific Revolutions, but Kuhn’s name does not appear in the book. Further, in section 2 of chapter 4, he asks, “How do we determine what is good and true in politics and morals? Three principal answers contend for our attention” (p. 111). The three answers are biblical tradition, Enlightenment rationalism, and “the answer of Nietzsche.” This is a paraphrase of Alasdair MacIntyre, in After Virtue and other books, but he too is not mentioned. Why these omissions? Does Hazony think the discussions of these authors so well-known to readers that it would insult their intelligence to mention them? I do not know.
The Power of Capitalism: A Journey through Recent History across Five ContinentsBy Rainer ZitelmannLID Publishing, 2018xiv + 233 pages
Dr. Rainer Zitelmann is best known to the scholarly world for his outstanding study of Adolf Hitler’s economic ideology, now available in English translation as Hitler’s National Socialism. Originally written as a doctoral dissertation in 1986, it still retains its position as the definitive work on its subject and a remarkable academic achievement. In his study, Zitelmann shows that Hitler believed in a centrally planned economy, and by doing so, Zitelmann confirms the insight of Ludwig von Mises and Friedrich Hayek that National Socialism is a type of socialism; though the form of private property was to a large extent retained, control lay in the hands of the central planners. The fundamental antithesis between the market economy and central planning has remained a constant theme in Zitelmann’s work since writing his dissertation. Zitelmann maintains that the market economy is by far the superior of the two systems, and in The Power of Capitalism, he applies this insight to a study of the economic policies of a number of countries: China, various nations of Africa, West and East Germany, North and South Korea, Britain and the United States, Venezuela and Chile, and Sweden.
He tells us: “The biggest error that unites socialists of various stripes with the men and women running the central banks is the belief that a few designated master planners are better able to determine what the people need than the millions of entrepreneurs, investors and consumers whose individual decisions, when added together, are in fact far superior to those of any governmental planning agency, central bank or other organ of state control.”
One of the most striking illustrations of the superiority of capitalism is the progress of China’s economy following the adoption of market reforms in the 1980s. Conditions in China before then were horrendous. Under the dictatorship of Mao Zedong, foremost among history’s mass murderers, “the most ambitious socialist experiment in history started with tens of millions of farmers being forced into working on massive irrigation projects without sufficient food or rest…. The experiment resulted in what was probably the worst famine—and definitely the worst man-made famine—in human history … [According to one estimate] around 45 million people across China … died prematurely between 1958 and 1962. The majority died of starvation, while another 2.5 million were tortured or beaten to death.” The disastrous failure of the Great Leap Forward did not dissuade Mao from another foray into torture and murder, the Cultural Revolution of 1966 and the ensuing decade.
These disasters make all the more remarkable China’s economic progress since that time. China is now a vast and thriving market economy, albeit with considerable government involvement. “While terms such as ‘socialism,’ ‘economic planning,’ ‘Marxism’ and ‘Mao Zedong thought’ remain in use, they are either rendered meaningless by contemporary misinterpretations or assigned a new meaning in diametric opposition to their original content. This probably contributed greatly to the smooth transition from a socialist planned economy to free-market capitalism.”
One of Zitelmann’s most important contributions in the book is his response to an argument that one frequently hears. China today by no means adheres strictly to the free market, a fact of which Zitelmann is not only well aware but on which he insists, and the same holds true of countries such as South Korea. Why, then, should we say that the Chinese reforms demonstrate the benefits of the free market rather than those of a mixed system with considerable state involvement? Branko Milanovic raises precisely this question in Capitalism Alone, which I reviewed in the May/June 2020 issue of The Austrian.
Zitelmann’s apt answer is that you cannot view the economy statically but must instead probe to see what changes when the economy progresses. If you do so, it will be evident that the economy has done better to the extent that the free market has prevailed. The leading authority on the Chinese reforms, Professor Zhang Weiying, “told [Zitelmann] that the biggest misconception in China today is that some politicians and economists believe that the country’s impressive growth is the result of a special ‘Chinese way’ with a high degree of state influence. Professor Zhang stressed to me that it is important to understand that the Chinese economic miracle did not happen ‘because of, but in spite of’ the sustained influence of the state.”
American “progressives” in the style of Bernie Sanders often point to Sweden as an example of the sort of socialism they favor; do we not find there, Sanders and his ilk aver, a model economy in which the poor and middle class do far better than the bulk of the American people? Zitelmann’s answer is forthright. Sweden isn’t a socialist country at all; by many measures, though not all, it has a freer economy than America. Further, to the extent socialist measures have been instituted, as under the leadership of the unlamented Olaf Palme, the economy has faltered. “Sweden stopped being a socialist country several decades ago—if it ever was one. According to the Heritage Foundation’s 2018 Index of Economic Freedom ranking, Sweden is among the most market-oriented economies worldwide…. The foundations for Sweden’s burgeoning economic strength were laid prior to the social democratic era, between 1870 and 1936. During this period, when Sweden still had a free-market economy and low taxes, its economic growth significantly exceeded that of other European countries such as Germany, Italy or France, with annual growth rates that were twice as high as in the UK.”
Given the manifest superiority of the free market, why do so many intellectuals reject it? In an insightful chapter devoted to this question, Zitelmann mentions Robert Nozick’s theory that intellectuals do well in school because of their exceptional verbal abilities but then in adult life lag behind businessmen who as students finished below them. Entrepreneurial ability far exceeds verbal facility in economic value, and, Nozick argues, intellectuals resent this. Zitelmann isn’t convinced and, like Hayek, instead stresses the affinity of intellectuals for planning: “The failure of many intellectuals to understand the nature of capitalism as an economic order that emerges and grows spontaneously is one key factor [in accounting for their dislike of capitalism]. Unlike socialism, capitalism isn’t a school of thought imposed on reality…. As the example of China … shows, free-market capitalism largely evolves spontaneously, growing from the bottom up rather than decreed from above. Capitalism has grown historically in much the same way as languages have developed over time as the result of spontaneous and uncontrolled processes … Socialism shares some of the characteristics of a planned language, a system devised by intellectuals. Having devised the system, the proponents of socialism then attempt to gain the political power required to put their ideas into action.
The operation of the free market results in vast disparities of income and wealth, and this is not at all to the liking of many leftist intellectuals, who prefer a regime of equality. One of their number, Thomas Piketty, takes the battle between equality and inequality to be the key theme of history. Zitelmann, who has made a special study of billionaires, dissents. What is wrong with these immense fortunes? “A look at the wealthiest people in the world shows that none of them became rich by taking something away from others. Rather, their entrepreneurial activities created value for the whole of society.” He replies to Piketty that “whether capitalism tends to raise or lower the overall standard of living strikes me as far more important than any putative increase in the inequality of wealth.”
It is unlikely that the intellectuals will be swayed by Zitelmann’s cogent arguments. One further indictment they bring against the free market is that it leads to economic crises. Zitelmann, examining the financial crisis in the United States in 2007–08, puts the blame not on the free market but on the Fed, which artificially lowered interest rates in a way that led to reckless lending. “Artificially low interest rates always have undesirable side effects. Prices—including interest rates which represent the price of money lent—usually provide valuable information for market participants and encourage capital to flow where it is needed. If interest rates are kept artificially low or even abolished (i.e, … set to zero), this mechanism can no longer take effect.”
Zitelmann’s incisive presentation of the case for the free market is exemplary, and I hope that readers of The Austrian will devote to it the attention it merits
The Dawn of Everything: A New History of HumanityBy David Graeber and David WengrowFarrar, Straus and Giroux, 2021Xii + 692 pages
The Dawn of Everything, which has already attracted much scholarly attention and is a best seller as well, should be a warning to all academics: do not write about economics or the history of modern Europe if you are ignorant of these subjects. David Graeber, who died shortly after this book was finished, was an anthropologist, and David Wengrow is an archaeologist. Both have written extensively in their areas of specialty, and, so far as I can determine, they are well regarded by some of their fellow specialists. Much of this overly long book is an often tedious description of various archaeological sites around the world, based on extensive citation of fieldwork, but it nevertheless contains valuable suggestions and merits careful study. Even here, though, one ought to be cautious. It does not encourage confidence when they tell us “Teotihuacan’s growth to urban dimensions began around the year 0.” You might have expected that even children in elementary school would know that there is no year zero in our calendar.
Unfortunately, they put their knowledge in the service of a political agenda for the modern world, which they defend with poor arguments disfigured further by gross errors. They are left anarchists and regard capitalism as an evil, “hierarchical” system that ought to be replaced, though by what we are never clearly told. In their account, contact with Indian tribes in the seventeenth and eighteenth centuries posed a challenge to European intellectuals. Society, they thought, necessarily rested on hierarchy. The lot of a poor peasant was far worse than that of a nobleman, and this might be regrettable, but a society of near equals in power could not exist. Contact with the Indians suggested, on the contrary, that it could and did exist, and this led intellectuals to question the legitimacy of hierarchy in their own societies. “Just about every major French Enlightenment figure tried their hand at a ... critique of their own society, from the perspective of some imagined outsider.”
Given this criticism, the defenders of hierarchy tried to strike back. Graeber and Wengrow take the great French economist Anne Robert Jacques Turgot to be among these defenders, and they direct much of the argument in the book against a model he developed. According to them, Turgot believed that societies advance through a series of inevitable stages, from savagery to barbarism to civilization. Equality is suitable only for very small societies, and we cannot go back to it. “Turgot would elaborate these same ideas in a series of lectures on world history. He had already been arguing—for some years—for the primacy of technological progress as a driver for overall social improvement. In these lectures, he developed this argument into an explicit theory of stages of economic development; social evolution, he reasoned, always begins with hunters, then moves on to a stage of pastoralism, then farming, and only then finally passes to the contemporary stage of urban commercial civilization. Those who still remain hunters, shepherds or simple farmers are best understood as vestiges of our own previous stages of social development. ... In this way, theories of social evolution ... first came to be articulated in Europe: as a direct response to the power of indigenous critique.”I discuss other aspects of Graeber and Wengrow’s criticism of Turgot in my article“In Defense of Turgot,” Mises Wire, December 10, 2021, https://mises.org/wire/defense-turgot.
The authors give two main arguments against this model. First, the stages aren’t inevitable: rather, societies at the “lower” levels sometimes consciously choose the sort of economic, social, and political system they wish, and their choices often fail to follow the order Turgot set forward. Second, Turgot is wrong to view our own stage of civilization as better than its noncivilized predecessors. I’ll discuss the latter criticism first, as dealing with it is easier.
Graeber and Wengrow say that the higher value ascribed to civilization rests on the false assumption that economic productivity is the highest social good. “By framing the stages of human development largely around the ways people went about acquiring food, men like Adam Smith and Turgot inevitably put work—previously considered a somewhat plebeian concern—centre stage. There was a simple reason for this. It allowed them to claim that their own societies were self-evidently superior, a claim that—at the time—would have been much harder to defend had they used any criterion other than productive labour.”
In putting things this way, they have wrongly framed what is at stake. The issue is not whether one society is “superior” to another judged from some external standpoint. Rather it is that if a society has a very large population, only a market economy will enable most people to survive and prosper. Further, even if Graeber and Wengrow think they shouldn’t, most people nowadays want a high standard of material goods, and it is of little consequence if there have been past societies in which they didn’t. As Ludwig von Mises points out in Human Action: “The immense majority strives after a greater and better supply of food, clothes, homes, and other material amenities. In calling a rise in the masses’ standard of living progress and improvement, economists do not espouse a mean materialism. They simply establish the fact that people are motivated by the urge to improve the material conditions of their existence. They judge policies from the point of view of the aims men want to attain. He who disdains the fall in infant mortality and the gradual disappearance of famines and plagues may cast the first stone upon the materialism of the economists. There is but one yardstick for the appraisal of human action; whether or not it is fit to attain the ends aimed at by acting men.”
We can now address the first criticism given of Turgot’s theory of stages, and I hope it will soon become clear why I started with their second criticism. Once you realize that if Graeber and Wengrow wish to end capitalism as it now exists, they need to consider whether present conditions make this possible, you can see that their first point against Turgot is irrelevant to their political concerns. That said, their first point is a good one. Unless their presentation of the archaeological data is a total misreading, they do successfully show that it isn’t fixed that foragers who have been exposed to an agricultural society will forthwith abandon their former ways for the new dispensation. To the contrary, they often consciously reject agriculture or adopt it only in part. Further, in a process Graeber and Wengrow, following Gregory Bateson, call “schismogenesis,” societies sometimes adopt practices in conscious opposition to neighboring societies. They write: “Schismogenesis ... describes how societies in contact with each other end up joined within a common system of differences, even as they attempt to distinguish themselves from one another.... Each society performs a mirror image of the other. In doing so, it becomes an indispensable alter ego, the necessary and ever-present example of what one should never wish to be.” But if what is at issue is whether a market economy can now be successfully changed to something else, all of this is irrelevant.
Perhaps, though, it is better that Graeber and Wengrow devoted the bulk of their efforts in this book to prehistory, as their forays into the modern leave much to be desired. We learn from them that, “it was only ... in the late nineteenth century, when men like Tom Paine came up with the concept of ‘representative democracy’ that the right to weigh in on spectacular competitions among the political elite came to be seen as the essence of political freedom, rather than its antithesis.” Paine died in 1809, and the term “representative democracy” was in use in England in the 1790s. Contrary to what they say, Louis XIV was not one of “the ‘absolutist’ monarchs of the Renaissance”; he reigned after it. Nor are their mistakes confined to chronology. In his On the Demonmania of Witches (1581), Jean Bodin says that women are fifty times more likely to be witches than men, but it is news to me that “he is further remembered today for his profound hatred of women.” The primary reason that Christian Wolff was expelled from Prussia was not his lectures on Chinese customs, although this was a factor, but Pietist opposition to Gottfried Wilhelm Leibniz’s philosophy, of which Wolff was considered an exponent. It is also misleading to say that “a warrant was issued for his arrest and he was forced to flee for his life.” He was given two days to leave Prussia, on penalty of hanging, but he did not try to run from an arrest warrant, and King Friedrich Wilhelm I a number of years later tried to get Wolff to return to his university position.
Graeber and Wengrow are right to question stage theories of history, but they pass by in silence the laws of economics that show the necessity of the free market for a complex modern society.
The reality is the primary quality of an entrepreneur can’t be taught: the stomach to risk everything and keep wanting more.
Original Article: "George Hearst: Entrepreneur in the Mises Mold"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
The Human Action Podcast wraps up the year with none other than the venerable Professor Paul Gottfried!
This is our final show focused on the Old Right, the early 20th century political tradition which animated later libertarian figures like Murray Rothbard. How was this great legacy of peace and freedom on the Right—the Old Republic—lost to Cold Warriors and neoconservatives? Nobody is a better sociologist of American conservatism than Dr. Gottfried, and nobody is more compelling and erudite when it comes explaining how the Right went so horribly wrong (hint: former Commies). Lots of great names discussed, from Rothbard and Nock to Kirk, Strauss, Jaffa, Buckley, Meyer, and even Gore Vidal.
Don't miss this show!
Additional Resources Read Professor Gottfried's work on Conservatism: Mises.org/Gottfried-Book
Fauci-funded and Fauci-supported "AIDS research" consisted of running medical experiments on children, among other horrors. Through it all, Fauci profited handsomely with his many "partners" in Big Pharma.
Original Article: "Review: The Real Anthony Fauci: Bill Gates, Big Pharma, and the Global War on Democracy and Public Health"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
We continue our look at leading figures from the Old Right with guest Tom Woods, who helped publish the late Murray Rothbard's The Betrayal of the American Right. Rothbard admired the courageous and revisionist voices promoting the Old Republic, and shared their antagonism for war and economic intervention. Tom and Jeff discuss great essays like Albert J. Nock's "Isaiah's Job" and Frank Chodorov's "The Ethic of the Peddler Class;" the latter a rousing defense of the merchant class against both bureaucrats and the country-club conservatism which would emerge under William F. Buckley. The old antiwar and anti-New Deal works of figures like Menken, Hazlitt, Howard Buffett, Chodorov, and Nock deserve far wider consideration, especially as the "New Right" spirals into the worst of Buckleyite foreign policy and know-nothing economics. You owe it to yourself to explore this great but underappreciated tradition.
Additional Resources Read Rothbard's important work: Mises.org/Betrayal
Albert J. Nock's "Isaiah's Job:" Mises.org/HAPNock
Frank Chodorov's "The Ethic of the Peddler Class:" Mises.org/HAPChodorov
Jeff Leskovar on "The Psychology of Human Action:" Mises.org/HAPLeskova
Larson's principal targets are Friedman and Hayek, but Mises and Rothbard are not spared. For Larson, promarket economists aren't just wrong. They're bad people.
Original Article: "This Professor Hates the Austrian School. But He Clearly Doesn't Know Much about It."
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Time for Socialism: Dispatches from a World on Fire, 2016–2020By Thomas PikettyYale University Press, 2021352 pages
Thomas Piketty has written a useful book. Readers need no longer plough their way through his vast Capital in the Twenty-First Century, not to mention his even vaster Capital and Ideology, to understand his message. This fairly short book, which consists of his columns for the French newspaper Le Monde written between 2016 and 2020, along with an introductory essay, “Long Live Socialism!,” conveys the essence of his ideas. Not that reading this book is fun: Piketty clogs the book with charts and statistics and repeats his main ideas well beyond the point of utter boredom.
Before addressing this message, though, we need to look at his method. Austrian economists proceed by deduction from the concept of action and by doing so arrive at the laws of economics. Not so Piketty: for him there are no laws of economics. “There is no universal law of economics: There is only a multiplicity of historical experiences and imperfect data, which we have to examine patiently to endeavor to draw some provisional and uncertain lessons.” Piketty is a historicist or institutionalist, what Mises calls an “antieconomist.”
It’s bad to be an antieconomist, but if you are one you should get your facts and statistical data right. Suffice it to say that Piketty’s grasp of history does not inspire confidence. He says, “In the United States, it was not until the mid-1960s that the former slaves finally obtained the right to sit on the same buses as whites, to go to the same schools, and, at the same time, gained the right to vote.” Can he really be unaware that, after the 1870s, legal segregation and franchise restrictions were largely confined to the South? We also learn from him that “as far back as the 1870s, the Democratic Party had begun to reconstruct itself on the basis of an ideology which could be described as social-differentialist: it was violently inegalitarian and segregationist toward Black Americans but more egalitarian than the Republicans toward the white population (in particular the new immigrants from Italy and Ireland).” The influential Bourbon Democrats of that period were classical liberals, and serious debate about immigration restrictions got started after 1900. But who’s counting?
We haven’t yet reached the strangest of Piketty’s historical interpretations. “[B]etween 1929 and 1935,” he tells us, “the central banks were shaped by a liberal orthodoxy based on nonintervention and had allowed a wave of bank failures to take place. This precipitated the collapse of the economy, the explosion of unemployment, the rise of Nazism, and the road toward war.” Bank failures caused World War II—who knew?
I won’t discuss Piketty’s use of statistical data, but his blunders and bias have aroused widespread condemnation. One notable essay by Phillip Magness and Robert Murphy comes close to charging him with fraud and deception. (See my discussion of Jean- Philippe Delsol, Nicholas Lacaussin, and Emmanuel Martin’s Anti-Piketty: Capital for the 21st Century, in the Quarterly Journal of Austrian Economics 20, no. 4 [2017].) Piketty has responded to some of his critics, though not to Magness and Murphy, but a statement in this book suggests that he is less than surefooted with numbers. He says that there has been in the past decades some progress toward reducing global inequality, but much remains to be done: “The poorest 50% of the population is still the poorest 50% of the population.” I’ll leave this question as an exercise for the reader: Why is this vacuous remark not a tautology?
Piketty’s central idea is that inequality is the supreme social sin and must be radically curtailed. He doesn’t deny that capitalism results in economic growth and an enhanced standard of living, but the income and wealth of the rich have grown far faster than that of the poor. You might ask why this matters, even granting his dubious statistics: Don’t people care about how well they are doing, much more than they resent the rich, if in fact they resent them at all?
To ask a question like this is, for Piketty, to look at society from the wrong perspective. For him, equality trumps prosperity. If another of his proposals, “greening” the economy in order to reduce carbon emissions, is adopted, most people will need to live with a lower amount of material goods. But, projecting his own egalitarian commitments onto others, he thinks people will be willing to make the sacrifice so long as the rich have to pay their “fair” share of the costs. “[T]he considerable adjustment in lifestyles to deal with global warming will only be acceptable if a fair distribution of the effort is guaranteed. If the rich continue to pollute the planet with their SUVs and their yachts registered in Malta . . . then why should the poor accept the carbon tax, which is likely to be inevitable?”
Piketty often talks about democracy, but it would not occur to him to ask people whether they want to green the economy. Freedom of individual choice needs to be kept within strict limits, on this issue and on another vital issue as well. As even he cannot escape noticing, people around the world favor secession and decentralization. Local autonomy, Piketty thinks, has its place; but it must never be allowed to interfere with the power of the nation to impose income and wealth taxes. Otherwise, local regions might compete to attract investment by lowering tax rates, and we can’t have that, can we? Discussing a Spanish law that lets regions set the income tax rates for half the total tax base, he says that the system “challenges the very idea of solidarity within the country and comes down to playing the regions against one another, which is particularly problematic when the issue is one of income tax, as this is supposed to enable the reduction of inequalities between the richest and the poorest, over and above regional or professional identities.”
People should not be free to organize a business as they wish, even if they are starting it with their own money. The state should require them to share control of their company with workers, and they must install women and minority groups on their board of directors. “In addition to the fact that employee representatives should have 50% of the vote in all companies (including the smallest) it is conceivable that within the 50% of voting rights going to shareholders, the share held by an individual shareholder may not exceed a certain threshold in sufficiently large companies. . . . In order to . . . truly move against patriarchy, it is essential to put into place binding, verifiable, and sanctioned measures, both for positions of responsibilities in companies, administrations, and universities and in political assemblies. . . . The issue of gender discrimination must also be considered in relation to the fight against ethno-racial discrimination, particularly in terms of access to employment.”
Something Piketty says himself enables us to see a problem with these policies. He points out that donors to major universities do not get to control policy and suggests that investors in business can be treated the same way. “[T]he fact remains that this generous donor is in a more precarious position than a shareholder. There is no guarantee that the board of directors will renew him [in his seat on the board] indefinitely, and, above all, he can in no way threaten to pull out and withdraw his donation. His gift has been definitively incorporated into the endowment of the university; however, this has not prevented him from giving it.” If this is true, isn’t it also true that those who want to establish worker-controlled firms are free to do so and to invite investors to give them gifts? Why do we need the state to force all businesses to conform to this pattern? To Piketty, though, individual freedom would interfere with democratic solidarity, and to invoke the “sacrosanct mantra of the market and private property” is repellent.
Ludwig von Mises long ago pointed out the harmful effects of confiscatory taxation in the name of “equality.” As he says in Human Action: “A law that prohibits any individual from accumulating more than ten millions or from making more than one million a year restricts the activities of precisely those entrepreneurs who are most successful in filling the wants of consumers. If such a law had been enacted in the United States fifty years ago, many who are multimillionaires today would live in more modest circumstances. But all those new branches of industry which supply the masses with articles unheard of before would operate, if at all, on a much smaller scale, and their products would be beyond the reach of the common man. It is manifestly contrary to the interest of the consumers to prevent the most efficient entrepreneurs from expanding the sphere of their activities up to the limit to which the public approves of their conduct of business by buying their products.”
As Mises also notes, workers’ wages depend on their marginal productivity, and the best way to increase marginal productivity is to increase the amount of capital invested per worker. Confiscatory taxation, pursued in the name of what Mises calls a “spurious metaphysical doctrine,” interferes with capital accumulation and thus hurts workers. “The greater part of that portion of the higher incomes which is taxed away would have been used for the accumulation of additional capital. If the treasury employs the proceeds for current expenditure, the result is a drop in the amount of capital accumulation. . . . Thus the accumulation of new capital is slowed down. The realization of technological improvement is impaired; the quota of capital invested per worker employed is reduced; a check is placed upon the rise in the marginal productivity of labor and upon the concomitant rise in real wage rates.”
If you compare what Mises says with the remarks by Piketty I have quoted, you will see very clearly the difference between an economist and an antieconomist.
The Price of Peace: Money, Democracy, and the Life of John Maynard Keynesby Zachary D. CarterNew York: Random House, 2020, 656 pp.
Abstract: Zachary D. Carter, author of The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes is a new intellectual biography of a person who is arguably the most important person of the twentieth century. Though Carter’s prejudices sometimes also get the better of him, and The Price of Peace may not get the “dogma” of Keynesianism right, at least not in an Austrian key, the book shows us how the world looks to Keynesians. Carter, with admirable even-handedness (if also the occasional ham-fistedness in economic analysis), has presented the Keynesian world to readers, warts and all.
This study of Keynes’s life in ideas is a must-read for anyone who wants to understand how Keynes, often reluctantly and inadvertently, made government the most powerful force on the planet, the consequences of which we are still dealing with today.
Jason Morgan (jmorgan@reitaku-u.ac.jp) is associate professor at Reitaku University in Kashiwa, Japan.
On June 28 of 1944, John Maynard Keynes wrote Friedrich Hayek a letter. Keynes had read Hayek’s The Road to Serfdom and was generally impressed with the book. But Keynes took exception to Hayek’s failure, in Keynes’ view, to point out exactly where to “draw the line” between government control of an economy and entrusting economic activity to free actors in a free market.
“You admit here and there [in The Road to Serfdom] that it is a question of where to draw the line,” Keynes wrote Hayek.
You agree that the line has to be drawn somewhere, and that the logical extreme is not possible. But you give us no guidance whatever as to where to draw it. […] But as soon as you admit that the extreme is not possible, and that a line has to be drawn, you are, on your own argument, done for, since you are trying to persuade us that so soon as one moves an inch in the planned direction [i.e., in the direction of a planned economy] you are necessarily launched on the slippery path which will lead you in due course over the precipice.
The letter from Keynes to Hayek is quoted on page 347 of senior HuffPost reporter Zachary D. Carter’s new intellectual biography of John Maynard Keynes, The Price of Peace. It is no coincidence that this letter, about where to “draw the line,” should come at the heart of a biography of Keynes, because drawing the line between the government and the economy—trying, then failing, then trying again at a higher economic dimension, then failing again, and so on—was the very essence of Keynes’s public life. Trying to find the “price of peace,” to draw the line between government and money once the gold standard had been abandoned in the face of financial ruin after the Great War, was what made Keynes who he was.
Confronted with the intractable problem of how to get profligate governments, drunk on war, to stick to budgets and refrain from defacing the currency, Keynes proposed a series of solutions which, taken together, would later come to be called “Keynesianism.” Keynesianism, in a nutshell, is the politicization of money. Keynes spent his life trying to find some alternative line to the gold standard which had prevailed into the early days of Keynes’s public life, some way to let governments say what money is. He never found that line. The story of Keynes’s life is therefore the story of the government takeover of currency, making John Maynard Keynes arguably the most important person of the twentieth century. Zachary D. Carter’s study of Keynes’s life in ideas is a must-read for anyone who wants to understand how Keynes, often reluctantly and inadvertently, made government the most powerful force on the planet, the consequences of which we are still dealing with today.
To say that Carter’s study of Keynes is a must-read is not to say that it is perfect. What makes Carter’s book so worth reading, in fact, is, in part, the author’s blind spots. Carter does try to understand the arguments of Hayek, and of Ludwig von Mises and other Austrians, about money and why it is essential not to let governments tamper with it. (See page 193, for example, pp. 342–50 for Hayek as a punctiliously charitable Keynesian might see him, and pp. 467–68 for a good explication of Hayek’s tiff with Milton Friedman over what Carter neatly calls “monetary therapy.”) Carter is obviously partial to Keynes, but not a partisan. But Carter’s prejudices sometimes also get the better of him, so that readers are occasionally left with stale rehearsals of statist platitudes and condemnations of “neo-liberalism” as the bugbear of the political economy. Carter’s characterization of McCarthyism as “a political movement that fused conspiracy theorists with the American corporate elite and neoliberal intellectuals,” for instance, takes him, and us, on a very interesting turn through the back pages of history, past National Economic Council founder Merwin K. Hart and Rose Wilder Lane, daughter of Little House on the Prairie author Laura Ingalls Wilder. (373–78) It is interesting, and useful, to see how a garden-variety liberal looks at these forgotten corners of economic history, so in that sense The Price of Peace is also recommended reading.
But these sidetracks are not the main line. Carter’s book opens, as one would expect, with the Great War. The calamity unleashed by scheming politicians and double-dealing diplomats in 1914 wreaked absolute havoc with global trade, precipitating the currency problem that Keynes would be called into government service from a quiet life studying economics at Cambridge. “Free markets,” Carter intones, revealing more than he probably intends, “were a luxury that a nation at war could not afford.” (37) Keynes’s job thus became to figure out how to retool the British Empire to survive the Great War, and the ensuing, harrowing, bankrupt peace, without the “luxury” of free markets and free trade.
During the war, Britain, like all wartime states, was trying to have things both ways. On the one hand, Britain wanted easy credit to keep the war machine running—the easiest method of credit for a state being simply to grant credit to itself and print more money. On the other hand, Britain needed to keep its currency on the level because the British pound was the trading floor of global commerce. “The British could inflate themselves into bankruptcy,” Carter rightly laments. (39) “A sustained trade deficit would deplete Great Britain’s gold reserves. Once those were gone, the government would be unable to purchase the food, munitions, and raw materials from abroad that it required to prosecute the war.” (39) Carter also notes that Britain’s blockade of its adversary, Germany, would go on to “claim hundreds of thousands of lives.” (39) Britain wanted both free trade and wartime inflation and blockading—obviously contradictory desires. In short, then, because a line had been drawn between governments and a war prosecuted based on that line, governments had been forced to fudge, and later erase, the line between the state and the money. Once the old certainties of the British pound, free trade guaranteed by the British navy, and the world order provided by the British Empire began to vanish, however, the world fell into uncertainty.
Keynes’s life was a miniature of this change from certainty to doubt. Keynes had been born into the splendor of the late British Empire, and, as he later recalled, that world had seemed a given. But with riches comes decadence, and Keynes’s central involvement with a group of convention-flouting young radicals known collectively as Bloomsbury (earlier, “the Apostles”) presaged the dissolution of a world that had been grounded in values which the rising Left viewed with disdain. Carter gives us a vibrant intellectual portrait of Bloomsburians such as Lytton Strachey, Virginia Woolf, E.M. Forster, and other free-spirits, showing how, to paraphrase Bertrand Russell, the Victorian staidness of imperial fixity had given way to Edwardian aloofness from politics. (27) But then came the guns of August. The Great War toppled a civilization which had theretofore seemed permanent, a fixture of the universe more than the latest iteration of a dynastic cycle. The world after August of 1914 was riddled with dizzying uncertainty. People grew willing to surrender freedom to strong central governments where once nations had met one another in business and peace.
The new dispensation of political upheaval meant that a new breed of man would thrive. Keynes was just that sort, who knew how to cut corners and turn a blind eye in order to keep his bank account in the black and growing. To put it bluntly, Keynes made a healthy side profit on the new stochastics of statism. While controlling more and more of the British economy during the war, Keynes was able to turn that control to his own private advantage. Not cricket for a Victorian, but for Edwardians anything went. In a way Carter rightly deems “ethically dubious for a man with access to the most sensitive economic secrets of the British government,” Keynes “continued bidding on stocks and commodities throughout the war—a flagrant conflict of interest given the nature of his Treasury work, which required him to make personal decisions affecting the total price and supply of all kinds of commodities.” (117) Carter partially absolves Keynes by noting that he did not always turn a profit from decisions he influenced at the government level, but this is hardly proof that Keynes was playing above board. Keynes grew fabulously rich during the war, and remained for most of his life thereafter a very rich man. (117) It is thus odd, or not, depending on how one views Keynes’s bona fides, to find Keynes in 1929 co-writing an election pamphlet titled Can Lloyd George Do It? What Keynes and many others on the Left wanted George Lloyd to “do” was tame postwar unemployment by borrowing, printing, and spending money. Carter notes that in this tract, Keynes “fundamentally redefined what it meant to be a Liberal. The party of free trade and the gold standard had become the party of massive government investment programs and deficit spending.” (171) Keynes wanted politicians to get a grip on government finance, but in the slipstream between governments and economies Keynes had managed to convert uncertainty to cash.
And yet, it would be unfair to portray Keynes as merely a grubber after money. He did, I think, have a highly attuned sense of how the world was changing, and he seemed to understand that much of the change was not for the better. Carter emphasizes Keynes’s optimism,“In the long run, we are all dead,” Keynes’s famous aphorism, is in fact an expression of Keynes’ rather happy-go-lucky style, and not a morose statement of morbid nihilism. “Might as well live for the moment,” Keynes seemed to be saying. but in reality Keynes was also fretful about what his ideas would bring about. Distress over what he may have unleashed by placing money under the purview of government seems to have driven Keynes to near distraction for a time. During the 1920s, in the wake of the Great War, Keynes “was periodically gripped by an obsession with ancient currencies.” (187) “The old currency has become an uncontrollable madness,” Keynes wrote in November of 1925, after spending several days and nights engrossed in the study of Babylonian money. (187)
Eventually Keynes arrived at a theory which prescinded from the Adam Smith orthodoxy of high liberalism, namely that markets predate governments. In his two-volume A Treatise on Money (1930), Keynes argues that money is basically “a political tool.” (189) Keynes’s studies of ancient coinage had led him to the conclusion that states are the authors of currencies. Gold as the basis of free trade was not a natural fact, but a political decision. As Carter sums up Keynes’s findings, “the true source of monetary stability was the public legitimacy of the political authority that happened to choose gold as its preferred medium of exchange. Money had no meaning absent political authority.” (189) (emphasis in original) Indeed, gold coins themselves were “just a piece of bold vanity,” in Keynes’s view—what really mattered was that governments kept accounts in ledger books and tax records, essentially converting political authority into money as “unit of account.” (188) It seems that Keynes’s relief at finding that Babylonians had had a tight hold on currency was at least as much a matter of his own conscience as objective scholarly interest.
But while Keynes’s investigations into the nature of early currencies were undoubtedly based in historical fact, what seems inescapable on reflection on Keynes’s conclusion is that he has substituted gold currency as a natural fact with government as a natural fact. This is a step too far, the fatal step in the Keynesian worldview. Political scientist James C. Scott’s most recent book, Against the Grain: A Deep History of the Earliest States (2017), makes the provocative argument that ancient states and empires did not really “rise” and “collapse,” as though the states themselves were civilization. Closer to the historical truth, Scott argues, is that the people dominated by those polities were brought under and then freed from the yoke of government taxation as states “rose” and “fell.” Which is to say, Keynes was wrong. Currency may very well be entangled with government accounting. I agree with Carter when he agrees with Keynes that “economic history” can be seen “as a fundamentally political story—the tale of riches conquered and surrendered by political powers as empires rose and fell.” (189) But what came first, before there were states, were human communities with apparently no notion of—even an abhorrence of—taxation. Just because Babylonians had a monopoly on accounting does not mean that money must be political. The genius of Adam Smith and later economists of his stripe was to use currency, government’s own creation (let us say, for the sake of argument), to limit the power of government. This was a recognition of an ancient and long-forgotten reality: Even if governments issue fiat currencies, it is not the same as saying the governments can convert fiats into reality. Keynes did not make this distinction. The rest of the world turned turtle as a result. Keynesianism did not just put currency under the sway of politics, it made central governments (first national, then world) the arbiters of much of human activity. Keynes rebuked Hayek for not drawing a line. Keynes did not draw one, either.
Keynes should have known better than anyone that what governments basically do with taxes is use that stolen money to plunder further, shore up power, and wage war against other governments. Keynes admits as much. As Carter writes, quoting liberally from Keynes:
The development of the modern economy […] was inextricably linked with the rise of European colonialism. When the Spanish conquistadors began shipping silver from the Americas back to Europe, they had sparked a rapid price inflation, causing prices to quintuple over the following eight decades. “In these golden years,” [Keynes] wrote, “modern capitalism was born.” […] Though Keynes cheerfully breezed past the implications of his analysis, he had presented a history in which the intricacies of the modern economy were the by-products of intercontinental pillage. […] The idea that modern financial systems were developed to meet the demands of warring states is widely accepted even among economic historians hostile to Keynes. “In the beginning was war,” Niall Ferguson concluded in 2001. The Treatise, then, was an all-out assault on the intellectual foundations of laissez-faire. There was no such thing as a free market devoid of government interference. The very idea of capitalism required active state economic management—the regulation of money and debt. (189–90) (emphasis in original)
Given these conclusions, it is a wonder that Keynes could not see that the use of the gold standard to restrain marauding governments was the only way to prevent the thing which had repeated itself throughout history, from the earliest states: namely, the organized theft of resources by so-called “exchequers” and their equivalents, Babylonia to the Baroque Age. Instead of drawing the line at the amount of available gold, the only line proven to hold back a government itching to loot free people, Keynes moved in the opposite direction, toward world government, a government supposed to keep all other governments at bay. This is a most remarkable conclusion to draw from the evidence.
Thus we find Keynes at the negotiating table during the deliberate buyout of the battered British Empire by Wall Street. Keynes did not like the monied Americans buying up the remnants of Albion, but he was forced to admit that the logic was perfectly sound, however unsavory. And because Carter appears to follow Keynes in the non sequitur conclusion that because government is greedy, therefore government must control “capitalism” (this term is never defined, leading to bucking category shifts and jolting errors along the way), The Price of Peace is particularly weak on the Great Depression, which Carter sees as salvation of the American economy by Franklin Delano Roosevelt. (See Chapter Eight, “Phoenix”.) However, what really saved the post-WWI economy from state-driven speculation and state-enabled market boom and bust was, of course, WWII. Once the American economy had been hooked on the war drug and the currency brought under government control, it was only more war that could provide the craved-for fix. FDR did not save capitalism, war saved FDR’s re-election bid. But even though Carter hints in places that he understands that Washington’s war to save state intervention in the economy was at least partially a product of the Keynesianism that made Washington’s intervention in the economy politically possible in the first place, he still seems not to grasp fully that World War II was simply World War I multiplied by Keynes. Even so, however, the sections on the Roosevelt years are particularly interesting, as they provide glimpses into Keynes’s interactions with the Americans that help round out the standard histories of the era.
The real triumph of Keynes’s career came with Bretton Woods, the real reason that WWII was fought to the end. The Atlantic Charter, signed by FDR and British prime minister Winston Churchill in August of 1941, is often lauded as a high-minded statement of principles. What it amounts to, however, is a subtle transfer of title, the Americans declaring that the world will belong to them when the war is over, and England, in a face-saving maneuver, agreeing that as long as the Americans uphold certain principles (principles which the British Empire never upheld anywhere ever, even at home) the Empire could be theirs. Bretton Woods was the ingenious arrangement whereby the British Empire was bought out, wholesale, for the low, low price of quite literally a dollar. When Washington used Keynes’s playbook to set up a globalist empire of dollars, Keynes was the one who laid out the theoretical floorplan for the world’s new masters.
Here, too, Carter’s book is most revealing. Carter skates past names such as Lauchlin Currie and Col. Edward M. House, scantly acknowledging their connection to world socialism until page 389, when he provides a somewhat lacking overview (no mention of Whittaker Chambers?) of the communist betrayal by so many Rooseveltians. I do not put Carter in this camp, but it has always struck me how blasé historians are when discussing Bretton Woods—the proceedings were crawling with communists and Stalinist agents, but reading most standard histories one would think all that was inconsequential, even a conspiracy theory. Carter’s contextualization of Bretton Woods has helped me see, however, that there is no need to make a fuss over communists at the Bretton Woods table. Communism was just a less ambitious variety of the takeover attempt of the old British Empire, the takeover which the Americans pulled off with aplomb in the end. The British Empire was on the block—some vulgar communists bid a hammer and sickle, but the smoother breed of world socialists, many of them American, bid a worldwide currency instead, a paper scheme to bind all of mankind into one political arrangement. Currency as a political invention, indeed. Keynes built better (if that is the word) than he knew. The ancient Babylonians would have swooned with admiration.
Here we see that the difference between Muscovite and Washingtonian communists was that the former were thinking entirely too small. The Russians, to put it plainly, did not have the benefit of John Maynard Keynes. Bolsheviks wanted to control only the earth. New Dealers dispensed with the political quackery and simply gathered the entire universe together under the same balance sheet. What Cecil Rhodes had only dreamed of in mad hyperbole—“I would annex the planets if I could,” Rhodes declared—Keynes helped make real. No later Washingtonian “moon shot” would have been possible had bureaucrats had to reckon with the realities of scarcity. Washington really did annex heavenly bodies. The Eagle landing was but one small step for a man, but one giant leap for the resting spirit of John Maynard Keynes. Once currency was decoupled from gold, then there was no restraint on imperialism other than the printing press.
The Price of Peace does not put things this way at all, of course, and because it relies on rather tired interpretations of Rooseveltianism and European fascism it asks the reader to suspend disbelief during the long stretch of wars and the tyrant-riddled interwar years. However, the pace picks up again in the postwar, and Carter’s book is especially strong the closer it gets to the present. Like the book, like the subject—Keynesianism in the postwar was hitting its stride. “For Keynesian economists,” Carter writes:
the late 1940s and 1950s weren’t just an opportunity to flex their credentials [as Keynesian economists entered the ranks of the universities, think tanks, and government agencies, going mainstream]; the era seemed to vindicate their entire school of thought, as the federal government deployed the ideas of The General Theory of Employment, Interest and Money to manage the booms and busts of the business cycle. (371)
Carter here seems to betray an innocence of Mises’s and other Austrians’ carefully worked-out explanations of business cycles—the nutshell version is that governments do not manage them, governments cause them. Nevertheless, Carter takes us through a very tight history, rich in detail, of John Kenneth Galbraith, Richard Nixon, Gerald Ford, Alan Greenspan, Ronald Reagan, Bill Clinton, and the American trudge into a decidedly Keynesian new world order. Here one is reminded of Amity Shlaes’s splendid book, Great Society, which has as a sub-plot the standoff between various American presidents and their Federal Reserve chairmen: Lyndon Baines Johnson glowering at William McChesney Martin, Richard Nixon plying Arthur Burns. One cannot understand why politicians should be menacing currency managers without understanding what powers Keynesianism put in the hands of central governments.
Carter’s book ends with an appropriately somber note. As the failure of Lehman Brothers and a host of other rotten-apple firms—long propped up by government and the “exorbitant privilege” (to borrow a phrase from a slightly different context) of getting dollars hot off the government printing presses in a pinch—fell one by one, Carter notes that the Federal Reserve stepped in with massive outlays of cash to keep the “faltering international banking system” from collapsing. (521) “With the gold standard long gone,” Carter writes, “there was no need to worry about reserves running dry.” (521) “THIS IS THE PROBLEM,” I wrote futilely in the margin beside this paragraph. Alas. What Keynes wrought was the endless intervention of the government into the economy. Keynesianism has become a kind of depressing episteme in its own right, the justification for the “remedies” of endless stimulus for devastation which stimulus caused in the first place. Keynes’s various ideas got boiled down into an ideology, and that ideology now drives the American, and world, economy over fiscal cliff after fiscal cliff. Not cheerful.
I am not the only one who sees a strange disconnect between Keynes the man and Keynesianism. Keynes’s disciple Joan Robinson, a minor but important character in The Price of Peace, also soured on Keynesianism, or at least on those who came after Keynes and claimed, falsely as she saw it, to speak in his borrowed timbre. Carter explains that Robinson “understood Keynesian thinking as a doctrine—a way of thinking about the world and its problems that could compete with other great philosophies in human history, a system of thought akin to Buddhism or Marxism.” (414–15) Robinson watched in “horror,” Carter writes, as those who called themselves Keynesians got “the dogma [of Keynesianism as a system] all wrong.” (415) By the late twentieth century, Carter argues, politics had again surrendered to markets, with the World Trade Organization, the World Bank, and other supranational organizations taking over from nation-states. (497–501) Joan Robinson wrote in the Journal of Post-Keynesian Economics in 1979 that “the international economy is not a self-balancing system,” and that the United States and Great Britain were “exceptionally vulnerable” to unregulated trade. (502)
It is along this argumentative track that Carter can assert that “the market was powerless to determine whether [Lehman Brothers] was solvent” during the crisis of 2008. (518–19) But, just as with Keynes nearly a century before, it was surrendering the market to politics in the first place that produced the catastrophe of lending houses entangled with one another in regulations and Washingtonian grift. Keynesianism had been vindicated, in a backhand way. People still have no idea where to draw the line between the government and the economy, once that first fateful line is crossed and a currency is made into an instrument of the state.
The Price of Peace may not get the “dogma” of Keynesianism right, at least not in an Austrian key. But despite this, or perhaps because of it, The Price of Peace is an essential read. This is how the world looks to Keynesians, and Carter, with admirable even-handedness (if also the occasional ham-fistedness in economic analysis), has presented the Keynesian world to readers, warts and all. He has also tracked the contours and vicissitudes of Keynes’s public and private life, “drawing a line” between thinker and reputation and providing an excellent portrait—again, warts and all—of a centrally important man.
Anatomy of Liberty in Don Quijote de la Mancha: Religion, Feminism, Slavery, Politics, and Economics in the First Modern Novelby Eric Clifford GrafLanham, Maryland: Lexington Books, 2021, 290 pp.
Abstract: Anatomy of Liberty in Don Quijote de la Mancha: Religion, Feminism, Slavery, Politics, and Economics in the First Modern Novel is Eric Clifford Graf’s argument that Don Quijote falls within the liberal tradition, advancing a distinctly humanist vision of liberty and, at times, a sardonic critique of undue coercion. Graf’s effort is one small deposit in a slowly growing stock of research that reconsiders literary texts with an eye towards liberty as a guiding good.
Allen Mendenhall (AllenMendenhall.com) is Associate Dean and Grady Rosier Professor in the Sorrell College of Business at Troy University.
“A major thesis of this book,” Eric Clifford Graf says of Anatomy of Liberty in Don Quijote de la Mancha, “is that [Miguel de] Cervantes’s great novel offers a realist bourgeois solution to the confusing labyrinth of tyranny, bondage, and corruption” that characterize early modern Europe (p. 3). Widely recognized as the first early modern novel, Don Quijote advances “positive themes like freedom, harmony, and progress” that commerce and exchange make possible (p. 3).Following Graf, this review uses the spelling Quijote rather than Quixote. It falls, arguably, within the liberal tradition, advancing a distinctly humanist vision of liberty and, at times, a sardonic critique of undue coercion, containing “a significant set of sophisticated casuistic lessons about liberty as an economic science of unusual complexity” (p. 180).
Don Quijote is a picaresque“A picaresque,” Graf avers, “is an episodic and satirical type of narrative fiction” (p. 13). featuring the ridiculous nobleman Alonso Quixano, or Don Quijote, and his simple sidekick Sancho Panza. Their carnivalesque, absurd adventures—comical spoofs on medieval, romantic, knight-errand legends of gallantry and chivalry—result in irony, hilarity, and, alas, tragedy. Criticism in the manner of wit rather than militant provocation or brute force is less likely to invite violent reaction, and Cervantes deftly and prudently employed the satirical mode to popular effect.
That Don Quijote is the first modern novel is no trivial fact. Compared to the high ecclesiastic treatises of the Roman Catholic Church or the urgent tracts and polemics of the Protestant Reformers, the novel itself was, in the seventeenth century, a proto-liberal medium of expression that represented bourgeois values: commerce, commercialism, trade, exchange, interaction, entertainment, and work. The internal form of novels, in fact, resembled (and resembles) the everyday hustle-bustle of their presumed audience. “The wide-ranging and all[-]embracing character of the novel at its best may be purchased at the prices of a certain disunity and inconsistency by the standards of strict poetic form,” Paul Cantor (2009, 49) alleges, “but this is a price we are prepared to pay in return for the novel’s greater ability to capture the texture of lived experience.” Graf points out, as well, that “respect for women on a cosmic scale” was integral to “the novel form” (p. 55).
The point of a review such as this is to summarize and assess the subject author’s leading, seminal arguments. Elements of Cervantes’s plot, which Graf analyzes with depth and breadth, will not appear here. Graf, not Cervantes, is my focus. He sets out to clarify Cervantes’s probable intents and decisions for Don Quijote by providing historical context to interpret details from the text, compare scenes in which Cervantes renders economics broadly conceived, and link Don Quijote to other works and thinkers who influenced, or may have influenced, Cervantes. To accomplish this objective, Graf arranges his case topically by themes that define the liberal tradition, namely “religious tolerance,” “respect for women,” “abolition of slavery,” “resistance to tyranny,” and “economic freedom” (p. 5). Each chapter of this book tracks one of these themes.
It is probably too much to call Cervantes a classical liberal, so Graf, at the outset, cautiously posits that Cervantes anticipated and influenced classical liberals such as Hobbes, Locke, Montesquieu, Hume, Mill, and certain American Founders—to say nothing of the numerous Hispanic liberals who valued economic freedom and individual rights to varying degrees. By the end of his book, however, Graf changes his tune. His conclusion is surprising in its boldness: “So, am I saying Cervantes was a capitalist? An Austrian? A free-market Randian? A libertarian? An English classical liberal? In a general sense, yes, and probably to a greater degree than most readers recognize” (p. 189). Strong words, even if they are qualified by the adjective “general.”
Graf dubs his book an “anatomy,” the term Murray Rothbard employed for his Anatomy of the State. Both texts “dissect” their subjects, so to speak, as the scientist might probe the human body in all its intricate particulars. Graf joins Darío Fernández-Morera (2009, 101) in treating Cervantes “as a writer whose works present situations, statements, and ideas that illuminate sympathetically important aspects of the market economy, while providing material for a critique of collectivism, statism, and redistributionism.”
The School of Salamanca is among the influences that Graf identifies as central to Cervantes’s humanist style of religious tolerance. That is also the school, of course, from which Rothbard traced the origins of Austrian Economics. Graf sees in Cervantes Erasmus-like and quasi-Protestant sympathies, which, in his telling, seem more political (i.e., anti-monarchical) than theological or doctrinal. Protestantism thus understood placed a primacy on the individual, resisted state surveillance and persecution, advocated mass literacy and learning, and rejected ecclesiastic power and orthodoxy. “Cervantes was himself excommunicated,” Graf adduces in support of his view (p. 32). Cervantes’s “Protestantism,” if that is the correct label, was historically and geographically contextual and in contradistinction to the systematic coercion institutionalized by the Spanish Inquisition.“Cervantes criticizes the Inquisition as an immortal, brutal, random, superstitious, and hypocritical institution that suffers from considerable ideological inconsistency.” Graf, p. 29.
Graf connects religious freedom with freedom of thought because they both concern “the limits of the state’s ability to control the inner lives of its citizens” (p. 17). A negative example of religious coercion against which Cervantes wrote was the Expulsion of the Moriscos under Phillip III. Here, a monarch exercised state compulsion to enforce religious conformity and oppress heretical individuals or groups. Graf notes that this religious and ethnic conflict occurred between the publication of the first and second parts of Don Quijote. The fact that state-religious censors cut irreverent passages from Don Quijote before its second edition appeared suggests the extent to which freedom of thought and religion are bound together. Cervantes’s strategic irreverence was “part of a dramatically down-to-earth discourse aimed at subverting orthodoxy” (p. 23). One explanation for why Don Quijote continues to appeal is that light humor is more enjoyable than violent sanctimony. Comedy, done well, has staying power.
Don Quijote “should be of great interest to feminists” (p. 55), according to Graf, for several reasons: (1) Because it “defends women characters against the kinds of brutality often practiced and permitted by the Islamic, Protestant, and Catholic men of his day” (p. 55); it “mocks the extremes of male sexuality” (p. 56); it depicts “comical, prosaic, and pathetic renditions of male fantasy” (p. 58); it portrays women “as no different from men when it comes to their moral status” (p. 59); and it “recognizes that since women get pregnant, their experience of sex is more consequential, both in terms of social stigma and material cost” (p. 59). Only a lengthy exposition beyond the scope of this review could adequately address Graf’s account of the multifaceted “feminism” (an anachronistic designation for Cervantes) communicated by Don Quijote.
The same might be said of Graf’s account of slavery, which, he says, is “essential to any serious understanding of Don Quijote” (p. 85) in light of Cervantes’s treble objections to human bondage: that “slavery itself is wrong, the new racial justification of it is absurd, and any material advantage it offers over a free labor market is likely an allusion” (p. 85). Equating slavery and skin color grew increasingly common during the seventeenth century, when Spanish investment in the slave trade increased and Cervantes himself encountered human bondage in Algiers. That experience, combined with his imprisonment for embezzlement, among other things, turned him against slavery. Graf credits the School of Salamanca and principles of natural law for Cervantes’s gradual opposition to slavery and claims that Don Quijote was part of a larger “Spanish innovation in early modern fiction” (e.g., Lazarillo de Tormes and El coloquio de los perros) that folded “the themes of race and slavery into a picaresque satire against slavery” (p. 87).
Of the five chapters of Graf’s book, the fifth, regarding economics, is the most exciting, going great lengths to demonstrate the relevance and usefulness of Austrian economics to literary theory and criticism. Those familiar with the Austrian School, however, may flip past sections of this chapter that are addressed to an audience lacking economics training. For instance, Graf spends six pages describing subjective theory of value as articulated from Carl Menger to Rothbard. The wide range of economic concepts that Graf finds in Don Quijote—price theory, money, markets, usury, interest, debt, credit, inflation, counterfeiting, and more—testifies to Cervantes’s sustained interest in that subject, which appealed to future classical liberals. “[T]he essential attraction of Cervantes’s great novel for the likes of Locke, Hume, Jefferson, and Bastiat, all of whom emphasized individualism, private property, stable money, and free markets in lieu of market intervention and control,” was, Graf submits, Cervantes’s apparent proto-liberalism (p. 227).
Globalization, the “influx of gold and silver from the New World” (p. 175), economic treatises that Christianized business and trade, fresh financial practices and active commerce in and around Spain—these and other factors explain the economics that figures in Don Quijote. “Over the course of his life,” Graf asserts, Cervantes “acquired tangible micro- and macro-economic knowledge about things like tax laws, the quality of different coins, and the gain, loss, and risk of a range of debt and credit arrangements” (p. 179). Graf maintains that Cervantes was economically sophisticated, comprehending “abstract concepts like Gresham’s Law and the subjective theory of value, and that he grasped the folly and immorality of authoritarian decrees like price controls, penalties for usury, and compulsory exchange rates” (p. 180).
Because of the time and place in which Cervantes wrote, Graf’s presentation of liberalism, which centers on Cervantes, seems to imply an incompatibility with, or opposition to, religious establishments and institutions. Yet there is an appreciable difference between religious establishments and institutions—especially those endowed with government or state power—and the movements and teachings of historical Christianity and those religious texts around which it developed. Larry Seidentop’s Inventing the Individual supplies a cogent case for Christianity as an impetus for individualism and liberalism in the West. Graf’s treatment of Christianity may have looked different had his subject matter been different.
Graf is a self-proclaimed independent scholar; he maintains no formal affiliation with a university, research institute, think tank, or other scholarly organization. That Lexington Books would publish an author without such establishment ties suggests that it is committed, chiefly, to intellectual merit and not, say, credentialism. Too many university presses would pass on this book because its author does not grace the Ivory Tower. That is a mistake because the quality and rigor of Graf’s arguments far exceed that of many tenured professors in the hallowed halls of higher education.
Readers already familiar with Cervantes and Don Quijote are the target audience for this book, which might come in handy as a curricular supplement in a course on Cervantes or Don Quijote, the emergence of the novel as a literary form, Spanish literature, and so forth. The benefit of teaching Graf’s perspective in a college classroom involves his counteraction of Marxist or quasi-Marxist—or at least anti-capitalist—exegeses and discourses that abound in humanities disciplines.“The vast majority of authors, critics, and professors of literature attend an anti-capitalist perspective regarding economic literary criticism.” (Spivey 2020, 4). It has been over a decade since Cantor and Stephen Cox’s Literature and the Economics of Liberty reached print, and optimism regarding a sudden flowering of libertarian literary criticism has, no doubt, diminished. But Graf’s effort is one small deposit in a slowly growing stock of research that reconsiders literary texts with an eye towards liberty as a guiding good. There is, indeed, hope and promise for a more humane economics in literary theory and criticism. If we are patient, it will come.
Our aim ought not to be to make democracy “work better” but to use revelations of corruption as a tool to question altogether its value as a political and social system of organization.
Original Article: "How Media and Tech Elites Seized Control of Elections"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
In many ways, the American war crimes of Korea and Vietnam were a continuation of American military conduct in the Civil War and during the Indian wars.
Original Article: "The Historical Origins of Modern American War Crimes"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Contracts are voidable and thoroughly changeable. They can be totally ignored with the consent of both parties. But natural rights are not like contracts and can't be abolished even with consent.
Original Article: "Contract Rights Are Not the Same as Natural Rights"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
We wrap up our look at Murray Rothbard's sprawling two volume An Austrian Perspective on the History of Economic Thought with Dr. Joe Salerno, Rothbard's friend and colleague. This show covers the second volume exclusively, starting with the Frenchman JB Say and working through Ricardo, the British Currency School, John Stuart Mill, and finally Karl Marx. Salerno has penetrating insights about all of these thinkers, from Say's understanding of production to Ricardo's erroneous systemization of Adam Smith. He also has great background regarding Mises and the Currency School vs. Banking School debate, on free banking and full reserve banking, and on Mill's deep misconception of money. The show ends with a thorough look at Rothbard's treatment of Marx over more than 100 pages: Marx's sick view of man as a collective, his hatred for the division of labor, his absurd and deterministic "laws of history," his materialism as a replacement for spiritualism, and the underlying folly of "superabundant production."
You don't want to miss this show!
Additional Resources Read Rothbard's important work: Mises.org/APHET
This special virtual seminar for donors to our fall campaign was livestreamed on October 8th, 2021.
Jeff Deist and Bob Murphy discuss Mises's views on interventionism and their continued relevance today, particularly after the last year and a half of economic intervention resulting from covid tyranny.
"[Interventionism] preserves some of the labels and the outward appearance of capitalism. It maintains, seemingly and nominally, private ownership of the means of production, prices, wages, interest rates, and profits. In fact, however, nothing counts but the government’s unrestricted autocracy... This is socialism in the outward guise of capitalism. It is the Zwangswirtschaft of Hitler’s German Reich" —Ludwig von Mises, The Middle of the Road Leads to Socialism
Read the full text from Mises here.
We continue our look at Murray Rothbard's two volume An Austrian Perspective on the History of Economic Thought with a show focused on Adam Smith. Rothbard attacked him mercilessly as a plagiarist who set economic theory back decades with his muddled views on value and price. But was this criticism justified, or was Smith actually an early and valiant proponent of laissez-faire?
Our guest Hunter Hastings defends Smith in this rollicking discussion, while Professor Jonathan Newman is not so sure. They also discuss the Scottish Enlightenment and Smithian thinkers like Bentham and Malthus, and even tackle the contentious question of whether Smith produced Marx. Don't miss this!
Additional Resources Read Rothbard's important work: Mises.org/APHET
Was Adam Smith the founder of modern economics? Not so, says Murray Rothbard in his staggering two-volume An Austrian Perspective on the History of Economic Thought. Dr. Patrick Newman joins the show for a look at Rothbard's treatment of economics before Smith—from the Ancient Greeks all the way to the Scottish Enlightenment—and his take no prisoners revisionist approach. Jeff Deist and Dr. Newman cover Aristotle and Plato, Aquinas, Protestants and Catholics in the Middle Ages, Spanish Scholastics, Mercantilists, French Physiocrats and Turgot, and the criminally underappreciated Richard Cantillon. If you're a fan of economics and non-bowdlerized history, don't miss this!
Additional Resources Read Rothbard's important work: Mises.org/APHET
Find out more about Dr. Newman's new book: Mises.org/CronyismBook
Just a few years prior to his death, Murray Rothbard started one of his most ambitious writing projects: a full-fledged, three volume history of economic thought from a uniquely Austrian perspective. Unfortunately he never wrote the third volume, intended to span the post-Marx marginal revolution all the way through the mid-20th century. But the two existing volumes, over 1000 pages, start with ancient Greece and make their way to Adam Smith, Bentham, JS Mill, Ricardo, and Marx. As always, Rothbard is both compelling and radically revisionist. Contra most economic historians, he believed the proto-economists before Smith had much to offer. Both the Spanish Scholastics and French Physiocrats, for example, showed an understanding of value and subjectivism well before Smith developed his muddled cost theory.
These two volumes (free here in pdf!) are a must read for any student of economics, and Dr. Patrick Newman is the perfect guest to bring them to life. Don't miss this first in a series of episodes on An Austrian Perspective on the History of Economic Thought.
Additional Resources Read Rothbard's important work: Mises.org/APHET
Find out more about Dr. Newman's upcoming book: Mises.org/CronyismBook
From the darkened cinema to the football field to the airport screening line, the US government inflated the actual threat of terrorism and the necessity of an aggressive military response.
Original Article: "US Military Propaganda in Film, Sports, and TV: It's Everywhere"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Bob reviews Mark Spitznagel's latest book, Safe Haven: Investing for Financial Storms, on which he was a consultant. Bob explains that Spitznagel rejects the alleged dichotomy between risk and return, and then gives a numerical example to illustrate the two schools of thought.
Mentioned in the Episode and Other Links of Interest: Bob’s appearance on Jordan Peterson‘s podcastBob’s surprisingly high ranking among influential economistsHis episode with Winston Ewert (who helped design the AI that produced the ranking)Mark Spitznagel’s new book Safe Haven: Investing for Financial Storms and his previous book, The Dao of Capital For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Google Podcasts, Stitcher, Spotify, and via RSS.
On the heels of Biden's vaccine mandate announcement, Dr. Murray Sabrin joins the show to discuss his new book on escaping the state's medical fascism. Universal Medical Care from Conception to End of Life lays out the sobering reality of our unsustainable "health care" system. It explains the ruinous policies which changed doctors from respected guardians of patients to functionaries for government and third party insurance companies—and the unsustainability of our current path. But the book also shows us the way out. The model for market medicine is simple enough: patients pay cash for basic services, have high-deductible catastrophic insurance for emergencies (priced according to actuarial realities), while charitable hospitals and clinics serve the truly poor and indigent.
Heroic entrepreneurial doctors already operate in this cash-only marketplace, and Sabrin's book gives us a road map for delivering better and cheaper medical care to millions of Americans.
Additional Resources Watch the Mises Institute's Medical Freedom Summit held in June: Mises.org/Med21
Order Dr. Sabrin's fascinating new book: Mises.org/SabrinBook
SurgeryCenterOK.com
Radical Uncertainty: Decision-Making Beyond the NumbersJohn Kay and Mervyn KingNew York: Norton, 2020, xvi + 528 pp.
David Gordon (dgordon@mises.org) is a senior fellow at the Mises Institute and editor of the Journal of Libertarian Studies.
Kay and King are not Austrians, but in this important book, they lend aid and comfort to several key points of Austrian economics. Kay teaches economics at Oxford, and King, who was formerly Governor of the Bank of England, teaches at NYU. (King in an earlier book, The End of Alchemy, which I had occasion to review, warns against the dangers of fractional reserve banking, in a way that will delight admirers of Murray Rothbard.)
Austrians hold that the dynamics of the market depend on profit-seeking entrepreneurs. whose judgments of appraisement are of necessity subjective, irreducible to monetary calculation. As Joseph Salerno (1990) explains,
Mises presents a penetrating critique of the Walrasian view that, in the plans of producers, prices substitute for knowledge of the economic data or, rather, for entrepreneurial understanding and appraisement of future variations of these data. Mises’s critique is grounded on the incontrovertible fact that ‘The prices of the market are historical facts expressive of a state of affairs that prevailed at a definite instant of irreversible historical time.’ As such, realized prices can never serve as an unambiguous guide to production; which is always aimed at supplying a market of the more or less remote future involving a different configuration of the eco¬nomic data.
Mises’s argument depends on the distinction, made famous by Frank Knight, between risk and uncertainty. In a situation of risk, the actor knows the possible outcomes and can apply the probability calculus to them. In a situation of uncertainty, he cannot so, either because he cannot use the probability calculus or because he does not know all the possible outcomes. He must rely on his judgment about the particular case. Mises calls this the distinction between class and case probability. He says in Human Action about case probability:
Case probability means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing. Case probability has nothing in common with class probability but the incompleteness of our knowledge. In every other regard the two are entirely different. (Mises [1949] 1998, 110)
Mainstream neoclassicals do not accept this distinction. Milton Friedman says,
[I]n his seminal work, Frank Knight drew a sharp distinction between risk, as referring to events subject to a known or knowable probability distribution, and uncertainty, as referring to events for which it was not possible to specify numerical probabilities. I’ve not referred to this distinction because I do not believe it is valid…. We may treat people as if they assigned numerical probabilities to every conceivable event. (p. 74, quoting Friedman.)
If Friedman is correct, a key tenet of Austrian economics is wrong; entrepreneurial appraisement must exit the scene.
Mises acknowledges that you can say things like, “I think there is a 50 percent chance the Republicans will win the coming election.” But this is just an expression of how confident you feel about this, and it is meaningless to use probability calculus here. He says,
On the eve of the 1944 presidential election people could have said:... (c) I estimate Roosevelt’s chances as 9 to 1.... This is a proposition about the expected outcome couched in arithmetical terms. It certainly does not mean that out of ten cases of the same type nine are favorable for Roosevelt and one unfavorable. It cannot have any reference to class probability. But what else can it mean? It is a metaphorical expression.... For the comparison is based on a conception which is in itself faulty in the very frame of the calculus of probability, namely the gambler’s fallacy. In asserting that Roosevelt’s chances are 9:1, the idea is that Roosevelt is in regard to the impending election in the position of a man who owns 90 per cent of all tickets of a lottery in regard to the first prize. It is implied that this ratio 9:1 tells us something substantial about the outcome of the unique case in which we are interested. There is no need to repeat that this is a mistaken idea. (Mises [1949] 1998, 113–15)
Knight has an amusing comment on this issue. He says,
The saying often quoted from Lord Kelvin... that where you cannot measure, your knowledge is meagre and unsatisfactory; as applied in mental and social science is misleading and pernicious.... the Kelvin dictum very largely means in practice, if you cannot measure, measure anyhow!” (p. 86)
Friedman has an answer to this objection. It does not matter, he says, whether people actually do assign probabilities to every conceivable event. This is just an assumption economists make, and what counts for a good theory is not the realism of its assumptions. Rather, a good theory is one that generates good predictions.
Kay and King reject this view, and here they again render Austrian economics a service, though, to reiterate, they themselves aren’t Austrians. The method of Austrian praxeology is deductive, and unless your premises are true, you have no guarantee that the conclusions you deduce from them are also true. Thus, Austrians must reject Friedman’s position.
Kay and King reject Friedman’s methodology because there is almost never clear evidence that the predictions of a theory are false. You can always adjust something in the theory to make it come out true, and that is what all-too-many economists do:
Friedman’s article [on methodology] appeared in a brief period of intellectual history in which a version of Popperian falsificationism—the idea that a hypothesis acquires scientific status only if there is a possibility that it might be refuted was in fashion.... The decisive rejection of this falsificationist view is encapsulated in what philosophers know today as the Duhem-Quine hypothesis: such refutation is rarely definitive, because any test requires a range of auxiliary assumptions, and it is always possible to argue that these assumptions have not been fulfilled. (pp. 259–60)
There is an additional point that strengthens the argument against Friedman. It isn’t clear that his claim about probability estimates generates any predictions at all. If you make a series of bets that don’t conform to the principles he sets forward, he can show through what is called a “Dutch-book” argument that you will lose money. But that is hardly a prediction that anyone will in fact make a series of bets of this kind.
Kay and King suggest that, in fact, most people won’t make bets in the circumstances that Friedman assumes.
In a world of radical uncertainty, most people do not choose among lotteries, far less enter them, and for good reasons.... They shun randomness. They are reluctant to make commitments in situations they do not understand, especially when other people may have a better understanding of them.... Of course, there are people who will take a bet on anything, but that is a mark of weirdness, not rationality. (p. 84)
Friedman’s rejection of the risk-uncertainty distinction is part of a general effort of the Chicago School to judge the free market by external standards of “efficiency,” here again a point of divergence from the Austrian School. (By “Chicago School,” I refer to the period that began with Friedman’s dominance Knight and Henry Simons did not share Friedman’s views) The authors give another example of this Chicago tendency. Herbert Simon criticizes the neoclassical view that people try to maximize their expected utility on the ground that often, what is “good enough” suffices. If, for example, you are selling your house and you get an offer that seems satisfactory, you may take it. You won’t keep investigating to see if you can get a better offer. Simon called this “bounded rationality” or “satisficing.”
Simon’s point does not faze the Chicago economists. They argue that if you accept the offer, you are still maximizing, if account is taken of the search and transactions costs of looking for something better. Thus, they transform what Simon argues into its exact opposite. “Simon is reported to have joked that he should take legal action against his successors who misused his terminology and neglected his insights.” (p. 151)
Austrian School economists also reject the use of the conditions for general equilibrium as a standard to judge the free market, and here once more Kay and King agree. They tell us that Kenneth Arrow and Gerard Debreu, who first proved that competitive prices can under certain conditions result in a general equilibrium, realize that their model is unrealistic:
Arrow and Debreu recognized that they were describing an imaginary world akin to that of Through the Looking-Glass. And they interpreted that world as a rhetorical device, like those literary fictions, illustrative of propositions which might—or might not—be true in any real world. (p. 344)
Kay and King have written an impressive and erudite book that ranges over many disciplines. It is often repetitious; though the book is about radical uncertainty, readers will rarely be uncertain what the authors are going to say. The book is filled with anecdotes, and I’ll close with one that illustrates the authors’ criticism of the neoclassicals:
The new macroeconomic theorists followed a different approach.... Ronald Coase attributed a satirical description of it to the English economist Ely Devons: “If economists wished to study the horse, they wouldn’t go and look at horses. They’d sit in their studies and say to themselves, ‘What would I do if I were a horse?’”
Tax Tyrannyby Pascal SalinCheltenham, UK: Edward Elgar, 2020, 224 pp.
Jörg Guido Hülsmann (guido.hulsmann@univ-angers.fr) is Professor of Economics at the University of Angers.
Pascal Salin is one of the most important Continental European economists. Throughout his career, he has developed and defended the principles of a free society against the encroachments of the state. He started off as a Friedmanite in the 1960s and then turned ever more Austrian through his personal encounters with Friedrich von Hayek in the 1970s, which led him to discover and appreciate the works of Ludwig von Mises, Murray Rothbard, and Israel Kirzner. He is the author of about two dozen books. His main research fields have been competition, international monetary economics, international trade, macroeconomics, and public economics. He has also become well known as a champion of Austro-libertarianism, especially through his treatise Libéralisme (2000).
Even though Professor Salin is very prolific, most of his writings have been published in his native French. The book under review is therefore very welcome, being the first English edition of a text that has been published in several French editions starting in 1985. It was first published under the title L’arbitraire fiscale and then, in 2014, under the current title, La tyrannie fiscale. It has also been translated into Italian and other languages. The book has 206 pages, is organised into 12 chapters, and comes with a 7-page index.
Tax Tyranny is an essay on the principles of taxation. It is written in a non-technical way and accessible to a broad readership. It serves very well as an introductory text for undergraduates, most notably in macroeconomics or public economics, but it also carries a lot of original food for thought that deserve the attention of scholars and tax practitioners. The central thesis is that there are no rational grounds for taxation and taxation can therefore never be justified. By its very nature, the tax state can never be a just state. When it taxes its citizens, it is willy-nilly arbitrary and tyrannical.
Professor Salin starts off highlighting the destructive nature of taxes and then walks through the various arguments designed to present proportional taxation (“flat tax”) and even more so progressive taxation of incomes and savings as a matter of distributive justice. Because these justifications do not withstand scrutiny, chapter 2 carries the title “The myth of progressive taxation.” Salin argues that the principle of equality before the law is irreconcilable with proportional and progressive taxation. The core of his argument is that it is impossible to objectively assess the real income and real wealth of each citizen. Incomes and wealth have various personal dimensions which cannot be readily translated into monetary terms. As a consequence, when the state sets out to tax the citizens by relying only on their monetary income, respectively on the monetary expression of their wealth, it deals with the citizens not on equal terms, but creates privileges for some and disadvantages for others. This leads him to a radical conclusion: “The choice of income or wealth as a tax base does not correspond to any criterion of rationality or justice. It is as arbitrary as would be a modulation of the tax according to the age or the color of the skin of a taxpayer.” (p. 35) Proportional and progressive taxes are arbitrary by their very nature. They cannot be based on an equal treatment of the citizens. The taxing state is a tyrannical state. Its deeds are not based on reason and justice. “The reality is very different: Just as a robber has interest in attacking the one who has money rather than the one who has no money, the state takes the money where it is.” (ibid.)
In chapters 3 through 5, Salin then zooms in on the over-taxation of savings, which are subject to multiple and overlapping layers of taxes: “[…] the one who saves may have to pay the income tax for his current savings, the wealth tax for the accumulation of the same savings, and the income tax for future yields of these savings. […] Thus, the extraordinarily arbitrary character of the income tax is dues to the fact that certain resources are taxed once, others twice, and some not at all.” (p. 52)
Let us also quote the following passage from the brilliant chapter 4, where he deals with inheritance taxes:
“We may also eliminate immediately the statist argument that inheritance is not ‘fair’ because it has not been ‘earned’. Such an accusation is indeed funny coming from people whose resources are obtained by coercion and whose main objective is usually to increase the share of the incomes of citizens that does not depend on the services that they have provided to others. Why would it be ‘fair’ to receive a non-earned income when it comes from the state and not when it comes from one’s parents?” (p. 67)
The macroeconomic impact of the over-taxation of savings is discussed in chapter 6. Pascal Salin argues that an economy starved of savings suffers from low or negative growth rates. As a consequence, political leaders are tempted to replace savings by cheap credit out of the printing press, which in turn makes the economy prone to economic crises. In chapter 7, he presents a general conception for tax reform, very much in line with the idea of a pure consumption tax according to Irving and Herbert Fisher (1942).
Chapter 8 deals with the problem of the incidence of taxation. Salin here makes the standard point that the persons who pay a tax are not necessarily the ones who bear it, that is, it is not necessarily their revenue that diminishes as a consequence of the tax. But he adds a few important considerations. He argues that firms do not bear the incidence of taxation for the simple reason that firms are legal and administrative abstractions (see pp. 83f, 120). Firms are nothing but contracts between human beings, and any taxes that have to be paid by a firm therefore ultimately fall on the individual human beings that are contractually related to that firm, be it as employees, suppliers, directors, or customers. Moreover, it is impossible to determine a priori which one of these parties will effectively bear how much of the tax. The incidence of taxes on profits and of corporate taxes depends on the subjective appreciation of all parties concerned and on other concrete circumstances prevailing in the institutional environment.
The true significance of the amount of taxes paid by firms, therefore, is that the incidence of that exact same amount is blurred. Pascal Salin stresses the implication: “This figure [the amount of taxes paid by firms] is first and foremost and indication of the arbitrariness of taxes! The usual claims about the fair and efficient aspects of taxation appear particularly questionable when one understands that we do not know who actually pays [bears] such an important part of taxes.” (p. 124) A few pages later, he elaborates on the political significance of this fact: “Precisely because one does not know, no pressure group fights against this category of levies apart from the organisation of entrepreneurs.” (p. 126) But the representatives of such organizations are poorly interested in taking up the fight against the taxes paid by firms because the incidence on themselves is not clear and likely to be small. “Thus who is likely to promote and to make people accept the idea that all levies on firms should be suppressed? […] Levying taxes on firms, i.e. on taxpayers who do not have voting rights, is certainly ideal! It is therefore not surprising that taxation is arbitrary, irrational, and unfair.” (p. 126)
In the last four chapters, Professor Salin criticises the most important justifications of taxes. In chapter 9, he argues that the state is a bad insurer and therefore unfit to set up and run state-sponsored insurance plans, most notably public health insurance and public pension schemes. Similarly, there is no reason to entrust the state with the mission to take care of the young, the elderly, and the handicapped. In his words:
“It is […] undeniable that the exercise of solidarity is present in every society and that it is the result of a sense of benevolence characteristic of the human mind. […] but it is necessary to challenge the claims of statesmen […] to use the alibi of solidarity to justify actions that should be covered by insurance and, on the other hand, to monopolize the exercise of solidarity, all the more so since they give to this term an indefinitely expandable content. They make solidarity mandatory (therefore amoral), unconditional (therefore immoral), and funded by coercion (therefore unfair).” (p. 135)
In chapter 10, Professor Salin deals with another fashionable idea, according to which taxation should be “harmonised” internationally in order to create a “level playing field” for market competition. This idea has played an important role in the political integration of the European Union and also in the context of NAFTA and other trade agreements. Salin delivers a short and elegant explanation why the whole idea is ill-founded: it ignores the economic principle of comparative advantage. “Even if the real costs of production are higher for all products in one country than in another, trade is possible and profitable, as there are differences in relative costs.” (p. 147) He concludes: “If ever the differences in the tax rates could explain differences in absolute prices of goods […] they would strictly have no influence on relative prices between goods. Therefore, in accordance with the general principle of specialization, they would not affect the trade between both countries. For this simple reason, the harmonization of tax rates is therefore unnecessary.” (ibid.) Pascal Salin therefore recommends we forget the idea of harmonizing tax rates. The proper focus should be on tax competition.
In chapter 11, he then proceeds to dissect the most important economic justifications of the state, most notably, the theory of public goods. In the final chapter 12, he applies similar scrutiny to the idea that taxation could be based on consent rather than on coercion. He refutes the idea that democracy could be a substitute for individual consent, as well as the idea of a social contract. In fact, in his eyes, none of the typical justifications of the state holds water. And he stressed the inescapable conclusion: “Any tax is arbitrary, all taxation is based on the use of coercion.” (p. 183) When it comes to tax reform, the best that can be achieved short of abolishing the state, is apply a series of second-best remedies. “Limiting arbitrariness, getting closer to the wishes of the taxpayers, such is the minimum program which can be proposed.” (ibid.)
The preceding selection of highlights from Tax Tyranny should not be misinterpreted as some sort of an executive summary. The book is much richer and warrants attentive study by all students and professionals. As a token of our own attentive reading, let us single out a few shortcomings of this otherwise excellent piece of work.
The most annoying deficiencies concern two editorial matters: endnotes (rather than footnotes) and the quality of the translation. Pascal Salin is a very elegant and clear writer in his native French. Regrettably, the English rendition is often wooden and occasionally suffers from with oddities and inaccuracies. For example, while on p. 47, the text contains the correct phrase of the “correspondence between capital and income,” at other places it features the patently wrong phrase of an “equivalence between income and capital” (pp. 46, 54 et passim). On page 121, the sentence “However, the existence of these burdens does not affect employees […]” is incomprehensible and should in fact read “However, the existence of these burdens does not only affect employees […]”
Tax Tyranny is an essay and not meant to be a thoroughgoing treatise with full documentation. Still it would have been appropriate at several places to quote Amilcare Puviani’s (1903) theory of fiscal illusions, and it would have been nice to find a reference to Friedrich von Wieser (1893 [1889], Bk. VI, ch. IV), who justified the progressive income tax with the help of marginal value theory, an approach that Salin criticizes very pertinently (see pp. 20–23). Moreover, Professor Salin occasionally quotes Murray Rothbard’s Power and Market which, while much larger in scope, covers the same ground as Tax Tyranny. It therefore would have been very helpful if Salin had taken the pains to discuss Rothbard’s (1977 [1970], 108ff) arguments against the very possibility of a pure consumption tax, as well as Rothbard’s related case against the very possibility and desirability of taxing consumption more than savings (ibid., pp. 99f. et passim).
Austrian Economics in Contemporary Business Applicationsedited by Hunter HastingsAuburn, Ala.: Mises Institute, 2020, 68 pp.
Fernando D’Andrea (dodandrea@gmail.com) is a Ph.D. student in entrepreneurship at Oklahoma State University.
The six-chapter book Austrian Economics in Contemporary Business Applications promises to follow Mises’s and Rothbard’s lead and translate sound economic ideas for laymen. The book is, up to this point, the highest scholarly achievement of the “Economics for Business” project of the Mises Institute, launched in 2019.
It also aims to communicate opportunities of research and consulting to the Austrian audience. The contributors, all business school professors, show how Austrian ideas—value subjectivity, consumer sovereignty, capital allocation, entrepreneurship, etc.—can be useful “to practical management problems” in teaching and consulting (Hastings 2020, p. 4). The book suggests that Austrians should strive not only for a new science of managing business, but for a new science of business itself. This science would go beyond the management aspect, incorporating entrepreneurship (see Mises 1998). It would take an individualistic perspective and explicit include entrepreneurs and consumers.
The book starts with Steven E. Phelan’s chapter, which uses subjectivism to deal with the problem of how to properly assess a new project’s potential financial returns. Using a consulting example, he argues that, for correctly assessing the possibility of investing in a new project, quantitative analysis and judgment should be used together. As a consequence, “business technocrats (aka MBA students)” (p. 14) must learn from Austrian economics, especially in what concerns the (un)certainty of the assumptions made in the management models. Business people need to be better at dealing with unstructured problems, and this gains relevance with the advancement of artificial intelligence. Dr. Phelan shows that Austrians are not against quantitative data—they view it and its treatment as necessary, but not sufficient, tool to support decision making under uncertainty.
In chapter two, Matthew McCaffrey exemplifies the utility of the Austrian approach by showing how students learn and apply fundamental concepts while thinking about investments and new ventures. He reminds us about the Austrian emphasis in realism and claims that it leads Austrians to be more capable of providing tools to businesspeople. Starting from a common planning approach—modeling a business idea on a spreadsheet by guessing different values to the foreseeable costs—Dr. McCaffrey presents and discusses Austrian concepts such as economic calculation, prices, value imputation, time preference, and governmental intervention. He summarizes: “project investment appraisal is simply economic calculation on a small, practical scale” (p. 19). By using that tool, students can better understand the contributions of each part of the capital to the value proposition. They learn that prices are not arbitrary and that they need to deal with those prices to better understand the possibilities of action. They also learn to consider uncertainty both in the future input prices and in the final good prices. At the policy level, students understand that supposedly well intended actions—such as increases in the minimum wage—can quickly destroy the economic feasibility of a venture. As Dr. McCaffrey puts: “It’s one thing to be shown a supply and demand graph and told that minimum wage increases can destroy the viability of a business: it’s quite another to see the NPV of a business disappear at the press of a button, simply by increasing the minimum wage by a dollar or two.” (p. 25). That experience surely substitutes for many classroom hours on the economics of supply and demand.
In Chapter 3, Peter G. Klein—the Austrian economist with the largest influence in management literature—contributes the book’s most academic chapter. He affirms that only Austrians consider the entrepreneur in economic theorizing and mentions precursors in the tradition such as Cantillon, Schumpeter, Mises, Rothbard, Kirzner, and Salerno. He presents the opportunity-based view (Kirzner 1973) and his own approach to entrepreneurship: the judgment-based view (Foss and Klein 2012). In his view, entrepreneurship is an economic function and occurs all over the economy, not only in new ventures. The entrepreneur is the agent that organizes production processes, deploying resources and exercising judgment in search for money profit under Knightian uncertainty. Dr. Klein outlines his own theory of the firm as the “entrepreneur plus the alienable assets she owns and controls” (p. 32) and mentions how entrepreneurs necessarily exercise derived judgment in pre-existing firms.
Vishal K. Gupta authored chapter 4. He presents theoretical connections between mainstream management literature and the Austrians. Dr. Gupta calls special attention to the dynamism of the market process and the consequent essential role of the entrepreneur in the constantly disequilibrated world seen in Lachmann. In Dr. Gupta’s thinking, all entrepreneurs inherently understand Lachmann’s points, and this should lead to a more central role for dynamism and entrepreneurship in management research and teaching.
Mark D. Packard is responsible for Chapter 5. He starts by suggesting that positivism is a problem in the social sciences and that there is “desperate need” for the Austrians’ insights. Dr. Packard encourages Austrians interested in academia to enter the profession in management because this is open to non-orthodox ideas, and because Austrians better understand entrepreneurship and the whole market process. He adds to the classic management scheme—formed by marketing, people, operations and finance—the value for the consumer that is at the core of all unhampered market activities. The entrepreneur is needed to organize production and to connect consumers to whatever fulfills their needs via the organization of firms. Dr. Packard discusses the theory of organizations, but strangely does not mention Foss and Klein (2012) and Bylund (2016) who offer economic explanations for that function. He mentions strategic management (from an Austrian perspective, a responsibility of the entrepreneur) and how its origins in industrial organization make its tools unfit for supporting managerial analysis and action in a dynamic world. His insights on Human Resources and Organizational behavior are very interesting. Using thymology to contrast the current applied psychology approach can be fruitful and would expand the Austrians’ relevance in the social sciences as Rothbard (1951) suggested. Dr. Packard discusses consumer behavior and how it became positivistic. He suggests the adoption of a subjectivist view based on the insight that value lies in the consumer, a field that Austrians are starting to explore (Hastings, D’Andrea, and Bylund 2019; Packard 2016). He also points to future developments in finance and accounting and suggests an important research agenda: how stock traders can (not) be understood in light of the entrepreneurship literature.
In the last chapter, Per Bylund, the one most acquainted with talking to the layman in his entrepreneur.com pieces, suggests a metaphor for an entrepreneurial business: an island of specialization in the market ocean. He aims at correcting an error in business by substituting the very common war metaphors. Dr. Bylund argues that the use of the wrong metaphor leads to a poor understanding of the market as a zero-sum game, not a mutually beneficial arrangement, as it is in reality. He reminds us that, instead of conquering territory and becoming a king, the entrepreneur must serve consumers, the market kings. Entrepreneurs do that by facilitating value using their firms. There is no territory to be conquered, there are people to be pleased. Dr. Bylund presents the market as a process of collaboration and continuous specialization in which people become more productive when they engage in innovation and exchange. Entrepreneurs create new production processes, ‘islands’, via firms. To have a chance of success, entrepreneurs need to try to imagine what the future will look like, and try to create possible solutions that consumers will be willing to exchange for money. The firm should then be a reflection of the entrepreneur’s imagination of what needs to be done and how to serve consumers in the future. This insight has direct implications for the discussion of the role of high-level managers in large firms. The ‘entrepreneurial spirit’ must come from somewhere. Where does it come from in those corporations? It also makes us question how those same large firms come to be. Since it is difficult for the entrepreneur to maintain control, would these firms exist if not for governmental intervention? (Thornton [2018] provides some insights.) Dr. Bylund summarizes the metaphor: the firm is the island where innovation happens and it can, even in the most dreadful ocean conditions, survive if it has a good team and preparation. In short, if it continues evolving, it can survive market storms, but if innovation stops, it will be drowned by the ocean. The island metaphor is indeed much more powerful and accurate than the common war one.
The book covers a lot in Austrian thinking and suggests directions for scholars and practitioners to build upon. It is a valuable initial effort. However, several important issues are missing. Possibly the most important flaw is that it takes too long to deal with the most important root of everything in the market: the consumer. The two first chapters touch indirectly on the topic, but the very first direct treatment is on page 22. This unfortunately resembles mainstream business academia, where the firm comes first and usually the consumer is disregarded.
The book also falls short in that it should, more often and more directly, offer more connections between the current management paradigms and the new directions that the Austrian way of thinking has to offer. While chapters 1 and 2 recognize the validity of mainstream management tools and add Austrian flavors, some criticisms to mainstream management seem misplaced. For instance, saying that commonly used frameworks such as the “Five Forces” are totally without validity seems incorrect. Those mainstream management tools are imperfect and must be understood and used properly. This is not to say that they are useless. Adding Austrian insights to currently used tools and methods is a good way to talk to business people that already understand and use them. Discarding those tools is not a good strategy. The academic literature is notably distant from practice—managers hardly listen to academics and quite often the opposite is also true. Adding the Austrians’ touch to mainstream tools and creating new ones can fill that gap.
Another noticeable missing subject is “brand”, mentioned only once. Given the increased speeds of market dynamism, the role of brands will increase substantially. Exploring that from the Austrian perspective remains to be done.
Lastly, the title suggests a much more applied approach, directed to businessmen, not to (potential) scholars. While the two first chapters explicitly try to follow that path, chapters 3, 4 and 5 are academic and will be a poor fit to a non-academic audience. They are focused on Austrians interested in business studies, not in business people interested in understanding more about the economy to improve their businesses. Chapter 6 tends more toward a layman audience, but it mostly addresses scholars, asking them to change the metaphors they use to talk about markets. The definition of the target audience is a problem of the book that should be addressed in the future.
In general, Austrian Economics in Contemporary Business Applications provides interesting pathways to Austrians interested in academia. However, it mostly fails to do what the title suggests: talk to the business professionals and make them understand the benefits of adopting an Austrian perspective. The book does not cover everything, but is a good first approach in the direction of approximating Austrian ideas to business people. Next efforts should turn the focus more explicitly to entrepreneurs and businessmen and less to academics. The laymen, far more than the scholars, will directly and quickly benefit from the insights that the Austrian School has to offer.
Jason Morgan (jmorgan@reitaku-u.ac.jp) is associate professor at Reitaku University in Kashiwa, Japan.
PRIME MINISTER ABE SHINZŌ’S RESIGNATION AND THE END OF AN ERA IN JAPAN On August 28, 2020, Japanese prime minister Abe Shinzō entered a Tokyo press conference and began speaking. Speculation had been building for weeks that Prime Minister Abe would step down. The rumor was that the health condition, ulcerative colitis, which had cut short his first stint as prime minister in 2007 had worsened again. This turned out to be true. Prime Minister Abe announced at the August press conference that he would be resigning upon the election of his successor, thus bringing to a close one of the most historically and economically momentous administrations in postwar Japanese history.
Prime Minister Abe navigated, very capably in my view, a slew of challenges. There were history-interpretation standoffs with South Korea, for one thing. These were concluded, on paper at least, with the December, 2015 agreement between Abe and now-imprisoned former South Korean president Park Geun-hye, in which the Korean side promised to stop using the comfort women issue as a political weapon. Abe also had to find some way to work with a maverick American president, who upon entering office in early 2017 immediately withdrew from the Trans-Pacific Partnership on which Abe had expended enormous amounts of political capital, and who has continued to threaten to draw down the base system forming the bedrock of the Japan-US alliance.
Abe chose to prioritize security and stability in more than just his carefully cultivated partnerships with Park Geun-hye and Donald Trump, for example by formulating a “quad” approach to containing communist China by strengthening ties with the U.S., India, and Australia. Aggression against East and Southeast Asian states by the People’s Liberation Army Navy (PLAN) continues, to be sure. But Abe skillfully maximized his constrained capabilities despite the postwar “surrender constitution” of Japan, which technically forbids Japan from possessing any kind of military force. Frequent missile launches in Japan’s direction by North Korean dictator Kim Jong-un helped convince the Japanese people—laboring under what Japanese conservatives call “heiwa-boke” (or the false sense of security inculcated by the postwar reliance on the United States to deal with military matters)—that the time had come to re-acquire the ability to strike back, perhaps even preemptively, against a foreign aggressor. The removal of the hamstring on Japanese military action by revising the constitution and making Japan a fully sovereign nation again was, to my mind, the real priority of Abe’s two terms in office.
In September of 2020, Suga Yoshihide, Abe’s long-time deputy and the Chief Cabinet Secretary (kanbō chōkan) tasked with explaining the daily vicissitudes of government to an often-querulous press corps, garnered the votes to win the leadership position of the Liberal Democratic Party (LDP) and therefore, by default, the prime ministership of Japan (the LDP being the traditional ruling party during the postwar). It seemed as though Abe’s legacy was secure. Whatever remains undone by the Abe administration, such as constitutional revision and securing the release of Japanese civilians kidnapped by North Korea and held as hostage by the Kim regime to this day, is sure to be kept at the top of the to-do list by the incoming Suga team.
There is one legacy, however, which appears on much shakier ground than it did just a couple of years ago. That legacy, many would argue, is the keystone of Abe’s political career. It was his platform for re-election to the prime minister slot for the first time fourteen years ago, and its reputation has swayed the poll numbers for Abe and the LDP like virtually nothing else. The signature element of the Abe years is, without doubt, Abenomics. Will Abenomics survive Suga? Or, to put it differently, will Japan survive Abenomics?
THE CORONAVIRUS INTERRUPTION This question may sound counter-intuitive, even melodramatic, given the Wuhan pandemic which has cut deep wounds into the Japanese economy. Surely, many will argue, Japan’s biggest worry right now is not Abenomics, but the fallout from COVID-19. There is very good reason to think this way. Some of the numbers that I have seen these past months have caused me to go goggle-eyed over the statistics pages. Nissan Group reported a 29.6 percent drop in sales in the first quarter of 2020 over the same quarter of 2019. Japan Airlines (JAL) announced at the end of October, 2020, that it could lose as much as 270 billion yen for the year. In August of 2020, Japan’s annualized GDP was reported to be a staggering negative 27.8 percent. In late October of 2020, the Bank of Japan’s (BoJ) balance sheet was a record 690.36 trillion yen, more than 6.5 trillion USD at current exchange rates. This is all largely the result of externalities far beyond the control of Japanese policymakers.
It is worth pausing here to note, as an important aside, that some of the best writing on the coronavirus crisis has been in Japanese. Prolific author and former weekly newsmagazine editor Kadota Ryūshō’s Ekibyō (“epidemic” or “pestilence”) has emerged as the standard for long-form corona journalism. Produced with astonishing alacrity, Ekibyō is a blow-by-blow account of how the virus, and the (fake) news about the virus, spread out of China and then blanketed the world. Kadota’s book takes in Chinese and Japanese politics and media reports, regional and world politics, and private-sector responses in an all-inclusive, fact-heavy, yet highly readable account, almost like a Michael Crichton write-up of a fast-moving event with a myriad of angles. Former New York Times journalist Alex Berenson has garnered notoriety in the U.S. as a public-facing writer chronicling the pandemic in the broadsheet version of the longue duree, but Kadota quite frankly outranks Berenson by several orders of journalistic magnitude. It is a pity that Ekibyō is not available in English, as the bestseller would provide English-speaking readers with tremendous insight into how politicians and the media handled the crisis and how outside political actors and Japanese scientists and public health officials tried to move the virus-awareness needle in different directions for a variety of different reasons. The portrait that emerges of a political class caught flatfooted and scrambling to formulate a response to a blindsiding, black swan event has many parallels with what transpired in Europe and the United States.
In the swirling confusion of the Corona Year, there has been a little economic good news in Japan. Teleworking is catching on like wildfire, for example, and Prime Minister Suga is concomitantly pushing ahead with digitalization, an area in which Japan has lagged behind South Korea and the People’s Republic of China. The Minister of Digital Transformation, Hirai Takuya, is charged with jump-starting Japan’s digital renaissance, and there is a strong tailwind in the push toward online commerce and telecommuting during the COVID-19 pandemic. But the reality is that telework often means lost revenue elsewhere. Many of the train lines which shuttle the Tokyo workforce between the capital and the suburbs every day have stopped running trains into the wee hours, a cut in services which translates into a further hit to profits for many Tokyo-area businesses. Very few office workers are enjoying a nightcap at an izakaya anymore, and Tokyo governor Koike Yuriko’s attempts to find a balance between keeping shops open and keeping the virus at bay have cast a pall over business overall. Many restaurants have closed, and theaters and other congregation-reliant industries are struggling to survive.
Despite, or because of, all of this economic carnage, Abenomics appears alive and well. The Bank of Japan is printing money like Bazooka wrappers. “Stimulus” is sloshing around everywhere. I personally got a “stimulus” deposit from the central government earlier this year—great news, until I get the tax bill next March. This can’t go on forever, and so it won’t.
JAPAN’S POLITICAL ECONOMY PAST AND PRESENT While the economic pain is visible to everyone and is certainly a political wrangling point, unlike in the United States there are very few libertarians in Japan who are raising their voices about the escalation of MMT measures to astronomical levels. In fact, many Japanese conservatives are calling the loudest for even more government intervention. Tamura Hideo, for example, a special reporter with the capitalism-friendly Sankei Shimbun newspaper and a former editor at the staid Nihon Keizai Shimbun who writes often for the conservative press, and Tanaka Hidetomi, a professor at Jobu University in Gunma who also writes on the political economy for right-of-center publications, have both encouraged the Bank of Japan to print even more money to bring Japan out of the COVID-19 crisis. In the October, 2020 edition of Seiron, a serious economics and politics journal with a wide readership in Japan, Prof. Tanaka even argued—provocatively in this plague year—that “fiscal austerity is itself the biggest disaster” (zaisei kinshukushugi koso saidai no saigai). (Seiron, 133–40) Low-tax free-marketers like my friend and colleague, historian and policy analyst Ezaki Michio, have also joined the fray, arguing that the best thing the Japanese government could do to improve the economic outlook would be to cut taxes. But Ezaki’s familiarity with American history and economics may be influencing his anti-interventionist views in a way that escapes nearly every other pundit or policymaker, for Ezaki remains a very lonely voice in a crowd of interventionists. Ironically, the party which has adopted the most stringent anti-tax-increase platform in recent years is the Japanese Communist Party, which is tacking to the hard right of the “conservative” establishment on this core fiscal issue.
Sniping over the tax rate notwithstanding, and granted that the Wuhan pandemic has badly damaged the Japanese economy, the fact is that government intervention did not start with the outbreak of the latest Chinese bug. Conservatives in Japan who argue for government intervention and economic relief from the political side are drawing from a deep political-economic tradition here. As a grad-school classic by former University of Chicago historian Tetsuo Najita, Ordinary Economies in Japan: A Historical Perspective, 1750–1950 (2009), explains, the Japanese economy is in many ways conceptually underlain by a notion of economics as mutual aid. The kō, or pre-modern communal societies designed to mitigate risk by promising to help any community member in need in a kind of localized insurance plan, are still exerting influence today. Bootstrap success story and hard-work champion Ninomiya Sontoku (1787–1856) espoused this ethos in an attempt to imbue the rapidly-developing Edo economy with a humane, ethical tenor. While the Japanese economy is, of course, infinitely more complex now than it was in the nineteenth century, and while modern Tokyoites are probably much closer in economic outlook and practice to consumers in other global big cities than to traditional communities in rural Japan, the conservative, and, indeed, default view of Japanese economic thinkers continues to be rooted in this mutual-aid ideal. The very word for “economics” in Japanese, keizai, is a contraction of keisai saimin, which means to govern a polity and rescue, or provide relief for, the people living there. Etymology is not destiny, but it is often at least a telling point of departure. Japanese moral philosopher Hiroike Chikurō’s concept of dōkei ittai, or the notion that economics and moral action are ultimately the same thing, exemplifies the tradition of economics as doing good. When Japanese conservatives speak about economics, it is likely that they are going to appeal to this kind of economic communalism, which is, after all, the traditional approach to how politics and economics ought to interact.
Because there is such a different set of assumptions in Japan about what economics is, it is imperative that those outside of Japan who want to understand the Japanese political economy go deeper than the occasional headlines about Abenomics. Indeed, non-specialists inside and outside of Japan are often surprised to find that there has been such a rich tradition here of economic thought. While there are excellent studies of Japan’s political-economic past—one hefty but outstanding volume on deep Japanese political-economic history is Land, Power, and the Sacred: The Estate System in Medieval Japan, edited by Janet R. Goodwin and Joan R. Piggott (2018)—there are, surprisingly, very few on the historiography of economic thinking in Japan over the past hundred years. The best I have read so far is a volume I discovered only very recently: Aiko Ikeo’s A History of Economic Science in Japan: The Internationalization of Economics in the Twentieth Century (2014), part of the series of Routledge Studies in the History of Economics. Ikeo is an economist and economic historian herself who has written a book on Ninomiya Sontoku, and many other books and scholarly essays besides. In A History of Economic Science in Japan, Ikeo reveals, for instance, the connections between Ninomiya and the “forgotten economist Tameyuki Amano’s microeconomics.” (Ikeo 2014, xvii, 167–89) Ikeo’s book provides precisely the kind of context that one needs in order to begin to comprehend what is going on with the Japanese economy.
Ikeo also richly contextualizes Japanese economics in an international setting, as the book’s title promises. Ikeo’s big contribution is to show that Japanese economists were not pursuing Japanese economics after the floodgates to Western thought were opened at the end of the nineteenth century, but were rather fully aware of economic thought from elsewhere in the world and pursued the same debates within Japan as were being undertaken everywhere else—especially on general equilibrium theory, one of Ikeo’s foci. There are therefore many layers to the political economy debate here, which Ikeo brings out in A History of Economic Science in Japan.
There is much else to learn from Ikeo’s delightful book. Japanese economists “Yukio Mimura, Shizuo Kakutani and Hukukane Nikaido” were enamored of John von Neumann’s economic theories, for example—Mimura studied under von Neumann at the University of Berlin, and Kakutani studied under von Neumann at Princeton. (Ikeo 2014, 132–33) Ikeo also writes that Finance Minister Takahashi Korekiyo (1854–1936) adopted a deficit financing approach to an overvalued yen in 1932, “four years prior to the publication of [John Maynard] Keynes’s General Theory (1936).” (Ikeo 2014, 191–92; emphasis in original) Ikeo explains how Japan influenced Western economists and economic historians such as Martin Bronfenbrenner—who was part of the spate of post-World War II economic missions to Japan and who later did research at Kobe University (1963–1964) and Kyoto University (1980) (Ikeo 2014, 229)—and Jerome B. Cohen, who pioneered research on Takahashi as “the ‘Japanese Keynes’” (predating a similar tack taken by Japanese political economist Ouchi Tsutomu in his 1967 book The Way to Fascism). (Ikeo 2014, 192) Ikeo pinpoints Imperial University of Tokyo economist Yamazaki Kakujirō (1868–1945) as the first Japanese scholar to make reference to Keynes in an academic work. The context was Indian, imperial, and American currency policy and the backdrop was Keynes’s 1913 book Indian Currency and Finance. (Ikeo 2014, 195) Cohen, for his part, was “a vanguard member of the US Tax Reform Mission led by Carl Shoup in 1949,” Ikeo writes, and Bronfenbrenner was one of the key figures of the Carl Shoup entourage. For more than a century, “Japanese” economics has been inherently, inescapably internationalized.
Most famous of all the economic practitioners who came to Japan in the postwar is undoubtedly the Detroit banker Joseph Dodge, dispatched by President Harry Truman in 1949 to help rescue a Japanese economy battered by inflation, currency restrictions, and price controls. The “Dodge Line” (actually adopted in December of 1948) which Dodge recommended be imposed on Japan is credited with stanching inflation and shoring up the Japanese economy, allowing in particular for orderly ex-im activities going forward thanks to Dodge’s prescribed 360-yen-to-the-dollar exchange rate. (Ikeo 2014, 218–26) This rate held until President Richard M. Nixon unilaterally axed gold-exchange support for the USD in 1971, after which the yen appreciated quickly, precipitating further American intervention with the Plaza Accords of 1985 and the Louvre Accords of 1987. Government intervention works best when a given populace is prostrate and utterly defeated—a truism which ought to make Americans break out in a cold sweat when the U.S. Congress starts talking about adding more regulatory festooning to Dodd-Frank.
GETTING DOWN TO DETAILS ABOUT THE POLITICAL ECONOMY OF JAPAN While Ikeo’s book is a very helpful corrective to a blind spot that many in Anglophone countries have toward Japanese economic history, Takatoshi Ito and Takeo Hoshi’s The Japanese Economy, second ed. (2020) is a much more pertinent, data-driven look at the Japanese political economy past and present. If readers buy just one book under review in this essay, the Ito and Hoshi volume should be it. The Japanese Economy is a college textbook, first written by Ito in 1992 and recently issued with major revisions by Ito and Hoshi. It comes, therefore, caveat emptor, with an eye-smarting college-textbook price. But it is worth it. The Japanese Economy is a non-ideological, detail-rich introduction to the Japanese economy in history and in current practice, and is a must-read for anyone who is interested in grounding discussions about Japan’s economy in more than the usual platitudes about high savings rates (those ended a long time ago) and expensive property values (dead with the bubble bursting, and anyway a product of postwar meddling by the GHQ than of anything inherent to the Japanese economy).This is a virtually unknown fact about Japanese real estate prices—that they are largely a product of regulatory overreach rather than real supply and demand. See “K.K. Choei v. Kuroki: 65 Saihan minshu 2269 (Sup. Ct. July 15, 2011)” in Ramseyer (2019), 171–85. Ito is a professor in the School of International and Public Affairs at Columbia University in New York and has been a Senior Advisor in the Research Department at the International Monetary Fund and a Deputy Vice-Minister for International Affairs in the Ministry of Finance in Japan. Hoshi is an economics professor at Tokyo University. So, their textbook presents what is very much the establishment view of Japanese political economics. They also present Abenomics in a rather favorable light, which puts their position even more firmly in the Japanese mainstream.
The strongest feature of the Ito and Hoshi textbook is its historical contextualization of economics. The bubble economy, for example, mentioned above, is often discussed today as a singular event, but the history of the bubble economy is much more complex than the catchy moniker might lead one to believe. In explicating the notorious bubble, Ito and Hoshi go back and recover the changes in Japan’s political economy over the 1960s and 70s, the revisions to regulations and policies which enabled a speculative bubble to form in the first place, the constraints on the central financial organs of the government which prompted the reactions (for good or ill) of the authorities as alarms began to sound about overheated prices and sloppy securitizing of debt, and the slow-motion breakdown of the optimism regime as the effects of the (popped) bubble propagated through the wider Japanese economy, structurally and down to the level of individuals’ savings accounts and pocketbooks. Important to remember—and Ito and Hoshi do a particularly good job in tracking this history—is that the bubble formed and popped while the yen was doing battle with other currencies on the world market in the shadow of the “exorbitant privilege” (as 1960s French Minister of Finance Valéry Giscard d’Estaing put it) enjoyed by the reserve U.S. dollar.
Ito and Hoshi also remind us that the bubble began a long season of seeming economic bad luck, it also capped off an extraordinary run of good luck. Nixon’s torpedoing of the Japanese yen on August 15, 1971 (not coincidentally the anniversary of Japan’s surrender in World War II) by removing the exorbitantly privileged dollar from the gold standard, the Plaza Accords presided over by Ronald Reagan’s Treasury secretary James A. Baker, III, and Reagan’s need to sacrifice the Japanese economy for the sake of his own political legacy were all exerting pressure on Japan’s political economy (including in the form of the nettlesome gaiatsu, “foreign pressure,” which Japanese bureaucrats find convenient for taking the blame for painful reforms the bureaucrats wanted to adopt anyway). But the momentum was with the bulls. Despite every headwind working against Japan, the country came back roaring from postwar price and currency controls and presented serious challenges to American industries from the late 1960s until the bubble burst on the last day of 1989. From the Dodge Line starting line to the popping of the real estate-driven bubble, Japan had been on one of the longest winning streaks in modern economic history. That, too, is very important to bear in mind.
RECOVERING THE POWER OF PERSONAL DECISION-MAKING IN THE “LOST DECADES” One major drawback to the Ito and Hoshi book is that they understand the political side of the political economy of Japan in the way made popular by Chalmers Johnson, Ezra Vogel, and Karel von Wolferen. Chalmers Johnson wrote MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–1975 (1982) to explain his idea of the “developmental state,” or the Druckerian political-science notion that “engineers” and bureaucrats worked to guide capital investment in Japan largely independently of influence by elected officials. Ezra Vogel’s Japan as Number One: Lessons for America (1979) was an earlier attempt to argue that Japan was a socially-conscious technocracy, a managerial-capitalist state which did not pit government against industry, as in the West, but which pursued a model of pragmatic flexibility in pursuit of what was once called “development.”“Development” has been the OK Corral for many an academic shootout in Asian studies. Some people think development is Western-centric, and that it is therefore racist to assume that all countries pursue a certain developmental path. Others once saw “development” as an ideological counterweight to Marxism. Hardly anyone uses the term unqualifiedly in the American academy anymore. And yet, it is clear that Japan is very different today than in late 1945. It has, whatever the connotation, developed. After Johnson and Vogel set the stage for a depoliticized look at the Japanese political economy, Karel von Wolferen repackaged the idea for a popular audience with his 1989 book The Enigma of Japanese Power. All of these works assume a faceless, even hollow, power center in Japan, a kind of mechanical whirring of the political-economic machine which is kept bureaucratically humming by a core cadre of Tokyo University graduates acting more or less independently of elected government until achieving coveted amakudari golden-parachuter status and feathering their nests for a comfortable retirement.
However, as Harvard Law professor and Japanese political economy expert J. Mark Ramseyer has demonstrated, this view of the Japanese political economy is false. Ramseyer’s analysis of judges’ decision-making in a variety of cases, and of bureaucratic measures adopted during various elected administrations, proves that judges and other bureaucrats are very much aware of what the political class expects and often pay a heavy career price (missed promotions, posting to backwater assignments) for defying what the elected officials want. In fact, the outdated and incorrect view of the Japanese economy as an epiphenomenon of the bureaucratic soothsaying emanating from the central Tokyo governmental strongholds of Kasumigaseki and Nagatachō is overturned by the rest of Ito and Hoshi’s excellent book. For example, their section on “The Two Lost Decades,” that period of time (now shading past three decades by many measures) when the Japanese economy stayed down for the count following the bursting of the bubble as the Nineties dawned, is the tale of individuals making key decisions, often from the prime minister’s office or with the prime minister’s approval, in an attempt to revive the Japanese economy with even more government intervention. (Good luck with that.) There are real, fallible people making decisions in positions of power in Japan, and those decisions have consequences all the way down the political-economic line, from power center to private pocketbooks. Ramseyer’s analysis is, tacitly at least, vindicated by the evidence presented in the Ito and Hoshi book.
One good example of how personal decision-making can affect a national economy comes when Ito and Hoshi describe the career of Koizumi Jun’ichirō, the colorful prime minister during the early and mid 2000s who continued the privatization trend started by 1980s prime minister Nakasone Yasuhiro (the other half of the famous duo with Ronald Reagan known affectionately, due to their calling one another by their first names, as “Ron-Yasu”). The Bank of Japan ended, about eight months before Koizumi took office in April of 2001, the zero-interest-rate policy (ZIRP) which it had deployed since February of 1999 to combat low growth. When this didn’t work, the BoJ initiated quantitative easing, continuing that until 2003. (Ito and Hoshi 2020, 541) Koizumi was thus faced with a central bank which had effectively exhausted its politically available options for electro-shocking the Japanese economy back to health. He therefore tried new ideas. Koizumi’s biggest coup was in privatizing the post office, which also doubles as a bank in Japan and which managed an enormous sum in savings accounts, insurance accounts, and other assets before Koizumi broke it up into smaller units. The Japan Post Bank, one of the spinoffs of the Japanese post office following Koizumi’s reforms, continues to hold some 3.5 trillion yen in assets. Koizumi’s privatization reforms helped pull Japan out of the slump, and for the first time since the banking crisis of 1997–98—which was partly the result of domestic financial trouble and partly the result of the cratering of financial positions in South Korea, Thailand, and Indonesia following the 1997 Asian Currency Crisis—under Koizumi’s tenure the Japanese economy nosed up and appeared to be shaking off the lost-decade blues.
ABENOMICS AS A SOLUTION TO JAPAN’S POLITICAL-ECONOMIC STRUCTURAL PROBLEMS But Japan was not in the clear just yet. There remained some structural and political obstacles to complete recovery from the bubble years. The Asian currency crisis was beyond Japan’s control, of course, but the domestic banking trouble was almost entirely self-inflicted. In 1995 the Ministry of Finance (MOF) in Japan began to consider adopting a hard line against non-performing loans (NPLs) left on the books after the collapse of bubble-era real estate prices in 1990 and after. Cracking down on NPLs was always a common-sense move. Banks and other financial institutions had been “evergreening” these portfolios, shifting capital around and taking out tangential loans in order to keep the payments on the NPLs current, and the MOF rightly began to see this business as a waste of time and money (and also potentially as fraud). However, the MOF was short-staffed and lacked resolute leadership in elected offices, and so the problem was not confronted directly. (Ito and Hoshi 2020, 534) Entire firms, known as “zombie firms,” lingered on as the NPLs did, producing nothing and yet limping under the cover of governmental indecision. Koizumi’s administration twisted the bureaucracy to crack down on both zombie firms and NPLs in 2003, and many researchers see this as the moment when the tide began to turn in Japan’s favor once again. (Ito and Hoshi 2020, 539) Koizumi’s liberalizing efforts had begun to pay off in earnest by the mid 2000s and Japan looked poised to move beyond the collapse of the bubble.
And then Bear Stearns collapsed, followed by Lehman Brothers. The “Lehman shock” (as it is known in Japan) continues to be a singed-fingers memory for many here and warns against a too-close financial relationship, where it can be at all avoided, with any outside power. I was in Japan when the Bear Stearns and Lehman news broke, and I remember feeling an odd sense of disconnect between what I was seeing happen in America and the relative calm on the western side of the Pacific. Japan was initially spared a direct hit from the New York financial blow-up and no major Japanese institutions went under as had happened in the U.S. and many other countries. However, as Jacques Derrida might have said had he pursued a career in political economy, “There is no outside-of-the-globalism.” A shrinking American market and an appreciating yen took their toll on the Japanese economy by 2009. (Ito and Hoshi 2020, 545) Lehman was apparently here to stay. The next two years were tough and the suppliers for Japan’s export industries, especially automobile makers, were especially hard hit as the world shuddered through a sharp downturn in economic activity.
Things had just begun to look up slightly after the Lehman Shock when the Fukushima disaster hit in 2011. Virtually overnight, all of Japan’s nuclear plants were taken offline and the Japanese ex-im balance was thrown badly off by the need to import tanker after tanker of petroleum products in order to keep oil- and gas-fired power plants running. And Japan was just emerging from that economic hit—tourism was booming and the highly-anticipated Summer Olympics were just around the corner as late as the fall of 2019—when the coronavirus knocked all the pieces back to the table again. This is a country that just hasn’t been able to catch a lucky break with the disaster gods since a sudden storm blew Mongolian, Chinese, and Korean invaders back to sea in 1279. Japan has been busy recently weathering 2008, 2011, and 2019–20, and the Two Lost Decades are, it would seem, not over yet.
It was to end the lost decades by shoring up Japan structurally that Prime Minister Abe launched Abenomics. Ito and Hoshi explain that Abenomics consists of three arrows: “bold monetary policy,” “flexible fiscal policy,” and “growth strategy to promote private investment.” (Ito and Hoshi 2020, 70) The first arrow, “bold monetary policy,” was essentially carte blanche to the Abe-appointed governor of the Bank of Japan, Kuroda Haruhiko, to print yen and laden the BoJ’s balance sheets with bond purchases. The second arrow, “flexible fiscal policy,” comprises the apparently contradictory goals of carrying out fiscal stimulus while also eliminating the deficit and raising the consumption tax (10 percent as of October of 2019, and about as popular as one would expect). The third arrow, “growth strategy to promote private investment,” has the most potential to effect real and positive change, but entrepreneurship remains anemic in Japan and the reflex to inject governmental control into emerging industries remains strong. Ito and Hoshi adopt on the whole a supportive view of Abenomics, albeit while admitting its shortcomings. (Ito and Hoshi 2020, 70) For Ito and Hoshi, “The Lost Two Decades finally ended with an economic policy package that was introduced in 2013,” that is, as Abe took office following his second election to the prime minister position in December of 2012. Two very prestigious Japanese economists thus credit Abe Shinzō with turning the Japanese economic ship around and putting the country back on the path to economic growth. (Ito and Hoshi 2020, 562–63)
TAKING ABENOMICS DOWN A FEW (TOO MANY?) NOTCHES A more pessimistic view of Abenomics is provided by veteran journalist and reporter on Japan’s capital markets, Bloomberg and Asia Times contributor William Pesek. Pesek’s 2014 book, Japanization: What the World Can Learn from Japan’s Lost Decades (2014), is a bracing critique of, well, of Japan entire. Someone must have cut Pesek off in line for ramen noodles one day, because Pesek certainly doesn’t seem to like anything about Japan very much.
Pesek says that the word “Japanization,” which he defines as “that specter of chronic malaise, deflation, crushing debt, and political paralysis,” is what “drove central bankers from Ben Bernanke in the United States to Mario Draghi in Europe to flood markets with liquidity as never before in an all-out effort to avert their own lost decades” after financial crises which took place after Japan’s bubble burst after the last day of 1989. (Pesek 2014, ix) And Pesek is decidedly unimpressed by Abenomics, “largely the same old mix of fiscal and monetary excess that left Japan with a public debt it may never be able to pay off, zero interest rates indefinitely, and little to show for it […] a brilliant marketing campaign in search of a product.” (xii) Pesek tells a familiar tale of “‘Japan’s iron triangle’ of politicians, bureaucrats, and big business,” a closed-off crony network of shortsighted, often irrationally nationalistic bigwigs controlling the Japanese political economy. (7–8) Indeed, Pesek blames cronyism for much of what he claims has been the flawed response by the Japanese government to the Fukushima disaster (95–123), arguing that “the government is TEPCO,” or Tokyo Electric Power Company, the operator of the Fukushima Daiichi plant and largely seen in Japan as a well-connected bungler indifferent to the lives of civilians. (123)
A critique of Abenomics is certainly fair game. I, too, question much, if not all, of the economic assumptions underpinning Abe’s broad intervention in the Japanese political economy. However, Pesek trades in so many clichés about Japan—overdetermining, by a long shot, cultural adages about “losing face” and Japan’s being a retrogressive patriarchy (try telling that to Koike Yuriko, who runs the biggest city in the world)—that his book, while illuminating about capital flows around the Tokyo Stock Exchange and through the Bank of Japan, can safely be skipped by those looking for an in-depth analysis of the way that economics and politics interact in Japan. Pesek rarely goes more than skin-deep, and the Anglophone “experts” he cites about Japan produce commentary about this country which, to this long-time resident and many others, appears to have been written by someone who has never even been here. The day is now far spent when one can call in from pasture Columbia University professor, and ringleader of Japan-bashing in the English-speaking world, Carol Gluck to offer analysis on Japan’s political economy.
Japanization could be read, perhaps uncharitably, as an essentialized exercise in economic Orientalism. On closer inspection one finds that there is no “Japanization,” really. As Ikeo’s book on the history of “Japanese” economics shows, after the beginning of the twentieth century there has been very little which one might point to as being uniquely Japanese about economics here. Since, and long before, the bubble burst, there has been a series of decisions made by mainly Keynesian-minded (and some other Marxist-minded) politicians and bureaucrats. Some of those decisions worked a lot less well than did others, and in order to understand the Japanese political economy one must, counterintuitively, stop looking for cultural colorings (the Pesek method) and instead dig deep in the details, a la Ito and Hoshi. Give Japanization a French leave.
THE CHALLENGE OF CHINA The notion of Japanization itself is also now, arguably, a moot point given the Wuhan virus, which hit right after the Ito and Hoshi book came to market. The horrors flowing from China have exposed a whole new set of risks for Japan. The way forward for Abenomics under the new Suga administration seems, at this writing, fraught, for Abenomics presumes, tacitly, a globalized East Asia, and that looks increasingly difficult to maintain given the disaster which Chinese authorities visited upon the entire planet in 2020. Even before the Chinese crisis there were deep furrows in the Japanese economic road ahead: for example, the Japanese government has experimented with negative interest rates and will surely have to raise taxes even higher in the coming years to keep up with pension payments for an increasing number of retirees relying on the tax receipts of a decreasing number of workers. (Ito and Hoshi 2020, 255–67) But after COVID, “China” has taken center stage. Ito and Hoshi spend very little time discussing the People’s Republic of China (PRC), but that country is at the center of debates in Japan now about economics, politics, and even military spending and territorial defense.
Especially salient in economic debates in Japan these past few months has been “decoupling,” the felt need to route supply chains around the PRC and to move the Japanese economy to a position of greater self-reliance. Some more extreme pundits in the United States have seen in this decoupling a return to the autarky which wartime Japan practiced under the Greater East Asia Co-Prosperity Sphere. (See Jeremy A. Yellen’s volume on this subject, The Greater East Asia Co-Prosperity Sphere: When Total Empire Met Total War [2019].) The mood in Japan is decidedly against what the pro-business group Keidanren (Japan Business Federation) advocates, namely an expansion of dealings with the PRC and its market share of 1.4 billion consumers. Keidanren has powerful allies in politics and the path to decoupling, full or partial, is not clear. One of Suga’s rivals during the competition to fill Abe’s seat was Nikai Toshihiro, a veteran LDP insider and currently General Secretary of the party. Nikai is one of the leaders of the pro-PRC wing of the LDP, and may have been the instigator behind then-PM Abe’s politically disastrous decision to invite PRC dictator Xi Jinping as “state guest” to Japan just before the Wuhan virus erupted in late 2019. However, while Nikai and other senior politicians are as pro-China as they can politically get away with, their position is decidedly unpopular among the general public, especially with Chinese aggression into waters around the Senkaku Islands (part of Okinawa Prefecture) and against other Asian neighbors, including Vietnam, the Philippines, Indonesia, and India. Decoupling may not be the most bottom-line-logical approach to dealing with the PRC, but the sense in Japan among the straphangers and mall shoppers is that the “China risk” is too great not to attempt to mitigate in any way possible. Japan is near to China on the map, and that’s about it.
This is all a sharp departure from the Koizumi and Abe visions for the Japanese economy. Koizumi starred in a “Yokoso” (“welcome”) tourism-promotion ad campaign inviting new and repeat visitors to the Land of the Rising Sun, and Abe oversaw a skyrocketing growth in inbound arrivals building on Koizumi’s earlier efforts. Japan had been setting record numbers for tourist visits prior to the pandemic, and the entire country was looking forward to the 2020 Olympics and to recouping the enormous investments in infrastructure and advertising made for the Games. Those hopes are dashed, perhaps forever. The Olympics have been pushed back to 2021, and may end up being cancelled. To make it a double blow, the streets of Kyoto, Tokyo, and other tourist destinations, once thronged with sightseers even in non-Olympic years, are eerily subdued. The counterweight to having exported manufacturing jobs to Southeast Asia was supposed to have been to bring in tourists by the millions to keep the shopkeepers in the black. That strategy has failed spectacularly, at least for the foreseeable future.
RE-FOCUSING ON THE HOME FRONT There are other cracks in the Abenomics regime beyond the plummeting tourist figures. Abenomics tried to bring women into the workforce in greater numbers to alleviate the demographic pressures of an aging population and low birthrate, but there are natural limits to this approach. Women’s lib never really caught on in Japan. Women here prefer to raise children at home—it is a choice, not some form of feudal oppression. Telework and maternity-friendly corporate culture are both catching on quickly in Japan, but there is only so much that can be done by a government to coax a group of people into a paycheck gig when that group isn’t really interested in the offer to begin with. Abenomics did not adequately address, in my view, these and other more structural problems in the Japanese economy, and instead tried to use taxation, quantitative easing, and other not-very-stimulating stimulus measures as quick fixes. Increased mobilization of capital and reliance on foreign visitors did not, and could not, make up for what is a more troublesome trend: the extreme urbanization of Japan. The countryside is emptying at an alarming rate as more and more people flock to the major metropolis areas in the Kantō and Kansai regions. This, more than anything else, I see as the Achilles’ heel of the Japanese political economy today. There are too many people in Tokyo. This is having deleterious effects on the city, and on the rest of Japan.
It is on this note, about Japan’s urbanization and what it means domestically for the Japanese economy and for Japanese politics, that another book shows particular analytic strength. Japan’s Lost Decade: Lessons for Asian Economies, a volume edited by Naoyuki Yoshino and Farhad Taghizadeh-Hesary, is a highly recommended revisionist policy and economic study of what has been ailing Japan, coupled with a series of welcome suggestions as to what can be done next to “spark joy” (as Marie Kondo might put it) for Japanese economic well-being. Yoshino is the dean of the Asian Development Bank and professor emeritus at Keio University and Taghizadeh-Hesary is Yoshino’s junior colleague at both institutions. The editors’ view on the Japanese economy is therefore informed. It is also very clear: “The empirical analysis of [Japan’s Lost Decade: Lessons for Asian Economies] challenges the beliefs of some economists, such as Paul Krugman […], that the Japanese economy is in a liquidity trap.” Krugman, whom QJAE readers will surely regret having heard of as much as I do, has made a sub-reputation for himself by repeating, again and again, that Japan is mired in a liquidity trap, a Keynesian prediction that ZIRPs and certain other invasive governmental monetary policies will lead to a preference for cash to debt. Not so, say Yoshino and Taghizadeh-Hesary. Krugman has whiffed again: “Japan’s economic stagnation stems from a vertical investment saving curve rather than a liquidity trap, and […] monetary policy is ineffective for escalating [Japan’s] economic growth. […] The Japanese economy faces structural problems rather than a temporary downturn.” (Yoshino and Taghizadeh-Hesary 2017, vii)
In eight equation-dense chapters Yoshino, Taghizadeh-Hesary, and the other volume contributors bypass Krugman’s Druidic intoning about liquidity traps and examine the deep-rooted reasons for Japan’s economic doldrums, covering much of the same ground as Ito and Hoshi but with an added emphasis on “monetary transfers from central to local governments”. (4–5) As Yoshino and Taghizadeh-Hesary write, “about 16% of total government spending is allocated to local governments, making it the second-largest government expense after social security. (4) The aging population, the rush of hinterland Japanese to Tokyo, Osaka, and other major cities, and other demographic and structural changes mean that “Japan has reached the limits of conventional macroeconomic policies.” (165) There is really nothing, in terms of fiscal policy, that a central bank or government can do to keep an entire nation from crowding into a handful of zip codes. Something else will have to be tried.
A novel solution recommended by the editors of Japan’s Lost Decade to help rebalance this metropole-countryside skewing is “Hometown Investment Trusts,” or HITs, which reaches back into Japanese history (although the authors do not make this explicit) to establish person-to-person trust as the basis for credit and lending to entrepreneurs outside of Japan’s sprawling megalopolises. Under the HIT method, “lenders are from the same ‘hometown’ as the borrowers, or they may share a similar interest.” (25) The authors worry that Basel III capital requirements are further restricting capital flows to the Japanese outlying regions (26), and HITs are ways, the authors argue, to overcome such restraints and revitalize Japan’s withering provinces. Much more than any central government intervention, HITs seem, to this reviewer, to hold the most promise for Japan’s economic future. The Japanese countryside is emptying out, but there is no need to think that this is an inevitable, irreversible trend. This is not Japanization, this is just civilizational anomie. It happens to the best of us. HITs could very well be a way to reinvigorate vast non-Tokyo, non-Osaka, non-Yokohama swaths of Japan, which would bolster local tax receipts, lessen the transfer burden on the Bank of Japan and the Ministry of Finance, and, possibly, also provide a lift to the birthrate, as wide-open spaces tend to be conducive to growing families. Kids have always loved meadows and parks more than concrete and cinder block—the Japanese countryside may just be the answer to many of the structural distortions and dysfunctions which continue to plague Japan in the third lost decade.
JAPAN’S POLITICAL ECONOMY: THE ROAD AHEAD As Japan’s new prime minister Suga Yoshihide settles into office he is faced with a host of challenges, from holdover effects from three or so lost decades to Chinese aggression and a world economy which has had its legs cut out from under it by the Wuhan bug. Public debt is ballooning in virtually every developed economy, and Japan is one of the most indebted nations per capita on the planet. Prime Minister Suga is largely seen as the man who will pick up the standard of Abenomics and carry it to victory against Japan’s lost decades, but the reality is that that battle seems already to have been fought, and lost, long ago. The rebuilding of Japan will probably have to be done internally, without relying on quick fixes from the globalist near abroad.
Anglophone readers who want to gain a better understanding of how we got to where we are in Japan, what we see when we look out at the current political-economic situation, and what solutions suggest themselves to us as we ponder the future, will surely want to read some of the volumes introduced above. I also encourage Austrians not to lose sight of Japan in the glare of the news about China. Japan remains a reliable, politically stable, free, open, and democratic trading partner. Japanese industries have fallen behind in technological innovation since the heydays of the 1980s, and silicon chip manufacture, once one of Japan’s strong suits, has shifted largely to Taiwan, the PRC, and elsewhere. But Japan is much more than silicon chips. Uniqlo, for example (under the Fast Retailing banner), has become a staple of the clothing business throughout Asia, Europe, and North America. There are many more good surprises like this in store.
Re-reading Economics in Literature: A Capitalist Critical Perspectiveby Matt SpiveyLanham, Maryland: Lexington Books, 2021, 133 pp.
David Gordon (dgordon@mises.org) is a senior fellow at the Mises Institute and editor of the Journal of Libertarian Studies.
Matt Spivey asks an important question. Literary critics often use economics to interpret the texts they consider, but often they have mistaken ideas about economics. They oppose the free market and are frequently Marxists. Spivey, an English professor at Arizona Christian University who specializes in American literature, asks, why not instead use correct economics instead? And by “correct” economics, he means Austrian economics. In carrying out his project, Spivey continues the pioneering work of Paul Cantor and Stephen Cox, eds., Literature and the Economics of Liberty, and it comes as no surprise that Cantor calls Spivey’s book “a welcome breath of fresh air in its field.”1
Spivey has set himself a hard task, in that four of the five books he discusses are written from perspectives opposed to the free market, and he often has to show how insights in the books undermine themes the authors suggest. The first book he considers, though, the Narrative of Frederick Douglass ([1845] 2014) was written by a committed supporter of individual enterprise. “He was against collectivist economic systems and viewed any attempt at eradicating or revolutionizing the fundamentals of capitalism as completely unrealistic... he knew America was different from anywhere else in the world for its singular freedom.” (p. 39)
Austrian economists stress the entrepreneurial aspect of human action. Individuals must seize chances of gain through their appraisal of their situation, and here Douglass was a master and not a slave. Douglas constantly sought to increase his knowledge and skills. He did not allow his starting point in slavery to get the better of him. “Douglass, though enduring a horrific existence of enslavement, remains an acting individual whose life choices, though severely limited due to his abhorrent circumstances, are still varied and available.” (p. 37) Spivey calls Douglass’s enterprising efforts an attempt to build up his “human capital,” and though this, as Peter Klein (2014) explains, is a term Austrian economists prefer to avoid, one can see what Spivey means.
Spivey draws a brilliant analogy between Austrian business cycle theory and Jay Gatsby’s courtship of Daisy Buchanan in F. Scott Fitzgerald’s The Great Gatsby ([1925] 2020). According to the Austrian account, the cycle begins with an expansion of bank credit, driving the money rate of interest below the natural rate, determined by time preference. This leads to malinvestments that cannot be sustained. The depression that follows purges these mistakes from the economy. In like fashion, Gatsby tried to impress Daisy though his lavish parties, paid for by forged bonds acquired through crime:
But it is Gatsby’s business connections that serve the defining role of illicit money in the novel, whereby we gather by several clues... that Gatsby has made at least some of his vast fortune peddling forged or illegitimate bonds. The model fits with the real real-world economic function of bonds, as the government has always been a primary promoter of bonds issues.” (p. 56)
Though at first impressed with Gatsby’s ill-gotten wealth, Daisy in the end rejects him, and Spivey compares her rejection to the collapse of unsustainable investments.
Defenders of the free market might be expected to find John Steinbeck’s The Grapes of Wrath ([1939] 2006) a challenge to their beliefs. Capitalism may benefit many people, but weren’t the Okies, driven from their farms during the 1930s, an exception? Spivey proves equal to the challenge. To a large extent, the Okies’s problems stemmed from government intervention. Spivey makes effective use of Murray Rothbard’s demonstration that Herbert Hoover was a fervent interventionist, and his ill-advised farm policies, continued by Franklin Roosevelt, led the Okies and others to disaster. The Joads, the main Okie family in Steinbeck’s novel,
are not victims of greedy corporate financiers; rather they are pawns in the struggle between authority and autonomy. The government wants power to organize its citizenry; businesses want the independence to trade goods and services as they see fit for the success of their industry. The Joads and the millions like them are—unfortunately and incorrectly—left pointing fingers at enemies they can see instead of the ones they can’t. (p. 77)
Spivey also challenges the picture of black life in 1940s Chicago which Richard Wright ([1940] 2005) offers in Native Son. Wright, a member of the Communist Party when he wrote his novel, portrays Bigger Thomas, the protagonist, as doomed to destruction owing to capitalist exploitation and racism. Spivey disagrees. He quotes Mises: “The environment determines the situation but not the response. To the same situation different modes of reacting are thinkable and feasible. Which one the actors choose depends on their individuality.” (p. 96) Applying Mises’s point to Bigger, Spivey says,
How do we view Bigger when we can see that charges of racism in housing, business, employment, and other elements of [the] community are often inaccurate matters of perception and should rather be viewed as logical consequences of human interaction? How much should we sympathize with Bigger if we can see that difficulties were not unique to blacks alone, but also existed for whites with a similar cultural background, and that success was not unique to whites alone, but also existed for many blacks? These queries offer an interpretation of Bigger Thomas that reduces social sympathy and emphasizes personal responsibility. (p. 96)
Critics of the free market have a vast array of complaints against it, and in Kurt Vonnegut’s Player Piano ([1952] 2006), the field of battle turns to automation. Writing in 1952, Vonnegut feared that new technology would destroy jobs and impoverish large numbers of people. Spivey once more brings to bear the conclusions of sound economics. Mises
explains that technological improvements are not designed and implemented as a means to reduce labor, but rather to increase production. If there were no potential for production efficiency, then technology would not be adopted…. With more supply at hand, more consumption and, ultimately, more leisure time are possible, in turn opening up new kinds of demand, new kinds of production, and new kinds of employment…. Understanding this relationship, Mises writes, “explodes all talk about ‘technological unemployment.’” (pp. 105–06)
Spivey says that Vonnegut’s emphasis on the level of employment is misplaced. “The goal of an individual business, on a microeconomic level, or of a national economy, on a macro scale, is not to create jobs. The goal of all economic endeavors is [to] create wealth, that is, subjective value, for all involved—owners, employees, consumers, investors, and anyone else directly or indirectly affiliated. Jobs are not ends.” (p. 106)
An objection may have occurred to some readers. Is Spivey using the novels just as props that permit him to present correct economic analysis? Not at all. As suggested earlier, he uses the novels themselves to elicit points that, often against the authors’ intentions, bring out themes valuable from an Austrian point of view. Although Vonnegut, for example, is a bitter critic of the effects of automation, Bud Calhoun, a character in Player Piano,
acknowledges that one of his creations is an improvement over his own human labor. “Does [the job] a whole lot better than Ah did it.”... Ultimately, it must be admitted that “machines were doing America’s work far better than American ever done it. There were better goods for more people at less cost, and who could deny that that was magnificent and gratifying?” (p. 108)
Spivey has overturned a type of literary criticism dominated by Marxism, and that is a magnificent achievement.
The Essential Austrian EconomicsChristopher J. Coyne and Peter J. BoettkeVancouver: Fraser Institute, 2020, 68 pp.
David Gordon (dgordon@mises.org) is a senior fellow at the Mises Institute and editor of the Journal of Libertarian Studies.
Christopher Coyne and Peter Boettke, both professors of economics at George Mason University, say, “The purpose of this book is to present an overview of the key tenets of Austrian economics. In order to do so we draw upon and synthesize the insights from the aforementioned thinkers to present and discuss a set of eight topics that capture the core elements of Austrian economics.” By the “aforementioned thinkers,” they mean Menger, Böhm-Bawerk, Wieser, Mises, Hayek, Kirzner, Rothbard, and Lachmann. They succeed very well in explaining the topics they cover in a way students will find easy to follow. Naturally enough, there are points of detail which other Austrians might address differently, and I shall mention a few of these in what follows. (The most questionable statement in the book, oddly enough, does not concern economics at all. In their chapter “Spontaneous Order,” they say, “language emerges as people interact with one another and attempt to communicate.”[p. 34]. Chomsky would reject that, and the view is quite controversial.) But the main problem with the book lies elsewhere, and this I shall address after a summary of the book.
Before they cover their eight topics, they briefly explain the marginal revolution.
The marginal revolution was a paradigm shift from the established labour theory of value to the marginal utility theory of value. The labour theory of value held that the value of a commodity is a function of the labour required to produce the item. The marginal revolutionists, in contrast, argued that value is not based on the amount of labour expended, but rather reflects how useful people perceive the commodity to be in satisfying their ends. (p. 1)
The new theory was able to solve the “diamond-water” paradox. Further, by proving that there are universally true economic laws, Menger refuted the German Historical School.
The first of their eight topics is “Methodological Principles.” They explain in exemplary fashion the principle of methodological individualism: “Groups and organizations, which consist of people, do not engage in choice and do not have purposes and plans absent the individuals that constitute the group.” (p. 5). It is precisely the purposes and plans of individuals which lie at the heart of Austrian economics, and, contrary to Alfred Marshall, the subjective nature of value determines not only the demand side of price, but costs as well.
As they note in “Economic Calculation,” the allocation in a developed economy of production goods to alternative uses requires market prices, and Mises used this fact to prove the impossibility of socialism. “Mises argued that without property rights in the means of production, which the socialists wanted to abolish, there could be no economic calculation because there would be no money prices.” (p. 13) The attempts by Lange and Lerner to incorporate some element of market pricing into socialism did not succeed. “The market socialists, Hayek argued, were preoccupied with a static notion of equilibrium where all relevant economic knowledge was given, known, and frozen.” (p. 15)
Coyne and Boettke turn to another fundamental Austrian insight, one very much related to economic calculation. Capital is not a homogeneous “blob,” but consists of a wide variety of goods, organized in stages of production. As Menger argued,
the value of capital goods is not inherent in the goods themselves, but instead is derived from the lower-order goods in the structure of production. Raw materials do not have inherent objective value, but instead derive their value from what they contribute to the production of other, value-added capital goods in the structure of production. These lower-order goods likewise derive their value from their contribution to the production of the final consumer good. What ultimately drives this process is the expected value of the final consumer goods (the first-order goods) as determined by consumers. On the market, these subjective valuations are captured in the market prices of capital goods….” (pp. 18–19)
The chapter relies heavily on the insights of Lachmann, fortunately from his earlier work and not from his later “kaleidic” speculations.
The next chapter, “The Market Process,” is Kirznerian in emphasis. Like Kirzner, the authors stress that the market allows individuals to coordinate their plans. “Markets are valuable because in order to accomplish our various goals we typically need to coordinate with others who are also pursuing their own goals.” (p. 24) Is this true, I wonder? We can imagine, at each moment, an equilibrium that would be reached if all data were then frozen, but does it follow that individuals are endeavoring to reach this equilibrium? But this is not the place to pursue this difficult topic. They rightly note the importance of property rights that make possible the price system by which persons can adjust to changing circumstances. Entrepreneurs are central to their market process, and their account of this vital function follows Kirzner in his emphasis on “sheer ignorance.” I am pleased to see, though, that they note the importance of loss as well as profit in their account of the entrepreneur: “The lure of profit provides an incentive for risk taking because a successful first mover can earn a significant profit by being the initial producer of a good valued by consumers. At the same time, the potential for loss makes entrepreneurs careful when making investment decisions.” (p. 28)
Hayek moves to the center of attention in “Spontaneous Order.” Here the key idea is that
The systematic development of thinking about spontaneous order was achieved during the eighteenth century by scholars of the Scottish Enlightenment. Thinkers like Adam Ferguson, David Hume, and Adam Smith appreciated the idea that mechanisms existed to solve complicated problems and generate complex orders absent design or control by an individual or group of individuals. Moreover, given the nuance and complexity of these orders they could not be designed using human reason because they extended beyond what the human mind could grasp.
They highlight Hayek on the limits of human reason, and in doing so, they go astray in a way I shall later address.
They return in my view to a state of grace with “Interventionism.” They take up Mises’s famous example of price controls for milk. Price ceilings are introduced to make milk available more cheaply to the poor. They fail to achieve their purpose, since they lead milk sellers to withdraw milk from the market. The interventionists now face a choice: they can either end the controls, returning to free market pricing, or they can institute new controls that attempt to remedy the problems of the initial set. If they do the latter, the new controls will in turn fail. If the process of intervention proceeds long enough, the result will be the end of the market system altogether.
The authors continue with another excellent chapter, “Business Cycles.” Expansion of bank credit lowers the monetary rate of interest below the “natural rate,” determined by consumers’ time preference. This leads to malinvestments that prove unsustainable when the credit expansion stops, and the liquidation of these projects constitutes the depression phase of the cycle. As the authors say, “In addition to discussing the policy response to a bust once it occurs, Austrian economists have also explored ways of avoiding the onset of a bust in the first place.” (p. 47) But one could wish that when they present the various proposals for a monetary constitution, they had been more explicit about Rothbard’s proposal for a gold standard without fractional reserve banking. They say,
A monetary constitution can take a variety of forms in practice and might include such things as a rule limiting the amount of credit created within a particular time frame, the backing of credit by hard money to limit the ability of banks to print money, or monetary competition which would limit money creation by replacing a centralized monopoly supplier of money with competition among banks. (p. 48)
They conclude the chapter with an arresting remark: “The General Theory was published in 1936 and Hayek decided not to respond directly. In making this decision, Hayek committed what many defenders of the free market system consider to be one of the major tactical errors of this century.” (p. 48)
The book’s final topic is “Planning and the Power Problem,” Coyne and Boettke explain Hayek’s argument in The Road to Serfdom that the attempt to impose comprehensive economic planning is liable to result in an end to liberty.
As Hayek pointed out in his 1944 book, The Road to Serfdom, economic planning by government policymakers necessarily violates the rule of law because planners must have discretion to address unforeseeable situations that cannot be anticipated ex ante…. Given what planning entails, successful seekers of government office will be those who are comfortable designing plans based on their preferences and imposing their vision on others who would have pursued different activities if left to their own, voluntary choices. Hayek argued that the very desire of planners to organize life according to a single, overarching plan emerges from the desire for power to control and shape the world according to the planner’s vision. (pp. 51–52)
Although the various topics are for the most part handled well, there is, as I suggested at the start, a fundamental problem with the book. The authors do not have a clear sense of economics as a separate body of a priori truths about human action, and it is significant that the word “praxeology” nowhere appears in the text. True enough, they say
The theorems of economics—that is, the concepts of marginal utility and opportunity cost, and the principle of demand and supply—are all derived from reflection upon purposefulness in human action. Economic theory does not represent a set of testable hypotheses, but rather a set of conceptual tools that aid us in reading and understanding the complexities of the empirical world. (p. 6)
But they mix together praxeological theorems with other things. It is true, as they say, that we can understand a postman’s activity in stuffing pieces of paper into boxes by reference to “ideal types,” but, as Mises explicitly said, ideal types are not part of economic theory. Hayek’s speculations on the limits of human reasoning are worth attention, but once more they are not part of praxeology. The notion that under economic planning “the worst get on top” is very plausible, but again the psychological and historical insights need to validate this stand outside of praxeology.
The authors’ failure to delimit praxeology as a separate field leads to a related problem. They rightly say, “The Weberian doctrine of Wertfreiheit— ‘value freedom’—was adopted by Mises as a foundational principle of what it meant to do economic science.” (p. 9) But the book abounds in value judgments. They say, for example, and I entirely agree, that “The appropriate response to a bust is to allow entrepreneurs, through the operation of the market process, to reallocate and regroup scarce resources in the capital structure.” (p. 47) This is clearly a value judgment, and the way in which one can use praxeological knowledge to attain various policy goals needs more clarification than we find here. But all in all, The Essential Austrian Economics is useful and helpful, if not altogether essential.
China is a rapidly aging, inefficient, conflict-ridden, and relatively poor country that simply is not on the road to seriously challenging the US’s hegemony.
Original Article: "China’s Military Strength Has Been Greatly Exaggerated"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Having branched to our first novel with All Quiet on the Western Front, the Human Action Podcast begs your indulgence for one of the works of 20th century British satire. Lucky Jim is the late Kingsley Amis's seminal send-up of campus life, and it's among your host's favorite books. The book takes place in 1951, and England is trying but failing to lose its class distinctions. The protagonist Jim Dixon is singularly unfit for the academic life he's chosen, and the opportunities for Amis to skewer both the academy and English society are manifest.
Allen Mendenhall of Troy University joins the show to discuss the academic pretenses and foibles punctured by Amis, along with great insights about Amis's background and political views. If you like satire, don't miss this show or this book!
Every time something good seemed to emerge from Tinbergen’s work, he seems to have managed to twist it in an awful direction.
Original Article: "Jan Tinbergen, Pioneer of Central Planning"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Media Wars: The Battle to Shape Our MindsWalter Donway and Vinay KolhatkarIndependently Published, 2020, 330 pp.
William L. Anderson (banderson@frostburg.edu) is professor of economics at Frostburg State University.
Even the sunniest optimist would admit that the year 2020 was extremely challenging with the COVID-19 pandemic that hit our shores in January, anti-police riots in the spring and summer, and an extremely contentious presidential election in the fall. For people holding to libertarian and Austrian Economic viewpoints, 2020 was an unmitigated disaster, and almost all the trauma was the result of human action.
While the events of 2020 seemed to come upon us all of a sudden, in truth, they were the result of the political and cultural left marching through our social, media, governmental, religious, and educational institutions for many years, and especially in the past decade. In their book, Media Wars: The Battle to Shape Our Minds, journalists Walter Donway and Vinay Kolhatkar set out to document the rise of cultural Marxism and its accompanying Critical Theory and how they have gained control of the commanding heights of so many of our institutions.
Although the title of the book might lead one to believe it is about the news media, it really covers more ground, looking at a number of aspects of our society from higher education to economics, science, the arts and beyond. And, of course, it does deal with the media or, more specifically, with the various narratives that seem to drive current media coverage of events.
There are some important points I need to make at the beginning of this review, and the first is that this is a collection of essays, some written several years ago and others more recent. Second, it is not a scholarly volume of essays, but rather journalistic commentary with a conservative/libertarian bent. (They are worth reading but are not researched in the way that we would see a book of academic essays.) Third, this is not a book that is likely to convince someone on “the other side” to re-evaluate their own ideological positions, as it tends to affirm what many readers already might believe.
Despite its popular appeal, is Media Wars a good resource for academic researchers? Furthermore, how seriously should we take its commentary? The answer to both questions is yes.
Donway and Kolhatkar begin with an overall analysis of what they call “the establishment’s cultural narratives” that represent the Culture War, Black Lives Matter, racism, animus toward historic Western Culture, college campus issues, and what they call the “fountainhead of irrationality in the West.” Interestingly, they begin with the fall of the Soviet Union and the communist governments of that country and its Eastern European satellites. For those of us old enough to have lived through most of the Cold War, including participating in the “duck-and-cover” nuclear bomb drills held in the schools and experiencing the Cuban Missile Crisis, it was a heady and happy time. Even a socialist like Robert Heilbroner would write in the New Yorker (1990) that socialism had failed and that Ludwig von Mises (1951) had been correct when he claimed in Socialism that socialist economies would break down because of the problem with economic calculation. Capitalism seemed to have been vindicated and socialism was openly declared a failure.
Three decades after Heilbroner’s article, the pendulum has swung mightily. All of the political media darlings today, such as Rep. Alexandria Ocasio-Cortez of New York, are outspoken socialists, and the New York Times has launched two major broadsides against capitalism. The first was its November 2017 series on the 100-year anniversary of the Russian Revolution when the NYT portrayed the former European communist world as a paradise lost where women had great sex and the welfare state covered everyone’s needs from housing to medical care.
The second NYT attack on capitalism came with its controversial 1619 Project in which the paper claimed that American capitalism was deeply and irredeemably rooted in slavery and that every business tool from double-entry bookkeeping to personnel management had been developed to keep slaves in check, modern-day slaves being employees of private firms. Not only was modern business the direct descendant of American chattel slavery, but that even the American Revolution itself was fought because the colonists feared Great Britain would abolish slavery. America’s founding, the NYT declared, was in 1619, when the first slaves arrived on American shores, not 1776 when colonists declared their independence from Great Britain.
When numerous historians and economists thoroughly debunked much of the 1619 Project, the Times responded not in good faith but rather accused its critics of racism and worse, ensuring that there could be no debate over the veracity of the series, at least according to what supposedly is the standard of American journalism, the vaunted “Newspaper of Record.” Instead, the NYT has turned into a vehicle that not only disseminated historical disinformation, but also has become a major foe of the very capitalist system that make a newspaper like the New York Times even possible.
Capitalism in America today is not fighting rear-guard action but rather a full-frontal assault from nearly every institution from politics to higher education. While some critics, such as economist Paul Krugman, claim that capitalism has the self-tendency to implode, since markets are imperfect and will fall into the Keynesian “liquidity trap” unless rescued by government policies, others condemn capitalism for promoting what they allege to be inequality. The authors, not surprisingly, present a different view on capitalism, applying the Austrian paradigm.
In a section in Chapter 12 entitled “Rational Economic Science,” Kolhatkar writes that free markets permit “price discovery” in which prices allow market participants to bring supply and demand into balance. He goes on to note that interest rates permit a term structure that is best “discovered by a free market.” Economic growth, he writes, “is primarily driven by accumulation of capital to invest in applying scientific progress and innovation to production,” and in a free market, the process builds upon itself. Over time, this capital investment builds upon itself to bring about increases in living standards.
In contrast to Austrian economics, Kolhatkar attacks Keynesianism as being “quackery,” laying out some fundamental precepts that John Maynard Keynes and his followers have created in the years since Keynes published The General Theory of Employment, Interest, and Money in 1936. Some of these principles include what Austrians have been saying about Keynesian economic thinking for years, including the beliefs that:
interest rates always are “too high” and must be manipulated by monetary authorities;the stock market really is like a gambling casino;gold as money is (to quote Keynes) a “barbarous relic”;the price system does not help markets “self-correct.” Kolhatkar writes:
Eventually, euphemisms like fiscal policy, monetary policy, and quantitative easing became folklore in peer-reviewed journals, then part of an everyday lexicon of generations of bureaucrats, economists, journalists, and finance professionals. As the lie morphed into “mainstream economics,” it became the Big Lie. What does the Big Lie euphemize?
Money supply manipulation, interest rate bastardization, crony project funding, incessant stealing from savers to let borrowers borrow cheaply, an absurd reverence for inflation as though it is needed for economic growth, setting up false convictions (the Fall Guys), extolling the issuance of paper money unlinked to value, subsidizing and interfering with banking—these are only some of the absurdities that hide behind the euphemisms. (p. 101, emphasis theirs)
This is not something one can write in an academic journal and it certainly is not something one would see in a textbook, yet for many of us, it is something we wish we could see in such publication, or something close to it. Those of us tied to the Austrian School believe that Keynesian “economics” and the related schools of thought (i.e., Modern Monetary Theory) are fraudulent even though they have been blessed with academic and political credentials.
But while Media Wars examines subjects like economics and sciences, its actual focus is our current culture war and how modern progressivism really is based upon cultural worldviews. We are not dealing with an intellectual arena in which people of goodwill dispassionately examine various ideas to see what is best; if that really were the case, Modern Monetary Theory would already have been dismissed as nothing more than an attempt to academically sanitize massive money printing. Instead, we are dealing with what only can be called a rigged system in which a progressive pipeline from academe moves to the academic journals and publishers and ultimately to the mainstream news media, led by the New York Times and Washington Post, along with the broadcast networks like NBC, CBS, ABC, PBS, and CNN.
The authors briefly examine social media at the end of the book, but do not deal with the current controversies surrounding the hard-left censorship that the social media firms like Facebook and Twitter have imposed upon their platforms. Given the major role that social media and tech firms like Google played in the U.S. presidential election, one would have liked to have read the opinions and insights the authors might have had—although it probably is not hard to predict what they would have written.
Media Wars is worth reading but, as I noted earlier, it isn’t a book that will have academic standing and it isn’t a volume one gives to a progressive friend to present a convincing viewpoint from the other side. That doesn’t mean the authors have failed to make their points, but in this partisan age, even well-researched and well-reasoned conclusions are dismissed as hackery and shilling for that “failed” system known as capitalism.
Classical Economic Theory and the Modern Economyby Steven KatesEdward Elgar, 2020, 264 pp.
Per Bylund (per.bylund@okstate.edu) is Associate Professor of Entrepreneurship and Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship in the Spears School of Business at Oklahoma State University, a Fellow of the Mises Institute, and an Associate Fellow of the Ratio Institute in Stockholm.
Steven Kates, historian of economic thought, is a persistent and vocal critic of Keynesian demand side economics. His recent book, Classical Economic Theory and the Modern Economy (Edward Elgar, 2020), connects the dots in his critique by explaining, elaborating on, and advocating for classical economic theory. Specifically, the aim is to explain economics as it was understood by John Stuart Mill in his Principles of Political Economy (1848), which to Kates is when “[e]conomic theory reached its highest level of analytical power and depth” (back matter). He does this by contrasting classical economics with Keynesian such.
It may seem strange that Kates chooses to use Keynesian dogma as backdrop for his defense for pre-marginalist economics. But the author notes that modern mainstream economics, especially macroeconomics, has drifted so far from the classical understanding of the economy that economists of today are incapable of comprehending the earlier analysis. Thus, the reader cannot simply be provided the classical analysis as is, but must be made aware of their fundamentally different perspective. Kates does this by both introducing the contrast, including references to the errors of the “false mythology,” and elaborating on how and why economics came to adopt it. The book is therefore three books in one: an introduction to and explanation of classical economic thought; a debunking of Keynesian demand-side economics; and a discussion on the history of this fundamental shift in economic thought.
The book’s eleven chapters plus afterword takes the reader through a blend of these three perspectives. It is an approach that works well for getting the point across and making sure the reader does not jump to conclusions. Some readers may find it repetitive at times, but this too is likely intentional as the author revisits arguments, concepts, and important points in order to ensure that the classical theory he presents is not distorted by being interpreted using a modern economics lens. In fact, as the author claims early in the book, the reader’s modern conception of economics stands in the way of understanding classical economics.
Before the actual discussion starts (in chapter 3, “The background”), the first two chapters are the author’s introduction and a statement about the unique nature of the problem addressed. Chapter 2 is titled “The purpose of this book and why only I could write it.” It is both a brief personal history of how Kates discovered the meaning and importance of Say’s Law and an overview of his substantial previous work on this topic along with a personal account of the power of applying sound economic theory in real-world policy and practice. It also underscores the difficulty of understanding classical economics the way J.S. Mill and his contemporaries understood it.
Chapter 3 “The background” gets the reader up to speed with the classical perspective. It starts with the author stating the problem that the book is intended to amend: “Modern economics is founded on classical fallacies of such an intricate nature and confounding depth that it is almost impossible to understand how it was ever different or to see the logic of the economics of the past” (p. 45). It then briefly explains what classical economics is and who the classical economists were. The chapter sets the boundaries for the discussion by noting the basic fallacies of modern economics and, therefore, what it misses.
Chapter 4 “The Keynesian revolution and classical theory” explains the Keynesian revolution in economics. Drawing from the author’s previous work, the chapter quickly moves into discussing the folly of aggregate demand analysis and explains the true (classical) meaning of Say’s Law, which refutes demand-side economics and policy. Kates does more than summarize his previous work, however. He takes an important next step by distinguishing between two laws attributed to Jean-Baptiste Say: the well-known loi des débouchés, found in Say’s A Treatise on Political Economy (1803), and the modern-day conception of Say’s Law that states the impossibility of general overproduction (demand deficiency). This discussion is then used to reconnect to Keynes’s work and straw man assault on classical economics.
Chapter 5 “Understanding classical presuppositions, terminology and concepts” is something of a classical economics dictionary that explains core terms and concepts. The explanations are contrasted with how the concepts are misconstrued in Keynesian theory.
Chapter 6 “The classical theory of value and the marginal revolution” attempts to dispel the commonly held view that classical economics was based on the labor theory of value. Not so, argues Kates. J.S. Mill presented a theory of value in 17 points, reproduced in this chapter, that at least in part undermines the revolution of marginalist economics: the very first of Mill’s elements states that “Value is a relative term.” The chapter further discusses the classical economics perspective on the role of money, credit, and the business cycle.
Chapter 7 “Keynesian theory overruns the classics” explains how Keynes’s The Theory General Theory of Employment, Interest and Money (1936) in merely a decade and a half could change economics to the core. The chapter provides a historical overview of the core players and their roles in producing the revolution. It thereby explains the mechanics by which the Keynesian revolution was brought about.
Chapter 8 “The basis for Keynes’s success: why was Keynes able to succeed” continues where chapter 7 left off by taking the discussion of “who” to “how.” Kates here discusses Keynes’s position and influence in the economics discipline, the temper of the times, the connection with Kuznets’s development of the GDP measure and how it was implemented as “basically a reflection of Keynesian theory” (p. 179), and the role of statistics and mathematics.
Chapter 9 “Classical theory and the role of government” deals with another common misconception of classical economics: that the classical economists were highly skeptical of government and public spending. Kates here argues that classical economics was not laissez faire economics but, in contrast, that the classical economists saw a major role for government and public spending.
Chapter 10 “Austrian economic theory and the classical economic tradition” addresses the special role of Austrian economics, which, by placing entrepreneurship at the center of a market process of production, is arguably the most classical of contemporary schools of thought in economics. Nevertheless, although Kates notes that “Austrian economists to a large extent assume the whole of the classical supply-side understanding of the operation of a market economy” (p. 11) and that “[t]he Austrian theory of the cycle sits entirely within the classical framework” (p. 213), he also maintains that “[t]he Austrian tradition, especially given how it has evolved since the nineteenth century, is entirely different from the classical tradition in the English-speaking world” and, Kates says, “[t]his cannot be emphasized enough” (p. 208). This difference primarily rests on the Austrians’ focus on marginal utility, which Kates argues necessarily shifts economic theorizing away from the supply side.
Chapter 11 “An overview of classical economic theory” is a proper conclusion to the book’s argument. The three main perspectives in the book come together in an enlightening discussion on how classical economics understands the operations of an economy, the process of economic growth, and, importantly, the classical theory of the business cycle. This is also where the classical understanding gets to stand on its own, independently and without supports. Contrasted with the marginal and Keynesian revolutions, the classical framework is presented as a valid and relevant alternative despite its 150 years of obscurity.
This book is the natural conclusion and apex of Kates’s decades-long provocative research program intent on resurrecting Say’s Law and reviving the classical understanding of the economy. The work ties together and extends several of the arguments from the author’s previous books and articles and does so in a readable and interesting format. Many of the arguments are well received and both interesting and thought-provoking. Kates goes well beyond his previous writings and takes several of the arguments to their logical conclusion.
Although the book is excellent, it is not entirely without flaws. Several of the points could have benefited from elaboration whereas others could have been stated more effectively. Some readers might find the indirect and elaborate “European” style of writing frustrating, especially if they are used to the “American” style.
In this reviewer’s humble opinion, the only major weakness of the book is the chapter on Austrian economics. Kates uses too much space to discuss the politics of Austrian economists, which, because the chapter directly follows chapter 9’s discussion on the role of government for classical economists, gives the impression that the critique is primarily political. But this is not the case. Kates’s critique is based in the school’s founding contribution to the marginal revolution. Because marginal analysis is based on marginal utility, the economic analysis necessarily moves from supply-side in the direction of demand-side reasoning. Therefore, Kates reasons, the Austrian school is complicit in the shift away from proper classical economics. The argument is interesting but would require more elaboration to be persuasive. It is not helped by the author’s seeming urgency to side with Hayek against Mises while the actual discussion, at least in this reviewer’s reading, appears to align more closely with Mises. But this is mostly a somewhat puzzling detail, which does not take away from the main argument.
Classical Economic Theory and the Modern Economy should be a welcome addition to the reading lists of both amateurs and professional economists, whether one’s interest is in macroeconomics or the history of economic thought. Although the book is a worthwhile read on its own without familiarity with Kates’s work, this reviewer believes it really shines when read as a sequel and conclusion to the author’s previous contributions.
Jason Stanley's book on fascism is a jumbled mess which seems primarily to exist for the purpose of smearing everything Stanley doesn't like with the label of "fascism."
Original Article: "You Won't Learn Much about Fascism in this Book on "Fascism""
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
The mental viruses Saad has in mind are to a large extent those that deny that human beings have a biological nature: “Many idea pathogens share one common thread, a deep desire to liberate people from the shackles of reality.”
Original Article: "The "Mind Viruses" Creating Social Justice Warriors"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Raghuram Rajan has written a surprising book. Now teaching finance at the University of Chicago, he is an international bureaucrat in good standing, and not a minor one at that; he was chief economist of the International Monetary Fund. Yet far from calling for an increase in “global governance,” as one might expect from someone with his background, he wants to strengthen the local, “proximate,” community.
“If more powers are delegated from the state to the local community level,” he tells us, “a community can shape its own future better, and will have more control over it. Some communities will have a specific ethnic concentration, and community culture will gravitate toward that ethnic group’s culture…. A strong local community could satisfy people’s need to live in a cohesive social structure with others of the same culture or religion…. None of this implies exclusion [but]—having monocultures that satisfy the tastes of those who want monocultures is as important as having multicultures.”
The problem with “populist nationalism,” then, is not that its advocates prefer national sovereignty to control by internationally minded elites. They are right to do so, given human nature as it is, and the leaders of the European Union neglected this truth to their cost. “The problem was that no one asked their people how much more Europe they wanted, and how much sovereignty they were willing to give up…. The process of integration was, therefore, profoundly undemocratic…. Ultimately, though, integration succeeds only when there is deep social empathy between people.” But if national sovereignty is better than rule by technocrats, still better is the local community.
Rajan’s defense of the local community is part of the ambitious theory of history suggested by his book’s subtitle. As he sees it, there must be a balance among the market, the state, and the local community. Each is dangerous if unchecked by the other two. In fact, though, the alleged dangers of the market stem largely, if not entirely, from “crony capitalism,” the partnership of the state and business interests to exploit consumers. Why not drastically limit the power of the state to block this unholy alliance rather than trust a strong state to limit the market?
The author’s failure to support the free market fully stems from an assumption that emerges in his history of capitalism in Europe and America. That account is well worth studying, and Rajan’s discussions of the end of feudalism and the rise of the gentry are especially good, though our confidence is a bit shaken by his calling Henri Pirenne, the greatest of all Belgian historians, French.
But matters take a turn for the worse when he reaches the rise of capitalism itself, and here, I regret to say, he has taken on board a controversial Marxist dogma. He rejects Marxist economics, which he calls “mostly wrong,” but he calls Marx “one of the greatest social thinkers of modern times.” It is a particular dogma that he has taken over from Marx and also, in his telling, from Adam Smith, that leads him to advocate a state strong enough to rein in the market. “The inexorable political tendency of a free, unfettered, unregulated market was for the producers, after experiencing the rigors of competition, to attempt cartelization.” He cites as an example John D. Rockefeller’s control of oil refining in the United States through his Standard Oil Company and deems justified the suit against the company under the Sherman Anti-Trust Act, but he omits any discussion of the revisionist scholarship that indicates Rockefeller often got the worst of battles with competing refineries and that the lawsuit was not a measure to promote competition but rather an attempt to advance the interests of J.P. Morgan and his associates against their rivals. Of this, interested readers will find a full account in Murray Rothbard’s The Progressive Era. It would seem the better part of wisdom not to rely on the state to fight alleged monopolies on grounds of efficiency but instead to curtail the power of the state so that “crony capitalism” cannot gain a foothold.
Despite his wrong path on this issue, though, the book on the whole is excellent and Rajan makes many useful points. We hear much today about the danger that automation will drive massive numbers of people out of work. Rajan is appropriately skeptical. Automation, like past innovations, can bring some jobs to an end, but this frees up labor to go elsewhere. “Routine jobs have been automated out of existence for decades now, regardless of whether the jobs required skills or not. Banks had hundreds of thousands of cashiers taking in and paying out cash, as well as counting it at the end of the day…. Automated teller machines (ATMs) and cash-counting machines displaced them…. Yet, if anything, employment in banking has gone up as more, cheaper, bank branches are opened, and tellers morph into relationship managers advising retail customers on their loan options and their investment portfolios.”
Some of those most fearful of automation, and others as well, have proposed a universal basic income (UBI) that would free people of the need to work by grants of sufficient money to live a life of leisure. Rajan raises against this proposal a devastating objection: “UBI is an all-or-nothing scheme, and as such, suffers from the traditional difficulties associated with such a scheme. UBI essentially assumes that most people will not have a job, and there will be no point in them searching for one or attempting to retrain themselves since no new jobs will be possible. It is a counsel of despair not just for job seekers but also for job creators, because after UBI is implemented, any new job will have to be more attractive in pay and responsibilities than paid leisure, a difficult line to cross.”
Another important discussion in the book returns us to the local community. Some have objected on egalitarian grounds to programs that stress community control. Given the commanding importance for one’s future income and social status of going to the “right” university, with the Ivy League schools at the top, won’t people who are fairly well off but who cannot afford the top private schools move to neighborhoods with “good” public schools? By doing so, it is claimed, they give their children an unfair advantage over children from poor families, because these families cannot afford housing in the expensive neighborhoods.
Rajan, who is not without egalitarian sympathies, for the most part takes this to be a genuine problem that he is at pains to mitigate. But in one place, he challenges directly one of the key myths of our time. University education is vastly overrated, and many children would do better with less compulsory schooling: “Companies seem to be rating jobs as requiring higher credentials simply because schools are not teaching basic skills well…. International assessments seem to verify the low average quality of US schooling…. The harm done is worse than simply too much time spent by students who do not need degrees acquiring them at great expense, firms over-paying for qualifications they do not need, and a higher-education system that consumes enormous resources. It causes professions to inflate their own minimum credential requirements as they try to gain in prestige….”
Rajan does not pursue the full implications of this challenge, but that he mentions the issue at all is a testament to the wisdom of his book.
Professor Jonathan Newman joins the show for a look at America's Great Depression, Rothbard's classic explanation of a terrible period in US history. This book provides one of the best short surveys of Austrian business cycle theory, along with deep history surrounding the inflationary run-up of the 1920s and the disastrous mistakes made by the "laissez-faire" Hoover administration in the 1930s. Any serious student of booms and busts needs to read this cautionary tale, as does anyone worried about unconstrained monetary policy in the wake of Covid-19 lockdowns. It can happen here, and it can happen again, if Rothbard's counsel goes unheard.
Find the online version of the book at Mises.org/GreatDepression Receive a discount on America's Great Depression in the Mises Bookstore with code HAPOD15%
Scott Horton of antiwar.com and the Libertarian Institute has a new book chronicling 20 years of America's "War on Terror." Enough Already is a compelling history of modern US interventionism and a scathing critique of American foreign policy in the Middle East.
Horton joins Jeff Deist for a sobering look at American hubris overseas, along with the blowback and destruction it causes. You don't want to miss this conversation.
"These days most people tend to equate freedom with the possession of inalienable individual rights, rights that demarcate a private sphere no government may infringe on. But has this always been the case?"
Original Article: "What Does "Freedom" Mean? There Are Many Different Answers."
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Guido Hülsmann's The Ethics of Money Production is a masterclass both on the fundamentals of money and the disastrous moral consequences of monetary "policy." Inflation is not only an economic problem which impoverishes us materially, but a deeply corrosive force in society for individuals. There is no better work to explain the broader implications of central banking which go almost totally unremarked in the financial press.
Podcaster Stephan Livera is a big fan of the book and joins the show to explain why you need to read it.
Guido Hülsmann's The Ethics of Money Production: Mises.org/Ethics
Listen to Stephan's podcast at StephanLivera.com
The government spends vast amounts of money on educational programs that aim to give “equal opportunity” to those deemed disadvantaged, but there is little or no evidence that these programs achieve anything.
Original Article: "The Cult of Smart"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
The Nuremberg prosecutors wanted to indict the Nazis on trial for crimes, but at the same time they wanted to preserve the dogma that the modern European nation-state is the culmination of moral progress. This created a conundrum.
Original Article: "Double Standards, Reparations, and War Crimes"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Tom Woods joins the show for a special year-end show to make the case for becoming a serious reader in 2021!
Read Dr. David Gordon's 2020 book reviews at Mises.org/Gordon2020
Find all episodes of the Human Action Podcast at Mises.org/HAPod
MacMillan's book provides many insights into the true vileness of war, although she strays into some dangerous areas when she accepts the faulty economic notion that wars bring economic benefits through government spending.
Original Article: "New Perspectives on the Evils of War".
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Managerialism, not socialism or capitalism, dominated the West in the latter half of the 20th century. Nobody explained this better than James Burnham in his seminal 1941 book The Managerial Revolution: What is Happening in the World. Burnham challenges both Marxist orthodoxy on class (exploitation happens without capitalism) and libertarian orthodoxy on market firms (managerial control overtakes "owners"). This is hugely important book, and prescient to put it mildly: Burnham's thesis explains both the populist Trump revolution and the Deep State response. To understand modern politics and bureaucracy, and especially the DC Beltway, you need to read this book.
Edward Welsch, editor of Chronicles magazine, joins Jeff Deist for a thorough discussion of Burnham and his most influential work.
Watch Dan McCarthy on the history of Burnham at Mises.org/McCarthyBurnham
Read Samuel Francis's review of James Burnham's works at Mises.org/FrancisBurnham
Professor Janek Wasserman's book The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas, is an entertaining and fascinating account of key players and events in the evolution of Austrian school economics. Jeff Deist details the good, bad, and ugly of the book, written by a left-progressive historian from a critical perspective.
Read Jeff Deist's review at Mises.org/DeistWasserman
Read David Gordon's review at Mises.org/GordonWasserman
Find Hülsmann's biography of Mises at Mises.org/LastKnight
Read Mises on the history of the Austrian school at Mises.org/MisesHistory
Matt Spivey continues the pioneering work of Paul Cantor and Stephen Cox in bringing sound economics to the analysis of literature.
Original Article: "Marxists Dominate the Field of Literary Criticism. That's a Problem."
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
In this outstanding study, Stephen Wertheim shows that both views that dominate American foreign policy are wrong. In doing so, he vindicates for our time the merits of a noninterventionist foreign policy.
Original Article: "The Myth of America as a 'Reluctant Superpower'".
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Do we fund government or does government fund us? Can sovereign states issue currency at will without risk of default? Are government deficits actually a form of public wealth? And can newly issued currency (rather than taxes or bonds) be used to pay for public works, health care, college, entitlements, and guaranteed jobs? These are the arguments made by Professor Stephanie Kelton in The Deficit Myth, the latest addition to the "Modern Monetary Theory" concept. If it sounds too good to be true, it is—and Dr. Murphy joins the show to explain why.
Read Dr. Murphy's review of The Deficit Myth at mises.org/DeficitMyth
The Deficit Myth: Modern Monetary Theory and the Birth of the People’s EconomyStephanie KeltonNew York: PublicAffairs, 2020336 pp.
Robert P. Murphy (bobmurphy@mises.com) is a senior fellow at the Mises Institute.
I’ve got good news and bad news. The good news is that Stephanie Kelton—economics professor at Stony Brook and advisor to the 2016 Bernie Sanders campaign—has written a book on Modern Monetary Theory that is very readable, and will strike many readers as persuasive and clever. The bad news is that Stephanie Kelton has written a book on MMT that is very readable and will strike many readers as persuasive and clever.
To illustrate the flavor of the book, we can review Kelton’s reminiscences of serving as chief economist for the Democratic staff on the U.S. Senate Budget Committee. When she was first selected, journalists reported that Senator Sanders had hired a “deficit owl”—a new term Kelton had coined. Unlike a deficit hawk or a deficit dove, Kelton’s deficit owl was “a good mascot for MMT because people associate owls with wisdom and also because owls’ ability to rotate their heads nearly 360 degrees would allow them to look at deficits from a different perspective” (p. 76).
Soon after joining the Budget Committee, Kelton the deficit owl played a game with the staffers. She would first ask if they would wave a magic wand that had the power to eliminate the national debt. They all said yes. Then Kelton would ask, “Suppose that wand had the power to rid the world of US Treasuries. Would you wave it?” This question—even though it was equivalent to asking to wipe out the national debt—“drew puzzled looks, furrowed brows, and pensive expressions. Eventually, everyone would decide against waving the wand” (p. 77).
Such is the spirit of Kelton’s book, The Deficit Myth. She takes the reader down trains of thought that turn conventional wisdom about federal budget deficits on its head. Kelton makes absurd claims that the reader will think surely can’t be true…but then she seems to justify them by appealing to accounting tautologies. And because she uses apt analogies and relevant anecdotes, Kelton is able to keep the book moving, despite its dry subject matter. She promises the reader that MMT opens up grand new possibilities for the federal government to help the unemployed, the uninsured, and even the planet itself…if we would only open our minds to a paradigm shift.
So why is this bad news? Because Kelton’s concrete policy proposals would be an absolute disaster. Her message can be boiled down into two sentences (and these are my words, not an exact quotation): Because the Federal Reserve has the legal ability to print an unlimited number of dollars, we should stop worrying about how the government will “pay for” the various spending programs the public desires. If they print too much money, we will experience high inflation, but Uncle Sam doesn’t need to worry about “finding the money” the same way a household or business does.
This is an incredibly dangerous message to be injecting into the American discourse. If it were mere inflationism, we could hope that enough of the public and the policy wonks would rely on their common sense to reject it. Yet because Kelton dresses up her message with equations and thought experiments, she may end up convincing an alarming number of readers that MMT really can turn unaffordable government boondoggles into sensible investments, just by changing the way we think about them.
Precisely because Kelton’s book is so unexpectedly impressive, I would urge longstanding critics of MMT to resist the urge to dismiss it with ridicule. Although it’s fun to lambaste “Magical Monetary Theory” on social media and to ask, “Why don’t you move to Zimbabwe?”, such moves will only serve to enhance the credibility of MMT in the eyes of those who are receptive to it. Consequently, in this review I will craft a lengthy critique that takes Kelton quite seriously, in order to show the readers just how wrong her message actually is, despite its apparent sophistication and even charm.
MONETARY SOVEREIGNTY In her introductory chapter, Kelton lures the reader with the promise of MMT, and also sheds light on her book title:
[W]hat if the federal budget is fundamentally different than your household budget? What if I showed you that the deficit bogeyman isn’t real? What if I could convince you that we can have an economy that puts people and planet first? That finding the money to do this is not the problem? (p. 2, bold added)
The first chapter of the book makes the fundamental distinction for MMT, between currency issuers and currency users. Our political discourse is plagued, according to Kelton, with the fallacy of treating currency issuers like Uncle Sam as if they were mere currency users, like you, me, and Walmart.
We mere currency users have to worry about financing our spending; we need to come up with the money—and this includes borrowing from others—before we can buy something. In complete contrast, a currency issuer has no such constraints, and needn’t worry about revenue when deciding which projects to fund.
Actually, the situation is a bit more nuanced. To truly reap the advantages unlocked by MMT, a government must enjoy monetary sovereignty. For this, being a currency issuer is a necessary but insufficient condition. There are two other conditions as well, as Kelton explains:
To take full advantage of the special powers that accrue to the currency issuer, countries need to do more than just grant themselves the exclusive right to issue the currency. It’s also important that they don’t promise to convert their currency into something they could run out of (e.g. gold or some other country’s currency). And they need to refrain from borrowing…in a currency that isn’t their own. When a country issues its own nonconvertible (fiat) currency and only borrows in its own currency, that country has attained monetary sovereignty. Countries with monetary sovereignty, then, don’t have to manage their budgets as a household would. They can use their currency-issuing capacity to pursue policies aimed a maintaining a full employment economy. (pp. 18–19, bold added)
Countries with a “high degree of monetary sovereignty” include “the US, Japan, the UK, Australia, Canada, and many more” (p. 19) (And notice that even these countries weren’t “sovereign” back in the days of the gold standard, because they had to be careful in issuing currency lest they run out of gold.) In contrast, countries today like Greece and France are not monetarily sovereign, because they no longer issue the drachma and franc, but instead adopted the euro as their currency.
The insistence on issuing debt in their own currency helps to explain away awkward cases such as Venezuela, which is suffering from hyperinflation and yet has the ability to issue its own currency. The answer (from an MMT perspective) is that Venezuela had a large proportion of its foreign-held debt denominated in US dollars, rather than the bolivar, and hence the Venezuelan government couldn’t simply print its way out of the hole.See, e.g., Brown (2019). In contrast, so goes the MMT argument, the US government owes its debts in US dollars, and so never need worry about a fiscal crisis.
YES, KELTON KNOWS ABOUT INFLATION At this stage of the argument, the obvious retort for any post-pubescent reader will be, “But what about inflation?!” And here’s where the critic of MMT needs to be careful. Kelton repeatedly stresses throughout her book—and I’ve seen her do it in interviews and even on Twitter—that printing money is not a source of unlimited real wealth. She (and Warren Mosler too, as he explained when I interviewed him on my podcastSee Murphy (2019b).) understands and warns her readers that if the federal government prints too many dollars in a vain attempt to fund too many programs, then the economy will hit its genuine resource constraint, resulting in rapidly rising prices. As Kelton puts it:
Can we just print our way to prosperity? Absolutely not! MMT is not a free lunch. There are very real limits, and failing to identify—and respect—those limits could bring great harm. MMT is about distinguishing the real limits from the self-imposed constraints that we have the power to change. (p. 37, bold added)
In other words, when someone like Alexandria Ocasio-Cortez proposes a Green New Deal, from an MMT perspective the relevant questions are not, “Can the Congress afford such an expensive project? Will it drown us in red ink? Are we saddling our grandchildren with a huge credit card bill?” Rather, the relevant questions are, “Is there enough slack in the economy to implement a Green New Deal without reducing other types of output? If we approve this spending, will the new demand largely absorb workers from the ranks of the unemployed? Or will it siphon workers away from existing jobs by bidding up wages?”
THE FUNDAMENTAL PROBLEM WITH MMT Now that we’ve set the table, we can succinctly state the fundamental problem with Kelton’s vision: Regardless of what happens to the “price level,” monetary inflation transfers real resources away from the private sector and into the hands of political officials. If a government project is deemed unaffordable according to conventional accounting, then it should also be denied funding via the printing press.
What makes MMT “cool” is that it’s (allegedly) based on a fresh insight showing how all of the mainstream economists and bean counters are locked in old habits of thought. Why, these fuddy-duddies keep treating Uncle Sam like a giant corporation, where he has to make ends meet and always satisfy the bottom line. In contrast, the MMTers understand that the feds can print as many dollars as they want. It’s not revenue but (price) inflation that limits the government’s spending capacity.
I hate to break it to Kelton and the other MMT gurus, but economists—particularly those in the free-market tradition—have been teaching this for decades (and perhaps centuries). For example, here’s Murray Rothbard in his 1962 treatise, Man, Economy, and State:
At this time, let us emphasize the important point that government cannot be in any way a fountain of resources; all that it spends, all that it distributes in largesse, it must first acquire in revenue, i.e., it must first extract from the “private sector.” The great bulk of the revenues of government, the very nub of its power and its essence, is taxation, to which we turn in the next section. Another method is inflation, the creation of new money, which we shall discuss further below. A third method is borrowing from the public…. (Rothbard 1962, 913–14, bold added)
To repeat, this is standard fare in the lore of free-market economics. After explaining that government spending programs merely return resources to the private sector that had previously been taken from it, the economist will inform the public that there are three methods by which this taking occurs: taxation, borrowing, and inflation. The economist will often add that government borrowing can be considered merely deferred taxation, while inflation is merely hidden taxation.
And it’s not merely that inflation is equivalent to taxation. No, because it’s harder for the public to understand what’s happening when government money-printing makes them poorer, there is a definite sense in which standard taxation is “honest” whereas inflation is insidious. This is why Ludwig von Mises considered inflationary finance to be “essentially antidemocratic” (Mises [1944] 2010, 252): the printing press allows the government to get away with spending that the public would never agree to explicitly pay for, through straightforward tax hikes.
Kelton and other MMT theorists argue that inflation isn’t a problem right now in the US and other advanced economies, and so we don’t need to be shy about cranking up the printing press. But whether or not the Consumer Price Index is rising at an “unacceptably” high rate, it is a simple fact that when the government prints an extra $1 million to finance spending, then prices (quoted in US dollars) are higher than they otherwise would have been, and people holding dollar-denominated assets are poorer than they otherwise would have been. Suppose that prices would have fallen in the absence of government money-printing. Then in this case, everybody holding dollar assets would have seen their real wealth go up because of the price deflation. If the government merely prints enough new dollars to keep prices stable, it is still the case that those original dollar-holders end up poorer relative to what otherwise would have happened.
Now to be sure, Kelton and other MMT theorists would object at this point in my argument. They claim that if there is still some “slack” in the economy, in the sense of unemployed workers and factories operating below capacity, then a burst of monetary inflation can put those idle resources to work. Even though the rising prices lead to redistribution, if total output is higher, then per capita output must be higher too. So on average, the people still benefit from the inflation, right?
On this score, we simply have a disagreement about how the economy works, and in this dispute I think the Austrians are right while the MMTers are wrong. According to Mises’s theory of the business cycle,See Murphy (2020b). the existence of “idle capacity” in the economy doesn’t just fall out of the sky, but is instead the result of the malinvestments made during the preceding boom. So if we follow Kelton’s advice and crank up the printing press in an attempt to put those unemployed resources back to work, it will simply set in motion another unsustainable boom/bust cycle. In any event, in the real world, government projects financed by inflation will not merely draw on resources that are currently idle, but will also siphon at least some workers and raw materials out of other, private-sector outlets, as I elaborate elsewhere (Murphy 2019b).
In summary, the fundamental “insight” of MMT—namely, that governments issuing fiat currencies need only fear price inflation, not insolvency—is something that other economists have acknowledged for decades. Where the MMTers do say something different is when they claim that printing money only carries an opportunity cost when the economy is at full employment. But on this point, the MMTers—like their more orthodox cousins, the Keynesians—are simply wrong (Murphy 2009).
TOUGH QUESTIONS FOR MMT A standard rhetorical move is for proponents to claim that MMT is not ideological, but merely describes how a financial system based on fiat money actually works. (For example, this was the lead argument Mike Norman used when he and I were dueling with YouTube videos.See, e.g., Murphy (2013).) Yet since so much hinges on whether a government has “monetary sovereignty,” it’s amazing that the MMTers never seem to ask why some governments enjoy this status while others don’t.
For her part, Kelton criticizes certain non-monetarily-sovereign governments for particular actions, such as joining a currency union (p. 145), but she doesn’t ask the basic question: Once an MMT economist explains its benefits, why doesn’t every government on earth follow the criteria for becoming a monetary sovereign? Indeed, why don’t all of us as individuals issue our own paper notes—in my case, I’d print RPMs, which has a nice ring to it—and furthermore only borrow from lenders in our own personal currencies? That way, if you fell behind in your mortgage payments, you could simply print up more of your own personal notes to get current with the bank.
Posed in this way, these questions have obvious answers. The reason Greece adopted the euro, and Venezuela borrows so much in US-dollar-denominated debt, and the reason I use dollars rather than conducting transactions in RPMS, is that the rest of the financial community is very leery of the Greek drachma, the Venezuelan bolivar, or the Murphyian RPM note. Consequently, the Greek and Venezuelan governments, as well as me personally, all subordinated our technical freedom to be “monetary sovereigns” and violated one or more of Kelton’s criteria.
In short, the reason most governments (including state governments in the US) in the world aren’t “monetary sovereigns” is that members of the financial community are worried that they would abuse a printing press. The Greek government knew its economy would receive more investment, and it would be able to borrow on cheaper terms, if it abandoned the drachma and adopted the euro. The Venezuelan government knew it could obtain much larger “real” loans if they were denominated in a relatively hard currency like the USD, rather than the Venezuelan currency which could so readily be debased (as history has shown). And I personally can’t interest anybody in financial transactions involving my authentic RPM notes, and so reluctantly I have to join the dollar-zone.
Now that we’ve covered this basic terrain, I have a follow-up question for the MMT camp: What would it take for a government to lose its monetary sovereignty? In other words, of those governments that are currently monetary sovereigns, what would have to happen in order for the governments to start borrowing on foreign currencies, or tie their own currency to a redemption pledge, or even to abandon their own currency and embrace one issued by a foreign entity?
Here again the answer is clear: A government that engaged too recklessly in monetary inflation—thus leading investors to shun that particular “sovereign” currency—would be forced to pursue one or more of these concessions in order to remain part of the global financial community. Ironically, current monetary sovereigns would run the risk of forfeiting their coveted status if they actually followed Stephanie Kelton’s policy advice.
MMT IS ACTUALLY WRONG ABOUT MONEY For a framework that prides itself on neutrally describing the actual operation of money and banking since the world abandoned the gold standard, it’s awkward that MMT is simply wrong about money. In this section I will summarize three of the main errors Kelton makes about money.
Money Mistake #1: The Treasury Needs Revenue Before It Can Spend
A bedrock claim of the MMT camp is that unlike individuals and Walmart, the US Treasury doesn’t need to have money before spending it. Here’s an example of Kelton laying out the MMT description of government financing:
Take military spending. In 2019, the House and Senate passed legislation that increased the military budget, approving $716 billion…. There was no debate about how to pay for the spending…. Instead, Congress committed to spending money it did not have. It can do that because of its special power over the US dollar. Once Congress authorizes the spending, agencies like the Department of Defense are given permission to enter into contracts with companies like Boeing, Lockheed Martin, and so on. To provision itself with F-35 fighters, the US Treasury instructs its bank, the Federal Reserve, to carry out the payment on its behalf. The Fed does this by marking up the numbers in Lockheed’s bank account. Congress doesn’t need to “find the money” to spend it. It needs to find the votes! Once it has the votes, it can authorize the spending. The rest is just accounting. As the checks go out, the Federal Reserve clears the payments by crediting the sellers’ account with the appropriate number of digital dollars, known as bank reserves. That’s why MMT sometimes describes the Fed as the scorekeeper for the dollar. The scorekeeper can’t run out of points. (Kelton, p. 29, bold added)
For a more rigorous, technical treatment, the advanced readers can consult Kelton’s peer-reviewed journal article from the late 1990s on the same issues (Bell 2000).Bell (2000) is the published journal article, but future references to this work will refer to Bell (1998), an earlier draft which is not behind a paywall. Yet whether we rely on Kelton’s pop book or her technical article, the problem for the MMTers is still there: Nothing in their description is unique to the US Treasury.
For example, when I write a personal check for $100 to Jim Smith who also uses my bank, we could explain what happens like this: “Murphy instructed Bank of America to simply add 100 digital dollars to the account of Jim Smith.” Notice that this description is exactly the same thing that Kelton said about the Treasury buying military hardware in the block quotation above.
Now of course, I can’t spend an unlimited amount of dollars, since I am a currency user, not a monetary sovereign. In particular, if I “instruct” Bank of America to mark up Jim Smith’s checking account balance by more dollars than I have in my own checking account, the bank may ignore my instructions. Or, if my overdraft isn’t too large, the bank might go ahead and honor the transaction, but then show I have a negative balance (and charge me an Insufficient Funds fee on top of it).
The only difference between my situation and the US Treasury’s is that I actually have overdrawn my checking account, whereas the U.S. Treasury hasn’t had the legal option of doing so since 1981—and even before then, the Treasury only exercised the option rarely, and out of convenience not necessity.For the history of the Treasury’s overdraft privileges see: George Selgin, "On Empty Purses and MMT Rhetoric, Alt-M, Mar. 5, 2019, https://www.alt-m.org/2019/03/05/on-empty-purses-and-mmt-rhetoric/. Indeed, Kelton’s own journal article (Bell 1998, 11, Fig. 4) shows that the Treasury consistently maintained (as of the time of her research) a checking account balance around $5 billion, and that the daily closing amount never dipped much below this level.
Indeed, the Treasury itself sure acts as if it needs revenue before it can spend. That’s why the Treasury Secretary engages in all sorts of fancy maneuversSee Gudmundson (2011).—such as postponing contributions to government employees’ retirement plans—whenever there’s a debt ceiling standoff and Uncle Sam hits a cash crunch.
The MMTers take it for granted that if the Treasury ever actually tried to spend more than it contained in its Fed checking account balance, that the Fed would honor the request. Maybe it would, and maybe it wouldn’t; CNBC’s John Carney (who moderated the debate at Columbia University between MMT godfather Warren Mosler and me [Modern Money Network 2013]) thinks it’s an open question in terms of the actual legal requirements, though Carney believes in practice the Fed would go ahead and cash the check.
Yet, to reiterate, at least going back to 1981 the Treasury hasn’t spent money that it didn’t already have sitting in its checking account. The MMT camp would have us believe that there is something special occurring day in and day out when it comes to Treasury spending, but they are simply mistaken: so far at least, the Treasury has never dared the Fed by overdrawing its account.
Indeed, Kelton herself in her technical article from the late 1990s implicitly gives away the game when she defends the MMT worldview in this fashion:
[S]ince the government’s balance sheet can be considered on a consolidated basis, given by the sum of the Treasury’s and Federal Reserve’s balance sheets with offsetting assets and liabilities simply canceling one another out…the sale of bonds by the Treasury to the Fed is simply an internal accounting operation, providing the government with a self-constructed spendable balance. Although self-imposed constraints may prevent the Treasury from creating all of its deposits in this way, there is no real limit on its ability to do so. (Kelton 1998, 16, italics in original)
What Kelton writes here is true, but by the same token, we can consider the Federal Reserve and Goldman Sachs balance sheets on a consolidated basis. If we do that, then Goldman Sachs can now spend an infinite amount of money. Sure, its accountants might still construct profit and loss statements and warn about bad investments, but these are self-imposed constraints; so long as the Fed in practice will honor any check Goldman Sachs writes, then all overdrafts are automatically covered by an internal loan from the Fed to the investment bank. The only reason this wouldn’t work is if the Fed actually stood up to Goldman and said “No.” But that’s exactly what the situation is with respect to the Treasury too.
Whenever I argue the merits of MMT, I debate whether or not to bring up this particular quibble. In practice, it would be very naïve to think the Fed actually enjoys “independence” from the federal government that grants the central bank its power. And I for one think that the various rounds of quantitative easing (QE) were not merely driven by a desire to minimize the output gap, but instead were necessary to help monetize the boatload of debt incurred during the Obama years. (Of course Trump and Powell are doing a similar dance.)
Even so, I think it is important for the public to realize that the heroes of MMT are misleading them when they claim there is something unique to Uncle Sam in the way he interacts with his banker. So far, this is technically not the case. Even when the Fed has clearly been monetizing new debt issuance—such as during the world wars—all of the players involved technically went through the motions of having the Treasury first float bonds in order to fill its coffers with borrowed funds, and only then spending the money. The innocent reader wouldn’t know this if he or she relied on the standard MMT accounts of how the world works.
Money Mistake #2: Taxes Don’t Prop Up Currencies
Another central mistake in the MMT approach is its theory of the origin and value of money.If you want to see the Austrian view, see Murphy (2003) on the contributions of Menger and Mises. To set the stage, here is Kelton explaining how Warren Mosler stumbled upon the worldview that would eventually be dubbed Modern Monetary Theory:
Mosler is considered the father of MMT because he brought these ideas to a handful of us in the 1990s. He says…it just struck him after his years of experience working in financial markets. He was used to thinking in terms of debits and credits because he had been trading financial instruments and watching funds transfer between bank accounts. One day, he started to think about where all those dollars must have originally come from. It occurred to him that before the government could subtract (debit) any dollars away from us, it must first add (credit) them. He reasoned that spending must have come first, otherwise where would anyone have gotten the dollars they needed to pay the tax? (Kelton, p. 24)
This MMT understanding ties in with its view of the origin and money, and how taxes give money its value. Kelton explains by continuing to summarize what she learned from Mosler:
[A] currency-issuing government wants something real, not something monetary. It’s not our tax money the government wants. It’s our time. To get us to produce things for the state, the government invents taxes…This isn’t the explanation you’ll find in most economics textbooks, where a superficial story about money being invented to overcome the inefficiencies associated with bartering…is preferred. In that story, money is just a convenient device that sprang up organically as a way to make trade more efficient. Although students are taught that barter was once omnipresent, a sort of natural state of being, scholars of the ancient world have found little evidence that societies were ever organized around barter exchange.
MMT rejects the ahistorical barter narrative, drawing instead on an extensive body of scholarship known as chartalism, which shows that taxes were the vehicle that allowed ancient rulers and early nation-states to introduce their own currencies, which only later circulated as a medium of exchange among private individuals. From inception, the tax liability creates people looking for paid work…in the government’s currency. The government…then spends its currency into existence, giving people access to the tokens they need to settle their obligations to the state. Obviously, no one can pay the tax until the government first supplies its tokens. As a simple point of logic, Mosler explained that most of us had the sequencing wrong. Taxpayers weren’t funding the government; the government was funding the taxpayers. (Kelton, pp. 26–27, bold added)
I have included these lengthy quotations to be sure the reader understands the superficial appeal of MMT. Isn’t that intriguing—Mosler argues that the government funds the taxpayers! And when you think through his simple point about debits and credits, it seems that he isn’t just probably correct, but that he must be correct.
Again, it’s a tidy little demonstration; the only problem is that it’s demonstrably false. It is simply not true that dollars were invented when some autocratic ruler out of the blue imposed taxes on a subject population, payable only in this new unit called “dollar.” The MMT explanation of where money comes from doesn’t apply to the dollar, the euro, the yen, the pound…Come to think of it, I don’t believe the MMT explanation applies even to a single currency issued by a monetary sovereign. All of the countries that currently enjoy monetary sovereignty have built their economic strength and goodwill with investors by relying on a history of hard money.
In a review of Kelton’s book, I’m not going to delve into the problems with the alleged anthropological evidence that purportedly shows ancient civilizations used money that was invented by political fiat, rather than money that emerged spontaneously from trade in commodities. For that topic, I refer the interested reader to my review of David Graeber’s book (Murphy 2012).
Yet let me mention before leaving this subsection that the MMT story at best only explains why a currency has a nonzero value; it does not explain the actual amount of its purchasing power. For example, if the IRS declares that every US citizen must pay $1,000 in a poll tax each year, then it’s true, US citizens will need to obtain the requisite number of dollars. But they could do so whether the average wage rate is $10 per hour or $10,000 per hour, and whether a loaf of bread costs $1 or $1,000.
Furthermore, other things equal, if the government lowers tax rates, then it strengthens the currency. That’s surely part of the reason that the US dollar rose some 50 percent against other currencies after the tax rate reductions in the early Reagan years.See FRED, “Trade-Weighted U.S. Dollar Index: Major Currencies, Goods” (DTWEXM): https://fred.stlouisfed.org/series/DTWEXM. So the MMT claim that taxes are necessary, not to raise revenue (we have a printing press for that), but to prop up the value of the currency, is at best seriously misleading.
Money Mistake #3: Debt Isn’t Money
Amazingly, even though their system claims to explain how money works, the MMTers apparently don’t know the simple difference between money and debt. Here’s Kelton trying to defuse hysteria over the national debt:
The truth is, we’re fine. The debt clock on West 43rd Street simply displays a historical record of how many dollars the federal government has added to people’s pockets without subtracting (taxing) them away. Those dollars are being saved in the form of US Treasuries. If you’re lucky enough to own some, congratulations! They’re part of your wealth. While others may refer to it as a debt clock, it’s really a US dollar savings clock. (Kelton, pp. 78–79.)
To drive home the equivalence of US Treasuries and dollars, shortly afterward Kelton says, “Heck, I don’t even think we should be referring to the sale of US Treasuries as borrowing or labeling the securities themselves as the national debt. It just confuses the issue and causes unnecessary grief” (p. 81).
For an even starker illustration of the MMT confusion between debt and money, consider Kelton’s approving quotations of a thought experiment from Eric Lonergan, who asked, “What if Japan monetized 100% of outstanding JGBs [Japanese government bonds]?” That is, what if the Bank of Japan issued new money in order to buy up every last Japanese government bond on earth? Lonergan argues “nothing would change” because the private sector’s wealth would be the same; the BOJ would have engaged in a mere asset swap. In fact, because their interest income would now be lower while their wealth would be the same, people in the private sector would spend less after the total debt monetization, according to Lonergan.
In response to these observations, I make two simple points: First, one can’t spend Treasury securities or Japanese government bonds in the grocery store. That’s why money and debt are different things.
Second, if Kelton were right and the US national debt were a tally of how many dollars on net the government has “spent into existence,” then when Andrew Jackson paid off the national debt, the American people would have had no money—the last dollar would have been destroyed. And yet even Kelton doesn’t claim that dollars were temporarily banished from planet Earth. She merely claims that Jackson’s policy caused a depression.For the Austrian take on this historical episode, see Sanchez (2009).
DO GOVERNMENT DEFICITS EQUAL PRIVATE SAVINGS? In Chapter 4, Kelton lays out the MMT case that government deficits, far from “crowding out” private sector saving, actually are the sole source of net private assets. Using simple accounting tautologies, Kelton seems to demonstrate that the only way the nongovernment sector can run a fiscal surplus, is if the government sector runs a fiscal deficit.
Going the other way, when the government is “responsible” by running a budget surplus and starts paying down its debt, by sheer accounting we see that this must be reducing net financial assets held by the private sector. (This is why it should come as no surprise, Kelton argues, that every major government surplus led to a bad recession. [p. 96])
In the present review, I won’t carefully review and critique this particular argument, as I’ve done so earlier (Murphy 2019a). Suffice it to say, one could replace “government” in the MMT argument with any other entity and achieve the same outcome. For example, if Google borrows $10 million by issuing corporate bonds and then it spends the money, then the net financial assets held by The-World-Except-Google go up by precisely $10 million. (Or rather, the way one would define terms in order to make these claims true, is the same way Kelton gets the MMT claims about Uncle Sam to go through.) So did I just prove something really important about Google’s finances?
Obviously something is screwy here. Using standard definitions, people in the private sector can save, and even accumulate net financial wealth, without considering the government sector at all. (This is all spelled out in Murphy [2020a]). For example, Robinson Crusoe on his deserted island can “save” out of his coconut income in order to finance his investment of future labor hours into a boat and net. Even if we insist on a modern financial context, individuals can issue shares of equity in new corporations, thus acquiring assets that don’t correspond to a “debit” of anyone else.
It is a contrived and seriously misleading use of terminology when MMT proponents argue that government deficits are a source of financial wealth for the private sector. Forget the accounting and look at the big picture: Even if the central bank creates a new $1 million and hands it to Jim Smith, it hasn’t made the community $1 million richer except in the sense that we could all be millionaires with this practice. There aren’t any more houses or cars or acres of arable farmland available. Printing new money doesn’t make the community richer—at best it’s a wash with redistribution—and in fact in practice it makes the community poorer by distorting the ability of prices to guide economic decisions.
THE MMT JOB GUARANTEE The last item I wish to discuss is the MMT job guarantee. Strictly speaking, this proposal is distinct from the general MMT framework, but in practice I believe every major MMT theorist endorses some version of it.
Under Kelton’s proposal, the federal government would have a standing offer to employ any worker at $15 per hour (p. 68). This would set a floor against all other jobs; Kelton likens it to the Federal Reserve setting the federal funds rate, which then becomes the base rate for every other interest rate in the economy.
Kelton argues that her proposal would eliminate the unnecessary slack in our economic system, where millions of workers languish in involuntary unemployment. Furthermore, she claims her job guarantee would raise the long-term productivity of the workforce and even help people find better private sector job placement. This is because currently, “Employers just don’t want to take a chance on hiring someone who has no recent employment record” (p. 68).
There are several problems with this proposal. First of all, why does Kelton assume it would only draw workers out of the ranks of the unemployed? For example, suppose Kelton set the pay at $100 per hour. Surely even she could see the problem here, right? Workers would be siphoned out of productive, private sector employment and into the government realm, providing dubious service at best at the direction of political officials.
Second, why would employers be keen on hiring someone who has spent, say, the last three years working in the guaranteed job sector? This would be, by design, the cushiest jobs in America. Kelton admits this when she says the base wage rate would be the floor for all other jobs.
Looking at it another way, it’s not really a job guarantee if it’s difficult to maintain the position. In other words, if the people running the federal jobs program are allowed to fire employees who show up drunk or who are simply awful workers, then it’s no longer a guarantee.
CONCLUSION Stephanie Kelton’s new book The Deficit Myth does a very good job explaining MMT to new readers. I must admit that I was pleasantly surprised at how many different topics Kelton could discuss from a new view, in a manner that was simultaneously absurd and yet apparently compelling.
The problem is that Kelton’s fun book is utterly wrong. The boring suits with their standard accounting are correct: It actually costs something when the government spends money. The fact that since 1971 we have had an unfettered printing press doesn’t give us more options. It merely gives the Fed greater license to cause boom/bust cycles and redistribute wealth to politically connected insiders.
The Marginal Revolutionaries: How Austrian Economists Fought the War of IdeasJanek WassermanNew Haven, Conn.: Yale University Press, 2019, xiii + 354 pp.
Samuel Bostaph (bostaph@udallas.edu) is emeritus professor of economics at the University of Dallas.
Before I had read less than a hundred pages of this book, I surmised that the author was not an economist and definitely not an economist who had any “Austrian School” affiliation. Instead, I was sure he was an historian. The dustcover of the book identified him only as associate professor at the University of Alabama. A quick Google search confirmed that Janek Wasserman is Associate Professor of Modern German and Central European History at that university.
This explained the welcome use of a rich trove of German language sources and his ability to place the social narrative in the context of Central European history. It also explained the main weaknesses of the book—its lack of a general economic understanding or of precision in theoretical explication.
Of course, to write a history of a school it is necessary to identify its members by elucidating some common bond or feature that ties the members together. Wasserman recognizes this; however, other than the fact that the early members he includes were part of the economic clerisy in Vienna at the turn of the twentieth century and knew each other, and that the next generations associated and interacted with the previous ones, a defining characteristic is never presented. He refers to the scholars he discusses as (p. 40) “a social network,” or (pp. 231, 267) “a thought style.” He’s also rather loose with the use of the terms “pupil,” “student,” and “students.” Eugen von Boehm-Bawerk and Friedrich von Wieser were never “students” of Carl Menger. It would be more accurate to describe him as their “mentor.”
So far as the other names mentioned as members of the early “school,” it’s rather a grab bag of contrasting foci. Perhaps, it is possible to gather them together in what Deirdre McCloskey (p. 3, referencing Kwame Anthony Appiah) terms “a loose and baggy sense.” If there is any principle that might be useful in this regard, it is probably the fact that they all seemed to accept and use the marginal utility principle in their theorizing. And, of course, most of the men listed not only knew each other—some participated in organized discussion groups and other forms of socializing.
The marked division between those who employed the causal-genetic method of logical reasoning and those who attempted with varying degrees of success to use mathematical reasoning in their theorizing makes calling them a “school” even baggier and may partly explain why contemporary “Austrian” scholars sort themselves into different traditions. The scholars working in Menger’s methodological tradition rejected the assumption that there are any constant relations in human action and employed causal narrative rather than mathematical methods for theorizing, while others, like Wieser and Joseph Schumpeter, either accepted the use of mathematical functionality in their theories of human action or didn’t question it.
In any event, I think it is more useful to view this book as a sociological, rather than an intellectual, history of a collection of scholars united by geography in the early years and exhibiting varying degrees of theoretical indebtedness in the later decades. A number of Austrian intellectuals in the late nineteenth and early twentieth centuries, most of them living and working in Vienna, gathered together and interacted in various ways in the pursuit of new knowledge mostly concerning the economic side of life. If there was a spark that ignited these gatherings and interactions, it was Carl Menger’s 1871 Grundsätze. It inspired Eugen von Böhm-Bawerk and Friedrich von Wieser and others to do further research and to meet for intellectual companionship. They met in coffee houses, formed intellectual circles of research, discussion, and instruction; some taught at university, some attracted and mentored students who went on to engage in similar activities, many emigrated to other countries and continued those activities, some became faculty members at leading universities in Britain and the United States, and some also became international figures in economic policy-making. There were always factions among them, some bitter, others respectful, and this has continued to the present day.
Wasserman ably traces this social history, and the book is well worth reading for that information. He is less successful in explicating specific theoretical arguments of key figures in that history, especially in the early work by Menger, Wieser, and Ludwig von Mises.
Of Menger’s Grundsätze, he characterizes it as focusing (p. 25) “on production, the role of time, and the importance of the final, marginal unit of a good.” This is misleading. Menger’s primary focus is on the knowledge and subjective evaluations of individual economizers that drive all economizing activity in a market economy. It is the individual who identifies his needs, the goods that might satisfy those needs, the causal processes that might result in the means for need satisfaction, and the structure of production that may result in the first order goods that are required for this result. There is some acknowledgement of this focus on pages 28, 35, and 52, but it does not receive the required emphasis that pervades Menger’s work.The emphasis on individuals as the source of actions directed to need satisfaction in “economic activity”, producing individual as well as national economies, is also found in Menger’s Untersuchungen ([1883] 1963, 193n128). It’s worth noting that only two out of eight chapters of the Grundsätze concern the structure of production—that’s 70 out of 202 pages (58 out of 300 in the 1950 English translation). Even if we include the few pages on the concept of capital and the role of the entrepreneur in Chapter III, the emphasis is still on individual economizing and valuation. The rest of the book continues the focus on the individual in his actions in valuing and exchanging goods in the context of a market economy.
Wasserman also mischaracterizes the Methodenstreit as (p. 31) “primarily a dispute between two irascible, vain professors.” It was much more importantly a clash between two seriously opposed epistemological perspectives, and especially those concerning the nature of causality. (Bostaph 1978) Using descriptives such as “vain,” “ponderous,” “opaque,” and “constipated” to characterize Menger and his prose is one of the less appealing aspects of Wasserman’s portrait of Menger (and others) in his social history. Terms like “dogma,” “elitist,” “reactionary,” and “radical” are sprinkled throughout the book in reference to “Austrian” figures and their thought.Wasserman (p. 5) asserts that “the Austrians blended philosophical and ideological values, scientific work, and policy intervention, creating a radical mélange.” A mélange is a mixture of different things, like a stir fry. It is not a logical development of ideas into a consistent system of understanding and interpretation, such as that provided by Ludwig von Mises. There is no scholarly argument in this book that supports Wasserman’s characterization.
With respect to Wasserman’s treatment of Friedrich von Wieser, I can’t imagine a greater misunderstanding of his writings. Wasserman managed to read Natural Value and Social Economics without comprehending that both are briefs for state socialism. Wieser correctly perceived that state socialist societies with no private property rights for higher order goods lacked a means of calculating their relative scarcities. This would make the organization of production ad hoc. Wieser’s solution was to invent a faux util to use for calculation—a unit of “natural value.” He even admitted at the end of Natural Value (p. 242) that the unit was fictional.One is reminded of the old joke about the priest, the physicist, and the economist on a desert island trying to open a can of beans without any tools. The economist solves the problem saying, “Assume we have a can opener.” In fact, his concept of it is not only fictional, it is incoherent (Bostaph 2003). Wasserman terms it “innovative.” In his Social Economics Wieser refers to “units of utility” which are the economy’s “natural values” that can be used for calculation by state socialist planners. As Menger and others in his methodological tradition recognize, marginal utility calculations are only possible for individuals—they are subjective, and ordinal. They cannot be objectified and used for state socialist planning as Wieser fantasized.
Wasserman also applauds Wieser’s theory of imputation as presented in Natural Value. There, Wieser confuses the question of the imputation of expected values by an individual economizer with that of the calculation of distributive shares of cooperating factors from an expected return. He attempts to construct a theory of distribution using a theory of imputation. His use of three simultaneous equations to do so is particularly flawed because the meanings of the variables and constants in the equations are ambiguous and each assumes a fixed proportion production process. It is not clear what is being imputed to what. Also, without realizing he has done so, Wieser necessarily drops the marginal utility theory of value. Wasserman finds Wieser’s approach “creative” and “novel.”
Wieser’s Law of Power fails to rise much above the level of the obiter dicta of a widely-read and learned man. Other than a few passing mentions of classic works and authors, the text of the book is completely unreferenced. Aside from the basic ad hoc nature of the theory, the ambiguities in Wieser’s concepts of “power,” “leadership,” “goals,” and “success” are fatal to its coherence. What exactly is “power”? So many influences on individual decision-making are mentioned by Wieser that it is difficult to resist the conclusion that by “power” he means whatever causes one to do what one does. Wieser’s “theory” of power was earlier used by him in Natural Value and Social Economics. There, the “power” of large enterprises and personal wealth are said to distort the nexus of natural values between traded commodities. Prices and production become determined by the wealthy and powerful to the disadvantage of the poor because the marginal utility of money is lower for the former than the latter group. What this argument illustrates is a basic lack of understanding of how markets work and an assumption that interpersonal comparisons of utility can be made. Even in an economy with equal incomes, wealth, and power for all participants, there would be a “stratification” of prices and marginal utilities as a result of differing preferences, education, degrees of good and bad taste, and the ebb and flow of individual participants in different markets. Wasserman opines that Wieser’s Law of Power was the only novel contribution by an “Austrian School” scholar in the 1920s. Indeed.
Wasserman’s failure to grasp the core of Wieser’s alleged solution to the calculation problem for a state socialist society may be the reason his explication of Mises’s 1920 and 1936 argument also fails. Contra Wasserman’s p. 106, Wieser did not argue that money calculation was a natural feature of any economy, he invented units of “natural value” or “utility” to use for the needed calculations in a state socialist society.
Contra Wasserman’s p. 105, Mises did not argue that state socialism could not use money as a unit of calculation, he argued that with no private ownership of higher order goods in such a society, no market-determined prices could be established for them that reflected their relative scarcities to those contending for their uses in production. To economize is to calculate in prices, whether barter or money; it is to seek the lowest expected opportunity cost of the means to achieve the end for which one is economizing. That is why Mises argued that the socialist planned economy is in reality no economy. Without market-determined prices that reflect their relative scarcities, no one in that society can calculate the expected opportunity costs of the productive use of higher order goods, and thus make decisions as to how they are to be efficiently used in the production of lower order goods. Without market-determined prices for all resources, production processes would be ad hoc and non-economic.There was much more in Mises’s brief against socialism, but the inability to use market prices in calculation was the crucial argument. The subsequent history of the Soviet Union and the China of Mao Zedong proved Mises’s case. They became parasitic of Western technology and production processes and devoted considerable effort to stealing intellectual property from the West, as China under Xi Jinping still does.
The social history sections of the book are actually pretty interesting. Wasserman gives succinct histories of the Mont Pelerin Society, the European Forum, the Institute for Advanced Studies, the Institute for Economic Affairs, the Atlas Network, the Cato Institute, George Mason University’s Mercatus Institute, and the influence of Gottfried Haberler and Fritz Machlup on various international institutions.
The last chapter of the book is titled “Conclusion,” and while it does end the book, it contains much recent history of “Austrian” factionalism and an extended ad hominem against major figures associated with the Ludwig von Mises Institute. In short, it is a political chapter rather than a continuation of a social history that aspires to be an intellectual one. This is Wasserman’s opportunity to empty a bucket of right-wing tar on the scholars associated with the Mises Institute indirectly through its founders and some of their associates, as if the scholarship that the Institute has encouraged, sponsored, and published is somehow thereby also demeaned. It is greatly disappointing that the author chose to substitute an attempted smear for what could have been a discussion of promising current trends in “Austrian” scholarship.
By day Jeff Booth is an entrepreneur and builder of companies, but now he's written one of the most compelling and important books of 2020. The Price of Tomorrow: Why Deflation is the Key to an Abundant Future makes the case for a better and more prosperous world simply by accepting the natural order of falling prices and fast-improving technology. The book is entirely free of jargon, ideology, and politics, yet pulls no punches when it comes to describing the fiscal and monetary mess we're in. But it is an optimistic book, with a message for every worldview: deflation is a good thing, it is inevitable, and we should embrace it rather than fight it!
Mr. Booth was kind enough to join the show, and has a fascinating discussion with Jeff Deist you don't want to miss!
Bob wrote a lengthy review of Stephanie Kelton's new book on MMT, The Deficit Myth, for the Mises Institute. In this episode he narrates his review.
Mentioned in the Episode and Other Links of Interest: Bob’s original book review at Mises.org.Kelton’s book, The Deficit Myth. #CommissionsEarned (As an Amazon Associate I earn from qualifying purchases.)Bob’s older critique of an MMT accounting argument.Help support the Bob Murphy Show. For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
Keith Knight walks Bob through a meticulous critique of Krugman’s new book on Arguing With Zombies. Topics include the babysitter co-op, the deregulation that allegedly caused the housing bubble, and the tax rates of the 1950s.
Mentioned in the Episode and Other Links of Interest: The YouTube version of this interview.Krugman’s latest book, Arguing With Zombies. #CommissionsEarned (As an Amazon Associate I earn from qualifying purchases.)Keith Knight’s YouTube channel.Help support the Bob Murphy Show. For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
The good news is that Stephanie Kelton has written a book on MMT that is very readable and will strike many readers as persuasive and clever. The bad news is that Stephanie Kelton has written a book on MMT that is very readable and will strike many readers as persuasive and clever.
Narrated by the author.
Original Article: "A Review of Stephanie Kelton’s The Deficit Myth".
Unprofitable Schooling: Examining Causes of, and Fixes for, America’s Broken Ivory TowerTodd J. Zywicki and Neal P. McCluskey, eds.Washington, DC: Cato Institute, 2019268 pp.
Jason Morgan (jmorgan3@wisc.edu) is associate professor at Reitaku University in Chiba, Japan.
Anyone who has been on a college campus these past few decades, or even skimmed a newspaper during that time, knows that American universities are in bad shape. Voices from inside the academy have become among the most forceful detailing the shipwreck of the humanities on the shoals of political correctness. Michael Rectenwald, Jordan Peterson, Nicholas Christakis, Bret Weinstein, Anthony Kronman, Peter Wood, Jonathan Haidt, and Amy Wax—all scholars with impressive resumes and educations at top-flight institutions—are just a few of the bellwethers who have tried warning the rest of the country that something is rotten in academe. (Peterson, for his part, is an academic whistleblower in Canada, but his Harvard years give him more than enough cachet to join the Americans in crying foul on US higher education. If anything, the situation in Canada is even worse.)
A little library work reveals that critiques of colleges are hardly new. Russell Kirk, who wrote regularly on higher education for National Review, was a jolly detractor of the hypocrites and pseudointellectuals whom he saw as running many American universities. (Kirk delighted in referring to Michigan State University president John Hannah, a poultry scientist, as a “chickenologist.”) David Lodge, Evelyn Waugh, and Kingsley Amis, among a score of others, have made colleges in the US and England the scene of much satire in novel form. H. L. Mencken famously called for American professors to be hanged. Thorstein Veblen excoriated the entire business of the American academy. And even before there were more than a handful of American universities of which to speak, Karl Marx was receiving letters from his father warning him to stop brawling in the pubs and hit the books instead. (Marx eventually had to transfer schools.) Universities, American and otherwise, have always, it seems, been down in the mouth.
So, why do we keep funding them? Why has funding for universities skyrocketed in the past half century? What do we expect to get from our tuition, tax subsidies, and mammoth student loan schemes?
These questions and more are taken up with all due scholarly regard in Unprofitable Schooling, a very useful volume edited by Todd J. Zywicki and Neal P. McCluskey and commissioned by the libertarianish Cato Institute in Washington, DC. The editors of Unprofitable Schooling have sagely assembled fourteen authorities with backgrounds in education history, education policy, economics, and law. Divided into three parts and eleven chapters plus an introduction, Unprofitable Schooling is the go-to book for anyone who wants to understand, in depth, the debates raging about why, and even whether (there are dissenters from the skeptics in the book, which ironically makes it very unlike academia itself), the academy is in such a sorry state.
Part I, “Historical Perspectives on Competition and Government’s Role in Higher Education,” begins where many diachronic debates about American universities either start or wind up: the Morrill Land-Grant Act. Jane Shaw Stroup’s chapter, “What Really Spurred the Morrill Act?,” and Richard K. Vedder’s contribution, “The Morrill Land-Grant Act: Fact and Mythology,” are very good at presenting the history of the federal government’s insinuation into higher education. Vedder—an emeritus distinguished professor in economics at Ohio University and an adjunct scholar at the American Enterprise Institute—richly contextualizes the Morrill Act in the longer sweep of American history. “Expansive claims for the Morrill Act,” Vedder argues, which claim for the Act a transformative, even legendary, status in the annals of the United States, “are, minimally, greatly exaggerated.” (p. 31) Vedder shows through a bevy of facts, figures, and charts that the Morrill Act, and the general tide of federal meddling in higher education that it inaugurated, created the usual decline in quality that contact with the government elsewhere produces, along with “rent seeking…gone amok” (p. 62).
The many splendors of “rent seeking” (a phrase often repeated in Unprofitable Schooling and a practice that comes as naturally to bureaucrats as napping does to felines) are explored in great detail in part II, “The Current State of Higher Education in America.” Here Daniel D. Polsby tackles the “runaway tuition phenomenon,” Roger E. Meiners delivers the coup de grace to academic tenure, Zywicki and Christopher Koopman probe the mysteries of “the political economy of administrative bloat in American higher education” (building partly on Benjamin Ginsberg’s 2011 book The Fall of the Faculty, about “administrative blight” on college campuses), and Scott E. Masten takes an optimistic look at “shared governance” and “academic bargains.” Masten’s chapter is particularly useful, as he is trying to get at the cause of administrative inefficiency while also calling for the preservation of a system that he argues has the potential to “respond to [a] new educational environment” (p. 193). (Masten is up against some stiff competition, though: Adam Smith, another early critic of higher education, lambasted shared governance in An Inquiry into the Nature and Causes of the Wealth of Nations ([1776] 1985, 428, cited p. 191n79).
The heart of the volume, and the pivot of the debate about universities in the United States, comes in chapter eight, “All Education Is For-Profit Education,” the lead-off for part III, “Competition in Higher Education.” In this seminal essay, reprinted in Unprofitable Schooling but which “originally appeared on the website of the James G. Martin Center for Academic Renewal on June 25, 2014” (p. 197n1), the late Henry G. Manne, formerly dean of the George Mason University School of Law and eminent scholar at a dozen other universities and organizations besides, handily dismantles the myth that nonprofit education is any better than for-profit education, or that there is any such thing as nonprofit education in the first place.
In “All Education is For-Profit Education,” Manne—who in his 2014 piece was responding to a veritable onslaught by the Obama administration (which always knew how to protect enclaves of Democrat voters) against for-profit schools in favor of traditional party bastions such as state universities and private colleges—argues that what universities put in the nonfungible column of the balance sheet—tenure, cushy offices, light (or no) teaching loads, long sabbaticals, early retirement, fancy on-campus dining facilities, faculty lounges, banker’s hours, research funds, and the like—are very much profits in their own right. “There is no such thing as a non-profit organization,” Manne declares. “What there is, of course, is a well-designed system of obfuscating the distribution of…profits” (p. 199).
This reminder that “nonprofit” is a smokescreen for other kinds of rent seeking is the rub of the question and the centerpiece of the book. The other three chapters in part III—Jayme S. Lemke and William F. Shughart II’s “Assessing For-Profit Colleges,” Michael E. DeBow’s “Public Policy and the Future of For-Profit Higher Education,” and David A. Hyman’s “Nonprofit and For-Profit Enterprise in Health Care: Birds of a Feather”—as well as several other chapters in Unprofitable Schooling engage with Manne’s thesis in some way.
Indeed, another way of arranging Unprofitable Schooling would have been to divide it into just two parts, Manne’s short essay and everyone else’s writings, because so much of the rest of the debate turns about the points that Manne raises. Time and again in Unprofitable Schooling, and in the much more voluminous literature about university (mis)management overall, the question is either implicit or glaringly obvious: who is the owner of a university? The answer is the same as for anything else: if nobody owns it, then it will go to the dogs (QED).
The lack of clear ownership of universities and the rent seeking that passes for the responsible husbanding of resources that one would expect to find at other institutions have together been an unmitigated disaster for the United States, one that carries with it both obvious and not-readily-apparent social and financial costs.
For example, in the 2011 volume Academically Adrift, Richard Arum and Josipa Roksa found that most students learn virtually nothing during their undergraduate years. Graduate students, speaking anecdotally, surely learn even less. In my own experience I have found that a BA in a humanities subject is basically a certificate testifying to strength of liver and libido, while an MA or a PhD testifies to preparedness for socialist revolution. Whatever studying goes on in college is purely coincidental to the real mission, which is the perpetuation of a kind of tribe and the raising of funds to achieve it. This explains why attendance at football games generally beats attendance at philosophy classes by factors in the tens of thousands and why, when I graduated with a PhD from the University of Wisconsin in 2016, the fancy, gold-embossed black portfolio I received as I walked across the stage contained not a diploma, but an application to become a dues-paying member of alumni and boosters clubs. Like a government, a university produces nothing but more and more hangers-on, and an equal number of schemes for funneling cash to them.
And, if the Bennett hypothesis (named for Reagan-era secretary of education William J. Bennett) is correct—namely that government subsidies for higher education have produced tuition costs that long ago blew past average rates of inflation—then the political and financial consequences of saddling young people with essentially unrepayable debt will be much, much worse than the general uselessness of college itself. This hypothesis, and various opinions for and against it, are also explicated in Unprofitable Schooling, further increasing its value to the interested reader (see, e.g., p. 91). As politicians for national office float ideas of a debt jubilee for baristas with quarter-million-dollar gender and sexuality studies degrees from Swarthmore, it is vital that voters know that, according to many scholars, it is precisely the government that got us into the loan crisis to begin with.
There is much good information in this volume, but I wish that some of the chapters had been a bit more economical with the statistics and policy details. As an introduction to the literature on education and economics, Unprofitable Schooling is hard to beat—especially, I suppose, because in some places it recreates the eyelid-drooping density of specialist journal work on the subjects at hand. However, better to have too much information than too little, and the clear structure of the book and of most of the chapters makes it easy for those who wish to glean argumentative thrust to do so without getting lost in the minutiae.
Higher education in the United States, and in much of the rest of the world, is in very bad shape. My own sympathies are with Manne, who I think scores a direct hit on the university administrators and their juicy cartel with his brilliant essay on “nonprofit” colleges. But before one can engage in a real debate, one must know the lay of the land. Unprofitable Schooling is an excellent guide, and will, hopefully, be the starting point for long-overdue reform.
Socialism Sucks: Two Economists Drink Their Way through the Unfree WorldRobert Lawson and Benjamin PowellWashington, DC: Regnery Publishing, 2019192 pp.
David Gordon (dgordon@mises.org) is a senior fellow at the Mises Institute.
Robert Lawson and Benjamin Powell are well-known free market economists, and they do not look with favor on a disturbing trend among American young people. “In the spring of 2016,” they explain, “a Harvard survey found that a third of eighteen- to twenty-nine year olds supported socialism. Another survey, from the Victims of Communism Memorial Foundation, reported that millennials supported socialism over any other economic system” (p. 8).
Unfortunately, the young people in question have little idea of the nature of socialism. Lawson and Powell would like to remedy this situation, but they confront a problem. Ordinarily, one would urge students to read Hazlitt’s Economics in One Lesson, Mises’s “Economic Calculation in the Socialist Commonwealth,” and similar classic works, in order to understand the basic facts about the free market and socialism, but the millennials are unlikely to do so. One must attract their attention. What can be done?
Lawson and Powell have had the happy idea of presenting elementary economics in a humorous way that will appeal to those “turned off” by serious and sober scholarship. In the latter adjective lies the key to their approach. Both of the authors enjoy drinking beer, and they travel around the world to various socialist countries in pursuit of their beloved beverage, making incisive comments about the economy of each country as they do so. They write in a salty style that will make millennials laugh, though some readers will find it jarring.
For the young, “socialism” means no more than vague ideas about “fairness,” but, the authors note, the term has a precise meaning: “To separate the state from socialism in any large society is like trying to separate private property from capitalism. It can’t be done. I’ll say it once more for the people in the back: socialism, in practice, means that the state owns and controls the means of production” (p. 128). No country is completely socialist, but some are more socialist than others. How can the degree of socialism be evaluated? Lawson has, along with James Gwartney, produced an annual economic freedom index for the Fraser Institute, which the authors use to answer this question, sometimes with surprising results.
Many professed socialists look to Sweden for inspiration, but according to the freedom index “Sweden gets a 7.54 rating, which is good enough for twenty-seventh place out of the 159 countries in the study…Bottom line: Sweden is a prosperous, mostly capitalist country” (pp. 10–11).
The authors must now confront an objection. Why should we not prefer welfare-state capitalism to the straightforward free market economy the authors want? They reply that Sweden prospered under freedom but that the increased taxation needed to finance the welfare state has brought about stagnation. “Sweden grew most when it was freer than it is today” (p. 13).
If some people admire Sweden, few except fanatics have good words for the economy of Cuba. Nevertheless, must we not recognize the wonders accomplished by the Cuban socialized medicine? We must give the devil his due. Lawson and Powell are not convinced.
Official Cuban health statistics are impressive…Yet, we also know that the hospitals most Cubans use are so poorly equipped that people often have to bring their own sheets. What gives? The silence [on the streets] is part of the answer. The lack of automobiles means a lack of traffic fatalities. Since automobile accidents are a leading cause of death among younger people, the lack of automobiles has a disproportionate impact on life expectancy statistics for reasons that have nothing to do with health care. The low rate of infant mortality is a product of data manipulation. (p. 53)
Why has Cuban socialism, like all other centralized socialist economies, failed? The authors present with great clarity the essential point:
almost a hundred years ago, the Austrian economist Ludwig von Mises explained that socialism, even if run by benevolent despots and populated with workers willing to work for the common good, could still not match capitalism’s performance. Socialism requires abolishing private property in the means of production. But private property is necessary to have the free exchange of labor, capital, and goods that establish proper prices. Without proper prices, socialist planners could not know which consumer goods were needed or how best to produce them…Socialism also gives tremendous power to government officials and bureaucrats who are the system’s planners—and with that power comes corruption, abuse, and tyranny. (p. 37)
Socialist tyrants were the greatest mass murderers in history, and the young must be apprised of this melancholy fact. “Stalin ranks just behind Mao as history’s second greatest mass murderer, with Hitler coming in third—and all three dictators were, of course, committed socialists of one sort or another.” (p. 115)
Some millennial socialists respond with a distinction: the despotic governments mentioned were not genuinely socialist. The authors answer with appropriate severity:
This is the same dirty trick socialists have played for decades. Whenever things go south, as they inevitably do, they claim that it wasn’t “real” socialism. I [Lawson] find the whole thing more than a little disingenuous and very irritating. When socialists, democratic and otherwise, held up Venezuela as a great socialist experiment in the 2000s, the message was, “See, we told you so; socialism works!” But when the failure happened, the message changed to, “No, wait—that’s not real socialism!” They want to claim socialism during the good times but disavow it during the bad. (pp. 127–28)
A related gross error, the famous “nirvana fallacy,” is to compare an ideal state of affairs conjured up by socialists with the difficulties of real-world capitalism.
If the authors are ready to rebuke the errors of misguided youth, they look with sympathy on some of their hopes. Many young people condemn the drug war with its rampant racism and mass incarcerations, and they are right to do so:
The U.S. government’s war on drugs is unwinnable because, in the language of economists, it is a supply-side war, where demand isn’t very price-sensitive. This means when the U.S. government scores a “win” in the war, the price of the remaining drugs goes up more than the usage falls. As a result, net revenue to drug cartels increases, which increases their ability to corrupt law enforcement and buy weapons and other smuggling equipment. The result has been an endless cycle of increasing violence along the entire supply chain in Central and South America. (p. 135)
It is not only the drug war but also the war on terror that ought to be condemned, and here once more the many millennials who protested against the war are in the right:
We feel the same about the war on terror. The wars and violence associated with it in the Middle East are a major reason for Europe’s immigration wave….advocates for capitalism can be against war precisely because war undermines capitalist institutions and freedoms….Chris Coyne wrote a book entitled After War: The Political Economy of Exporting Democracy, in which he shows that when the U.S. engages in foreign intervention, it rarely creates the kind of lasting institutional change that supports what some might call a “neoliberal” society. Economist Robert Higgs’s classic book, Crisis and Leviathan, shows how crises in the United States, especially wars, have led to expanded government at the expense of markets. Chris’s latest book, Tyranny Come Home: The Domestic Fate of U.S. Militarism, co-authored with another friend of ours, Abby Hall, has shown how U.S. military interventions abroad “boomerang” back to the United States in ways that decrease our freedoms at home. See, anti-war isn’t a uniquely leftist position. Capitalists should be anti-war too. (pp. 136–37)
The use of “neoliberal” as a term of praise and the solecism “advocates for” are regrettable.
I confess that I approached the authors’ project of a drinking tour of the socialist countries with skepticism. Would it be more than a jeu d’esprit? Reading the book has laid my skepticism to rest. Socialism Sucks has the potential to do great good if it gets into the right hands, and its impressive sales suggest that it will do so.
Ribatarianizumu: Amerika wo yurugasu jiyūshijōshugi(Libertarianism: The Ultrafreedomism Shaking Up America, published only in Japanese)Yasushi WatanabeTokyo: Chuokoron-Shinsha, 2019213 pp.
Jason Morgan (jmorgan3@wisc.edu) is associate professor at Reitaku University in Chiba, Japan.
Libertarianism never really caught on in Japan. That is strange when you stop and think about it. For a country that was ruled by a military dictatorship for six hundred years, it might seem that “Freedom!” would be on the lips of every man, woman, and child whose ancestors suffered for centuries under the yoke of martial law.
And yet that’s not at all how things stand here. “Military dictatorship” and “martial law” probably conjure up images of Suharto, Robert Mugabe, and Michael Bloomberg, but the rule of the samurai was not the typical reign of ideological terror. It is a cliché but still true to observe that Japanese society has traditionally placed a premium on wa, variously translated as “harmony,” “concord,” and “getting along well with the neighbors.” Wa is a very nice thing, and as a longtime resident of Japan I have come to value it highly. There is not much need for a tinpot dictator when folks tend to prioritize good order and mutual friendliness on their own. There are just as many opportunities here as anywhere to think of one’s fellowmen in a less-than-charitable way (translation: Japan, too, has dolts and ingrates), but people in Japan are usually very good about putting the long-term wa of the community above the fleeting satisfaction of insisting on having things all one’s own way. Freedom is just not a big factor in the day-to-day social equation.
In fact, “freedom” has traditionally had a somewhat negative connotation in Japan. The word jiyū, which is used to translate “freedom” was coined only as the military dictatorship was crumbling in the latter third of the nineteenth century and Western tracts on liberalism and liberty were beginning to be widely studied in Japan. Jiyū is a very common word today, but if one squints and looks at it with a pinch of historically grounded skepticism it begins to seem quite odd. “Doing whatever you want” is a rough literal translation of jiyū—not at all the ideal in a country where a much older and more common expression goes, “the nail that sticks up gets hammered down.” Far from being an absolute condition of human life, “freedom” in Japan has almost always been, not even an anomaly, but simply off the radar. Duty and honor have traditionally been valued, and “doing whatever you want” was not really anyone’s ideal.
For all these reasons it is a surprise that Watanabe Yasushi’s fine introduction to libertarianism—a phrase which is translated even more provocatively as “ultra-do-whatever-you-want-ism” (jiyūshijōshugi)—has turned out to be one of this year’s steady sellers. Watanabe completed his PhD at Harvard and is a highly respected interpreter of all things American for highbrow Japanese readers. Watanabe also writes regularly for Chūō Kōron, a prestigious big-ideas journal with a storied history in Japan. So, the author’s sterling reputation as a public intellectual surely does not hurt his new book’s numbers on Amazon. But it still takes one aback to find that there is such a big reception to libertarian ideas here.
Perhaps this should not be so surprising, however. In a discussion I had with Watanabe earlier this spring, he told me that the book had found a big audience mainly among Japanese young people. Aha. Now it was starting to make sense. The Japanese economy has been circling the Keynesian drain for more than twenty years, and politicians have tried and tried the only Keynesian method available for plugging a hole: pumping more water into the tub. Needless to say, this has not worked. Young people enter an economy badly bruised by political-economical hijinks and worry that their future is not as bright, the way forward not as secure, as were the prospects which greeted their parents and grandparents a generation or two ago. Libertarianism makes broad sense to those who will now have to pick up the pieces after Keynesianism’s bone mauling of the Japanese economy. In a system that is transparently rigged to benefit the politically connected, “ultra-do-whatever-you-want-ism” does not sound half bad at all.
There is something else, too, one suspects, which may be keeping Watanabe’s latest book on the shelves here. Before the election of Donald Trump—indeed, right up until the hour of his victory over the Faerie Queene of Keynesianism herself—the Japanese press and soi-disant intelligentsia tended to know virtually nothing about America beyond what they could find in the New York Times. The news about my homeland here was pretty thin gruel, long on Washington process and Wall Street speculation but very, very short on the genetic makeup of the American mind: namely liberty. After Donald Trump won the White House, sober journalists (yes, they still have those here—eat your heart out, CNN) began searching for the real America, and honest intellectuals started venturing beyond the East and West Coast elitist enclaves to find out what the rest of the country had to say. Libertarianism has been part of America since before the beginning, and anyone who knows America knows, if not Lysander Spooner, then at least Ted Nugent. But this giant swath of Americana has completely passed the Tokyoite America hands by.
Not Watanabe, though. He has long been a thinker of great integrity and an above-board observer of the US, and all of this made him a perfect candidate to research and report on libertarianism in America. His new book is a model of fairness and in-depth investigation. He visited the various headquarters of libertarianism in the States, including the Mises Institute, and interviewed people working there. There are many misconceptions about libertarianism, both in the US and in Japan, but Watanabe has done his level best to dispel them. For example, he allows Jeff Deist and Mark Thornton to have their own say about what the Mises Institute is and what it does. He also counters the pernicious lies of the Southern Poverty Law Center about “white supremacy” and various other slanders against libertarians in general. Watanabe is an intellectual historian of the first rank and is the ideal person to introduce libertarianism to a country that has not heard much that is good about it in the mainstream press (I refer, of course, to the United States, but I hope Watanabe meets with much success in Japan, too).
As far as Japan goes, perhaps Watanabe’s book will contribute to a revitalization of the Japanese economy and to a rebirth of the country’s vibrant innovative potential and creative thinking. In a strange way, studying libertarianism may also help historians to rethink the Japanese past. The fact that there was no word for freedom in Japan may mean that there was no concept of it—or it could mean that the concept was so embedded that there was no need to make it explicit. After all, whatever the word for freedom might be, everybody wants to be his own man. This is particularly apparent in Japanese aesthetics. The arts and artisans of Japan have always displayed the kind of new-and-old blending that make Japan great in so many ways, both culturally and commercially. An aspiring painter or tea ceremony practitioner might spend decades apprenticed to a master, but when the time is right, voilà, a masterpiece all his own. Likewise, pottery from the Jōmon period may be more than ten thousand years old, but it still conveys a sense of dedicated application of artistic genius and human whimsy that merges perfectly with whatever is coming out of the design studios of the top Japanese firms today. Maybe the Japanese have always been libertarians but just did not know it. Maybe freedom is in the DNA here, too. Indeed, seen in another light, wa implies freedom, presupposes it. (Why go to all the trouble of emphasizing harmony if it comes naturally anyway?) In discovering libertarianism, Japanese young people may be surprised to find that they are rediscovering their own country’s deepest traditions in a new way.
For the time being, the United States remains the world capital of libertarianism, and Yasushi Watanabe’s book on this very Western-toned subject is the absolute must-read first step toward what will hopefully be a long and beautiful friendship between East and West.
Banking and Monetary Policy from the Perspective of Austrian EconomicsAnnette Godart-van der Kroon and Patrik Vonlanthen, eds.Cham, Switzerland: Springer, 2018280 pp.
Joseph T. Salerno (salerno@mises.org) is professor of economics at the Lubin School of Business at Pace University.
The editors are to be heartily congratulated for putting together this book, which covers an impressive range of topics in monetary economics from an explicitly Austrian perspective. Most of the twelve essays are of a very high quality and one will learn much about money and related topics by a careful reading of them. The chapters range from an insightful interpretation of Austrian monetary theory as a rehabilitation and development of classical monetary theory to novel applications of the theory to current issues such as inflation targeting, the consequences of unconventional European Central Bank (ECB) policies, and cryptocurrencies. In addition to its ambitious scope, this book stands out because most essays take an unabashedly Austrian approach to their topic. It is a great pleasure to read a volume on money and banking that so liberally cites Mises, Hayek, and Rothbard. Ironically, the one minor drawback of the book is that it does not contain an index for someone interested in the number and location of text references to these and other Austrian monetary theorists.
Guido Hülsmann presents an excellent overview of Mises’s monetary theory that emphasizes its deep roots in the classical approach to money formulated by Ricardo and the British Currency school. As Hülsmann (p. 26) demonstrates in his essay, Mises “rebuilds classical monetary theory on a completely new and more solid foundation [i.e., the subjective theory of value], thus awakening it out of the slumber into which it had sunken after 1844 and making it relevant again for political decision-making.” Now, this story has been told before, but the subtlety and clarity of Hülsmann’s presentation mark it as an indispensable introduction to Mises’s monetary theory and perfectly suit its position as the opening essay of the book.
The merits of this essay are not purely expositional, however, for Hülsmann makes an important doctrinal discovery. Standard accounts of the transition from the views of the sound money Currency school to what Hülsmann labels the “New Orthodoxy,” based on the previously discredited Banking school, have always focused on the alleged policy failures of the “currency principle” but have been hazy or mute regarding its doctrinal aspects. Who, exactly, was the central figure (or figures) in the recrudescence of the “banking principle”? The latter principle asserts that issuance of fractional reserve bank notes and deposits convertible into specie are indispensable to ensuring economic stability and accommodating economic growth. Hülsmann fills this gap in the literature by identifying the prolific Scottish banker and economist Henry Dunning McLeod as the pioneer of this movement. He argues that Schumpeter, Keynes, and the early L. Albert Hahn all accepted the New Orthodoxy and developed their respective theories of money under McLeod’s influence. Hülsmann makes a very plausible case for McLeod’s key role in overturning classical monetary theory. But his case would be more compelling if he offered textual evidence from Schumpeter, Keynes, et al. to support his argument, because McLeod was lightly regarded by his contemporaries and dismissed as a monetary crank by later writers. In any event, Hülsmann has uncovered a lacuna in the history of monetary thought that at least needs to be addressed by further research.
Brendan Brown’s essay “What Is Wrong with the 2% Inflation Target” presents what I consider the definitive refutation of inflation targeting. Brown approaches his topic by upholding the classical gold standard as the standard by which to evaluate the nature and performance of modern fiat money regimes. In doing so, Brown provides an excellent analysis of the merits of the gold standard. Brown eschews the artificial constructs of aggregate spending flows that contemporary macroeconomists fixate on. Instead, following Mises, Hayek, and Rothbard, he focuses his comparative analysis of monetary regimes on general movements of concrete money prices, which naturally emerge in an economy in which money and goods are inextricably entwined in individual exchanges.
According to Brown, under the gold standard, gold served as high-powered money and was the “pivot” of the monetary system, because it enjoyed a “large stable demand” for use as transactions media, bank reserves, and as an industrial input. Since the supply of gold was determined by market forces, it tended to be relatively fixed and inelastic in the short and medium runs while in the long run responding elastically to changes in its real price (i.e., in terms of the quantity of commodities a gold unit could purchase). Thus, although the “well-pivoted” gold standard confined the movement of overall prices within definite bounds, it provided the necessary flexibility for the scale of money prices to move upward or downward naturally and spontaneously in response to changes in real conditions over short or medium periods. Indeed, it is precisely the accommodation of these natural price fluctuations that for Brown constitutes the essence of sound money and sharply distinguishes it from modern fiat money regimes, which “target” stability of statistical constructs such as the price level, inflation rate, or nominal income. As Brown (p. 87) incisively states:
Under a system where a high-powered money is at the pivot, as in a gold money regime, there is considerable scope for prices to fluctuate under real influences, and in a way, which aids the invisible hands in their job of steering the capitalist economy in an efficient manner. Indeed stable prices over the short and medium-term would indicate a defect in the price-signalling mechanisms of a capitalist economy under sound money.
Brown (pp. 87–88) gives three instances in which sound money facilitates the “natural rhythm of prices.” During a recession, sound money promotes rapid recovery by facilitating the natural tendency of prices to fall below the perceived norm “for the cycle on average[,] caus[ing] consumers and businesses to bring forward spending (so contributing to the business recovery).” Likewise, sound money poses no obstacle to price declines that reflect increases in real incomes caused by spurts of productivity growth. Lastly, a sound-money regime would not conceal and exacerbate the effects of severe (negative) supply shocks emanating from an interruption of energy supplies or crop failures, because prices would rise rapidly above anticipated levels, revealing and smoothly rationing the scarcer commodity supplies in the short run and encouraging consumers to postpone their purchases until prices return to perceived normal levels in the longer run. In all these cases, inflation targeting, if rigidly followed, would suppress the natural rhythm of prices and thereby disrupt the economy by either initiating asset bubbles (the first two cases) or by exacerbating real scarcities (the third case).
Furthermore, Brown (p. 90) argues, under a regime in which the price level or the inflation rate is targeted by the central bank, “the link between money and prices or nominal incomes [becomes] loose and unpredictable.” The monetary pivot is thus “dislodged” and the natural rhythm of prices gives way to price inertia and institutionalism. This means that, at least in the short and medium runs, inflationary expectations become unmoored from monetary fundamentals and a tendency develops for the inflation rate to persist at the level expected. In addition, expectations themselves come to be dominated by real side institutional factors such as the behavior of labor unions or the state of the national budget or trade balance, etc. Of course, in the long run, monetary forces reassert themselves, but in the meantime resources are misallocated, financial markets distorted, and asset bubbles begin to form.
Brown’s essay is also instructive in explaining the historical origins and dissemination of the 2 percent inflation standard. Brown (pp. 99–100) concludes by presenting a bold, populist program—and the challenges thereto—for demolishing the inflation-targeting regime and reestablishing sound money short of the restoration of the classical gold standard:
Reserves at the central bank, like gold, must not pay interest. Obstacles to a vibrant use of cash in the economy should be demolished (…[including] issuance of high denomination notes to satisfy demand for these as medium of exchange). Bank demand for reserves (which would be held voluntarily not as a legal reserve requirement) would be boosted by the curtailing and ideally the abolition of too big to fail, lender of last resort and deposit insurance….The vast balance sheets of the central banks accumulated during the Grand Monetary Experiment would have to be shrunk such that the monetary base would be freely demanded at zero interest rates at the start.
Arkadiusz Sieroń’s “Hayek and Mises on Neutrality of Money: Implications for Monetary Policy” outlines the uniquely Austrian understanding of the nonneutrality of money, which emphasizes the role of Cantillon effects. In particular Sieroń (p. 153) focuses on Mises’s and Hayek’s writings, “as these two authors presented the most far-reaching criticisms of the neutrality of money.” Mainstream macroeconomists, in contrast, argue that although money is nonneutral in the short run, a proportional adjustment of nominal variables to a change in the money supply ensures that the effects on real variables vanish and neutrality of money prevails in the long run. For Mises and Hayek, Cantillon effects, also known as “first-round” or “injection” effects, refer to the fact that the emission of new money into the economy under any monetary regime is inevitably distributed unevenly among economic agents. This initial redistribution of monetary assets among households and firms causes an alteration in the structure of relative demands for different kinds of goods and a consequent change in the pattern of relative prices and the allocation of resources. Furthermore, the prices of some goods—those purchased by the first recipients of the new money—naturally rise before those of others, causing further changes in the relative price structure and, therefore, in the distribution of money incomes and cash balances. By the time this step-by-step process of adjustment to a change in the money supply comes to an end, the entire system of relative prices has been revolutionized, resulting in a permanent change in resource allocation and the distribution of wealth and income. The sequential and time-consuming operation of the monetary adjustment process, during which the array of money prices changes at different times in different proportions (and even directions), is thus an inherent feature of a money economy. As Sieroń (p. 159) trenchantly puts it:
For Hayek, changes in relative prices in response to monetary disturbances are not frictions, lags, or market failures occurring due to price rigidity, incomplete information, or irrational expectations, but the natural and inevitable consequence of monetary impulses. This is because new money enters circulation only through specific channels and some people receive the additional money earlier than others.
In comparing Mises’s and Hayek’s views on neutral money, Sieroń (p. 161) makes another important observation. Mises went “much further than Hayek” in his critique of neutral money, for Mises pointed out that money is nonneutral even if it is supposed that Cantillon effects are absent because every agent’s cash balance is somehow increased in equal proportion. In fact, although Sieroń does not note this, Mises (1971, pp. 140–41) went even further than this and supposed a situation in which the new money is distributed among individual cash balances in such a way that the relative (monetary plus nonmonetary) wealth of all remains unchanged. Mises insisted that in this case the nonneutrality of money also holds. The reason is that as the wealth of individuals increases, their subjective marginal utility rankings of different goods and money will change and alter their relative demands for goods and cash balances. The outcome of this mental experiment is a permanent reconfiguration of relative prices and resource allocation and a lack of proportionality between the change in the money stock and the scale of money prices—the long-run nonneutrality of money, in short.
Sieroń concludes that the Cantillon effect, as conceived by Mises and Hayek, has momentous implications for the ongoing discussion of the efficacy of monetary policy, which has intensified since the financial crisis. In particular, once the injection effect is recognized, monetary policy is exposed as an important cause of business cycles and asset bubbles and their international transmission, as well as a contributing factor to greater income inequality.
Jesús Huerta de Soto brilliantly debunks the fallacious arguments against deflation in his chapter “Anti-deflationist Paranoia.” He recognizes three distinct kinds of deflation and perceptively analyzes their consequences. He points out that one type of deflation stems from an “error of institutional design” in the form of fractional reserve banking. This “institutional deflation” is part of the regular recurrence of expansion and contraction of the money supply that is an inherent feature of a fractional reserve banking system. It is the inevitable outcome of an inflationary boom fueled by previous bank credit expansion that falsifies the interest rate and causes malinvestments and distortion of the production structure. Indeed, this built-in tendency toward deflation is so powerful that the fractional reserve banking system’s “survival depends on a lender of last resort (or central banker).” Beyond preventing a wholesale collapse of the banking system, Huerta de Soto (p. 198) argues,
there is relatively little central banks can do. At most they can keep private banks from failing by providing them with all sorts of loans and assistance. And that is about it. However a process of monetary contraction (i.e., a process of deflation) is inevitable.
Now this assertion that institutional deflation in the sense of an actual contraction of the money supply is an inevitable outcome of a fractional reserve banking system appears to be in conflict with the facts, at least since World War II. Certainly the Fed and other central banks successfully prevented their money supplies from contracting during the 2008 financial crisis with resort to unconventional methods of printing base money, such as zero interest rate policy (ZIRP), quantitative easing (QE), forward guidance, credit easing, etc. Nor did the money supply contract in the US after the dot-com bubble burst in 2000, or even during the severe “double-dip” recession of 1980–82. I may misunderstand the author on this point, and he may be referring to a powerful deflationary tendency that is present in fractional reserve banking and that actually manifested itself when central banks operated only as lenders of last resort. But if this is the case, it would have been instructive for the author to indicate how modern central banks, focused on stabilizing prices or targeting inflation, routinely neutralize institutional deflation and what the consequences of their doing so are.
Huerta de Soto also engages and demolishes the main arguments against the kind of deflation that is caused by increases in productivity induced by capital accumulation and advances in technology. I do, however, have one minor reservation with respect to his rebuttal of the contention that a fall in prices due to an increase in real output that outstrips the increase in the money supply constrains economic growth and leads to a cumulative economic contraction. Huerta de Soto counters the argument by pointing out that a fall in prices will spur entrepreneurs to reduce costs by: 1. renegotiating input prices downward and 2. substituting at the margin relatively cheaper capital goods for laborers, who are now receiving higher real wages, thereby increasing the demand for capital goods and causing laid-off laborers to migrate to capital goods industries (i.e., the Ricardo effect).
If I have understood the argument correctly, it puts the cart before the horse, for it is the increase in saving and investment in capital goods that initiates the process of productivity growth. Increased investment causes workers to shift from the consumer goods to capital goods industries. Eventually this movement increases the supply and lowers the prices of capital goods, making it profitable to implement new and more productive technical methods in the consumer goods industries. Thus, even with nominal wage rates unchanged, costs of production decline as labor productivity increases. The prospective profit margins on consumer goods therefore expand. This stimulates consumer goods firms to increase their supply and the increased competition causes prices naturally to fall. In short, during the process of economic growth initiated by net saving and investment, labor productivity and costs of production fall in advance of or in step with the decline in product prices. Furthermore, laborers shift from industries closer in time to consumers to ones more temporally remote from consumers at the very beginning of the growth process rather than at its end, as Huerta de Soto contends. Thus there is no need to renegotiate nominal wage rates or to lay off workers in response to deflation due to real output growth. But this is a minor emendation to a fine essay.
Due to space constraints I can only give brief notice to several other excellent essays in the book. Two of these essays focus on the nature and consequences of errors in ECB monetary policy. These are “Unintended Consequences of ECB Monetary Policies in Europe,” by Andreas Hoffman and Nicolas Cachanosky, and “The Failure of ECB Monetary Policy from a Mises-Hayek Perspective,” by Gunther Schnabl. The authors of these essays have been pioneers in the application of Austrian business cycle theory to analyzing the international dimensions and transmission of asset bubbles and the ensuing financial crisis. Their essays in this book display deep scholarship and a familiarity with an enormous range of theoretical and empirical literature, both Austrian and mainstream. The significance of their essays lies not merely in identifying the flaws in ECB monetary policy leading up to the financial crisis, but in utilizing innovative theoretical models and masterfully employing data to explain how ECB policy in the aftermath of the crisis has led to a weak and protracted recovery in the euro area. These essays also serve as exemplars for future research on the global transmission of national or supranational central banks’ monetary policy errors.
Two of the essays addressing the Austrian view of cryptocurrency are “The Reconsideration of Hayek’s Idea on the De-nationalization of Money: Taking the Growing Tendency of Digital Currency in Consideration” and “Cryptocurrencies from an Austrian Perspective,” by Chikako Nakayama and Alistair Milne, respectively. These essays are not as tightly formulated as other essays in the book and tend to be wide-ranging reflections upon the linkages between Austrian monetary theory and cryptocurrencies in their various aspects. But they are extremely valuable nonetheless, because they stimulate thought about the problems and potentialities of a radical approach to denationalizing money and implementing a sound, market-based money regime.
This book is indispensable reading for anyone who has a professional or vocational interest in the Austrian approach to money, finance, and business cycles.
The Great Reversal: How America Gave Up on Free MarketsThomas PhilipponCambridge, Mass.: Harvard University Press, 2019343 pp.
David Gordon (dgordon@mises.org) is a senior fellow at the Mises Institute.
Thomas Philippon, a French economist who teaches at New York University and advises both the US and French governments, likes the free market. He says:
Economists like competition for several reasons. The first reason is that competition pushes prices down, since the most direct way for a company to increase its market share is to offer a lower price than its competitors…In a competitive market, firms seek to attract customers not only by reducing prices, but also by offering a wide menu of quality goods and services. Competition leads to more choices for consumers as businesses cater to different segments of the population and then try to differentiate their products from those of their competitors. (pp. 18–19)
Given the manifest superiority of competition as a way to allocate scarce resources, why don’t we have a fully free market? Philippon knows the answer: “The lack of competition is explained largely by policy choices, influenced by lobbying and campaign finance contributions…[A]cross time, state, and industries, corporate lobbying and campaign finance contributions lead to barriers to entry and regulations that protect large incumbents” (p. 9). He discusses in great detail lobbying and the influence of money on politics. These ways of interfering with the free market help to explain the “great reversal.” Most people think that America has a freer and more competitive economy than Europe, and for the most part this is right. In some goods and services, though, such as air travel and cell phone plans, Europe has a freer economy and lower-cost products than we do, and this latter fact is what he means by the “great reversal.”
The way to proceed seems obvious. Government should stay out of the economy. In that way competition, unhindered by the “regulatory capture” of government agencies by entrenched interests, will be able to satisfy consumer demand.
Philippon unfortunately does not accept this simple view. As readers of the book will quickly discover, he is a convinced technocrat who cannot restrain his desire to “improve” the free market. To attempt to do this requires many technical tools, and he explains these with great enthusiasm. You will learn all you ever wanted to know about the Herfindahl-Hirschman index, Tobin’s q and the fundamental law of investment, the North American Industry Classification System (NAICS) way of classifying industries, and other arcane matters.
What is the problem with the simple view? Sometimes, Philippon says, large firms take over too much of the market for their product, and the government needs to break them up. By no means does he think that large firms are always bad. To the contrary, they sometimes become large by giving consumers what they want:
The growth of Walmart provides us with an example of efficient concentration. Its profit margins remain stable or even decline, and, most important, prices go down. Consumers benefit from Walmart’s expansion. It is fair to debate and challenge Walmart’s labor and management practices, but there is little doubt that Walmart has been good for US consumers. (p. 34)
Sometimes, though, concentration as Philippon measures it does not have such beneficial results. Why not? “If the industry is competitive, the price must equal the marginal production cost—the price to build one extra car or to produce one extra ounce of chocolate….[W]hen firms have market power[,] [t]he price is now above the marginal production cost” (pp. 27, 29). In this sad circumstance, “consumer surplus” is less than it could be. Hence the government might need to take corrective measures. As is usually the case with Philippon’s presentation of his views, this requires qualification. It’s often very hard to establish whether an industry is concentrated and, if it is, whether the concentration is “efficient.”
From an Austrian perspective, we have to distinguish two cases. Is the industry concentrated because the government has granted certain firms special privileges that enable them to exclude or restrict competition? Then, there is indeed a reason to act. These measures must be repealed. Matters are different, though, if firms do not get special privileges from the government but simply fail to generate enough “consumer surplus.” This is an artificial standard imposed on the free market, and Austrians reject it.
Philippon does not mention the Austrian view, but he does note a Chicago school position that is different from his own: “an idea from the Chicago School is that high concentration does not necessarily imply market power as long as the threat of entry is real, that is, as long as the market is contestable” (p. 87). This idea makes perfect sense, and it is difficult to understand why Philippon is more demanding.
Philippon also fails to confront another problem for his view, one that he himself recognizes. Suppose that he is right about concentration. How can the government remedy the situation, given the probability of regulatory capture by the very entrenched firms that he wishes to regulate? He has no answer to this, so far as concerns the US economy. He just hopes for the best.
He also embraces another idea at odds with the free market. He rightly notes that subsidies to particular businesses distort the market. If the government uses tax money to help a business, then the company’s success isn’t entirely a response to consumer preferences. Unfortunately, he takes “tax breaks” to be subsidies as well:
Lobbying for lower taxes is fundamentally inefficient because tax breaks create distortions in the allocations of economic resources, and because someone else must then pay these taxes…You might think that lower taxes can have beneficial incentive effects….When economists advocate for lower taxes, we mean lower marginal tax rates on as broad a base as possible. The tax breaks obtained by lobbyists take the form of loopholes and rarely improve investment and hiring decisions. (p. 163)
Later in the book, Philippon condemns “corporate tax evasion, which is legal for the most part but costly and inefficient nonetheless.” (p. 263)
Murray Rothbard brilliantly exposed the fallacy of this view in Power and Market ([1970] 2009, 1219–20):
Many writers denounce tax exemptions and levy their fire at the tax-exempt, particularly those instrumental in obtaining the exemptions for themselves. These writers include those advocates of the free market who treat a tax exemption as a special privilege and attack it as equivalent to a subsidy and therefore inconsistent with the free market. Yet an exemption from taxation or any other burden is not equivalent to a subsidy. There is a key difference. In the latter case a man is receiving a special grant of privilege wrested from his fellowmen; in the former he is escaping a burden imposed on other men. Whereas the one is done at the expense of his fellowmen, the other is not. For in the former case, the grantee is participating in the acquisition of loot; in the latter, he escapes payment of tribute to the looters. To blame him for escaping is equivalent to blaming the slave for fleeing his master. It is clear that if a certain burden is unjust, blame should be levied, not on the man who escapes the burden, but on the man or men who impose it in the first place. If a tax is in fact unjust, and some are exempt from it, the hue and cry should not be to extend the tax to everyone, but on the contrary to extend the exemption to everyone. The exemption itself cannot be considered unjust unless the tax or other burden is first established as just.
Despite these problems, Philippon does have some good suggestions. He attacks occupational licensing with great force:
Geographic mobility has been declining for thirty years in the US. Workers are less likely to move between states and metropolitan areas than they were in the past. There are several plausible explanations for this trend. One of them is the steady increase in the number of workers whose occupations require some sort of license or certification…Licensing is always “officially” motivated by concerns for health, safety, and consumer protection. And sometimes it is legitimate. Often, however, it is the perfect way for incumbents to protect their rents. Indeed, they actively lobby for the extension of lobbying requirements because they understand that these are efficient barriers to entry. (p. 283)
Attempts to restrict entry range far beyond licensing:
Entry in finance is also limited by heavy—and sometimes biased—regulations…Why did we get the bloated financial industry of today instead of the lean and efficient Walmart? As it turns out, Walmart applied for a banking license in 2005, but it was denied under—who would have guessed—heavy lobbying by bankers. (p. 216)
The Great Reversal should thus be read with caution. Philippon likes competition but, like many other technocrats, he thinks he can do better than the unhampered market economy. He cannot.
The Economists’ Hour: False Prophets, Free Markets, and the Fracture of SocietyBinyamin AppelbaumNew York: Little, Brown and Company, 2019439 pp.
David Gordon (dgordon@mises.org) is a senior fellow at the Mises Institute.
Binyamin Appelbaum is unhappy. He is the main writer on economics for the New York Times, and he thinks that economics has taken a wrong turn. In the first half of the twentieth century, economics was appropriately progressive. The free market was considered to be good, but only if severely restricted. It had to be constrained by a rigid institutional framework and guided by the state to promote research, help workers subject to exploitation by heartless monopolists, and prevent mass unemployment, among many other things.
All this changed beginning around 1950. Nefarious free market economists no longer recognized the limits of the market. “But a revolution was coming. Economists who believed in the power and the glory of markets were on the cusp of a rise to influence that transformed the business of government, the conduct of business, and, as a result, the patterns of everyday life.” (p. 4) Instead, these economists sought to show that antisocial behavior such as predatory pricing promoted efficiency. In doing so, they acted at the behest of powerful economic interests who did not want to be restricted and resented high taxes. Concerning a famous paper by Armen Alchian and Harold Demsetz he says, “A footnote told readers the professors had reached these conclusions with funding from the pharmaceutical giant Eli Lilly” (p. 14). (By the way, the summary of the paper’s argument that Appelbaum offers shows little understanding of it (p. 340n.33).) Among these economists, Milton Friedman stands out as the main villain.
An objection at once comes to mind, but Appelbaum has anticipated it and has an answer. Certainly there were free market economists in the years after World War II, but were there not also Keynesians who continued to be progressive? Were not Chicago, Virginia, and UCLA matched by Harvard and MIT on the other side? (Appelbaum is aware of Austrian economics but devotes much more attention to Friedman and his colleagues.) Appelbaum answers that the “leftists” of Harvard and MIT conceded too much to the free market arguments. For Appelbaum, even the quintessential Keynesian Paul Samuelson has let down the side. On many issues, he was hardly better than Friedman. “Even liberals like Paul Samuelson and James Tobin regarded unions as cartels and insisted that minimum wage laws increased joblessness, a consensus that made it easier for politicians to attack unions and ignore wages” (p. 326). At Henry Manne’s law and economics programs for judges “some of the judges asked Manne to explain the difference between the liberal and conservative economists ‘since Paul Samuelson seemed to be teaching the same economics as Armen Alchian.’” (p. 149)
Appelbaum’s arguments against the free market are not convincing. They do not in all cases lack merit, but they suffer from two fundamental failings. The first of these is that his arguments take this form, “The free market has such-and-such good features, but there are competing values which it neglects. That is why we need to bring in government to limit the market.” The trouble with this argument is that, even if you accept Appelbaum’s account of the competing values, he offers no systematic way of assessing the benefits and costs of the free market.
For example, he says that there are genuine benefits from free trade, and he explains this in a way that supporters of the market would readily accept.
The embrace of markets lifted billions of people around the world from abject poverty. Nations have been tied together by the flows of goods and money and ideas, and most of the world’s 7.7 billion people live wealthier, healthier, and happier lives as a consequence…Markets make it easier for people to get what they want when they want different things, a virtue that is particularly important in pluralistic societies which value diversity and freedom of choice. (p. 6)
But, he says, people care about more than consumption. People care about production as well, and the free market in some cases ruthlessly sweeps aside people in industries that cannot meet foreign competition. He quotes Albert E. Kahn with obvious approval:
In a 1954 book, Fair Competition, he defended the idea that the government should protect small business at the expense of consumers. “One cannot simply equate the ‘public interest’ in a democracy with the ‘consumer interest,’” he wrote. Adam Smith had famously asserted that consumption was the purpose of production. Kahn rejoined that this was “not true, even though Adam Smith said it.” People, he wrote, also had interests as producers and as ‘citizens of an urbanized civilization.’ It was not good for a factory town to lose its factories. (p. 172)
Suppose that this is right. I do not think it is right, because people have no right to have their current jobs guaranteed by the government, but let us put this aside. Appelbaum offers nothing but his own hunch that the free market needs to be curbed for the reason he states.
How might Appelbaum reply to this objection? His answer is that people should decide democratically how the values of the free market should be balanced against competing values. This is an odd response, because Appelbaum himself recognizes that special interest groups often use the government to advance their own ends, though he resists the implications of this point. He says,
In 1971…[George] Stigler wrote, “regulation is acquired by the industry and is designed and operated primarily for its benefit.” The innovation in Stigler’s paper was his conclusion that government should stop trying. Criticizing regulators for protecting business, he wrote, “seems to me exactly as appropriate as a criticism of the Great Atlantic and Pacific Tea Company for selling groceries.”
The historian William J. Novak has described Stigler’s call for government to surrender as a remarkable departure from the American political tradition…Generations of legislators…wrote rules, and when those rules came up short, they tried to write better rules. Stigler was proposing to trust markets instead. (p. 165)
Appelbaum’s argument is incredible: never mind the evidence that special interests capture the government. Regulation must be in the public interest because “we” traditionally have believed this.
Why should we think that a “democratic” vote reflects accurately people’s preferences? If the special interests control the government, does it not make more sense to limit government rather than to enhance its powers? Far better, as Mises pointed out, are the dollar votes of free market consumers. As Mises remarks in Human Action ([1949] 1998, 741),
It would be more correct to say that a democratic constitution is a scheme to assign to the citizens in the conduct of government the same supremacy the market economy gives them in their capacity as consumers. However, the comparison is imperfect. In the political democracy only the votes cast for the majority candidate or the majority plan are effective in shaping the course of affairs. The votes polled by the minority do not directly influence politics. But on the market no vote is cast in vain. Every penny spent has the power to work upon the production processes.
There is a further problem with Appelbaum’s “democratic” response. It transpires that he is hardly a democrat at all. He thinks that businesses can readily manipulate the ignorant consumer.
Some economists still deny that people are confused by inflation, or at least that such confusion has significant consequences. Meanwhile, in the real world, movie studios take advantage of inflation to advertise box office records—which are records only in nominal terms, since no movie has ever surpassed Gone with the Wind—because the studios think that people are confused by inflation. It seems likely that Hollywood has the better handle on human nature. (p. 364n.108)
People are irrational and must be protected by the government, acting as their guardians. Why we should trust the government to do this he does not say.
Appelbaum is caught in a contradiction. If people are too irrational and uniformed to resist business propaganda, why should they be trusted to elect public-spirited leaders through democratic voting? Murray Rothbard long ago called attention to this faculty. In Man, Economy, and State ([1962] 2009, 886), he says:
the partisans of intervention assume that individuals are not competent to run their own affairs or to hire experts to advise them, but also assume that these same individuals are competent to vote for these experts at the ballot box. They are further assuming that the mass of supposedly incompetent consumers are competent to choose not only those who will rule over themselves, but also over the competent individuals in society. Yet such absurd and contradictory assumptions lie at the root of every program for “democratic” intervention in the affairs of the people.
Let us now turn to the second of the fundamental failings in Appelbaum’s assault on the free market. He often blames the free market for the failures of government. In the most glaring instance of this fallacy, Appelbaum rightly notes how many of our current economic problems stem from risky speculation by banks. Why does he consider such speculative ventures, made possible by fractional reserve banks joined in the Federal Reserve System, a failure of the free market rather than a government failure? Oddly enough, in criticizing bank speculation in Iceland, Appelbaum cites an article by Philipp Bagus and David Howden that appeared on the Mises Institute website. These excellent economists have presented their analysis in a short book, Deep Freeze: Iceland’s Economic Collapse (2011). It did not occur to him to ask whether the commodity standard defended by these authors, rather than a policy of monetary expansion sponsored by the government, is the true free market view. He ought to read Dr. Ron Paul’s End the Fed (2009).
Appelbaum’s book is not without value. He has done a great deal of research and he has a good eye for anecdotes. But as a criticism of the free market, the book is a manifest failure.
Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So BadlyJohn QuigginPrinceton: Princeton University Press, 2019xii + 390 pp.
Abstract: John Quiggin’s Economics in Two Lessons alleges a failing in Henry Hazlitt’s Economics in One Lesson: the absence of a discussion of market failure. Quiggin’s adherence to the doctrine of neoclassical equilibrium misses an important fact: the absence of a neoclassical equilibrium is not a recession, but the ordinary course of the economy. Economics in Two Lessons reveals a misunderstanding of Austrian business cycle theory, and the second lesson to a large extent consists of casting Hazlitt’s lesson aside.
market process — market failure — economic policy — austrian economics
David Gordon (dgordon@mises.com) is Senior Fellow at the Mises Institute and editor of the Journal of Libertarian Studies.
The Australian economist John Quiggin is dissatisfied with Henry Hazlitt’s great book Economics in One Lesson and in his new book endeavors to set its author straight. He says of Hazlitt. “His One Lesson contains important truths about the power of markets, but he ignores equally important truths about the limitations of the market.” (p. 4) Learning about these limitations is the second lesson that Quiggin wants to teach us.
Quiggin’s foray against Hazlitt misses its target, in no small part because of a problem with the key concept in the book, “opportunity cost,” as he applies it to Hazlitt. He defines the concept in this way: “The opportunity cost of anything is what you must give up so that you can have it.” (p. 3) So far, so good, but now the difficulty in his case against Hazlitt arises. He applies the concept as it is used in neoclassical economics, but Hazlitt was an Austrian and does not use the concept in this way.
Quiggin takes as his benchmark a state of neoclassical equilibrium, or at least something close to this. He says, “Let’s restate Lesson One: Market prices reflect and determine the opportunity costs faced by consumers and producers…. But the simple story above embodies a lot of assumptions about the way markets work.” (pp. 40, 42). Under these assumptions, there are no mutual gains from trade.
In a perfect competitive equilibrium, prices exactly match opportunity cost. There are no “free lunches” left. More precisely, any additional benefit that can be generated for anyone in the economy must be matched by an equal or greater opportunity cost, where opportunity cost is measured by the goods and services forgone, valued at the equilibrium prices. (p. 43)
He explicitly applies his understanding of Lesson One to Hazlitt:
When economics is done properly, Hazlitt argues, the answer is always to leave the market alone. So, the One Lesson may be restated as: Once all the consequences of any act or policy is taken into account, the opportunity costs of government action to change economic outcomes always exceed the benefits.” (p. 3)
Quiggin’s strategy against Hazlitt is to argue that there are many cases where the neoclassical model fails to apply. In these cases, the opportunity cost to individuals deviates from the opportunity cost to society.
Quiggin has misunderstood Hazlitt’s argument in Economics in One Lesson. If we turn from Quiggin’s distillation of the book’s lesson to what Hazlitt actually says, we do not find the claim, based on the assumption that the economy is in neoclassical equilibrium, or close to it, that “the opportunity costs of government action to change economic outcomes always exceed the benefits.” To the contrary, Hazlitt discusses a number of particular cases in the real-world economy. In each of these, he shows that interfering with the free market often has bad consequences. For example, he says about minimum wage legislation:
Yet it ought to be clear that a minimum wage law is, at best, a limited weapon for combating the evil of low wages, and that the possible good to be achieved by such a law can exceed the possible harm only in proportion as its aims are modest. The more ambitious such a law is, the larger the number of workers it attempts to cover, and the more it attempts to raise their wages, the more likely are its harmful effects to exceed its good effects. (Hazlitt [1946] 1979, 134–35)
Hazlitt wrote his book for a popular audience, but Quiggin, a skilled and learned professional economist, does not understand it properly because he reads it through the blinders of an assumption about what Hazlitt “must” be saying.
Quiggin applies the concept of neoclassical equilibrium to Hazlitt’s most famous chapter, the parable of the broken window. In the parable, which Hazlitt took over from Bastiat, a young hoodlum throws a brick through the window of a baker’s shop. People in the crowd imagine that this will help business, since the baker, in order to replace the window, will give money to a glazier, who will spend it on things he wants, and so on. Hazlitt asks readers to remember that, had the window not been broken, the baker would have bought a new suit, so there is no gain to the economy in breaking a window.
This is easy to grasp, but here is what Quiggin does with it:
The argument is compelling at first, but there’s a subtle problem. Implicit in the crowd’s reaction is the assumption that glaziers are short of work. If... glaziers have more jobs than they can handle, then there is no extra window—at best, the shopkeeper’s order simply displaces some other, less urgent, repair. Similarly, for Hazlitt’s riposte about the tailor to work, there must exist unemployed resources in the tailoring industry, so that the shopkeeper’s suit represents an addition to output. If not, the additional demand from the shopkeeper will raise the price of suits marginally, just enough to lead some other customer to buy one less suit. That is, the story implies that the economy is in recession, with unemployment across a wide range of industries. (p. 167)
In other words, there are only two possibilities: either there is a neoclassical equilibrium, with its stringent conditions, or there is a recession. Quiggin misses entirely the Austrian view of the process by which entrepreneurs adjust production to meet consumers’ changing demands. The absence of a neoclassical equilibrium is not a recession, but the ordinary course of the economy. Unless the hoodlum can anticipate consumers’ demands better than capitalist entrepreneurs, breaking the window will not better serve consumers.
But what if the economy really is in a recession or depression? Do we not then need increased spending to stimulate the economy? Quiggin, an ardent Keynesian, certainly thinks so, and if he is right, Hazlitt’s argument fails under these conditions and the crowd is right about the broken window.
Here we confront an odd fact. Hazlitt wrote a large book, The Failure of the “New Economics” ([1959] 2007), in the course of which he criticizes the Keynesian view that recovery from depression depends on an increase in consumers’ spending. Hazlitt in particular challenges the Keynesian “multiplier,” about which Quiggin observes, “It’s difficult to get an intuitive sense of the numbers involved in fiscal policy. The key idea is that of the ’multiplier.’” (p. 292) Quiggin has read the book and criticizes some of the contentions in it, but he never addresses these central points.Quiggin does not cite or list in his bibliography the collection of essays Hazlitt edited, The Critics of Keynesian Economics [1960] 1995.
In more than one respect, Quiggin’s knowledge of Austrian business cycle theory is lacking. He tells us that “Hayek was not particularly notable among the critics of The General Theory. The supposed Hayek-Keynes contest really reflects Hayek’s latter-day reputation as the prophet of market liberalism and the ’Austrian school’ of economics.” (p. 36, note 5) Quiggin is correct that Hayek, to his later regret, did not write a response at the time to The General Theory, but there was indeed a contest between the two economists. Hayek wrote a devastating critical review of Keynes’s A Treatise on Money, and Keynes criticized Hayek’s view of the business cycle and encouraged Piero Sraffa to do so as well.
Not done with his criticism of Hazlitt, Quiggin raises another point as well.
Hazlitt doesn’t spell out the starting point for his analysis. However, his analysis is based on the implicit claim... that there is a natural distribution of private property rights, and that this natural distribution exists prior to any government activity such as taxation and the payment of welfare benefits. This is nonsense. It is impossible to disentangle some subset of property rights and entitlements from the social and economic framework in which they are created and enforced. (p. 138).
Hazlitt was a rule utilitarian who did not accept natural rights. For him, it is essential to a free and prosperous economy that people have stable legal rights to property, but he does not make the assumption Quiggin attributes to him.
Quiggin says that we should learn a Second Lesson besides the lesson Hazlitt taught, but this second lesson to a large extent consists of casting Hazlitt’s lesson aside. Readers would be well advised to stick to Hazlitt. He does not require emendations that reinstate the interventionist fallacies he challenged.
F.H. Buckley, a Canadian lawyer, political philosopher, and economist who now teaches at the Scalia School of Law at George Mason University, has written a book that challenges conventional wisdom and is all the better for that. America, he tells us, is so bitterly divided that we should consider breaking it up into several separate countries. To do so would not be without risk, but it has many advantages. People tend to be happier in smaller countries, and as Buckley makes clear, this is no accident.
One might object that political discord is hardly new in American history, but, aside from the Civil War, this has not resulted in a breakup of our nation. Why should things be different now? Buckley answers that
we’re less united today than we’ve been at any time since the Civil War, divided by politics, religion and culture. In all the ways that matter, save for the naked force of the law, we are already divided into two nations just as much as in 1861. The contempt for opponents, the Twitter mobs, online shaming and no-platforming, the growing tolerance of violence—it all suggests we’d be happier in separate countries. The split in America includes but is not confined to the division between North and South, and some Southerners, including the philosopher Don Livingston, call for secession as a way to preserve the distinctive values of the South. That is a belief long prevalent there, and Buckley cites the nineteenth-century South Carolina lawyer James Pettigru, who thought that his state was “too small for a republic but too large for an insane asylum.”
Even if secession has much to be said for it, isn’t it unconstitutional? Buckley maintains that it is far from clear that it is. An influential argument against secession is found in Texas v. White (1869). Chief Justice Salmon Chase said that the Constitution has as its purpose to form a “more perfect” union than the one already existing under the Articles of Confederation, which was already “perpetual.” For that reason, the Constitution is also perpetual and indissoluble.
Buckley shows that this was by no means the stance taken by the delegates to the Constitutional Convention. They readily contemplated the breakup of the United States into separate republics:
The delegates thought of the government under the Articles of Confederation, and then under the Constitution they were drafting, as a compact among thirteen states, and they believed that when one state thought its rights had been traduced by the federal government, it could withdraw from the compact, even as one party can rescind a contract when the other party has breached it. That’s what Madison argued. . . .Virginia’s ratification of the Constitution was expressly conditioned on a right of secession. How then could it be deemed unconstitutional? Not everything that is constitutional is desirable. Should we regard secession as a regrettable necessity, or is it rather a positive good? Buckley shows that there is much to be said for the latter view. “When we look at the evidence from SWB [subjective well-being studies] we find that [Roger] Sherman was right, along with Montesquieu and Rousseau, while Hume and Madison were wrong. People in small countries are happier. Bigness is badness.” By the way, Buckley holds that Roger Sherman was more influential than Madison at the Constitutional Convention. Madison’s nationalist proposals were rejected.
Why are people happier is small states? For one thing,
big states are more corrupt. As Montesquieu and Rousseau argued, there’s a greater sense of solidarity in smaller states, such as Finland, where people are less diverse and more trusting of each other. . . .Montesquieu was also right in thinking that small countries won’t have so many wasteful interest groups as larger ones. In sum, governments will be more attuned to the interests of their citizens in smaller states. The case is not all on one side. Sometimes local governments are corrupt, and the federal government brings them to justice.
Again we’re looking at tradeoffs. If a state seceded from the United States, its citizens would lose the benefit of the federal government’s oversight of local criminal corruption. On the other hand, being smaller, the seceding state would be less affected by noncriminal corruption. . . .There would be fewer dollars in play, and a smaller set of interest groups and dollars diverting public dollars to their private ends through legal means. And it’s the noncriminal corruption that’s ordinarily more troubling. To my mind, Buckley’s best argument that small governments are better than large ones has to do with the military. Large states like to “throw their weight around,” and the United Sates, the largest military empire in world history, is a prime offender.
The costs of a large military, in money and in lives, might be acceptable if you like a strong military for its own sake, and regional or world dominance. So then you might favor a large country with a huge population. But if you’re not sure that military glory is worth the cost, you might prefer a small state, with a modest military budget. And that might be an argument for secession. Imagine what the last fifty years of history would have looked like if America had been split into two or three different countries. There would likely have been no Vietnam War and almost certainly no second Iraq war. Buckley also argues that small states are more likely to be free than large ones, though this is not always the case.
If bigness invites rule by a dictator, dictators also like bigness. With greater size comes grander palaces and more power to push neighbors around. . . .[S]ecession would serve to bring the government closer to the people, and in so doing it would make people freer. Small states also tend to be wealthier than large states, though again the evidence is not all on one side.
The evidence. . .suggests that bigness is not an economic advantage for a country. . . .The advantages of bigness, in terms of things like internal free trade, don’t appear to outweigh the disadvantages. . . .Like a huge conglomerate whose managers are incompetent to oversee its varied divisions, an overlarge country wastes resources because its officials can’t govern efficiently. To some extent, in my view unfortunately, Buckley retreats in the last part of the book from full support for secession. He calls for “secession lite,” that is to say, devolution of power to the states and localities, while retaining in place the federal government. I wish he had moved in the other direction and explored the ways people can solve their problems without resort to the state. If “Tiebout competition” between states is good, why is not competition between private individuals and firms even better?
Buckley would I am sure have a forceful answer to this challenge. All friends of freedom can learn a great deal from this outstanding book.
[Money, Inflation, and Business Cycles: The Cantillon Effect and the Economy, by Arkadiusz Sieroń. Abingdon: Routledge, 2019. x + 162 pp.]
Abstract: Austrian economists hold that money matters a great deal in concrete terms in the immediate short run and has permanent long-run effects. Sieroń's book investigates the Cantillon effect, which indicates that money is not neutral because inevitably it is injected unevenly, creating economic distortions. These distortions are important to the long run and the Austrian theory of the business cycle.
Economists agree that money matters, but that agreement stops when it comes to how money matters. For example, some say it only matters in the short run while others believe that it matters in the short and long run. Austrian economists hold that money matters a great deal in concrete terms in the immediate short run and has permanent long-run effects.
Given that the world economy has experienced more than a decade of radical and unproven monetary policy by central banks and half a century of fiat currencies, the effects of money are more important than ever. Professor Sieroń has produced a comprehensive review of this question and has extended the analysis of this key question in many different directions.
The central topic of the book is the Cantillon effect, which appears in the titles of all but one chapter. This effect was named after Richard Cantillon, the first economic theorist. He wrote, circa 1730, that the effect of new money depended on where it was injected into the economy.
Chapter one deals with the neutrality of money, where money has no effect on the economy. Five types of money neutrality are described and examined. The assumptions made for each are explained, and in particular, all the conditions that must exist for “dynamic neutrality” are explained. The reader will no doubt come the conclusion that money is never neutral and that it could be dangerous to make such an assumption as part of one’s economic analysis.
In chapter two, the theory of the Cantillon effect is explained. It begins with an increase in the money supply and who first receives the money. That means the increase of money changes income distribution in favor of who first receives the new money. Then, depending on the preferences of those who first receive the money, some goods will experience an increase in demand, while other goods will experience a relative decrease. This in turn changes outputs of various goods and ultimately investments. Cantillon famously noted that if the new money comes into the hands of savers, that the interest rate would decrease, but if it comes into the hands of consumers, the interest rate would increase, as entrepreneurs would need to borrow more to meet the increased demand for goods.
Chapter three recaps the Cantillon effect in the history of economic thought. Beginning with Cantillon himself, the views of David Hume, John Cairnes, and other classical economists are examined. Then Irving Fisher, John Maynard Keynes, New Keynesians, Post Keynesians, and other modern schools of macroeconomics are considered, including the Austrian school, along with a special emphasis on Milton Friedman’s approach. In general, non-Austrians tend to think that Cantillon effects exist only in the short run and the effects can be generally assumed away, whereas the Austrian economists incorporate them as central to their analysis and show that the effects are important even in the very long run.
Chapter four provides a complete classification of the various types of Cantillon effects. Cantillon’s own analysis is presented and then extended to the modern context. Chapter five examines the Cantillon effect in the modern context of credit expansion. In chapter six, the various types of credit expansion are examined to explain the secondary characteristics of a business cycle. So, for example, if the expansion is mainly in the area of home mortgage credit, then a housing bubble results. In the next chapter, price bubbles in certain asset prices are shown to be proof par excellence of the Cantillon effect to which Austrian economists are alert, but which mainstream economists ignore, except perhaps in the positive light of the so-called wealth effect.
The next two chapters explore two of the more controversial topics, from the mainstream perspective. The first, chapter eight, analyzes the impact of new money on income and wealth. It is shown here that there are winners and losers from new money. For example, the Fed’s monetary expansions tend to help the wealthy, banks, big corporations, and the financial industry more generally. Subsequently, as prices rise, the Fed’s policy hurts retirees, those on fixed incomes, and wage earners who receive the new money last, if at all. This is one reason why the Fed and most mainstream macroeconomists vigorously deny the existence and importance of Cantillon effects and adopt the assumption of neutral money. Tragically, they often get away with this ruse because the theft cannot be directly seen, except in the final result.
The last substantive chapter, chapter nine, explores the Cantillon effect in the international context. Given globalization, the structure of production is now more integrated than ever, and that is a good thing. However, as a result, new money creation by central bank will have negative international consequences. Under certain circumstances the channels of new money flow can dampen the business cycle and price inflation, but the primary impact is for major central banks, in particular the Fed, to export business cycles, economic crises, and price inflation. Obviously, the Fed would vigorously deny that it is the source of global economic instability, but others have found that this is empirically the case. The book is concisely written and is “insight dense,” and is a much-needed contribution to the literature.
The Hell o Good Intentions: America's Foreign Policy Elite and the Decline of U.S. Primacyby Stephen M. WaltFarrar, Straus, and Giroux, 2018xii + 384 pages
Stephen Walt has put himself in a difficult position. He is a Professor of International Affairs at the Kennedy School of Government at Harvard and the author of studies, most notably The Origins of Alliances, which have won him influence in what he calls the “foreign policy establishment.” He says, “I have been part of that community for much of my professional life.” At the same time, he acknowledges, “I am surely something of an outlier within that world.”
That is decidedly an understatement, and this leads to Walt’s difficult position. Despite his impeccable credentials as a foreign policy “insider,” much of The Hell of Good Intentions consists of a fierce assault on most of his fellow members of the establishment. “To put it in the bluntest terms, instead of being a disciplined body of professionals constrained by a well-informed public and forced by necessity to set priorities and hold themselves accountable, today’s foreign policy elite is a dysfunctional caste of privileged insiders who are frequently disdainful of alternative perspectives and insulated both professionally and personally from the consequences of the policies they promote. It was impolitic for the deputy national security advisor Ben Rhodes to dismiss this community as ‘the Blob,’ but the label nonetheless contains important elements of truth.”
According to Walt, the views of the Blob have led America to disaster. After the collapse of the Soviet Union and the end of the Cold War, the United States stood supreme in the world. “When the Cold War ended, the United States found itself in a position of global primacy unseen since the Roman Empire. It had the world’s largest and most advanced economy. ... The United States was also the only country in the world with a global military presence. ... Moreover, the United States was on good terms with all the other major powers ... relations with Russia were surprisingly cordial as the unipolar era began, as Moscow wanted Western help to transition to a market economy and was eager to forge cooperative security arrangements as well.”
Given this favorable position, the rational course of action was clear. America should have withdrawn from its global commitments. No threat faced us: why, then, did we need to police the world? Nevertheless, American commitments were maintained and extended. Walt holds that this was not done to protect America but rather, to a large extent, for reasons of ideology: “Most important, U.S. leaders did not seek primacy in order to protect the American homeland from invasion or attack. Rather, they sought it in order to promote a liberal order abroad. Bill Clinton and Barack Obama used military force more cautiously and discretely than George W. Bush did, but all three post-Cold War presidents saw U.S. military power as an invaluable tool for advancing an ambitious global agenda.”
The pursuit of liberal hegemony rests on faulty theory and has led to bad results. The supporters of liberal hegemony thought that a liberal world order was self-evidently desirable and that America had the power to impose it on nations that dared to resist: “If other states balked, U.S. policymakers were convinced that the United States had the tools to force them to comply. It could impose economic sanctions, give aid to a hostile regime’s foreign or domestic opponents, undermine rivals through covert action, and use military force to compel them to capitulate. If necessary, the United States could invade and depose hostile regimes at little cost or risk to itself. Once these obstreperous tyrants were gone, the United States and the rest of the liberal international community could step in and help liberated and grateful populations create new and legitimate democracies, thereby expanding the liberal, pro-American order even more.”
This ambitious program rests on flawed foundations. Walt is especially effective in his criticism of one of these foundations, “democratic peace theory.” Concerning this dubious doctrine, he says: “Although it is true that liberal democracies have fought few wars with each other, there is still no satisfactory explanation of why this is the case ... history also warns that newly democratized states are especially prone to internal and external conflicts. ... Democratic peace theory also says little about how liberal states should deal with authoritarian regimes, except to suggest that overthrowing them is the path to perpetual peace ... it is a potent recipe for trouble between liberal and non-liberal countries.”
Liberal hegemony failed in large part because it ignored basic “truths” about how nations act, true it has been a principal aim of the “structural realist” school of international relations, of which Walt and his colleague John Mearsheimer are leading members, to emphasize. “Imbalances of power make other states nervous, especially when the strongest state uses its power with little regard for others’ interests. It was entirely predictable that the so-called rogue states would look for ways to keep American power in check, for example because the United States had made spreading democracy a centerpiece of its grand strategy and taken dead aim at a number of these countries. ... America’s dominant position also alarmed some of America’s closest allies, including some foreign democracies. ... Their concerns were well-founded — not because the United States deliberately used its power to harm friendly countries like France, but because America’s vast capabilities made it easy to hurt them by accident. The invasion of Iraq is a perfect illustration: it eventually led to the emergence of ISIS, whose online recruiting and brutal conduct inspired terrorist attacks in a number of European countries and contributed to the refugee crisis that engulfed Europe in 2015.”
Despite the manifest failure of the liberal hegemony program, its advocates have retained their influence. They are rarely called to account for their mistakes. Walt writes with justifiable bitterness about one group among these advocates, the neoconservatives. “When it comes to U.S. foreign policy, the unchallenged world record for ‘second chances’ and ‘failing upward’ are America’s neoconservatives. Beginning in the mid-1980s, this influential network of hard-line pundits, journalists, think tank analysts, and government officials developed, purveyed and promoted an expansive vision of American power as a positive force in world affairs. They conceived and sold the idea of invading Iraq and toppling Saddam Hussein and insisted that this bold move would enable the United States to transform much of the Middle East into a sea of pro-American democracies. ... None of their rosy visions have come to pass, and if holding people to account were a guiding principle inside the foreign policy community, these individuals would now be marginal figures.” They in fact remain influential, and Elliot Abrams, one of the neoconservatives Walt discusses, has recently been appointed United States Special Representative to Venezuela.
Walt’s case against liberal hegemony is convincing, but what does he propose to put in its place? True to his structural realism, he calls for “offshore balancing.” Under this policy, the United States would abandon its futile attempt to spread liberal democracy throughout the world. Instead, America would concentrate on selected areas deemed to be vital national interests. “Offshore balancers believe that only a few areas of the globe are of vital importance to U.S. security or prosperity and thus worth sending Americans to fight and die for. The first vital region is the Western hemisphere itself, where America’s dominant position ensures that no neighbor can pose a serious threat to the U.S. homeland. ... But unlike isolationists, offshore balancers believe that three distant regions also matter to the United states: Europe, Northeast Asia, and the Persian Gulf.”
In these regions, the aim of the United States would be to prevent the emergence of a “local hegemon.” If one seemed on the horizon, America should encourage states in the region to “balance against” the rising power. America would remain “offshore” as long as possible, although military intervention would by no means be excluded if the regional states failed in their efforts to balance.
Walt is right that his strategy would “prolong America’s position of primacy” for much less cost than the policy of liberal hegemony, but why is it in our interest to maintain American supremacy at all? Walt has not fully broken from the globalist assumptions he attacks so well throughout The Hell of Good Intentions. We should instead adopt the non-interventionist policy so ably championed by Ron Paul: only the defense of the United States itself is a “vital national interest.” Walt’s failure to follow the logic of his own argument against hegemony to a non-interventionist conclusion explains why he is an “outlier” in the foreign policy establishment rather than a complete opponent of that group. That is unfortunate, but his book contains a great deal of value to those who favor peace and prosperity as national goals.
[Review of On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises, edited by Mary Sennholz; on the occasion of the fiftieth anniversary of Mises's doctorate, February 20, 1956).]
Nineteen contributors (from six countries) confirm Dr. Mises's international reputation as a scholar of the first rank. Among them: F. A. Hayek, Jacques Rueff, Henry Hazlitt, and Bertrand de Jouvenel.
What makes this Festschrift exceptional? For one thing, a sizable number of the participants contribute significantly and originally — in the full spirit of the teachings of the man they honor. Here is the highest form of academic recognition.
Three essays strike the reader especially: (1) Professor Hutt's The Yield from Money Held, (2) Mr. Spadaro's Averages and Aggregates in Economics and (3) Mr. Rothbard's Toward a Reconstruction of Utility and Welfare Economics.
Hutt's essay states that money held is not barren; people hold money because of the services it performs. He points out that anything that performs a service can hardly be barren.
Spadaro sharply questions the validity of statistical averages to describe economic reality. He shows that much data cannot be lumped together and divided, explains that averages often mean a loss of information.
Mr. Rothbard shows why the government's coercive activity cannot possibly increase social welfare.
It increases, says Rothbard, only when at least one person gains and no one loses. And since every government action rests on coercion, some one has to lose. He goes on to show how the free market, based on mutual gain, does increase social welfare.
Certainly it has been many years since so many sound economists joined together. That many of the contributors are younger men who have not yet had time to make their reputations is even more encouraging.
For almost three generations the ranks of liberty's defenders grew thinner. Now, at last, they seem on the rise again.
The works Dr. Gordon mentions are available on Mises.org:
Frédéric Bastiat - The LawMurray N. Rothbard - What Has Government Done to Our Money?Henry Hazlitt - Economics in One LessonLudwig von Mises - Socialism: An Economic and Sociological AnalysisMurray N. Rothbard - Man, Economy, and State, with Power and MarketLudwig von Mises - Human ActionMurray N. Rothbard - An Austrian Perspective on the History of Economic Thought
Presented at the Mises Institute's 2018 Supporters Summit in Auburn, Alabama. Recorded on September 29, 2018.
Featuring the following authors:
Patrick Newman, The Progressive Era and Conceived in Liberty, Vol. 5Connor Boyack, The Tuttle Twins and the Fate of the FutureDavid Gordon, Preview of Rothbard A – ZMark Thornton, The Skyscraper Curse
Presented at the Mises Institute's 2018 Supporters Summit in Auburn, Alabama. Recorded on September 28, 2018.
Skin in the Game: Hidden Asymmetries in Daily LifeNassim Nicholas TalebRandom House, 2018
To review Skin in the Game is a risky undertaking. The author has little use for book reviewers who, he tells us, “are bad middlemen. … Book reviews are judged according to how plausible and well-written they are; never in how they map the book (unless of course the author makes them responsible for misrepresentations).”
The risk is very much worth undertaking, though, because Skin in the Game is an excellent book, filled with insights. These insights stress a central antithesis. Irresponsible people, with what C.D. Broad called “clever silly” intellectuals prominent among them, defend reckless policies that impose risks on others but not on themselves. They have no “skin in the game,” and in this to Taleb lies their chief defect.
Interventionist foreign policy suffers from this defect. “A collection of people classified as interventionistas … who promoted the Iraq invasion of 2003, as well as the removal of the Libyan leader in 2011, are advocating the imposition of additional such regime change on another batch of countries, which includes Syria, because it has a ‘dictator’. So we tried that thing called regime change in Iraq, and failed miserably. … But we satisfied the objective of ‘removing a dictator.’ By the same reasoning, a doctor would inject a patient with ‘moderate’ cancer cells to improve his cholesterol numbers, and proudly claim victory after the patient is dead, particularly if the postmortem showed remarkable cholesterol readings.”
But what has this to do with risk? The fallacy of the interventionists, Taleb tells us, is that they disregard the chance that their schemes will fail to work as planned. A key theme of Taleb’s work is that uncertain outcomes mandate caution.
“And when a blowup happens, they invoke uncertainty, something called a Black Swan (a high-impact unexpected event), … not realizing that one should not mess with a system if the results are fraught with uncertainty, or, more generally, should avoid engaging in an action with a big downside if one has no idea of the outcomes.”
The same mistaken conception of risk affects economic policy. “For instance, bank blowups came in 2008 because of the accumulation of hidden and asymmetric risks in the system: bankers, master risk transferors, could make steady money from a certain class of concealed explosive risks, use academic risk models that don’t work except on paper … then invoke uncertainty after a blowup … and keep past income — what I have called the Bob Rubin trade.”
Instead of relying on mathematical models, economists should realize that the free market works. Why use misguided theory to interfere with success in practice? “Under the right market structure, a collection of idiots produces a well-functioning market. … Friedrich Hayek has been, once again, vindicated. Yet one of the most cited ideas in history, that of the invisible hand, appears to be the least integrated into the modern psyche.”
Upsetting a complex system like the free market, can have disastrous consequences. Given this truth, libertarianism is the indicated course of action. “We libertarians share a minimal set of beliefs, the central one being to substitute the rule of law for the rule of authority. Without necessarily realizing it, libertarians believe in complex systems.”
Taleb greatly admires Ron Paul, the foremost libertarian in politics, and he is one of two people to whom the book is dedicated. (Ralph Nader is the other.) Ron Paul grasps Taleb’s fundamental lesson that misguided theory should not supplant what has stood the test of time. “The insightful and luckily nonacademic historian Tom Holland ... wrote: ‘The Romans judged their political system by asking not whether it made sense but whether it worked,’ which is why while dedicating this book, I called Ron Paul a Roman among Greeks.”
One common objection to the free market is that it allows powerful corporations to dominate people. Taleb’s response converges with that of Murray Rothbard: “There are two ways to make citizens safe from large predators, say, big powerful corporations. The first one is to enact regulations — but these, aside from restricting individual freedoms, lead to another predation, this time by the state, its agents, and their cronies. … The other solution is to put skin in the game in transactions, in the form of legal liability, and the possibility of an efficient lawsuit. The Anglo-Saxon world has traditionally had a predilection for the legal approach instead of the regulatory one; if you harm me, I can sue you. This has led to the very sophisticated, adaptive, and balanced common law, built bottom-up, by trial and error.”
Rothbard held the same view. In his pathbreaking monograph “Law, Property Rights, and Air Pollution,” he remarks: “There are, of course, innumerable statutes and regulations that create illegality besides the torts dealt with in common-law courts. We have not dealt with laws such as the Clean Air Act of 1970 or regulations for a simple reason: None of them can be permissible under libertarian legal theory. In libertarian theory, it is only permissible to proceed coercively against someone if he is a proven aggressor, and that aggression must be proven in court (or in arbitration) beyond a reasonable doubt. Any statute or administrative regulation necessarily makes actions illegal that are not overt initiations of crimes or torts according to libertarian theory. Every statute or administrative rule is therefore illegitimate and itself invasive and a criminal interference with the property rights of noncriminals.”
Another complaint against the free market stems from “behavioral economics.” Consumers, it is alleged, often act in an irrational way against their own best interests. Hence the benevolent action of bureaucratic experts is required to “nudge” people into rationality. Taleb responds. “We have survived in spite of tail risks; our survival cannot be that random.” (Tail events are “extreme events of low frequency,” i.e., the Black Swans mentioned earlier.) The supposed “mistakes” that the behavioral economists allege people commit often are good ways to cope with tail risks.
Taleb assails the leading behavioral economists in mordant fashion: “And if you dream of making people use probability in order to make decisions, I have some news: more than ninety percent of psychologists dealing with decision making (which includes such regulators as Cass Sunstein and Richard Thaler) have no clue about probability, and try to disrupt our efficient organic paranoias.” In another place, he calls Thaler a “creepy interventionist.”
Taleb extends his criticism of “pseudo-rationalism” to ethics. Here “universalism” is the enemy: “So we skip Kant’s drastic approach for one main reason: Universal behavior is great on paper, disastrous in practice. Why? As we will belabor ad nauseam in this book, we are local and practical animals, sensitive to scale. … We should focus on our immediate environment: we need simple practical rules. Even worse: the general and the abstract tend to attract self-righteous psychopaths. … In other words, Kant did not get the notion of scaling — yet many of us are victims of Kant’s universalism.” (In another place, though, influenced by Derek Parfit, Taleb assigns a positive though not exclusive rule to Kantian ethics.)
In one of the most original passages in the book, Taleb applies “skin in the game” to criticize Pascal’s wager. “This argument (that real life is risk taking) reveals the theological weakness of Pascal’s wager, which stipulates that believing in the creator has a positive payoff in case he truly exists, and no downside in case he doesn’t. Hence the wager would be to believe in God as a free option. If you follow the idea to its logical end, you can see that it proposes religion without skin in the game making it a purely academic and sterile activity.”
For Taleb, this will never do, as it neglects the whole point of religion. “It is therefore my opinion that religion exists to enforce tail risk management across generations, as its binary and unconditional rules are easy to teach and enforce.” Though one disagrees with this author at one’s peril, I wonder whether this account of religion is unduly reductionist. Does not religion involve cognitive claims about the nature of ultimate reality, which must be assessed directly, rather than viewed exclusively as tools for evolutionary survival? When, e.g., Henry Vaughan writes, “There is in God, some say/ A deep but dazzling darkness,” this seems a claim about the world, rather than a rule for our conduct in it.
Readers of Skin in the Game will be struck by Taleb’s originality, acuity, and erudition. He is a thinker of outstanding merit, and it would be risky indeed to ignore him.
[Full issue of the Quarterly Journal of Austrian Economics 20, no. 4 (2017)]
Scandinavian Unexceptionalism: Culture, Markets, and the Failure of Third-Way Socialismby Nima SanandajiLondon: Institute for Economic Affairs, 2015, 132 pp.
The Scandinavian countries, and primary among them Sweden, are commonly referred to as anomalies or inspirations, depending on one’s political point of view. The reason is that the countries do not appear to fit the general pattern: they are enormously successful whereas they “shouldn’t” be. Indeed, Scandinavians enjoy very high living standards despite having very large, progressive welfare states for which they pay the world’s highest taxes.
As a result, a large and growing literature, both propagandist and scholarly, has emerged that tries to identify the reasons for this Scandinavian exceptionalism—especially as pertains to their welfare states. I have myself contributed to this literature (e.g., Bylund, 2010) and have previously reviewed others’ contributions to it in this journal (Bylund, 2015). But what has been missing is a summary analysis that is accessible to non-scholars. It was therefore a delight to read Nima Sanandaji’s Scandinavian Unexceptionalism: Culture, Markets, and the Failure of Third-Way Socialism, published by British Institute for Economic Affairs.
Dr. Sanandaji is a political-economy analyst and writer, well known in both Sweden and Europe, and as expected does an excellent job summarizing the state of scholarship. He also uses examples and quotes from articles published in Scandinavian news media to illustrate the narrative. The result is a short and informative but easy to read answer to both how and why the Scandinavian welfare states seem to work so well.
The short book provides the reader with insight into Scandinavian culture, an explanation of the causes of the nations’ exceptional rise from poverty, an overview of their recent political-economic history, the distinct structure and evolution of the Scandinavian welfare state, the origins of their egalitarianism and gender equality, and the effect of immigration. I will briefly touch on three of these areas.
First, Sanandaji makes clear that the rosy story of the Scandinavian welfare state, as it is usually told, is at best incomplete. The Scandinavian countries were among the European continent’s poorest by the end of the 19th century and were largely unaffected by the industrialization that had started centuries earlier in the United Kingdom. A combination of classical liberal reform and the adoption of industrialized production created a century-long “golden age,” as Bergh (2014) denotes the period approximately 1870–1970 in Sweden, of economic growth and rapidly rising standards of living.
This growth was partly also made possible by a distinct Scandinavian culture, with is characterized by the “[h]igh levels of trust, a strong work ethic and social cohesion [that] are the perfect starting point for successful economies” (p. 7). As Sanandaji points out, the market-aligned virtues of Scandinavian culture also explain the limited impact of the welfare state as it was erected and ballooned in the 1930s and beyond. Cultural change takes time, and thus old values lag in the face of political change. So it took time for the Scandinavian virtues to give way to the destructive incentives of the welfare state.
It should also be noted, though Sanandaji fails to make this point clearly, that after the welfare state was established, and during its several decades of expansion, it’s growth rate tended to be lower than that of the overall economy. The increasing burden was therefore, in relative terms, marginal. That is, until the radical 1960s and 1970s when Scandinavian governments, and the Swedish government in particular, adopted very expansionist welfare policies. (This political shift is analyzed in detail in, e.g., Bergh [2014]).
Sanandaji also presents interesting data with respect to Scandinavian gender equality. His discussion begins with the internationally enviable women’s labor market participation rate in Scandinavian countries, and especially Sweden. The background, however, is that Sweden’s government had adopted a radical agenda for population control formulated by Gunnar and Alva Myrdal (yes, the same Gunnar Myrdal who shared the 1974 economics prize with Hayek). The gist of this reform was to enforce a shared responsibility between parents and “the community” for children’s upbringing. By raising taxes on income while offering government-run daycare services, families were incentivized (if not “forced,” economically speaking) to secure two full-time incomes.
Interestingly, while this indeed rapidly increased women’s participation in the labor market, Sanandaji notes that “few women in the Nordic nations reach the position of business leaders, and even fewer manage to climb to the very top positions of directors and chief executives” (p. 102). Part of the reason is that jobs that women typically choose, including education and healthcare, are monopolized in the vast public sectors. As a result, women at trapped in careers where employers do not compete for their competence and many leadership positions are political.
This development is indirectly illustrated in a terrifying statistic from Sweden’s labor market: “Between 1950 and 2000, the Swedish population grew from seven to almost nine million. But astonishingly the net job creation in the private sector was close to zero” (p. 33).
Finally, Sanandaji addresses the issue of immigration and shows that the Scandinavian nations were exceptionally good at integration, with greater labor participation for immigrants than other Western nations, prior to the radicalization of the welfare state. Thereafter, due to rigid labor regulations and vast welfare benefits, immigrants were more or less kept out of Scandinavian job markets.
The literature identifies two potential explanations. First, the anti-business and job-protection policies practically exclude anyone with lacking work experience, highly sought-after skills, or those with lacking proficiency in the language or limited network. This keeps immigrants as well as young people unemployed (the very high youth unemployment rates in Scandinavia illustrate this problem). Second, the promises of the universal welfare state tend to attract people who are less interested in working their way to the top and thus have a lacking work ethic.
This explains the recent problems in Scandinavia with respect to immigration, which is essentially an integration and policy problem—not a foreign-people problem.
Overall, Sanandaji’s book provides plenty of insights and a coherent explanation for the rise of the Scandinavian nations and their welfare states. Their impressive standard of living is a free-market story, which is rooted in an economically sound culture. This culture also supported the welfare state, until decades of destructive incentives eroded the nations’ sound values. The welfare state, after its radicalization, was soon crushed under its own weight, and Scandinavia has since undergone vast free-market reforms that again have contributed to economic growth and prosperity.
Considering the full story, Sanandaji summarizes the example of the Northern European welfare states simply and bluntly: “Scandinavia is entirely unexceptional” (p. 10).
The Christmas truce, which occurred primarily between the British and German soldiers along the Western front in December 1914, is an event the official histories of the "Great War" leave out, and the Orwellian historians hide from the public. Stanley Weintraub has broken through this barrier of silence and written a moving account of this significant event by compiling letters sent home from the front, as well as diaries of the soldiers involved. His book is entitled Silent Night: The Story of the World War I Christmas Truce. The book contains many pictures of the actual events, showing the opposing forces mixing and celebrating together that first Christmas of the war. This remarkable story begins to unfold, according to Weintraub, on the morning of December 19, 1914:
Lieutenant Geoffrey Heinekey, new to the 2nd Queen's Westminister Rifles, wrote to his mother, 'A most extraordinary thing happened. … Some Germans came out and held up their hands and began to take in some of their wounded and so we ourselves immediately got out of our trenches and began bringing in our wounded also. The Germans then beckoned to us and a lot of us went over and talked to them and they helped us to bury our dead. This lasted the whole morning and I talked to several of them and I must say they seemed extraordinarily fine men. … It seemed too ironical for words. There, the night before we had been having a terrific battle and the morning after, there we were smoking their cigarettes and they smoking ours. (p. 5)
Weintraub reports that the French and Belgians reacted differently to the war and with more emotion than the British in the beginning. The war was occurring on their land and "The French had lived in an atmosphere of revanche since 1870, when Alsace and Lorraine were seized by the Prussians" in a war declared by the French (p. 4). The British and German soldiers, however, saw little meaning in the war, and, after all, the British king and the German kaiser were both grandsons of Queen Victoria. Why should the Germans and British be at war, or hating each other, because a royal couple from Austria was killed by an assassin while they were visiting in Serbia? However, by December 1914, hundreds of thousands of soldiers had been killed, wounded, or were missing since the beginning of the war in August (p. xvi).
It is estimated that over eighty thousand young Germans had gone to England before the war to be employed in such jobs as waiters, cooks, and cab drivers, and many spoke English very well. It appears that the Germans were the instigators of this move towards a truce. So much interchange had occurred across the lines by the time Christmas Eve approached that Brigadier General G. T. Forrestier-Walker issued a directive forbidding fraternization:
For it discourages initiative in commanders, and destroys offensive spirit in all ranks. … Friendly intercourse with the enemy, unofficial armistices and exchange of tobacco and other comforts, however tempting and occasionally amusing they may be, are absolutely prohibited. (p. 6–7)
Later strict orders were issued that any fraternization would result in a court-martial. Most of the seasoned German soldiers had been sent to the Russian front while the youthful and somewhat untrained Germans, who had been recruited first, or quickly volunteered, were sent to the Western front at the beginning of the war. Likewise, in England young men rushed to join in the war for the personal glory they thought they might achieve and many were afraid the war might end before they could get to the front. They had no idea this war would become one of attrition and conscription, or that it would set the trend for the whole twentieth century, the bloodiest in history, which became known as the War and Welfare Century.
As night fell on Christmas Eve the British soldiers noticed the Germans putting up small Christmas trees along with candles at the top of their trenches and many began to shout in English, "We no shoot if you no shoot." (p. 25) The firing stopped along the many miles of trenches and the British began to notice that the Germans were coming out of the trenches toward the British, who responded by coming out to meet them. They mixed and mingled in no-man's-land and soon began to exchange chocolates for cigars and various newspaper accounts of the war which contained the propaganda from their respective homelands. Many of the officers on each side attempted to prevent the event from occurring but the soldiers ignored the risk of a court-martial or of being shot.
Some of the meetings reported in diaries were between Anglo-Saxons and German Saxons, and the Germans joked that they should join together and fight the Prussians. The massive amount of fraternization, or maybe just the Christmas spirit, deterred the officers from taking action and many of them began to go out into no-man's-land and exchange Christmas greetings with their opposing officers. Each side helped bury their dead and remove the wounded so that by Christmas morning there was a large open area about as wide as the size of two football fields separating the opposing trenches. The soldiers emerged again on Christmas morning and began singing Christmas carols, especially "Silent Night." They recited the 23rd Psalm together and played soccer and football. Again, Christmas gifts were exchanged and meals were prepared openly and attended by the opposing forces. Weintraub quotes one soldier's observation of the event: "Never … was I so keenly aware of the insanity of war." (p. 33)
The first official British history of the war came out in 1926 and indicated that the Christmas truce was a very insignificant matter with only a few people involved. However, Weintraub states,
During a House of Commons debate on March 31, 1930, Sir H. Kinglsey Wood, a Cabinet Minister during the next war, and a Major "In the front trenches" at Christmas 1914, recalled that he "took part in what was well known at the time as a truce. We went over in front of the trenches and shook hands with many of our German enemies. A great number of people [now] think we did something that was degrading." Refusing to presume that, he went on, "The fact is that we did it, and I then came to the conclusion that I have held very firmly ever since, that if we had been left to ourselves there would never have been another shot fired. For a fortnight the truce went on. We were on the most friendly terms, and it was only the fact that we were being controlled by others that made it necessary for us to start trying to shoot one another again." He blamed the resumption of the war on "the grip of the political system which was bad, and I and others who were there at the time determined there and then never to rest … Until we had seen whether we could change it." But they could not. (p. 169–70)
Beginning with the French Revolution, one of the main ideas coming out of the nineteenth century, and which became dominant at the beginning of the twentieth century, was nationalism with unrestrained democracy. In contrast, the ideas which led to the American Revolution were those of a federation of sovereign states joined together under the Constitution, which severely limited and separated the powers of the national or central government in order to protect individual liberty. National democracy was restrained by a Bill of Rights. These ideas came into direct conflict with the beginning of the American War Between the States, out of which nationalism emerged victorious. A principal idea of nationalism was that the individual owed a duty of self-sacrifice to "The Greater Good" of his nation and that the noblest act a person could do was to give his life for his country during a war, which would, in turn, bring him immortal fame.
Two soldiers, one British and one German, both experienced the horrors of the trench warfare in the Great War and both wrote moving accounts that challenged the idea of the glory of the sacrifice of the individual to the nation in an unnecessary or unjust war. The British soldier, Wilfred Owen, wrote a famous poem before he was killed in the trenches seven days before the Armistice was signed on November 11, 1918. He tells of the horror of the gas warfare, which killed many in the trenches and ends with the following lines:
If in some smothering dreams you too could paceBehind the wagon that we flung him in,And watch the white eyes writhing in his face,His hanging face, like a devil's sick of sin;If you could hear, at every jolt, the bloodCome gargling from the froth-corrupted lungs,Obscene as cancer, bitter as the cudOf vile, incurable sores on innocent tongues —My friend, you would not tell with such high zestTo children ardent for some desperate gloryThe old Lie: Dulce et decorum estPro patria mori.The Latin phrase is translated roughly as "It is sweet and honorable to die for one's country," a line from the Roman poet Horace used to produce patriotic zeal for ancient Roman wars.
The German soldier was Erich M. Remarque, who wrote one of the best antiwar novels of all time, entitled All Quiet on the Western Front, which was later made into an American movie that won the 1930 Academy Award for Best Picture. He also attacked the idea of the nobility of dying for your country in a war, and he describes the suffering in the trenches:
We see men living with their skulls blown open; We see soldiers run with their two feet cut off; They stagger on their splintered stumps into the next shell-hole; A lance corporal crawls a mile and half on his hands dragging his smashed knee after him; Another goes to the dressing station and over his clasped hands bulge his intestines; We see men without mouths, without jaws, without faces; We find one man who has held the artery of his arm in his teeth for two hours in order not to bleed to death.
I would imagine that the Christmas truce probably inspired the English novelist and poet Thomas Hardy to write a poem about World War I entitled "The Man He Killed," which reads as follows:
Had he and I but metBy some old ancient inn,We should have sat us down to wetRight many a nipperkin!
But ranged as infantry,And staring face to face,I shot at him as he at me,And killed him in his place.
I shot him dead because —Because he was my foe,Just so: my foe of course he was;That's clear enough; although
He thought he'd 'list, perhaps,Off-hand like — just as I —Was out of work — had sold his traps —No other reason why.
Yes, quaint and curious war is!You shoot a fellow downYou'd treat if met where any bar is,Or help to half-a-crown.
The last chapter of Weintraub's book is entitled "What If — ?" This is counterfactual history at its best, and he sets out what he believes the rest of the twentieth century would have been like if the soldiers had been able to cause the Christmas truce of 1914 to stop the war at that point. Like many other historians, he believes that with an early end of the war in December of 1914, there probably would have been no Russian Revolution, no communism, no Lenin, and no Stalin. Furthermore, there would have been no vicious peace imposed on Germany by the Versailles Treaty, and therefore, no Hitler, no Nazism, and no World War II. With the early truce there would have been no entry of America into the European War and America might have had a chance to remain, or return, to being a Republic rather than moving toward World War II, the "Cold" War (Korea and Vietnam), and our present status as the world bully.
Weintraub states that
Franklin D. Roosevelt, only an obscure assistant secretary of the navy — of a fleet going nowhere militarily — would have returned to a boring law practice, and never have been the losing but attractive vice presidential candidate in 1920, a role earned by his war visibility. Wilson, who would not be campaigning for reelection in 1916 on a platform that he kept America out of war, would have lost (he only won narrowly) to a powerful new Republican president, Charles Evans Hughes. (p. 167)
He also suggests another result of the early peace:
Germany in peace rather than war would have become the dominant nation in Europe, possibly in the world, competitor to a more slowly awakening America, and to an increasingly ambitious and militant Japan. No Wilsonian League of Nations would have emerged. … Yet, a relatively benign, German-led, Commonwealth of Europe might have developed decades earlier than the European Community under leaders not destroyed in the war or its aftermath. (p. 167)
Many leaders of the British Empire saw the new nationalistic Germany (since 1870–71) as a threat to their world trade, especially with Germany's new navy. The idea that economics played a major role in bringing on the war was confirmed by President Woodrow Wilson after the war in a speech wherein he gave his assessment of the real cause of the war. He was campaigning in St. Louis, Missouri, in September of 1919, trying to get the US Senate to approve the Versailles Treaty and he stated,
Why, my fellow-citizens, is there [anyone] here who does not know that the seed of war in the modern world is industrial and commercial rivalry? … This war, in its inception, was a commercial and industrial war. It was not a political war.
The great economist Ludwig von Mises advocated a separation of the economy from the government as one important solution to war so that business interests could not get government assistance in foreign or domestic markets:
Durable peace is only possible under perfect capitalism, hitherto never and nowhere completely tried or achieved. In such a Jeffersonian world of unhampered market economy the scope of government activities is limited to the protection of the lives, health, and property of individuals against violence or fraudulent aggression. …
All the oratory of the advocates of government omnipotence cannot annul the fact that there is but one system that makes for durable peace: A free market economy. Government control leads to economic nationalism and thus results in conflict.Ludwig von Mises, Omnipotent Government: The Rise of the Total State and Total War (Grove City, PA: Libertarian Press, 1985), pp. 284 and 286.
Weintraub alludes to a play by William Douglas Home entitled A Christmas Truce, wherein characters representing British and German soldiers have just finished a soccer game in no-man's-land on Christmas day and are engaged in a conversation which very well could represent the feelings of the soldiers on that day. The German lieutenant concedes the impossibility of the war ending as the soccer game had just done, with no bad consequences — "Because the Kaiser and the generals and the politicians in my country order us that we fight."
"So do ours," agrees Andrew Wilson (the British soldier).
"Then what can we do?"
"The answer's 'nothing.' But if we do nothing … like we're doing now, and go on doing it, there'll be nothing they can do but send us home."
"Or shoot us." (p. 110)
The Great War killed over ten million soldiers and Weintraub states, "Following the final Armistice came an imposed peace in 1919 that created new instabilities ensuring another war," (p. 174). This next war killed more than fifty million people, over half of whom were civilians. Weintruab writes,
To many, the end of the war and the failure of the peace would validate the Christmas cease-fire as the only meaningful episode in the apocalypse. It belied the bellicose slogans and suggested that the men fighting and often dying were, as usual, proxies for governments and issues that had little to do with their everyday lives. A candle lit in the darkness of Flanders, the truce flickered briefly and survives only in memoirs, letters, song, drama and story. (p. xvi)
He concludes his remarkable book with the following:
A celebration of the human spirit, the Christmas Truce remains a moving manifestation of the absurdities of war. A very minor Scottish poet of Great War vintage, Frederick Niven, may have got it right in his "A Carol from Flanders," which closed,
O ye who read this truthful rime from Flanders, kneel and say:God speed the time when every dayShall be as Christmas Day. (p. 175)
Mark Thornton is the Peterson-Luddy Chair in Austrian Economics and a Senior Fellow at the Mises Institute. He serves as the Book Review Editor of the Quarterly Journal of Austrian Economics. His publications include The Economics of Prohibition (1991), Tariffs, Blockades, and Inflation: The Economics of the Civil War (2004), The Quotable Mises (2005), The Bastiat Collection (2007), An Essay on Economic Theory (2010), The Bastiat Reader (2014), and The Skyscraper Curse and How Austrian Economists Predicted Every Major Crisis of the Last Century (2018).
Dr. Thornton served as the editor of the Austrian Economics Newsletter and was a member of the Editorial Board of the Journal of Libertarian Studies and several other academic journals. He has served as a member of the graduate faculties of Auburn University and Columbus State University. He has also taught economics at Auburn University at Montgomery and Trinity University in Texas. Mark served as Assistant Superintendent of Banking and economic adviser to Governor Fob James of Alabama (1997-1999), and he was awarded the University Research Award at Columbus State University in 2002. He is a graduate of St. Bonaventure University and received his PhD in economics from Auburn University. In 2014, he debated in opposition to the "War on Drugs" at Oxford Union.
Dr. Thornton has been featured in American Spectator, Barron's, Bloomberg, Christian Science Monitor, The Economist, Forbes, Investors' Business Daily, Le Monde, New York Post, New York Times, USA Today, Wall Street Journal, Economic Times (India), Financial Times (Norway), and Tejarat-e-Farda (Iran). He has also had regular multiple appearances on Russia Today and Press TV
His editorials and interviews have appeared in the following leading regional newspapers: Apple Daily (Hong Kong), Atlanta Constitution, Birmingham News, Business Alabama, Chicago Sun-Times, Houston Chronicle, Mobile Press Register, Minneapolis-St. Paul Star Tribune, Montgomery Advertiser, New York Post, Orange County Register, Richmond Times Dispatch, Tampa Tribune, and the Washington Times
His commentary appears regularly in the Mises Daily and the Mises Wire. He also appears regularly on "Boom-Bust," "RT," "Butler on Business," "Tom Woods Show," "Thom Hartmann Show," "Scott Horton Show," "Press TV and "Freedom Works."
[Review of Michael Rectenwald, Google Archipelago: The Digital Gulag and the Simulation of Freedom (Nashville, TN, and London: New English Review Press, 2019).]
The near-homogeneity of Silicon Valley political beliefs has gone from wry punchline to national crisis in the United States. The monoculture of virtue signaling and high- and heavy-handed woke corporate leftism at places like Google, Twitter, and Facebook was once a source of chagrin for those who found themselves shut out of various internet sites for deviating from the orthodoxies of the Palo Alto elites. After the 2016 presidential election, however, it became obvious that the digitalistas were doing a lot more than just making examples of a few handpicked "extremists." From the shadow banning of non-leftist sites and views to full-complement political propagandizing, Bay Area leftists have been so aggressive in bending the national psyche to their will that there is talk in the papers and on the cable "news" channels of "existential threats to our democracy."
It is tempting to see this as a function of political correctness. Americans, and others around the world, who have found themselves on the "wrong side of history" (as determined by the cultural elite in an endless cycle of epistemological door closing) have long been shut out of conversations, their views deemed beyond the pale of acceptable discourse in enlightened modern societies. Google, Facebook, Twitter — are these corporations, and their uber-woke CEOs, just cranking the PC up to eleven and imposing their schoolmarmish proclivities on the billions of people who want to scrawl messages on their electronic chalkboards?
Not so, says reformed leftist — and current PC target — Michael Rectenwald. The truth of Stanford and Harvard alumni's death grip on global discourse is much more complicated than just PC run amok. It is not that the Silicon Valley giants are agents of mass surveillance and censorship (although mass surveillance and censorship are precisely the business they’re in). It’s that the very system they have designed is, structurally, the same as the systems of oppression that blanketed and smothered free expression in so much of the world during the previous century. In his latest book, Google Archipelago, Rectenwald outlines how this system works, why leftism is synonymous with oppression, and how the Google Archipelago’s regime of “simulated reality” “must be countered, not only with real knowledge, but with a metaphysics of truth.”
Google Archipelago is divided into eight chapters and is rooted in both Rectenwald’s encyclopedic knowledge of the history of science and corporate control of culture, as well as in his own experiences. Before retiring, Rectenwald had been a professor at New York University, where he was thoroughly entrenched in the PC episteme that squelches real thought at universities across North America and beyond. Gradually, Rectenwald began to realize that PC was not a philosophy, but the enemy of open inquiry. For this reason, and because Rectenwald is an expert in the so-called digital humanities and the long history of scientific (and pseudo-scientific) thinking that feeds into it, Google Archipelago is not just a dry monograph about a social issue. By turns memoir, Kafkaesque dream sequence, trenchant rebuke of leftist censorship, and intellectual history of woke corporate political correctness, Google Archipelago is a welcoming window into a mind working happily in overdrive.
There is much in Google Archipelago addressing the lie that Google, Facebook, and Twitter are neutral platforms for free-ranging debate. This is not so much, because, statistically and empirically, it is irrefutable that Silicon Valley is hostile to non-Beltway-leftist opinions, but because, much more damningly, their woke-capital corporate structures are themselves iterations of massification, propaganda, and deep social control. For Rectenwald, the “Google archipelago” is not PC version 2.0; it is Marxism, version 1,000 (and raised by several orders of magnitude to boot).
For example, in the first and second chapters of Google Archipelago, Rectenwald lays out how the various elements of woke-capitalist ideological repression work together in actual practice. Rectenwald’s chief example is the Gillette ad campaign of January 2019, in which a company whose products (razor blades and shaving cream) are purchased, of course, was said to insult the very essence of its customers by belittling manhood as “toxic.” Why would a razor blade company go out of its way to alienate the people who buy the majority of razorblades? The answer is surprising. Rectenwald tells us Gillette was not simply responding to a renewed PC craze by running the “toxic masculinity” ad. Gillette, from the beginning, has been a pioneer in designing systems to mold public opinion and shape individuals into easily pliable socialist masses. King Camp Gillette, the founder of what is now the Gillette company, hated competition and sought to make, as he put it, a "world corporation." Through this corporation, the ignorant plebs around the globe could be impelled to do what their social and intellectual superiors — the leaders of the "world corporation" — thought was in their best interest. This "singular monopoly," as Rectenwald puts it, would control the material and mental makeup of the entire world. Quoting King Camp Gillette’s biographer, Rectenwald adds, "It was almost as if Karl Marx had paused between The Communist Manifesto and Das Kapital to develop a dissolving toothbrush or collapsible comb."Rechtenwald, p. 61, quoting Russell B. Adams, King C. Gillette: The Man and His Wonderful Shaving Device (New York: Little, Brown and Company, 1978), pp. 13-14.
Rectenwald outlines a direct line of descent from this earlier corporate socialism of razor blades and "collapsible comb[s]" to the "authoritarian leftism" of the present digital age, authoritarian leftism being "the operational ethos of the Google Archipelago." The Google Archipelago’s "wokeforce" practices what Rectenwald calls "avant-garde identity politics extremism," the organizing principle for deciding which parts of society are in revolt against PC and need to be excised from the archipelago of allowed opinion. The internet did create the "information superhighway," as was endlessly exclaimed by politicians and nascent digitalistas during the late 1990s. But it also amplified the structures of woke corporate control that had been in place since the beginning of globalized leftism, Marxian “capitalist” finance, and elite-led collectivism — precisely the kind of inversion of free enterprise and perversion of the free market practiced by King Camp Gillette and his socialist comrades a hundred and more years before. The Google Archipelago is not a product of the personal computer, but of another kind of political correctness, the PC that is the manifestation of the same old human urge to control others and bring the world under the sway of one’s will.
Other contemporary philosophers, most notably Shoshana Zuboff in The Age of Surveillance Capitalism, have used Marxian categories and terminology to show how Google’s digital collectivism is little more than a bastardization of old-fashioned Marxism-Leninism. Rectenwald, however, has done the truly creative work of exploring how the Google Archipelago re-upping of Marx is not only practically Marxist, but conceptually and structurally so.
Google Archipelago is the record of an individual who fought his way out of the groupthink hive (Rectenwald believes that groupthink now takes the form of a binary reduction of the human person to easily manipulable units rather than the dialectical materialism of the Marxism of yesteryear) and is now trying to piece together the mechanisms of his long season of unfreedom.
But the way out of the Google Archipelago is a narrow strait, and fraught with peril. As Rectenwald writes:
GULAG is an ideological state apparatus, if not the state itself, a state that penetrates deeper by the second, infiltrating the very recesses of cognition, of conscious thought and unconscious potentiality. The culture wars will soon be fought not merely on the college campus or social media networks but in cybernetic circuits that splice will, libidinal desire, perception, and identity into distributed cognitive networks that elide our bodies, while attempting to disguise themselves as our minds.
In 1959, Henry Hazlitt's book, The Failure of the "New Economics," was published by D. Van Nostrand Company, a reputable but midsized publishing company. The book was subtitled An Analysis of the Keynesian Fallacies.
This was Hazlitt's magnum opus. That is to say, it was his great work. Yet it was narrowly focused. It was a monograph. In clear prose, he took apart John Maynard Keynes's magnum opus, The General Theory of Employment, Interest, and Money (1936), the book that indirectly reshaped economic theory in the second half of the twentieth century.
The Book Almost Nobody Has Read Almost no one has ever read the book. There is good reason for this. Keynes' book is unreadable. Its arguments are incoherent. This is why we rarely see direct quotes from the book. Keynesianism did not become a major factor in the thinking of most economists until 1945. The Keynesian movement accelerated in 1948 because of the first edition of Paul Samuelson's textbook Economics. I own a reprint of that original edition. Keynes is not quoted in the book. Samuelson mentioned him on pages 253 and 303. The book and its later editions have sold something in the range of four million copies. It was the most successful economics textbook of the twentieth century. It shaped the thinking, or rather the non-thinking, of millions of students for seventy years. Yet almost none of these students has ever read The General Theory cover to cover.
Samuelson in 1946 wrote a laudatory assessment of the impact of The General Theory. It was published in Econometrica, an academic journal not noted for its clarity.
In any case, it bears repeating that the General Theory is an obscure book, so that would be anti-Keynesians must assume their position largely on credit unless they are willing to put in a great deal of work and run the risk of seduction in the process. The General Theory seems the random notes over a period of years of a gifted man who in his youth gained the whip hand over his publishers by virtue of the acclaim and fortune resulting from the success of his Economic Consequences of the Peace.
A reprint of his article is here.
The General Theory was not well received at the time of this publication. Richard Ebeling, a Misesian economist, wrote in 2004,
Except for some of Keynes’s young protégés at Cambridge University, most of the reviewers of the book were highly critical of many of its theoretical “innovations,” as well as its inflationary prescriptions for unemployment. Even some economists who later became proponents of Keynes’s “new economics” were initially highly critical of his work. For example, Alvin Hansen, who was one of the leading advocates of Keynesian economics in the United States in the 1950's and 1960's, wrote in late 1936 that The General Theory “is not a landmark in the sense that it lays the foundation for a ‘new economics.’ … The book is more a symptom of economic trends than a foundation stone upon which a science can be built.”
Yet within a few years, and most certainly by the end of World War II, Keynes’s ideas had virtually pushed aside every other explanation of the causes and cures of economic depressions. Keynes’s book became the foundation stone for the new “macroeconomics.”
In contrast to Keynes's book, Hazlitt's book is readable, although not so readable as all of his other books. That is because he had to spend his time trying to make sense out of Keynes's convoluted prose and shifting definitions. But the book is coherent, and his explanations are lucid, as long as he was not directly citing Keynes.
I read the book in the summer of 1963. I know this because I used to write the date on which I had bought a book on the front inside cover page. I did not read Economics in One Lesson until 1971, when I became a senior staff member at the Foundation for Economic Education (FEE). The first book spoiled me. It really is a tour de force. I realize that the second book was his bestseller and is a fine introductory book for people who know nothing about economic theory, but his book on Keynes outshines it. Unfortunately, almost nobody has read it. It remains an unread book that demolishes an equally unread book.
In 1960, Van Nostrand published a follow-up volume edited by Hazlitt, The Critics of Keynesian Economics. It is a compilation of scholarly articles written by critics of Keynes.
The Mises Institute has done yeoman service in making certain that both of these books remain in print, and both of them remain available in PDF format free of charge.
The Memory Hole Hazlitt's book was not the first full-length book to criticize Keynes or the longest. That honor belongs to Arthur Marget, who was the first economist to devote a book to critiquing a narrow aspect of Keynes's General Theory. It is a two-volume behemoth of over fourteen hundred pages, The Theory of Prices. It also covered Keynes's earlier book, Treatise on Money (1930). The first volume was published in 1938; the second volume was published in 1942. It was unknown when it was published, and it remained unknown after it was republished in 1966. It is not as incoherent as Keynes's book, but it is turgid, prolic, and unread. Almost no economist has ever heard of Marget. That was true in his day, too. There is no Wikipedia entry on him. His book did not go down the memory hole. It was published at the bottom of the memory hole, and it remained there. John Egger wrote a detailed review of it in 1995, which gives you some indication of just how obscure it is. It took over half a century to get a detailed review. Egger concluded, "Labels aside, Marget's work offers scholarship in the history of monetary doctrine that is unmatched, and an analysis of processes that is in some respects unmatched, in explicitly Austrian works. 'Prolixity' or not, it deserves to be recognized as an exciting and significant contribution to the tradition of the methodologically individualistic analysis of monetary processes." The use of the adjective "exciting" to describe this book I regard as exaggerated. The Mises Institute has made a PDF available of each volume.
Hazlitt in 1959 was a well-known economist. He had a regular column in Newsweek from 1946 to 1966. The Mises Institute has reprinted those articles in a massive 800-page book, Business Tides. Yet despite his name identification, the economic guild successfully blacked out references to Hazlitt's book on Keynes. I never recall seeing a footnote to the book in any academic economic article other than those published in Austrian school journals.
The economists' academic guild never took Hazlitt seriously. After all, Hazlitt did not go to college. Keynes did go to college, but he did not major in economics. He majored in mathematics. That certainly did not in any way hamper his capture of the academic guild after 1945.
We have waited for seven decades for some other economist with Hazlitt's ability to penetrate an opponent's arguments, analyze them critically, and report on why they (1) are incoherent and (2) fail to deal with economic reality. W. H. Hutt, did attempt to do this in a 1963 book, Keynesianism — Retrospect and Prospect, and a follow-up book, The Keynesian Episode: A Reassessment (1980), but Hutt's books were turgid and uninspiring. I say this as a fan of Hutt. I had intended to study economics under him. He got me a graduate fellowship when our joint plans fell through in 1967. In refuting Keynes, he allowed Keynes's convoluted arguments to overwhelm his own prose. These two books never gained traction. Even within the free market, anti-Keynes community, they never gained traction. In a 1971 article, Hutt commented on this:
I had expected reasoned objections to my rigorously-stated argument following the publication of my book. None has been forthcoming. Nor has a subsequent article of mine (entitled Keynesian Revisions) which submitted further evidence of a retreat by major exponents of the Keynesian gospel, called forth any reply. In the meantime the retreat has continued although, apart from Leijonhufvud's impressive and scholarly critique, I am aware of no further direct attack on the Keynesian system.
Leijonhufvud's 1968 book, On Keynesian Economics and the Economics of Keynes: A Study in Monetary Theory, is also impenetrable. It was written for his academic peers, but it had no effect in slowing down the Keynesian juggernaut. It was not a hard-core assault on Keynesian economics. It did not get reprinted. It has long since disappeared.
He noted in the book's Introduction that the exegesis of The General Theory had fallen into disfavor. What he did not mention was that this exegeting had been required after 1945 because newly converted young economists felt it necessary to explain what Keynes had really meant. This was because nobody could figure out what he meant. Leijonhufvud wrote:
John Maynard Keynes’ The General Theory of Employment, Interest and Money signaled a revolution in economic theory and the beginning of “modem” macro theory. No other economic work in this century has been the subject of anything even approaching the vast outpouring of commentary and criticism that the General Theory has received. But in the last five or ten years, theoretical and exegetical interest in the General Theory has declined markedly. The long “Keynes and the Classics” debate, devoted to the appraisal of the precise nature and significance of Keynes’ innovations, has at last almost petered out. The label “post-Keynesian” attached to much recent theoretical research is symptomatic of the widespread view that the book on the General Theory is closed, that the “Keynesian Revolution” is over, and that what was worthwhile in it has been digested and the rest discarded. The General Theory has itself become a classic — a work which the active theorist need not consult but in which historians of economic doctrines will have a continuing interest.
The General Theory had become a classic in this sense from the day it was published. Nobody consulted it. Nobody quoted it as authoritative. Like the crowd that cheered the emperor with no clothes, the academic world awaited a clear-sighted child who would announce to the world, "The emperor has no clothes."
Hazlitt made this announcement and proved it. But the crowd continued to cheer the emperor. It pushed Hazlitt to the back of the crowd and pretended he had never issued his evaluation.
The Two Core Errors Hazlitt was always very gracious to me. He was gracious to everybody he met. Therefore, it may be remiss for me to make two observations. But he won't mind. He has been dead a long time.
Hazlitt and all of the other critics of Keynes never did get to the primary points with respect to what was wrong with Keynes. One point was theoretical. The other was practical. Were I to write a book on Keynes, I would begin the introduction with my two observations. Then I would pursue these two observations for several hundred pages. I would not invoke jargon. I would not use any equations. I would simply hammer over and over and over on these two points.
- Theory. The entire Keynesian apparatus rests on this assumption: the economy needs greater spending in order to pull it out of recession. The system is therefore a demand-side analysis. He argued that investors, fearing the loss of their money, would invest. If they invest, this will lead to reduced consumption and a worse recession. He ignored the obvious: all of money invested goes to other people's incomes. The money stays in the economy, rewarding those with assets to sell, whether labor, capital, or raw materials. This "money disappears" argument was the same conceptual error made by "Major" C. H. Douglas in the years after World War I, whom Keynes praised in the General Theory (pp. 370–71). This was the Social Credit movement's supreme error. I have written a book on this, Salvation through Inflation.
The question, then, is this: "Where will the government get its hands on the money that it will use to spend?" There are only three ways: borrow it, print it, or tax it out of the hands of the public.
Where had the money been before the government borrowed or taxed? It had been in people's bank accounts. The banks were lending out money, and borrowers deposited it in their accounts. If the government had not intervened with massive deficits, selling its IOUs to the banks or to the investors directly, the banks would have had to invest the money somewhere. Money is not stored under mattresses. So, the government simply extracted the money from investors who would have had to seek out profitable avenues of lending, bearing the uncertainty of their actions. The money would have been spent, one way or another. It would have been spent either in forming capital or else providing consumer loans. In other words, the government cannot get something from nothing. This critique should be front and center. The entire critique should rest on this obvious fact: there is no such thing as a free lunch. There is also no such thing as a free investment.
In 2008, Lew Rockwell published my comments:
The heart of John Maynard Keynes’ analysis in 1936 was the idea of a permanent free market equilibrium with high unemployment. For some reason, which he never explained coherently, sellers refuse to lower their prices when faced with buyers who refuse to buy at yesterday’s pre-Depression prices. This is especially true of workers who refuse to cut their wage demands.
Keynesianism is based on two fundamental ideas: (1) sellers do not learn that something is better than nothing, and therefore will not lower their selling prices; (2) economists do not learn that government spending that is financed by debt is accomplished in one of only two ways: (a) money lent by savers, which could have been lent to businesses or consumers; (b) money lent by a central bank, which lowers the purchasing power of the currency unit. This is a philosophy of something for nothing.
- Practice. Keynesianism has always wrapped itself in equations and mathematics. But here is reality: government spending is determined, not by mathematics, but by the ability of politicians to extract wealth from the general public and still get reelected. There is nothing scientific about it.
The entire Keynesian analytical apparatus — which itself is self-contradictory — has never been used by politicians in a scientific way to determine what degree of taxation, borrowing, or inflating will suffice in pulling an economy out of recession or depression. There is no science of Keynesian economics that tells politicians how much taxation or debt, or how much borrowing of newly created money from the central bank, is appropriate. Politicians pay no attention to the recommendations of Keynesian economists, which shows wisdom on the part of politicians. Politicians are far wiser in this regard than economists who have been granted a PhD degree by other economists.
Conclusion Some bright young economist would be wise to establish his reputation as the premier anti-Keynesian economist of this generation. I proposed this a decade ago, but no one has taken the bait.
The place to start reading for a career-long project along these lines is The Failure of the "New Economics." Then go to Hunter Lewis' Where Keynes Went Wrong (2009). Then go here.
The Supreme Court has opened the door for legalized sports betting around the country. In May more money was wagered in New Jersey on sports than Nevada. In its first full year, New Jersey books have taken in $3 billion in wagers. Other revenue-starved states are sure to jump on the sports betting bandwagon, after all, it must be easy running sports books. Post the numbers and watch the money roll in. Maybe not.
Last September, FanDuel, a company which made its name in daily fantasy sports, was booking in-play bets on the Broncos-Raiders game. By some glitch, FanDuel offered 750 to 1 odds on Denver to win with a minute left. The Broncos were down by two, but had the ball and were driving. The odds should have been 1 to 6, but instead, as ESPN reported,
[Anthony]Prince was handed his 750-1 ticket with about a minute left in the game, as the Broncos trailed by two points on their final drive. Denver kicked a field goal with 6 seconds left to win 20-19, capping a second-half comeback that started with the Broncos down 12-0.
Prince’s $110 bet paid $82,610.
Too many mistakes like that and companies like FanDuel will go out of business. Chris Andrews grew up with bookmaking in Pittsburgh and, of course, made his way to the land of legal bookmaking, Nevada. He learned from the best and has plenty of stories to tell in his book Then One Day: 40 Years of Bookmaking in Nevada.
Andrews has scathing words for today’s casino corporate mindset. “Naturally, the geniuses in the boardroom think anyone can be a bookmaker.” Anyone who looks good and reads the sports page can be made sports book manager, says Andrews.
Today’s sports book managers are bet-takers, not bookmakers, and though the results are totally mediocre, it’s the way of the corporate business world.
Andrews set the line (with help from Roxy Roxborough and Uncle Jack Franzi) at the Club Cal Neva in Reno and watched employees from Harrah's come and copy his line every morning. There is no love lost between the author and Harrah’s.
And if you’re looking for help from media prognosticators, Andrews writes, “most of us in the industry either laugh or cringe when these guys come on.” There are sharps or wise guys (smart money) and there are squares or the public (dumb money).
So is it the amount of money which moves a line, or who is betting? Us squares always hear that it’s the amount of money. That books are always looking for balanced two-way action on a game. Andrews pokes a hole in that notion.
I’ll move a football game off a key number (3 or 7) or move it a whole point, which I would never do based on a big bet from an unknown player. The public loves to bet steam, but what they don’t understand is that if a wiseguy lays 6 on a game and now they’re jumping in at -7, it’s not nearly the same thing as what the wiseguy bet.
So the books really are in the gambling business. Just as there is no price equilibrium, the books have a rooting interest on every game. “I’ve said, I never chased wiseguys or their action,” writes Andrews. “I kept them to their limits and tried to manipulate the line to go in with their sides whenever possible.” (emphasis added)
The Sharps, dedicated to making money, show up and bet against the line when it appears fresh and ripe for the picking. The Squares bet the picked over and massaged point spreads and odds with their hearts on their sleeves.
The primary thrust of Andrews’s book are the stories of colorful characters. Every sports book has plenty. However, for me, the book’s best tale has Andrews and some friends betting a monster Pick-6 ticket at the now long gone Bay Meadows racetrack in San Mateo, California. As Andrews explains, when betting a Pick-6 (pick the winning horses for 6 designated races), knowing what horses can’t win is more important than inside info on which horses may win.
If you’ve ever bet horses, chapter 17 “A Day at the Races” will get your heart pounding and is worth the price of the book.
That bookmakers are good with numbers is a given, but to be great, a certain attitude is required. After quoting H.L. Mencken’s famous quip, “Nobody ever went broke underestimating the intelligence of the American people,” Andrews wonders, “I don’t know if old H.L. was a bookmaker, but he would have been a great one if he had been.”
There are a handful of bookmakers in the author’s family, but nationwide, there will likely not be enough to competently operate every sports book, in every state which makes sports wagering legal. However, the “corporate guys in neckties and shiny shoes” that Andrews despises so much might do okay, because, as he explains, “The public always figures out a way to blow their money.”
People, Power, and Profits: Progressive Capitalism for an Age of Discontent. By Joseph E. Stiglitz. Norton, 2019. Xxvii + 371 pages.
Joseph Stiglitz is an eminent economist, but it is evident from People, Power, and Profits that he is a moralist as well, and one of a peculiar sort. Early in the book, he says this: “to answer such questions [about what to do] I have to explain the true source of wealth, distinguishing wealth creation from wealth extraction. The latter is any process whereby one individual takes wealth from others through one form of exploitation or another. The true source of ‘the wealth of a nation’ lies...in the creativity and productivity of the nation’s people and their productive interactions with each other...it rests on...institutions broadly referred to as ‘the rule of law, systems of checks and balance, and due process.’” (pp.xiii-xiv)
One might have been reading Franz Oppenheimer or Albert Jay Nock on the distinction between the political and the economic means. Stiglitz does spoil things a little when he says later on that “the real politik of the twenty-first century” is that those who seek to preserve the “values I articulate” will have to persuade others to follow the policies he suggests. Since realpolitik (one word, not two) means politics based on interests rather than ideology, this is confusing. It seems a forgivable slip, though, given Stiglitz’s seeming endorsement of a distinction basic to libertarian thoughtAfter all, “as Shakespeare put it, ‘to err is human.’” (p.263, note 20) It was actually Alexander Pope who said that, but never mind: to err is human. (Pope wrote “humane,” a standard spelling for “human” in the eighteenth century.)
In fact, though, Stiglitz means close to the opposite of what libertarians have in mind by the distinction between production and predation. For him, it is greedy capitalists and other private rent-seekers who exploit the people, and the state that maintains values.
Why does he think this? As he sees matters, equality is of fundamental importance: “The American dream of equality of opportunity is a myth: a young American’s life prospects are more dependent on the income and education of his parents than in almost any other advanced country. I tell my students that they have one crucial decision to make in life: choosing the right parent. If they get it wrong, their prospects may be bleak.” (p.44) To clarify Stiglitz’s point, his objection is not just to the fact that some people have poor prospects, but also to the fact that some people have vastly more income and wealth than others.
How does inequality come about, if, as he says, equality of opportunity is a shared American value? The very well off, in his view, have written the rules in their favor. The government has become their tool. If he is correct, the solution seems obvious. Do we not need to curtail the power of the government? To anticipate an objection, I do not endorse Stiglitz’s commitment to equality. But if you do want equality, and you think that the rich control the government, limits on the state seem required.
Stiglitz is well aware of this contention. He says: “But here’s the rub: the powers that enable government to improve social well-being can be used by some groups or individuals within society to advance their interests at the expense of others. This is sometimes termed ‘government failure,’ in contrast to market failure.” (p.149) This of course is the familiar contention of the public choice school, ably defended by Randall Holcombe in his excellent Political Capitalism The problem with attempts to compare market failure with government failure, Stiglitz thinks, is that only market fundamentalists believe that the market can operate without strong government control. ”My study of economics had taught me that the ideology of many conservatives was wrong; their almost religious belief in the power of markets---so great that we could largely rely on unfettered markets for running the economy---had no basis in theory or evidence.” (p.xii). Elsewhere, he writes of a “libertarian dream.”(p.139)
If we persist and ask why Stiglitz is so convinced of the need for a strong government hand in the economy, we confront a paradox. Stiglitz is best known as an economist for his work on the limitations of the neoclassical model of competitive equilibrium. Concerning the model, he says, “It is not robust---slight changes in assumptions...lead to large changes in results...” (p.280, note 1) Yet he judges the free market inadequate because it fails to conform to the requirements of this model.
For example, he holds that the growth of knowledge, infrastructure, and even charitable help to the poor are “public goods” that the market cannot on its own produce efficiently according to the criterion used in this model. “This can be put another way: everyone wants to be a free-rider on the efforts of others. They can enjoy the benefits of the public goods provided by others without bearing the cost.” (p.322, note 4.) Much of his assault on the “market power” of monopolies rests on judging them by the standards of a perfect competition model in equilibrium. Prices charged by entrepreneurs that do not quickly revert to the prices that would be set in this model he deems exploitative.
Stiglitz professes great concern for the potential of the poor, but in fact he thinks that most people are irrational and require control by enlightened experts like him. In reviewing a proposal that people should be deemed owners of their personal data but should be able to consent to allowing internet companies to use the data, he says: “Some say, let it be. The individual is freely deciding whether to let others have his data. But there many areas where we as a society decide to interfere in individuals’ unfettered decisions. There are other settings where we forbid individuals to engage in behavior that harms only themselves, such as participating in pyramid schemes or selling organs....Individuals don’t really appreciate what is or could be done with their data...” (p.129) In another instance, he says: ”Firms can also pry wealth from others by taking advantage of their weaknesses—for instance, enticing them to gamble away their wealth or persuading them to borrow at usurious interest rates.” (p.281, note 9)
Because people are so easily deceived by the false information they see on social media, the government needs to guide them to the truth. “We can also attempt to create more discerning consumers of information. Some countries, like Italy, are extending public media education (including about social media), making individuals more aware of assertions that are blatantly false.” (p.133. On p.321, note 34, he fears that such programs will have only “limited efficacy.”)
A substantial number of Stiglitz’s complaints against the market are in fact instances of “political capitalism.” For example, in a passage that will interest supporters of the Austrian theory of the business cycle, he says: “We evolved into a system of what is called fractional reserve banking, where the amount that banks hold in reserves is just a fraction of what they owe...bankers made a pretty penny lending out money...they could create loans essentially out of thin air...when they fail, taxpayers foot the bill.” (p.111) Why is this a case of market failure? Again, if the government bails out a bank or investment firm that is deemed “too big to fail” this is quintessential political capitalism.
Even if Stiglitz is right that the free market is flawed, though, would he still not need to confront the public choice point? Would not the failures of the market, such as they are, have to be balanced against the failures of the government? Stiglitz does not think so. Talk of “regulatory capture” and the like is misplaced. A dedicated group of experts devoted to public service will act impartially to secure the public good. “Designing a good, efficient regulatory system is difficult, but we’ve done a remarkably good job of combining expertise with checks and balances. We want to avoid politicization of the regulatory process as far as possible....This doesn’t mean that every rule is ideal....But all human institutions are fallible. We’ve done a creditable job of creating a framework that works.” (pp.145-146)
Sometimes, Stiglitz’s bias is comical in its intensity. Thus, he mocks those in the Reagan era who said that “firms should pursue their shareholder interest”, not aim at social responsibility. (p.112) He tells us that “Milton Friedman the high priest of the Chicago School...was asserting these positions.” (pp.314-315, note 22). Yet later on, he says, “There is no individual abridgment of rights when we restrict corporate contributions [to political campaigns] indeed, one might argue the reverse, I buy a stock on the basis of my judgment of the corporation’s economic prospects. It weakens the economy to have to conflate those judgments with whether I agree with the CEO’s political judgments.” (pp.169-170)
He excoriates President Trump for his attacks on the judiciary: [T]aking a page from the playbook of despots everywhere...he attacked the courts themselves, undermining confidence in the judiciary and its role as a fair arbiter..” (p.165) Immediately after saying this, Stiglitz attacks judges appointed by Republicans for their partisan decisions and for "the appointment of a grossly unqualified judge, Clarence Thomas.” (p.165). It is wrong to impugn the integrity of the Court—except, of course, when I do it.
Proposals to “pack” the Court by increasing the number of judges “could lead to a further weakening of America’s democratic institutions: each side would be tempted to add further judges to the Court when they could to ensure control of the Court—until the opposing party took power. The Court is already seen to too great an extent as merely another partisan weapon; this act might confirm the perception.” (p..167) Far better would be a constitutional amendment imposing term limits on the justices. Until such an amendment is passed, “the number of positions in the Court should be increased.”(p.167)
Stiglitz perfectly illustrates a famous remark by Joseph Schumpeter: “Capitalism stands its trial before judges who have the sentence of death in their pockets. They are going to pass it, whatever the defense they may hear; the only success victorious defense can possibly produce is a change in the indictment.
[Editor's note: The following is Henry Hazlitt's review of Man, Economy, and State published in National Review in September, 1962.]
One of the unhappy casualties of World War I was the old-fashioned treatise on economic "principles." This was a work not too technical to be read by the intelligent layman, on the one hand, nor, on the other, like current textbooks, a choppy and oversimplified compilation of currently fashionable doctrine. One of the last of the species was Frank W. Taussig's Principles of Economics, first published in 1911. The spirit of that book was revealed in a passage from the preface:
I have tried in this book to state the principles of economics in such form that they shall be comprehensible to an educated and intelligent person who has not before made any systematic study of the subject. Though designed in this sense for beginners, the book does not gloss over difficulties or avoid severe reasoning. No one can understand economic phenomena or prepare himself to deal with economic problems who is unwilling to follow trains of reasoning which call for sustained attention. I have done my best to be clear, and to state with care the grounds on which my conclusions rest, as well as the conclusions themselves, but have made no vain pretense of simplifying all things.
It is the announced purpose of Dr. Rothhard's Man, Economy, and State (two volumes running to a total of 1,000 pages) to write in this spirit and "to fill part of the enormous gap of forty years' time." And he has succeeded. He has given us a work in the tradition of Taussig, Wicksteed, Fetter, Knight and Mises, a comprehensive study of principles, which treats economics as a coherent edifice, not a fragmented study of "utility," "monopoly," "international trade," "labor," "agriculture," "public finance," and "linear programming."
Such a unified edifice, as Rothbard explains, can be built only by treating economics as a deductive science using verbal logic. For "if economics proceeds by deductive logic grounded on a few simple and evident axioms, then the corpus of economics can be presented as an interrelated whole to the intelligent layman with no loss of ultimate rigor."
This was the method of the "Austrian" economists. It is the method of Ludwig von Mises. In fact, Rothbard, a former student of Mises, frankly takes off from Human Action: "From now on, little constructive work can be done in economics unless it starts from Human Action....In one sense, the present work attempts to isolate the economic, fill in the interstices, and spell out the detailed implications, as I see them, of the Misesian structure."
What contributions has Rothbard made to the structure? He indicates some of them in his own preface. His book begins by deducing the entire corpus of economics from a few simple "axioms": "the Fundamental Axiom of action—that men employ means to achieve ends"; that "there is a variety of human and natural resources," and that "leisure is a consumers' good."
Rothbard is not afraid to be old-fashioned enough to begin with "Crusoe economics" before he takes up interpersonal relations, and barter before he takes up indirect exchange through money. One of the features of his consumption-and-production theory is "the resurrection of Professor Frank A. Fetter's brilliant and completely neglected theory of rent—i.e., the concept of rent as the hire prices of a unit service. Capitalization then becomes the process of determining the present values of the expected future rents of a good.
The Fetter-Mises pure time-preference theory of interest is synthesized with the Fetter rent theory [and] with the Austrian theory of the structure of production....One 'radical' feature of our analysis of production is a complete break with the currently fashionable 'short-run' theory of the firm, substituting for this a general theory of marginal value productivity and capitalization. It is a 'general equilibrium' analysis in the dynamic Austrian, and not in the static, currently popular Walrasian sense.
Rothbard also expounds "a completely new theory of monopoly—that monopoly can be meaningfully defined only as a grant of privilege by the state, and that a monopoly price can be attained only from, such a grant. In short, there can be no monopoly price on a free market."
So far I have adhered to Rothbard's own summary. But I am not sure he has done full justice to his own contribution. For example, I do not recall any book (with the possible exception of the works of Mises, Fetter and Bohm-Bawerk) that gives so full a recognition to the inherent and omnipresent (but neglected) role of time, not merely in the explanation of interest, but in all economic activity. Rothbard constantly emphasizes time as an indispensable factor in all production, and as a necessary but "scarce" means to all our ends.
On a score of other major points, also, he contributes lucidity and light: his excellent description of the enormous benefits of a money economy over one of the direct exchange; his explanation of why a separate theory of "international" trade is unnecessary and why the "balance of payments problem" for a nation is no different from that for an individual; his rigorous exposition of a pure time-preference theory of interest; his mordant exposure of labor union fallacies; his beautiful explanation of why the free market, far from being "anarchic" or "planless," is the only organization under which true economic balance and order are possible.
What does Rothbard's book give us that Mises' does not? The question can best be answered by a comparison. One mathematician does not necessarily differ from another when he explores other fields or other specific problems. The chief difference between Mises and Rothbard is that the latter, treating at much less length some of the basic problems that Mises has explored more thoroughly, devotes a much larger part of his work to the refutation of opposing doctrines: some as found in the older works, such as those of Henry George, Veblen, Marshall, Fisher, Schumpeter, and Knight; but more particularly those found in the literature of the last twenty-five years —in the Keynesians, in the "mathematical economists," in W. W. Rostow, in Galbraith.
It is in the controversial part of his work that Rothbard is most stimulating. With the statistical and mathematical economists he is unsparing. He points out the arbitrary and unscientific nature of all index numbers, as well as the emptiness or deceptiveness of the equations in which the mathematical economists deal:
In human action there are no quantitative constants. As a necessary corollary, all praxeological-economic laws are qualitative, not quantitative.
His exposure of the chief Keynesian doctrines is thorough, and his criticism of Galbraith is devastating.
In discussing a book of such importance, with so much in it to praise, and with an instructive challenge on nearly every page to some "orthodox" or "unorthodox" doctrine, it seems ungrateful to call attention to flaws. Yet in a structure of thought of which the foundations are so carefully laid, and in the midst of an otherwise brilliant and penetrating discussion, Rothbard will suddenly announce some extraordinary conclusion based on a fragment of abstract doctrinaire logic. Examples are his sharp contrast between copyrights and patents, and his implication that the former might well be granted in perpetuity and the latter not at all; his conclusion that repudiation of government debt is no great evil; that it even has a "social utility," and the added advantage of making future government borrowing more difficult; his opinion that libel and slander ought not to be illegalized, and that even blackmail "would not be illegal in the free society. For blackmail is the receipt of money in exchange for the service of not publicizing certain information about the other person. No violence or threat of violence to person or property is involved."
It is hard to explain these aberrations. They are in such sharp contrast to the rest of the book that they seem almost as if stuck in by another hand. But they are practically all in the legal and political, rather than in the economic, field. The nearest I can come to a rational explanation of them is to assume that when Rothbard wanders out of the strictly economic realm, in which his scholarship is so rich and his reasoning so rigorous, he is misled by his epistemological doctrine of "extreme apriorism" into trying to substitute his own instant jurisprudence for the common law principles built up through generations of human experience.
I mention these lapses because I am certain that opponents of the book, and victims of his devastating refutations, trying to discredit so much that is brilliant and original and profound, will cite them with relish and with the implication that the rest of the book can be ignored. But it cannot be ignored. It is in fact the most important general treatise on economic principles since Ludwig von Mises' Human Action in 1949.
[From the Quarterly Journal of Austrian Economics.]
Entrepreneurship is a double-edged sword. On the one hand, it has become almost universally recognized over the past few decades that entrepreneurship is the engine of economic change, the generator of economic growth, and the main cause of job creation. Consequently, policy is often used in different ways to support entrepreneurs to thereby create benefits from the positive effects of entrepreneurship.
On the other hand, as William Baumol famously identified, the outcome of entrepreneurship is not necessarily productive and a boon to the economy.Baumol, William J. 1990. “Entrepreneurship: Productive, Unproductive, and Destructive,” Journal of Political Economy 98, no. 5: 893–919. Rather, entrepreneurship can be both productive and unproductive—and even destructive—depending on the institutional framework in which it takes place. Where the institutional “rules of the game” can themselves be exploited for profit, entrepreneurs find themselves in a zero-sum game competing for the privileged position without producing value for consumers.North, Douglass C. 1990. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press. Similarly, the framework for entrepreneurial action can be a source of uncertainty that harms the functioning of the market process.Bylund, Per L., and Matthew McCaffrey. 2017. “A Theory of Entrepreneurship and Institutional Uncertainty,” Journal of Business Venturing 32, no. 5: 461–475.
Using policy to support entrepreneurship, therefore, is a balancing act between helping facilitate productive entrepreneurship while avoiding incentives that lead to unproductive behavior.
The recently published collection of essays Public Policy, Productive and Unproductive Entrepreneurship: The Impact of Public Policy on Entrepreneurial Outcomes aims to shed light on how public policy impacts entrepreneurial outcomes. The underlying yet implied question, with obvious policy implications, is this: under what circumstances does entrepreneurship contribute to raising our standard of living? To use Russell S. Sobel’s words from the foreword, the book’s eight essays “highlight both the potential and actual negative consequences of policies that encourage unproductive entrepreneurship” (pp. xii–xiii).
In the first essay (chapter 2) following the editors’ introduction, Joshua C. Hall, Robert A. Lawson, and Saurav Roychoudhury argue that economic freedom is critical to create an “entrepreneurial environment,” that is, an economic culture within which entrepreneurship thrives. Relying on insights from the Economic Freedom of the World reports, the authors demonstrate that economic freedom is empirically correlated with many measures of entrepreneurship. And, consequently, they conclude asking “would it not be prudent to at least consider eliminating the various government policies that stifle [entrepreneurship]?” (p. 7)
The second essay, by Pavel A. Yakovlev and Saurav Roychoudhury, analyzes the effect of specific types of regulatory burdens on business of varying sizes. They also argue that there is a link between migration and entrepreneurship, as both involve risk taking, and thus that countries that offer an institutional environment that facilitates entrepreneurship can benefit from both domestic and immigrant entrepreneurs.
The book’s third essay looks at the relationship between regulation and entrepreneurship from the point of view of the regulator. The authors, James Fetzner and Gregory M. Randolph, provide an overview of challenges that regulators face due to the nature of the political process with respect to the design, implementation, updating and reforming of regulations.
Chapter 5 studies committee-based efforts in the United States Congress intended to increase entrepreneurship by supporting small business growth. The real effect, however, as revealed by the studied data, is that states represented on these committees experience lower levels of entrepreneurship. The author Matt E. Ryan concludes the chapter by noting that this suggests that “more politics leads to less entrepreneurship” (p. 76) — even though the intended effect is the exact opposite.
In chapter 6, Michael T. Tasto looks at how state spending on firm recruitment and economic development programs affect employment and find a positive relationship. States that do not spend on similar programs consequently lose and may thus be compelled to create such programs while other states increase their spending to stay ahead in a “race to the bottom.” Also, the author argues, such state-level spending can be taken advantage of by entrepreneurs engaging in unproductive or destructive behavior to capitalize on the offered subsidies.
The next essay is a transcript of Peter G. Klein’s testimony before the US House Committee on Financial Services in May 2012. Klein analyzes the Federal Reserve from the point of view of organizational economic theory offering a “reasonable, pragmatic, realistic view” (p. 108) of the central bank. The essay thus focuses on a specific institution and its implications for entrepreneurs, finding it both inefficient and ineffective.
The second to last essay introduces morality and human nature in the analysis of regulations. Authors Robert F. Salvino Jr. and Michael Latta argue that “Morality and economic actions may converge, but for this to be so over the long-run, the actions and their desired outcomes cannot violate human nature” (p. 111). They find that individuals need to be free to engage in economic actions to thereby “express and defend his or her moral purpose.” This applies to policy as well, as policy designed without regard for economic and moral costs disrupts rather than supports entrepreneurship.
In the final chapter, Gregory M. Randolph and Marek Rivero discuss informal institutions and entrepreneurship. The development and evolution of informal institutions remains understudied in the literature and these processes are thus poorly understood, which is problematic for policy making. The chapter discusses the definition, measurement, and analysis of informal institutions, and what this means for policy.
Overall, the book offers little that would surprise Austrians or economists used to public choice analysis. The chapters elaborate on and analyze the measurable burden of regulation on entrepreneurship using various types of data, but do not venture far from the near-obvious (to praxeologists) unintended consequences of policy or inefficiency of policy-induced reallocation of resources. The chapters also do not make any theoretical contributions regarding how entrepreneurship and policy are (inter)related.
But this is not the purpose of the book and should therefore not be considered a major weakness.
This collection of essays is best described as a primer on the topic indicated in the book’s subtitle: the impact of public policy on entrepreneurial outcomes. Each of the eight essays targets a specific aspect of policy effects on entrepreneurship, and they each contribute in their own way to the common conclusion that entrepreneurship is a double-edged sword that can be both productive and unproductive—depending on the institutional rules of the game. And they paint a broad yet consistent picture that should be of great help to those familiarizing themselves with the study of entrepreneurship and policy.
Professor Janek Wasserman, to his credit, is not a polemicist. His new book The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas is indeed a critique of the broad school of economic thought now colloquially referred to as “Austrian,” but it is not only that. It is also a lively and well-paced history of the astonishing influence prewar Viennese intellectuals had on the greater world, and continue to have in areas far beyond economics. The author’s ideology intrudes at times, but never quite so obtrusively as to derail the book’s mission. The Marginal Revolutionaries first and foremost is a worthwhile historical account of major figures from the Austrian school, and not primarily an attempt at academic or ideological refutation.
Contrast Wasserman with Duke University history professor Nancy MacLean, who is a polemicist. Her now infamous Democracy in Chains, published in 2017, was a broadside not only against the supposed right-wing takeover of academic economics, but also against the network of think tanks and university sinecures funded by business titans Charles and David Koch. In MacLean’s telling, antigovernment libertarianism has taken deep root in the American political landscape, courtesy of a vast and nefarious Koch campaign of intellectual subterfuge. This coordinated effort to capture economics departments across the country produced a cadre of essentially kept academics, who dutifully provide pseudo-scientific cover for big business interests — particularly oil oligarchs like the Kochs.
In effect, MacLean insists that highly compromised academics favor laissez-faire economic policies because their patrons pay them to do so. In the insecure and petty world of academia, this is an incendiary charge.
The Koch sphere responded predictably, and badly, attempting point-by-point refutations of MacLean’s entirely political hit job. Instead of dismissing her book the way one might treat an offering from, say, Sean Hannity or Rachel Maddow — as unserious and plainly partisan — they defaulted into full academic mode and went running for the footnotes: “Actually, on page 173 of The Calculus of Consent James Buchanan really says … .” This was an obvious mistake, because in politics if you’re explaining, you're losing. Thus MacLean, an unknown and lightweight historian, suddenly became the left commentariat’s darling and the bête noire of nervous Koch professors at universities like George Mason.
On the heels of Maclean comes Wasserman’s book, which similarly approaches its subject from the Left but without MacLean’s outright attacks, vitriol, and blinkered view of professional motivations. The Marginal Revolutionaries does not mimic MacLean’s Koch-bashing style; it is less incendiary and more scholarly in tone.
But Wasserman cannot help indulging himself in the book’s concluding chapter, with its tedious concerns about a so-called Libertarian-to-Alt-Right Pipeline, laughably worried references to supposedly controversial libertarian figures like Murray Rothbard and Ron Paul, and tut-tutting details of internecine fights between the Koch-funded Cato Institute and the Koch-free Mises Institute (your reviewer’s employer). There are also vague but requisite protestations about “reactionary” and right-wing forces in modern Austrianism, including Dr. Hans-Hermann Hoppe, which, for all their lack of objectivity, could have appeared in Vox or The Nation.
But unlike MacLean, one senses Wasserman’s heart is not in examining the sociology of late twentieth-century libertarianism and issuing indictments. As an historian of central Europe, he’s happier considering the familiar turf of coffeehouse Vienna, and thus finds firmer footing at the beginning of the book — particularly in his opening chapters on the early period and then “golden age” of Austrian economists.
Here we find a fairly robust account of Carl Menger, widely considered the father of the Austrian school owing to his seminal 1871 Principles of Economics, published in Vienna. Menger was less prolific than most of his successors, and almost reclusive later in life. As a result, Principles was not fully appreciated for two decades, until Menger’s publication of a second major book on method in 1883 revived interest in his work. But Wasserman seems to grasp the enormity of Menger’s contribution to a theory of value, an understanding desperately missing from classical and Marxist economics in the late nineteenth century. Wasserman duly credits Menger with helping to birth the “Marginal Revolution,” the critical understanding of how consumers determine the value of any good subjectively, based on the importance of the final, marginal unit of that good to them.
This contribution, along with Menger’s other developments in Principles concerning the role of time in production and proffering a deductive methodology for economics, earn sufficient mention from Wasserman. But the author entirely misses arguably the biggest revelation in the book, namely Menger’s groundbreaking insights on the origins of money. According to Menger, money emerges naturally in the market as the most salable (i.e. most liquid) commodity. Markets over time determine the best medium of exchange, an evolution tragically distorted by sovereigns or governments issuing currency by fiat. This was a revolutionary point not only for monetary economics at the time, but also for the broader understanding of political economy in the late stages of European monarchy.
Wasserman’s treatment of Eugen von Böhm-Bawerk, the most important “second generation” Austrian economist, is thorough and engaging. The author deftly illuminates the fin de siècle setting for a burgeoning Austrian movement led by Böhm — who unlike Menger consciously set about developing an established school of thought. Wasserman correctly captures Böhm’s rigor not only as an economist, but also as a wily builder of relationships and alliances at the University of Vienna and beyond. He is portrayed as an ambitious and driven actor, one who sought and found “broad resonance” in academia, government, law, philosophy, and business circles.
Böhm welcomed academic controversy and debate, expanding Menger’s theoretical work on marginal utility to the point of eviscerating the Marxist labor theory of value. Böhm for the first time offered a rational theory of interest payments, not as a form of capitalist exploitation, but rather as a natural part of the production process based on “time preference.” Humans always value something today over something in the future, and so delayed consumption must yield greater value in the form of interest paid in the future. Time preference, the desire to forego consumption today by investing for tomorrow, is Böhm’s key to civilization itself. “Roundaboutness” leads to more and greater goods in the future, making us all richer.
Professor Wasserman does not completely buy this, and takes a jab at Böhm’s “misreading of socialist theories of exploitation.” But still he gives the Austrian his due as a rising star:
Böhm’s Positive Theory of Capital did not disappoint. He offered a comprehensive explanation of the interest phenomenon while also leveling a blistering attack on labor theories of value. He became a major international figure, embodying the Austrian school even more than Menger.
Under Böhm’s leadership, the rising movement slowly but surely begins to wrest prominence and energy away from the archrival German Historical school, which had looked down its nose and Menger and the renegade Austrians. The historicist Gustav Schmoller in particular attacked Menger as lacking in “universal philosophical and historical education,” questioning his ability to work broadly across disciplines. But Böhm’s rise improves the fortunes and standing of the Austrian movement, shifting influence east toward Vienna by the end of the nineteenth century. Wasserman is skillful in showing this evolution, and the reader appreciates the nuances of both interpersonal and doctrinal disputes between the characters.
Böhm dies in 1914, as Austro-Hungary is embroiled in the Great War. A new breed of Viennese economists and thinkers emerges in the interwar and postwar years, led by Friedrich von Hayek and Ludwig von Mises. The biography and oeuvre of either man could fill several books, but their respective histories have been fully developed elsewhere and Wasserman does not attempt it. Still, it is nearly impossible today to separate their stories from the broader story of the school itself.
Both Mises and his onetime protege Hayek emigrate to America, but via different paths. Hayek wins teaching positions at the London School of Economics and then the University of Chicago, while Mises has to flee Vienna to Geneva in 1934, ahead of the Nazis, who would seize his personal papers. Ultimately, Mises lands in New York City, relying on the patronage of supporters for a position at New York University while Hayek has an easier go of things financially. The two men’s lives and careers remain intertwined, with Mises emerging as the weightier economist through his magnum opus Human Action but Hayek gaining greater notoriety and mainstream acceptance via his political philosophy in The Road to Serfdom and The Constitution of Liberty. Wasserman treats both thinkers fairly but seems disappointingly conventional in his failure to understand Mises’s deductive method of economics (praxeology) and in his lazy labeling of Hayek as the godfather of “neoliberalism” (Leftspeak for “anything I don’t like about modern capitalism”).
But The Marginal Revolutionaries is a history, not a novel, and thus the central portion of Wasserman’s book deals with dozens of other figures as well. Names like Morgenstern, Haberler, and Machlup will escape most lay readers, while the dates, places, and myriad controversies fade into obscurity. So while Mises and Hayek stand today as the best-known Austrian economists, and giants in their field, the book is a survey with no one figure taking prominence.
One of Wasserman’s tendencies, beginning in the introduction and repeated throughout the book, is a form of “concern trolling” in today’s vernacular. Despite his strong criticisms of Austrian economics, he helpfully frets about the movement’s public image. He particularly laments what he sees as heretical deviations into radical libertarianism and unwarranted disdain for empirical data, the former a red herring and the latter a reflection of the author’s aforementioned misunderstanding of method. This ersatz concern bleeds into the text at several points, with volleys like this:
It is also fair to wonder whether Austrian economics is really about economics (and not ideology) anymore. I would not blame readers who are tempted to throw up their hands at this point and, channeling Voltaire, declare that the Austrian School of economics is not Austrian nor a school nor economics.
He also takes pains to inveigh against “American Austrians,” as seen in this perplexing and context-free personal correspondence sent by minor figure Josef Herbert Furth to economist Fritz Machlup:
US Austrianism lost most of the diversity that had defined the best of the earlier tradition. The last ‘Austrian Austrians’ took part in preserving their tradition, trying to save their nonsectarian ‘family’ from radical libertarians who (quoting Furth) ‘have inherited Mises’s dogmatism without his genius, and are continuously quoting Hayek without … understanding a word of what he actually means.’
Are we somehow to assume the author would accept the “older tradition” of Austrian thought were it presented to him anew today? Would he approve of any branch of free market economics, if stripped of strident political associations and corporate patrons Wasserman does not like? Of course not. To the Left, all economics divorced from Keynes or Marx is dangerously right-wing and protective of established capital. On one hand, Wasserman works to portray the modern Austrian school, the ominous “American Austrians,” as radical libertarians whose appendages to the tradition would render it unrecognizable to the old Viennese masters. On the other hand, he credits the radicals with untoward success and influence, and in effect quite remarkably insists their worldview prevailed in the late twentieth century. So, are the Rothbardian radicals obscure and dismissible, or are they the new mainstream Austrians?
Readers already reasonably well versed in the history and sociology of the Austrian school, from sources such as Mises’s Historical Setting of the Austrian School of Economics and Hulsmann’s aforementioned biography, will find enough new insights and anecdotes here to maintain their interest. Readers less interested in economics and more concerned with tracing Viennese intellectual traditions across the Atlantic will benefit as well, though perhaps choose to skim over certain particulars. But The Marginal Revolutionaries is a worthwhile book for anyone interested in the historical context of the Austrian school, its superb and complex thinkers, and its far-reaching, enduring influence on the Western world. This book demonstrates beyond a doubt the intellectual firepower of the late Habsburg era, and provides a worthy account of an Austrian revolution which went beyond economics. Even the reluctant author himself cannot help but accept it:
Whether in university halls or libertarian think tank offices, WTO boardrooms or Silicon Valley confabs, the Austrian school has not only transformed economics and social theory but changed our world. The school’s effects are profound and pervasive, and its history permits us to think the present age.
As Ron Paul said, we are all Austrians now.
This review first appeared in Chronicles magazine.
[And Rightly So: Selected Letters and Articles of Neil McCaffrey. Edited by Peter S. Kwasniewski. Roman Catholic Books, 2019. 386 pages.]
Reading this book brought back many memories. It consists mostly of Neil McCaffrey’s letters, several of his articles and memos, and a few letters to him. Neil McCaffrey was an extraordinary man who became my friend and professional mentor on many levels. Neil had founded the Conservative Book Club in 1964, and built a booming market among National Review and Human Events readers. But he soon noted that there were not enough books for people to buy.
That’s why Neil founded Arlington House in 1965 and named it after Robert E. Lee’s ancestral home, stolen by Lincoln for a Union cemetery. (I still hope to see it returned someday.) McCaffrey had hoped to create a major publishing house that would bring conservative classics and contemporary titles to a broad public for the first time in the postwar period.
There was a series of books forecasting the death of the gold standard and its consequences, by Bill Rickenbacker and Harry Browne, preeminently. The only bestseller Arlington ever had was Harry’s How You Can Profit From the Coming Devaluation, and I worked as his editor. I also edited George Roche’s books, and the works of other many conservative leaders. I was peripherally involved in the publication of Henry Hazlitt’s books.
Preeminently, I served as editor for new editions of Mises’s Theory and History, Bureaucracy, and Omnipotent Government. Reading those books, I became a thoroughgoing Misesian. I was so thrilled to meet him at dinner in 1968. He was already in serious decline, but it was still wonderful. That is also when I got to know his wife, Margit, who later helped me found the Mises Institute.
In economics, Neil’s guide was Mises. One of Neil’s favorite topics was the moral and economic justification of charging interest. He was also a brilliant student of Catholic theology, literature, and history, and a saintly man.
Nothing mattered as much to Neil as his Catholic faith, and this led to a problem. His Catholicism was the church he had grown up in. He loved the old Latin Mass and admired Pope St. Pius X’s battle against modernism. Thus, when under Paul VI in 1970 the “Novus Ordo” replaced the Latin mass, which was almost completely banned, Neil was shocked. “When a Church that subsists on tradition bans this mass, abruptly and even ruthlessly, we are faced with a phenomenon that ought to unsettle a high-grade moron.” (p. 165)
This led to a problem. The pope is head of the church. How could Neil defy his authority? His careful study of theology gave him the answer. The pope was only infallible under extremely demanding conditions, which were almost never met in practice. Otherwise, popes can make mistakes, and many of them have. “Popes can err and often have erred in their existential judgments on concrete temporal situations, which have nothing to do with papal infallibility. One of the alarming developments in the modern Church is the tendency to deify the Popes, and no group is more guilty of this than American Catholics” (p. 230). He thought that John XXIII and Paul VI were the two worst popes in history. We can only imagine what he would have said about Pope Francis. Neil thus thought it was not only his right but his duty to fight against these popes and against the Second Vatican Council.
He followed the same course of action when he defended the free market against so-called “Catholic social teaching.” Neil said, “there is nothing in [Saint] Peter’s mandate that made him or his successors economists” (p. 33). In Neil’s opinion, Mises, Hazlitt, and Murray Rothbard were far better guides to economics. Murray sent Neil a presentation copy of Man, Economy, and State, and in response, Neil said in a letter dated May 29, 1962, “Joan [Neil’s beloved wife, Joan McCaffrey] and I are most grateful, and honored, for the inscribed set of your new opus. We hope and believe that it will come to be regarded as a classic.” (p. 43)
When you work your way through this book, it becomes more and more clear how close Neil was to Murray Rothbard. They were friends for over thirty years, and Arlington House published the first four volumes of Murray’s great Conceived in Liberty series. The two of them shared a love of jazz from the 1930s and ’40s, and the book includes a section of letters in which they talk about their favorite musicians.
Neil found much to like in libertarianism. But it had to be a libertarianism based on natural law morality, like Murray’s, not nihilism. In a memo to me dated October 29, 1989, he said,
As you distance yourselves from the barbarians and the libertines, the distance between us narrows. All the better….Bravo for your remarks on egalitarianism, which I regard as an even greater menace to liberty than the state (in our society) because it pervades every institution….We are drugged by the cliché ‘equal before God.’ Of course it’s blasphemous. You and I can see that none of us is equal. We are all different, hence unequal. Is God less perceptive than we?…to hear today’s religious leaders talk, God made a terrible mistake creating men and races so plainly unequal, so they busy themselves trying to make good His cosmic blunder….The same remarks apply, of course, to equality before the law. It is a severely limited equality, and should be. (pp. 119–20)
During the Cold War, Neil and Murray carefully avoided talking about foreign policy. Like Murray, he thought that almost all of America’s wars were unjustified, including the Civil War, World War I, and World War II. But he made a one-time exception for the Cold War, which he regarded as a life and death battle for survival against an insidious enemy. After the Cold War ended, he and Murray saw eye-to-eye:
We really did consider Communism and its allies the main enemy, and were therefore more willing than you to tolerate liberal anti-Communists. I still think that this was the correct posture for the period. But now, of course, we are in an entirely new situation and the notion of making common cause with Sidney Hook types is not far from grotesque. And this is doubly true as modern liberalism plunges ahead on its rake’s progress. I now think it represents a greater danger to souls and to civilization than even Communism. (p. 328)
When the Cold War ended, he favored a return to our traditional policy of nonintervention. It came as a shock to him that Bill Buckley did not. Like Neil, Buckley claimed to be a supporter of limited government, the free market, and nonintervention. But this had to be put away for the duration of the Cold War. But after the Cold War, Buckley still wanted to preserve American hegemony. In other words, Neil was honest, and Buckley was a phony.
This mattered to Neil because Buckley had been one of his closest friends. Neil’s extraordinary skill in promotional letters had helped National Review get off the ground, and he constantly promoted Buckley’s causes and interests.
Buckley responded with betrayal. Neil had partners in his business, and he lost control, with Buckley playing a malicious role. The company was sold to Roy Disney in the mid-1970s and eventually phased out.
By the end of his life, Neil recognized what had happened and he penned a devastating analysis of Buckley’s character. Neil, like Murray, liked Pat Buchanan for his opposition to American intervention in the Mideast and for his defense of traditional values. Buckley sought to undermine Buchanan by insinuating that Buchanan was anti-Semitic. Here is what Neil said:
The only effective way to deal with Buckley is not to deal with him at all. To reply is to dignify his attack, to make it respectable and even friendly. His aim: to destroy with a smile. In his peculiar code, this is the behavior of a gentleman….His tactic through the years, whether he has actively destroyed somebody or allowed that person to be destroyed, has been the ‘civilized’ stab in the back. (p. 323)
Neil McCaffrey was one of the greats. If you read this outstanding book, you will get a sense of why he mattered to so many of us. I closed this book with hope that a new generation will profit from Neil’s wisdom, but also with sadness “in thinking of the days that are no more.”
[Review of Stephen Kinzer, Poisoner in Chief: Sidney Gottlieb and the CIA Search for Mind Control (New York: Henry Holt and Company, 2019)]
The Central Intelligence Agency (CIA) has a fearsome reputation. The author and executor of countless coups and political assassinations, the CIA is notorious for waterboarding, “extraordinary rendition,” regime change, kidnapping, narcotics smuggling, financing of guerrilla wars, and many other unsavory activities around the world, including against Americans, even inside the United States.
But “fearsome” does not mean “flawless.” The CIA has failed at least as often as it has succeeded, and sometimes the failures are so flagrant—such as sending thousands of anticommunist guerrilla fighters behind enemy lines in Korea, Eastern Europe, China, and Southeast Asia during the Cold War, where nearly all of them died—that CIA insiders wryly refer to their organization as “Clowns In Action.”
Which is it? Is the CIA a dastardly menace or a hotbed of horrible mistakes? If Stephen Kinzer’s new book, Poisoner in Chief, is any indication, the answer is both.
A veteran reporter on foreign conflicts such as those in Rwanda, Guatemala, Nicaragua, and Iran, Kinzer is a former New York Times correspondent and, most famously, the author of the 2006 bestseller Overthrow: America’s Century of Regime Change from Hawaii to Iraq. In his latest effort he brings his analytical skills to bear on perhaps the most disturbing CIA project of them all: MKULTRA, the top-secret, long-running effort to find a method for controlling the human mind.
“History’s most systematic search for techniques of mind control,” Kinzer writes, was a by-product of World War II. At the end of 1942, a University of Wisconsin bacteriologist named Ira Baldwin—“America’s first bio-warrior” and a part-time Quaker preacher—was loaned to Washington (with the blessing of the University of Wisconsin president) in order to set up and run a bioweapons program for the United States military (p. 16). Based out of Camp Detrick in Maryland, the Baldwin lab cranked out bioweapons for possible use against Allied enemies. In one of Baldwin’s bigger projects, shipment of tons of anthrax spores, ordered by Winston Churchill for potential use against the Nazis, was approved by President Franklin D. Roosevelt and almost ready for delivery when the Germans surrendered on May 7, 1945 (p. 19).
For many, even for Quaker preachers, World War II cleared away the last of the psychological hurdles against unleashing bioweapons against an enemy. Kinzer’s book tells the tale of how the targeting of unsuspecting populations was later justified by the bigger war, the Cold War, which followed the demise of the Third Reich.
The ruined Third Reich provided much of the original brainpower for MKULTRA. Immediately after World War II, the CIA—formed out of the Office of War Information in 1945—was faced with a choice. The Germans and the Japanese had been conducting advanced experiments on germ warfare and other forms of biological weaponry. Should the Allies prosecute as war criminals the scientists involved with such projects, or hire them as expert advisors? With the Cold War starting and the Soviets looming as an unpredictable enemy, the CIA, with the tacit approval of the few members of the United States Congress who were allowed to know even the existence of the Central Intelligence Agency, decided to make use of the bioweapon expertise of erstwhile foes in order to counter the new adversary in Moscow.
For example, Kurt Blome, the Nazis’ director of biowarfare research and development whose work had been championed by Heinrich Himmler, was acquitted, by American political fiat, at the Doctors’ Trial in Nuremberg in 1947 and sent to work—as part of Operation Paperclip designed mainly to bring German rocket scientists to the US—at Camp Detrick (pp. 20–24).
It was at Camp Detrick that Blome encountered a rising star in the CIA, Sidney Gottlieb. Gottlieb, a bacteriological specialist who had been a star student of Ira Baldwin’s at Wisconsin, is the main figure in Kinzer’s book. His career is virtually synonymous with MKULTRA. Under the direction of Gottlieb, the CIA’s laboratories at Camp Detrick transitioned from R&D on bioweapons—often using unwitting American subjects, such as in 1950 when a US Navy minesweeper “specially equipped with large aerosol hoses” spent six days spraying the Serratia marcescens bacterium into the San Francisco fog, infecting some eight hundred thousand people (pp. 37–38)—to drugs which could be used for mind control. (MKNAOMI, MKULTRA’s sister CIA project, was also tasked with finding poisons and biotoxins which the CIA and the US government could use in various operations.) Gottlieb provided the big ideas into which to fit Blome’s nefarious knowledge of mass murder by bacillus. Gottlieb became, virtually overnight and with the help of former Nazi doctors, America’s “poisoner in chief.”
The CIA’s mind control program, which was assuming a bigger and bigger importance as fears of Soviet brainwashing grew in the US, was originally called Operation Bluebird and was personally overseen by CIA higher-up Allen Dulles. (47) At first, the Bluebird team experimented with “hypnosis, electroshock, and sensory deprivation,” along with drugs like sodium amytal, at CIA sites in “secret prisons in Germany and Japan,” looking for a way to extract information out of POWs and captured spies (pp. 44, 48–49). But Dulles was unsatisfied with the results and decided to give the young CIA recruit Sidney Gottlieb control of Bluebird’s updated iteration: Operation Artichoke (pp. 51–52). The goal of Artichoke was to do whatever it took to get prisoners to divulge military and state secrets to the CIA. The Cold War would brook nothing short of full-scale war against the human mind.
Dulles became deputy director of central intelligence three days after launching Artichoke in 1951, and Gottlieb, invisible to the outside world, was given virtually unlimited rein to carry out any experiments thought necessary to achieve mind control (p. 51). This drive to achieve total operational control over the human psyche eclipsed all reality and tactical limitation. If the US didn’t win the race to the mind control method, many in the CIA thought, the entire American population lay vulnerable to mental enslavement by the Soviets. Dulles, Kinzer writes, despite a disastrously unsuccessful three-year “Artichoke” attack on a Bulgarian political prisoner named Dmitri Dimitrov, “had convinced himself not only that mind control techniques exist but that Communists had discovered them, and that this posed a mortal threat to the rest of the world” (pp. 52–53).
Mind control was the pressing need, but nothing brought it within reach. Technique after technique, drug after drug, was tried on prisoners, but to no avail. In frustration, Artichoke agents under Gottlieb upped the ante, turning to marijuana, cocaine, and then heroin as possible catalysts of CIA-directed, anti-Soviet brainwashing. As part of Artichoke, a University of Rochester psychology professor was given a grant by the US Navy to test heroin on his students. The control of the mind remained as elusive as ever, despite the massive dosing of the Rochester student population with opiates. Nothing seemed to have the potential to crack open the mind for the CIA (p. 59).
Someone in Artichoke suggested using mescaline after the other narcotics failed, and this gave Sidney Gottlieb an idea. He remembered hearing about a drug called LSD which Dr. Albert Hofmann had discovered during an experiment at Sandoz laboratories in Basel, Switzerland, in 1943. Lysergic acid diethylamide (LSD), an ergot enzyme, produced extraordinary and disturbing psychological effects, Dr. Hofmann found when he ingested some and recorded the drug’s effects. Washington learned of Hofmann’s discovery in 1949, and one of the chemical specialists in the US military complex told Gottlieb of the new substance (pp. 34–35) In 1951, Gottlieb asked Harold Abramson, who had been a physician in the Chemical Warfare Service during World War II, to administer LSD to him. Gottlieb experienced the same psychedelic state as Dr. Hofmann had described. Other subjects were tested, as well, not all of them wittingly, and all seemed to exhibit similar reactions. LSD most definitely altered the mind (pp. 60–61). Gottlieb was convinced that he had found the magical drug which would allow the CIA to control the psyche, and therefore to beat the Soviets at (what Allen Dulles, Gottlieb, and many others at CIA thought, at least, was) the Soviets’ own game.
The experiments on human subjects followed rapidly after Gottlieb’s conversion to belief in the powers of LSD. These experiments often ended in death, often by murder. One study quoted by Kinzer reports that
in 1951 a team of CIA scientists led by Dr. Gottlieb flew to Tokyo….Four Japanese suspected of working for the Russians were secretly brought to a location where the CIA doctors injected them with a variety of depressants and stimulants….Under relentless questioning, they confessed to working for the Russians. They were taken out into Tokyo Bay, shot and dumped overboard. (p. 64)
The CIA carried out similar experimentation and executions in Korea and Germany (p. 64). Gottlieb was usually personally involved.
Throughout the 1950s the experimentation continued. An American artist named Stanley Glickman was lured to a bar near his studio in Paris by CIA agents in 1951 and a chemical was slipped into his drink. Glickman began to hallucinate wildly. He fled in a state of panic and remained in his Paris apartment for the next ten months in paranoid hiding until his family came to take him home, and then he spent the rest of his life as a near invalid. The chemical which the CIA had slipped into Glickman’s drink was almost certainly LSD, and Glickman, Kinzer suggests, had been chosen by the CIA because he had just recovered from hepatitis and the Artichoke team was conducting an experiment on the effects of hepatic infection on the efficacy of LSD (pp. 66–67)
Things got worse from there. In 1952, the CIA commissioned underworld denizen and former vice cop George Hunter White to run a human-subjects experiment site at 81 Bedford Street in Greenwich Village, New York (pp. 74–75). White’s job was to bring to the CIA’s apartment “expendables” on whom Gottlieb and his team could test LSD. White “knew the whores, the pimps, the people who brought in the drugs,” as one of Gottlieb’s MKULTRA colleagues later explained, and this made him invaluable for procuring the “drug users, petty criminals, and others who could be relied upon not to complain about what had happened to them” when the CIA’s experiments were finished (pp. 76–77). Many of these “expendables” suffered nervous breakdowns, and some died.
In order to keep the supply of LSD flowing, CIA agents went to Basel, where LSD had been discovered, and tried to buy all the LSD in stock. Allen Dulles authorized a $240,000 outlay to pay for it (p. 86). Sandoz held the patent for Hofmann’s 1943 discovery, but Sandoz wanted nothing to do with the troublesome substance and so Gottlieb, freed of any need to scruple over IP infringement, tasked US pharmaceutical company Eli Lilly with making LSD in the States (pp. 85–86) With their mind control serum in production, MKULTRA agents could focus on how to dose experimental subjects. The CIA even hired a professional magician, John Mulholland, to teach Gottlieb and his agents how to deliver LSD into unsuspecting subjects’ drinks and food without being detected (pp. 89–94)
Gottlieb recruited a Kentucky addiction specialist, Dr. Harry Isbell, to test LSD and new mind-altering drugs on prisoners and patients. More lives were destroyed (pp. 94–96). Among the victims of another of Gottlieb’s agent-doctors was none other than James “Whitey” Bulger, the mafioso who, along with “nineteen other inmates” at the Atlanta Federal Penitentiary, beginning in 1957 “was given LSD nearly every day for fifteen months, without being told what it was” (pp. 98–99). Bulger was plagued for the rest of his life with nightmares, suicidal thoughts, and “deep depression” (p. 98). Bulger, who had been told that he was taking part in experiments designed to find a cure for schizophrenia, did not learn the truth about what had happened until 1979 (pp. 263–64).
The human toll of Gottlieb’s MKULTRA experiments continued to mount. One of Gottlieb’s closest associates in the project, Frank Olson—a bacteriologist trained at the University of Wisconsin who had also been recruited for the CIA by Gottlieb’s mentor Ira Baldwin—began to express doubts about what the MKULTRA team was doing. He told his wife that he had made a “terrible mistake” in his work (p. 114). He shared his misgivings with his CIA colleagues as well. Olson’s conscience appeared to be getting the better of him, and he became a liability to the team.
In late 1953, Gottlieb surreptitiously dosed Olson with LSD at a backwoods MKULTRA gathering, “Deep Creek Rendezvous,” outside Camp Detrick (p. 113). Olson spiraled into a frightening disorientation, and early in the morning on November 28, 1953—a few days after Thanksgiving—Olson “fell or jumped” from a window of the Statler Hotel in Manhattan, dying few moments after hitting the concrete below. Another MKULTRA agent, Gottlieb’s lieutenant Robert Lashbrook, was the only other person in the room when Olson “fell or jumped” (pp. 120–21). Lashbrook told the New York City police that Olson had jumped out of the window and Olson’s death was originally designated a suicide, but the Olson family eventually grew suspicious and an investigation was carried out, including a new autopsy on Olson’s body. The forensic pathologist, after a month’s examination of the corpse, declared: “I think Frank Olson was intentionally, deliberately, with malice aforethought, thrown out of that window” (p. 250). Wounds on Olson’s body were consistent with methods taught in CIA manuals for incapacitating people and then killing them in order to make their deaths look self-inflicted.
Gottlieb and MKULTRA were shaken by Olson’s demise, but they carried on with their work. They spent the next few years looking for magic mushrooms in Mexico (157); arranging suicide capsules for American agents, including U-2 pilot Gary Powers (who chose not to use his when he was shot down over the Soviet Union) (pp. 172–75); attempting, at the order of then attorney general Robert Kennedy, to assassinate Cuban dictator Fidel Castro (after exploding cigars and exploding conch shells were ruled out, Gottlieb tried with a wetsuit laced with fungi and bacteria) (p. 184); and hooking Allen Ginsberg and other radicals on LSD (pp. 188–90). Gottlieb personally delivered to the American embassy in Leopoldville in the Congo poisons that Gottlieb had developed to assassinate Prime Minister Patrice Lumumba, but the Belgians and the Africans beat the CIA to it (pp. 176–80).
Gottlieb’s career brought ruin and suffering to untold numbers of people, many of them innocent. He retired from the CIA in 1973 after receiving the Distinguished Intelligence Medal (p. 211). Lifelong devotees of folk dance, Gottlieb and his wife, Margaret, moved to the countryside in rural Virginia and attempted to blend in with the small community there, volunteering, dancing, and experimenting with radical ecology. However, “investigative reporter Seymour Hersh, who had won a Pulitzer Prize for exposing the My Lai massacre in Vietnam,” learned of the MH-CHAOS program targeting Americans, and the Congress was forced to act. Gottlieb’s career, long a well-kept secret, was being brought into the open, and his retirement would therefore be far from peaceful.
But there were still many who tried to cover up what Gottlieb and the other MKULTRA agents had done. In 1975, after the outcry caused by the Hersh reporting, President Gerald Ford deputized Vice President Nelson Rockefeller to chair a commission on the CIA. The new CIA director, William Colby, was remarkably frank. Colby informed the Rockefeller Commission that “the CIA had conducted LSD experiments that resulted in deaths. Later he referred to assassination plots” (p. 216). Nelson Rockefeller, attempting to prevent the CIA director from revealing too much, buttonholed Colby later: “Bill, do you really have to present all this material to us?” (p. 216).
In 1977, in the wake of the Church Report on further American intelligence excesses, Senator Edward Kennedy, Robert’s brother, spurred on by some documents which had been discovered as the result of a FOIA request (Gottlieb had ordered all MKULTRA files burned, but some undetected copies remained), called Admiral Stansfield Turner to testify before Congress on MKULTRA. The walls were closing in. Gottlieb himself was eventually forced to testify—albeit in a closed-room setting his lawyer had helped arrange—but Gottlieb essentially pleaded amnesia (nearly all of his answers to questions about MKULTRA were some version of “I do not recall”) and the matter seemed to end there.
Still, the skeletons in Gottlieb’s closet would not go away. In 1984 Gottlieb agreed to meet with the family of Frank Olson, the former MKULTRA colleague who had “fallen or jumped” from his Manhattan hotel room in 1953. Eric Olson, Frank Olson’s son, was unconvinced by Gottlieb’s explanation for the “accident,” and, after Frank Olson’s widow and Eric’s mother passed away, ordered Frank’s body exhumed in 1994. As information about MKULTRA built in the public’s awareness, other cases were reopened, including that of Stanley Glickman. (257) The courts were now involved and Gottlieb could not count on the CIA to get him out of his legal trouble. Gottlieb pushed back the trial for Glickman’s murder as long as he could, and then, in early March, 1999, Sidney Gottlieb died.
Like Frank Olson, it was not officially revealed whether or not the death had been a suicide (p. 259).
Stephen Kinzer’s Poisoner in Chief is a highly readable, thoroughly researched introduction to the life and work of one of America’s most unknown, and yet infamous, government agents. Kinzer is to be thanked for his plainspoken, courageous book. Even those who have studied the CIA and the various schemes and crimes which “the Agency” has committed over the past seventy-five years will be surprised by some of the information Kinzer relates. To see in one volume a rendering of just some of the lives ruined by just one CIA program, MKULTRA, is a sobering revelation.
Sidney Gottlieb, the person directly responsible for much, if not most, of the MKULTRA devastation over more than twenty years, remains as mysterious at the end of Kinzer’s volume as at the beginning, however. By all accounts Gottlieb was a good student from a stable family. Kinzer speculates that perhaps Gottlieb’s having been rejected for military service in World War II—Gottlieb stuttered and had a clubfoot—left him unsatisfied and impatient to prove his patriotism, an urgent task for the son of immigrant Jews (p. 50). Gottlieb was heavily involved in New Age mysticism and meditation and appears to have expended considerable energy psychologically compartmentalizing his “work,” so there are indications that he was aware that the experiments he and his MKULTRA team were carrying out were, at best, unethical, and objectively speaking often outright crimes.
But Gottlieb was hardly alone in his endeavors, and the explanation that Gottlieb, Allen Dulles, and many others in the CIA gave—to themselves and to each other, and to the world around when pressed—makes the most sense. They had a country to defend, they faced an enemy of unprecedented cruelty in the Soviet Union, and they were willing to do whatever it took, even sacrificing innocent people, to keep Americans as a whole from falling under the spell of communist mind control.
Listen to the Audio Mises Wire version of this article.
Re-reading Economics in Literature: A Capitalist Critical Perspectiveby Matt SpiveyLexington Books, 2021133 pages
Matt Spivey asks an important question. Literary critics often use economics to interpret the texts they consider, but often they have mistaken ideas about economics. They oppose the free market and are frequently Marxists. Spivey, an English professor at Arizona Christian University who specializes in American literature, asks, Why not use correct economics instead? And by “correct” economics, he means Austrian economics. In carrying out his project, Spivey continues the pioneering work of Paul Cantor and Stephen Cox, eds., in Literature and the Economics of Liberty, and it comes as no surprise that Cantor calls Spivey’s book “a welcome breath of fresh air in its field.” (See my review of Cantor and Cox here.)[[{"fid":"94552","view_mode":"default","fields":{"format":"default","alignment":"center","field_file_image_alt_text[und][0][value]":"Join or Renew Today!","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":"https://mises.org/2020donate"},"type":"media","field_deltas":{"1":{"format":"default","alignment":"center","field_file_image_alt_text[und][0][value]":"Join or Renew Today!","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":"https://mises.org/2020donate"}},"attributes":{"alt":"Join or Renew Today!","class":"media-element file-default media-wysiwyg-align-center","data-delta":"1"}}]]
Spivey has set himself a hard task, in that four of the five books he discusses are written from perspectives opposed to the free market and he often has to show how insights in the books undermine themes the authors suggest. The first book he considers, though, the Narrative of Frederick Douglass, was written by a committed supporter of individual enterprise. “He was against collectivist economic systems and viewed any attempt at eradicating or revolutionizing the fundamentals of capitalism as completely unrealistic…he knew America was different from anywhere else in the world for its singular freedom.” (p. 39)
Austrian economists stress the entrepreneurial aspect of human action. Individuals must seize chances of gain through their appraisal of their situation, and here Douglass was a master and not a slave. Douglass constantly sought to increase his knowledge and skills. He did not allow his starting point in slavery to get the better of him. “Douglass, though enduring a horrific existence of enslavement, remains an acting individual whose life choices, though severely limited due to his abhorrent circumstances, are still varied and available” (p. 37). Spivey calls Douglass’s enterprising efforts an attempt to build up his “human capital,” and though this, as Peter Klein explains here, is a term Austrian economists prefer to avoid, one can see what Spivey means.
Spivey draws a brilliant analogy between Austrian business cycle theory and Jay Gatsby’s courtship of Daisy Buchanan in F. Scott Fitzgerald’s The Great Gatsby. According to the Austrian account, the cycle begins with an expansion of bank credit, driving the money rate of interest below the natural rate, determined by time preference. This leads to malinvestments that cannot be sustained. The depression that follows purges these mistakes from the economy. In like fashion, Gatsby tried to impress Daisy though his lavish parties, paid for by forged bonds acquired through crime: “But it is Gatsby’s business connections that serve the defining role of illicit money in the novel, whereby we gather by several clues…that Gatsby has made at least some of his vast fortune peddling forged or illegitimate bonds. The model fits with the real-world economic function of bonds, as the government has always been a primary promoter of bonds issues” (p. 56). Though at first impressed with Gatsby’s ill-gotten wealth, Daisy in the end rejects him, and Spivey compares her rejection to the collapse of unsustainable investments.
Defenders of the free market might be expected to find John Steinbeck’s The Grapes of Wrath a challenge to their beliefs. Capitalism may benefit many people, but weren’t the Okies, driven from their farms during the 1930s, an exception? Spivey proves equal to the challenge. To a large extent, the Okies’ problems stemmed from government intervention. Spivey makes effective use of Murray Rothbard’s demonstration that Herbert Hoover was a fervent interventionist and that his ill-advised farm policies, continued by Franklin Roosevelt, led the Okies and others to disaster. The Joads, the main Okie family in Steinbeck’s novel, “are not victims of greedy corporate financiers; rather they are pawns in the struggle between authority and autonomy. The government wants power to organize its citizenry; businesses want the independence to trade goods and services as they see fit for the success of their industry. The Joads and the millions like them are—unfortunately and incorrectly—left pointing fingers at enemies they can see instead of the ones they can’t” (p. 77).
Spivey also challenges the picture of black life in 1940s Chicago that Richard Wright offers in Native Son. Wright, a member of the Communist Party when he wrote his novel, portrays Bigger Thomas, the protagonist, as doomed to destruction owing to capitalist exploitation and racism. Spivey disagrees. He quotes Mises: “The environment determines the situation but not the response. To the same situation different modes of reacting are thinkable and feasible. Which one the actors choose depends on their individuality” (p. 96). Applying Mises’s point to Bigger, Spivey says, “How do we view Bigger when we can see that charges of racism in housing, business, employment, and other elements of [the] community are often inaccurate matters of perception and should rather be viewed as logical consequences of human interaction? How much should we sympathize with Bigger if we can see that difficulties were not unique to blacks alone, but also existed for whites with a similar cultural background, and that success was not unique to whites alone, but also existed for many blacks? These queries offer an interpretation of Bigger Thomas that reduces social sympathy and emphasizes personal responsibility” (p. 96).
Critics of the free market have a vast array of complaints against it, and in Kurt Vonnegut’s Player Piano, the field of battle turns to automation. Writing in 1952, Vonnegut feared that new technology would destroy jobs and impoverish large numbers of people. Spivey once more brings to bear the conclusions of sound economics. Mises “explains that technological improvements are not designed and implemented as a means to reduce labor, but rather to increase production. If there were no potential for production efficiency, then technology would not be adopted….With more supply at hand, more consumption and, ultimately, more leisure time are possible, in turn opening up new kinds of demand, new kinds of production, and new kinds of employment….Understanding this relationship, Mises writes, ‘explodes all talk about ”technological unemployment”’” (pp. 105–06).
Spivey says that Vonnegut’s emphasis on the level of employment is misplaced. “The goal of an individual business, on a microeconomic level, or of a national economy, on a macro scale, is not to create jobs. The goal of all economic endeavors is [to] create wealth, that is, subjective value, for all involved—owners, employees, consumers, investors, and anyone else directly or indirectly affiliated. Jobs are not ends” (p. 106).
An objection may have occurred to some readers. Is Spivey using the novels just as props that permit him to present correct economic analysis? Not at all. As suggested earlier, he uses the novels themselves to elicit points that, often against the authors’ intentions, bring out themes valuable from an Austrian point of view. Although Vonnegut, for example, is a bitter critic of the effects of automation, Bud Calhoun, a character in Player Piano, “acknowledges that one of his creations is an improvement over his own human labor. ‘Does [the job] a whole lot better than Ah did it.’…Ultimately, it must be admitted that ‘machines were doing America’s work far better than American ever done it. There were better goods for more people at less cost, and who could deny that that was magnificent and gratifying?’” (p. 108).
Spivey has overturned a type of literary criticism dominated by Marxism, and that is a magnificent achievement.
The Mises Review was a quarterly review of the literature in economics, politics, philosophy, and law which was edited by David Gordon.
As we prepare for 2021, here is a collection of Dr. Gordon's book reviews from the past year. Each article features his piercing Rothbardian insight into some of the most important new books of 2020.
War: How Conflict Shaped Us By Margaret MacMillanRandom House. 312 pages.MacMillan's book provides many insights into the true vileness of war, although she strays into some dangerous areas when she accepts the faulty economic notion that wars bring economic benefits through government spending.
Corona, Climate, Chronic Emergency: War Communism in the Twenty-First CenturyBy Andreas Malm. Verso. 215 pages."The race to zero [carbon emissions] would have to be coordinated through control measures—rationing, reallocating, requisitioning, sanctioning, ordering" and much more.
Re-reading Economics in Literature: A Capitalist Critical Perspective By Matt Spivey. Lexington Books. 133 pages.Matt Spivey continues the pioneering work of Paul Cantor and Stephen Cox in bringing sound economics to the analysis of literature.
Break It Up: Secession, Division, and the Secret History of America's Imperfect UnionBy Richard Kreitner. Little, Brown. 486 pages.Secession and division are hot topics today. With red and blue states deeply at odds, subsidiarity may replace ideology as the great political issue of the twenty-first century in America.
The Stakes: America at the Point of No ReturnBy Michael Anton. Regnery Publishing. 441 pages.Anton’s rhetorical talents are remarkable, and I urge everyone to read his book.
Tomorrow the World: The Birth of U.S. Global SupremacyBy Stephen Wertheim. Harvard University Press. 255 pages.In this outstanding study, Stephen Wertheim shows that both views that dominate American foreign policy are wrong. In doing so, he vindicates for our time the merits of a noninterventionist foreign policy.
The Tyranny of Merit: What’s Become of the Common Good?By Michael J. Sandel. Farrar, Straus and Giroux. 272 pages.If you think that it up to people themselves to decide whom they wish to associate with, I am afraid that in Sandel's mind, you are an elitist guilty of hubris.
Radical Uncertainty: Decision-Making beyond the NumbersBy John Kay and Mervyn King. Norton, 2020. 528 pagesThere is almost never clear evidence that a theory's predictions are false. You can always adjust something in the theory to make it come out true, and that is what all too many economists do.
The Deficit Myth: Modern Monetary Theory and the Birth of the People's EconomyBy Stephanie Kelton. PublicAffairs. 325 pages.Professor Stephanie Kelton is the leading light of a bizarre proposal known as modern monetary theory. Government deficits are a “myth,” because they don’t matter, because they never need to be repaid. Gordon disabuses this magical thinking.
The Problem with LincolnBy Thomas DiLorenzo. Regnery History. 240 pages.DiLorenzo demolishes the mythological view that Lincoln's primary motive for opposing secession in 1861 was his distaste for slavery.
Conceived in Liberty: The New Republic, 1784–1791By Murray N. Rothbard. Edited by Patrick Newman. Mises Institute, 2019. 332 pages.Rothbard took the American Revolution to be mainly libertarian in its inspiration, but he contends that the libertarian impulses of the Revolution were betrayed by a centralizing coup d’état. If Rothbard is right, the Constitution as written provides ample scope for tyranny.
Capitalism Alone: The Future of the System That Rules the WorldBy Branko Milanovic. Harvard University Press. 287 pages.The book’s main thesis can be summarized as: The choice the world faces is between two varieties of capitalism, liberal meritocratic and political. America is the foremost example of the first of these, and China of the second.
Socialism Sucks: Two Economists Drink Their Way Through the Unfree WorldBy Robert Lawson and Benjamin Powell. Regnery Publishing. 192 pages.Lawson and Powell have had the happy idea of presenting elementary economics in a humorous way that will appeal to those “turned off” by serious and sober scholarship.
The Economists’ Hour: False Prophets, Free Markets, and the Fracture of SocietyBy Binyamin Appelbaum. Brown and Company. 439 pages.Binyamin Appelbaum, the main writer on economics for the New York Times, thinks that economics was appropriately progressive—favoring severe market restrictions—in the first half of the twentieth century. All this changed in the fifties.
The Age of Entitlement: America Since the SixtiesBy Christopher Caldwell. Simon & Schuster, 2020. 342 pages.The task that civil rights laws were meant to carry out—the top-down management of various ethnic, regional, and social groups—had always been the main task of empires. The US now imposes this both domestically and globally.
Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So BadlyBy John Quiggin. Princeton: Princeton University Press. 390 page.David Gordon reviews John Quiggin's "Economics in Two Lessons," an effort to correct Hazlitt's "Economics in One Lesson" by adding "important truths about the limitations of the market."
Here are some additional reviews from Mises Institute scholars from the past year:
By Llewellyn H. Rockwell, Jr. The Last Gold Rush…Ever!: 7 Reasons for the Runaway Gold Market and How You Can Profit from It By Charles Goyette and Bill Haynes. Post Hill Press, 2020. 240 pages.We face a blowback "fueled by years of US imperialistic and lawless behavior around the world, and finally triggered by a critical mass of resentment of the US."
By Jason Morgan And Rightly So: Selected Letters and Articles of Neil McCaffrey Edited by Peter S. Kwasniewski. Roman Catholic Books, 2019. 386 pages.Lew Rockwell reviews a newly released collection of Neil McCaffrey's letters and other writings which reveal his relationships with members of the early libertarian movement such as Murray Rothbard.
Great Society: A New HistoryBy Amity Shlaes. HarperCollins. 528 pages.In the 1960s, politicians and bureaucrats had nearly unbounded faith in the ability to plan a nearly perfect society. Things didn't turn out as they had planned.
Poisoner in Chief: Sidney Gottlieb and the CIA Search for Mind ControlBy Stephen Kinzer. Henry Holt and Company. 368 pages.Is the CIA a dastardly menace or a hotbed of horrible mistakes? If Stephen Kinzer’s new book is any indication, the answer is both.
By Robert Murphy The Deficit Myth: Modern Monetary Theory and the Birth of the People's EconomyBy Stephanie Kelton. PublicAffairs. 336 pages.The good news is that Stephanie Kelton has written a book on MMT that is very readable and will strike many readers as persuasive and clever. The bad news is that Stephanie Kelton has written a book on MMT that is very readable and will strike many readers as persuasive and clever.
By Zachary Yost Why Associations Matter: The Case for First Amendment PluralismBy Luke C. Sheahan. University Press of Kansas. 240 pages.Tyrants inevitably work to destroy private associations. Such associations are outside of their control and are an alternative pole of allegiance, and therefore must be eliminated.
The everything bubble continues with a Monet landscape going for a record $110.7 million. Katya Kazakina wrote on Bloomberg, “Painted in 1890, ‘Les Meules,’ from the artist’s series featuring haystacks, had been estimated [to sell] at $55 million. The final price includes fees.”
Six bidders took the price from $45 million to $97 million in all of eight minutes. The winner was not identified. Another conspicuous consumption art purchase made the record books with hedge fund titan Steve Cohen paying $91 million for Jeff Koons’ Bunny Sculpture. The highest price paid for an art piece by a living artist.
Ms. Kazakina, again covering the art beat for Bloomberg, reported,
The stainless steel, 3-foot-tall inflatable bunny was part of a group of works consigned by the family of late media mogul Si Newhouse.
Art collectors and investors shelled out more than $2 billion over five days of auctions in New York last week.
A new second edition of Vikram Mansharamani’s Boombustology: Spotting Financial Bubbles Before They Burst was just released and and the author writes of the late 1980’s art boom fueled by Japanese buyers.
Mansharamani captures the animal spirit of the live auction.
Anyone who has witnessed a live auction in which bidding far exceeds pre-auction estimates or sets a new world-record price understands that there is something curious in the air. --something electric, something indescribable, something magical. I believe that “something” is confidence, perhaps even overconfidence.
The Harvard lecturer highlights auctioneer Sotheby’s (BID) stock price as a bubble indicator. If accurate, the bloom has come of the current boom, and we just don’t know it. BID is trading just north of $37, after hitting a high off $56 plus, in July 2017. Art Strategy Partners co-founder Wendy Battleson told Almost Daily Grant’s,
Ultimately that great piece of business that Sotheby’s is raving about is probably a loss leader and in a best-case scenario is probably breakeven. Good news at Sotheby’s means very bad news for their stock price.
Mansharamani’s second edition has all the great insights from the first edition plus a foreword by James Grant, a chronicling of the Bitcoin rise and fall, a discussion of quantitative easing and a new addendum on passive investing. In 2011, I wrote on Mises,org,
the author looks to the Austrians for the greater part of his macroeconomic perspective (along with Hyman Minsky), leading with a quote from Mises and quickly recognizing fractional reserves and central banking as culprits in bubble creation. Mansharamani uses the work of Roger Garrison to great effect. Those who have seen the Mises Institute's business-cycle T-shirt will recognize the graphical representation of malinvestment through low interest rates pioneered by Garrison.
Mansharamani uses more than economics to examine booms and busts. He also applies psychology, biology, and politics.
Mansharamani believes Minsky’s work dovetails with that of the Austrians. While not an Austrian sympathizer, Minsky did study under Joseph Schumpeter. John Law scholar Antoin Murphy offered the Minsky/Kindleberger sequence of events characterizing a stock market boom and bust, which I cited in chapter one of “Early Speculative Bubbles and Increases in the Supply of Money.”
Minsky believed market stability breeds instability. Debt structures, in Minsky’s view, go from hedge, to speculative, and ultimately to what he termed as, Ponzi. Hedge financing means a borrower can service interest and principal with cash flow. With speculative finance, the borrower can pay interest from existing cash flow, but must refinance the principal. Finally, in Ponzi finance, the borrower depends upon refinancing to pay both interest and principal.
Boom times cause lenders to first make more and more speculative financing, and then graduate to Ponzi finance before it all comes crashing down. The author quotes Minsky. “Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is a large weight of units engaged in speculative and Ponzi finance.”
This is all academic parlance for lenders shifting from being tight to loose. The author dubs this Minsky Migration, with the ultimate climax being what Paul McCulley termed a Minsky Moment. Stephanie Pomboy, head of MacroMavens, says three-quarters of S&P 500 earnings come from only 20 percent of the companies. According to Pomboy,there is a real question whether the rest can make debt service payments, especially if rates rise. From that, we can reasonably guess we are well into the speculative phase of finance and close to the Ponzi stage.
Which brings us to the Austrian Business Cycle. Mansharamani writes that ABC “suggests that overinvestment and excess capacity create conditions that become highly unsustainable and eventually result in a bust.”
However, Austrians would say it is not overinvestment, but malinvestment, which creates the conditions for the required bust to cleanse this misdirection of capital.
If the separation of gold and money hadn’t made investing treacherous enough, that default has led to the era of ZIRP, Operation Twist, QE, QT and other central bank shenanigans. Now, that monetary policy monster may give way to Modern Monetary Theory (MMT). Proponents of MMT are Keynesians with a greater imagination. They say budgets and deficits don’t matter, print what you need, early and often. Inflation is dead they say.
Inflation is far from dead. Asset bubbles are where the money created out of nowhere has gone.
Boombustology is your survival manual for the central bank created speculative house of mirrors, which may become more freakish.
[Review of Stephanie Kelton, The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy (New York: PublicAffairs, 2020).]
Listen to the Audio Mises Wire version of this book review. I’ve got good news and bad news. The good news is that Stephanie Kelton—economics professor at Stony Brook and advisor to the 2016 Bernie Sanders campaign—has written a book on modern monetary theory (MMT) that is very readable and will strike many readers as persuasive and clever. The bad news is that Stephanie Kelton has written a book on MMT that is very readable and will strike many readers as persuasive and clever.
To illustrate the flavor of the book, we can review Kelton’s reminiscences of serving as chief economist for the Democratic staff on the US Senate Budget Committee. When she was first selected, journalists reported that Senator Sanders had hired a “deficit owl”—a new term Kelton had coined. Unlike a deficit hawk or a deficit dove, Kelton’s deficit owl was “a good mascot for MMT because people associate owls with wisdom and also because owls’ ability to rotate their heads nearly 360 degrees would allow them to look at deficits from a different perspective” (Kelton 2020, p. 76).
Soon after joining the Budget Committee, Kelton the deficit owl played a game with the staffers. She would first ask if they would wave a magic wand that had the power to eliminate the national debt. They all said yes. Then Kelton would ask, “Suppose that wand had the power to rid the world of US Treasuries. Would you wave it?” This question—even though it was equivalent to asking to wipe out the national debt—“drew puzzled looks, furrowed brows, and pensive expressions. Eventually, everyone would decide against waving the wand” (Kelton 2020, p. 77).
Such is the spirit of Kelton’s book, The Deficit Myth. She takes the reader down trains of thought that turn conventional wisdom about federal budget deficits on its head. Kelton makes absurd claims that the reader will think surely can’t be true…but then she seems to justify them by appealing to accounting tautologies. And because she uses apt analogies and relevant anecdotes, Kelton is able to keep the book moving despite its dry subject matter. She promises the reader that MMT opens up grand new possibilities for the federal government to help the unemployed, the uninsured, and even the planet itself…if we would only open our minds to a paradigm shift.
So why is this bad news? Because Kelton’s concrete policy proposals would be an absolute disaster. Her message can be boiled down to two sentences (and these are my words, not an exact quotation): Because the Federal Reserve has the legal ability to print an unlimited number of dollars, we should stop worrying about how the government will “pay for” the various spending programs the public desires. If they print too much money we will experience high inflation, but Uncle Sam doesn’t need to worry about “finding the money” the same way a household or business does.
This is an incredibly dangerous message to be injecting into the American discourse. If it were mere inflationism, we could hope that enough of the public and the policy wonks would rely on their common sense to reject it. Yet because Kelton dresses up her message with equations and thought experiments, she may end up convincing an alarming number of readers that MMT really can turn unaffordable government boondoggles into sensible investments, just by changing the way we think about them.
Precisely because Kelton’s book is so unexpectedly impressive, I would urge longstanding critics of MMT to resist the urge to dismiss it with ridicule. Although it’s fun to lambaste “magical monetary theory” on social media and to ask, “Why don’t you move to Zimbabwe?” such moves will only serve to enhance the credibility of MMT in the eyes of those who are receptive to it. Consequently, in this review I will craft a lengthy critique that takes Kelton quite seriously in order to show the readers just how wrong her message actually is, despite its apparent sophistication and even charm.
Monetary Sovereignty In her introductory chapter, Kelton lures the reader with the promise of MMT and also sheds light on her book title:
[W]hat if the federal budget is fundamentally different than your household budget? What if I showed you that the deficit bogeyman isn’t real? What if I could convince you that we can have an economy that puts people and planet first? That finding the money to do this is not the problem? (Kelton 2020, p. 2, bold added)
The first chapter of the book makes the fundamental distinction for MMT, between currency issuers and currency users. Our political discourse is plagued, according to Kelton, with the fallacy of treating currency issuers like Uncle Sam as if they were mere currency users, like you, me, and Walmart.
We mere currency users have to worry about financing our spending; we need to come up with the money—and this includes borrowing from others—before we can buy something. In complete contrast, a currency issuer has no such constraints, and needn’t worry about revenue when deciding which projects to fund.
Actually, the situation is a bit more nuanced. To truly reap the advantages unlocked by MMT, a government must enjoy monetary sovereignty. For this, being a currency issuer is a necessary but insufficient condition. There are two other conditions, as Kelton explains:
To take full advantage of the special powers that accrue to the currency issuer, countries need to do more than just grant themselves the exclusive right to issue the currency. It’s also important that they don’t promise to convert their currency into something they could run out of (e.g. gold or some other country’s currency). And they need to refrain from borrowing…in a currency that isn’t their own. When a country issues its own nonconvertible (fiat) currency and only borrows in its own currency, that country has attained monetary sovereignty. Countries with monetary sovereignty, then, don’t have to manage their budgets as a household would. They can use their currency-issuing capacity to pursue policies aimed a maintaining a full employment economy. (Kelton 2020, pp. 18–19, bold added)
Countries with a “high degree of monetary sovereignty” include “the US, Japan, the UK, Australia, Canada, and many more” (Kelton 2020, p. 19). (And notice that even these countries weren’t “sovereign” back in the days of the gold standard, because they had to be careful in issuing currency lest they run out of gold.) In contrast, countries like Greece and France today are not monetarily sovereign, because they no longer issue the drachma and franc but instead adopted the euro as their currency.
The insistence on countries issuing debt in their own currency helps to explain away awkward cases such as Venezuela, which is suffering from hyperinflation and yet has the ability to issue its own currency. The answer (from an MMT perspective) is that Venezuela had a large proportion of its foreign-held debt denominated in US dollars, rather than the bolivar, and hence the Venezuelan government couldn’t simply print its way out of the hole. In contrast, goes the MMT argument, the US government owes its debts in US dollars, and so never need worry about a fiscal crisis.
Yes, Kelton Knows about Inflation At this stage of the argument, the obvious retort for any postpubescent reader will be, “But what about inflation?!” And here’s where the critic of MMT needs to be careful. Kelton repeatedly stresses throughout her book—and I’ve seen her do it in interviews and even on Twitter—that printing money is not a source of unlimited real wealth. She (and Warren Mosler too, as he explained when I interviewed him on my podcast) understands and warns her readers that if the federal government prints too many dollars in a vain attempt to fund too many programs, then the economy will hit its genuine resource constraint, resulting in rapidly rising prices. As Kelton puts it:
Can we just print our way to prosperity? Absolutely not! MMT is not a free lunch. There are very real limits, and failing to identify—and respect—those limits could bring great harm. MMT is about distinguishing the real limits from the self-imposed constraints that we have the power to change. (Kelton 2020, p. 37, bold added)
In other words, when someone like Alexandria Ocasio-Cortez proposes a Green New Deal, from an MMT perspective the relevant questions are not, “Can the Congress afford such an expensive project? Will it drown us in red ink? Are we saddling our grandchildren with a huge credit card bill?” Rather, the relevant questions are, “Is there enough slack in the economy to implement a Green New Deal without reducing other types of output? If we approve this spending, will the new demand largely absorb workers from the ranks of the unemployed? Or will it siphon workers away from existing jobs by bidding up wages?”
The Fundamental Problem with MMT Now that we’ve set the table, we can succinctly state the fundamental problem with Kelton’s vision: regardless of what happens to the “price level,” monetary inflation transfers real resources away from the private sector and into the hands of political officials. If a government project is deemed unaffordable according to conventional accounting, then it should also be denied funding via the printing press.
What makes MMT “cool” is that it’s (allegedly) based on a fresh insight showing how all of the mainstream economists and bean counters are locked in old habits of thought. Why, these fuddy-duddies keep treating Uncle Sam like a giant corporation, which has to make ends meet and always has to satisfy the bottom line. In contrast, the MMTers understand that the feds can print as many dollars as they want. It’s not revenue but (price) inflation that limits the government’s spending capacity.
I hate to break it to Kelton and the other MMT gurus, but economists—particularly those in the free market tradition—have been teaching this for decades (and perhaps centuries). For example, here’s Murray Rothbard in his 1962 treatise, Man, Economy, and State:
At this time, let us emphasize the important point that government cannot be in any way a fountain of resources; all that it spends, all that it distributes in largesse, it must first acquire in revenue, i.e., it must first extract from the “private sector.” The great bulk of the revenues of government, the very nub of its power and its essence, is taxation, to which we turn in the next section. Another method is inflation, the creation of new money, which we shall discuss further below. A third method is borrowing from the public. (Rothbard 1962, pp. 913–14, bold added)
To repeat, this is standard fare in the lore of free market economics. After explaining that government spending programs merely return resources to the private sector that had previously been taken from it, the economist will inform the public that there are three methods by which this taking occurs: taxation, borrowing, and inflation. The economist will often add that government borrowing can be considered merely deferred taxation, while inflation is merely hidden taxation.
And it’s not merely that inflation is equivalent to taxation. Because it’s harder for the public to understand what’s happening when government money printing makes them poorer, there is a definite sense in which standard taxation is “honest” whereas inflation is insidious. This is why Ludwig von Mises considered inflationary finance to be “essentially antidemocratic”: the printing press allows the government to get away with spending that the public would never agree to explicitly pay for through straightforward tax hikes.
Kelton and other MMT theorists argue that inflation isn’t a problem right now in the US and other advanced economies and so we don’t need to be shy about cranking up the printing press. But whether or not the Consumer Price Index is rising at an “unacceptably” high rate, it is a simple fact that when the government prints an extra $1 million to finance spending, then prices (quoted in US dollars) are higher than they otherwise would have been, and people holding dollar-denominated assets are poorer than they otherwise would have been. Suppose that prices would have fallen in the absence of government money printing. In this case, everybody holding dollar assets would have seen their real wealth go up because of the price deflation. If the government merely prints enough new dollars to keep prices stable, it’s still the case that those original dollar holders end up poorer relative to what otherwise would have happened.
Now to be sure, Kelton and other MMT theorists would object at this point in my argument. They claim that if there is still some “slack” in the economy, in the sense of unemployed workers and factories operating below capacity, then a burst of monetary inflation can put those idle resources to work. Even though the rising prices lead to redistribution, if total output is higher, then per capita output must be higher too. So, on average, the people still benefit from the inflation, right?
On this score, we simply have a disagreement about how the economy works, and in this dispute I think the Austrians are right while the MMTers are wrong. According to Mises’s theory of the business cycle, “idle capacity” in the economy doesn’t just fall out of the sky, but is instead the result of the malinvestments made during the preceding boom. So if we follow Kelton’s advice and crank up the printing press in an attempt to put those unemployed resources back to work, it will simply set in motion another unsustainable boom/bust cycle. In any event, in the real world, government projects financed by inflation won’t merely draw on resources that are currently idle, but will also siphon at least some workers and raw materials out of other, private sector outlets, as I elaborate in this article.
In summary, the fundamental “insight” of MMT—namely, that governments issuing fiat currencies need only fear price inflation, not insolvency—is something that other economists have acknowledged for decades. Where the MMTers do say something different is when they claim that printing money only carries an opportunity cost when the economy is at full employment. But on this point, the MMTers—like their more orthodox cousins the Keynesians—are simply wrong.
Tough Questions for MMT A standard rhetorical move is for proponents to claim that MMT isn’t ideological, but merely describes how a financial system based on fiat money actually works. (For example, this was the lead argument Mike Norman used when he and I were dueling with YouTube videos.) Yet since so much hinges on whether a government has “monetary sovereignty,” it’s amazing that the MMTers never seem to ask why some governments enjoy this status while others don’t.
For her part, Kelton criticizes certain nonmonetarily sovereign governments for particular actions, such as joining a currency union (Kelton 2020, p. 145), but she doesn’t ask the basic question: Once an MMT economist explains its benefits, why doesn’t every government on earth follow the criteria for becoming a monetary sovereign? Indeed, why don’t all of us as individuals issue our own paper notes—in my case, I’d print RPMs, which has a nice ring to it—and furthermore only borrow from lenders in our own personal currencies? That way, if you fell behind in your mortgage payments, you could simply print up more of your own personal notes to get current with the bank.
Posed in this way, these questions have obvious answers. The reason Greece adopted the euro, and why Venezuela borrows so much in US dollar–denominated debt, and the reason I use dollars rather than conducting transactions in RPMs, is that the rest of the financial community is very leery of the Greek drachma, the Venezuelan bolivar, or the Murphyian RPM note. Consequently, the Greek and Venezuelan governments, as well as me personally, all subordinated our technical freedom to be “monetary sovereigns” and violated one or more of Kelton’s criteria.
In short, the reason most governments (including state governments in the US) in the world aren’t “monetary sovereigns” is that members of the financial community are worried that they would abuse a printing press. The Greek government knew its economy would receive more investment, and that it would be able to borrow on cheaper terms, if it abandoned the drachma and adopted the euro. The Venezuelan government knew it could obtain much larger “real” loans if they were denominated in a relatively hard currency like the USD rather than the Venezuelan currency, which could so readily be debased (as history has shown). And I personally can’t interest anybody in financial transactions involving my authentic RPM notes, and so, reluctantly, I have to join the dollar zone.
Now that we’ve covered this basic terrain, I have a follow-up question for the MMT camp: What would it take for a government to lose its monetary sovereignty? In other words, of those governments that are currently monetary sovereigns, what would have to happen in order for the governments to start borrowing in foreign currencies, or for them to tie their own currency to a redemption pledge, or even abandon their own currency and embrace one issued by a foreign entity?
Here again the answer is clear: a government that engaged too recklessly in monetary inflation—thus leading investors to shun that particular “sovereign” currency—would be forced to pursue one or more of these concessions in order to remain part of the global financial community. Ironically, current monetary sovereigns would run the risk of forfeiting their coveted status if they actually followed Stephanie Kelton’s policy advice.
MMT Is Actually Wrong about Money For a framework that prides itself on neutrally describing the actual operation of money and banking since the world abandoned the gold standard, it’s awkward that MMT is simply wrong about money. In this section I’ll summarize three of the main errors Kelton makes about money.
Money Mistake #1: Contrary to MMT, the Treasury Needs Revenue before It Can Spend
A bedrock claim of the MMT camp is that unlike you, me, and Walmart, the US Treasury doesn’t need to have money before spending it. Here’s an example of Kelton laying out the MMT description of government financing:
Take military spending. In 2019, the House and Senate passed legislation that increased the military budget, approving $716 billion…There was no debate about how to pay for the spending…Instead, Congress committed to spending money it did not have. It can do that because of its special power over the US dollar. Once Congress authorizes the spending, agencies like the Department of Defense are given permission to enter into contracts with companies like Boeing, Lockheed Martin, and so on. To provision itself with F-35 fighters, the US Treasury instructs its bank, the Federal Reserve, to carry out the payment on its behalf. The Fed does this by marking up the numbers in Lockheed’s bank account. Congress doesn’t need to “find the money” to spend it. It needs to find the votes! Once it has the votes, it can authorize the spending. The rest is just accounting. As the checks go out, the Federal Reserve clears the payments by crediting the sellers’ account with the appropriate number of digital dollars, known as bank reserves. That’s why MMT sometimes describes the Fed as the scorekeeper for the dollar. The scorekeeper can’t run out of points. (Kelton 2020, p. 29, bold added)
For a more rigorous, technical treatment, the advanced readers can consult Kelton’s peer-reviewed journal article from the late 1990s on the same issues. Yet whether we rely on Kelton’s pop book or her technical article, the problem for the MMTers is still there: nothing in their description is unique to the US Treasury.
For example, when I write a personal check for $100 to Jim Smith, who also uses my bank, we could explain what happens like this: “Murphy instructed Bank of America to simply add 100 digital dollars to the account of Jim Smith.” Notice that this description is exactly the same thing that Kelton said about the Treasury buying military hardware in the block quotation above. (It’s true that Bank of America can’t create legal tender base money the way the Fed can; I plug that hole in the analogy a bit below with my Goldman Sachs example.)
Now of course, I can’t spend an unlimited amount of dollars, since I’m a currency user, not a monetary sovereign. In particular, if I “instruct” Bank of America to mark up Jim Smith’s checking account balance by more dollars than I have in my own checking account, the bank may ignore my instructions. Or, if my overdraft isn’t too large, the bank might go ahead and honor the transaction but then show that I have a negative balance (and charge me an insufficient funds fee on top of it).
The only difference between my situation and the US Treasury’s is that I actually have bounced checks and online payments before, whereas the US Treasury hasn’t. Indeed, Kelton’s own journal article shows that the Treasury consistently maintained (as of the time of her research) a checking account balance of around $5 billion and that the daily closing amount never dipped much below this level (Kelton 1998, p. 11, figure 4).
Indeed, the Treasury itself sure acts as if it needed revenue before it can spend. That’s why the Treasury secretary engages in all sorts of fancy maneuvers—such as postponing contributions to government employees’ retirement plans—whenever there’s a debt ceiling standoff and Uncle Sam hits a cash crunch.
The MMTers take it for granted that if the Treasury ever actually tried to spend more than it contained in its Fed checking account balance, the Fed would honor the request. Maybe it would, and maybe it wouldn’t; CNBC’s John Carney (who moderated the debate at Columbia University between MMT godfather Warren Mosler and yours truly) thinks it’s an open question in terms of the actual legal requirements, though Carney believes that in practice the Fed would go ahead and cash the check.
Yet, to reiterate, so far the Treasury has never tried to spend money that it didn’t already have sitting in its checking account. The MMT camp would have you believe that there is something special occurring day in and day out when it comes to Treasury spending, but they are simply mistaken: so far, at least, the Treasury has never dared the Fed by overdrawing its account.
Indeed, Kelton herself in her technical article from the late 1990s implicitly gives away the game when she defends the MMT worldview in this fashion:
[S]ince the government’s balance sheet can be considered on a consolidated basis, given by the sum of the Treasury’s and Federal Reserve’s balance sheets with offsetting assets and liabilities simply canceling one another out…the sale of bonds by the Treasury to the Fed is simply an internal accounting operation, providing the government with a self-constructed spendable balance. Although self-imposed constraints may prevent the Treasury from creating all of its deposits in this way, there is no real limit on its ability to do so. (Kelton 1998, p. 16, italics in original)
What Kelton writes here is true, but by the same token we can consider the Federal Reserve and Goldman Sachs balance sheets on a consolidated basis. If we do that, then Goldman Sachs can now spend an infinite amount of money. Sure, its accountants might still construct profit and loss statements and warn about bad investments, but these are self-imposed constraints; so long as the Fed in practice will honor any check Goldman Sachs writes, then all overdrafts are automatically covered by an internal loan from the Fed to the investment bank. The only reason this wouldn’t work is if the Fed actually stood up to Goldman and said no. But that’s exactly what the situation is with respect to the Treasury too.
Whenever I argue the merits of MMT, I debate whether or not to bring up this particular quibble, because wondering whether the Fed would actually cover a Treasury overdraft doesn’t get to the essence of what’s wrong with MMT. I’m actually sympathetic to the MMT claims that the Fed would be obligated to backstop the Treasury in all circumstances; it would be very naïve to think that the Fed actually enjoys “independence” from the federal government that grants the central bank its power. Furthermore, I believe that the various rounds of quantitative easing (QE) during the Obama years weren’t merely driven by a desire to minimize the output gap, but instead were necessary to help monetize the boatloads of new federal debt being issued. (Of course Trump and Powell are performing a similar dance.)
Even so, I think it’s important for the public to realize that the heroes of MMT are misleading them when they claim there is something unique to Uncle Sam in the way he interacts with his banker. So far, this is technically not the case. Even when the Fed has clearly been monetizing new debt issuance—such as during the world wars—all of the players involved technically have gone through the motions of having the Treasury first float bonds in order to fill its coffers with borrowed funds and only then spending the money. The innocent reader wouldn’t know this if he or she relied on the standard MMT accounts of how the world works.
Money Mistake #2: Contrary to MMT, Taxes Don’t Prop Up (Most) Currencies
Another central mistake in the MMT approach is its theory of the origin and value of money. (If you want to see the Austrian view, consult my article on the contributions of Menger and Mises.) To set the stage, here is Kelton explaining how Warren Mosler stumbled upon the worldview that would eventually be dubbed modern monetary theory:
Mosler is considered the father of MMT because he brought these ideas to a handful of us in the 1990s. He says…it just struck him after his years of experience working in financial markets. He was used to thinking in terms of debits and credits because he had been trading financial instruments and watching funds transfer between bank accounts. One day, he started to think about where all those dollars must have originally come from. It occurred to him that before the government could subtract (debit) any dollars away from us, it must first add (credit) them. He reasoned that spending must have come first, otherwise where would anyone have gotten the dollars they needed to pay the tax? (Kelton 2020, p. 24)
This MMT understanding ties in with its view of the origin of money and how taxes give money its value. Kelton explains by continuing to summarize what she learned from Mosler:
[A] currency-issuing government wants something real, not something monetary. It’s not our tax money the government wants. It’s our time. To get us to produce things for the state, the government invents taxes…This isn’t the explanation you’ll find in most economics textbooks, where a superficial story about money being invented to overcome the inefficiencies associated with bartering…is preferred. In that story, money is just a convenient device that sprang up organically as a way to make trade more efficient. Although students are taught that barter was once omnipresent, a sort of natural state of being, scholars of the ancient world have found little evidence that societies were ever organized around barter exchange.
MMT rejects the ahistorical barter narrative, drawing instead on an extensive body of scholarship known as chartalism, which shows that taxes were the vehicle that allowed ancient rulers and early nation-states to introduce their own currencies, which only later circulated as a medium of exchange among private individuals. From inception, the tax liability creates people looking for paid work…in the government’s currency. The government…then spends its currency into existence, giving people access to the tokens they need to settle their obligations to the state. Obviously, no one can pay the tax until the government first supplies its tokens. As a simple point of logic, Mosler explained that most of us had the sequencing wrong. Taxpayers weren’t funding the government; the government was funding the taxpayers. (Kelton 2020, pp. 26–27, bold added)
I have included these lengthy quotations to be sure the reader understands the superficial appeal of MMT. Isn’t that intriguing—Mosler argues that the government funds the taxpayers! And when you think through his simple point about debits and credits, it seems that he isn’t just probably correct, but that he must be correct.
Again, it’s a tidy little demonstration. The only problem is that it’s demonstrably false. It is simply not true that dollars were invented when some autocratic ruler out of the blue imposed taxes on a subject population, payable only in this new unit called “dollar.” The MMT explanation of where money comes from doesn’t apply to the dollar, the euro, the yen, the pound…Come to think of it, I don’t believe the MMT explanation applies even to a single currency issued by a monetary sovereign. All of the countries that currently enjoy monetary sovereignty have built their economic strength and goodwill with investors by relying on a history of hard money.
In a review of Kelton’s book, I’m not going to delve into the problems with the alleged anthropological evidence that purportedly shows that ancient civilizations used money that was invented by political fiat, rather than money that emerged spontaneously from trade in commodities. For that topic, I refer the interested reader to my review of David Graeber’s book.
Yet let me mention before leaving this subsection that the MMT story at best only explains why a currency has a nonzero value; it doesn’t explain the actual amount of its purchasing power. For example, if the IRS declares that every US citizen must pay $1,000 in a poll tax each year, then it’s true, US citizens will need to obtain the requisite number of dollars. But they could do so whether the average wage rate were $10 per hour or $10,000 per hour, and whether a loaf of bread cost $1 or $1,000.
Furthermore, other things equal, if the government lowers tax rates, then it strengthens the currency. That’s surely part of the reason that the US dollar rose some 50 percent against other currencies after the tax rate reductions in the early Reagan years. So the MMT claim that taxes are necessary, not to raise revenue (we have a printing press for that), but to prop up the value of the currency, is at best seriously misleading.
Money Mistake #3: MMT Confuses Debt with Money
Amazingly, even though their system claims to explain how money works, the MMTers apparently don’t know the simple difference between money and debt. Here’s Kelton trying to defuse hysteria over the national debt:
The truth is, we’re fine. The debt clock on West 43rd Street simply displays a historical record of how many dollars the federal government has added to people’s pockets without subtracting (taxing) them away. Those dollars are being saved in the form of US Treasuries. If you’re lucky enough to own some, congratulations! They’re part of your wealth. While others may refer to it as a debt clock, it’s really a US dollar savings clock. (Kelton 2020, pp. 78–79, bold added)
The part I’ve put in bold in the quotation above is simply wrong. And I don’t mean, “It’s wrong according to Austrian economics but right according to MMT.” No, even in the MMT framework, Kelton’s claim about the national debt is wrong. The outstanding federal debt would only correspond to “how many dollars [have been] added to people’s pockets without subtracting…them away” to the extent that the Federal Reserve had monetized the debt by taking the Treasury securities onto its own balance sheet. But to the extent that some of the outstanding Treasury debt is currently held by individuals and entities that aren’t the Federal Reserve, Kelton’s statement is simply wrong.
In the MMT framework, federal government spending creates new dollars, while taxing destroys them. Since a federal budget deficit refers to a situation where Uncle Sam spends more than he taxes, it’s understandable why Kelton concluded that the federal debt—which reflects the cumulative history of the net budget deficits and surpluses over time—is equal to the net number of dollars that Uncle Sam “spent into existence.”
But to repeat, this is wrong. Kelton forgot that when the Treasury floats new bonds, that action (in the MMT framework) also destroys dollars by removing them from the hands of the public. So if all of the outstanding Treasury debt were held by the public (or foreign central banks), then the cumulative federal budget deficits wouldn’t correspond to any net dollar creation, even in the MMT framework.
Stay with me; we have one more step: in the MMT framework (and the Austrian framework too, for that matter), when the Federal Reserve buys outstanding Treasury securities in the secondary market and takes them onto its balance sheet, this creates new dollars. Therefore, to the extent that the outstanding Treasury securities are sitting on the Fed’s balance sheet, then that portion of the national debt would correspond to “how many dollars [have been] added to people’s pockets without subtracting…them away.”
Does the reader see how cumbersome the MMT framework is? It led its chief proponent to make an elementary mistake in her attempt to explain the basics to the public. In contrast, coming from an orthodox background, I immediately knew Kelton’s claim was wrong, because borrowing money per se doesn’t create money. This is true whether corporations do it or whether Uncle Sam does it. (Just imagine $1 billion in actual currency and that the Treasury keeps issuing new $1 billion bonds to keep borrowing that same pile of green pieces of paper to continually respend them. This procedure would run up the national debt as much as we want, but at any moment there would still be the same $1 billion in currency.)
To drive home just how confused Kelton is on the difference between US Treasurys and US dollars, later in the book she writes, “Heck, I don’t even think we should be referring to the sale of US Treasuries as borrowing or labeling the securities themselves as the national debt. It just confuses the issue and causes unnecessary grief” (Kelton 2020, p. 81).
Here’s another way I can demonstrate that Kelton’s discussion is obviously missing something: if Kelton were right and the US national debt were a tally of how many dollars on net the government has “spent into existence,” then when Andrew Jackson paid off the national debt, the American people would have had no money—the last dollar would have been destroyed. And yet even Kelton doesn’t claim that dollars were temporarily banished from planet Earth, she merely claims that Jackson’s policy caused a depression. (For the Austrian take on this historical episode, see this article.)
For an even starker illustration of the MMT confusion between debt and money, consider Kelton’s approving quotations of a thought experiment from Eric Lonergan, who asked, “What if Japan monetized 100% of outstanding JGBs [Japanese government bonds]?” That is, What if the Bank of Japan issued new money in order to buy up every last Japanese government bond on earth? Lonergan argues that “nothing would change,” because the private sector’s wealth would be the same; the BOJ will have engaged in a mere asset swap. In fact, because their interest income would now be lower while their wealth would be the same, people in the private sector would spend less after the total debt monetization (!), according to Lonergan.
In response to these claims, I make a simple point: you can’t spend Japanese government bonds in the grocery store. That’s why money and debt are different things. If Lonergan were correct, then we could also go the other way: specifically, if the Japanese government issued enough bonds to absorb every last yen on planet Earth, then apparently Lonergan would have to say that aggregate demand measured in yen would go through the roof. Yet how could it, if nobody held any yen anymore? Remember, you can’t pay your rent or buy groceries with government bonds.
Do Government Deficits = Private Savings? In chapter 4, Kelton lays out the MMT case that government deficits, far from “crowding out” private sector saving, actually are the sole source of net private assets. Using simple accounting tautologies, Kelton seems to demonstrate that the only way the nongovernment sector can run a fiscal surplus is if the government sector runs a fiscal deficit.
Going the other way, when the government is “responsible” by running a budget surplus and starts paying down its debt, by sheer accounting we see that this must be reducing net financial assets held by the private sector. (This is why it should come as no surprise, Kelton argues, that every major government surplus led to a bad recession [Kelton 2020, p. 96].)
In the present review, I won’t carefully review and critique this particular argument, as I’ve done so in this article. Suffice it to say that you could replace “government” in the MMT argument with any other entity and achieve the same outcome. For example, if Google borrows $10 million by issuing corporate bonds and then it spends the money, then the net financial assets held by The World Except Google go up by precisely $10 million. (Or rather, the way you define terms in order to make these claims true is the same way Kelton gets the MMT claims about Uncle Sam to go through.) So did I just prove something really important about Google’s finances?
Obviously something is screwy here. Using standard definitions, people in the private sector can save, and even accumulate net financial wealth, without considering the government sector at all. (I spell all of this out in this article.) For example, Robinson Crusoe on his deserted island can “save” out of his coconut income in order to finance his investment of future labor hours into a boat and net. Even if we insist on a modern financial context, individuals can acquire shares of equity in new corporations, thus acquiring assets that don’t correspond to a “debit” of anyone else.
It is a contrived and seriously misleading use of terminology when MMT proponents argue that government deficits are a source of financial wealth for the private sector. Forget the accounting and look at the big picture: even if the central bank creates a new $10 million and simply hands it to Jim Smith for free, it hasn’t made the community $10 million richer—except in the nominal sense in which we could all be “millionaires” with this practice. Mere money creation doesn’t make any more houses or cars or acres of arable farmland available. Printing new money doesn’t make the community richer. At best it’s a wash with redistribution, and in fact in practice it makes the community poorer by distorting the ability of prices to guide economic decisions.
The MMT Job Guarantee The last item I wish to discuss is the MMT job guarantee. Strictly speaking, this proposal is distinct from the general MMT framework, but in practice I believe every major MMT theorist endorses some version of it.
Under Kelton’s proposal, the federal government would have a standing offer to employ any worker at $15 per hour (Kelton 2020, p. 68). This would set a floor against all other jobs; Kelton likens it to the Federal Reserve setting the federal funds rate, which then becomes the base rate for every other interest rate in the economy.
Kelton argues that her proposal would eliminate the unnecessary slack in our economic system, where millions of workers languish in involuntary unemployment. Furthermore, she claims that her job guarantee would raise the long-term productivity of the workforce and even help people find better private sector job placement. This is because currently “Employers just don’t want to take a chance on hiring someone who has no recent employment record” (ibid., p. 68).
There are several problems with this proposal. First of all, why does Kelton assume that it would only draw workers out of the ranks of the unemployed? For example, suppose Kelton set the pay at $100 per hour. Surely even she could see the problem here, right? Workers would be siphoned out of productive private sector employment and into the government realm, providing dubious service at best at the direction of political officials.
Second, why would employers be keen on hiring someone who has spent, say, the last three years working in the guaranteed job sector? These would be, by design, the cushiest jobs in America. Kelton admits this when she says that the base wage rate would be the floor for all other jobs.
Looking at it another way, it’s not really a job guarantee if it’s difficult to maintain the position. In other words, if the people running the federal jobs program are allowed to fire employees who show up drunk or who are simply awful workers, then it’s no longer a guarantee.
Conclusion Stephanie Kelton’s new book The Deficit Myth does a very good job explaining MMT to new readers. I must admit that I was pleasantly surprised at how many different topics Kelton could discuss from a new view, in a manner that was simultaneously absurd and yet apparently compelling.
The problem is that Kelton’s fun book is utterly wrong. The boring suits with their standard accounting are correct: it actually costs something when the government spends money. The fact that since 1971 we have had an unfettered printing press doesn’t give us more options, it merely gives the Fed greater license to cause boom/bust cycles and redistribute wealth to politically connected insiders.
Listen to the Audio Mises Wire version of this article.
In the Ruins of Neoliberalism: The Rise of Antidemocratic Politics in the Westby Wendy BrownColumbia University Press, 2019viii + 248 pages
Wendy Brown, a well-known political theorist who teaches at UC Berkeley, does not like Friedrich Hayek very much. She in part blames him and others as well, including Milton Friedman and James Buchanan, for policies that have led to the bad state of the world in general and America in particular today. In the Ruins of Neoliberalism covers other topics, ranging from the case of the Colorado cake maker who refused to create a cake for a same-sex couple to the rise of nihilism about values and Herbert Marcuse’s “repressive desublimation” (not a good thing, I assure you); but I shall concentrate on what she says about Hayek.
Her most fundamental criticism of Hayek is that he opposes democracy in the sense in which she favors it. In her view,
democracy signifies political arrangements through which a people rules itself. Political equality is democracy’s foundation. Everything else is optional—from constitutions, to personal liberty, from specific economic forms to specific political institutions. Political equality alone ensures that the composition and exercise of political power is authorized by the whole and accountable to the whole. When political equality is absent, whether from extreme social or economic disparities, from uneven or managed access to knowledge, or from manipulation of the electoral system, political power will inevitably be exercised by and for a part, rather than the whole. The demos ceases to rule. (p. 23, emphasis mine)
One thing is missing from her account which you would expect to be present. Why is democracy in her sense a “good thing”? Is it just supposed to be obvious that it is? No doubt there are worse political systems than democracy, e.g., a communist dictatorship, but why is democracy to be preferred above all other social arrangements? She does not tell us. Her reticence is surprising in view of the considerable sympathy she shows for Nietzsche’s criticism of morality. But if values are subject to questioning, this value—democracy—is not.
Given this standpoint, it is easy to see what she has against Hayek. He opposed democracy as she understands it. She gives a good account of his views, stressing his opposition not only to democracy but to “social justice” and his defense of the spontaneous orders of the market and traditional morality. Hayek rejects just what she supports.
The cardinal sin of the Continental tradition, however, is its worship of popular sovereignty, a concept…that Hayek calls a dangerous “nonsense notion.” Popular sovereignty threatens individual freedom, licenses unbounded government, and confers supremacy on precisely the domain that needs to be leashed, the political. It permits legislative power to run amok, exceeding its task of formulating universal rules of justice, inevitably expanding the powers of the administrative state as it does so…[A]s legislative practice that exceeds universal rule making expands state power and curtails freedom, justice itself becomes confused. We mistakenly call “just” Hayek says, whatever lawmakers do, or whatever we think that they should do, rather than reserving the term for what the ancient Greeks called isonomía, “equal justice for all.” (pp. 68–69)
You might expect Brown after this account of Hayek’s view to show what is wrong with it, for example by arguing that popular sovereignty doesn’t lead to the bad consequences that Hayek fears. But she doesn’t do this. Instead, she treats what Hayek says merely as symptomatic; his position is not to be argued against but diagnosed. It is wrong because “democracy” is good—obviously.
Although she has read Hayek extensively, and on the whole gives an insightful account of his ideas, at one point she misstates them. Rightly stressing his support for traditional morality, she claims that Hayek’s ideas lead to a rejection of state provision of welfare to the poor and that he condemns completely “the social state’s replacement of family functions and replacement of moral law with social justice.” (p. 74) To the contrary, Hayek thinks that the decline of the extended family as the modern economy has grown makes a role for the state in providing welfare inevitable, and he favors such measures. In The Road to Serfdom, he says:
There is no reason why, in a society which has reached the general level of wealth ours has, the first kind of security should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health. Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision.”
Indeed, both Mises and Rothbard criticize Hayek for undue concessions to the welfare state. In a very favorable review of The Constitution of Liberty, Mises complains,
Unfortunately, the third part of Professor Hayek's book is rather disappointing. Here the author tries to distinguish between socialism and the Welfare State. Socialism, he alleges, is on the decline; the Welfare State is supplanting it. And he thinks the Welfare State is, under certain conditions, compatible with liberty….However, the fact that Professor Hayek has misjudged the character of the Welfare State does not seriously detract from the value of his great book.
(Brown does not mention Mises at all in the book.)
Brown also wrongly suggests that Hayek, in his criticism of sovereignty, agrees with Carl Schmitt that political concepts are secularized theological concepts. She says, quoting Hayek,
Moreover, the very notion of sovereignty rests on a “false constructivist interpretation of the formation of human institutions which attempts to trace them all to an original designer or some other deliberate act of will.” Thus, Hayek concurs with Schmitt that sovereignty is a secularized theological concept, but, unlike Schmitt, regards sovereignty as false and dangerous because it is theological. (p. 70, emphasis in original)
But in speaking of an “original designer,” Hayek isn’t talking about an analogue to God but is contrasting institutions that arise through deliberate acts of human will with the products of spontaneous order.
If Brown’s discussion of Hayek is for the most part careful, the same cannot be said of her remarks about James Buchanan. Here, I regret to say, she is guilty of sloppy scholarship. She hasn’t read Buchanan but relies entirely on Nancy MacLean’s worthless screed Democracy in Chains (see my review of it). Brown says:
James Buchanan of the Virginia Public Choice School of neoliberalism decried public goods. . .he understood the importance of gerrymandering and voter suppression and alloyed his brand of free enterprise with the project of white supremacism.” (p. 62)
In fact, Buchanan wrote a book, The Demand and Supply of Public Goods, about the provision of public goods and the topic is a major theme in his long career as an economist. And, far from being allied with white suprematism, he supports preference for minority candidates in education and employment.
Most of the book is on a much higher level than this, though. Otherwise, we would be in the ruins of In the Ruins of Neoliberalism.
One Billion Americans: The Case for Thinking Biggerby Matthew YglesiasPortfolio Penguin, 2020xx + 267 pages
Matthew Yglesias, a cofounder of Vox and frequent writer for it, has some useful insights in this book. But he perfectly exemplifies a type of mind that is capable of doing great damage. I hesitate to say this, as he seems engaging and intelligent, but the evidence is unmistakable. He is a statist and planner, who sees his goal for America as obviously true. He fully recognizes the controversial nature of some of the measures he favors to achieve his goal, and he will be glad to debate you about their merits; but practically all Americans, he thinks, accept this goal.
The goal is to keep America as the most powerful nation in the world. He says,
The United States has been the number one power in the world throughout my entire lifetime and throughout the living memory of essentially everyone on the planet today. The notion that this state of affairs is desirable and ought to persist is one of the least controversial things you could say in American politics today…while some left-wing intellectuals might suggest that the end of American hegemony would be desirable, I’ve never heard an elected official from either party articulate that view. (p. xiv)
What happens if we are not the world hegemon? Isn’t it enough that people can live their lives in peace, defending ourselves only if we are invaded by another nation? Indeed, isn’t it wrong for any nation, even America, to rule over other nations?
Oddly enough given his goal, Yglesias recognizes that some things that go on in foreign countries aren’t our business, and he favors reducing American military spending. He says,
Military defense is an important national task, but a very large share of this money seems to be spent on things like prolonged deployments to the Middle East that are only tangentially related to actually defending the country—or even to defending reliable allies….When something bad is happening somewhere in the world—Libya, Syria, whatever—there is often a sense that the United States perhaps ought to “do something” about it. Nobody expects Chile or Singapore to “do something” about foreign civil wars because there is nothing they can do. But the American military is vast enough that we can, in fact, intervene—albeit at additional cost. If these interventions were systematically helpful, it might be a good reason to maintain such a large defense establishment. But the cost-benefit ratio of trying to help foreigners through military intervention is miserable—indeed, it’s difficult to ascertain whether the trillions spent on twentieth-first-century wars have been helpful on net at all. (pp. 248–49)
Has Yglesias changed from an ultrahawk at the beginning of the book to a benevolent noninterventionist near the book’s end? Alas, his conversion is incomplete: we must limit wasteful military spending so that we can concentrate on a confrontation with our main enemy, China. Why China is a threat to us is nowhere explained. The principal sin of its government is that it seeks to unseat us as the world’s foremost power, and we cannot have that, can we?
Yglesias acknowledges that China’s ascendancy would not pose a direct threat to America, but nevertheless it cannot be accepted. Never mind why.
And, obviously, even if China were to become a greater military power, it’s not as if we’d have Chinese tanks rolling down the streets of Washington. . .But American leaders, with good reason, aren’t talking about learning to adapt to a world where the United States is a second-rate power. (p. xvii)
But even if we accept Yglesias’s goal, aren’t we relatively safe? Isn’t America much richer than China? Yes, says Yglesias, at least for now, but China has an advantage over us that wealth alone will not suffice to counter. Our author thinks that history is on the side of the big battalions, and that we will succumb unless we can counter China’s superior population. If we want to maintain American hegemony, “we’re going to need more people—about a billion people—and then follow that inference to where it leads in terms of immigration, family policy and the welfare state, housing, transportation, and more” (p. xiv).
For Yglesias, strong government isn’t the problem: it’s usually the solution. At one point, I thought I had misjudged him. A section heading in the chapter “Comeback Cities” reads. “Decentralize the federal government.” Has he for once abandoned centralism for localism? You will not be surprised to learn that he hasn’t. He doesn’t mean that he wants the have the states, or even better, local government, take over the functions of our bloated Leviathan. To the contrary, he wants to move parts of the federal government to areas he considers underpopulated to encourage people to settle there. “The key point is to identify cities that, like Detroit or Cleveland, are currently overbuilt from the standpoint of housing stock and infrastructure—cheap rents, few traffic jams, airports that are operating below their historical capacity—and provide them with the biggest thing they need to succeed, an infusion of new jobs and people” (pp. 168–69).
One could proceed by giving more examples of the author’s compulsion to plan our lives, but, with characteristic generosity, I won’t do that. Instead, I’ll give some examples in which he makes sense by actually proposing to ease the iron grip of government. In line with his support of large numbers of people in small spaces, he opposes land-use regulations that use force to keep people living apart. “The vast majority of America’s developed land is zoned exclusively for single-family detached homes. That’s true not just in suburbs, but in central cities….Obviously if you make it illegal to deploy the best available technology for conquering land scarcity, then land scarcity will become a serious problem” (p. 194). In a brilliant passage, he points out that many people like single-family homes but “just because something is desirable doesn’t mean it makes sense to require it—a concept American policy makers have little trouble grasping in almost any context other than housing” (p. 197, emphasis in original).
He calls for easing the licensing requirements to practice medicine:
As Dean Baker, the idiosyncratic left-wing economist who’s been writing about this issue for years explains, “Currently, foreign doctors are banned from practicing unless they complete a U.S. residency program. Foreign dentists are prohibited from practicing in the United States unless they graduate from a U.S. dental school.”…a sensible approach would be to establish some clear objective training standards and then allow anyone who can meet them to practice in the United States…simply increasing the supply of doctors would make getting treatment easier and more convenient for everyone—a clear win. (pp. 127–28)
We now must confront a problem. If Yglesias recognizes the value of free choice in these instances, how does he reconcile this with his support for planning to maintain American world hegemony? I do not know the answer, but I’d like to offer a suggestion. He seems very well-versed in Chicago price theory, and, as Murray Rothbard pointed out, Chicago economists often do not regard taxation as interference with the price-system. Given this position, they can in their own minds consistently oppose price controls but support redistributive taxation. I don’t know whether Yglesias holds to this doctrine, but if so, it would make what he says in the book more coherent.
And support heavy taxation he certainly does. Faced with the not insignificant question of how his ambitious plans are to be financed, he answers that “to the extent we need higher taxes, it makes sense to tax things we would like to see less of. One set of popular options involves increasing taxes on the wealthy….The other big source of potential tax revenue is taxing bad things” (pp. 248–49). The “bad thing” he has principally in mind is alcohol consumption. It doesn’t interfere with freedom if the government makes consumption of goods it doesn’t like much more difficult: it isn’t forbidding people to consume them. Such pettifoggery ill serves the cause of freedom, but it may well be useful in the global crusade against China.
The Lost History of Liberalism: From Ancient Rome to the Twenty-First Centuryby Helena RosenblattPrinceton University Press, 2018xii + 348 pages
Helena Rosenblatt, a historian who teaches at the Graduate Center, City University of New York, has written a valuable history of liberalism that is disfigured by her bias against the free market and its advocates. She aims to provide
a word history of liberalism. I feel certain that if we don’t pay attention to the actual use of the word, the histories we tell will inevitably be different and even conflicting….My approach leads to some surprising discoveries. One is the centrality of France to the history of liberalism….Another discovery is the importance of Germany, whose contributions to the history of liberalism are usually underplayed, if not completely ignored. (p. 3, emphasis in original)
She is an authority on French political thought and has written well-received books on Benjamin Constant and Jean-Jacques Rousseau, but this book ranges widely from Cicero to the present. She is particularly anxious to combat the view that equates liberalism with self-interest and individual rights, which is
a very recent development in the history of liberalism. It is the product of the wars of the twentieth century and especially the fear of totalitarianism during the Cold War. For centuries before this, being liberal meant. . .being a giving and civic-minded citizen; it meant understanding one’s connectedness to other citizens and acting in ways conducive to the common good. (p. 4)
In what follows, I shall give examples of the insights of this erudite author but also of her many mistakes, by no means limited to the bias mentioned above.
An example of both insight and error occurs in the first chapter of the book. She tells us that liberalitas (liberality) meant to Seneca and Cicero the magnanimous behavior appropriate to a free citizen. This was an aristocratic notion, but by the time of the Enlightenment its meaning had broadened. “Its scope was expanded and, in some sense, democratized. It now became possible to speak not only of liberal individuals, but of liberal sentiments, ideas, and ways of thinking” (p. 26, emphasis in original). One of these extensions of liberality was “fostering religious toleration” (p. 27). Rosenblatt rightly mentions in this connection John Locke, but she ignores Pierre Bayle, with Locke the key defender of religious toleration in the seventeenth century. The omission is ironic in view of her complaint that accounts of liberalism downplay the importance of French and German authors.
She gives an excellent account of Constant.
Constant had learned the lessons of the Terror and Napoleon’s authoritarian rule. He had seen how easily popular sovereignty could ally itself with dictatorship. One of his main goals, therefore, was to prevent a dictatorship based on popular sovereignty from masquerading as a liberal regime. It was less the form of government that mattered…than the amount. (pp. 65–66, emphasis in original)
Later, she notes that Constant was a “laissez-faire liberal,” although he did not rule out all government intervention in the economy. She complains that after World War II, “Constant’s defense of individual rights was emphasized above all his other concerns. His efforts at state building and constant worries about morals, religion, and ‘perfectibility’ were downplayed or completely ignored” (p. 273). Constant was not a “radical individualist,” as some of his twentieth-century interpreters take him to be. So far, so good; but in a lecture on Constant given shortly before her book appeared, Rosenblatt attacked Ralph Raico as among those who wrongly viewed Constant as an antisocial “individualist” (the discussion of Raico occurs around 24:00). Had she read Raico’s article on Constant rather than the title of the journal in which the article first appeared, the New Individualist Review, she would have seen that his account of Constant is similar to her own. He too stresses “the development and enrichment of personality” and in fact quotes Constant as saying, “it is not for happiness alone, it is for self-perfectioning that destiny calls us.” The process of self-perfectioning, Raico emphasizes, takes place through various social institutions. Perhaps, though, I am unfair to Rosenblatt. There is nothing about Raico in the book, though the surrounding material in the lecture makes it to the text; maybe she actually read his article and decided to omit him from her list of miscreants.
The curious pattern of insight and omission continues. She mentions the “history of liberalism written by the Prussian professor of philosophy Wilhelm Traugott Krug in 1823,” (p. 78), but nowhere in the book does she discuss Wilhelm von Humboldt, perhaps the greatest of all German classical liberals. His The Limits of State Action is far more important than Krug’s book. (Krug, by the way, is best known for his challenge to Schelling to deduce the existence of his pen.)
In her account of the new versus the old liberals, she deserves great credit for pointing out that some of those who wished to unshackle the state from the limits of laissez-faire defended forced sterilization.
[John A.] Hobson, one of the most respected liberal theorists of his time, supported the prevention of “anti-social procreation.”…In America too, progressives from Richard Ely and Herbert Croly to Woodrow Wilson were enthusiastic advocates of eugenics…in 1911, then New Jersey governor Wilson signed the state’s forcible sterilization legislation, which targeted “the hopelessly defective and criminal classes.” (p. 237)
Rosenblatt devotes considerable attention to the battles over education and other matters between various liberals and the Catholic Church. In the course of her discussion, she says, “In 1854, Pius [IX] announced the doctrine of the Immaculate Conception, by which the Virgin Mary was declared free of sin” (p. 140). That is not correct. The Immaculate Conception is the doctrine that Mary was, from the moment of her conception, free from the stain of original sin. This is not the same doctrine as the sinlessness of Mary.
When she reaches the twentieth century, things worsen. Rosenblatt says about Mises,
In his book Liberalism, published in 1927, the influential Austrian economist Ludwig von Mises lamented the disputes over the meaning of the word. True liberalism, he insisted, was not about any humanitarian objectives, however noble they might be. Liberalism had nothing else in mind than the advancement of a people’s material welfare. Its central concepts were private property, freedom and peace. Anything beyond that was “socialism,” for which Mises had only disdain. Those who thought that liberalism had something to do with spreading humanity and magnanimity were “pseudo liberals.” (p. 260)
This is a misleading summary of what Mises says.
Rosenblatt makes it seem as if Mises had no concerns beyond material well-being. But he in fact says,
Every ideology—aside from a few cynical schools of thought—believes that it is championing humanity, magnanimity, real freedom, etc. What distinguishes one social doctrine from another is not the ultimate goal of universal human happiness, which they all aim at, but the way by which they seek to attain this end. The characteristic feature of liberalism is that it proposes to reach it by way of private ownership of the means of production.
Further, contrary to Rosenblatt, one doesn’t for Mises become a pseudoliberal just by thinking liberalism has to do with spreading humanity and magnanimity. What makes one a pseudoliberal is that one favors socialism or interventionism. “Almost all who call themselves ‘liberals’ today decline to profess themselves in favor of private ownership of the means of production and advocate measures partly socialist and partly interventionist.”
In her relentless pursuit of the “individualists” who exalt self-interest, John Rawls, of all people, becomes a target. She says,
For the sake of argument, Rawls posited a group of self-interested but also rational individuals and showed that such persons—endeavoring to maximize their advantages in conditions of uncertainty—would choose not a laissez-faire society but the welfare state. In so arguing, he was, in a sense, turning a conservative and rights-based argument around against itself. In the process, however, he suggested that there was little need for any deliberate promotion of the common good for a liberal society to work. There was no need to worry about overcoming man’s selfish impulses. It had become okay to be selfish. (p. 273)
That is a travesty. Rawls’s original position is a thought experiment, and the motives ascribed to people within it are not intended as guides to conduct in the actual world. Rawls, for better or worse, was as “public spirited” as they come. It is of less importance that she also misrepresents the aims of those in the original position. She is also grievously in error about Hayek’s The Road to Serfdom. A reader of her account of the book (p. 263) would never guess that Hayek supports a modest welfare state. Eric Voegelin was not a Catholic (p. 271). She is also wrong to say of Herbert Hoover that “Despite the economic catastrophe, he continued to defend the laissez-faire version of liberalism well into the 1940s.” This confuses Hoover’s free market rhetoric with the reality of his policies, which in many respects prefigured Franklin Roosevelt’s New Deal. Rosenblatt would benefit from reading Murray Rothbard’s America’s Great Depression, if she were willing to study its central argument in addition to consigning its author to the circle of hell where individualists reside.
The Conservative Sensibilityby George F. WillHachette Books, 2019xxxix + 600 pp.
The well-known Washington columnist George Will was long ago a libertarian, but he soon changed his mind, adopting instead a statist variety of conservatism. In The Conservative Sensibility, he returns to his libertarian roots, but the return is incomplete, and he ends up with a confused position that, in trying to do justice to competing goods, as he sees it, ends up in intellectual sloppiness.
The great historian Ralph Raico, who knew Will in the late 1950s, tells the story of his early political beliefs:
As it happened, at Princeton Bruce [Goldberg] also came to know another grad student, this time in political science, named George Will. Will was another run of the mill member of the American intelligentsia, a “liberal” in the mold of his father, a well thought of professor of philosophy at Champaign/Urbana. Bruce, then the dynamic, genial propagator of our ideas, converted Will as well. Temporarily. Will left to study at Oxford, where he was seduced by the tradition of Tory paternalism he discovered there. Cecil Rhodes would have been pleased.
George Will went on to compose Tory-statist pieces like those collected in his truly embarrassing book, Statecraft as Soulcraft, the title reminiscent of the Stalinist definition of Party intellectuals as “engineers of the soul.” When Nozick and I were still in touch, Bob once remarked of Will with a laugh that…[his] “idea of politics was to remake everyone in his own boring image.”
I would add to Ralph’s characteristically excellent account that George Will’s father, Frederick Will, was an outstanding philosopher, in my view one of the best American philosophers of his time. (He wrote about, logic, metaphysics, and epistemology, not politics.) If only his son had his talent and wisdom!
A good place to begin our investigation is with the “truly embarrassing book.” Will says that he has changed his position. People need to be educated in virtue, as he argued in Statecraft as Soulcraft, but he was wrong to think that this is, in the main, the task of the state. To the contrary, commercial society does the job far better:
Another of the book’s themes was quite wrong. It was that the American nation was “ill-founded” because too little attention was given to the explicit cultivation of the virtues necessary for the success of a republic. In fact, the nature of life in a commercial society under limited government is a daily instruction in the self-reliance and politeness—taken together, the civility—of a lightly governed open society. Capitalism requires, and therefore capitalism develops, a society in which economic dealings are lubricated by the disposition and ability to trust strangers. (pp. 227–28)
Not only is the free market better suited than the state to teach virtue, but the state is ill-equipped to do so.
The most succinct summation of Hayek’s thinking is…from his last book…The Fatal Conceit. “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design”….The more complex society becomes, the more government should defer to the spontaneous order generated by the voluntary cooperation of freely contracting individuals. (pp. 246–47)
It would appear that Will has executed a complete volte face. And not only that. Will now avers that people have inalienable natural rights. He goes so far as to say that
[t]he concept [of the social contract] illustrated the idea that certain rights are so natural, so essential to human flourishing, that governments are instituted to “secure,” not to bestow, them. This, of course, is the language of the most important paragraph in humanity’s political history, the second paragraph of the Declaration of Independence. (p. 37, my emphasis)
Does it not follow that not only is it a bad idea for the government to seize people’s property in a futile effort to design the economy, but it is also wrong, a violation of rights, for it to do so?
Alas, for Will it does not follow. For him, rights do not delimit a sphere immune from the government’s interference but provide only a presumption against its doing so.
The essential drama of democracy derives from the inherent tension between the natural rights of the individual and the constructed right of the community to make such laws as the majority deems necessary and proper. Natural rights are affirmed by the Declaration of Independence; majority rule, circumscribed and modulated, is constructed by the Constitution. (p. 150)
The “progressives” have gone too far; rather than rely on a centralized administration, as they advocate, we should rely on the system of checks and balances in the Constitution, whose principal author was James Madison, of whom Will has an extraordinarily high opinion.
Statecraft as soulcraft, then, is by no means out of the picture. “Therefore, although the right to freedom exists prior to government, it depends for its enjoyment on institutions of civil society and government. Hence, statecraft is, inescapably, soulcraft, because education is, too” (p. 358). The state, it transpires, must not only provide public schools but other “public goods” as well. Will devotes several pages to praising Abraham Lincoln, one of his heroes, for promoting road building and other sorts of “infrastructure.” The Hamiltonian “American System” of Henry Clay is quite compatible with natural rights, as Will conceives them—but the government must not go too far.
In foreign policy, also, Will first makes a sound point but then retreats. He rightly deplores Woodrow Wilson’s efforts to “make the world safe for democracy,” and in a mordant passage, he mocks Wilson’s messianic mentality.
In 1912, he likened constructing his “New Freedom” to erecting a “great building” in which “men can live as a single community, cooperative as in a perfected, coordinated beehive.” Human beings as bees? God wants this because, as Wilson also said to an associate in 1912, “God ordained that I should be the next president of the United States.” God or History. This was a distinction without much difference when a Presbyterian’s sense of the providential was melded with a progressive belief in teleological history. (p. 67)
One can forgive Will much for this wonderful anecdote, also directed at a purveyor of teleological history:
In 1963, when the Oxford University Press published the third and final volume of Isaac Deutscher’s admiring biography of Leon Trotsky, Oxford’s student Marxist club held a reception for Deutscher to celebrate the occasion. I was then a student at Oxford and attended this fete, where I heard Deutscher say: “Proof of Trotsky’s farsightedness is that none of his predictions have come true yet.” (p. 259)
Although he is quick to condemn the progressives who wish to impose American-style democracy on the entire world, ready for it or not, his own conception of foreign policy allows much room for intervention, and his “moderation” is no more than an all-too-familiar neoconservatism.
Americans should not regret the fact that their nation’s foreign policy will always have a meliorist dimension. It flows from two premises. First, America has a mission to make the world better because the American model of a pluralistic commercial republic is a universally valid aspiration. And exporting the model is in the national interest because spreading bourgeois civilization, with its preoccupations with pluralism and prosperity, is a way to tranquilize an often murderous world. (p. 453)
Will, it is apparent, lacks the analytic rigor of Rothbard, Raico, Nozick, and Goldberg, far to be preferred to Will’s “conservative sensibility.”
Crisis of the Two Constitutions: The Rise, Decline, and Recovery of American Greatnessby Charles R. KeslerEncounter Books, 2021xviii + 451 pp.
Charles Kesler, a professor of government at Claremont McKenna College and editor of the Claremont Review of Books, has presented in this important new book a carefully conceived interpretation of the Constitution and, more generally, of what he calls the “American regime.” As we shall see, this phrase is crucial to understanding the differences between his way of looking at political philosophy and that of Murray Rothbard and his followers.
Kesler has been heavily influenced in his account by Harry Jaffa, and, as I have written critically of Jaffa, readers may fear (or hope) that my review of this book will be a mere diatribe. But there is in fact much to admire in the book, and though I haven’t changed my opinion of Jaffa, he was not altogether wrong. To the contrary, he was certainly right to stress the importance of the clauses in the Declaration of the Independence that declare that all men “are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness.” He also correctly saw slavery as a grievous infringement of these rights. Rothbard agreed; it should not be forgotten that he strongly supported the pre–Civil War abolitionists.
That said, Kesler’s, and behind him Jaffa’s, account of rights is not altogether the same as Rothbard’s. Kessler says, “A rational animal should not be treated as if it were irrational; a man, as we say, should not be treated like a dog. Or, as Thomas Jefferson expressed it in one of his last letters … ’the mass of mankind has not been born with saddles on their backs, nor a favored few booted and spurred, ready to ride them legitimately, by the grace of God’” (p. 45; Jefferson here adopted the phrasing of Algernon Sidney [p. 18]).
Readers may be inclined to take this to be equivalent to Rothbard’s self-ownership principle, but in fact it is not. The statement does not forbid rule by one person over another. It says, or rather seems to say, only that a person cannot rule over another as a person can rule over an animal but leaves open rule of a less extreme character by some over others. And we need to go further. The statement does not actually say even this much. It says only that people are not born unequal, not that they cannot in the course of their lives become so unequal that some may rule over others as a man may rule over a dog.
It is apparent from other passages in the book that the concerns just raised are by no means imaginary. Kesler says, “The fathers of our republic are our demi-gods, as Thomas Jefferson, of all people, called them. They are our heroes, who establish the sacred space of American politics, and citizens (and those who would be) are expected to share a general reverence for them and their constitutional handiwork” (p. 364; see also a similar statement on p. 28). Lincoln, if anything, ranks even higher. Appealing to his mentor, Kesler says that in “Lincoln’s character, Jaffa argued, both ‘the giant’s strength’ and an incredible moderation in the use of it reached their consummation. He quoted with approval Clinton Rossiter’s famous eulogy: ‘Lincoln is the supreme myth, the richest symbol in the American experience. He is, as someone has remarked neither irreverently nor sacrilegiously, the martyred Christ of democracy’s passion play’” (p. 128). Whatever the limits of their rule, these Übermenschen surely are not viewed as on the same level as the rest of us Americans.
Why do we need such heroes? The answer takes us to the heart of Kesler’s constitutional project. If, for some libertarians, “it usually begins with Ayn Rand,” for Kesler it begins with Numa Denis Fustel de Coulanges, the great nineteenth-century French historian of the ancient city. He argued that in the classical world, citizens regarded the city in which they lived as founded by a god or a human founder of quasi-divine significance. Religion and the state did not compete for the citizens’ loyalty. The state was the sole object of their devotion, and they were willing to die for it. But Christianity, a universal religion not confined to one state or people, changed all that. Now, for believers in the new religion, something stood higher than the state, and this raised a problem. How can people be induced to die for the state? This is what Spinoza, and after him Leo Strauss, called the “theological-political problem” (p. 90). The answer for Kesler lies in the veneration of the “fathers of the republic,” our founders, and the constitution they gave to us; if I had to single out one word as key to the book’s message, it would be “founding.” Fustel, in pointing to the weakening in loyalty to the state brought about by Christianity, echoes arguments made by Niccolò Machiavelli and Jean-Jacques Rousseau, and the remedy for the supposed failing urged on us by Kesler resembles Rousseau’s “civil religion.” (See my review of a similar proposal by Walter Berns. By the way, contrary to what the index suggests, “Fustel” is the initial part of the last name “Fustel de Coulanges,” not a first name [p.440]) Citizens in this scheme of things are free to believe in Christianity, Judaism, or any other faith that acknowledges the natural law morality inculcated by the state, and the state will not interfere with these religions, so long as they do not teach anything opposed to the state’s basic doctrines. “Washington’s point is that the ‘right of conscience’ cannot command anything contrary to the conscience which monitors and embodies the natural law. The right of conscience itself being one of man’s natural rights, it has to be exercised consistently with the rest of them. The same point may be expressed in religious terms: new revelations cannot repeal or contradict the basic moral commandments of the Bible” (p. 90; these commandments, it should be noted, are to be understood as interpreted by Washington and the other founders of our regime).
The word “regime,” as I have said before, is, like “founding,” a key term for understanding the book. Kesler interprets the American founders to have had an understanding of “regime” like that of the ancients; it is “political, understanding American life to be organized, finally and no matter how indirectly, by the ‘regime,’ by a structure of authoritative principles, institutions, and types of character” (p. 11). The main error of “libertarian conservatives” is that they do not see the importance of the regime, taken in this sense. Writing of the “fusionist” Frank Meyer, he says, “For philosophical support, Meyer leaned on Aristotle, who … had actually maintained that virtuous acts had to be voluntary, and thus that virtue (Meyer claimed) could not be cured by state action. Yet Aristotle’s contention depended on a factor that Meyer downplayed or ignored, namely, that moral virtue is a kind of habit…. By rewarding just and punishing unjust actions, the law compels and teaches at the same time” (pp. 323–24).
The role that Kesler assigns to the prudence of wise statesmen undermines the contrast, fundamental to the book, between two Constitutions. The first, the founders’ Constitution, is based on the natural rights of the Declaration of Independence. The second, introduced by Woodrow Wilson and continued by Franklin Roosevelt and his leftist successors, replaces nature with history. Kesler gives an excellent account of Wilson, who rejected the allegedly mechanical “Newtonian” constitution of the founders, replacing it with a Darwinian organic, or “living,” constitution that led to a government run by an administrative elite of scientific experts. But Kesler’s first Constitution does not give us genuine natural rights; in it, the wise men who rule over us are called “statesmen” rather than “administrators,” but we are still bereft of liberty.
Kesler, like many followers of Leo Strauss, is a painstaking textual analyst, and one can only admire his careful account of "Federalist No. 10," showing, against Martin Diamond and others, that “Publius” defends the role of the government in promoting virtue. Unfortunately, he for the most part confines himself to expounding the texts he regards as classics, rather than defending the truth of the views he attributes to them; we are apparently to take it as given that if “Publius” tells us something, we would do well to listen.
When Kesler addresses philosophical texts that do not concern politics, the result is sometimes unfortunate. He says, “In early modern philosophy, the problem was how to connect the consciousness or ego (res cogitans) with the external world (res extensa), given the radical separation between them introduced by Descartes for the sake of liberating man from his tutelage to nature or God. Only if man were alone with his own thoughts—not bound by his place in nature or his communion with God—could he originate and so test his own concepts as to be certain of his knowledge” (p. 36, emphasis in original). Descartes, far from wanting to liberate man from God, argues that a proof of God is necessary to show that our clear and distinct ideas, including our ideas of the external world and of other minds, are true. (I am aware of interpretations of Descartes similar to Kesler’s by other writers, e.g., Richard Kennington and Hiram Caton, but they seem to me quite frankly perverse.)
Kesler is also in error in claiming some comments by Frederick Douglass about the Constitution, made by him in 1860, to concern that document’s ratification. As will be apparent if you read the quotation from Douglass, the remarks concern the then contemporary secession crisis (p. 429n14).
Those of us so benighted as not to wish to die for the state at all will reject the simulacrum of natural rights that Kesler offers and will instead prefer the genuine article, which does not require us to worship strange gods in the guise of “Founders.”
Leave Me Alone and I’ll Make You Rich: How the Bourgeois Deal Enriched the Worldby Deirdre Nansen McCloskey and Art CardenUniversity of Chicago Press, 2020xvii + 227 pages
McCloskey and Carden endeavor to explain one of the most striking facts of world history. Since about 1800, there has been an enormous increase in the average standard of living throughout the world. Before that date, almost everyone was poor, but things changed with what they call the Great Enrichment. “The Enrichment was really, really ‘great’: three thousand percent per person”(p. xi, emphasis in original). The authors contend “that human liberty—and not the machinery of coercion or investment, or even science by itself—is what made for a Great Enrichment, from 1800 to the present” (p. ii). The book is a “popular riff” (p. xvi) by Carden, condensed from three large volumes by McCloskey, but, in style as well as substance, the book is McCloskey’s.
McCloskey is one of the world’s leading economic historians, especially well known for her work on the nineteenth-century British economy, and the book is at its strongest in the refutations presented of a number of theories of the Great Enrichment.
According to Marxism, capitalism arose through plunder and slavery. (The authors prefer to speak of “innovism” rather than “capitalism,” but I won’t join them in using this ugly neologism.) McCloskey and Carden counter this with a devastating objection:
[I]mperial exploitation is the least original thing the Europeans did after 1492. Slavery and empires have been commonplace yet never produced a Great Enrichment. The slave trade along the east coast of Africa, sending black slaves … into the markets of Cairo and of Constantinople/Istanbul was on the same scale as that from the west coast…. Yet the eastern trade didn’t make Egypt or the Byzantine or Ottoman Empire rich, not on even close to the scale of the Great Enrichment. (p. 85, emphasis in original)
They reiterate this vital point in another key passage:
We are saying, to be precise, that war, slavery, imperialism, and colonialism were on the whole economically stupid. Suppose killing people, taking their stuff, and establishing empire could create an “original accumulation of capital,” that would jump start the “capitalist mode of production,”and thereby create a Great Enrichment. If so … it would have happened a long time ago and not in northwestern Europe. Imperialism isn’t a new idea. (pp. 118–19, emphasis in original)
If imperialism did not create capitalism, neither did it sustain it.
The economist Lance Davis and the historian Robert Huttenbach showed decisively long ago that even the vaunted British Empire … was a drain on British income. Benjamin Disraeli, before his 1872 conversion to imperialism, had in 1852 complained that “these wretched colonies … are a millstone around our neck.” He was right in 1852 and wrong in 1872. (p. 85)
What, then, did create the Great Enrichment? McCloskey and Carden say that it was new ideas.
We argue … that the British got rich—and then Westerners and then much of [the] world, and all humans in the next few generations—because of a change in ethics and rhetoric and ideology…. Routine profit or routine exploitation can’t make you or your world rich. It has to be a new idea that raises everyone’s game, and there need to be thousands of them. The source of the new wave of molecules, we claim, was the new permission to have a go, inspired by the shocking new ethics and rhetoric and ideology of liberalism. Give ordinary folk the right to life, liberty, and the pursuit of happiness—against ancient tyranny … — and they commence thinking up all manner of new ideas…. People started in the new liberalism … to talk differently about one another. Equality of standing and of permission and of legal rights became the new theory, against the hierarchy in all previous times. (pp. 86–87)
There is a great deal to this, but McCloskey’s theory seems open to objection, or, at any rate, qualification. As the authors rightly note, the Great Enrichment has spread all over the world, including to China, but high economic growth there has not been accompanied by political liberalism. This is not merely a matter of the inertia of the past failing to catch up with the theory professed in that country by the advocates of free market reforms. To the contrary, those who opened up the Chinese economy did not at all renounce the dictatorship of the Communist Party. Even applied to the model case of Britain, McCloskey’s theory needs to be modified. Did the British classical liberals claim equal legal standing to the Crown and to the aristocracy? Certainly they claimed legal rights that the Crown could not set aside, but, with some exceptions, they did not go so far as the position McCloskey ascribes to them.
If we cannot fully accept McCloskey’s theory, we must acknowledge its considerable merits, based as it is on her profound knowledge of economic history. Unfortunately, this is not enough for her, and she ventures into disciplines such as the history of political thought, where she displays a less sure hand than she does in economic history. She tells that the
“view in 1651 of the English philosopher Thomas Hobbes was that without an all-powerful king there must have been once upon a time a “war of all against all.”… Double gak. Not nice. People on their own, Hobbes supposed, are cruel and selfish and above all unable to organize themselves voluntarily. To tame them, they need a ‘leviathan,” as he called it in the title of his 1651 work—that is, a great beast of a government. Only a top-down king … would protect peace and civilization. (pp. 3–4)
Contrary to what she here suggests, the state of nature for Hobbes is one without any government at all, not a society lacking an absolute monarch. People living in the limited monarchies of the Middle Ages, though their situation was for Hobbes unsatisfactory, were not in the state of nature. Further, although it is indeed true that Hobbes preferred monarchy to other forms of government, he recognized other sorts of rule as legitimate, and, though the point is much in dispute, he appears to have accepted Cromwell’s rule after he returned to England.
She is no better on Rousseau. She says that Rousseau “imagined that the right of a free and dignified individual to say no should be trumped by a mysterious ’general will,’ which Rousseau and similarly placed experts or Communist Party officials could so easily discern, and impose on others by coercive measures” (p. 180). Though McCloskey is right that Rousseau opposed individual rights as understood by classical liberalism, she has grievously misrepresented the general will, which is established by popular vote under certain conditions, not imposed by experts.
In a valuable discussion, McCloskey says that the “word honest shifted from aristocratic to bourgeois honor” (p. 149, emphasis in original). In its aristocratic meaning, “[h]onest here meant ’dignified and suitable to rank,’ and the honesty was a matter of social standing…. The modern use of honest as ‘truth-telling and keeping one’s word’ does appear in English as early as 1500, but the meaning ‘honorable by virtue of high social standing’ dominates its usage until the eighteenth century” (p. 150, emphasis in original). This, to repeat, is a valuable point, but if it is intended to suggest, as I think it is, that aristocrats before the bourgeois era would have felt free to lie in business dealings, since doing so would not tarnish their honor, that is dubious in the extreme. The teaching of the church, expounded for example by St. Augustine and St. Thomas, was that lying was absolutely forbidden.
McCloskey writes in a clear and lively style, though it not to everyone’s taste: a sample of what I have in mind is the “Double gak” comment in the passage on Hobbes quoted above. Fortunately, the longueurs in other books of hers about “Aunt Deirdre” are absent, perhaps excised by Carden. I am surprised at the solecism in this passage: “They will continue their virtuous labors with the hearty approval of we economists and economic historians and liberal philosophers.” (pp. 52–53, emphasis added). The frequent references to Trump, evidently a King Charles’s head for McCloskey, are a bit annoying.
To sum up, in Leave Me Alone and I’ll Make You Rich, McCloskey and Carden help us to understand the Great Enrichment, a central fact in world history. They rightly stress the importance that ideas about liberty and free markets played in bringing about that development, and they decisively refute Marxist and other myths about economic history. In my remarks above, I have ventured a few criticisms of the book, so I cannot complain against them that although I have left them alone, they have failed to make me rich.
Listen to the Audio Mises Wire version of this article.
How Fascism Works: The Politics of Us and Themby Jason StanleyRandom House, 2018xix + 218 pages
Jason Stanley, a noted philosopher of language who teaches at Yale, wishes to render to the public a great service. He will tell us how fascism works, and, as the present tense in his title suggests, the topic is of more than historical interest. Fascism threatens us today. By “fascism,” he means “ultranationalism of some variety (ethnic, religious, cultural), with the nation represented in the person of an authoritarian leader who speaks on its behalf” (p. xiv). He devotes most of his attention in the book to “fascist politics,” rather than the practices of fascist governments once in power, although this distinction is not always strictly maintained. “Fascist politics,” he tells us “includes many distinct strategies: the mythic past, propaganda, anti-intellectualism, unreality, hierarchy, victimhood, law and order, sexual anxiety, appeals to the heartland, and a dismantling of public welfare and unity” (pp. xiv–xv). In what follows, I’ll try to explain how Stanley works.
Things do not begin well. Writing about Charles Lindbergh, Stanley says that he “parleyed his fame and heroic stature into a leading role in the America First movement, which opposed America’s entry into the war against Nazi Germany…. The America First movement was the public face of pro-fascist sentiment in the United States at that time” (pp. xi–xii). A neat trick—“at that time” apparently means “1939, when Lindbergh’s article appeared,” but the committee was not founded until September 1940. In the lines from the remark I have omitted, Stanley quotes a passage from an article by Lindbergh critical of immigration.
I’ll comment on Stanley’s use of Lindbergh’s article later, but there is a glaring mistake in what he says about the America First Committee (not “movement,” as he has it). Contrary to his suggestion, the group had nothing to do with immigration. Its exclusive interest, as expressed in its four-point program, was keeping America out of World War II. Far from being profascist, the group was an antiwar coalition that included leading Progressives such as Robert LaFollette Jr., and Gerald Nye; and John T. Flynn, the foremost publicist for the group, opposed war because he feared it would lead to fascism.
But what about Lindbergh? Stanley says that in the article he “embraced something close to Nazism for America” (p. xii). In the article, Lindbergh certainly embraces what today would be called “white nationalism,” but its principal point is that peace between the Western nations should be preserved. Readers can judge the article for themselves. We thus see how this eminent philosopher reasons: Lindbergh opposed immigration; Lindbergh was a leading spokesman for the America First Committee; therefore, the committee was anti-immigration; and therefore, the committee was profascist.
The book does not improve as we read further. According to Stanley, fascist propaganda embraces a mythic past in which the patriarchal family reigned supreme and women were downgraded. Before examining how he applies this view to America, let’s pause to look at a small sample of how Stanley reads. He quotes the following from the “Hutu Ten Commandments”: “Every Hutu should know that our Hutu daughters are more suitable and conscientious [than Tutsi women] in their role as woman, wife and mother of the family. Are they not beautiful, good secretaries and more honest?” Immediately after this, he says, “In Hutu power ideology, Hutu women exist only as wives and mothers, entrusted with the sacred responsibility of ensuring Hutu ethnic purity” (p. 10). This is what he gets from a passage that in part praises Hutu women as beautiful and honest secretaries.
With Stanley, you just can’t win. He says: “In the 2016 U.S. election, a video surfaced showing the Republican presidential nominee Donald Trump making harshly demeaning comments about women. Mitt Romney … said that Trump’s remarks ‘demean our wives and daughters.’ Paul Ryan … said ‘women are to be championed and revered, not objectified’” (p. 10).
You might expect Stanley to praise Romney and Ryan. Not at all!
Both of these remarks reveal an underlying patriarchal ideology…. These politicians could simply have given voice to the most direct description of the facts, which is that Trump’s remarks demean half our fellow citizens. Instead, Romney’s remark, in language evocative of that used in the Hutu Ten Commandments, describes women exclusively in terms of traditionally subordinate roles in families, as “wives and daughters”—not even as sisters. Paul Ryan’s characterization of women as objects of ‘reverence’ rather than equal respect objectifies women in the same sentence that decries doing so. (pp. 10–11)
I wonder what Orwell would have made of this—but Stanley probably regards him as patriarchal as well.
A few pages later, Stanley discusses a notorious roundup of Jews in a Paris indoor sports arena by the Vichy government. After the roundup, the Jews were shipped to Nazi concentration camps. He quotes the following from a television interview of Marine Le Pen: “I don’t think France is responsible for the Vel’d’Hiv [as this roundup is called]…. I think that, generally speaking, if there are people responsible, it’s those who were in power at the time. It’s not France” (p. 17). On the next page, he says that in Germany “laws prevent similar denials of the Holocaust” (p. 18). Because Le Pen said that only the officials in power were responsible for the roundup and that they should not be taken to represent France, Stanley regards her as a Holocaust denier. Again, he cannot read.
Sometimes this leading philosopher cannot keep straight what he says from one page to another. We learn in one place that fascists spread conspiracy theories. “Conspiracy theories function to denigrate and delegitimize their targets, by connecting them, mainly symbolically, to problematic acts. Conspiracy theories do not function like ordinary information; they are, after all, often so outlandish that they can hardly be expected to be literally believed” (p. 58). On the very next page, speaking of the famous conspiracy theory in The Protocols, Stanley says, “The most prominent and influential Nazi leaders, including Hitler and Goebbels, firmly believed this conspiracy theory to be true” (pp. 59–60). In another case of amnesia, he mentions that “Turkey’s Article 301 of its penal code outlaws ‘insulting Turkishness,’ including mentioning the Armenian genocide during the First World War. Such attempts to legislate the erasure of a nation’s past are characteristic of fascist regimes” (p. 17). Later, though, in a discussion of President Erdoğan’s purge of academics suspected of prodemocratic or proleftist sentiments, he refers to “the secular liberal ideals that had been at the center of Turkish civil society, including its education system, since Kemal Atatürk” (p. 52). I wish he were as careful in his account of facts as he is including the proper circumflexes in Turkish names.
Alas, it is not to be. He says that in “fascism, the state is an enemy; it is to be replaced by the nation, which consists of self-sufficient individuals who collectively choose to sacrifice for a common goal of ethnic or religious glorification” (p. 152, emphasis in original). Stanley here ignores a basic, and elementary, distinction between Italian fascism and German Nazism. The latter stressed the party over the state; not so the former. One wonders what Mussolini, who said, “Everything within the State, Nothing against the State, Nothing outside the State,” would have made of Stanley’s comment.
We have not yet plumbed the depths of Stanley’s comment about the fascist attitude to the state. He says that “fascist ideology involves something at least superficially akin to the libertarian ideal of self-sufficiency and freedom from ‘the state’” (p. 152). How insightful—people who wish to live their own lives free from domination are “at least superficially akin” to those who wish to sacrifice for a goal of ethnic glorification, because both oppose “the state.”
I regret to say that Stanley is serious in his comparison of the free market and fascism. He says that though “fascism involves a commitment to group hierarchies of worth that is flatly incompatible with true economic libertarianism, which does not generalize beyond the individual, both philosophies share a common principle by which value is measured. Economic libertarianism is, after all, the Manhattan dinner party face of social Darwinism” (p. 179). Of course he does not cite the well-known criticisms of social Darwinism by Mises and Rothbard, which stress that that competition in the market is a peaceful process of social cooperation, not one of ruthless struggle. On these matters I have written at length elsewhere, so I shall say no more here.
Readers of the book will, long before they are finished, grasp a curious fact. Stanley emphasizes over and over that the key characteristic of fascist politics is that it divides people: it distinguishes “us” from “them.” In doing so, it does not appeal to reasoned discourse but arouses fear through the use of conspiracy theories. It transpires that this is exactly what Stanley himself does.
I have been critical of Stanley, but it is his leftist allies who may prove his undoing. I regret to say that Stanley at two places in the book spells out in full the dreaded “n-word” (pp. 74, 176). Academic careers have been destroyed for this, and the learned disquisition he could no doubt offer on the difference between the “use” and “mention” of a word may not suffice to save him.
The Pope Who Would Be King: The Exile of Pius IX and the Emergence of Modern Europeby David KertzerRandom House, 2018xxx + 474 pages
Historian David Kertzer made a name for himself with his 1997 book The Kidnapping of Edgardo Mortara. The book covers the until then rarely mentioned case of an Italian Jewish boy who was illicitly baptized by the housekeeper and then kidnapped in 1858 by Papal State authorities on the grounds that Jews in the Papal States could not be permitted to raise a Christian child.
Because so few books or in-depth articles have been written on the topic in English, Kertzer now enjoys a position as perhaps the preeminent expert on the case. This is no small thing, since a number of filmmakers—including Steven Spielberg—have expressed interest in dramatizing the Mortara case on film. The film project—explicitly based on Kertzer’s book—was still moving forward as of February of this year.For an informative discussion on the Mortara case and its implications for modern-day policy, see Francis Beckwith's plenary lecture from the 2021 Austrian Economics Research Conference: "Taking Rites Seriously: Neither Theocracy nor Liberal Hegemony."
There’s an important lesson here for historians: if you can find an obscure but compelling historical episode to specialize in, it might pay off in a big way.
Since the success of the Mortara book, Kertzer has not strayed far from the subject matter. He has written a number of books over the past twenty years combining the topics of Jews, popes, and the modern Italian state.
With his most recent book, The Pope Who Would Be King (2018), Kertzer returns to the topic of the late Papal States and of the man who ruled at the time of the Mortara kidnapping: Pope Pius IX, a.k.a. “Pio Nono.”
As with the Mortara book, Kertzer once again focuses on a topic that is rarely examined at any length in the English language. This time it is the internal politics of the Papal States and how those politics influenced the regime's relations with the great powers of Europe.
When it comes to relating the basic facts of the events surrounding the Papal States in the mid-nineteenth century, it is difficult to find much fault with Kertzer’s work. As we shall see, however, Kertzer’s interpretations of these facts ignore important context, and he falls into the trap of repeating a variety of myths about medieval government and "Enlightenment" regimes.
The Papal States and the War against Liberal Reformers The setting itself is exciting, and Kertzer focuses most of his narrative on the events around the year 1848. This was a year of revolutions, upheavals, rebellions, and regime change in Europe. France, Austria, Denmark, and the German Confederation were all caught up in it. The papal regime most certainly did not escape from this untouched: by early 1849, the pope had fled Rome, and a new democratic, constitutionalist Roman Republic was declared in his absence.
Things hadn’t started out that way for Pio Nono. Although viewed as a pope “of the people” in the early days of his rule, Pius IX quickly soured on the liberal reformers once it became apparent they were going to keep demanding the same reforms enjoyed under the relatively liberal regimes elsewhere in Europe. The middle classes and working classes of the Papal States, for example, were demanding a constitution with some form of representative government, freedom of speech, and freedom of assembly. Most of all, these reformers wanted reforms to the legal systems of the Papal States which had long been regarded as inefficient and overly punitive for small crimes while failing to address serious crime.
On these matters—in part because the legal system was heavily dominated by clergy—Pius resisted. The upper classes of the Papal States—dominated by wealthy cardinals who were much more conservative than the pope—dug in their heels in opposition to any reform. Pius convinced himself that while liberalism may have worked in other places like England or France, the Italians were incapable of self-government. As Pius explained to a French diplomat in 1849, “[T]he Italian peoples are not suited for representative institutions. They are not yet sufficiently educated … [but] the time will come when they will be capable of having, like others, a regime that offers freedoms.”
Many within the Papal States apparently disagreed, and the pope was stripped of his political “temporal” powers in February 1849.Virtually none of the liberal reformers sought to strip the pope of his "spiritual" powers as bishop of Rome. Rather, the focus was on the pope's ability to act as the sovereign of a state.
Kertzer goes on to describe how Pio Nono subsequently set up his court in exile in the Kingdom of Naples, and how he conspired with France, Spain, and Austria to retake his throne in Rome.
It is in recounting this story, complete with colorful descriptions of various cardinals, diplomats, and heads of state that Kertzer shines. The storytelling is engaging, and the timelines are clear. At the center of it all, of course, is Pio Nono himself, toward whom Kertzer is not unsympathetic. Pius is portrayed in a manner similar to how others have portrayed him over the years: a man more concerned with theological matters than matters of state, and as a figure of personal piety who led an austere lifestyle.
When it came to matters of state, however, Pius often exhibited a spirit of petulance and of one who was in over his head.
Like so many other monarchs and aristocrats of the nineteenth century who found themselves deposed or in the midst of revolution, Pius was shocked to discover that he was not universally loved by his subjects. He viewed demands for political reforms in the Papal States as cases of personal betrayal. He complained that “[n]ever has a Pope or sovereign been more miserable than me,” but was, according to Kertzer, most pained by the apparent fact that after his exile “not a single Roman had lifted a finger in defense of his rule.”
Pio Nono thus became convinced that he would require the assistance of foreign armies to reinstall him as the worldly king of central Italy. He invited the Austrian army to retake the northern portions of the Papal States, centered in Bologna, the second city of the Papal States. The French, on the other hand, were to retake Rome itself. The Austrians, of course, were happy to expand their influence in northeastern Italy. For the French, the political rationale was twofold. The French expedition would allow conservative French politicians to pander to their Catholic voters. On the other hand, the republican French regime would demand that the pope recognize basic freedoms and allow for constitutional government.
Neither the Austrians nor the French—or, apparently, the pope—had many qualms about shedding Roman blood. The Austrians shelled and besieged Bologna. The French—reluctant to shell or set afire a city filled with many of the most ancient treasures of Christendom—focused their artillery on the Roman walls. Nonetheless, many shells missed, and as many as eighteen hundred Romans were killed in the siege. This, of course, only served to radicalize many moderate Romans against any return to papal rule, with or without reforms.
The scheme worked. The Austrians reestablished rule in the northern Papal States, and the French put Pius back on his throne. In the end, however, it was the pope who was playing the French, and the pope refused to make any concessions to the liberals. The French nonetheless continued to occupy Rome—and thus keep the pope on his throne—out of fear the Austrians would seize Rome in France’s stead.
The Papal States and Absolutism in Context These basic facts are not much in dispute, and Kertzer skillfully compiles them.
Indeed, a review of other works on the Papal States suggests a picture that is hardly flattering for papal rule. The Papal States were economically backward and industrialization was far behind other European polities. Thus, poverty was more widespread and rebellion was relatively common.Colin Barr, "'An Italian of the Vatican Type': The Roman Formation of Cardinal Paul Cullen, Archbishop of Dublin," Studi irlandesi: A Journal of Irish Studies, no. 6 (2016): 27–47. The common people were often at the mercy of vindictive local despots. Crime was often rampant. In its final decades, the papal regime was increasingly in debt, largely as a result of an enormous, dysfunctional, and burdensome welfare state.Donatella Strangio, “Public Debt in the Papal States, Sixteenth to Eighteenth Century," Journal of Interdisciplinary History 13, no. 4 (Spring 2013): 511–37.
Yet these facts also contradict Kertzer’s interpretation of the realities of papal rule. Kertzer attempts to portray the rule of the popes as one of unrestrained absolutism with foundations in the Middle Ages. The Papal States, we are to believe, comprised a unified police state which answered to a single undisputed sovereign and was rooted in a "medieval vision" of "divine rule."
On this, Kertzer veers badly, of course. Not only did the popes never achieve absolute rule within the Papal States, but the Papal States were not the model for absolutism elsewhere in Europe. Nor was the absolutist model a legacy of the Catholic Middle Ages.
A Terrible Model for Aspiring Absolutists As the name implies, the Papal States were never one unified polity. They were, rather, a patchwork of local “states” controlled by the nobility and other “elites” such as wealthy urban professionals and landed commoners.
On a day-to-day basis, the lack of direct papal control could be seen in the administration of the legal system.On the contrary, the older model was one of distinct antiabsolutism. This was true even in the Papal States: "On the eve of the French invasion in 1796, the privileges of Bologna's nobility remained essentially intact. But the larger point is that throughout the early modern period the absolutist pretensions of the central state and the formal and information authority of the local elites were in constant tension, and this naturally affected the administration of justice and the nature of policing in both the city and the province." Steven C. Hughes, Crime, Disorder, and the Risorgimento: The Politics of Policing in Bologna (Cambridge: Cambridge University Press, 1994), p. 11.
As noted by historian Steven Hughes, the popes had long attempted to implement their own brand of direct justice but repeatedly failed. For many years, the popes employed a police force, known as “sbirri,” who would become known for their corruption and disregard for local customs and interests.Stephen Hughes, "Fear and Loathing in Bologna and Rome: The Papal Police in Perspective," in Theories and Origins of the Modern Police, ed. Clive Emsley (London: Routledge, 2011), p. 155. For the local aristocrats and other wealthy elites within the Papal States, however, papal rule was an inconvenience to be flouted. Indeed, in many areas, “the better families” instituted their own brand of law and hired criminal gangs to protect local interests. These gangs, or “biricchini,” Hughes tells us, “always lived on the fringes of legality.”Ibid., p. 164. Moreover, targets of papal justice within all classes might find refuge and immunity from papal law with local nobles, who offered immunity in return for loyalty from local commoners. Thus, Hughes concludes, "the central regime could count on little support from the upper echelons of society."Ibid., p. 164.
On top of this was the fact that crime and disorder were a sad reality of life in many areas. Hughes notes that opposition to papal rule was fueled at least as much by the perceived abuses of “absolutist” popes as by a failure to keep law and order. In other words, the papal regime may have been viewed as abusive, but the more damning indictment was likely the fact that it was regarded as being of little use in helping secure the lives and property of ordinary people. Given its mounting debt, the Papal States were increasingly prone to failure by the time of Pius IX.In fact, it was the regime's pretenses that helped to undermine the papal regime. The Papal States had never been unified economically, politically, or culturally, yet the modern papacy had attempted to force unification through a bureaucratic state. It failed, and Hughes concludes: “[O]verly centralized power placed on an incomplete political and social substructure can lead to instability rather than control…. the papal police should serve as a warning to what can happen if the pretense of power exceeds its capabilities.” Hughes, Crime, Disorder, and Risorgimento, p. 5.
There is no doubt that the papal regime wished to become an absolute monarchy, “yet the reality of the Pope’s power in no way matched the pretense.”Hughes, "Fear and Loathing," p. 163.
In spite of this, Pius and his supporters did apparently embrace a political fiction that the pope's rule was both absolute and necessary. On this, Kertzer quotes the conservative Austrian diplomat Klemens von Metternich: "The Papal States exist … and their existence is both a social and political necessity." After all, the absolutists agreed, "how could rulers justify their own regimes as divinely ordained if the pope's heavenly mandate were cast in doubt?"
This may have been effective monarchist propaganda, but it had little foundation in historical experience. After all, the Papal States did not even exist until the eighth century, and monarchs had somehow come up with ways to justify their regimes until that time. Kertzer also errs in attempting to connect the absolutist model to the Middle Ages. He plays fast and loose with terms like "divine rule," and attributes the latter concept to what he calls a "medieval vision" in which monarchs presumably rule with absolute power.
Yet the medieval reality was one in which monarchs tended to be far weaker, and states far more decentralized, than was the case under the absolute rulers of Renaissance and modern Europe. In fact, political rule in the Middle Ages was often characterized by hearty opposition to absolute rule, complete with parliaments in a number of budding European states.Examples include the English Parliament, the French Estates General, the Spanish Cortes Generales, and—in the late Middle Ages—the Sejm in Poland. Later, postmedieval monarchs succeeded in eliminating these institutions in many cases. The general rise of powerful regimes unimpeded by legislatures, local nobles, or independent cities is a relatively modern and postmedieval development in Europe. Absolutism is not even especially connected to Catholic monarchs, as was made clear by the rise of Tudor absolutism in England.
Nor did the church necessarily view nonmonarchical institutions with suspicion. Indeed, as Lord Acton points out in his essay “Political Thoughts on the Church,” the papacy—and countless other ecclesiastical institutions—can be found on numerous occasions to have supported “the people” in various forms. This was usually done to counter reigning monarchs thought to be injurious to the church.
Napoleon as Catalyst for a Modernized Papal Regime Further illustrating this point: the papal regime was greatly augmented in its final decades not by a return to medievalism, but by Napoleon’s annexation of he Papal States in 1809. As Hughes notes, it was Napoleon’s ultramodern and bureaucratic regime that did the most to reduce the decentralism left behind by medieval institutions. It was the French state that provided “centralization backed up by Napoleon’s bayonets,” set the stage for “the destruction of the old patterns of privilege,” and allowed the papal regime to attempt a greater consolidation of power.Hughes, "Fear and Loathing," p. 167.
By the time of Pio Nono, however, this absolutist transformation had only been incomplete and haphazard. The general public and the aristocracy both remained highly suspicious of papal police and bureaucrats, and the popes, at least outside Rome itself, never achieved absolutist rule.
Although Kertzer provides us with a readable and helpful case study on the nineteenth-century Papal States, his larger conclusions about Catholic notions or monarchy or the historical origins of the papal regime's instability are quite superficial.Kertzer's text also hints at a lack of a general understanding of Catholicism. Although the two are quite separate, he appears to confuse the laws of the Papal States with "the laws of the Church." Moreover, Kertzer employs some odd language that one would not expect to see from one familiar with Catholicism. For example, Kertzer does not capitalize "Mass"—in reference to the Catholic ritual—although both the AP and Chicago-style guides, and all Catholics, capitalize the word. The ideological framework underlying The Pope Who Would Be King ought to be taken with a big grain of salt.
The Price of Peace: Money, Democracy, and the Life of John Maynard Keynesby Zachary D. CarterRandom House, 2021 [2020]xxii + 628 pages
For many people, though not, to be sure, readers of The Austrian, John Maynard Keynes ranks as the greatest economist of the twentieth century; but for Zachary D. Carter, this is a restrained understatement. Carter, a writer on economics at the HuffPost, says this about Keynes:
No European mind since Newton had impressed himself so profoundly on both the political and intellectual development of the world. When the [London] Times wrote Keynes’ obituary, it declared him ”the greatest economist since Adam Smith.” But even praise so high as this sold Keynes short, for Keynes was to Smith as Copernicus was to Ptolemy—a thinker who replaced one paradigm with another. In his economic work he fused psychology, history, political theory, and observed financial experience like no economist before or since. (p. 368)
Those who make their way through this long book will likely come away puzzled with Carter’s enthusiasm. Keynes held bizarre beliefs, far stranger than the familiar underconsumptionist fallacy that the government needs to bolster insufficient aggregate demand. Though he wrote his most famous book about economic theory in the midst of the Great Depression, he thought that scarcity was no longer a problem. The potential for abundance was at hand, or soon would be; the real economic problem was to distribute this abundance so that selfish speculators would not take it all for themselves, leaving the masses in poverty.
This sounds unbelievable, but Keynes really did claim this. Summarizing Keynes’s position, Carter says,
Prior to The General Theory, economics was almost exclusively concerned with scarcity and efficiency. The very word for the productive output of society—economy—was a metaphor for making do with less. The root cause of human suffering was understood to be a shortage of resources to meet human needs…. This was the worldview of what Keynes called the “classical economists.”… But the sheer productive power of modern capitalism and the “miracle of compound interest” had rendered the portrait obsolete. Technological advances now allowed people to produce so much more with so much less effort than they had in the past that scarcity was no longer the overriding problem of humanity. (pp. 258–59)
What stands in the way of abundance for all? In essence, the problem is money. People hoard money because they fear an uncertain future, and if they hoard money, businessmen will be reluctant to invest. Attempts to cut costs by reducing wages exacerbate the problem, since this lessens consumers’ spending. The classical economists wrongly assumed that adjustments in relative prices suffice to take care of shortages and surpluses. “Say’s law” ensured that there could not be a “general glut” or depression. Keynes rejects Say’s law, arguing that it ignores the cumulative power of pessimistic expectations. It does not help matters that Keynes misstates the law: “For Keynes, the soft underbelly of the classical theory was Say’s Law, which he summarized as the maxim that ‘supply creates its own demand.’” (p. 261) The law in fact says that the supply of a commodity is demand for other commodities.
The technical difficulties of Keynesian theory have been covered amply and in depth by, among others, Henry Hazlitt, W.H. Hutt, and Murray Rothbard, and I do not propose to deal with them at further length here. What is important for our purposes is the mindset with which Keynes addresses the problems he alleges exist for the free market. For him the underlying problem is that an elite of official experts is not in control of money and investment. If only our betters, quintessentially Keynes himself, were in charge, then money creation and governmentally controlled investment would generate prosperity for all.
Money does not arise, as the classical economists, here followed by the Austrian school, thought, as a way to overcome the difficulties of barter. It is a creation of the state, and Keynes developed a peculiar theory of history according to which the continued expansion of the money supply drives historical progress.
In The Wealth of Nations, Smith had presented markets for trade as a primordial force that came into being long before the development of the political state…. The market was natural, while the state was a relatively recent artifice that intervened in or distorted the independent rhythms of trade … Keynes concluded that this history was all wrong. Capitalism itself was an ancient creation of government, dating back at least as far as the Babylonian Empire of the third millennium B.C.…. Inflation—viewed by orthodox economists of the 1920s as an underhanded sovereign’s subversion of the natural order—had instead been a near-constant condition ”throughout all periods of recorded history.” (pp. 167–69)
In his Treatise on Money, Keynes argued that government expansion of the money supply would by itself lead to abundance, but he changed his mind. Government control of investment is needed as well. In The General Theory, he calls for a “somewhat comprehensive socialization of investment,” and in an article for the Quarterly Journal of Economics in February 1937, Keynes speculated on what would happen after a European war. He hoped that a program of government control of investment would enable most fluctuations in employment to be eliminated. “Keynes thought that the government would need to control about two-thirds of all investment in the economy for his idea to work” (p. 402).
Readers of Ludwig von Mises will recognize a familiar pattern. Government control of the economy, while preserving the outward forms of private ownership of the means of production, exactly describes the economic system of Nazi Germany. Carter calls to our attention many critical remarks by Keynes about Hitler, but he nowhere mentions Keynes's notorious foreword to the German translation of The General Theory. In it he says,
The theory of aggregate production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state [eines totalen Staates] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory. Since it is based on fewer hypotheses than the orthodox theory, it can accommodate itself all the easier to a wider field of varying conditions.
Keynes in his recommendations suffers from an odd blindness. He starts from a genuine insight, the uncertainty of the future. He here is on the same side as Mises, and against the neoclassicals, who fail to recognize the distinction between risk and uncertainty, though the consequences he draws from this for the economy are diametrically opposed to Mises’s policy conclusions. But he takes for granted that the experts who run the state somehow can with precision foretell the future. Would not the problems of free market entrepreneurs be magnified, not solved, by this desperate remedy?
Keynes fails to see this because of his invincible conviction of his own superiority to the common lot. Plebian businessmen may be baffled by the future; not so him and his ilk. If they control money and guide investment, all will be well. And it is this same failing that resolves another quandary. How can Keynes have thought that scarcity no longer posed a problem? Don’t people continue to want more and more material goods, no matter how much technology develops? Yes, in this sense “scarcity” remains, but Keynes thought that people ought to abandon such crudities. They should instead cultivate the refined pleasures afforded by certain states of mind. Like his fellow members of the Bloomsbury Set, he thought that the “profound truths were pure ‘states of mind’ achieved in moments of mutual understanding between lovers or afternoons spent contemplating great works of art” (p. 26). In the happy world of abundance on the horizon, people would come to share these tastes, and the expertly controlled government would guide us to this attenuated vision of abundance. In fact, the Bloomsbury Set, far from being an elite, looking down from above at the rest of us, were a sorry lot, (though the set included people of genuine artistic achievement) preoccupied with their epicene practices and the description and disclosure to the world of their own thoughts and feelings.
It is not surprising that Keynes looks at the economy from the perspective of a government bureaucrat; this is exactly what, for a significant part of his life, he was. Carter brings out very well that during World War II, Keynes was the main planner of the British war economy, and it was for this reason, not his theoretical achievements, that he was elevated to the peerage.
Though we cannot share Carter’s opinion of Keynes, the author has done a useful job in presenting his views, though Keynes's strong interest in eugenics is veiled in silence. Perhaps Carter surmises we would think less of his master if the topic were frankly discussed. Unfortunately, the author does not confine himself to Keynes and comments on others as well, and in doing so he turns a useful, if flawed, book into a near disaster. He absurdly underrates Hayek, treating him as an economist of little consequence whom Keynes barely deigned to notice. In fact, Hayek’s review of the Treatise on Money destroyed the theoretical framework of the book, greatly to Keynes’s embarrassment, though he tried to shrug it off. The Road to Serfdom is not an “attack on the political implications of Keynesian economics” (p. 341); that book does not discuss Keynesian economics at all. He bears for Herbert Luhnow of the William Volker Fund an inexplicable animus, describing him as addled and insinuating that he sympathized with Hitler ([p. 386] that page contains another item of interest, though I shall leave this for readers to discover).
I could go on at much further length, but I have had all of Zachary Carter that I can take.
Once in a blue moon, the Austrian school attracts the attention of serious scholars outside of its tradition. In the months after Janek Wasserman at University of Alabama published The Marginal Revolutionaries in 2019, lots of Austrians revisited the old masters and the fin-de-siécle Vienna from which they stemmed: they found lots to like and even more to dislike, but it was still a contribution from which we could learn a thing or two.
An even wider attempt was made by Erwin Dekker of Rotterdam’s Erasmus University when he published his PhD thesis with Cambridge University Press: the result was The Viennese Students of Civilization: The Meaning and Context of Austrian Economics Reconsidered, which occupied me in greatly when it came out a few years ago. In it, Dekker makes a rather convincing case that the scholars of Vienna—of which the Austrian economists were but a few—were students not narrowly of economics but of civilization. Markets, prices, and property were as essential to civilizations flourishing as culture or language or law. They wanted to depict and uncover its secrets, repeatedly “marvelling at the workings of the market” and the cultural civilization that surrounded them.
From having investigated the origin of economists who perhaps more than any others admired that market system and wanted to discover how it operated, Dekker made a full turn to the opposite. In his comprehensive four hundred–page work published this month, Jan Tinbergen (1903–1994) and the Rise of Economic Expertise, he details the life of an original central planner—the corecipient of the first ever Riksbank Prize in economics. It’s part biography of a man who shaped modern economic policymaking more than most people would be comfortable with, part intellectual summary of this prolific man’s writing.
In contrast to the Viennese subjects of a few years ago, Dekker’s new subject had grand ideological goals in mind and was unafraid to wrap them in scientific clout. Trained as a physicist in the 1920s Netherlands, he went into economics for two major reasons: first, he had the mathematical skills that could be of service to what he saw as such an underdeveloped discipline; and second, economics would be a better avenue for him to pursue his ideological goals.
Jan Tinbergen was indeed a dangerous man, and one wonders how much harm in the world has been done through his work, words, and beliefs. Reading about his life and ideas is nothing short of scary—from the socialist youth camps of the 1920s to his planning visits to Turkey, India, and Indonesia after he in the 1950s had converted to the economics discipline’s planning stronghold (“development economics”). What’s worse is that plenty of his MO is reflected in policymaking today: establish a goal, run some numbers, and order society such that the goal is achieved. In 1936 he wrote to his Nobel corecipient, Ragnar Frisch, that “the purpose of the econometrician is to calculate how human well-being could be increased.”
He was crucial for the move within economics to not only describe the economic system or analyze outcomes in it, but to formulate the ways in which policymakers could best achieve their goals. From a profession that studied and marveled at the economic world, the generation that Tinbergen epitomized (roughly from the 1930s to the 1970s) set out to control it. Tinbergen believed that it was essential that governments move into people’s lives and change society in what his scientific inquiries had revealed was a better direction.
Dekker writes that Tinbergen “developed a theory of economic policymaking, not a theory of the economy.”
In contrast to modern central planners, Tinbergen at least recognized some limits. He accepted that an activist policymaker could not achieve anything, and his task was to find ways around such obstacles, or optimal compromises. He occasionally praised market prices, vehemently opposed tariffs, and rarely wanted to interfere with the price-finding mechanism of the market, but instead wanted to control quantity, entrance, and, most of all, the decision-making structure of an economy. In the book’s preface, Dekker describes the economic expert as “a government functionary, who works in the service of the economic and social goals of government.” Most eerie of all, the ultimate position of that expert “is not on the throne, but right next to it.”
The research that awarded him the first economics Nobel began in the 1930s and revolved around business cycle research and quantitative assessment of entire economies. These were the times of aggregating data series and early quantitative constructions of the economy that we often associate with Simon Kuznets and national income. Only gradually did Tinbergen move into other policymaking domains, controlling wages for the Dutch economy, matching inputs and outputs for whole Turkish industries, or advocating for world peace and world resource use for various international bodies like the United Nations.
To an Austrian, much of his business cycle research is pretty laughable: barring a coauthored article in the 1960s (about an international reserve currency), Tinbergen never wrote on money. Dekker says: “Tinbergen was never much of a monetary economist, and the monetary side had not been part of his model of the Dutch economy.” Honest and thoughtful scholars can have disagreements over exactly how money impacts the economy and wider society, or to what extent changes in monetary institutions and provision of money contribute to business cycles, but to neglect it altogether seems anything but rigorous.
Every time something good seemed to emerge from Tinbergen’s work, he seems to have managed to twist it in an awful direction. His critique of mainstream quantitative methods—in the creation of which he was foundational—was based on an unwavering questioning of the static: in a world that can and does change, predictions and econometric point estimates are excruciatingly pointless. When the institutional background setting shifts, the result will be worthless. Unfathomably, from this Tinbergen drew an absolutely contrary conclusion: we must target, organize, order, and mold society’s scaffolding such that we can get what we want—really, what I want—a tradition that most government officials and modern monetary theory proponents to this day have wholeheartedly embraced. At the bottom of Tinbergen’s restless, productive, and prolific soul lies an all-encompassing social planner.
In short, here’s a brilliant guy who metaphorically wanted to orchestrate space shuttles and car races before he had learned how to walk: he doesn’t grasp subjective value; he doesn’t understand money; and he wants to run others’ lives for them. And it didn’t much bother him that the means for achieving those high-flying socialist and cultural goals were underspecified, unspecified, or wholly unbelievable. “For the expert, an economy is not a natural system he studies as a physicist would, but a system that he can steer—and improve.”
Jan Tinbergen was both one of the first highly erudite technocrats, and a compulsively obsessed authoritarian.
If one were to come up with a word cloud for the year 2020, among the largest words, such as “awful” and “disaster” one would most assuredly find the word “lonely.” Thanks to the convenient excuse of covid, numerous state governments instituted a regime of veritable house arrest for their citizens. Streets were deserted, stores empty, churches closed by government decree. Restaurants and bars usually filled to the brim with happy chatting people were instead filled with an eerie silence, punctuated, perhaps, only by the muffled cries of proprietors lamenting their imminent bankruptcy. While in most places the “social distancing” has lessened in its severity, there are still many hindrances to what would be considered normal social existence, as the horror stories coming out of colleges and schools demonstrate all too clearly. Sadly, but not unexpectedly, the Centers for Disease Control and Prevention reports a widespread increase in anxiety, depression, substance abuse, and suicidal ideation among the population. Young people have been especially hard hit, with over 25 percent of those ages 18–24 experiencing suicidal ideation.
None of this is surprising. In the words of Aristotle, “man is a social animal,” after all. Under such circumstances, the recent publication of the book Why Associations Matter: The Case for First Amendment Pluralism by Professor Luke Sheahan at Duquesne University could hardly be more timely and needed. In this short and easy-to-follow, yet thorough, work, Sheahan guides the reader through not only a crash course in why the right of free association is necessary for human life and liberty but also through the current state of First Amendment jurisprudence on the subject and a potential legal theory under which the right to association could be operationalized in the courts.
Sheahan opens the book with a short example of freedom of association under attack from the Harry Potter series, specifically the way in which the Ministry of Magic, having effectively nationalized and taken over Hogwarts, banned any groups and gatherings not sanctioned by the authorities at the school. Sheahan asks “What is it about an alternative source of authority, even one as mild as an independent student group, that rankles the ministry?” Tyrants, in whatever form they take, inevitably hate and work to destroy private associations. Such associations are outside of their control and are an alternative pole of allegiance, and therefore must be eliminated.
Such an obvious attack on an essential liberty might seem fanciful to Harry Potter fans, Sheahan notes, but unfortunately, due to recent Supreme Court jurisprudence, such an attack bears an uncomfortable resemblance in some respects to the world we actually inhabit now.
The villain Sheahan points to is not He Who Must Not Be Named, but rather the 2010 Supreme Court case Christian Legal Society vs. Martinez, a case dealing with whether or not a student group was allowed to require voting members and leadership to agree to a statement of faith. Sheahan heralds this case as the point at which the Supreme Court fully erased the freedom of association from legal precedent. He meticulously traces out the way in which First Amendment jurisprudence on the issue has evolved leading up to the Martinez decision. He identifies a trend of freedom of association coming to be recognized only in the context of the freedom of expression, which he identifies as the First Amendment dichotomy.
This evolution culminates in the aforementioned case, in which, in Sheahan’s words, the court “only considered First Amendment rights in terms of speech. This maneuver by the Court effectively removes the freedom of association from First Amendment protection. To sum up: a public forum, governed by the First Amendment and created by a public university for the express purpose of allowing groups to form, was not required by the Supreme Court to protect freedom of associations for groups that formed there.”
If Christian Legal Society vs. Martinez is central to the legal aspect of Sheahan’s argument, the works of the sociologist Robert Nisbet serve as the underlying foundation for the sociological and political understanding of association that explains why freedom of association is so important in the first place. Sheahan provides a chapter-length summary of many of Nisbet’s key points regarding the sociology of groups and social pluralism that establishes a “theory of the social” that serves as the foundation for the rest of the book. Even standing alone this section is a valuable introductory resource on Nisbet’s work and would be beneficial for readers who are not yet familiar with his strong critiques of the centralizing state.
Having laid out a theory of the social that contextualizes just why the freedom to associate is necessary for human life itself and demonstrated that such freedom is clearly under threat under the prevailing legal doctrine, Sheahan turns to explicating an alternative legal doctrine to the First Amendment dichotomy, which he calls First Amendment pluralism.
Sheahan argues that courts must recognize that expressive association, while important, is not the only aspect of association that must be protected. The First Amendment guarantees the right to assemble, but people assemble for far more than to exercise free speech. Every group has some kind of function and develops dogmas to help achieve that end. If the legal system only protects groups when they are engaged in free expression and does not protect their functional integrity, meaning their ability to wield authority within the group itself that preserves the end for which the group exists, the system has left the existential core of the group defenseless.
Having worked through what First Amendment pluralism would look like, Sheahan proposes a judicial test that he calls the functional autonomy test as a method of operation and also suggests a draft piece of legislation modeled on the 1993 Religious Freedom Restoration Act that could serve as a legislative basis for the principle.
In this short book, Sheahan explores many of the facets of the sociology of groups and interprets them into the legal and judicial sphere in a manner that any reasonably informed layperson should find easy to understand. He does so with thoroughness for both his own ideas and alternative interpretations and proposals. His evenhandedness is especially on display when addressing the thorny issue of freedom of association as it relates to groups that desire to restrict membership based on race and how they should be considered, both sociologically and legally. Laypeople, as well as those pursuing or interested in pursuing a legal career, will likely find the book to be a most edifying and worthwhile read.
The Tyranny of Merit: What’s Become of the Common Good? By Michael J. Sandel. Farrar, Straus and Giroux, 2020. 272 pages.
Michael Sandel, who is a popular professor of government at Harvard, has written a strange book, even for a Harvard professor. Many critics of the free market, such as John Rawls, complain that the market is unfair because people do not start from a level playing field. We need to provide equality of opportunity so that people have an equal chance for the best positions. (For Rawls this is not enough, and the redistributionist “difference principle” is also required.) The demand for equality of opportunity is especially prevalent in college admissions, and calls abound to curtail the “legacy admissions” that are alleged to give an unfair advantage to the children of the rich.
Sandel agrees that the rich have an unfair advantage, but he thinks that the emphasis on equality of opportunity is fundamentally misplaced. A society in which the talented come out on top is bad, because in it the elite will look with disdain on those who do not rise as far as they have, and those who do not do well will feel resentful and unsure of their own worth. In lines he again and again repeats, he says, “The notion that the system rewards talent and hard work encourages the winners to consider their success their own doing, a measure of their virtue—and to look down upon those less fortunate than themselves….Seen from below, the hubris of elites is galling” (p. 25).
Sandel notes that although today “meritocracy” is for many a favorable term, just the opposite was the case with the person who introduced the word, the British sociologist Michael Young. He wasn’t in favor of the hierarchical British class system, but he suggested that “the arbitrariness of the class system spared workers from judging themselves by the inferior status society has assigned them.” (p.117)
This is actually a much older argument than Sandel realizes. In The Anti-Capitalistic Mentality, Ludwig von Mises commented on the German jurist Justus Möser’s “No Promotion According to Merit,” which appeared in 1772:
The long line of German authors who radically rejected the ‘Western’ ideas of the Enlightenment and the social philosophy of rationalism, utilitarianism and laissez faire as well as the policies advanced by these schools of thought was opened by Justus Möser. One of the novel principles which aroused Möser’s anger was the demand that the promotion of army officers and civil servants should depend on personal merit and ability and not on the incumbent’s ancestry and noble lineage, his age and length of service. Life in a society in which success would exclusively depend on personal merit would, says Möser, simply be unbearable. As human nature is, everybody is prone to overrate his own worth and deserts. If a man’s station in life is conditioned by factors other than his inherent excellence, those who remain at the bottom of the ladder can acquiesce in this outcome and, knowing their own worth, still preserve their dignity and self-respect. But it is different if merit alone decides. Then the unsuccessful feel themselves insulted and humiliated.
The price and market system of capitalism is such a society in which merit and achievements determine a man’s success or failure. Whatever one may think of Möser’s bias against the merit principle, one must admit that he was right in describing one of its psychological consequences. He had an insight into the feelings of those who had been tried and found wanting. The suffering from frustrated ambition is peculiar to people living in a society of equality under the law. It is not caused by equality under the law, but by the fact that in a society of equality under the law the inequality of men with regard to intellectual abilities, will power and application becomes visible.
So much does Sandel fear the bad effects of a society that rewards the talented that he dislikes the use of “smart” and “dumb” altogether:
As Thomas Nagel, a liberal egalitarian philosopher has written, “when racial and sexual injustice have been reduced, we shall still be left with the great injustice of the smart and the dumb, who are so differently rewarded for comparable effort.” “The smart and the dumb” is a telling phrase. It confirms populists’ worst suspicions about liberal elites. Far from the democratic sensibility of Rawls, who seeks a society in which “we share one another’s fate,” Nagel’s phrase lays bare the meritocratic hubris to which some versions of welfare state liberalism are prone. (pp. 145–46)
I have quoted this passage at some length, because it shows both the wackiness of Sandel’s position and his inability to read. Consider what he is saying. Nagel agrees with him that it is unjust to reward people differently because of their intellectual ability. But this is not enough for Sandel. Because Nagel recognizes that there are smart and dumb people, he becomes an elitist. Does Sandel think that elementary facts of experience will go away because he does not like them? His contrast of Rawls with Nagel is bizarre. A key theme in Nagel’s work is that people in a society share a common fate, and, far from being more meritocratic than Rawls, he thinks Rawls is insufficiently egalitarian.
In the free market, businesses that satisfy the demands of consumers prosper and those that do not fall by the wayside. What has Sandel to offer in its place? He says,
According to the civic ideal, the common good is not simply about adding up preferences or maximizing consumer welfare. It is also about reflecting critically on our preferences—ideally, elevating and improving them—so that we can live worthwhile and flourishing lives. This cannot be achieved through economic activity alone. It requires deliberating with our fellow citizens about how to bring about a just and good society, one that cultivates civic virtue and enables us to reason together about the purposes worthy of our political community. (pp. 208–09)
Sandel makes clear that the system he favors requires radical interference with the free market, aiming to promote “equality of condition”: “It does not require perfect equality. But it does require that citizens from different walks of life encounter one another in common spaces and public places. For this is how we learn to negotiate and abide our differences. And this is how we come to care for the common good” (p. 227). If you think that it is up to people themselves to decide whom they wish to associate with, and that they need not assemble together with others unless they so desire, I am afraid that you count as an elitist guilty of hubris. You are also mistaken if you hold the foolish view that the goal of production is consumption. Many years ago, Bob Nozick told me Sandel was stupid, and he wasn’t wrong.
[The Last Gold Rush…Ever!: 7 Reasons for the Runaway Gold Market and How You Can Profit from It, by Charles Goyette and Bill Haynes. Post Hill Press, 2020. 240 pages.]
In this magnificent book, Charles Goyette and Bill Haynes offer readers something you will get nowhere else. They expose the deep state’s awful plans for us. These plans will necessarily lead to political and economic disaster. But, Goyette and Haynes say, we can do something about it. By this, they don’t just mean overthrowing the deep state and replacing it with leaders like the great Ron Paul, to whom the book is dedicated. They mean how you can protect yourself from financial ruin. In brief, the answer lies in investments in gold and silver.
Goyette and Haynes are superbly qualified to analyze the precious metals market and the economy more generally. Goyette is an authority on geopolitics and the economy. He showed how the Fed causes depressions in his bestseller The Dollar Meltdown. He and Ron Paul broadcast the nationally syndicated radio show Ron Paul’s America in 2013 and 2014. Haynes is the founder of CMI Gold & Silver Inc., one of the leading precious metal firms in America.
They warn us that today, as throughout its history, the Fed manipulates our economy to promote the interests of a narrow elite. “For more than a hundred years, The Federal Reserve has been a serial bubble-blower, inflating the dot-com and housing bubbles. It has quietly overseen the destruction of the dollar’s purchasing power. It has stovepiped unimaginable wealth to crony banks….The Fed’s operations have enabled the continuous expansion of the State and even provided means for the prosecution of the State’s undeclared wars.”
We have a historically tested weapon against the Fed and its evil plans—gold. “No paper currency has ever come close to the monetary performance of gold. While gold’s performance has shined throughout the ages, the performance of paper money has been accompanied by chaos, collapse, and ruination….Never has there been a currency crisis in which people stormed the bank demanding to exchange their gold for paper money. While people prefer gold, governments do not. Gold imposes a discipline on governments and their spending.”
As if this wasn’t bad enough, the government keeps spending more money than it takes in through taxes. Supporters of so-called MMT—modern monetary theory—tell us that deficit spending doesn’t matter. The government, unlike private citizens, doesn’t need to worry about going bankrupt. We can spend our way into prosperity. Goyette and Haynes show that this policy ignores the lessons of history. The hyperinflation that ended the Weimar Republic and, more recently, the economic disasters in Zimbabwe and Venezuela show us what results from deficit spending and inflation. Once people lose confidence in the money supply, the economy is going to tank very quickly. The government won’t be able to put the genie of inflation back in the bottle. And the danger to us today is very real. “In 1980, federal debt amounted to 30 percent of GDP. Today, it is more than 100 percent of GDP….In other words, the federal government’s debt is more than the productive activity of all the American people each year.”
Besides manipulation of the money supply by the Fed and deficit spending, five other factors make the crisis worse and virtually guarantee that a collapse is coming soon. These are trade and currency wars, the war on cash, the new world order, banana republic economics, and the empire’s end. I’m going to discuss only two of these factors, but readers need to look at all of them to get the full picture.
One especially awful development is that the government is planning to take cash out of the economy. This will enable it to monitor all of our economic activity and is an instrument for total control. “A war on cash in the US is really a war on financial privacy. It empowers state surveillance in a way that the worst totalitarian regimes of history could only have wished. Eliminating the anonymity of cash transactions allows the tracking of nonconforming behavior.” Onerous regulations require banks to report all “large” financial transactions. “Over the years, the intrusion has wormed its way down into smaller and smaller transactions.” The ultimate aim, openly proclaimed by leading insider economists like Kenneth Rogoff, is to get rid of cash and make us conduct all our business through credit.
The end of what Goyette and Haynes call the new world order intensifies the coming crisis. We face a blowback “fueled by years of US imperialistic and lawless behavior around the world, and finally triggered by a critical mass of resentment of the US. Among its manifestations will be a US that finds itself not just bereft of meaningful allies, but that it may find much of the world allied against it….What is certain is that this blowback will be experienced in the unwillingness of the rest of the world to continue funding US debt in any future financial crisis.”
Given these awful trends, what can we as individuals do? Goyette and Haynes have the answer. In our investments, we should avoid dependence on others in ways that can easily go wrong. “Gold and silver are the only monetary assets that are not someone else’s liability. They are not dependent on the solvency or even the integrity of an issuer or counterparty.” They don’t stop there but tell you exactly what you need to do to keep your head above water in the coming dark times. For example, they give advice on whether to buy gold and silver bars or coins, as well as gold versus silver. They also tell you what purchases to avoid.
Goyette and Haynes combine a sound grasp of the Austrian economics of Mises and Rothbard with the practical wisdom of experienced professionals in the hard money community. The late great Burt Blumert, who exemplified this combination to the highest degree, would have liked The Last Gold Rush, and there is no higher praise than that.
Stalin’s War: A New History of World War IIby Sean McMeekinBasic Books, 2021831 pp.
Probably the dominant mainstream view of World War II goes like this. World War II was the “good war.” Though Joseph Stalin was guilty of many crimes, Adolf Hitler, with his vast conquests accompanied by mass murder on a colossal scale, was an immediate threat to Britain and the United States, and for this reason, an alliance with Stalin was the best course of action for these countries once Hitler invaded the Soviet Union on June 22, 1941. Further, once the war became a struggle between the Allied and Axis powers, the Russians bore the brunt of the war. Given the immense losses of the Russian people, both soldiers and civilians, we should regard Stalin with something approaching gratitude, however much it goes against the grain to do so, owing to his leadership of his country during this life-and-death conflict. (The philosopher Susan Neiman in her book Learning From the Germans is a good example of this viewpoint. See my review here.)
To say the least, this is not Sean McMeekin’s view. He is a historian who has written outstanding studies of the Russian Revolution, the origins of World War I, and the Ottoman Empire, characterized by extensive archival research in multiple languages. In Stalin’s War, he has outdone himself. It takes over twenty pages to list the archives he has consulted (pp. 767–88), and he has examined an immense number of printed collections of documents, memoirs, and secondary sources as well.
He concludes that the mainstream position is false. Stalin, from his earliest days as a revolutionary in tsarist Russia, was a committed Marxist who sought the overthrow of the capitalist world. To that end, he sought to exacerbate tension between Hitler, eager to overthrow the Treaty of Versailles, and Britain and France. He accordingly signed a nonaggression pact with Hitler on August 23, 1939, freeing the Germans to attack Poland and, not incidentally, securing substantial territory for Russia. In the world war that began with the German invasion of Poland on September 1, 1939, he hoped that the Germans would find themselves in a prolonged struggle with Britain and France, leaving both sides exhausted and clearing the way for communist revolution and Russian expansion.
When the Germans subdued France with unexpected quickness in 1940, Stalin pressed his own territorial and economic demands to such an extent that the pact with Germany was strained, a situation not resolved by Soviet foreign minister Vyacheslav Molotov’s visit to Berlin in November 1940, when Molotov’s intransigence surprised and dismayed Hitler. War between Russia and Germany became increasingly likely. McMeekin stresses that Stalin deployed his forces in a way that suggests that, like Hitler, he too had an attack in mind: it is wrong to think of Operation Barbarossa as an unprovoked German assault.
After the Germans invaded Russia on June 22, 1941, both Winston Churchill and Franklin D. Roosevelt did everything within their power to aid Stalin. Churchill had for many years suspended his anticommunism, viewing Hitler as the greater danger, and Roosevelt, even though America was not yet in the war, gave Russia aid on much better terms than he offered Britain, a pattern that continued throughout the war’s duration.
The aid Stalin received proved essential to his ability to withstand the German onslaught and, eventually, mount a counterattack, but far from being grateful, he acted with complete disregard for American and British interests. As the war continued, the pattern of American and British subservience to the Soviets continued, and McMeekin shows how again and again Roosevelt and Churchill ignored the dictates of national interest to aid Stalin. Among the examples he discusses are the abandonment of the London Polish government in exile at Stalin’s behest, the support for Josip Broz Tito in Yugoslavia, and the undermining of the Nationalist Chinese government. As if this were not enough, the “unconditional surrender” policy and the Morgenthau Plan, calling for the pastoralization of Germany, also aided Soviet policy in that they impeded the chances of the overthrow of Hitler and a peaceful settlement of the war on the western front. Applied to Japan, unconditional surrender prolonged the war unnecessarily and enabled Stalin, who had done nothing to help the Allies during the war, to declare war at the last moment so that he could secure territorial gains for Russia.
I have been able to give only a small sample of McMeekin’s vast canvas, and I have space to comment on only a few points of interest. Readers familiar with Mises’s socialist calculation argument may wonder how it was possible for Stalin to build up a tremendous military arsenal through central planning. Part of the answer lies in the concentration of resources on military goods, to the detriment of civilian consumption, but another part of the answer is more surprising. McMeekin notes that many American businessmen invested in Russia, helped Stalin construct factories, and even exported their own plants. Here the author appropriately makes use of the pioneering three-volume study of Antony Sutton, Western Technology and Soviet Economic Development (1973), as well as his own archival research (p. 677n8. Sutton’s later work Wall Street and the Bolshevik Revolution [1974] also merits reading but should be used with caution).
In considering the events leading up to the war, McMeekin asks, Why did Britain issue a guarantee to Poland in March 1939, when there was no prospect of Britain’s coming to Poland’s defense in the event of a German invasion? Further, the guarantee did not extend to Poland’s eastern borders: Why was it more important to defend Poland from German invasion than Russian? Russia did not accept the boundaries in place after the Russo-Polish war of 1920 and wanted at least a restoration of the Curzon line boundaries of the Versailles settlement. By the way, much of the work at that conference in determining the Curzon line boundaries was done by the great Kant scholar H.J. Paton.
In answer to the question of why Britain issued the guarantee, I would like to call attention to the important study by Simon Newman, March 1939: The Guarantee to Poland, (1976) suggesting that the Chamberlain government was quite willing to engage in war with Germany. In this connection, the influence of Lord Halifax, the foreign secretary, who, as R.A. Butler notes in his memoirs, was the dominant influence on British foreign policy in the months after the Munich conference, should not be overlooked. McMeekin makes an intriguing remark about the effect of British pressure: “It is significant that Hitler displayed cold feet in the last days of August 1939, sensing that he was leading Germany into a larger conflict than he had bargained for” (p. 93).
One of the key points in the book is the importance of control of resources such as aluminum and oil in carrying on war. In this regard McMeekin suggests that a concerted strike by the British and French against the Baku oil fields, controlled by Russia, after Stalin’s invasion of Finland in November 1939, could have crippled Russia’s ability to wage war against Germany and thus averted the horrors of the Russo-German war. “But the Allies missed their chance…. It had been a close call for Communism in its existential struggle with the capitalist world, but Stalin’s wiles had seen off real and potential threats and restored the Soviet position” (p. 155).
McMeekin, in his assessment of Stalin’s policy aims before the German invasion, makes use of the excellent book by Ernst Topitsch, Stalin’s War (1987), citing his report of Stalin’s May 5, 1941, speech to the Soviet military graduates that makes clear his aggressive aims (p. 675n5). Contrary to the review of Topitsch’s book by Gerhard Weinberg in the American Historical Review (June 1989), Topitsch was by no means a Nazi ideologue. To the contrary, he was a philosopher sympathetic to the Vienna Circle logical empiricists and wrote critically of Nazi ideology.
Not only did Stalin have hostile intentions toward Germany, he showed little desire for good relations with Britain and the United States. Stalin’s neutrality pact with Japan, signed by Stalin and Japanese foreign minister Yosuke Matsuoka on April 13, 1941, was hostile to American interests. “With its position in Manchuria secure, Japan was now free, if it wished—and Stalin’s hint could not have been clearer—to strike into Southeast Asia and the Pacific against British and US interests” (p. 258). Matsuoka, by the way, spent his teenage years in pleasant circumstances in Portland, Oregon, and spoke fluent English.
Stalin wished to embroil the United States and Japan in conflict, since peace between the two countries might encourage Japan to move against Russia. An uncompromising American policy of resistance to Japanese expansion in Southeast Asia was thus in his interest, and the communist agent Harry Dexter White, ensconced at the Treasury Department, drafted a memorandum in June 1941 that was the basis of secretary of state Cordell Hull’s demand to the Japanese on November 26, 1941, that they withdraw totally from their conquests, an ultimatum that led the Japanese to look on war with the United States as inevitable. Anthony Kubek’s How the Far East Was Lost (1972), which McMeekin lists in his bibliography, has a valuable chapter, actually written by Stephen H. Johnsson, on White’s activities in fomenting conflict between the United States and China. More generally, Charles Callan Tansill’s Back Door to War (1952), based on extensive research in the US State Department Archives, has a long account of Japanese peace efforts prior to Pearl Harbor. Tansill, once esteemed as one of America’s foremost diplomatic historians, is today seldom cited.
As mentioned above, the author has rightly stressed the uncritical American and British attitude toward the Yugoslavian partisans led by Tito. The author’s excellent discussion supports the earlier study of Slobodan Draskovich, Tito: Moscow’s Trojan Horse (1957). Draskovich was the son of a Serbian minister of the interior who had been assassinated in 1921 and the brother of Milorad Drachkovitch, for many years a fellow at the Hoover Institution. More generally, later archival research has supported the findings of “premature anti-Communists” during and immediately after the war. The author’s comments on Major George Racey Jordan, who protested American shipments of uranium and other materials needed to construct atomic weapons (pp. 532–34), and on the protests by Pennsylvania governor George H. Earle to Roosevelt on unconditional surrender (p. 451 and, especially, p. 737n31) should be consulted on this point.
I shall close with a remark that students of free market economics will find intriguing. McMeekin says, “[T]he proto-Keynesian fallback argument one sometimes hears—that the mobilization of the ‘arsenal of democracy’ brought the United States (and later world) economy out of the Depression in a way Roosevelt’s New Deal did not—rests ultimately on the broken-window fallacy identified by Frédéric Bastiat” (p. 664).
Stalin’s War is a magnificent book and everyone interested in the causes and consequences of World War II—and what reasonable person could not be?—should read it.
Corona, Climate, Chronic Emergency: War Communism in the Twenty-First Centuryby Andreas MalmVerso, 2020. 215 pages.
Some critics of the draconian lockdowns alleged to be needed to cope with covid-19 have claimed that these measures are merely preparatory steps to accustom Americans to centralized control. Once the covid-19 hysteria dies down, we will face permanent restrictions to deal with “climate change.”
These critics, and other readers as well, are likely to find Corona of interest. The author, Andreas Malm, a scholar of human ecology at the University of Lund, calls for using covid-19 and climate change as tools to promote a world socialist revolution. Lenin and Trotsky are for him heroic figures, though he acknowledges they were far from flawless, and we can learn much to guide us through our current troubles from the “war communism” they instituted.
The world is heating up and we face a global pandemic. Neither of these assertions is to be questioned, says Malm. “Science” tells us that they are true, and that is that. What causes these problems? The answer, you will not be surprised to learn, is capitalism. Marx long ago predicted that capitalism would collapse because capitalists, greedy for profit, would expand production to a greater extent than the market could absorb. The revisionist Marxist Eduard Bernstein objected that capitalism had so far surmounted its crises and hadn’t collapsed, but Rosa Luxemburg, another heroic figure for Malm, had high hopes for future disaster.
And she turns out to be right. The culprit is capitalist exploitation of nature. Capitalists disturb rainforests and other areas with large numbers of animals. This disturbs the animals found there, such as bats, causing them to flee elsewhere. In doing so they spread pathogens all over the world. “If it weren’t for the economy operated by humans constantly assailing the wild,…destroying it with a zeal bordering on lust for extermination, these things wouldn’t happen. The pathogens would not come leaping toward us. They would be secure among their natural hosts. But when these hosts are cornered, stressed, expelled and killed, they have two options: go extinct or jump.” (p. 35) Malm calls this lamentable state of affairs “zoonotic spillover.”
It is thus a great mistake to contrast, as leftists unenlightened by Marxist dialectics often do, humanly caused climate change with natural catastrophes such as covid-19. (Remember, the scale and scope of these is not allowed to be questioned.) Both result from capitalist exploitation of nature. This comes about through stripping the rainforests and expelling carbon dioxide into the atmosphere. The rise in temperature that results from the burning of fossil fuels also disturbs the pathogens ensconced in the forests.
Following Lenin, he asks, what is to be done? The answer does not lie in anarchism. A stateless world may be a dream for the far future, but right now we require a strong state to curb the capitalist exploiters responsible for our woes. Some find the anarchist theorist James Scott insightful, but he is at fault for his failure to respond to the exigencies of our current crisis.
It is not James Scott whom we need now but Lenin. He realized that before the state can wither away, it must be strengthened to deal ruthlessly with the class enemy. Lenin in his “The Impending Catastrophe and How to Combat It,” written in September 1917, said that to combat Russia’s loss of territory and resources, the state should control the economy in the same way the belligerent powers had already done during World War I. “Here, then, was Lenin’s wager: to take measures already instituted by the warring states, step them up a notch, and deploy them against the drivers of catastrophe” (p. 127, emphasis in original). Readers of Mises will not fail to note that he too saw the central control of the German economy during the war as a way to establish socialism.
What we need now is “war communism.” Malm admits that “this term leaves an acid taste. Rightly so. The warring Bolsheviks committed no small amount of cruelty” (pp. 158–59). But contrary to anticommunist propaganda, war communism in one respect succeeded magnificently. “Having the Whites and the allied empires arrayed against them—zero fossil fuels versus all the reserves in the world—the Red Army won the war. In this isolated respect, the period from late 1918 to late 1920 was the finest hour of the Soviet state” (p. 160).
What would “war communism” be like for us now? Malm has little in the way of a velvet glove that conceals the iron fist. He says,
Regardless of whether the problem is attacked from the supply or the demand side, the race to zero [carbon emissions] would have to be coordinated through control measures—rationing, reallocating, requisitioning, sanctioning, ordering…ecological Leninism leaps at any opportunity to…break with business-as-usual as sharply as required and subject the regions of the economy working towards catastrophe to direct public control. It would mean that “one part of the population imposes its will upon the other part”, to speak with Engels. (pp. 145, 151)
Malm says that “the journey [to an economy along ecological Leninist lines] would obviously be fraught with danger. A state thus expanded could…become bloated.” (p. 167) Nevertheless, he believes the risk worth taking. It is best to leave Malm to his fantasies. I prefer Murray Rothbard to Lenin, and I do not share Malm’s opinion that Theodor Adorno of the Frankfurt school was “the greatest thinker of the twentieth century” (p. 171).
Shakespeare’s Rome: Republic and Empireby Paul Cantor1976; University of Chicago Press, 2017, 228 pp.
Paul Cantor will probably be best known to readers of the Mises page for his pioneering use of Austrian economics in literary criticism, and many will also be aware of his brilliant studies of popular culture. (For the former topic, see my review.) He is also one of the world’s leading Shakespeare critics, and his principal theme in this area is Shakespeare as a political thinker, a theme that proves as illuminating as it might at first appear surprising. Several years ago, he published Shakespeare’s Roman Trilogy, an account of Shakespeare’s views of the Roman Republic and Empire as developed in the plays Coriolanus, Julius Caesar, and Antony and Cleopatra. The book includes as well an analysis of Shakespeare’s portrayal of the rise of Christianity and an arresting comparison of Shakespeare with Nietzsche on the decline of the ancient world. I hope soon to address that book, but for now I wish to discuss Cantor’s first book on Shakespeare, written forty years before his later study and reissued together with it, which lays the groundwork for the new volume. (Although he does not discuss the rise of Christianity in Shakespeare’s Rome, the book gives evidence that the topic already interested him [see pp.220–21n18].)
Cantor argues that in Coriolanus and Antony and Cleopatra, the plays discussed in Shakespeare’s Rome, Shakespeare presents a profound account of the transition from Republic to Empire. To some the notion of Shakespeare as a political thinker may appear bizarre: “Ever since Ben Jonson, it has been fashionable to question Shakespeare's knowledge of Rome, and even to maintain that his Romans are merely Elizabethan Englishmen in disguise” (p. 7; Cantor notes that Goethe held this view [p. 209n1]). This opinion, though, imports historicist preconceptions into the reading of Shakespeare, rather than attempt to understand him as he understood himself. In this connection, the author says, “If we assume a priori that Shakespeare was incapable of understanding Rome, we will never read his Roman plays carefully enough to determine whether he had any insights into Rome. It is all too easy not to find something when one is convinced from the start that nothing is there” (p. 8). In his revolt against historicism, it is evident that Cantor is a close student of Leo Strauss.
It transpires that Shakespeare knows more about Rome than many of the historicist critics. Some of them, for example, wonder whether the Roman Republic was an aristocracy, because of the Senate, or a democracy, because of the tribunate. In fact, it was neither but was a “mixed regime,” a concept Aristotle originated. “Political theorists have always considered the Roman Republic an example of a fourth form of government, the so-called mixed constitution or mixed regime, which involves precisely the blend of aristocracy and democracy that Shakespeare portrays in Coriolanus “ (p. 9; see also, pp. 209–10n7).
It was not only the notion of the mixed regime that Shakespeare took over from classical antiquity. The key to Cantor’s analysis of the plays is another part of classical political philosophy, the view that political regimes both promote and depend on certain human temperaments. The Republic was founded on martial valor.
Thus Roman austerity and martial virtue must be understood in the context of Rome…. It is difficult to find one English word to cover this complex of austerity, pride, and public service that constitutes Romanness in Shakespeare, in a way that the one word eros describes the force that manifests itself in such diverse forms as hunger, thirst, sexual desire, and “immortal longings.” Perhaps the best word to describe the side of human nature developed in a character like Coriolanus is spiritedness, a term which has the advantage over alternatives like heart or courage of immediately calling to mind public spiritedness. (pp. 36–37, emphasis in original)
Cantor stresses that in this sort of regime, there is no separation of church and state, much less a private sphere of “religion”; following Fustel de Coulanges, and again Strauss, he holds that the gods are part of the city’s civic institutions. “The horizon of Rome and the horizon of heaven are coextensive, or, to put it differently, in Shakespeare’s Rome even the gods are in some sense included within the precincts of the city. Clearly this aspiration to totality on the part of the Roman community goes beyond the claims of the modern state as we conceive it” (p.57). Cantor brilliantly suggests that the resort to private divine visions in the Empire constitutes, from the point of view of the older conception, a decline in religion.
In the Republic, the patrician Senate was the primary expression of spiritedness, while the plebeians were more moved by eros; but one should not think that the latter class was entirely bereft of men of spirit. To the contrary, the plebeians of highest ability and spirit were co-opted into the institutions of the Republican regime though the office of the tribunate. Though on the surface, the tribunes could veto any measure of the Senate, in fact the Senate remained in control. This settlement between the two classes depended for its success on concealment, and the senators and holders of high office, such as the consuls, had to “play up” to the plebeians. Coriolanus is a general of unsurpassed military achievement and valor whom the Senate wishes to advance to consulship, but his refusal in his campaigning for office to conceal his contempt for the plebeians leads the Senate to repudiate him. His military achievements go for naught, because he has pierced the veil upon which the institutions of the Republic depend. Cantor makes this suggestive observation. “According to both Livy and Machiavelli, the Roman Senate’s policy was to make one man bear the brunt of popular anger and then sacrifice him to appease the plebeians” (p. 219n28). This comment is especially telling if considered in the light of the work of René Girard, who has influenced Cantor’s work subsequent to Shakespeare’s Rome.
Matters were quite different under the Empire, analyzed in Antony and Cleopatra. “To understand why Antony apparently prefers a life of love rather than politics, one must consider how the terms of his choice have changed since the time of the Republic. In the Empire, the rewards of public life begin to look hollow, whereas private life seems to offer new sources of satisfaction. The change from the era of the Republic might be conveniently summed up in the formula: the Imperial regime works to discourage spiritedness and encourage eros, or, more accurately expressed, by removing the premium the Republic places on spiritedness, the Empire sets eros free with a new power” (p.128). Neither Antony nor Cleopatra entirely sacrificed the older conception for the newer, and Cantor sets forward the intricately complex dialectic between the two, contrasting it with the complete absorption into each other of Tristan and Isolde as depicted in Wagner’s libretto (p. 177).
In Shakespeare’s Rome, Cantor helps us to understand why Shakespeare was not only a great writer but a great political thinker as well, and that is no mean achievement.
I was a young lad of thirteen when the first Transformers film directed by Michael Bay premiered in theaters. I do not recall much about it other than Megan Fox working on Shia Labeouf's car, but apparently, this sultry façade was hiding a darker secret: the film was actually government-supported propaganda produced with extensive involvement from the military. This is just one of the many surprising and sometimes shocking things I learned from Christopher J. Coyne and Abigail R. Hall’s new book, Manufacturing Militarism: U.S. Government Propaganda in the War on Terror, which should be read by everyone who seeks to more fully understand the extent to which militaristic propaganda has pervaded seemingly every aspect of our society.
In this short book (clocking in at 187 pages not counting endnotes), Coyne and Hall offer readers a crash course in the history of militaristic propaganda, the techniques that are used to employ it, how it has been used historically in the United States, and an in-depth examination of how its domestic use has exploded since the advent of the war on terror.
Having been a small child when the Iraq War broke out, I found the chapters examining propaganda efforts before and after the invasion to be especially enlightening. Like many people my age, I was aware of the general outline of the Bush administration raising a ruckus over the fear of weapons of mass destruction but was not familiar with some of the more specific details that Coyne and Hall do an excellent job of not only cataloging but exposing as complete falsehoods that contradicted “known realities.”
Similarly, I was blissfully unaware of the full extent to which the “if you aren’t with us you’re against us” mentality had gripped the nation. I was of course familiar with David Frum’s disgusting attack on “Unpatriotic Conservatives,” but had not realized to what extent such hysteria had gripped the nation, in part because the government promoted it.
While the chapters dealing with Iraq were informative and likely bring specificity to broad ideas readers were already aware of, Coyne and Hall’s revelations of the extent of the Department of Defense’s collusion with Hollywood were truly mind-boggling. Did you know that the infamous Ku Klux Klan–supporting silent film Birth of a Nation was produced using the resources of the US military? I certainly didn’t, but apparently this involvement was a sign of things to come. Using films for propaganda continued through both World Wars, after which point the Department of Defense was created, and along with it the Motion Picture Production Office (MPPO) that has served as a liaison between Hollywood studios seeking to use military assets and the DOD. As the authors describe it, “In exchange for the DOD’s personnel and material, members of the film industry relinquish autonomy over their projects, making changes at the behest of Baruch [the longtime head of the MPPO] and his office.”
Notable films prior to the war on terror that received DOD assistance include 20,000 Leagues under the Sea and Indiana Jones and the Last Crusade. Even an episode of the TV show Lassie received DOD support, but only after the script was altered in a rather fundamental way so that no one in the military could be portrayed as having made a mistake in the show.
Coyne and Hall also point out some illustrative examples of films that applied for DOD assistance and were turned down. These include Apocalypse Now, The Deer Hunter, Platoon, and War Games, none of which are surprising, given their content.
In one section I found to be darkly humorous, the authors quoted the reasons the DOD gave when it rejected the script of Platoon: “There are numerous problem areas in the script. They include: the murder and rape of innocent Vietnamese villagers by US soldiers, the coldblooded murder of one US soldier by another, rampant drug use, the stereotyping of black soldiers and the portrayal of the majority of the soldiers as illiterate delinquents.” These were “unfair” and “inaccurate,” the army complained. Coyne and Hall demonstrate this is nonsense with a carpet bombing, as it were, of facts and statistics that demonstrate that, on the contrary, such examples were actually all too common and real during the Vietnam War.
However, it becomes clear that censoring Lassie is child's play compared to the sheer scale of military involvement in film and television shows that occurred after 9–11. Between 2001 and 2017 the DOD was involved in the production of more than 130 films (helpfully listed in an appendix) and hundreds upon hundreds of TV shows, including Iron Chef, Ellen, Grey’s Anatomy, and Snoop Dogg’s Father Hood, among many others. Films include numerous Marvel movies, four Transformer films, Avatar, and Suicide Squad.
The chapter on DOD involvement in professional sports is equally disturbing, especially when the authors examine the case of former National Football League player Pat Tillman, who was used for propaganda purposes (despite his wishes) after he joined the army and was then killed by “friendly fire” and a cover-up of the circumstances of his death attempted. Similarly, the chapter on the Transportation Security Administration being pure security theater is chock-full of useful information.
As interesting as all of these examples are, and as important as the analysis of the role propaganda has played in ginning up support for the war on terror is, Coyne and Hall’s greatest contribution comes in their analysis of the political economy of government propaganda and their concluding chapter on what can be done about it.
While specifically tailored toward analyzing propaganda in the context of promoting militarism, their framework can easily be applied to many other areas. They astutely note that “the use of propaganda normalizes purposeful deceit by the state in domestic life and incentivizes similar behavior in matters outside foreign policy, further contributing to the expansion of state power relative to that possessed by citizens.” Any students looking for a senior thesis or term paper subject would likely find it a worthwhile enterprise to use Coyne and Hall’s framework to examine not only the use of government propaganda during the coronavirus pandemic but also how its use during the war on terror paved the way for its use now.
I wish I could say that Coyne and Hall’s conclusions give cause for optimism, but they do not. Their analysis of the structural roadblocks to counting on laws, the media, or whistleblowers to stand in the way of government propaganda is quite sound and we are left with the only realistic solution being citizens becoming inoculated against propaganda and reasserting self-governance. As with the rest of the book, Coyne and Hall’s analysis here is free from starry-eyed idealism about democratic self-government and they do not shy away from examining the difficulties that stand in the way.
Coyne and Hall point out that the use of propaganda leads to governing officials coming to view the citizens, from whom they theoretically derive their authority, not as people they are responsible to, but rather obstacles that must be poked, prodded, and manipulated into obedience. Soon this attitude leads to outright contempt for those citizens who stand in the way of whatever the latest scheme they have cooked up, whether it be invading Iraq, instituting lockdowns, imposing mask and vaccine mandates, or the outright confiscation of wealth. Things will likely get very ugly as the authorities increasingly let the mask slip and openly convey this contempt. As Coyne and Hall discussed in their previous work, the war on terror inevitably comes home. As the government ramps up its war on recalcitrant Americans that it labels domestic extremists or the unvaxxed, or whatever group falls out of favor next, this book will serve as an invaluable guide to those who wish to at least try to stand up for the truth. Let us hope that it will not be too late.
Open a popular magazine of your choice, or even the newspaper of record, and you’ll find a lot of fascinating claims seemingly backed by scientific aura. Eat this superfood and you’ll be healthy; do this minor thing every day and you’ll be successful; have governments just slightly change some condition that faces us hapless humans and we’ll change the world.
A few months ago, I called this image a “pretend world,”
with pretend ideals, pretend money and pretend language. A world of quick fix and quick bucks, where the road to success no longer requires hard work, just papering over whatever defects emerge.
An idea about simple and revolutionary solutions to complicated problems seems to have consumed the chattering classes, our media elites, and our political overlords. In the last two years, I’ve stumbled across several engaging books trying to fight back against at least some of the research that underlies this nonsense: Stuart Richie at King’s College London wrote Science Fictions: How Fraud, Bias, Negligence, and Hype Undermine the Search for Truth; his colleague at King’s Bobby Duffy, armed with data from his previous job at the polling firm Ipsos MORI, released Perils of Perceptions: Why We’re Wrong about Nearly Everything; yet another Brit, Tim Harford, published How to Make the World Add Up; and Carl Bergstrom and Jevin West released Calling Bullsh*t: The Art of Scepticism in a Data-Driven World.
The latest of these books specializing in “takedowns of stupid research” to land on my desk is Jesse Singal’s The Quick Fix: Why Fad Psychology Can’t Cure Our Social Ills. It’s a pleasant read, as Singal makes his way across various chapters of psychological research claims that turn out to have hyped their results much beyond what they deserve. Some of the specific examples are repeated from the above books, like Daryl Bem’s "extrasensory perception," where an established psychology professor in a peer-reviewed article in a top-ranked psychology journal showed that university students can see the future (p < 0.05). Same with Amy Cuddy’s power poses: the claim that sitting and standing in more power-like positions can boost our self-esteem to the point where most perceived social ills (e.g., gender outcome gaps, racial discrimination) go away.
Others I wasn’t aware of, like the hundreds of millions of dollars that the US Army plunged into weak, unproven, and frankly ridiculous projects that tried to prevent posttraumatic stress disorder in veterans. Because unvetted positive-psychology research had shown that the Penn Resilience Program, a twenty-hour course specifically targeting children and adolescents, could maybe reduce the onset of depression and anxiety, its proponents could naturally create an Army-wide program for curing PTSD. We can solve the hardest of mental health problems by merely telling people to be happy and optimistic! Science™.
Another fancy idea is the grit revolution: the vague idea that by boosting the ability to work hard or endure hardships in the present in exchange for future benefits, one could ostensibly revolutionize America. We could close the education and outcome gaps between rich and poor or between racial groups by simply teaching the disadvantaged to embrace grit.
It’s low-hanging fruit for Singal to debunk such laughable research, but in each chapter, he bends over backward to respectfully describe them first before he takes them apart. It usually comes down to a combination of common research faults: one-off results that were hyped to oblivion before it turns out that they don’t replicate. Young researchers, through intentional fraud or statistical incompetency and desperate to make a name for themselves in a cutthroat academy (where new, flashy, and positive results are required for publication in top journals) break the rules of proper scientific engagement, concluding that because a finding seems to hold in a narrow, specified, or lab-generated setting it therefore generalizes to big, flashy, real-world outcomes.
The book is about research method problems in psychology, but what ties the chapters together is the credulous belief with which we accept—even long for—shortcuts and simple solutions to hard problems. That small and tiny changes can have outrageously large and lasting social effects—like that flashing an image of an Israeli flag for milliseconds could meaningfully shift “white-hot political divisions among Israelis,” that just beholding the statue The Thinker could “drive churchgoing folk into the arms of Richard Dawkins.” Quick fixes.
One mistake we make is to assume that the people who shout the loudest about their research must thus be right, or even know what they’re talking about.
Singal’s final chapter is on behavioral economics, or more specifically nudging, and I found my dwindling interest suddenly piqued. The takedowns of previous topics were pretty comprehensive, leading the original studies and their proponents to at best conceding, at worst looking like fools. What was Singal to do with the behemoth of fanciful claims that is behavioral economics?
Apparently nothing. Until that final chapter abruptly ended, I was waiting for the attempt at a juicy takedown—all in vain. After almost forty pages of nudging units, Richard Thaler, how belief in homo economicus is silly, and numerous examples of successful(ish) nudge policies, the best we get is a confession that, like other hypes in a book about quick fixes, nudging is too small to achieve any large purpose its proponents may wield it for. Then again, Singal placed behavioral economics alongside quack science like power posing, extrasensory perception, and mumbo-jumbo psychology. He tied it, implicitly at least, with results that could never be replicated, that contained outright fraud, and were achieved with faulty methods. I should take the win.
The paltry nudge criticism aside, the chapter conclusion still stands: “[Y]ou can't nudge your way out of policy problems.”
It’s easy to walk away from books like these thinking that an entire (sub)field is garbage, that academia is forlorn, that all research is wrong. That’s not true, and these authors are always very careful to stress that that’s not the thesis they’re advancing. Rather, they’re on a quest to expel the misbehaving deviants and thereby increase the public’s belief in what’s left standing.
What these books teach, embody even, is that skepticism is healthy, that there are many ways in which research and researchers can go wrong (intentionally and unintentionally), and that there are plenty more instances of media outlets or political pundits hyping, exaggerating, hijacking or misrepresenting an already weak or faulty finding.
“Don't trust; verify,” goes a common adage in the bitcoin world. The rest of us should adopt the same mentality, especially when popular or clearly convenient research findings are broadcasted far and loud.
No Free Lunch: Six Economic Lies You’ve Been Taught and Probably Believeby Caleb S. FullerFreiling Publishing, 2021. 110 pp.
Caleb Fuller, an economist who teaches at Grove City College, thinks that many people have a mistaken conception of economics. It is, they think, a dull and dry subject, the “dismal science,” of primary interest to specialists. Fuller disagrees. He says that “economics changed my life” (p. 11; all page references are to the Amazon Kindle edition), and in this wonderful short book, which can be read in an hour or so, he conveys his infectious enthusiasm for it.
What is the reason for his enthusiasm? Fuller says that he can provide readers with “a pair of eyeglasses that can extend our vision beyond where we’re accustomed to looking” (p. 12), and this is the “opportunity cost lens.” (One wonders how a pair of eyeglasses can be at the same time a lens, but this is a quibble.) By using this lens properly, readers will be able to unmask six common fallacies that exercise a malign influence on current thought. In carrying out his project, he follows Frédéric Bastiat and Henry Hazlitt, and he is a worthy successor of them, whom he calls “economics’ greatest communicators” (p. 12).
Before turning to opportunity cost and its use in exposing fallacies, I will note one point of usage. Fuller often calls the fallacies “lies,” meaning by this that they are untrue; but although some people use the word in this way, I think it better to reserve “lies” for deliberate misstatements, so that someone who wrongly believes one of the fallacies is true would not count as a liar if he stated his belief. But this is by the way.
Opportunity cost, he tells us, “is the value of the alternative you sacrifice when you choose to pursue a goal—any goal. Put another way, opportunity cost is the flip side of any choice you make” (p. 22). Fuller first uses opportunity cost to explain Bastiat’s famous “parable of the broken window.” In the story, a “teenage vandal” (could one say that today?) has thrown a brick through a shopkeeper’s window. A passerby suggests that he is really a public benefactor in that the shopkeeper will now have to pay a glazier to replace his window and the glazier will spend the money he receives, increasing the community’s prosperity. What the passerby overlooks is that had the window not been broken, the shopkeeper would have spent his money on other things. The passerby has ignored the shopkeeper’s opportunity cost. The community has not gained, but lost, because a resource, namely the window, has been destroyed. Few people would call the teenager a public benefactor, but many have been ensnared by the fallacy. It’s often claimed, for example, that government spending on weapons during World War II ended the Great Depression, but in the absence of war, the money would have been spent on other things, and the war in fact lowered the standard of living of civilians.
Fuller next applies opportunity cost to answer a fundamental question. Resources in an economy are scarce, “in limited supply and also desirable” (p. 32). How are they to be allocated? The price system is by far the best way to do this; it is “humankind’s greatest invention” (p. 33). If the quantity demanded of a good exceeds the available supply, its price will rise, and the good will go to those who value it the most, i.e., offer a higher price than competing buyers. Many people resent this system—why should scarce goods go to the rich rather than the poor?—and seek a “free lunch” by forcing prices down. Fuller says there is no such thing as a free lunch and, to illustrate his point, offers an excellent and detailed account of the failures of rent control. Often, for example, landlords will respond to laws that compel them to offer apartments at below the market price by refusing or delaying repairs. By reducing the quality of the apartment, they “simply let the housing quality adjust until it matches the new, lower price they are forced to charge” (p. 42). He says that the “fact that lunch isn’t free is an economic law that was true in 2021 B.C., around the time Hammurabi declared price controls” (p. 44). The date is a few hundred years off, but one gets what he means.
The behavior of the landlords in response to rent control is an instance of a more general principle. Good intentions by lawmakers often fail to achieve the desired outcomes, because “virtually all public policies alter the relationship between costs and benefits. When the benefits of an action change relative to an action’s opportunity cost, people’s actions also change. And when people change their actions, they may do so in a way that works at cross-purposes with a public policy’s noble intentions” (p. 48). As an example, after the 9/11 attacks, the Transportation Security Administration security measures raised the opportunity costs of flying, since people after that had to wait much longer in line. As a result, some shifted to automobile travel. But fatal accidents are much more likely to occur in cars than airplanes, and one estimate is that because of the TSA’s policies, “327 additional automobile deaths occurred monthly for the last quarter of 2001” (p. 52).
The price system, so much stressed by Fuller, depends on a fundamental principle, that exchange takes place only when both parties to it expect to benefit. “Thus every trade makes the world wealthier because both parties gain, even as exchange only switches who owns what property titles” (p. 60). Though the point seems when stated to be obvious—why else would you make an exchange if you did not expect to gain from it?—it has often been overlooked, and Aristotle among many others thought an exchange takes place when the good is equally valued by both parties. If you understand that exchange benefits both parties, you will see what is wrong with criticisms of agreements between owners of “sweatshops” and those workers who voluntarily work in them, under what seems to us harsh conditions and poor pay. The employers are not exploiting the workers; the conditions are to them an improvement. You do not exploit people by offering them jobs, even if you could have made them an offer they would have found even more desirable. It is worth noting, and in doing so I do not mean to suggest that Fuller has not seen this, that the view that in an exchange one party gains at the expense of another is inconsistent not only with the “both parties benefit” view but also with the “exchange as equality” position. The elaborate efforts of Karl Marx to reconcile labor exploitation and equality in exchange manifest the intellectual bankruptcy of his thought.
The mutual benefits of exchange apply to all exchanges, not just ones by the residents of one country, though many people find this extraordinarily hard to see. Foreign trade extends the advantages of specialization and the division of labor, and attempts to limit it reduce consumer welfare. If it is objected that workers displaced by foreign competition are worse off, Fuller’s reply is that to use this point in support of tariffs is an instance of the broken window fallacy. Tariffs raise production costs, leading employers to reduce offers of employment, and these unseen lost jobs need to be set against the losses to domestic workers that are so much emphasized in anti–free trade propaganda. Free trade also promotes peace because trading partners benefit from each other’s continued well-being. “If goods don’t cross borders, armies will,” an adage that comes not from Bastiat but from a “somewhat obscure nineteenth-century economist, Otto T. Mallery” (p. 86), but is true nonetheless.
Fuller concludes with a convincing rejoinder to the claim that the government needs to regulate markets. Otherwise, it is claimed, businesses would be tempted to take advantage of their customers through inferior service and fraud. If, for example, a restaurant serves you monkfish, the “poor man’s lobster” (p. 91), instead of the genuine article you had ordered, won’t it make a profit? Not it if wants you back as a customer. “The ‘shadow of the future’ looms over every exchange like a specter threatening to take away future profits. But you need to be wearing your economic eyeglasses to see that far ahead” (p. 93).
No Free Lunch is an ideal book for introductory economics classes and for anyone who wants to understand how the free market works. It would be a good test to see if you understand the book to explain why the lesson summarized in the book’s title is consistent with the fact that the book is, at least as of this writing, available on Amazon Kindle for free.
Capitalism vs. Freedom: The Toll Road to Serfdomby Rob LarsonZero Books, 2018, 233 pp.
Rob Larson, who is a professor of economics at Tacoma Community College in Washington, does not agree with Mises, Hayek, Rothbard, and Friedman that the free market promotes freedom and prosperity and that socialism is the “road to serfdom.” That is an understatement, and you won’t find any understatements in this book. To the contrary, the book abounds in wild accusations.
For Larson, the eminent economists just mentioned are more than mistaken: they are criminal deceivers. His principal targets are Friedman and Hayek, but Mises and Rothbard are not spared. He says,
This consistent pattern reveals that a number of quite respected Nobel Prize–winning conservative economists, including Friedman and Hayek, are intellectual opportunists. By coincidence, their analysis has bottomless contempt for organized labor … but the giant crimes of the enormous greater power of organized capital are studiously ignored. This puts Friedman and Hayek closer to other figures who have used their formidable intellects to defend other cruel power systems. (p. 48. All references are to the Amazon Kindle edition.)
Faced with terrible people like this, there is no need to read them carefully. Why waste your time doing so on intellectual criminals? And Larson does not waste his time. He says, “But more than Friedman and even more than Rand, the bar for capitalist worship was set by Ludwig von Mises, who is conceived to be the founder [sic] of the highly conservative Austrian school of economics, to which Hayek and Rothbard belong. Mises wrote about the ‘creative genius’ of wealthy entrepreneurs” (pp. 13–14). Larson then quotes a passage from Human Action about the “creative genius,” but Mises is not talking there about entrepreneurs but of people like Beethoven who are so driven by the urge to create that they never stop working. More generally, I don’t think that Larson knows much about the Austrian school, and I suspect Menger, Böhm-Bawerk, and Wieser would agree with me.
Even if he doesn’t, though, his main thesis is worth considering. He says, in effect, “Defenders of the market like Friedman claim that it frees people from arbitrary power. Competing firms block exploitation; if a firm paid a worker below what he was worth, other firms would offer more. Friedman contrasts the market with central planning, where everyone must conform or else. What this ignores is that capitalism isn’t run by small, competing firms but dominated by gigantic corporations that rule us.”
To his credit, Larson recognizes an answer to his complaint: “Each case is unique in its details and in many cases the right-wing view of this issue, based on ‘crony capitalism,’ is relevant. Crony capitalism describes a nominal market economy, but one with monopoly, oligopoly or other concentrated structures, because industries were put in the hands of allies or ‘cronies’ of the state regime” (p. 125). But if defenders of the free market say that they don’t favor crony capitalism and are thus immune to Larson’s accusation that they “ignore the giant crimes of organized capital,” they are intellectual opportunists. “[A]ll historical evidence shows that capital concentrates with economic growth and monopolies arise in free-market settings, quite consistently” (p. 126).
I hope that you noticed the key word in the last quotation: “historical.” Larson offers no theoretical account that the free market leads inevitably to monopoly. He mentions economies of scale, network effects, and other factors that tend to increase the size of firms, but he presents no argument that these factors tend always or even for the most part to result in control of an industry by large firms. To the contrary, he simply describes large companies like Amazon and Walmart and wrings his hands in horror.
Another problem escapes Larson’s attention, owing to his ignorance of the Austrian school. His challenge to Friedman is that much of the economy doesn’t consist of a large number of very small firms. In the Austrian view, though, an abundance of small firms, each without significant influence on the market price, isn’t required for competition. All firms, large and small, compete for the consumers’ “dollar votes,” and the market prices that result from this process aren’t judged by the artificial standards of the perfect competition model.
Larson doesn’t like the “dollar votes” idea either. He objects that the wealthy have more votes than the poor. Larson quotes “radical Left economist Robin Hahnel”: “‘It is not one person one vote but one dollar one vote in the market place…. Few would hold up as a paragon of freedom a political election in which some were permitted to vote thousands of times and others were permitted to vote only once, or not at all.’ But this is exactly the kind of freedom the market provides” (p. 24). What this complaint overlooks is that, unlike in political elections, there aren’t just one or a few winners, and even if the rich have more votes than the poor, this does not entail that only the commodities that they want will be produced. Everyone can be satisfied, so long as there is sufficient demand for a product to make it profitable to make it available. Furthermore, one of the points Larson most stresses tells against his criticism of consumer sovereignty. He again and again emphasizes that the rich are a small minority; but if that is true, the poor are in the majority and their dollars votes “add up.” As Mises often says, “capitalism is mass production for the masses.”
Suppose, though, that all my criticisms so far of Larson are wrong and that the free market is a terrible system that exploits the poor. We still need to ask him what he wants to put in its place. His answer once more suffers from his unwillingness or inability to deal with Austrian economics. In response to Hayek, who argued that central planning is a “road to serfdom,” he says that his brand of socialism isn’t based on central planning. Instead, it features democratic control by workers. “But of course a decent standard of living requires a great deal of coordination with other workplaces, to keep necessary goods and services flowing through their often long production chains in a reasonably efficient fashion. This communication across industries is enormously helped by today’s sophisticated telecommunications technology, which could also allow different workforces to collaborate together to satisfy an agreed-upon plan” (p. 194).
How are the workers supposed to do this? Larson offers no discussion at all of Mises’s fundamental point that economic calculation in a complex modern economy can take place only though market prices, and that without such prices the economy would collapse into chaos. Conferences among workers, even those equipped with the latest “telecommunications technology,” won’t solve the calculation problem.
Larson thinks that the critics of socialism have wrongly concentrated on central planning, but if he reads Mises’s account of syndicalism in Socialism, he will discover that Mises is well aware of proposals of the type he favors. I’m reluctant to recommend that Larson do this, though, because he seems unable to read Mises without distortion, and I’ll conclude with one more instance of this. Quoting a passage from The Anti-capitalistic Mentality, Larson says that “Mises attributed socialist movements to emotions of envy and resentment” (p. 195). If you look up the passage, it turns out that Mises is talking about the worker who feel dissatisfied because of people “who have succeeded where he failed,” not the socialist movement. Evidently, accurate quotation isn’t needed when dealing with an “intellectual opportunist” like Mises.
War: How Conflict Shaped Usby Margaret MacMillanRandom House, 2020xxii + 312 pages
War is a difficult book to review. The book is based on the Reith Lectures that MacMillan delivered for the BBC in 2018 and is not organized around a central theme. Instead, it presents a large number of startling facts and anecdotes about war aimed at a wide popular audience. It contains several points that readers of the Mises Institute page will find of value. MacMillan, a renowned authority on international politics who has taught at Oxford and Toronto and who is now, as the saying has it, “rich in years and honors,” is eminently qualified to write about war.
“War is the health of the state” said Randolph Bourne (not quoted in the book), and MacMillan bears him out. She tells us that the
need to make war has gone hand in hand with the development of the state. The historian Charles Tilly goes so far as to say, “War made the state, and the state made war.” Protecting yourself, from neighbors or raiding nomads, takes organization—to get the bodies to fight and then to provide leadership and the discipline and training to exact obedience. (p. 20)
For readers of Bourne, not to mention Oppenheimer and Nock, this is hardly news; but MacMillan offers an illustration of the claim that will surprise many of us:
In the eighteenth century, the British navy was the single biggest industry by far in the whole of the British Isles. While you could build a cotton mill for £5,000, a large capital ship for the navy such as Nelson’s Victory cost over £60,000….The navy needed money, a great deal of it, as well as organization and management, and the British government developed the necessary tools and institutions, which came in handy for managing other aspects of British society. The Treasury was founded in the second half of the seventeenth century to keep military expenditure under control but over time developed into a body which kept track of the spending of all government departments. In the 1690s…the government as an emergency measure founded the Bank of England, which could take money from subscribers and lend to the government at a fixed rate. Again, like the Treasury, the bank grew into a key part of Britain’s fiscal system. (pp. 20–21)
MacMillan, though fully aware of the terrible costs of wars and massive states, thinks that both of these have their good sides. States are needed to suppress local brigands, and wars bring with them technological innovation. Also, wars sometimes lead to more democracy and socially beneficial programs.
Recently, prominent historians and economists, among them Walter Scheidel and Thomas Piketty, [!] have argued persuasively that major wars can also act to narrow the gap between the rich and the poor and that the experience of the nations involved in the First and Second World Wars bears this out. Major wars stimulate employment; labor becomes more valuable so wages go up; and the rich pay higher taxes voluntarily, or find it harder to avoid doing so. At the end of destructive wars it is also easier to contemplate major programs of reconstruction and social benefits and gain support for them. As William Beveridge, whose report laid the foundations for the British welfare state, wrote, “Now, when the war is abolishing landmarks of every kind, is the opportunity for using experience in a clear field. A revolutionary moment in the world’s history is a time for revolution, not for patching.” (pp. 27–28)
To some of us, the tendency of wars to bring with them high taxes and welfare states will be arguments against them rather than in their favor, and one could wish that the author were familiar with the work of Robert Higgs on the myth of wartime prosperity. But MacMillan should on the whole not be assigned to the prowar camp, and she fully acknowledges war’s horrific costs:
The American Civil War probably had more casualties than all other American wars combined. Some 3 million men fought out of a total population of 30 million and at least 600,000 died and another 500,000 were injured. (The equivalent number of dead today with a much larger American population would be closer to 5 million)….In the First World War the final death toll for those who fought is around 9 million and in the Second World War the figure is at least double that. (pp. 42, 90)
When civilians are taken into account, matters become even worse. “The total wars of the twentieth century presented humanity with enormous bills. In the Second World War between 50 and 80 million civilians—we will never know with any certainty—may have died” (p. 179–80).
Although MacMillan counts as a member in good standing of the establishment, she rejects the currently fashionable stance that in the Civil War all measures were justified to defeat the traitorous Southerners. To the contrary, she presents General Sherman as a veritable war criminal:
In the American Civil War not only did General Sherman use mass reprisals to deter attacks…but, like Americans later in Vietnam, he became convinced that the key to victory lay in cutting off support—from providing intelligence to food—that Southern civilians could give their forces in the home territory…Sherman viewed every Southern civilian, young, old, men and women, as an enemy. (p. 187)
Readers may at times differ with her interpretations of events, but she is a scholar of great accuracy. On one point, though, she has gone astray. She appears to think that Einstein played a direct role in building the atomic bomb. She says, “The Nazis also drove out Jewish scientists, among them Albert Einstein, with the result that the exiles were able to offer their talents to Germany’s opponents. Without the work of the refugee scientists it is unlikely that the Allies could have developed the atomic bomb so quickly” (p. 101). Though Einstein’s famous equation e = mc2 shows that a small mass is equal to a tremendous amount of energy, since “c” is the speed of light, Einstein wasn’t involved in making the bomb.
War gives us much to think about, but only by adopting a resolute policy of nonintervention in foreign quarrels, along the lines advocated by Murray Rothbard and Ron Paul, can we hope to address adequately the evils of war which MacMillan has presented in her book.
Cronyism: Liberty versus Power in Early America, 1607–1849by Patrick NewmanMises Institute, 2021, 362 pp.
Patrick Newman dedicates Cronyism to Murray Rothbard, and it is a fitting choice, as this outstanding book continues and extends Rothbard’s brilliant interpretation of American history. Newman is eminently qualified to do so, having edited both the fifth volume of Rothbard’s Conceived in Liberty and his The Progressive Era.
Like Rothbard also, he tells us exactly the principles he uses in setting forward his account of events. One of these is that “history is a clash between the forces of liberty, or those in favor of individual-decision-making and the market allocating resources, and the proponents of power, the factions that support coercion and government organization of production” (p. 14). This view leads him to the book’s main subject, the “history of cronyism: when the government passes policies to benefit special-interest politicians, bureaucrats, businesses, and other groups at the expense of the general public” (p. 13).
Newman’s second thesis is that “those who control the government’s power are corrupted over time … I define corruption as the willingness of government officials to push for interventions that benefit themselves and other favored interests … Lord Acton’s famous quote can be modified accordingly; ’Power tends to incentivize cronyism and absolute power incentivizes cronyism absolutely’” (p. 14). This tendency makes libertarian reform difficult, though not impossible: to dislodge an interventionist state, the reformers must take power, but doing so tempts them to cronyism.
I wonder whether Newman has put too much pressure on his second thesis. Lord Acton said that power tends to corrupt, and Newman retains this phrasing in his modification of Acton’s dictum, but throughout the book, he takes it to be inevitable that power does lead to cronyism. Need this be so? But whether power must lead to cronyism, it often did, and this Newman abundantly shows. In what follows, I’ll mention only a few of the many topics the author discusses.
In his account of the Constitutional Convention, Newman stresses the malign influence of the Revolutionary financier Robert Morris, who hoped that he could gain financially from a powerful central government: “The Federalist-dominated Constitutional Convention quickly scrapped the Articles and devised an entirely new government. Unsurprisingly, Robert Morris’ ambit—Gouverneur Morris, Wilson, and Madison—played the largest role … Robert Morris also sat on the sidelines because he knew his extensive involvement would generate too much controversy. Overall, the convention’s Constitution laid the foundations for a corrupt American Empire” (pp. 59–60).
Many opponents of today’s powerful state look back with longing to a strict construction of the Constitution, but Newman is not among them. He thinks that the Anti-Federalists were correct in warning against constitutional tyranny. The “strict construction” of John Taylor of Caroline and others, though admirable in its aims, was wrong. Many readers will be inclined to object, but here Newman faithfully follows Rothbard. It might be useful for readers to compare Newman’s interpretation with the very different analysis of Kevin Gutzman’s The Politically Incorrect Guide to the Constitution. (See my review of it here.)
As will already be evident, Newman is no admirer of the Founding Fathers. Madison was an extreme centralizer, though he fell short of the monarchical Hamilton, and his half-hearted conversion to states’ rights in the Virginia Resolutions reflected no real change of mind. His scruples about the constitutionality of a national bank were genuine but soon overcome, and with his bellicose policies leading to the War of 1812, he abandoned any semblance of constitutional principle. “After the war, the New National Republicans—the direct descendants of the moderate Republicans—continued to enact Federalist policies: another central bank, peacetime protective tariffs, and plans for a federal transportation network. Madison came full circle: he began his career laying the groundwork for a Federalist government and ended it by adding the finishing touches” (p. 181).
Newman’s opinion of Jefferson is higher, but he too was corrupted by power. When he drafted the Declaration of Independence, “Jefferson also started to envision an American Empire different from the reactionaries’ dream. The theoretician did not want an Empire of Power; he desired an Empire of Liberty composed of independent yeomen who would homestead the frontier. He did not care if a loose confederation of states or multiple confederations controlled the continent”(p. 38).
The temptation vastly to expand American territory through the Louisiana Purchase proved too much for Jefferson’s libertarian principles. “Jefferson and his Republicans interpreted the Constitution in the way the federalists actually promised, requiring its powers to be confined to those explicitly enumerated, expandable only with amendments. So, according to the Republicans, the Louisiana Purchase should have been unconstitutional. But it was a lot of land…. The consequences of the Louisiana Purchase were seismic, bursting the Empire of Liberty at the seams”(pp. 156, 159). During the war of 1812, Jefferson said, “’The acquisition of Canada … will give us experience for the attack of Halifax the next, and the final expulsion of England from the American continent.’ The Empire of Liberty was now an Empire of Power” (p. 188).
In part owing to the influence of the film Amistad, John Quincy Adams is often these days held up as a virtuous crusader against slavery, but he does not escape Newman’s severe scrutiny. “The central blame for their [the imperialists’] global empire, from acquiring Florida to the Monroe Doctrine and then the Panama Congress, can be laid at the doorstep of John Quincy Adams” (p. 243). Before his loss to Andrew Jackson in 1828, Adams was quite willing to compromise with proslavery interests.
Some opponents of centralized government look to John C. Calhoun for inspiration, but Newman dissents. He too was a time server. “In the late 1820s, at the risk of losing his home state to Radicals … , Vice President John Calhoun secretly drafted the Exposition and Protest. In essence, this influential pamphlet articulated Calhoun’s doctrine of nullification … the Exposition was far less radical than Jefferson’s Kentucky Resolutions…. First, Calhoun previously supported big government and never sincerely adhered to strict constructionism. Second, Calhoun grounded the Exposition in The Federalist Papers … Calhoun’s nullification is closer to the Federalist opportunism of the Jeffersonian era than Antifederalist ideology.” For a different view of the matter, much more favorable to Calhoun and to Jefferson as well, see Marco Bassani’s Chaining Down Leviathan and my review of it here.)
I have been able to touch on only a few of topics in this erudite book, which is filled with items of interest; and I shall mention just one more of these. Often people think of Friedrich List only as a German economist whose protectionist doctrines were widely influential in Europe. But in fact he spent a good deal of his life in the United States, and Newman points out that he played an active role in the pro-high tariff Harrisburg [Pennsylvania] Convention, held in 1827: “Notably, the arch–American system economist Friedrich List hoped the convention would ‘lay the axe to the root of the tree, by declaring the system of Adam Smith and Co. to be erroneous’” (p. 227).
In his devotion to liberty and his immense scholarly industry and knowledge, Newman brings Murray Rothbard to mind, and I am sure that Rothbard would have admired Cronyism and found in its author a worthy successor.
In his must-read new book, The Real Anthony Fauci, Robert F. Kennedy Jr. describes how journalist Liam Scheff chronicled Fauci’s “secretive experiments on hundreds of HIV-positive foster children at Incarnation Children’s Center (ICC) in New York City and numerous sister facilities in New York and six other states between 1988 and 2002” (p. 245). He describes in detail how “Fauci’s NIAID (National Institute of Allergy and Infectious Diseases) and his Big Pharma partners turned Black and Hispanic foster kids into lab rats, subjecting them to torture and abuse in a grim parade of unsupervised drug and vaccine studies” (p. 246).
The real Anthony Fauci was a greedy egomaniac hell bent on creating an image of himself as the savior of the world during the AIDS crisis while generating billions in profits for his pharmaceutical industry “partners.” The “partners” would then share some of the loot with Fauci and others in various ways, including sharing in patent rights, the “revolving door” of very highly paid jobs for former government bureaucrats, paying multimillion dollar “user fees” to the NIAID, distributing shares of stock, etc.
The pharmaceutical industry “remunerated Incarnation Children’s Center … for supplying children for the tests,” writes Kennedy. The “tests” involved giving the children experimental drugs that were “toxic—they’re known to cause genetic mutation, organ failure, bone marrow death, bodily deformations, brain damage, and fatal skin disorders” (p. 246). Torture is not too strong a word to describe what happened to these children. “If the children refuse the drugs,” says Kennedy, “they’re held down and force fed. If the children continue to resist, they’re taken to Columbia Presbyterian hospital, where a surgeon puts a plastic tube through their abdominal wall into their stomachs. From then on, the drugs are injected directly into their stomachs” (p. 246). This wasn’t science fiction or a sick horror movie, says Kennedy, but Fauci-funded “AIDS research.”
Many of these children died as a result of the “research.” Investigative journalist Vera Sharav, who spent years investigating all of this, told Kennedy that Fauci “just brushed all those dead babies under the rug. They were collateral damage in his career ambitions.” She said that at least 80 children died from Fauci’s drug torture chamber in the Manhattan foster home alone.
You probably never heard of this, but the BBC produced a documentary of “the savage barbarity of Dr. Fauci’s science projects” in 2004 entitled “Guinea Pig Kids.” A BBC investigative journalist said in the documentary that “I found the mass graves at Gate of Heaven cemetery in Hawthorne, New York…. I couldn’t believe my eyes. It was a very large pit with AstroTurf thrown over it…. Under it one could see dozens of plain wooden coffins … there may have been 100 of them” (p. 247).
The New York City Administration of Child Services commissioned a four-year investigation of Fauci’s Dr. Mengele–style “experiments” and found that eighty of the 532 children who participated in Fauci’s “clinical trials” died and twenty-five died while enrolled in a medication trial (p. 251). By 2003 Fauci’s NIAID was running 10,906 clinical trials involving children in ninety countries (p. 257). Today Fauci, his longtime vaccine-manufacturing billionaire partner Bill Gates, Big Pharma, and the World Economic Forum are desperately campaigning to have every child in the world—even infants—injected with their latest “vaccine.” These are the same people who have publicly fantasized about all humans someday having an implanted “digital ID” in their bodies to achieve their goal of “transhumanism.” They say they want a digital ID implanted into everyone for purposes of government monitoring of all human behavior by some kind of super, international government institution. (Where is James Bond when we need him?)
Another charming fact about Fauci that Kennedy discuses is that Fauci has also funded (with your hard-earned tax dollars) experiments where Beagle puppies had their heads locked into cages where they could be eaten to death by flies. He also gave University of Pittsburgh “researchers” $400,000 to “graft the scalps of aborted fetuses onto living mice and rats” (p. 253). Not exactly the type of job one would expect a good Jesuit Catholic schoolboy like Anthony Fauci to have. Fauci is a Catholic in the same sense that abortion worshipper Joe Biden is a Catholic.
The man is in reality “a sociopath who has pushed science into the realm of sadism” writes Kennedy (p. 253). Who else but a criminal sociopath would have any involvement at all in such things? (Or for that matter in dropping atomic bombs on helpless Japanese civilians; firebombing entire European cities occupied by civilians; lobbing thousands of artillery shells a day on your own country’s cities also occupied only by civilians, i.e., Atlanta, Charleston, and Vicksburg during 1861–65; killing four hundred thousand Filipinos for refusing to be occupied and conquered by your government; mass murdering fifty thousand Plains Indians “to make way for the railroads,” as General Sherman once announced, etc., etc. ad infinitum? But I digress).
The Lying Man Government bureaucrats love crises like wars, hurricanes, depressions, pandemics, etc. because in times of crises millions of average citizens become childlike, their IQs seem to be cut in half (at least), and they beg for a substitute mommy and daddy to protect them, their new mommy and daddy being the state. All of a sudden they are willing to abandon all of their civil liberties and embrace totalitarianism like a drowning man embraces the side of a lifeboat. This is exactly the behavior of millions of Americans since March of 2020.
The absence of a crisis, on the other hand, creates a crisis for government bureaucrats. To the bureaucrat there is a crisis crisis whenever there is no real crisis. It is imperative, therefore, that every government bureaucrat becomes a hysteric who is constantly trying to alarm the public with the perception of a crisis or an impending crisis. He is professional liar, in other words, and can rely on the socialist indoctrination organs known as “the media” to hype his crises. After all, it’s perceptions that count in politics, not reality.
Fauci is no more than your ordinary, run-of-the-mill bureaucratic crisis monger and serial liar, as Kennedy documents in chapter 11, “Hyping Phony Epidemics: Crying Wolf.” Early in his government career Fauci was involved in promoting hysteria over what was called the “swine flu.” NIAID and its pharmaceutical industry puppet masters told Congress and the White House that the swine flu was the same strain of virus that caused the infamous 1918 Spanish flu epidemic that is said to have killed 50 million people worldwide. The government poured money into Fauci’s NIAID and Big Pharma made big bucks by getting President Ford (in 1976) to give them $135 million to supposedly inoculate 140 million Americans. In the end, writes Kennedy, “the actual number of pandemic swine flu casualties in 1976 was not 1 million but 1” (p. 358).
Patients injured by the experimental swine flu vaccine filed 1,604 lawsuits forcing the government to pay out over $80 million in damages and incur tens of millions in legal fees. Kennedy hits the nail on the head when he concludes that “At the dawn of Dr. Fauci’s career, he learned that both pandemics and fake pandemics provide an opportunity to expand the bureaucracy’s power and to multiply the wealth of its pharma partners” (p. 360, emphasis added).
Then there was the 2005 “bird flu” hysteria where Fauci once again predicted “unprecedented carnage.” This time he partnered with Bill Gates and hired the now disgraced and discredited British conman statistician Neil Ferguson to construct “models” that predicted up to 150 million people could die from the bird flu. In the end, about 100 people died from it, and most probably had comorbidities that were the real causes of death. That was after President Bush asked Congress for $1.2 billion for Big Pharma to come up with another of its experimental vaccines.
The 2009 Hong Kong swine flu caper was a carbon copy of the earlier ones. Fauci promised to “fast track” a vaccine once again, and the media dutifully poured on the government-sponsored hysteria.
By the Fall of 2009 thousands of Americans were complaining about devastating side effects of the new Fauci shot. Fauci promised the public that Big Pharma’s new drug was “perfectly safe” but in reality there was “an explosion of grave side effects, including miscarriages, narcolepsy, and febrile convulsions” as well as “severe neurological injuries, paralysis from Guillian-Barre syndrome … and cataplexy” as well as brain damage (p. 365). Some things never change. The epidemic never materialized and “As usual, there was no investigation of Dr. Fauci or the other medical officials who choreographed this multi-billion-dollar fraud” (p. 366). Congress would never “investigate” it because too many fingers would be pointed at them for funding the whole charade. They just collect their millions in “campaign contributions” from Big Pharma as a form of kickback for the millions in taxpayer dollars given to these corporations and then move on to the next phony health crisis for which they will also take no responsibility.
In 2016 Fauci diverted billions from taxpayer-funded research on malaria, influenza, and tuberculosis to his newest scam, the “zika virus.” Right on cue, he enriched his Big Pharma partners with $2 billion to produce yet another vaccine to prevent microcephaly, a supposed effect of the zika virus. In the end, there were fifteen cases of the virus in the US and none of them was associated with microcephaly. “Dengue fever” was another Fauci scam in that same year that funneled additional billions to Big Pharma with—surprise!—the exact same scenarios and results.
In every single instance, Kennedy writes, Fauci and others at National Institutes of Health, the Food and Drug Administration, and the Centers for Disease Control and Prevention load up the committees that vote for permission to market all of these experimental drugs with people who have Big Pharma connections or who are current executives for one or another pharmaceutical company. It is all rigged, all permeated by mountains of lies repeated over and over by the lying lapdog media which pockets millions or billions in advertising revenue from Big Pharma. (Have you watched network television lately?). It is not about public (or private) health at all, but to make more billions for Big Pharma, to bloat the NIAID budget even more than it already is, while throwing a few crumbs to Big Pharma’s supporting cast of house pets in the “public health” bureaucracy and academic world. They fully intend to keep this racket going forever—even if it kills you.
Understanding Money Mechanicsby Robert P. MurphyMises Institute, 2021, 210 pp.
Robert Murphy aims to provide the “intelligent layperson a concise yet comprehensive overview of the theory, history, and practice of money and banking, with a focus on the United States” (p. 9), and he succeeds in doing so, but I do not propose here to concentrate on this overview. In the course of his “neutral presentation” of it, he makes a number of valuable points about Austrian theory and the American economy, and his immense talent for the clarifying analogy is everywhere to the fore. In what follows, I shall endeavor to explain a few of these points.
Calls to “End the Fed” have been going on for a long time, and many of us have with great enthusiasm supported Ron Paul in challenging federal control of our monetary system; but, Murphy says, in recent years the threat from the Fed has become worse than before. No longer does the Fed confine itself to trying to determine the economy’s monetary framework, but it now chooses particular companies in which to invest. By picking winners and losers in this way, it has arrogated to itself unauthorized power. As Murphy says,
In order to avoid the obvious invitation to corruption, the legislation authorizing the Federal Reserve put limits on what the US central bank could buy. After all, if the people running the New York Federal Reserve Bank [who are in charge of asset purchases] could create money electronically with which to buy specific shares of Wall Street stock, there would be vast opportunities for abuse…. In practice, the Fed lent money to newly created Limited Liability Corporations (LLCs) named “Maiden Lane”—referring to the street in New York’s financial district—that would then use the money borrowed from the Fed to purchase the desired assets. (p. 90)
In his discussion of the Austrian theory of the business cycle (ABCT), Murphy calls attention to something rarely emphasized by other writers. As the theory is often represented, the cycle starts when the central bank expands bank credit, leading to a drop in the loan rate of interest, which creates an artificial boom. The central bank can do this only when at least a very substantial part of the money supply consists of fiat money, i.e., money not backed by a commodity such as gold. For that reason, critics of the ABCT say, the theory cannot explain the business cycles that occurred before the onset of modern central banking.
Not so, says Murphy, and for two reasons. First, “the Austrian theory of the business cycle isn’t based on fiat money. Indeed, Ludwig von Mises developed his explanation of the boom-bust cycle at a time when he didn’t even think fiat money had ever been in use. So clearly, the Misesian theory of recessions isn’t directly tied to the abandonment of the gold standard, and it’s therefore not a problem for Austrians to explain depressions (or ‘panics’) that occurred during the days of the classical gold standard” (p. 105).
Second, the ABCT isn’t dependent on the existence of a central bank, but rather on fractional reserve banking.
But there is no doubt that Mises’s theory of the business cycle is based on the ability of the private commercial banks to create money through the issuance of new loans using deposits that the depositors still think are in their checking accounts. It is true that central banks can influence these commercial bank practices in a harmful way, but the Misesian theory isn’t about central banks (or fiat money) per se…. when modern fans of Mises discuss the business cycle, they should be careful to avoid claiming that that it necessarily starts with a central bank injecting new fiat money into the economy. (p. 107)
Murphy goes on to explain why booms cannot be permanently sustained: the physical resources are not present to carry to completion all the investments brought about by lowering the rate of interest on loans through the expansion of bank credit.
Imagine a builder working on a house. Thinking he has a certain quantity of materials—bricks, wood, glass, shingles, etc.—at his disposal, he draws up blueprints and assigns various skilled and unskilled workers to their tasks. But suppose that the builder had overestimated how many bricks he originally had. In that case, the house depicted in his blueprints would be physically unsustainable. The moment the builder realized his error—in other words, when he realized that his actual supply of remaining bricks was smaller than what his plans required—his immediate response would be to tell everyone on the work site to halt! (pp. 110–11)
Keynesians have a well-known objection to the master-builder argument. They say that it assumes that resources are fully employed. If they aren’t, the boom can be sustained because credit expansion will bring unused resources into production. As you might expect, Murphy isn’t convinced. Keynesians have no explanation for the existence of idle capacity. By contrast, “according to Mises’s theory of the business cycle, the existence of ‘idle capacity’ in the economy doesn’t just fall out of the sky, but is instead the result of malinvestments made during the preceding boom” (p. 194). He further notes that their view fails to account for the historical facts. “Empirically, we note that during the 1930s, governments and central banks around the world engaged in the most Keynesian policies in history to that time … the Federal Reserve in the early 1930s expanded the monetary base and slashed the interest rates to then record lows” (pp. 163–64). These policies failed to restore prosperity. Doesn’t this falsify the Keynesian account? Keynes did not claim that his theory was an a priori truth, so it wouldn’t be a good answer for Keynesians to retreat in the face of failure of the logical validity of their theory.
They do have another answer, though. They say that the government did not spend enough and this was the reason the Great Depression continued throughout the 1930s. Murphy asks them a devastating question:
If the fundamental Keynesian explanation for the Great Depression is that governments were too timid when it came to deficit spending, then why didn’t the Great Depression happen earlier, when everybody admits that government did even less during financial panics? No, a much more sensible explanation of the historical record is staring us in the face: the depressions (or “panics”) of the nineteenth and earlier twentieth centuries played out according to the theory developed by Ludwig von Mises. Yet during these crises, governments largely remained aloof, and that’s why the economy recovered. (p. 164)
Keynesians are not the only economists who oppose the ABCT, and Murphy addresses a number of the competing accounts. In his comments on Scott Sumner’s argument that the monetary policy of the Fed should be assessed by whether the growth rate of nominal gross domestic product has risen by what he deems the appropriate amount, Murphy displays the gift for the apt analogy which I mentioned at the start of this review. He says that since “the Fed allowed NGDP growth to (eventually) collapse, Sumner argues that by definition this is a ‘tight’ central bank policy” (p. 174). Murphy objects that this definition makes it impossible to show that Sumner’s policy advice is wrong.
Consider a medical analogy: suppose a patient is suffering from fever, running a temperature of 103 degrees. One group of doctors recommends injecting the patient with substance M, in order to cure the fever…. Indeed, imagine if the doctors who think that substance M is a helpful medicine wanted to define the M treatment in terms of the fever. That is, if after they had injected the patient with unprecedented amounts of M, whether the fever had stayed the same or gone up, the doctors declared, “We just made the patient sicker with our shift to restrict the M treatment.” This would be Orwellian and obviously would make it virtually impossible to figure out whether more or less M was what the patient needed. (pp. 174–75)
Murphy has no use for modern monetary theory (MMT) either, and I’ll conclude with his comment on the notion held by most members of the school that money didn’t originate as a commodity but rather by the government’s declaration that taxes had to be paid in a new monetary unit. “The only problem [with this theory] is that it’s demonstrably false…. The MMT explanation of where money comes from doesn’t apply to the dollar, the euro, the yen, the pound…. Come to think of it, I don’t believe the MMT explanation applies even to a single currency issued by a monetary sovereign” (p. 200).
Understanding Money Mechanics is an outstanding book, and readers of it will gain much from the insights of its talented and erudite author.
Hot Talk, Cold Science: Global Warming’s Unfinished Debate. Third edition.by S. Fred Singer with David R. Legates and Anthony R. LupoIndependent Institute, 2020234 pages.
During the Senate confirmation hearings for Amy Coney Barrett last October, Kamala Harris criticized Barrett for her refusal to state her opinion about “climate change” on the ground that the issue was controversial. Harris rejected this: science has spoken, and that is that. No rational person, in her view, could go against science by deeming debatable the climate crisis that is upon us.
The existence and importance of global warming are matters far outside my competence, but Barrett was right, and obviously so. There are indeed eminent scientists who are numbered among the climate skeptics, or “deniers,” as their enemies call them, and S. Fred Singer, who died last year, was among the foremost of these. He was a pioneer in the development of satellites to track the weather and received a PhD in physics from Princeton under the direction of the great John Archibald Wheeler. The book we have before us to examine first appeared in 1997, with a second edition following in 1999; Singer, with the help of two distinguished colleagues, revised it yet again in 2020. The book retains material from the earlier editions, so that readers can study Singer’s astringent comments over many years about those whose scientific wisdom he challenges.
I shall endeavor to indicate a few of Singer’s main scientific points, but, as I have already suggested, I am in no position to assess them. About one matter, though, I venture to suggest that he is right, and this is that the policy question of what, if anything, to do about climate problems is not itself a scientific issue. It must be decided by the public, weighing the benefits and costs of the available options. And in speaking of the public, Singer has principally in mind people in the free market. He distinguishes between “Malthusians” and “cornucopians” and makes clear that he allies with the latter group. “The Malthusians,” he says, “look at population growth and see only more mouths to feed. Cornucopians see more brains to think and hands to work” (p. 143). In contrast to the doomsayers, the cornucopians realize that
the consequences of climate change are always experienced locally. Consequently, the information needed to anticipate changes and decide how best to respond is local knowledge and the most efficient responses will be local solutions….Economists describe how common resources can be degraded by overuse by “free riders,” but also how they can be effectively managed by individuals and nongovernment organizations using their knowledge of local opportunities and costs, the kind of knowledge national and international organizations typically lack. (pp. 150, 168)
One sort of very costly program especially concerns him, the suggestion to shift to a policy of “Contraction and Convergence.” “The idea is that every human is entitled to emit the same amount of CO2. This, of course, translates into every being on Earth using the same amount of energy—and, by inference, having the same income. In other words, C&C is basically a policy for a giant global income redistribution” (p. 141).
Before we contemplate such drastic measures, we should demand firm evidence that global warming is occurring and is as dangerous as it is made out to be by the radical environmentalists; and this Singer says we do not have. To the contrary, the amount of warming has been much exaggerated. In support of his skepticism, Singer urges that data from satellites, more reliable than ground temperature records, do not support alarmist views.
The only reliable global temperature record is the one derived from satellite-based weather stations of lower-atmosphere temperatures taken since 1979. When that forty-year record is used to test the accuracy of GCMs [global climate models] that purport to show the impact of human activity on Earth’s climate, the models invariably fail, revealing that man-made CO2 has little or no influence on global temperatures. After taking into account inconsistencies in the global temperature record, it is clear there has been little global warming since 1998 and even earlier in many areas of the world. (p. 117)
Singer offers for our consideration a further argument. The environmentalists wish to limit the increase of CO2 into the atmosphere, but why is this desirable? An increase of CO2 that caused a moderate rise in temperature would have many very beneficial consequences. “A large literature exists on the historical relationship between climate and human security….Much of it shows humanity enjoyed periods of peace during warmer periods or periods of rising temperatures, while cooler periods or periods of falling temperatures have been accompanied by human suffering and often armed conflict” (p. 154).
As one reads the book, one cannot escape the impression that Singer looks back in sadness to his younger days when his views did not face so hostile an audience, and that he resents being pushed aside by others he deems less competent. He says, for example, of several scientists who published online an attempt to refute one of his articles before the article had appeared in print, and moreover arranged with the editor to delay its publication until their own counter could be printed in the same issue, that “Collaboration between authors and an editor to silence one side in a scientific dispute is an egregious violation of professional ethics, as is using confidential information and withholding data” (p. 82).
Singer’s discussion of the scientific issues abounds in technical terms, and I freely confess that it has often been difficult for me to understand it, much less evaluate it. But his credentials are impeccable, and one must admire his courage in defying those who use climate as an excuse to advance their destructive agendas.
Listen to the Audio Mises Wire version of this article.
The Parasitic Mind: How Infectious Ideas Are Killing Common Senseby Gad Saad. Regnery, 2020xvi + 240 pages
Gad Saad, a psychologist who specializes in applying evolutionary biology to the study of consumer behavior, has written a book of great value, and moreover, it is a book that required great courage to write. The book is filled with interesting ideas, and I have space here to mention only a few of them.
What most draws me to the book is that Saad has a philosophical turn of mind, and as such, he is concerned with fashionable attempts to deny the existence of objective truth. He says,
The central focus of this book is to explore another set of pathogens that are as dangerous [as biological parasites] to the human condition: parasitic pathogens of the human mind. These are composed of thought patterns, belief systems, attitudes, and mindsets that parasitize one’s ability to think properly and accurately. Once these mind viruses take hold of one’s neuronal circuitry, the afflicted victim loses the ability to use reason, logic, and science to navigate the world. Instead, one sinks into an abyss of infinite lunacy best defined by a dogged and proud departure from reality, common sense, and truth. (p. 17)
The mental viruses Saad has in mind are to a large extent those that deny that human beings have a biological nature. He says, for example,
Many idea pathogens share one common thread, a deep desire to liberate people from the shackles of reality. Take, for example, the blank slate premise of the human mind. It posits that humans are born void of any evolved biological blueprints and innate individual differences. Our eventual life trajectories are thought to be fully shaped by the distinct environment to which we’ve been exposed. (p. 70)
It is exactly here that Saad has manifested his courage, as the followers of many fashionable movements deny what he affirms and have been quick to boycott and blacklist dissenters. He tells us that the
idea pathogens on university campuses fall into several large categories. Postmodernism posits that all knowledge is relative (no objective truths)…. Social constructivism proposes that the great majority of human behaviors, desires, and preferences are formed not by human nature or our biological heritage but by society, which means, among other things, that there are no biologically determined sex differences, but only culturally imposed “gender roles.” Radical feminism asserts that these gender roles are due to the nebulous and nefarious forces of the patriarchy. Transgender activism purports that biological sex and “gender” are non-binary fluid constructs. Scientifically speaking, postmodernism, social constructivism, radical feminism, and transgender activism are all based on demonstrable falsehoods. (p. 69, emphasis in original)
Saad has placed great stress on the findings, as he takes them, of evolutionary biology, but how do we know these findings are true, and, moreover, so firmly established that resistance to them can be characterized as mental pathology? In a crucial passage, he says that evolutionary theory is supported by “nomological networks of cumulative evidence.” “This approach epitomizes the gift of the human intellect. It is akin to building a jigsaw puzzle. No single piece is sufficient to see the full image but once all of the pieces are placed in their rightful positions, the final pattern emerges clearly” (p. 146).
Saad, it transpires, firmly believes that science is our best means to attain objective truth. “Philosophers have offered many frameworks to define truth. Mathematical proofs, for instance, are axiomatic truths. Empirical truths, on the other hand, are sought by the scientific method” (p. 143, emphasis in original). Saad’s views about evolution and science merit careful consideration, but my aim here is to present them rather than evaluate them. I would, though, note one problem. When he says that the “scientific method is the universal epistemological framework for understanding the world around us” (p. 57, emphasis added), he is making a statement that he takes to be true, even though it is a philosophical statement and not a scientific one.
In his stress on the objectivity of logic and reason, Saad finds an ally in Ludwig von Mises, whom he cites:
The contemporary progressive mantra considers it laudable to argue that different races, cultures, or religions possess distinct ways of knowing. However, not too long ago, the idea that people of different races or classes possessed distinct ways of thinking and reasoning, was reserved for racists and other miscreants. Ludwig von Mises … coined the term polylogism to capture this exact folly. Mises differentiated between Marxian polylogism and racial polylogism…. Polylogism is an anti-science notion, as Mises well knew…. There is no “black mind” or “white mind,” no “white male way of knowing” or “indigenous way of knowing,” there is only one truth, and we find it through the scientific method. (pp. 59–60)
An objection might occur to some readers, but Saad has an answer to it. Saad says that there is only one way of knowing, not separate male and female ways of knowing, but doesn’t he also, against those he calls radical feminists, emphasize biologically based differences between the behavior of men and women? Saad would reply that there is no contradiction: there are evolutionary reasons for both universal logic and sex-based differences in behavior.
If science is to continue to progress, it is essential that all lines of inquiry be open. This openness ought not to give way to the demands of certain “oppressed” groups that controversial views that hurt their feelings should be banned:
Given that they are so wrong, how do the ideologues defend their idea pathogens? Under totalitarian regimes, the solution is direct. You criminalize if not violently suppress (or kill) any dissenting voices. In the West, the ideological indoctrination is subtler. It is achieved by an ethos of political correctness and best enforced by creating university campuses that lack intellectual diversity … intellectual terrorists instruct generations of gullible students to remain quiet in their classroom seats while they inculcate them with anti-science nonsense. (p. 92, emphasis in original)
The “social justice warriors” have met their match in Gad Saad, and readers will benefit from the many stimulating ideas in The Parasitic Mind.
Popes normally stick to their bailiwick, faith and worship. But Pope Francis’s criticisms of capitalism came early and often, escalating since the beginning of the covid pandemic. The pontiff describes free market thinking as “magic theories.”
“The fragility of world systems in the face of the pandemic has demonstrated that not everything can be resolved by market freedom,” Francis wrote in his encyclical late last year. “It is imperative to have a proactive economic policy directed at ‘promoting an economy that favours productive diversity and business creativity’ and makes it possible for jobs to be created, and not cut.”
Roger McKinney doesn’t see eye to eye with the pope. In his book God Is a Capitalist: Markets from Moses to Marx, McKinney “shows how Biblical economic principles answer the most vexing problems the world faces today, such as poverty, inequality and pollution.”
While Pope Francis stumps for socialism, McKinney points out that the system Francis fancies has given us millions of deaths from the likes of Nazi Germany, Stalinist Russia, and Castro’s Cuba.
McKinney’s intellectual journey started with the so-called father of capitalism, Adam Smith, and Smith’s The Wealth of Nations. However, Smith didn’t address where capitalism came from, and McKinney discovered the work of the theologians at the University of Salamanca, Spain. He learned what Chinese intellectuals knew three centuries before: “God is a capitalist.”
As he gives away in the subtitle, McKinney couches the book in a good versus evil, capitalism versus Marxism framework. That debate, in McKinney’s view, started with Moses in 1500 BC, writing, “Moses was one of the world’s most vigorous proponents of free markets while pharaoh was an early Marxist.”
The author describes himself as a conservative evangelical when it comes to theology and as a proponent of the Austrian school on economic issues. He leans heavily on Hayek, Mises, and other Austrians to support the capitalist argument. McKinney used the Austrian business cycle theory to great effect in his 2014 book on stock market investing, Financial Bull Riding.
An interesting inclusion is Hemult Schoeck and his book Envy: A Theory of Social Behavior. Mckinney writes, “Schoeck argued that Christianity catalyzed economic development and capitalism by finding a way to suppress envy without eliminating it.”
In McKinney’s meatiest chapter, entitled “Christian Capitalism,” the author returns to the School of Salamanca to remind us that it was theologians who provided the initial insights into economics. The aforementioned Adam Smith taught moral philosophy, not economics.
McKinney says in the chapter that Murray Rothbard, “Mr. Libertarian,” based his political views on sound economics, and had he stopped there, “he would have carved a place for himself in history and found good company with his teacher, Ludwig von Mises, and another great student of Mises’, Hayek. But Rothbard was an atheist and that emboldened him to join forces for a while with another atheist, Ayn Rand, who promoted a variation on the theme of libertarianism. Rothbard thought it necessary to construct an atheist system of morality and considered himself capable of creating one.”
A few lines later, McKinney writes, “Obviously, Christians should never take their morals from atheists.” From conversations with Murray, I remember him as more of an agnostic than atheist. My memory is supported by Murray’s friend David Gordon, who told Jeff Deist, “Well, I think he was an atheist, not out of hostility to religion. It was more that he didn’t find the arguments for the existence of God very convincing. Now toward the end of his life, I think he just said something like, ‘If there is a God, it would be a being that we really can’t know anything about or would be completely different to anything we would understand.’”
Gordon continued, “But I don’t think that—say, like the Randians would say, if you’re not an atheist, you’re really irrational. He would not take that view. He was very tolerant, whatever people thought. That was just his understanding. One of his great friends was the Jesuit libertarian Father James Sadowsky and certainly Sadowsky, being a Jesuit, it never affected their friendship and I think that the existence of God or atheism wasn’t really a central issue for Rothbard.”
It’s hard to imagine that McKinney doesn’t believe Murray Rothbard is in the same company as Mises and Hayek. History says otherwise. Besides this misstep, McKinney has written a fascinating book which asks and answers an intriguing question.
Students often ask me to recommend a good introduction to philosophy, and now the question can be answered more easily than in years past. Michael Huemer’s Knowledge, Value, and Reality, published last April, contains a profusion of arguments on important topics and is written in a conversational style that is easy to follow, and is often very funny as well. Huemer is especially good at coming up with objections and counters to these objections, in a way that shows how contemporary analytic philosophers work.
In what follows, I’m going to discuss a few of his points about fallacies in reasoning. He notes that some philosophers misuse “begging the question.” “The philosopher starts out with the idea that an argument begs the question (and therefore is fallacious) when someone who rejects the conclusion wouldn’t (or shouldn’t, or couldn’t reasonably be expected to) accept all the premises. That italicized phrase is treated as something like a definition of the fallacy.” (p.70, emphasis in original)
Consider the following argument:
It’s wrong for any person to initiate force against other peoplePeople in the government are peopleIt’s wrong for people in the government to initiate force against other people. Suppose a statist looks at this argument and says, “I think that people in the government should be able to initiate force against others. I reject the conclusion, so something is wrong with this argument.” (It is likely that he will reject the first premise: denying the second doesn’t seem promising.) Are those who use the argument guilty of begging the question against statists?
No, they aren’t. Huemer points out that the definition given of “begging the question” is wrong: “People who fall for this mistake often fail to notice that it represents a rejection of all valid deductive reasoning. In a valid deductive argument, by definition, if all the premises are true, the conclusion must be true. That is logically equivalent to the following: If the conclusion is false, then one of the premises must be false. So if you start by assuming the conclusion is false, and the argument was valid, you can always deduce that (at least) one of the premises is false.” (pp.70-71, emphasis in original)
I would add to what Huemer says that some followers of Karl Popper do hold the view, which Huemer rightly takes to be absurd, that all deductive arguments beg the question. But they mean by this no more than that the premises in a valid argument entail the conclusion. They do not mean that all deductive arguments are fallacious. But why, then, do they use a phrase, “begs the question,” that in common use suggests something is amiss?
Huemer suggests that a better definition of “begging the question” is: “You beg the question when the justification of one of the premises depends upon the justification of the conclusion.” (p.71, emphasis in original) An example would be:
Statements about political questions made by A are always wrong
A said “p” about a political question
“P” is wrong.
Here, unless some general characteristic about A’s making a statement about a political question guarantees its falsity, the truth of the first premise depends on looking at all of A’s political statements and seeing they are all wrong. But “p” is one of these statements, so the justification for the first premise depends on the justification of the conclusion.
This is an example of what Huemer calls a “false fallacy,” in which a common understanding of a fallacy is wrong and leads people wrongly to dismiss good reasoning. I’d like to turn to another example of this phenomenon, although Huemer just includes it on his list of fallacies and not on the “false fallacy” list. (My comments on this fallacy are, however, related to what he says about ad hominem arguments.) This fallacy is “poisoning the well,” about which Huemer says, “This is a rhetorical strategy of trying to undermine an interlocutor by warning the audience that he can’t be trusted for some reason. This is supposed to make it impossible for the interlocutor to defend himself, since the audience won’t listen to what he might say in his own defense.”
For poisoning the well to have a chance to work, it must be the case that accepting what the person says involves trust. If, for example, a politician says that he won’t raise taxes and you tell people he is a habitual liar, then you meet a necessary condition for poisoning the well. (That isn’t to say that you have poisoned the well: if he really is a liar, are you guilty of a fallacy in pointing this out?) But sometimes, this condition is ignored, and if you make any unfavorable comment on someone, you are accused of poisoning the well against them. In one such case, a self-styled philosopher suggested that because I had said in a book review that he made mistakes, I was guilty of this fallacy. If this wrong account of poisoning the well were accepted, it would altogether destroy critical discourse. I won’t mention the person in question; suffice it to say that he has not only kissed the Blarney Stone but has had a prolonged romantic involvement with it.
Huemer also challenges misuse of the statement “correlation doesn’t imply causation.” He says, “The saying means that just because A and B go together regularly does not mean that one causes the other. Students learn the slogan in college and think it’s sophisticated, but it’s kind of simplistic. Granted, if there is a reliable correlation between A and B, that does not guarantee that there is a causal connection. It could just be a coincidence. But if the correlation is well established, it becomes vanishingly small that it’s just a coincidence. There will be some causal explanation. Maybe A causes B, or B causes A, or some third factor, C, causes both A and B.” (p.71-72, emphasis in original)
The author says that there are errors not on the traditional list of fallacies that people need to take into account, and I shall close with one example. He points out that people often assume things that seem obvious to them but are not based on evidence and are in fact false. One example of this is especially interesting. “[S]uppose you hear a statistic saying that most family members are killed by a family member or someone they knew. You naturally assume that most murders result from domestic disagreements, and that the murders are committed by ordinary people who lost control during an argument with a family member, or something like that. In fact, it turns out that almost everyone who commits a murder had a prior criminal record. Also, the vast majority of the victims are also criminals.” (pp 72-73, emphasis in original)
Everyone interested in reasoning well should read Huemer’s outstanding book. Had it been available years ago, I might have been able to avoid fallacies in my own reasoning, possibly including those committed in criticizing some of Huemer’s arguments.
Purchasing Submission: Conditions, Power, and Freedomby Philip HamburgerHarvard University Press, 2021, 320 pp.
Philip Hamburger has made a revolutionary contribution to American constitutional law. He shows that what is often regarded as a narrow topic, “unconstitutional conditions,” of interest only to specialists, is in fact fundamental to understanding our contemporary system of government and moreover that its abuse poses grave dangers to liberty.
We should not be surprised that Hamburger, who teaches at Columbia Law School, has made such a revolutionary contribution, as this is not the first time he has done it. In Separation of Church and State, he showed that the first amendment does not prescribe Jefferson’s “wall of separation,” and the “yes” answer he gave to Is Administrative Law Unlawful? blasted away the abuses of the regulatory state, much to the dismay of Adrian Vermeule and other centralizers.
Libertarian readers can best grasp what Hamburger does in Purchasing Submission by thinking about the limits of two ideas we often stress. To some libertarians, contracts are basic, and voluntary bargains between consenting persons are the sum and substance of social interaction. Murray Rothbard did not view the matter that way, though, and for him contracts must be made within the structure of a law code based not on contract but on natural law. If you compare his The Ethics of Liberty with David Friedman’s The Machinery of Freedom, you will see the difference between a libertarianism founded on natural law and one which consists of contracts “all the way down.”
Hamburger is not a libertarian, to the contrary arguing for constitutional government, based on an “originalist” approach, which he believes with justification to offer better protection for liberty than the system that now prevails in America; but his view of law is similar to Rothbard’s. Constitutional law is not based on bargains between individuals: “The Constitution … cannot be altered or excused by the consent of states or private persons…. Nowadays, it is not denied that the Constitution is a law, but it is commonly assumed that individuals, institutions, and states, by their consent, can relieve the federal government of its constitutional limits. The Constitution’s limits on government, however, are not merely contractual terms” (pp. 153–54).
In like fashion, rights are fixed and cannot be given up in return for benefits. “One reason consent has been so widely considered a constitutional solvent is that rights are often seen as merely personal spheres of freedom and thus tradeable commodities. . .From this point of view, free speech and other constitutional rights are personal goods—no more or less than a used car or old rug, which individuals can bargain away as they please…. But constitutional rights are not merely personal claims; more broadly, they are legal limits on government” (pp. 155–56).
We now need to consider one more idea to have the background to understand the thesis of Hamburger’s book, and this idea has to do with the second concept stressed by libertarians, coercion, and its limits. From a libertarian perspective, so long as you do not use or threaten force against the life, liberty, and property of other people, you are not subject to other restrictions. You are free to persuade them through offers to do as you wish.
Hamburger thinks that it is a mistake to apply this attitude to the government, and this leads to the book’s main idea. Often, the government induces people to do things by making them conditional offers. For example, researchers will be offered grant money, provided that they follow guidelines that the government sets out. The conditional offer need not involve payments, as in cases of plea bargains, where defendants in return for waiving a jury trial are offered a lighter sentence.
You might at first think that, setting aside whether government is legitimate at all, these offers are all right. After all, people are free to accept or reject them, since, by hypothesis, the government won’t use force to make them accept its offer. According to a dominant, though not altogether unchallenged, position, this is correct: only conditions that directly contradict the Constitution are ruled out. For example, the government could not offer a church money in return for not teaching that same-sex marriage is wrong, because this would violate the First Amendment; but otherwise, the field is clear.
We are now in a position to understand Hamburger’s main thesis. He thinks that the government is not constitutionally free to make conditional offers that extend its powers beyond the limits prescribed by the Constitution, even if these offers do not on their face violate its provisions. The government must accomplish its ends with the means provided it by the Constitution and cannot extend its powers through offers, all the more so as, owing to disparities in power, influence, and knowledge between the government and private citizens, it is very difficult for people to refuse the offers.
By the use of such offers, the nature of the government has been altered from the strict limits set forward in the Constitution, and in some instances, the extension has had drastic consequences. “Rather than offer money or some other privilege in exchange for a condition, agencies sometimes threaten regulatory hassle until they get acquiescence. The government in this way often imposes conditions in ways that are difficult to distinguish from extortion. Bad as this is, the extortion is even worse when the government threatens regulatory hassle to secure consent to regulatory conditions. The resulting extortion is doubly regulatory—both in the pressure to submit and in the resulting acquiescence to further regulation” (p. 221).
And even this is not the worst of it. “This book has saved the worst for last. Not content to use conditions to control those from whom it secures consent, the government asks consenting states and private institutions to control others. The federal government employs conditions to turn the states and private institutions into agents for regulating Americans—often even for imposing unconstitutional restrictions” (p. 233). A case of this kind that especially troubles the author is that the Health and Human Services Department of the federal government requires universities that receive money for “human subjects research” to establish institutional review boards to approve all research in this area, and these boards have often acted to interfere with free speech and academic freedom. In one instance, a law professor who is a friend of the author could not publish an article because he had failed to secure the prior approval of his university’s institutional review board, even though his research was not directly related to the ostensible mandate of the board. The board claimed the power to approve all research done at that university, and had he published the article in defiance it, by his own estimate his career would have come to an end.
Hamburger warned in his earlier work of the dangers of administrative law, but conditional offers in his view pose an even graver threat to liberty. Hamburger deserves the thanks of all students of the Constitution for his intricately argued book of immense learning, written in excellent style and manifesting a passion for liberty.
Last month I reviewed Samuel Moyn’s Humane (New York, 2021) but discussed only a few topics in it. Owing to the book’s great importance, I’d like in what follows to address another issue as well, and this is something with which many readers will already be familiar. The principal theme of Moyn’s book, it will be recalled, is that efforts to make war humane can detract from, or even impede, the more important task of bringing war to an end, or at least drastically curtailing it. In arguing for this view, Moyn points out that it is only in recent times that regulations and treaties to limit war have been taken with any seriousness, and often even now they are not. Before that, they had little or no “bite” and allowed all sorts of atrocious behavior.
This leads to the point that many readers will already have encountered. In the American context, a great deal of horrendous conduct stems from the Civil War, and one thing Moyn bring out is the role of the “Lieber code”, a guide to conduct for the American armed forces written by the German immigrant Francis Lieber, in this matter. Moyn says, “Lieber refused to pity victims of war. Lieber’s code went in a different direction, legalizing shock and awe, with humanity a fringe benefit rather than a true goal…. Erected as one of its founding fathers later, Lieber was not really part of the tradition of making war humane. He condoned horrendous acts such as punishing civilians and denying quarter—which meant that, when enemies surrendered in hopes of avoiding death, you could kill them anyway” (pp. 19–20).
In this connection, it is worth noting that Lieber was an ardent proponent of the near divinity of the state. In his excellent Chaining Down Leviathan (reviewed here), Marco Bassani quotes from Lieber’s Manual of Political Ethics: “The state is aboriginal with man; it is no voluntary association … the state is a form and faculty of mankind to lead the species towards greater perfection—it is the glory of man” (Bassani, p. 292).
The tactics that Lieber recommended were applied with exceptional severity in campaigns against American Indians, and when, with the Spanish-American War in 1898, America turned to the pursuit of empire, American military forces viewed resisters among the subject population in the Philippines as if they were recalcitrant Indians.
When he succeeded [Arthur] MacArthur as military proconsul in July 1901, [Adna] Chaffee faithfully continued the approach that lay behind the Lieber Code—intense wars were best in the long run, as they would convince restless opponents to submit and end the conflict more quickly. He escalated the policy options farther along the continuum of intensity, in the tradition of “Injun warfare,” without ever meeting a law he didn’t like. This often meant burning crops, killing animals, and leaving nothing behind—including humans…. No one was legally safe from U.S. counterinsurgent violence. The rules imposed no limits, either because the Filipinos were unprotected by law or because those generously distinguished as non-combatants under the law were still eligible for reprisals, which the Lieber Code did not ban … “I want all persons killed who are capable of bearing arms in actual hostilities,” [Jacob] Smith commanded his forces, specifying he meant males ten years and over. (p. 113; for US policy in the Philippines, in addition to the sources Moyn cites on p. 346, I would recommend Alfred McCoy’s Policing America’s Empire)
The legacy of the Indian wars continued fifty years after this in the Korean War.
In practice it was another “Indian war”…. In MacArthur’s family traditions lay not only the governance of the Pacific colonies; further back, Douglas once recalled, his father had been one of many who shouldered “the onerous task of pushing Indians into the arid recesses of the Southwest and of bringing the white man’s brand of law and order to the Western frontier.” … General Lawton Collins, army chief of staff throughout the Korean conflict, told The New York Times that the “reversion to old-style fighting” required by the conflict was “more comparable to that of our own Indian frontier days then to modern war.” (pp. 152–53)
Matters were no different in the Vietnam War. “As in America’s earlier Pacific violence, soldiers routinely compared what they were doing with ‘Indian war.’ Compared with 57,000 Americans, four to six million Vietnamese died in the conflict. The toll on the local population was not as grievous as in Korea, in relative terms, and it took place over more years. But this was not saying much.” (p. 168)
In a lecture, “The Conquest of the United States by Spain,” delivered in 1898, the great American sociologist William Graham Sumner saw what was coming:
The Americans have been committed from the outset to the doctrine that all men are equal…. It was an astonishing event that we have lived to see American arms carry this domestic dogma out where it must be tested in its application to uncivilized and half civilized peoples. At the first touch of the test we throw the doctrine away, and adopt the Spanish doctrine. We are told by all the imperialists that these people are not fit for liberty and self-government; that it is rebellion for them to resist our beneficence; that we must send fleets and armies against them to kill them, if they do it.
Samuel Moyn merits great praise for showing the centrality of this theme in American foreign policy, and the work he has done in bringing it to our attention helps in our efforts to oppose it.
[The Great Delusion: Liberal Dreams and International Realities. By John J. Mearsheimer. Yale University Press, 2018. Xi + 313 pages.]
John Mearsheimer has written a book of great importance for those of us who believe in a free society, along the lines best laid out by Ludwig von Mises and Murray Rothbard. Mearsheimer, who is the leading contemporary theorist of “realism” in international relations, points out a vital truth that supporters of the free market neglect to our peril. Nationalism is for most people a far more potent force than liberalism, whether classical or modern. Attempts to impose liberal values on the world, to force people to be free, are doomed to failure and will enhance the chances of war.
Although Mearsheimer specializes in foreign policy, he tells us that since his days in graduate school, he has retained a strong interest in political theory as well. “In the fall of 1976, I took the Field seminar in Political Theory taught by Professor Isaac Kramnick. The class, which introduced students to the writings of seminal thinkers like Plato, Machiavelli, Hobbes, Locke, Rousseau, and Marx, had a greater impact on me than any other course I have ever taken.”(p.viii) (Kramnick, by the way, in his The Rage of Edmund Burke (1977) supported Murray Rothbard’s view that Burke’s defense of anarchism in A Vindication of Natural Society was seriously intended rather than satirical.)
Though many of Mearsheimer points in his discussion of political theory are insightful, he is sometimes mistaken. But for our purposes his mistakes do not much matter, as his main contention remains unscathed. The main area Mearsheimer is open to challenge is that to him, the notion of objective ethics does not so much as make sense. People disagree about the good life, and there is no more to be said: “The power of this belief in objective truth often surfaces when a person is accused of being a moral relativist---someone who believes there are no right or wrong answers to life’s big questions. . .Yet different people will answer the same questions in different ways and there is no mechanism for choosing among their responses. Often the more specific the question, the more intractable the disagreements. It is impossible to determine which person has the correct answer; it is all a matter of personal preference or opinion. The smart fallback position for dodging the relativism charge is to maintain that there is an objective set of first principles and I know what they are, but I cannot persuade everyone else to recognize them. . .What does this viewpoint say about our collective ability to use reason to arrive at a universal, or even widely shared, understanding of the good life? It tells us people who believe that their critical faculties can help them find moral truth are deluding themselves.” (pp.23-24)
It is odd that Mearsheimer cannot see the difference between being correct and commanding universal agreement, but, as mentioned before, this does not matter for the main purpose of the book. Even if there is an objectively true morality, people act on their beliefs about morality, not the objective truth. We shall now see how this undermines the program of liberal hegemony that Mearsheimer opposes. (Though it is off our main topic, Mearsheimer’s remarks about that enigmatic figure Leo Strauss should not be missed. He maintains that Strauss “believes reason’s strong suit is not discovering truth but calling into question existing moral codes and other widely held beliefs.”[p.28])
To return to the author’s central thesis, he distinguishes two variants of political liberalism: “modus vivendi liberalism and progressive liberalism. . .they think differently about the content of individual rights and about the role of the state. For modus vivendi liberals, rights are all about individual freedom to act without government interference. . .Progressive liberals also prize individual freedoms, but they also believe in rights that call for the government to help its citizens.” (p.45)
It is mostly progressive liberals who favor the project of liberal hegemony, Mearsheimer’s principal target. “What happens when a powerful state adopts a liberal foreign policy? In other words, what happens when a country that is deeply committed to individual rights and doing social engineering to promote those rights employs that template in the wider world? That formidable state will end up embracing liberal hegemony, a highly interventionist foreign policy that involves fighting wars and doing significant social engineering in countries throughout the world. Its main aim will be to spread liberal democracy, toppling authoritarian regimes in the process, with the ultimate goal of creating a world populated solely by democracies.” (p.120) A nation rarely is in a position to pursue such an agenda, because of conflicts with rival powers; but in the “unipolar moment” following the end of the Soviet Union, the United States found itself in a position to attempt liberal hegemony, if so minded.
It is here that Mearsheimer’s emphasis on moral disagreement comes to the fore. Because many societies around the world reject the values held by progressive liberals, the attempt to impose these values on them will lead to massive resistance. “The problem is particularly acute when the United States invades another country, because the American military forces occupying that country inevitably end up tasked with the nation-and state-building necessary to produce a functioning liberal democracy . . . It is clear from the historical record that the effort to impose democracy on another country usually fails. . .” (p.169)
Liberal hegemony faces an even more severe obstacle to success, and grasping the nature of this obstacle is the main lesson Mearsheimer’s book has to teach us. However much we may favor the free market, we must recognize that nationalism is for most people a much more potent emotion than their commitment to classical liberalism. Though it is progressive liberal proponents of liberal hegemony who most need to absorb this vital point, we also need to bear it in mind.
Concerning nationalism, Mearsheimer remarks: “Nationalism is an enormously powerful political ideology. It revolves around the division of the world into a wide variety of nations, which are formidable social units, each with a distinct culture. Virtually every nation would prefer to have its own state, although not all can. Still, we live in a world populated almost exclusively by nation-states, which means that liberalism must coexist with nationalism. Liberal states are also nation-states. There is no question that liberalism and nationalism can coexist, but when they clash, nationalism almost always wins.” (p.5)
Defenders of global hegemony must confront yet another obstacle, one to which Mearsheimer has devoted a large part of his professional career to explain. In the modern world, sovereign states confront one another and endeavor to defend their security interests. They will not look kindly on attempts to infringe on those interests in the name of promoting liberal democracy.
The United States made a fundamental error when it ignored this point in an effort to bring liberal democracy to Ukraine. “The final tool for peeling Ukraine away from Russia was the effort to promote the Orange Revolution. The United States and its European allies are deeply committed to fostering social and political change in countries formerly under Soviet control. . .Of course, Russian leaders worry about social engineering in Ukraine, not just because of what it means for Ukraine but also because they think Russia might be the next target.” (p.191). By failing adequately to take account of Russia’s security interests, American progressive liberals have badly worsened the diplomatic situation.
Mearsheimer, it is clear, wants to replace liberal hegemony with his own brand of realism, though the details of his preferred line of action are largely to be found in other books. Here we cannot agree to follow him. He favors “offshore balancing”, which is substantially less interventionist than current U.S. policy, but still interventionist; and if he seeks rapprochement with Russia, he is prepared for confrontation with China.
Fortunately, there is a way to bring realism closer a genuine policy of non-intervention, and it is one that Mearsheimer himself recognizes. There are two sorts of realism, offensive and defensive. Mearsheimer supports the former, but he acknowledges that the other school is much less interventionist. “Many realists actually believe that if states acted according to balance-of-power logic there would be hardly any wars between the great powers. . .The historian Marc Trachtenberg, who looks at the world from the perspective of a defensive realist, explicitly argues that following the dictates of realism leads to a relatively peaceful world, while acting according to what he calls ‘impractical idealism’ leads to endless trouble.” (p.221)
Although no doubt a gap remains between defensive realism and genuine non-intervention in the style so ably advocated by Ron Paul, both positions recognize the dangers of ideological crusades. They do not “go abroad in search of monsters to destroy.”
Economy, Society, and Historyby Hans-Hermann HoppeMises Institute, 2021191 pp.
In 2004, Hans Hoppe delivered a series of lectures at the Mises Institute about his theory of social evolution, and we are fortunate to have this volume, based on a transcript of those lectures, now available. As one would expect, the book contains much of interest, and in what follows I shall comment on only a few of the topics that this gifted and erudite scholar discusses.
Hoppe is a close student of Ludwig von Mises, and he emphasizes with great force some often neglected insights to be found in his work. One of the most valuable of these is that the advantages of exchanges using money over barter extend to worldwide trade as well as to trade within the local community or nation.
Now, as we imagine that the division of labor expands and ultimately reaches and encompasses the entire globe, as different regions begin to trade with each other, we can see that there will be in the market also a tendency for one type of regional money to outcompete other regional types of money, with the ultimate result to be expected being that there will be only one, or at most two types of money left over, which are used universally. (p. 45)
As Hoppe points out, Mises uses this insight about the benefits of widely extended trade to counter the social Darwinist claim that national or racial groups advance through violent struggle. It is, by the way, the height of ignorant fatuity to say that Mises himself was a social Darwinist, as the leftist historian Quinn Slobodian, for one, has not scrupled to do. If violent struggle explains social advancement, Mises asks, why would it not also apply to individuals within a group? “The next problem, the more decisive one, is that people who accept these Darwinian interpretations have to explain why there should be division of labor and peaceful relationships within a group but not between different groups. After all, the same principles seem to be at work.” (p. 46)
Hoppe is much more than an insightful expositor of Mises and Murray Rothbard. He has applied their views in new contexts, often in daringly speculative ways. Both of these thinkers say that time preference is a necessary feature of human action. Given a choice between the identical good now and, say, one year from now, people will not think that the two choices provide equal satisfaction but will require a premium to accept the future good. By investment in capital equipment people can obtain more consumption goods than if they immediately consume what is on hand, and the rate of time preference determines their willingness to postpone consumption and invest. Those who do not require much of a premium have low time preference, and those who do have high time preference. Societies composed of people with low time preference will increase their supply of capital goods more than those with high preference and so prosper in future.
So much is not controversial, but Hoppe speculates on which groups have high time preference, and on one occasion, his doing so led to trouble for him. “I made the point that if you compare homosexuals to regular heterosexuals with families, you can say that homosexuals have a higher time preference because life ends with them. I always thought that that was so obvious, almost beyond dispute … these harmless remarks have led to three months of harassment at my university and the whole thing is still not over yet” (p. 60). I am glad to report that, in the years since these lectures were delivered, Hoppe has been vindicated, and we may deplore the “woke” culture, which has only intensified in recent years, by which academic freedom is suppressed when “protected” groups object to something.
Speculations about the rates of time preference of different groups must be supported empirically, and until this has been done, they must be regarded as conjectures, however plausible one may find them. Also, a caution needs to be borne in mind, though in pointing this out, I do not intend to suggest that Hoppe lacks awareness of it. If one says that a group has a higher time preference than another group, that is a comparative judgment, not a judgment on an absolute scale, and it does not immediately follow that the former group has a high time preference rate. By analogy, if doctors are smarter than nurses, it does not follow that nurses are stupid.
Hoppe, as will already be evident, does not hesitate to defy conventional opinion, and he does so in one way that will surprise many libertarians, who celebrate the common law of England, seeing in it a bastion of English and later American liberty. Hoppe says,
Anglo-Saxons looked down on codified law and hailed their own noncodified common law. I just want to remark that, for instance, Max Weber had a very interesting observation regarding this. He sees the reason for the noncodification of the common law in the self-interest of the lawyers to make the law difficult to understand for the layman and thus make a lot of money. He emphasizes that codified law makes it possible for the layman on the street who can read to study the law book himself and go to court himself and point out, here, that this law is written down. So maybe the excessive pride that the Anglo-Saxons have in their common law might be a little bit overdrawn. (p. 111)
The book is filled with insights, and I shall close with just one more. Hoppe sees the French Revolution as beginning a trend toward ideological wars, much more destructive than the limited wars of the previous century.
The French Revolution represents, in a way, a return to these religious types of wars that I mentioned earlier. It is an ideologically motivated event…. For the first time was seen now, during the French Revolution, and in particular after Napoleon comes to power, the draft, a mass draft. All the people of the French population are somehow made participants in the war. There exists no clear-cut distinction anymore between combatants and noncombatants; the resources of the entire nation are put at the disposal of the warring armies. (pp. 164–65)
Ideological wars continued in the twentieth century, giving us the two world wars, with all their horrors and catastrophes.
Economy, Society, and History is a major work, allowing readers to benefit from Hoppe’s insights into a number of areas he has not addressed in other books. No reader can fail to be instructed and enlightened by it.
Rigged! How the Media, Big Tech, and the Democrats Seized Our Electionsby Mollie HemingwayRegnery Publishing, 2021, 432 pp.
Mollie Hemingway, an editor of the online magazine The Federalist, calls our attention in this well-researched book to a problem of vital significance. She is a supporter of Donald Trump, though not an uncritical one, and writes from this point of view, but whether you like the former president or not, you cannot ignore her message.
She begins the book with a paradox. Almost all the polls predicted a decisive win for Biden in the November 2020 presidential election, but in fact the result, setting aside altogether the allegations of rigged voting by the former president and his supporters, was very close: “The political class, the corporate media, and their pollsters were all dramatically wrong, and yet Biden would eke out a presidential victory of just under 43,000 votes across three states, out of a total of nearly 160 million.”(p.36. All page references are to the Amazon Kindle edition.) Why were the polls so inaccurate?
One answer would be mistakes in the way in polls were conducted, but Hemingway sees something more sinister in the errors. The inaccurate polls were part of a massive campaign by the government and corporate elite to ensure Trump’s defeat in the election. This campaign continued the efforts by the same elite to secure his defeat in the 2016 election; and, when those efforts failed, to derail his presidency.
Hemingway stresses especially one tactic used in both the 2016 and 2020 elections. In previous elections, most voting took place on the appointed day in November, and although some people cast absentee ballots, these were of minor importance. No longer is this the case, and voting by mail now predominates. “’No excuse’ absentee voting allows citizens to cast their ballots early. With the widespread adoption of this practice in recent years, the United States can no longer be said to have an election day in the strict sense of the term. The country has a months-long voting season. . .In 2016, absentee and mail-in ballots accounted for roughly 33 million of the 140 million ballots counted. In 2020, more than 100 million of the 159 million ballots counted were cast prior to Election Day, including by early voting.” (p.222) This is of great significance, Hemingway says, because fraud is much easier with this sort of voting: it is much harder to verify signatures and voters’ addresses.
If voting fraud is to be stopped, this requires vigilant election officials, and here is where the mass media elites enter the scene. Far from aiding in efforts to interdict fraud, the elites promote it through subventions to interested parties. Hemingway highlights the role of Mark Zuckerberg, who made large donations to private groups that acted in a partisan way to “help” election officials. “That’s to say nothing of the widespread privatization of election systems in key districts thanks to the efforts of leftist outfits funded by Mark Zuckerberg and other billionaires. Multi-million dollars grants to public election commissions, and the strings attached to them, were the means by which the left’s sprawling voting activist arm took over huge parts of the 2020 election. . .This private interference in the running of a national election had never before happened in the history of the country.” (p.xiii)
These efforts to bias election results go hand-in-hand with the attempt by the same elites to control information that reaches the public. The media giants, such as Facebook, Twitter, and Google, relentlessly promoted items unfavorable to Trump and suppressed stories that could have helped him. As an example, damaging news about Hunter Biden and his corrupt dealing with Chinese officials that emerged in the final days of the campaign and was published in the New York Post was banned from Twitter. “Twitter CEO Jack Dorsey would eventually tell Congress and censoring the New York Post and locking it out of its Twitter account was a ‘mistake.’” (p.36)
Hemingway’s focus is on the presidential campaign, but the censorship by the statist-corporative elite extends even further. Facebook and YouTube ban videos that criticize Covid-19 vaccinations and advance points of view that the proprietors of the platforms deem “misinformation.”
The author is prepared for the objection that her charges of a leftist plot to derail Trump reflect the biased perspective of a partisan. In response, she points to a notable article in Time magazine in which those involved in the machinations admitted and took pride in what they had done. “Without agony or shame the magazine reported that ‘[t]there was a conspiracy unfolding behind the scenes’ creating ‘an extraordinary shadow effort’ by ‘a well-funded cabal of powerful people’ to oppose Trump. Corporate CEOs, organized labor, left-wing activists, and Democrats all worked together in secret to secure a Biden victory. . . Time would, of course, disingenuously frame this effort as an attempt to oppose Trump’s ‘assault on democracy,’ even as Time reporter Molly Ball noted this shadow campaign ‘touched every aspect of the election. They got states to change voting systems and laws and helped secure hundreds of millions in public and private funding.’ The funding enabled the country’s sudden rush to mail-in balloting, which Ball describes as ‘a revolution in how people vote.’” (p.36)
What if anything can be done about this state of affairs? I do not think the solution lies mainly in stricter laws about voting and certainly not in governmental regulation of the mass media, which would only increase the power of the state. Rather. our aim ought not to be to make democracy “work better” but to use the example of corruption she has highlighted as a tool to help us throw into question altogether its value as a political and social system of organization, and defend in its stead a genuine free market society, along the lines set forward by Murray Rothbard and his followers, who include most notably Hans Hoppe.
Hemingway is an assiduous researcher and, so far as I can discern, an accurate one. To my regret, I have been able to find only one outright error in the book. She says, “Five U.S, presidents since 1900 lost their bid for a second term. . . While each election is determined by unique factors, all five of these incumbents dealt with internal party fights or significant primary challenges. “(p.39) This is not true for Herbert Hoover, one of the five she mentions, who did not get significant Republican Party opposition in his quest for the 1932 nomination. By calling attention to what has happened to or political system in recent years, Mollie Hemingway strengthens our resolve to come up with something better.
Are entrepreneurs made or are they born? With entrepreneurial studies programs popping up at universities around the country one would assume they can be made, like doctors or architects. The reality is the primary quality of an entrepreneur can’t be taught: the stomach to risk everything and keep wanting more.
George Hearst was a true entrepreneur. Growing up in Missouri, he realized mining was more lucrative than farming and, as Matthew Bernstein writes in George Hearst: Silver King of the Gilded Age, “he gambled away his easy life as a Missouri slaver and landowner for a chance at California gold.”
But Hearst was far from done with his success, and failures, in the California goldfields. He believed he had been late to the California rush, and when he received word of what would become the Comstock Lode he headed for Virginia City (today in Nevada), to prospect for silver. He would make another fortune.
For the first half of Bernstein’s very readable, and richly footnoted, book, Hearst was either bankrupt or rich; there was no in-between. He made and lost fortunes, but nothing slowed him down. He had a natural nose for finding gold and silver. Even after marrying Phoebe, who bore him a son, Willy, who went by W.R. as he grew older and whom the world came to know as William Randolph, the elder Hearst was rarely home. He was constantly looking for the next big score.
Along the way Hearst bought millions of acres of ranch land throughout the west and in Mexico and raised hundreds of thousands of head of cattle. While his bread and butter was mining, Hearst’s Achilles’ heels were San Francisco real estate, stock market speculation, and politics. But, he had five thousand men on his payroll and his family lived extravagantly. “[T]hey simply couldn’t go broke,” Bernstein writes.
With a life spanning 1820 to 1891, Hearst would meet and become friends with the likes of Mark Twain in Virginia City and barely miss the shootout at the O.K. Corral in Tombstone involving the Earp Brothers, Doc Holliday, and Curly Bill Brocius. Wild Bill Hickok would be shot at a card table in Deadwood just before Hearst arrived and ultimately made millions from the Homestake Mine. Ambrose Bierce would eventually be on his payroll at the San Francisco Examiner.
Fans of the HBO series Deadwood will recognize the author’s mention of Gem Saloon owner Al Swearengen, Calamity Jane, and Seth Bulloch. Bernstein mentions the series and Gerald McRaney’s portrayal of Hearst as a sociopath. The author believes it is too harsh. Lawyers fought his battles, not gunmen.
Hearst was no boy scout. He was accused of bribing jurors during his murder trial in Deadwood, there was the Great Mining suit in Pioche, and he bribed his way onto the US Senate. “Emblematic of the Gilded Age, Hearst was pathologically competitive,” Bernstein writes.
Hearst shut down the Homestake Mine in a bit of jiggery pokery to give the false impression it was a bust and then personally researched and found the original demarcations of the mine. Bernstein emphasizes, “Hearst demonstrated for good and all that in the great game of paydirt, he was second to none.”
It was politics that exposed Hearst’s lack of education and cultivation. The Los Angeles Times called him “Brainless George Hearst,” “an old ignormous, as unlettered as the backside of a tombstone” and an “illiterate Money Bags.”
Bernstein‘s sources include a number of letters from Phoebe and W.R. to George, but also newspapers from the period that seemed to report on any and all of Hearst’s comings and goings. The Pioche Daily Record is cited often. Located 180 miles northeast of Las Vegas, Pioche was a booming silver town. But the last census in 2010 had the town’s population at just over one thousand and there is no daily paper these days. The Daily Record was only published from 1872 to 1876.
Mark, the proprietor of the mining newsletter IKN Weekly, writes, “Aside from agriculture, there’s no other sector of industry that has created more true wealth for human society than the mining industry and the simple act of taking some of the earth’s crust, processing and selling the product for a profit is the very essence of Capitalism.”
To illustrate, there are passages in Bernstein’s book that would make a geologist’s heart stop. For instance, describing the Anaconda copper mine near Butte, Montana, “Hearst hired a mill and continued sinking. Thirty feet later they struck a bed of pure copper. Continuing to delve, they found that the bed was thirty to forty feet wide and descended more than a thousand feet. In other words, it was the greatest copper strike on the planet.” Pure implies 100 percent copper. These days miners are hoping to drill holes containing 1 percent copper.
Ludwig von Mises wrote in Human Action, “In order to succeed in business a man does not need a degree from a school of business administration. These schools train the subalterns for routine jobs. They certainly do not train entrepreneurs. An entrepreneur cannot be trained. A man becomes an entrepreneur by seizing an opportunity and filling the gap. No special education is required for such a display of keen judgment, foresight, and energy.”
George Hearst was exactly who Mises was describing.
[Review of Against Democracy, by Jason Brennan. Princeton, NJ: Princeton University Press, 2016. 304 pages.]
Growing up in the United States, one gets the impression that democracy is next to godliness. School children put their hands over their hearts every morning and literally pledge allegiance to a flag and to the republic for which it stands. The NFL spends weeks wearing camouflage hats and jackets on the sidelines as part of their salute to the military. What does the military do? Protect (and even spread!) democracy, of course. Author and Georgetown professor Jason Brennan refers to this spirit of “democratic triumphalism” as “the view that democracy and widespread political participation are valuable, justified, and required by justice” (p. 7). But, as his book makes clear, almost no one ever really questions the history, justice, and most importantly, the efficacy of a democratic political system. Brennan’s primary thesis is that democracy is only useful for its instrumental value; it has no real symbolic or intrinsic value. Democracy is a tool like a hammer, Brennan repeats. It’s only as good as its ability to achieve results. “If we can find a better hammer,” he writes, “we should use it” (p. 11). Brennan’s recommendation is epistocracy: the rule of the knowledgeable.
In the latter half of the book, Brennan does a clever bit of authorial maneuvering: “In philosophy, we use the least controversial and weakest premise we need to get the job done” (p. 151). This strategy becomes more clear in retrospect, when we consider the book’s first major argument: that the American voting public are either hobbits, hooligans, or Vulcans (pp. 4–5). Hobbits are apathetic, ignorant, uninformed, and lack strong opinions about politics and world events more generally. “The typical nonvoter is a hobbit,” Brennan writes. I find his bit about the “weakest premise” convincing, because from the outset of his book, readers will either conjure up their hobbit friends and family and be inclined to agree with Brennan’s premise (most likely), or perhaps readers will self-identify as hobbits and say, “This sounds like me” (less likely). Either way, readers are likely convinced of the usability of the concept. Hooligans, though, are the majority of Americans, those who either vote or participate in politics more broadly. Hooligans are the “rabid sports fans of politics.” They have strong views, though they are based on weak and bias-reinforcing data, and they are unlikely to listen to opposing views, no matter how sound. In fact, debate makes them more entrenched in their views. They want to win and they want their opponents to lose, since, to them, politics must be a zero-sum game. Again, even if the reader believes themselves to be a Vulcan (the last category), they can definitely identify these hooligans. Vulcans are essentially Plato’s philosopher-kings, though perhaps we should call them philosopher-voters. They take in all information in an unbiased way, listen to opposing views, and make their decisions based on reputable facts and evidence. We gather that there are not many Vulcans out there. If there were, we probably wouldn’t have a democracy.
Especially convincing is the wealth of empirical studies Brennan cites from chapters 1–4. His main findings include the following: most voters are “rationally ignorant,” meaning they know that they don’t know, and they don’t really care that they don’t know (30); the more educated people become, the more they favor smaller government (34); many political participants only “keep up” with politics because they are expected to according to their social class or vocation, or because they would be interested in politics regardless of a particular election or candidate — to them it is a hobby, such as crafting or gardening (pp. 35–36); political tribalism damages rationality and often causes us to make decisions based on our “group” rather than the validity of the options themselves (p. 39). The rest of the political literature, to be sure, is expansive. In sum, though, the average voter is tribalistic, ignorant, myopic, etc., they feel obligated to participate. Voters tend to think of democracy like a poem (chapter 5) in that it has symbolic value (versus instrumental). And this idea, of course, has been reinforced in most Americans since birth. Brennan wonders why this is, or should be so.
More damaging than the voter, though, is the larger effects of a democratic system in general. Brennan writes “that most common forms of political engagement are more likely to corrupt and stultify than to ennoble and educate people” (55). Believing in the just possibility of ideal democracy is, to Brennan, like believing college fraternities would “improve … character and scholarship” if given the right conditions (p. 73). Shooting heroin or dropping out of high school, he suggests, have the potential to serve an educative function, like ideal democracy, but we doubt the wisdom of trying. Brennan writes elsewhere, “Since individual votes don’t matter and hating other people is fun, voters have every incentive to vote in ways that express their tribal biases” (234, italics in original). Democracy puts us in “genuinely adversarial relationships,” where we treat each other in ways that we would never (hopefully) treat one another outside of the political sphere. We think, If “they” win, “I” lose. And, to be sure, the two-party system, with its attendant popular suffrage, does result in this win/lose dichotomy. We have, for the most part, dumb people voting in a rigged system (where their individual votes don’t matter), which results in one party or person being forced on everyone else at the point of a gun (see pp. 240–41).
And yet, as Brennan shows, this is supposed to be indicative of “consent,” “voluntary” choice, fairness, and the justice of democracy in general. Brennan suggests, instead, that we try a better hammer: epistocracy (See chapter 8). We want the best doctor, the best plumber, the best teacher, etc., so why don’t we want the best voters and the best rulers? We don’t let just anyone come fix our pipes, so why do we let everyone vote, and, theoretically, let just anyone rule? Democracies violate the “competence principle,” which the author defines as the notion that “high-stakes political decisions are presumed to be unjust, illegitimate, and lacking in authority if they are made incompetently” (p. 21). As such, democracies are disqualified to rule (on qualifiers versus disqualifiers, see pp. 165–66). Just as our doctors and plumbers must be competent, so too must our voters and rulers. On Brennan’s suggestion that epistocracy solves some of the issues of political competency, I am somewhat convinced, though Brennan undercuts his argument by never seriously considering anarchism.
Throughout, Brennan talks about how an epistocracy would likely be a “better form” of government, with “better results,” and would, overall, function “better” (see p. 223, paragraph 5, for one example). But, to my understanding, he never says what “better” means. More efficient at collecting taxes? More adept at keeping the masses docile? Better at making war? Brennan would likely say no to all of these, but he never explains what a “better” system or better results are. Nonetheless, Against Democracy is a punchy and prescient tour de force which should be required reading for political philosophy. It’s high time we stop being ruled by hooligans. Brennan calls democracy a “flawed tool” (p. 204), but this doesn’t go far enough. It’s intentionally antagonistic, it’s violent, and it’s inherently violative of the most basic “political” unit: the individual.
Describing attorney Clarence Darrow, the great H.L. Mencken wrote, “The marks of battle are all over his face. He has been through more wars than a whole regiment of Pershings. And most of them have been struggles to the death, without codes or quarter.”
Darrow is mostly a forgotten libertarian, unknown to the new generation. The Mises Institute kept his name alive with Jeff Riggenbach’s podcast about the famous barrister and the publishing of a new edition of Darrow’s 1902 book Resist Not Evil, both in 2011.
John A. Farrell in his book Clarence Darrow: Attorney for the Damned brings Darrow to life. The reader must remember there was no TV, no internet, no radio, and thus, “the era’s courthouse clashes and public debates played the role of mass entertainment. It was not unusual for the gallery to be packed with prominent lawyers, off-duty judges, newspapermen, and politicians, and the hallways outside jammed with spectators trying to get in, all to see Darrow close for the defense. At times a mob of thousands would spill through the corridors, down the stairs, and out into the yard, to surround a courthouse and listen at the windows.”
With a subject like Darrow, Farrell had plenty of Darrow’s soaring rhetoric to quote from. Darrow’s closing arguments would last for days, delivered without referring to a single note. The jury, the spectators, often the judge, and Darrow himself would be left in tears when he finished.
Amazon’s pitch for the book starts perfectly, “Clarence Darrow is the lawyer every law school student dreams of being: on the side of right, loved by many women, played by Spencer Tracy in Inherit the Wind. His days-long closing arguments delivered without notes won miraculous reprieves for men doomed to hang.”
Darrow could have made a handsome living doing legal work for the railroad. Instead he applied his considerable skills and determination to defending whom he believed was on the right side of a case. This meant that “depending on how he was fixed at the time, a third or more of Darrow’s cases earned him nothing,” wrote Farrell. His commitment was to individual freedom, leaving him “wary of all government.”
“Force is wrong,” Darrow wrote. “A bayonet in the hand of one man is no better than in the hand of another. It is the bayonet that is evil.” Darrow made headlines when he called President Teddy Roosevelt a “brutal murderer” in the war with Spain.
Farrell chronicles his subject’s life around his biggest trials, with personal life anecdotes spread throughout. Darrow divorced his first wife and cheated constantly on his second. He was a believer in free love and ran for local office unsuccessfully. If he was not in trial he often traveled giving speeches. He had a weakness for smart, idealistic young women, and they were drawn to him. Female companionship was never a problem, while financial troubles were constant. Besides maintaining a wife and ex-wife, Darrow “took to speculating in the stock market, and in banks and gold mines and other ventures, but had no gift for it.”
Darrow was well ahead of his time, writing that the “independent artisan has been destroyed” with legislatures filled with “lawyers … saloon-keepers and professional politicians” whose function “has sunk to the business of giving public property and privileges to the few, and executing such orders as the industrial captains see fit to give.”
Darrow represented union leaders Thomas Kidd and Eugene Debs. In both cases he put the business owners on trial. “This is really not a criminal case,” he told the jury in the Kidd case. “It is but an episode in the great battle for human liberty.”
Thirteen-year old Thomas Crosby and his mother hired Darrow after young Crosby shot and killed Deputy Sheriff Frank Nye, who attempted to evict the Crosbys. Darrow dared the jury to hang young Crosby, rather than sentence him to spend a lifetime incarcerated with criminals. The bluff worked, and Thomas was acquitted.
Farrell paints a vivid picture of Darrow during his closing arguments in the coal miners’ case for higher wages: “At times Darrow stood there, in his swallow-tailed coat, vest, and black tie, talking in conversational tones. But then he would crouch and stride across the floor, wheel toward the crowd, and thunder. He would pose, with his right hand in his pocket and his left arm raised, or wag his index finger like a rapier. As he built toward a climax he’d raise his voice, waive his right arm high, form a fist, and bring it crashing down.”
Sensationalism seemed to follow Darrow. He represented William Randolph Hearst in a dispute with sharpshooter Annie Oakley, who claimed to have been libeled. It was reported she was caught stealing to support her drug habit. It turns out the thief was another Annie, burlesque dancer Maude Fontanella, who, on occasion, performed as “Any Oak Lay.” The famous sharpshooter spent years successfully suing newspapers.
The American Federation of Labor (AFL) called on Darrow to defend John and James McNamara, who were charged with committing the Los Angeles Times bombing, which occurred on October 1, 1910, during the bitter struggle over the open shop in Southern California. The bomb was placed in an alley behind the building, igniting nearby ink barrels and natural gas main lines. In the ensuing fire, twenty people died.
In the weeks before the jury was seated, Darrow became increasingly concerned about the outcome of the trial and began negotiations for a plea bargain to spare the defendants’ lives. Darrow was accused of bribing a prospective juror. He pleaded not guilty and told a friend, “My conscience refuses to reproach me.”
The plea bargain Darrow helped arrange earned John fifteen years and James life imprisonment. Despite sparing the brothers the death penalty, Darrow was accused by many in organized labor of selling the movement out.
Darrow endured two lengthy trials for bribery. In the first trial, the night before his attorney was scheduled to cross-examine the prosecution’s main witness, Darrow’s attorney went on a bender and after a considerable search was found in a whorehouse completely drunk. “Yet Rogers had awesome recuperative powers. He strode into the courtroom at the appointed time, neatly dressed and shaved, with a haircut and a manicure.” Darrow took the stand and answered questions for over a week. Spectators, mostly women, packed the courtroom and were dubbed “Darrow’s harem.”
Darrow would make closing remarks that lasted two days. Walking into the courtroom, “hysterical women had grasped at his hands, like some holy man or prophet, as he made his way into court.” The jury only took thirty-five minutes to find him “not guilty.” The second trial would end in an unsatisfying mistrial.
Darrow would also save the lives of two murdering teenagers, Richard Loeb and Nathan Leopold. There was no doubt the two had killed Bobbie Franks; they admitted as much. The sixty-seven year old Darrow took the case because “he was a ferocious foe of hanging.” When the two young men met their lawyer, they weren’t impressed. Leopold thought Darrow one of the “least impressive-looking human beings I have ever seen.” “He looked for all the world like an innocent hayseed, a bumpkin,” said Leopold. “Could this scarecrow know anything about the law?” It turned out he did. The boys changed their plea to “guilty” and Darrow made the case it would be unprecedented for boys so young to hang. “Only the tears in my eyes as you talked and the feeling in my heart could express the admiration, the love, that I have for you,” wrote Loeb in a letter to his lawyer.
Farrell’s chapter 18, “The Monkey Trial,” is the one I couldn’t wait to read. Darrow would match wits with Williams Jennings Bryan, who after being secretary of state devoted his life to “the Menace of Darwinism.” The teaching of evolution in schools was to be tried. Not so much different than the cries today against teaching critical race theory.
“The fundamentalists wanted the mighty Lord of Genesis in the classroom, not monkeys,” and it was codified into Tennessee law via the Butler Act. The American Civil Liberties Union looked for a plaintiff to test the law, and George Rappleyea a local of Dayton, Tennessee, believed holding the trial in Dayton should be “promoted and staged as a circus event.” A twenty-four-year-old science teacher named John Scopes was recruited to stand trial. Bryan would lead the prosecution; Darrow, the defense. “It would be, Bryan prophesied, ‘a duel to the death’ between Christianity and ‘this slimy thing, evolution.’”
H.L. Mencken made the Scopes trial a national phenomenon. He wrote thousands of words slicing and dicing Bryan. “He hates in general, all who stand apart from his own pathetic commonness. And the yokels hate with him, some of them almost as bitterly as he does himself.
“This year it is a misdemeanor for a country school teacher to flout the archaic nonsense of Genesis. Next year it will be a felony. The year after the net will be spread wider, Mencken warned. “The clowns turn out to be armed, and have begun to shoot.”
Bryan constantly painted Darrow as an atheist, but Darrow told the press he was not. “When it comes to the question of knowing whether there is a God, I am ignorant.”
The atmosphere in Dayton led the New York Post to write, “The vital issues on trial in Tennessee are being lost in the stampede of professional martyrs and a swarm of practicing egoists.”
Farrell, again, paints a colorful portrait of the proceedings, “The streets were jammed with flivvers; the sidewalks with gawkers and grifters. Traveling tent shows came to town. Chimpanzees did tricks, and hucksters sold lemonade, an infinite variety of monkey souvenirs—and redemption.” Mencken wrote, possibly with tongue in cheek, “I hear that 100 bootleggers and 250 head of Chicago whores will be in attendance.”
As it turned out, the trial began on the twenty-ninth anniversary of Bryan’s Cross of Gold speech. Ten farmers, a schoolteacher, and a clerk were selected as jurors. The following Monday the trial began, on a “terribly hot southern day.” Mencken wrote to his fiancée Sara Haardt, “The peasants pack into the courtroom like sardines in a can, eager to see Darrow struck dead.”
Darrow made the case that banning the teaching of evolution is a slippery slope that leads to banning newspapers and books, finally to pitting Catholics against Protestants and Protestants against Protestants, marching backwards to the 16th century, “The clanging of it was as important as the logic,” Mencken said later. “It rose like a wind and ended like a flourish of bugles.”
Bryan played to the crowd with “Parents have the right to say that no teacher paid by their money shall rob their children of faith in God and send them back to their homes skeptical, infidels, or agnostics or atheists.” Mencken described Bryan’s effort “downright touching in its imbecility.”
But Mencken believed Darrow’s case was lost and left town before the final verdict. “In doing so, he missed the biggest story of his life.” The following Monday, the trial was moved outside and cocounsel Arthur Garfield Hayes told the judge, “The defense desires to call Mr. Bryan as a witness.” The judge allowed it, and Bryan was eager to oblige.
While kids sold soda, an airplane flew overhead, and the judge read the afternoon paper, Darrow probed Bryan on the meaning of events depicted in the Bible. Bryan’s cocounsels tried to stop him with objections, but Bryan insisted on continuing. “And each of Darrow’s goading questions revealed more of Bryan’s closed-mindedness, and his ignorance of science and history.”
Bryan admitted that the six days of the earth’s creation may not have been twenty-four-hour days. “It might have continued for millions of years,” said Bryan. The crowd gasped. Bryan had conceded one of the defense’s most important arguments. Darrow and Bryan were on their feet shaking their fists when the judge adjourned “the most memorable session of any American legal case, ever.”
Bryan was not allowed to cross-examine Darrow. The circus was over. The judge fined Scopes $100.
Five days later, Bryan died in his sleep.
After returning to Chicago, Darrow worked for a small pittance saving black defendants charged with killing a white man. He traveled widely, again speaking against capital punishment. Darrow testified before Congress on the issue, telling congressmen, “If deterrence was the goal, then the government should bring back public hangings on school holidays so children could attend.”
He would later take a case in Hawaii, the Massie Trial, which further boosted Darrow’s fame. At age seventy-five he returned to court for two last capital cases, saving James “Iggy” Varecha and Russell McWilliams from death.
“Ideas have come and gone, but I have always been a champion of the individual as against the majority and the State,” Darrow wrote in his autobiography.
A champion not enough libertarians know about.
Review of Michael Kulikowski, Imperial Triumph: The Roman World from Hadrian to Constantine (London: Profile Books, 2016) and Imperial Tragedy: From Constantine’s Empire to the Destruction of Roman Italy (London: Profile Books, 2019)
When English historian Edward Gibbon wrote his history of “the decline and fall of the Roman Empire” in the late eighteenth century, he was using the story of the decline of Christian Rome as a way to critique the Christian civilization of his own day. Gibbon’s prose lives on, but his timing was off. Despite setbacks in North America, the British Empire in Gibbon’s day, far from declining and falling, was just entering onto a steady climb to world supremacy.
Reading Roman history through the pages of the daily news is a time-honored tradition in the West. At the peak of American power, during the George W. Bush years, Americans also took up the “Are we Rome?” worry rock and rubbed it hard, fretting about the inevitable decline of imperial fortunes. “Every other empire in history has fallen,” many Americans fretted once America had established itself as the lone superpower. “Will ours, too?”
Now that the American colossus is also going the way of all worldly glory—now, in other words, that the last of the Western global empires is fading away after a more-than-five-century run—perhaps we can finally see Rome for what it really was. Not as coded message for the present, but as history, a product of its own time.
What was it, then, Rome and her imperial sway? Statism on steroids. The monuments and ruins one sees today while strolling around the Eternal City, and the statues, walls, baths, bridges, aqueducts, roads, and institutions one finds scattered across the western third of Eurasia from the time of Rome’s rule, are by-products of a massive centralized government wedded to a political theology of divine rulership and heavenly favor. Rome was the state, and the state ruled its empire with an iron fist. The theology of divine right to rule cloaked dark sins on the ground. Political murders, palace intrigues, endless slaughter, the plundering of cities, the enslavement of entire populations, and everyday cruelty to man and beast which would count for criminal depravity in our own time—this was Rome, down and dirty. Illiterate mobs whipped into killing frenzies by demagogues, generals literally stabbing emperors in the back, emperors chasing other emperors across oceans and landmasses seeking vengeance, all keyed to the tune of the state, the imaginary power which flows from and to the political center.
Strip away political theology from all empires and you find violence. Rome, perhaps more than most empires, was political violence at heart.
Where to turn for a true portrait of the Roman past? One of the best recent portraitists of Roman power is Michael Kulikowski, head of the Department of History at Penn State University and a specialist in the history of late imperial Rome. In two well-received books, Imperial Triumph and Imperial Tragedy (both of which were later released as paperbacks as a testament to their popularity), Kulikowski tells the familiar story of Rome rising, ruling, and then falling apart. But like other clear-eyed students of ancient Roman realities, such as English historian Mary Beard, Japanese historian and essayist Shiono Nanami, and Stanford history professor Walter Scheidel, Kulikowski does not filter his narrative through a haze of apologetics. He tells it, instead, with scholarly dispassion leavened by wry humor and neatly carried along in fluid prose.
Above all, and perhaps most important for understanding Rome today, when the temptation is to see Roman history as a mirror for our own time, Kulikowski rejects the use of Rome as analogy. His remit in Imperial Triumph and Imperial Tragedy is to portray Roman history not as prelude or lesson but as fact, a set of things that happened long ago. Kulikowski writes:
That the current world order is in crisis seems, as I write [ca. 2019], to have become an article of faith. At all such moments, invocations of Rome’s decline and fall are de rigueur, their vehemence in inverse proportion to their discernment. Professional historians can be forgiven the urge to contribute: a mistake. Historical analogy requires, by definition, simplification at odds with historical understanding. History neither repeats nor rhymes, and the only thing it should teach us is that, constrained by custom, by psychology, and by our always faulty memories, constrained most of all by circumstance not of our individual making, humans tend to make a mess of making their own fate. I hope I do justice to the mess and the muddle. (Imperial Tragedy, viii)
For the most part, Kulikowski keeps his promise across these two splendid volumes and sticks to the sources, speculating where those sources thin but always staying, to my mind, within the bounds of historical professionalism. Imperial Triumph and Imperial Tragedy are a fine set of histories, especially welcome at a time when Roman history qua Roman history—and not qua metaphor for the imperial present—is perhaps hardest to tell.
One of the most welcome features of both Imperial Triumph and Imperial Tragedy is Kulikowski’s skill in clarifying the almost overwhelming complexity of Roman politics. From the days of the late republic until the last gasps of the empire in the West, there were within Roman political consciousness layers and interconnections of political office, tradition, rank, privilege, and nomenclature. All of the various consuls, proconsuls, Caesars, Augustuses, ordines, protectores, notarii, agentes, comeses, prefects, and magisterium militums (these hardly come close to exhausting the list) are daunting to the reader some two thousand years removed from the context of those terms. But Kulikowski embeds them all within a clear governmental structure and clothes them in the cultural and religious realities of various times and places, helping the reader to understand who was doing what when and under what authority. If you took Roman history in high school or college and found yourself completely lost, don’t despair. Imperial Triumph and Imperial Tragedy are very thorough guides for the formerly perplexed.
That said, there are times in both volumes when Kulikowski might have been a touch less diligent in recreating the political minutiae of ancient Rome. Kulikowski is nothing if not an historian faithful to his sources, and it is true that political complexity (which abounds in Roman history) sometimes demands extensive explanation. But, in more than a few passages, my mind went woolly trying to keep separate the string of emperors named Constantine I (r. 306–07), Constantinus (Constantine II, r. 337–40), Constantius II (r. 337–61), Constans (r. 337–50), and Constantius III (r. 421) (Imperial Tragedy, 317). And this wasn’t even the hardest part. Roman imperial history is laced with personal and place names ranging from Celtic to Greek, Gothic to Persian. None of this is Kulikowski’s doing, of course. Roman history would be a tangle even if no historian were around to tell it. But I got the sense that in trying to condense a thousand years of political turmoil into about 620 pages or so across both volumes, Kulikowski was forced to sacrifice a bit of cultural context in the interest of keeping all the names and dates in place. There are lists of Roman emperors and Persian kings at the back of both volumes (the Romans were constantly fighting with or scheming against the Persians, hence the need to list the Persians with the Romans). This is a huge help, as are the splendid maps in each volume showing how Rome’s power ebbed and flowed over time. But still, the going can be a little hard in places. “History is just one damn thing after another,” the famous saying goes. I strove mightily in a handful of pages not to give in and agree.
Although he writes with a very old-school sense of detachment and scholarly decorum, Kulikowski does occasionally hint at the personal stakes of his scholarship in the rare sentence or two when he lets slip his mask of disinterest. It becomes clear reading through both Imperial Triumph and Imperial Tragedy that Kulikowski is particularly interested in complicating the received historical narrative about the “Huns.” For Kulikowski, the term “Hun” covers far too many bases and appears to have very little, if any, historical meaning. “In the fourth century AD,” Kulikowski writes,
a very old ethnic name reappears on the Eurasian steppe, that of the Huns. Linguistically, our word Hun goes back to the name of the Xiongnu (sometimes written Hsiung-nu), an extremely powerful nomadic empire that was the paradigmatic example of a steppe empire for the Chinese sources…. China’s Han dynasty had destroyed the Xiongnu empire in the first century BC, though a rump of the former ruling elites survived in the Altai region. In the fourth century, people styling themselves as Xiongnu began to make a reappearance. We find them described as Hunnoi (Latin and Greek, and their modern derivatives), or Chionitae (the Latin and Greek word for the central Asian subjects of the Persian empire), Huna (Sanskrit), and Xwn (Sogdian). These are almost certainly all different ways of writing the same indigenous word and that indigenous word is almost certainly what the people called themselves. But does that mean that all these people were “really” Xiongnu in some authentic existential sense? (Imperial Tragedy, 75)
Kulikowski’s answer is that probably the term “Hun” was applied to various peoples at various times, but that this apparent sameness reflects more about the “scholarly tropes” that European scholars in the “early modern centuries” associated with the “fall of Rome” and which those same scholars also “superimposed … on the world’s other cultures” at the time during which “Europe discovered and tried to conquer the rest of the world” (Imperial Tragedy, 76). Group identity “does not stay the same over generations just because [the group’s] name does,” Kulikowski argues (Imperial Tragedy, 76). Kulikowski spends a handful of pages in both Imperial Triumph and Imperial Tragedy explicating his theories of the variety of peoples who went under the catchall name of “Huns,” a very important part of his interventions into Roman history overall. More complexity to the story, yes, but this time in a very revealing way.
The Huns, whoever they were, were peripheral to Roman history, at least from the Roman perspective. But the lessons of identity which Kulikowski imparts can apply, I think, just as well to the Roman center as to the wilds beyond her borderlands. If “Hun” was a contested appellation, then so, too, was “Roman,” in many ways. Kulikowski’s historical narrative highlights the endless fight among over who got to be called “emperor” (or any of two dozen other official titles), whether the claimants came from the provinces or were born and raised in the shadow of the Seven Hills. Goths, Franks, Alans, Gauls, and a dozen other groups besides all wrangled for control of the imperial machinery of state. All of them were part of “Roman” history, of course. But as Rome expanded beyond the bounds of Italy and stretched into Africa, the Levant, and the untamed British Isles, the meaning of “Roman” and of “Rome” took on perhaps as many kaleidoscopic variations as “Hun” did.
My sense on reading Imperial Triumph and Imperial Tragedy is that this contested Roman center, in turn, reveals the true history of Rome, the true lesson for our time. Roman political history was bloody and ruthless. Yes, but then again, states are ever so. The more the Roman center was intrigued and schemed over, the more the body count increased as people fought and murdered to wear the imperial purple. What was Rome? It was violence, political violence as an organizing principle.
But here a distinct irony comes into play, at least in the western half of the Roman Empire. As Kulikowski shows, the more people fought over who got to be a Roman emperor, the more distant the actual city of Rome as a political organizing principle became. With constant fighting in the provinces against invaders and breakaway kings, and among rival claimants to the purple, “Roman” emperors grew increasingly aloof from Rome. Sometimes Rome is a backdrop to Kulikowski’s narrative, a trend which intensifies as we move deeper into the fifth and sixth centuries. The political center shifted to Ravenna in northern Italy, for example (especially during the 440s under Placidia, Emperor Valentian III’s [r. 425–55] daughter [Imperial Tragedy, 207]), and before that Diocletian (r. 284–305) had constructed a palace in the very early 300s at Split, Dalmatia, in modern-day Croatia (Imperial Triumph, 217). The emperor Hadrian (r. 117–38) had been intrigued by Greece and spent much of his time there, studying philosophy and taking part in the Eleusinian Mysteries (Imperial Triumph, 19–20). The much later emperor Justin I (r. 518–27) was compelled by warfare to sojourn at length on campaign along the Danube and Rhine (Imperial Tragedy, 1–4). By the latter third of the fifth century, as Kulikowski writes in Imperial Tragedy, some emperors didn’t even visit Rome at all.
This gradual disassociation of Rome the city from Rome the empire marked a trend that, in the end, would make for the true end of the Roman imperial period. Kulikowski is very good at showing how, over time, the various regions of the empire gained more and more autonomy and developed into political centers in their own right. The end of Kulikowski’s tale is especially apropos, for it is not so much an ending as a trailing off. People stopped caring about Rome, especially in the western half of the increasingly unmanageable empire that Constantine the Great (Constantine I, r. 306–37) had split in two in the early fourth century. (In the east, or course, Constantinople, named for that emperor, lingered on until it fell to the Ottoman Empire in 1453.) Eventually, Kulikowski writes, “Gothic Gaul and Spain” became “not simply Roman provinces under new management, but rather social worlds being transformed by outside practices that would have been utterly unfamiliar to the majority of the population. That was how the Latin Middle Ages began” (Imperial Tragedy, 273–74).
The historical diptych Imperial Triumph and Imperial Tragedy is a rich, scholarly, well-written retelling of the oft-told tale of the rise and fall of Rome. I recommend both books to anyone interested in Roman history or in history or politics in general. Kulikowski does not disappoint—this is a splendid history of Rome. But as the reader finishes the last pages of the second volume, I wonder if he will not agree with me that looking back over the intrigues and political assassinations, the wars and palace coups that give Roman imperial history its character, the end of that thousand-year experiment in statism was no tragedy at all. The real tragedy of empire, perhaps, is that the center is not worth fighting over in the first place and that the more people do fight over it, the more meaningless it becomes.
Listen to the Audio Mises Wire version of this article.
Freedom: An Unruly Historyby Annelien de DijnHarvard University Press, 2020426 pagesI am grateful to Daniella Bassi for calling this book to my attention.
Those of us who follow Mises and Rothbard think that freedom means “freedom from.” In Rothbard’s view, rights are negative. People aren’t at liberty to use force or threats of force against you or your property; but there are no positive enforceable rights to come to your assistance. Annelien de Dijn, a Dutch historian who specializes in eighteenth- and nineteenth-century French political thought, argues that this conception of freedom, and others like it, is a modern innovation. (By “modern,” she means the time since the American and French Revolutions. She says,
These days most people tend to equate freedom with the possession of inalienable individual rights, rights that demarcate a private sphere no government may infringe on. But has this always been the case?…Our current conception of liberty must be understood as a deliberate and dramatic rupture with long established ways of thinking about liberty….For over 2,000 years…freedom was equated with popular self-government….It was only in the nineteenth and twentieth centuries that political thinkers in Europe and the United States began to propagate a different way of thinking about liberty. Freedom, many came to argue, was not a matter of who governed. Instead what determined freedom was the extent to which one was governed. (pp. 1–3, emphasis in original)
De Dijn is a historian of great learning, and her book is well worth reading, a task made easier by her clear writing. (I regret to say, though, that she confuses “flaunt” with “flout” [see pp. 225 and 244].) The book consists of three main parts: “The Long History of Freedom,” on the Ancient Greeks and Romans; “Freedom’s Revival,” on the Renaissance and the Atlantic [principally American and French] Revolutions; and “Rethinking Liberty,“ about the modern conception of liberty that she deems counterrevolutionary. I’ll try to show that her main argument doesn’t succeed. (I follow her in not making a distinction between “freedom” and “liberty.”)
The main problem in her argument is that it slides between two positions, the first, that the older conception of freedom rated popular self-government an essential part of freedom, much more plausible than the second, that self-government was the sum and substance of the older conception. It’s clear that the second, more extreme view isn’t true. The ancient Greeks and Romans valued living life as they chose, as well as the freedom to govern themselves collectively. She stresses herself that
it is sometimes claimed that the ancient Greeks had no interest in individual independence, only in the collective freedom of the community to govern itself. But writings by Herodotus and others let us see that they believed freedom—the ability to control the way we are governed—was also crucial to the preservation of personal security and individual independence. Far from privileging collective freedom above personal security, the Greeks believed that one could not exist without the other. (pp. 33–34)
Despite this forthright statement, she later treats any emphasis on individual rights, especially property rights, as a break with the older conception.
She gets into another tangle when she comes to John Locke. She views him as a defender of the older view, but in doing so she must confront an obvious objection: Doesn’t Locke believe in individual rights, including property rights? Doesn’t this put him close to the “counterrevolutionary” position that she says arose over a century after the Second Treatise? She deals with the problem in this way.
But, as he also made clear, the freedom men enjoyed as members of a political community—what Locke called civil freedom—had nothing to do with an absence of state interference. It had been said, Locke wrote, that freedom was “a liberty for everyone to do what he lists [likes], to live as he pleases, and not to be tied by any laws.” But this was quite wrong. Civil liberty—the liberty one enjoyed as a member of a political community—was not about being able to do whatever you wanted without outside interference. Instead, Locke explained, “freedom of men under government” was “to have a standing rule to live by, common to every one of that society, and made by the legislative power erected in it.” If we want to understand what Locke meant by this somewhat enigmatic formula, we need to keep in mind that ‘standing rules,” or laws, should be made with the consent of the people or of their standing representatives. (p. 176)
De Dijn’s response to the objection rests on a false antithesis. She is correct that Locke distinguishes liberty from license, but you are free according to him to do whatever doesn’t violate the law of nature, i.e., what doesn’t violate the rights of others. The only right you surrender to the community is the right to enforce the law of nature. The legislature is not free to enact whatever “standing rules” for which it can secure a majority. To be fair to her, some scholars agree with her interpretation, and she recognizes that the “interpretation of Locke [she favors] is controversial,” citing a “a very different reading” to be found in a book by John Marshall (p. 377n132); but she does not cite the works of A. John Simmons and Eric Mack that put Locke in the very limited government camp. It is, though, an admirable feature of the book that she often acknowledges in her endnotes competing interpretations to her own.
It would seem that the Bill of Rights in the American Constitution is a counterexample to her thesis that advocating limited government came after the “Atlantic Revolutions.” It consists, after all, of a list of stringent limits on government. Her response will probably surprise you. Madison, the drafter of the Bill of Rights, was a proponent of the freedom-as-self-government view, and he really didn’t want a bill of rights anyway.
Madison’s own support for a bill of rights as a way to protect liberty always remained lukewarm….More generally, Madison’s writings show that a bill of rights was never his preferred solution to majority tyranny. In his most influential writings of the 1780s—his contributions to the Federalist Papers—Madison reflected extensively on the danger of majoritarian tyranny. But here, he did not refer to a bill of rights as a solution; instead he maintained that the tyranny of the majority could best be avoided by creating “extended” republics…in short, by issuing declarations of rights, American revolutionaries…continued to think about freedom as something that could be established only through the imposition of popular control over government.” (p. 221)
She does not mention the main reason Madison opposed a bill of rights: because the power to interfere with the rights mentioned in it had not been included in the strictly limited powers granted by the Constitution to the central government, the bill was not needed. The American revolutionaries did, as she says, believe that popular control of government is necessary for freedom, but unlike her, they did not think it sufficient.
As you would expect, her knowledge of nineteenth-century French sources in superb. We learn, for example, that “the Statue of Liberty was a brainchild of the French Americanophile Édouard de Laboulaye.” (p.308) The statue had nothing to do with immigration: “it was meant to propagate the antidemocratic understanding of freedom held by nineteenth-century liberals. Laboulaye and other supporters of the project wanted the statue to encourage an association among liberty, order and personal security, That is why they deliberately rejected the traditional symbol of freedom: the cap of liberty,” replacing it with a crown of stars. (p.308) The “cap of liberty” is a leitmotif of the book and it is featured in many of the illustrations that accompany the text.
But when she strays from her specialty, she sometimes errs. She says that Herbert Spencer ‘went on to write a wide variety of influential works, mostly arguing against what he called ‘over-legislation.’ (p.296). The bulk of Spencer’s work isn’t about politics. He wrote vast tomes on cosmology, biology, and anthropology, among other subjects, and his nineteenth-century reputation as a thinker rested mainly on them. She also says that “the reception of The Road to Serfdom also demonstrated how the advent of the Cold War gave new credibility to the idea that any kind of state intervention—no matter how much democratic support it enjoyed—should be seen as an infraction on liberty.” (p.334) She doesn’t mention that this isn’t the view Hayek takes in the book. He explicitly says that limited welfare measures are consistent with his idea of the rule of law, not retreats in the face of democratic pressure that must be grudgingly accepted as infractions of it. Mises criticizes Hayek for undue concessions to the welfare state, a fact she does not mention, although readers will be pleased to know that she does briefly discuss Mises, and refers to Ron Paul as well.
Despite my criticisms, you ought to read Freedom: An Unruly History. You will learn a lot from it, but don’t believe everything it says.
Bland Fanatics: Liberals, Race, and Empireby Pankaj MishraFarrar, Straus and Giroux, 2020218 pages
Pankaj Mishra dislikes the free market, and he blames it for the imperial conquests of the nineteenth century and after. But much of his book can be read as an extended commentary on some remarks by the great champion of the free market Ludwig von Mises.
In Liberalism (1927), Mises says:
The considerations and objectives that have guided the colonial policy of the European powers since the age of the great discoveries stand in the sharpest contrast to all the principles of liberalism. The basic idea of colonial policy was to take advantage of the military superiority of the white race over the members of other races. The Europeans set out, equipped with all the weapons and contrivances that their civilization placed at their disposal, to subjugate weaker peoples, to rob them of their property, and to enslave them….No chapter of history is steeped further in blood than the history of colonialism. Blood was shed uselessly and senselessly. Flourishing lands were laid waste; whole peoples destroyed and exterminated. All this can in no way be extenuated or justified. The dominion of Europeans in Africa and in important parts of Asia is absolute. It stands in the sharpest contrast to all the principles of liberalism and democracy, and there can be no doubt that we must strive for its abolition.
Mishra does not cite Mises, but he acknowledges that Richard Cobden, the great classical liberal defender of free trade, opposes imperialism: “India for Cobden was a ‘country we do not know how to govern’ and Indians were justified in rebelling against an inept despotism” (p. 192). Nevertheless, he continues to blame capitalism for imperialism, adopting a standard Marxist line.
You might expect at this point a denunciation of Mishra for his mistakes, but I do not propose to proceed in this way. He is a writer of considerable insight, and he repays careful study. Educated in both India and England, he has read very widely in both Eastern and Western sources, and among the latter he treats not only Marx with respect, but also George Santayana and Reinhold Niebuhr. Indeed, it is Niebuhr who provides him with the “bland fanatics” of his title. For Niebuhr, “Among the lesser culprits of history…are the blind fanatics of western civilization who regard the highly contingent achievements of our culture as the final form and norm of human existence” (qtd. on p. 1).
What seems to me the great strength of the book is its demonstration that the atrocities of imperial conquest and rule prefigured the horrors of the European wars of the twentieth century and later wars of conquest as well. Mishra writes,
Europe’s long peace [before World War I] is revealed as a time of unlimited wars in Asia, Africa, and the Americas. These colonies emerge as the crucible where the sinister tactics of Europe’s brutal twentieth-century wars—racial extermination, forced population transfers, contempt for civilian lives—were first forged. (p. 52)
Many ascribe near-exclusive blame to Germany not only for these colonial atrocities but also for the crimes of the world wars, but Mishra avoids this trap. In one particularly revealing passage, he notes that in 1920,
a year after condemning Germany for its crimes against Africans, the British devised aerial bombing as a routine policy in their new Iraqi possession…“The Arab and Kurd now know what real bombing means,” a 1924 report by a Royal Air Force officer put it. “They now know that within 45 minutes a full sized village…can be practically wiped out and a third of its inhabitants killed or injured.” This officer was Arthur “Bomber” Harris, who in the Second World War unleashed the firestorms of Hamburg and Dresden. (p. 54)
Mishra also shows a healthy skepticism toward Winston Churchill. He says that
Mountbatten was actually less pig-headed than Winston Churchill…a fanatical imperialist, [who] worked harder than any British politician to thwart Indian independence and, as prime minister from 1940 to 1945, did much to compromise it…he refused to help Indians cope with famine in 1943 on the grounds that they “breed like rabbits.” (p. 184)
Our author wields a mean pen. The man described above as less pigheaded than Churchill was the last British viceroy of India, Louis Mountbatten. Mishra says he was
accurately described by the right-wing historian Andrew Roberts as a “mendacious, intellectually limited hustler”…Mountbatten, derided as “Master of Disaster” in British naval circles, was a member of a small group of upper- and middle-class British men from which the imperial masters of Asia and Africa were recruited. Abysmally equipped for their immense responsibilities, they were nevertheless allowed by Britain’s brute imperial power to blunder through the world. (pp. 181–82)
If Mishra is no admirer of Churchill, Woodrow Wilson fares no better. Far from being an idealist who wanted to bring peace to the world, Wilson aimed to ensure Anglo-Saxon world hegemony. “In 1917…Woodrow Wilson told his secretary of state that ‘white civilisation and its domination over the world rested largely on our ability to keep this country intact’’’ (p. 17). When Wilson, in part influenced by his inveterate Anglophilia, changed his mind and secured American entry into the war to preserve that domination, Randolph Bourne was his most trenchant critic. It is a great strength of Bland Fanatics that Mishra is fully alive to Bourne’s importance. “As Randolph Bourne, a young critic whose opposition to American intervention made him an outcast among liberal intellectuals, pointed out as early as August 1917, the United States lost whatever leverage it had had as an impartial mediator when it declared war on Germany” (p. 75). To his amazement, his onetime colleagues such as John Dewey turned to become supporters of “‘war in the interests of democracy’. ‘This was almost the sum of their philosophy,’ Bourne wrote of his old friends. ‘The primitive idea to which they regressed became almost insensibly translated into a craving for action’” (p. 83).
Murray Rothbard and Ralph Raico would have welcomed Mishra’s disdain for Churchill and Wilson, and those of us similarly inclined should overlook the book's manifold fallacies in economics in order to benefit from its many valid insights. Mishra, in his understandable eagerness to smite the British imperialists who have done so much to injure his country, is at times overcome by his polemical exuberance. Thus he cites favorably “Swami Vivekananda, India’s most famous nineteenth-century thinker” (p. 21) for his condemnation of Western civilization as unclean and materialistic, and also praises the “Indian writer Aurobindo Ghose” for predicting that “‘vaunting, aggressive, dominant Europe…was already under ‘a sentence of death’, awaiting annihilation’” (p. 57). But in a later chapter, “The Lure of Fascist Mysticism,” Vivekananda becomes an “intellectual entrepreneur” and “vendor of Asian spirituality” (p. 124, plurals changed to singulars) and Aurobindo is characterized as one who “assembled [Jordan] Peterson-style collages of part-occultist, part-psychological and part-biological notions” (p. 124). Though Mishra sometimes varies his tone toward a writer to suit the point he wishes to make, the main theme of his book is clear and forthright, and I recommend it highly.
[Review of Amity Shlaes, Great Society: A New History (New York, NY: HarperCollins, 2019).]
Most people associate the Great Society initiative with Lyndon Baines Johnson. There is very good reason for that, to be sure. As president, Johnson, the “master of the Senate,” was the driving force behind the raft of legislation that passed during his administration, the 1964 and 1965 legislation that framed and filled in his vision for a “great society” in which the blessings of postwar America’s bonanza would be shared by all. Johnson’s spearheading of the Great Deal initiatives in turn stemmed from his personal attachment to the New Deal. Johnson had been a Roosevelt stumper in Texas before finding his feet in Washington politics, and the desire to complete FDR’s domestic legacy by positioning government at the center of a vast nationwide redistribution network was the motor of the Great Society as we know it today. President Johnson was a necessary condition for the Great Society programs that cleared Congress with remarkable regularity and became part of the federal bureaucracy. No Johnson, no Great Society.
But LBJ was not sufficient condition for the Great Society to arise. Former Wall Street Journal editorial board member and current King’s College scholar Amity Shlaes’s new book Great Society: A New History shows us that what we might think of as Johnson’s pet program was so much more than his baby alone. Shlaes’s biography of the idea of the Great Society reveals that it was planning in general—more precisely the article of faith that government could employ “the best and the brightest” to engineer its way over any obstacle that the mere unplanned world might throw at it—that was the Great Society’s true parentage (pp. 7–8). Johnson was without doubt the broker for the deals, public and private, that allowed the Great Society to take shape. But, for all that, Johnson was merely one of many at the planning table. It was faith in planning, not inherent greatness, personal or otherwise, that made the Great Society what it was. If nobody else in government had believed it possible to plan a great society, then all of Johnson’s efforts would have been in vain.
The phrase “the best and the brightest” calls to mind another president, of course. John Fitzgerald Kennedy, Johnson’s predecessor, had also thrown the weight of the federal government behind the planning regime. Shlaes remarks that Kennedy “court historian” Arthur Schlesinger noted, after a White House visit in 1963, the tension between Kennedy’s “New Frontier” space race planners and old-style liberals such as Johnson, for whom the Great Society was, as President Johnson would later put it, actually a “War on Poverty”—an attempt not only to defeat being poor, but to cure it as one would a disease (pp. 80–81). Both Kennedy and Johnson, then, had their own great societies in mind. However, both strains of great society planning, the technocratic and the bleeding heart, ended in similar failure. Neither the Kennedy nor the Johnson visions for how to use the power and riches that had fallen into America’s lap after World War II panned out. Shlaes’s narrative is of planning leading to abstraction, an increasing remoteness from the complexities and realities on the ground. “The New Deal created a forgotten man,” Shlaes writes. “The Great Society created more” (p. 14). No matter how it was tried, or who tried it—even the best and the brightest—Shlaes shows that planning broke on the shoals of the real world at every turn.
This was perhaps nowhere as evident as in the labor unions. Walter Reuther, longtime president of the Union of Auto Workers (UAW), is one of the major players in Shlaes’s narrative, at times even outstripping President Kennedy and President Johnson in importance to Shlaes’s arguments. Reuther held up the Scandinavian democratic socialist countries as the ideal that America should follow, and he spent his life planning for the lives of the army of workers under the UAW umbrella. But, to his chagrin, workers themselves often preferred to work in nonunion shops. They didn’t want their lives planned by someone else. “Since the passage of the Taft-Hartley Act,” Shlaes says, “Reuther and [American Federation of Labor-Congress of Industrial Organizations (AFL-CIO) president] George Meany had been running a race against time: companies were indeed moving [to states which had opted for Taft-Hartley provision 14(b) allowing] state governments to make working with unions optional for employers” (p. 67). Faced with competition from “right-to-work” states, Shlaes argues, “Reuther and Meany had to prove to workers that unionland offered a better life” (p. 68). Their solution was even more and more ambitious planning, but even Reuther was savvy enough to see that domestic bargaining and more centralized planning for unions alone were not enough. The generous pay packages that Reuther negotiated for UAW members could be undercut by overseas firms, so “throughout the 1950s and 1960s,” Shlaes points out, Reuther spent much of his time in Europe and Japan, imploring union workers there, too, to negotiate higher wages (pp. 68–69). Inevitably, planning bled over the borders of the United States. Once planning started at home, the planners would have to plan the rest of the world economy, too.
Planning is the motif of Shlaes’s Great Society. In the postwar era, America, which had been in the shadow of the Great Depression and two global conflicts over the previous thirty years, suddenly found itself rich. What to do with all the money was the big problem with which the planners were confronted. Shlaes’s book begins with Bonanza, the long-running (1959–73) TV show about a family that strikes it rich in the American West, and uses it as a backdrop for her story about how planners chased ways to make the real-life American bonanza permanent. But somehow uncertainty and then disaster creep in. The plans don’t work. Shlaes follows the Midasian procession of wealth becoming quandary along the way. The more the planners planned, Shlaes shows us, the more the bonanza slipped out of their grasp.
There were those who were against the planning, to be sure. Former Screen Actors Guild president Ronald Reagan, for example, got his start in politics by starring in prime-time pro–free market television programs sponsored by General Electric, whose antiunion executive Lemuel Boulware worried that unionism would thwart the creative power of American capital. Shlaes reminds us that GE’s founders, Thomas Edison and Charles Albert Coffin, “believed that the kind of company that sustained American capitalism was the company that stood aloof, that wore no harness, that came to no big negotiating table” (p. 27). This is a key point in Shlaes’s book, that capitalism works best, in fact works only, when not fettered by superfluous plans. “In the time of Edison and Coffin,” Shlaes continues:
there had been no business school, no military-industrial complex, no electrical workers’ union, and no federal income taxes….In the day the journalist Ida Tarbell had summarized the attitude of the GE pioneers: “Research must be free and where it pointed the way business must have the discernment, the ingenuity and courage to follow.” Only free researchers allowed serendipity to take them to unexpected discoveries. (pp. 27–28)
Later Shlaes details the rise of another great American firm, Fairchild Semiconductor, founded when Robert Noyce and Gordon Moore and other maverick engineers decided to forge a capitalist path free from government entanglement. Fairchild Semiconductor, which would later become Intel, proved the exception to the emerging rule, however. The “military-industrial complex,” which President Eisenhower had lamented just before leaving office, was too lucrative for most companies to ignore. It was far easier to join the state-capital paradigm than eschew it altogether.
The gravity field of government was everywhere, and it seemed to insinuate itself into everything. Those who absented themselves from the Fed-led planning scheme more often than not found themselves rendered irrelevant, overlooked. This even extended into race relations. For example, Walter Reuther helped bail the Reverend Martin Luther King Jr. out of a Birmingham jail, Shlaes notes, but that largesse came with a price. Reuther enlisted King’s help in keeping the civil rights movement a mainstream, union-implicated affair. The Great Society didn’t need any competition from actual black people in planning for black uplift. When the antiracist arm of activist Tom Hayden’s Students for a Democratic Society tried to get seats on the floor of the 1968 Democratic convention, convention planners denied them those seats (pp. 126–30). Robert Parris Moses, a militant civil rights fighter who had left his job as a math teacher to become a Freedom Rider in the South, was pushed aside, and Walter Reuther, working under direct orders from President Johnson, quietly strong-armed the rest of the civil rights leaders into following the union line (p. 127). There was too much at stake politically, Shlaes explains, to allow unplanned outbursts to imperil the 1968 Democratic National Convention—but then, of course, this convention now lives in infamy as the site of a much more violent outburst in the streets of the host city Chicago (pp. 292–99). Again, the way things were planned was not the way they ended up working out.
This slowly accelerating dervish of planning chasing the unplannable led to a bubble of costs which gradually moved from the peripheries to the center of the presidential day. The more plans failed, the more money it was going to take to fix things up. Shlaes shows how Johnson leaned hard on Federal Reserve secretary William McChesney Martin not to raise interest rates so that he, Johnson, could borrow more and more money making society great. Henry Hammill Fowler, Johnson’s Treasury secretary, warned Martin against raising the rate, but Martin did it anyway (pp. 199–200). Even this couldn’t preserve America’s credit rating, however, because, as Shlaes points out, it was by this point obvious to everyone that the US would have to end its currency’s relationship with gold. Gold was keeping the federal government from borrowing what it would take to spread the postwar bonanza around among all.
Veins of subterranean gold underpin much of Shlaes book. She follows the sources from the time to show that gold was on the minds of politicians and the general public alike. Even in the postwar American bonanza there was still uneasiness about how long the gold would last. Readers will remember Goldfinger, the 1964 James Bond movie about a crazed “foreign businessman” who plans to irradiate Fort Knox and thereby render the American gold supply unusable (p. 266). Shlaes reminds us that this was not entirely a figment of Ian Fleming’s imagination. There was no Goldfinger plot, of course, but the movie, Shlaes points out, was very timely social commentary. The convertibility of the dollar into gold, and the federally mandated level of gold reserves of at least 25 percent of circulating currency that had to be kept domestically at all times, were front-and-center international issues during the years when the Great Society was trying to find its feet (pp. 254–90). President Kennedy, Shlaes says, fretted constantly about the gold reserves, “almost like a Victorian banker,” daily asking his advisors how much was left in the vaults (p. 44). President Johnson had an even bigger problem as foreign governments began to call America’s bluff and withdraw gold, preferring specie in the hand to promises in the president’s mouth. As Shlaes pithily sums it all up, “Johnson was trading in the Great Dollar for the Great Society, and it was a lousy trade” (p. 270).
Here was the quandary. The Great Society was proving to be enormously expensive, and the more money the planners spent, the more the price of their planning kept rising. There seemed to be no way to plan around the surprises that kept cropping up, the unintended consequences of the plan. One of the people in Shlaes’s narrative who best brings this conundrum to life is Daniel Patrick Moynihan, the autodidact whiz kid who, having been helped out of poverty by government programs himself, wanted to extend the same opportunities to everyone else. To be sure, Moynihan’s real-world experience acted as a brake on the planning impulses of those, such as John F. Kennedy’s brother-in-law, Sargent Shriver, who saw the federal funding of welfare as an extension of the giving of alms. But even when done with Moynihanian restraint, planning tended to go awry. Shlaes reminds us, for example, that in 1965 Moynihan penned “The Negro Family: The Case for National Action,” which admitted the hard truth that welfare programs perversely tended to destroy black families, exacerbating poverty rather than “curing” it (p. 162). And Moynihan’s suggestion in favor of public sector unions was the impetus behind President Kennedy’s 1962 signing of Executive Order 10988, which extended collective bargaining rights to federal employees. This big change to the Wagner Act regime led to gridlock in municipal planning as unions captured Democratic Party machines, which initiated a cycle of successive administrations rubber-stamping union demands and unions duly sluicing a portion of dues into the coffers of Democratic candidates for office. Rent seeking was the only constant of the postwar period. Everything else was beyond prediction.
By the time Richard Milhous Nixon took office following Johnson’s decision not to seek reelection in 1968, the ability of the US government to plan its way into the future was in serious doubt. Beset by rising competition from industries in nations that had been bombed into oblivion during the war—nations such as Japan, where an entrepreneur named Toyoda Kiichirō (helped along by postwar programs pushed through by another great society visionary, General Douglas MacArthur) realized he could find a niche in the American market by making smaller, higher-quality cars than Detroit did—the US economy lurched (p. 302). The bonanza of the 1950s and the planning frenzy of the 1960s were both tapped out by the early 1970s. Nixon announced his decision to remove the US from the gold standard in 1971 as a way to fight the inflation caused by massive government outlays, signaling the end of the line for the Great Society as Johnson and other planners had conceived of it. It was no coincidence that Nixon made this announcement on August 15, the anniversary of the Japanese surrender in 1945, because decoupling from gold was Nixon’s tacit admission that America would have to maneuver to fight Japan again, this time from Detroit instead of from Washington.
Normally, narratives about the 1960s would track the progress of the Vietnam War. Much to her credit, though, Shlaes demurs. She might have followed the usual Shakesepearian line and portrayed the 1960s as a bright beginning darkened by a distant war, the walls of reality closing in as the government got the problems and solutions mixed up. But one of the strengths of Great Society is that Shlaes avoids easy theatricality, and pat answers in general. That is the whole point, after all. Her book reads as spontaneously as if we did not know what was going to happen next—unplanned. Even Henry Kissinger, who dominates most Vietnam-era histories, is given just a minor role, and this is entirely in keeping with Shlaes’s thematic treatment of the era overall. Instead, Vietnam becomes just one part of the Great Society debates at home. Shlaes follows Tom Hayden and socialist Michael Harrington on their journey to North Vietnam—Hayden and his second wife, Jane Fonda, later named their firstborn child “Troy, after the Vietnamese martyr [Nguyễn Văn Trỗi] who had plotted to kill McNamara”—but this was not so much about Vietnam as about the USA (pp. 224, 226). In Shlaes’s telling, it was not that Vietnam was dragging down the Great Society, but that planning could conquer neither poverty nor the North Vietnamese (p. 207).
Indeed, in a welcome narrative departure from other books of this kind, the antistrophe to Shlaes’s Bonanza motif is not Vietnam, but Pruitt-Igoe, the gigantic public housing project in downtown St. Louis, which Shlaes takes as emblematic of the rise and fall of the Great Society idea. Inspired by the planning spirit which saw social problems as kinds of math problems, codes to be broken, the planners in the federal government poured an extraordinary amount of money into breaking the code of poverty. Dismissing Moynihan’s earlier call for a kind of architectural brutalism in government buildings and hiring New Formalist architect Minoru Yamasaki instead, the government commissioned the Pruitt-Igoe complex. The hyphen is instructive. At the time, segregationalist policies meant that white and black poor people lived in largely separate communities. At Pruitt-Igoe, as with the federal busing schemes later introduced by the same planners, poor blacks and whites would live cheek by jowl, the Great Society in action, people’s lives planned from above. But the great tragedy is that this new federally mandated bonanza belonged to no one. Without ownership, Shlaes points out, nobody took care of the facilities. Vandalism was rampant, with copper flashing and gutters regularly torn out by thieves and sold for scrap. Elevators—which planners had designed to stop only at every third floor in order to encourage community building—were turned into latrines. Worse, the lengthened elevator rides often facilitated muggings and rapes. In 1972, the government blasted away half of Pruitt-Igoe, a symbol for many of the half-hearted execution of half-baked Great Society plans (pp. 220–29).
Amity Shlaes’s Great Society is a beautifully written, wry, and powerfully understated book about the disastrous era of full-scale government planning in the United States. Shlaes indulges in no editorializing—the facts of the time are more than enough to show the folly of the master plan. Apart from a few typographical hiccups and some very slight repetitiveness here and there, the book is ingeniously executed, motif layered on motif as Shlaes’s short, catchy sentences braid into the rope with which, by the end, most of the planners end up hanging themselves. At times, Shlaes’s exposition rivals that of Shelby Foote in its quiet assurance and playful asides. Even those who lived through this era of history and think they have seen all there is to see about the Great Society will want to buy and read Shlaes’s new book. It is a delight—and, perhaps, sadly, the best thing to come out of two decades of relentless government planning.
Listen to the Audio Mises Wire version of this article.
On the Judgment of Historyby Joan Wallach Scott Columbia University Press, 2020xxiii + 117 pages
Joan Wallach Scott, a historian who is a professor emerita at the Institute for Advanced Study in Princeton, has come up with a most valuable insight. She is decidedly not “one of us,” but her insight makes her sound as if she might be. She says,
the notion of the judgment of history rests on a progressive linear view about the necessary superiority, in every domain, of the future as compared to the past, but also—crucially—about the state as the political embodiment of that future. . .As articulated by Hegel, the “autonomy of the state” was “the ethical whole itself”—the modern state was at once the fulfillment and the embodiment of the telos of history. (p. xvi)
Scott rejects this position, and she examines the way in which this mistaken view affected two judicial proceedings, the post–World War II Nuremberg trials and the South African Truth and Reconciliation Commission, and also looks at one case, the demand for reparations for black slavery, that isn’t dependent on the view. Her analysis of the first example is by far the best of the three, and I shall have the most to say about it.
The prosecutors of Germany at the Nuremberg trials faced a big challenge. They wanted to indict the Nazis on trial for crimes, but at the same time they wanted to preserve the dogma that the modern European nation-state is the culmination of moral progress. As such, the Allies’ activities were justifiable. Yet many of these activities were the same as those used to indict the Nazis. She writes,
The London Charter listed aggressive warfare as one of the counts against the Nazis. It was signed by the Allies on August 8, 1945, the day the United States bombed Nagasaki [sic—the bombing was on August 9], two days after the bombing of Hiroshima; in February, the British and Americans had firebombed the city of Dresden—many thousands of civilians were killed in those raids. As for intervention in another sovereign nation, the Soviets had invaded Finland, Poland, Romania, and the Baltic states; Britain had invaded Norway (Nothing was said about the long history of unprovoked imperialist incursions into Africa, Asia, Latin America, and the former Ottoman territories. Imperialism was assumed to be a right of these nations, the forward motion of the civilizing process.)….The historian A. J. P. Taylor, referring to the documents assembled by the prosecution, noted that they “were chosen not only to demonstrate the war guilt of the men on trial, but to conceal that of the prosecuting powers.” (p. 12)
By careful choice of the counts in the indictment, the prosecutors deflected challenges to their own states. And those challenges that could not be deflected were ignored. One difficulty remained, though, if the dogma of the judgment of history was to be preserved. The Nazis had committed great crimes, but Germany was certainly a state. Wasn’t Germany a counterexample to the dogma?
The answer of the prosecutors was audacious. Germany under the Nazis wasn’t a state at all, but had been taken over by a criminal gang, in which case the crimes could be blamed upon the individuals on trial, not the state. Alternatively, Germany wasn’t a genuine, progressive European state, but an uncivilized backwater, to a considerable extent inhabited by mentally ill barbarians.
If individuals were responsible, nation-states were not; the rule of law thus stood inviolate. Putting the onus for violence on individual criminals, whose moral compass should have made them act otherwise, allowed the question of raison d’état to be put aside. The failure to take responsibility was attributed to the abnormality of the Nazis; they were depicted as demented, deluded, psychotic….Yet another explanation offered for the rise of National Socialism was historic underdevelopment…[The Nazis] were an archaic remnant of another age, a relic of the state of nature for which the founding of states and nations had been a cure. (pp.15-16)
(By “raison d’état,” Scott means the claim that the state is permitted to act in a way that would be immoral for private individuals.) She rightly condemns these transparent evasions and urges that we reject “the judgment of history” position.
I’m not going to say very much about her account of the Truth and Reconciliation Commission (TRC) in South Africa. Her basic argument is that the commission, under Bishop Desmond Tutu, viewed the crimes of the apartheid government as acts of individuals that called for their victims to forgive, if they were able to do so. By looking at matters in this way, the commission fell prey to the false story of the judgment of history: the modern state was in itself good and had to be preserved under the new regime. “The TRC’s metaphor of the bridge described a one-way route, like a linear vision of history itself, from past (the apartheid state) to future (a new South African nation). Once it was crossed, those traversing it would arrive at the promised land” (p. 46). Scott supports those within the African National Congress (ANC) who favored a more direct challenge to the institutions of the apartheid state and thinks also that the leaders of that state should have been held directly responsible for their crimes. But to do this would have required the direct challenge to the judgment of history view that Tutu and the TRC he led were unwilling to undertake.
I wonder whether her own account takes the state too much for granted. Why not get rid of it altogether, and replace it with a genuine free market system, rather than reconstruct it on the basis of a “Gramscian catharsis” directed against the white minority? (I will spare readers the details of what that involves.) Further, and this matter I won’t pursue in detail, I think her account of apartheid and the ANC is misleading. There is no mention of the role of labor unions in bringing about apartheid, as ably brought out by W.H. Hutt in The Economics of the Colour Bar. Bram Fischer is mentioned (p. 32), but not his membership in the South African Communist Party. Likewise not mentioned is Nelson Mandela’s membership in the party.
Scott is critical of the Nuremberg prosecutors and the South African TRC, but she looks with favor on groups that support reparations for American slavery. These groups do not accept the current American state as a step on the road of historical progress, albeit in need of reform, but instead challenge directly its legitimacy. That may be to their credit, but Scott fails to make a case for reparations, as she and the groups she supports envision this. What is in question are not claims made by slaves against their masters for unpaid labor. What she has in mind in is a claim for massive amounts of money against all whites by all American blacks, because the ancestors of some of these blacks were slaves and because many American blacks have subsequently been badly treated. Aid to African nations is also mandated, but the role of these nations in promoting the slave trade is unmentioned. The claim to reparations, we learn, is a debt that can never be repaid. “Paradoxically, the acknowledgment of the impossibility of repayment calls upon us to imagine the creation of more just futures” (p. 77). Though Scott would deem me morally obtuse, if not worse, the force of this reparations claim entirely escapes me.
War with Russia? From Putin & Ukraine to Trump & Russiagate. By Stephen F. Cohen. Hot Books-Skyhorse Publishing, 2019. Xiii + 225 pages.
Stephen Cohen, a renowned authority on Russia, raises a question that applies more widely than the current confrontation between Russia and the United States, vital though it is that we understand that conflict. The question is this: what is the basis for our beliefs about world affairs? We have a picture of the world, but does this picture accurately depict reality, or is it, rather, the product of propaganda?
A widely prevalent opinion today is that Vladimir Putin, the Russian president, is a veritable dictator, intent on undermining American institutions. To that end, he directed an extensive program of intervention in the American presidential election of 2016, with the aim of securing the victory of Donald Trump over Hillary Clinton, whom he saw as hostile to his aims. These aims were radically to extend Russian power and influence in the Ukraine and elsewhere. Putin is a Stalinist, who ruthlessly kills his opponents, both foreign and domestic.
As we shall soon see, Cohen takes a much more favorable view of Putin, but the question I now wish to address is this: Why do people accept the conventional opinion sketched above? Cohen points to the propaganda efforts launched by US intelligence agencies. Two people in particular arouse his suspicions: John Brennan and James Clapper, both generals who have directed American intelligence operations.
Concerning them, he says: “Brennan...was hardly an objective CIA director, having explained in his recent House testimony that any Americans who have contacts with Russians can embark ‘along a treasonous path’ and ‘do not know they are on a treasonous path until it is too late.’ Brennan’s contempt for the trustworthiness of Americans was matched by Clapper’s contempt for Russians. He told NBC’s Meet the Press...that ‘Russians...are typically, almost genetically driven to co-opt, penetrate...’ and thus ‘genetically driven’ to attack American democracy. No mainstream media have explored these revelations about President Obama’s apparently paranoid CIA director and ethnically biased National Intelligence director.”(p.103) Clapper’s perjury in his testimony to Congress in 2013 about collecting data on Americans should also be borne in mind.
Cohen must confront an obvious objection to his contention that intelligence agencies have mounted a campaign of hysteria against Russia and its leader. The objection is that the view of Putin in the conventional picture is true.
We cannot here investigate in detail all of the accusations against Putin. Suffice it to say that Cohen shows that many of them rest on misapprehensions. For example, Putin is often depicted in the mass media as a Stalinist, but “if Putin revers the memory of Stalin, why did his personal support finally make possible two memorials...to the tyrant’s millions of victims, both in central Moscow?” (p,4)
Cohen also takes a skeptical view of the charge of Russian “meddling” in the 2016 presidential election. “In reality there was no ‘attack [on American democracy] ---no Pearl Harbor, no 9/11, no Russian parachuters descending on Washington---only the kind of ‘meddling’ and ‘interference’ in the other’s domestic politics that both countries have practiced, almost ritualistically, for nearly a hundred years.” (p.200)
Cohen argues that Putin, far from being an aggressive expansionist intent on undermining America, was until recently pro-Western in his orientation Only after he became convinced that America intended to continue a policy of encirclement did he adopt a more militant course of action: “A westernized Russian, Putin came to the presidency in 2000 in the still prevailing tradition of Gorbachev and Yeltsin—in hope of a ‘strong friendship and partnership’ with the United States. . .until he finally concluded that Russia would never be treated as an equal and that NATO had encroached too close, Putin was a full partner in the US-European club of major world leaders.” (p.8)
Once convinced of American hostility, Putin rose to the challenge. Two developments lead Cohen to fear that a nuclear war between America and Russia is a real danger. First, Putin has responded to the abandonment of the 1972 Anti-Ballistic Missile Treaty by building new nuclear weapons. “The ABM treaty, by prohibiting wide deployment of anti-missile defense installments...had long guaranteed equal security based on the underlying principles of MAD {Mutual Assured Destruction] and parity. Bush’s abolition of the treaty in effect nullified those principles and signified Washington’s quest for nuclear superiority over Russia...If even only a quarter of Putin’s claims for Russia’s new strategic weapons is true, it means that while Washington heedlessly raced for nuclear superiority and a first-strike capacity, Moscow quietly, determinedly raced to create counter systems, and—again, assuming Putin’s claims are substantially true---Russia won.” (p.165) Cohen holds that it is crucial for world peace that America seek accommodation with Russia rather than continue the policy of encirclement.
The situation in the Ukraine inclines Cohen to pessimism: the new Cold War is even more dangerous than Cold War that ended with the fall of the Soviet Union. “The political epicenter of the new Cold War is not in far-way Berlin, as it was from the late 1940s on, but directly on Russia’s borders, from the Baltic states and Ukraine to another former Soviet republic, Georgia. Each of these new Cold War fronts is fraught with the possibility of hot war.”(p.186)
Donald Trump in his campaign speeches showed a willingness to break from the anti-Russian consensus, and it was for this reason that Brennan, Clapper, and their media allies launched against him a campaign of contumely: “Who planned this obviously coordinated strike against Trump, and why? At least two conflicting interpretations are possible: Either Trump is about to become a potentially treasonous American president. Or powerful domestic forces are trying for other reasons to destroy his presidency before it begins. Even if the allegations are eventually regarded as untrue, they may permanently slur and thus cripple Trump as a foreign-policy president, especially in trying to cope with the exceedingly dangerous new Cold War with Russia.” (p.81)
Some may object to Cohen’s narrative that, despite his undoubted expert knowledge of Russia, he is an uncritical partisan of Putin. In fact, though, his sympathies lie elsewhere. He is a close friend of Mikhail Gorbachev, and he looks with great favor on the latter’s cosmopolitan outlook.
One indication that there is substance to Cohen’s charge that a misleading propaganda campaign has derailed America’s relations with Russia is his own marginalization. Cohen, for many years a professor at Princeton and later at New York University, was long regarded as one of the foremost American scholars in Russian studies. Though his opinions were always controversial, he remained a central presence on the public scene when Russian matters came up for discussion. Now, the dominant media of opinion denounce or ignore him.
Cohen has rendered readers a great service in bringing to our attention the question of how public opinion on Russia is shaped by malevolent forces. Even if he turns out to be mistaken in his evaluation of Putin---and to argue with him would require a comparable level of knowledge of the Russian scene---it would still be the case that an aggressive American policy of intervention toward Russia is ill-advised. A return to our traditional policy of non-intervention, along the lines so ably championed by Ron Paul, offers our best, and perhaps our only, hope for peace
Mr. Quiggin’s recent book, Economics in Two Lessons, is the latest intellectual salvo fired by a member of the mainstream economics establishment towards the legendary unabashed defenders of capitalism like Ludwig von Mises, 1974 Nobel Laureate in Economics F.A. Hayek, and of course, Henry Hazlitt himself, who von Mises once referred to as “our leader…the economic conscience of our country and of our nation.” Yet in this book he simply reveals himself to be exactly as Hazlitt predicted, as part of the usual crop of “men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale as a way of economic salvation” and whose “ ideas which now pass for brilliant innovations and advances are in fact mere revivals of ancient errors, and a further proof of the dictum that those who are ignorant of the past are condemned to repeat it.”
The book gets the idea for its title from a quote by Nobel Laureate in Economics (1970) Paul Samuelson which heads the introduction and partly reads as follows:
“…When someone preaches “Economics in one lesson,” I advise: Go back for the second lesson.”
The first thing that should come to mind when one hears of Paul Samuelson is that his understanding of economics was so awful, that by 1989, when the Soviet Union’s tyrannical communist economic empire was crumbling, in the 13th edition of his textbook Economics, Samuelson wrote:
“The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive” (Samuelson, p. 837)
Let’s get closer to the heart of Quiggin’s errors. Quiggin writes early in introduction:
“Much of ‘Economics in One Lesson’ can be read as an attack on the work of John Maynard Keynes, the great English economist”
Hazlitt properly describes Keynes in a few sentences when he tells us,
“John Maynard Keynes was, basically, an inflationist.”…“In other words, the Keynesian solution to every slow-down in business or rise in unemployment was still another dose of inflation.” (Hazlitt, 1988, p. 208)
Yes! Regardless of all the impressive sounding mathematicobabble spewed by the “experts” employed by governments who ultimately follow Keynes’ advice, nearly everything they propose is ultimately based on the erroneous idea that the creation of money is needed to improve or fix the socioeconomic order.
One simple concept is all that is needed to easily see how the entire edifice of Keynesian economics, and thus the world’s “leading economists”, is wrong. Living things/orders/society are in constant cycles of wealth production and consumption, and very importantly, the production of wealth requires the consumption/use of existing wealth.
For example, if 10,000 men are to spend 2 years producing an airplane factory, they must consume/use the concrete/materials/food/energy/transportation/shelter that they (as well as their dependents/family) need while they produce the factory. If the needed real wealth or the means/wealth to create it already exists, because it had been previously produced and then remains unconsumed/SAVED, good, there is a chance that they end up producing more than they consumed thus being profitable and therefore increasing the economic pie. But if instead of real wealth/savings, governments/banks simply increase the amount money while no corresponding increase in REAL wealth/savings exists, all it is doing is increasing the amount of money per unit of wealth, thus higher prices than would have otherwise been the case, which eventually causes many entrepreneurs to face the obvious fact that there did not exist enough wealth at the right prices to complete their projects in a profitable way, therefore a sort of bust/chaos and massive loss of wealth will eventually happen as inevitable bankruptcies occur.
Sustaining the men’s consumption for a year to create some partly-finished building/machines and then having to abandon the project because prices have increased in a manner that no longer makes the project profitable leads to 0 planes/wealth for a massive net loss of wealth. Even easier, imagine two wealthy couples each with a child who both want to go out on the same night (project) but there is only one baby-sitter(savings/wealth), no amount of money will allow both to execute their plans, what they need is more savings/wealth/baby-sitters. Bottom line, governments via their central banks and money-creation can’t help the economy and are the source of disastrous business “boom/bust” cycles. We quote the great economist Ludwig von Mises:
“However conditions may be, it is certain that no manipulations of the banks can provide the economic system with capital goods[baby-sitter/wealth]. What is needed for a sound expansion of production is additional capital goods[savings/wealth], not money… The boom is built on the sands of banknotes and deposits. It must collapse.” (Mises, p. 559)[present author]
It should be easy to see that you can’t “print savings” at least not the REAL wealth/savings that the REAL world needs. Savings that come about through a real postponement in consumption and “fake savings” that exist due to an increase in money(bank credit) are obviously two totally different things, the former provides the real wealth which must be consumed while production takes place, and the latter simply creates the “illusion” that such wealth exists, yet Keynes hardly makes the distinction between the real and “fake” savings. Hazlitt, in an aptly titled section “Can Savings be Printed?” of his classic demolition of Keynes The Failure of the New Economics writes :
“Keynes, as we shall see, only seldom and haphazardly makes these latter distinctions. On the contrary, he often works very hard to argue them away. The ‘’savings” which result merely from increased bank credit (or, for that matter, from the mere printing of more fiat money), he argues, “are just as genuine as any other savings” (p. 83). Of course if this were so, the problem of a community’s acquiring sufficient savings would never exist. It could simply print them!” (Hazlitt, 1959, p. 97)
Let’s look at another absurd statement from Keynes which further reflects the utter ignorance of the vital role savings play in the economy:
“…whenever you save five shillings, you put a man out of work for a day. Your saving that five shillings adds to unemployment to the extent of one man for one day — and so in proportion. On the other hand, whenever you buy goods you increase employment…For if you buy goods, someone will have to make them. And if you do not buy goods, the shops will not clear their stocks, they will not give repeat orders, and some one will be thrown out of work.
Therefore, oh patriotic housewives, sally out to-morrow early into the streets and go to the wonderful sales which are everywhere advertised. You will do yourselves good…And have the added joy that you are increasing employment, adding to the wealth of the country because you are setting on foot useful activities…
…Surely all this is the most obvious common sense. For take the extreme case. Suppose we were to stop spending our incomes altogether, and were to save the lot. Why, every one would be out of work. And before long we should have no incomes to spend.” (Keynes, 1963, pp. 152–3)
Wow! First of all, when most people save their money they invest it, which for the general case here we’ll just assume that it is loaned out at interest. The money still gets spent by the borrowers! Hazlitt stresses this point in his classic Economics in One Lesson,
“ “Saving,” in short, in the modern world, is only another form of spending. The usual difference is that the money is turned over to someone else to spend on means to increase production.” (Hazlitt, 1988, p. 164)
That’s right. When you save and lend your money, the borrowers still spend it but they have to spend it in a way/cycle that increases the economic pie enough for them to not only pay back the loan, but to also pay the interest on it, which means that they are increasing the economic pie. With respect to his “extreme case” where people save all their income and don’t spend. Why bring up such a foolish scenario that would never be in anyone’s best interest to attempt? Who does not want to trade/spend for the food, gasoline, wealth they need to survive?
Keynes, like most of his adherents (and the public at large sadly), is also utterly ignorant of the vital fact that ‘economic activity’ must be coordinated in a way that produces more than it consumes, otherwise it is obviously shrinking the economic pie. Yet this coordination requires precise knowledge and is something only millions of free individuals and businessmen can achieve by using profit/loss calculation at the individual, household, and corporate level. Unaware of this, Keynes disastrously encourages the purposeful destruction of wealth just so people are put to work rebuilding it even though the effects of this are a massive shrinking of the economic pie. He writes:
“…activity of one kind or another is the only possible means of making the wheels of economic progress and of the production of wealth go round again.
…why not pull down the whole of South London from Westminster to Greenwich, and make a good job of it…Would that employ men? Why, of course it would!” (Keynes, 1963, pp. 153–4)
One should not be fooled by fancy money-related terms or equations. If you just keep your eye on the cycle of wealth production and consumption, most economic fallacies can easily be avoided. The housing that comprises the ‘South of London’ exists, it is then destroyed thus a huge loss in wealth has occurred, then a massive amount of existing wealth has to be consumed in terms of food/energy/materials/etc. to sustain many men who produce new buildings. The net result is the loss of existing housing and the wealth needed in exchange for new buildings. Had the housing not been destroyed, Londoners would’ve still had them plus new housing or whatever else the men would have produced as they consumed the same amount of existing wealth as before.
So the erroneous belief that real savings/wealth can be “printed” to then “stimulate the economy” (i.e. ‘activity of one kind or another’ even if you have 0 regard for whether the people are ordered in a way that produces more than it consumes), provide the one-two punch of fallacies that keep the mainstream making the same errors over and over.
With the above in mind, let us now actually criticize the book’s content. Quiggin regurgitates perhaps the most dangerous economic fallacy of all, that government control of the economy for war production is what helped end the Great Depression and is thus beneficial in some way.
“…the US economy has been in recession for about a third of the period since 1929, only a modest improvement on the period 1854–1929. But this is still an underestimate. The post-1929 average was pulled up by World War II when the government actively worked to ensure that everyone capable of working toward the was effort did so, and by the period of Keynesian macroeconomic management from 1945 to 1970. If these periods are excluded, the proportion of time spent in recession is around 40 percent.
To sum up, except when governments are actively working to maintain full employment, the economy is in recession almost as often as not. The idea of full employment as the natural state of a market economy is an illusion”And elsewhere:
“…the Great Depression began with the stock market crash of 1929 and did not properly end until 1939, when preparations for war drove a rapid return to full employment”
This erroneous myth is based on the fallacy of believing that just because people are employed doing “activity of one kind or another” they are actually increasing the economic pie in a healthy/sustainable way. Keynesian economists and the likewise economically ignorant public are easy prays for wanting to achieve “full employment” even if this is done in a manner that leads to more consumption than production thus making vigorous war production that much more attractive. Once again the error is easy to see if one keeps an eye on wealth and the continuous cycle of production and consumption and is not misled by mathematical formulas or money-related calculations/gimmicks. Millions of people, previously employed or not, join the war effort by either killing fellow human beings or working to create armaments/etc. thus increasing the economic pie by little in terms of civilian goods, and while they do so, they must consume food, energy, etc., real useful stuff, thus leading to an obvious overall shrinking of the economic pie in terms of civilian goods. They are all working of course, but ultimately they are not ordered in a way that truly grows the economic pie with the wealth that makes life worth living and can be further consumed while producing more things. If military spending and “full employment” thanks to it were a good thing, then the militaristic Soviet Union and North Korea would have flourished. Sadly this type of thinking seems to currently dominate the upper echelons of the Trump administration, prompting him to increase military spending/consumption even more and perhaps lead to additional motivation for some disastrous war. Is there a need to really criticize this other Quiggly absurdity?:
“Yet once demand was stimulated by the outbreak of World War II, unemployment virtually disappeared. The contrast between Depression and the War made brutally clear the opportunity cost of leaving 15 million workers idle rather than defying the orthodoxy of One Lesson economics.”
References: Hazlitt, H. (1988). Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics. Three Rivers Press.
Hazlitt, H. (1993). The Wisdom of Henry Hazlitt. The Foundation for Economic Education.
Keynes, J. M. (1963). Essays in Persuasion. New York: W. W. Norton & Company.
Mises, L. (1998). Human Action Scholars Edition. Auburn, AL: Ludwig von Mises Institute.
Samuelson, Paul A. and Nordhaus, William D. (1989) Economics. McGraw-Hill, p. 837.
September 2019 marks 70 years since the appearance of Ludwig von Mises’s Human Action: A Treatise on Economics, one of the truly great “classics” of modern economics. Too often a “classic” means a famous book considered to have made important contributions to some field of study and that is reverentially referred to but is unfortunately rarely ever read any-more.
In economics, Adam Smith’s Wealth of Nations is a typical example of such a work. Every economist and a good number of people in the general public have heard of the “invisible hand” and the notion that self-interest furthers the public interest through the incentive mechanism of free-market competition; but in fact few economists nowadays have actually read more than a handful of snippets and brief passages from Smith’s profound treatise. Among the general public, the number of people who even know the snippets dwindles to almost nothing.
A Still-Read and Still-Relevant Classic However, Ludwig von Mises’s 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 relevance and significance in these first decades of the 21st century because of the economic crisis of 2008-2009, the full effects from which the American economy has still not fully recovered, and in the wake of a dangerous revival of a call for a “democratic socialism” that demands the implementation of various forms and degrees of government central planning. They have made the economic reasoning and public-policy analysis that runs through most of Human Action as timely today as when its first edition appeared in bookstores on September 14, 1949.
A few days after its publication, the famous free-market journalist Henry Hazlitt reviewed Human Action in his column in Newsweek magazine. He emphasized its importance by telling his readers,
[The] book is destined to become a landmark in the progress of economics.… Human Action is, in short, the most uncompromising and the most rigorously reasoned statement of the case for capitalism that has yet appeared…. It should become the leading text of everyone who believes in freedom, in individualism, and the ability of a free-market economy not only to outdistance any government-planned system in the production of goods and services for the masses, but to promote and safeguard, as no collectivist tyranny can ever do, those intellectual, cultural, and moral values upon which all civilization ultimately rests.
Keys to Human Progress If the field of sociology did not have such a controversial history and so many conflicting notions about what its subject matter and approach are supposed to be about, it would not be misplaced to say that in Human Action, Mises demonstrated himself to be not only one of the greatest economists of the last century, but one of its leading sociologists as well.
In the most appropriate meaning of the term, Mises formulated a “science of society” in the tradition of Scottish philosophers such as Adam Smith. All that happens in the social world begins in the thinking and actions of individual human beings. They are the starting point for understanding society: man, as a purposefully acting being, gives assigned meanings to the world around him, selects desired ends, decides upon possibly useful means to their attainment, and undertakes courses of action through time in attempts to bring his desired plans to fruition.
Humans rose above animal existence through their developed capacity to reason, conceptualize, imagine possible futures, and conceive of ways of bringing them into reality. But on his own, man’s mental and physical powers are too limited for achieving much above bare subsistence. The profound key to the betterment of the human condition, Mises insisted, was man’s discovery of the benefits that could come from a division of labor through which men could specialize in their tasks and mutually gain through cooperative association that slowly but surely improved the standards of living, the quality of life, and the cultural elements that mark off “civilization.”
But how shall human beings collaborate — through plundering conquest or peaceful trade? It took thousands of years for people to stumble upon the superiority of market-based cooperation over politically based power and privilege. As production and trade become ever more complex owing to the extension of the system of division of labor, there had to arise a method by which the participants in the emerging relationships of supply and demand could know how and what to do.
Economic Calculation A central theme through much of the Human Action is Mises’s insistence on the essential importance of economic calculation. In the early decades of the 20th century, socialists of almost all stripes were certain that the institutions of the market economy could be done away with — either through peaceful 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 100 years ago in 1920 was to demonstrate that only with market-based prices expressed through a medium of exchange could rational decision-making be undertaken for the use and application of the myriad means of production to ensure the effective satisfaction of the multitudes of competing consumer demands in society.
“Monetary calculation is the guiding star of action under the system of division of labor,” Mises declared in Human Action. “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.”
Such rationality in the use of means to satisfy ends is impossible in a comprehensive system of socialist central planning. How, Mises asked, 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? Without 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 to satisfy the consumer demands of “the people”?
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 minimize waste and inefficiency.
Therefore, Mises declared 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.
Government Intervention and Monetary Manipulation At the same time, Mises demonstrated 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 intervenor 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 results in the entire economy’s coming under state management. Hence, interventionism consistently applied could lead to socialism on an incremental basis through an unintended back door.
The most pernicious form of government intervention, in Mises’s view, was political control and manipulation of the monetary system. Contrary to both the Marxists and the Keynesians, Mises did not consider the 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 that included the Great Depression of the 1930s, Mises argued.
Under various political and ideological pressures, governments had monopolized 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 misdirections of resources, including labor, and malinvestments 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.
The Errors of Keynesianism The 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 labor 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 of what the market viewed as their real worth.
Thus Mises’s conclusion 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 open, competitive 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.
The apparent triumph of capitalism over collectivism, following the demise of the Soviet bloc in the 1990s, has, unfortunately, turned out to be mostly an illusion. Governments in the Western world did not reduce their size or intrusiveness in the economic affairs of their citizens. The interventionist-welfare state has remained alive and well, and continued to grow along with the government debts to pay for the entire redistributive largess.
Central Banking and Free Banking But the heart of the interventionist system is government control of the monetary system — indeed, it has remained an untouched element of monetary central planning through the institution of central banking.
Fortunately, over the last forty years, 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 and other advocates. (See my ebook Monetary Central Planning and the State.)
Monetary manipulation by central banks inserts one of the most disruptive distortions into the process of economic calculation. Interest rates — which are meant to inform market participants about the availability of savings relative to the demands for investment expenditures, and which facilitate the coordination of resource use over periods of time relative to the demands of income earners for consumption in the present versus the future — send out misinformation to both producers and consumers under the pressure of monetary expansion.
The Financial Crisis and Its Interventionist Aftermath In the wake of Federal Reserve monetary mischief during the early years of the 21st century, imbalances and distortions were once again generated by monetary policies that resulted in the financial and economic crisis of 2008-2009.
There soon occurred the return of the “ghost of Keynes past.” In the face of the inescapable need for the rebalancing and re-coordination of misdirected resources and malinvested capital for a full return to normal and sustainable, market-based growth, government spending and budget deficits to “stimulate” the economy out of a recession were once again insisted upon.
The focus remained on “aggregate” output and employment, which always hides from view the underlying microeconomic relations that are at the core of the market process. How can the multitudes of market participants discern where and to what extent market errors have been made under the pressure of past monetary and interest-rate manipulations if the price system is not permitted to perform its job of telling the truth about the reality of supply and demand? That is, the degree to which resources were misallocated and wrongly priced during the preceding boom. Or the extent to which men, material, and savings-backed financial funds need to realign themselves to restore a properly understood full-employment market-driven economy.
The recovery period was drawn out for almost ten years, longer than most other periods of post-boom readjustments since the end of the Second World War. How could people know what to do and where to do it in the social system of division of labor, when the crucial tool of economic calculation was undermined by government bailouts, subsidies, price floors, capital-market interventions, and continuing monetary manipulation and near-zero interest-rate policies that threatened new misdirections of capital and labor, with the risk of another boom-bust cycle to come?
In the immediate aftermath of the 2008-2009 downturn, the argument was constantly made that many banks were too big to fail, that depositors needed to have their various bank accounts protected and guaranteed, and that the repercussions of allowing the financial markets to adjust on their own to the post-boom reality would have been too harsh. In fact, Mises had responded to such arguments in his 1928 monograph, Monetary Stabilization and Cyclical Policy, even before the Great Depression began, by warning of what today is understood as “moral hazard,” that is, the danger of reinforcing the repetition of bad decisions by the government’s 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, resulted in suspending the market forces that otherwise would have served 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.
Mises’s Warning Just as there was a huge shift toward more and bigger government in the years leading up to the publication of Human Action, so today we are seeing an expansion of governmental presence and domination of social life, especially in health care, education, and the energy sector — as well as 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. Mises warned of this danger, too, in the pages of 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 Washington seem hell-bent on bringing that about in the decades ahead.
The Enduring Value and Importance of Human Action A “predecessor” of Human Action had appeared in German in 1940. Shortly after it appeared, Friedrich A. Hayek reviewed it, emphasizing its astonishingly unique qualities:
There appears to be a width of view and an intellectual spaciousness about the whole book that 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 the 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…. [The] result is a really imposing unified system of a liberal social philosophy. It is here also, more than elsewhere, that the author’s astounding knowledge of history as well as of the contemporary world helps most to illustrate his argument.
The years since the original appearance of Human Action in 1949 have done nothing to diminish the validity of Hayek’s interpretation. 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 what has resulted in its 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 that dangerously looms in front of us.
Originally published at the Future of Freedom Foundation
[The Age of Entitlement: America Since the Sixties. By Christopher Caldwell. Simon & Schuster, 2020. 342 pages.]
Christopher Caldwell has written an outstanding book, although it will win him few friends in the elite journals such as the New York Times for which he often writes. He addresses a question that many have asked: why did Donald Trump, in a shock to mainstream opinion, win the Republican nomination for president in 2016 and, even more of a shock, go on to win the election?
The standard response is that enough of those Hillary Clinton called the “deplorables” turned in rage against the liberal establishment to swing first the nomination and then the election to the populist Trump. With that answer Caldwell agrees, but what are the roots of this rage? Caldwell’s analysis of this phenomenon is deep and surprising.
He traces it to the civil rights legislation of the 1960s. By forbidding private discrimination on grounds of race, the Civil Rights Act of 1964 took the first step toward the destruction of what Caldwell calls the “old constitution” by which America had been governed. As he puts it,
The changes of the 1960s, with civil rights as their core, were not just a major new element in the Constitution. They were a rival constitution, with which the original one was frequently incompatible—and the incompatibility would worsen as the civil rights regime was built out. (p. 6)
Caldwell must confront an objection. Weren’t blacks oppressed under the old system? Shouldn’t we recognize that the new legislation was needed to remedy injustice? Caldwell acknowledges that most people outside the South opposed the state-mandated segregation that prevailed there. But, and this is his crucial point, majority opinion among whites went no further. Most of them thought their own relations with blacks were fine:
Most Americans, liberal as well as conservative, saw the race problem as something distant. It had to do only, or mainly, with the exotic culture of the South, where segregation was legal….As white people in the northern and western states saw it, racial harmony had arrived long ago….As a practical matter, whites did not suspect they would see the vast increase in federal government oversight that would become the sine qua non of civil rights. (pp. 31–32)
Blacks did not view the situation in this way:
Victims see racial discrimination as a system of corruption that burdens them in a variety of practical, measurable ways—with "lack of jobs, lack of money, lack of housing." They are unlikely to view the system as repaired until those practical burdens are removed. (p. 24)
Caldwell does not condemn them for this. In fact, in thinking that ending legal discrimination would not suffice for racial harmony, they were correct. His point is a different one. Whites never "signed on" to the radically disruptive measures that blacks and government elites wanted.
Governments could now disrupt and steer interactions that had been considered the private affairs of private citizens—their roles as businessmen or landlords or members of college admission boards….[T]he government was now authorized to act against racism even if there was no evidence of any racist intent. This was an opening to arbitrary power. And once arbitrary power is conferred, it matters little what it was conferred for. (p. 33)
Other groups of the disaffected, including feminists and homosexuals, followed the path laid down by blacks. They too demanded that the government reconstruct social institutions to remove discrimination against them. Caldwell by no means denies that these groups had genuine grievances. He aims instead to stress the upheaval in the legal order that was required to satisfy these grievances, an upheaval that greatly enhanced the arbitrary power of the federal government. For example, he says of the movement for "same-sex" marriage:
It was clear that gay marriage did carry a threat, because…it overturned the understanding that marriage was something antecedent to government. On that antecedence rested the inviolability of marriages and families, the convention that what they did, how they built their little micro-community of love, was none of the government’s business. Overturning this understanding did not immediately damage any heterosexual marriages. But it diminished and threatened marriage as an institution. (pp. 121–22)
It did so by leaving it to the federal government to define marriage and parental rights.
Someone might object to Caldwell along these lines. "It is true that under the new dispensation, old rights have been curtailed. People cannot use their right of freedom of association to discriminate against 'protected' groups, nor does their right of free speech override the 'political correctness' that dominates universities. But this does not give us good reason to return to the past. We need to ask, what really are the rights that people have?"
Caldwell’s answer to this objection is not altogether satisfactory. He seems to say that questions of right and wrong cannot be settled objectively:
These are matters of perspective. There is no point in describing one interpretation as morally "right" or "wrong." (p. 25)
Instead, Caldwell largely confines himself to alerting us to what has been given up. Besides restrictions on freedom of association and speech, people no longer live in a stable constitutional order. No fixed principles of constitutional interpretation limit the federal government. Further, aggrieved groups act undemocratically in seeking to alter customary ways of doing things.
Caldwell is right to stress the costs of what has been given up, but a convincing reply to those who think the price worth paying must appeal to the moral truth of the matter. To deny that moral truth is accessible to us is itself a moral position that needs to be supported by argument. I do not doubt that Caldwell would have valuable things to say, were he to give us his own account of morality, but he does not do so here. This weakens the normative weight of what he says, though it leaves intact his descriptive account of the populist backlash against the new constitutional order that led to Trump’s victory. A correct account of the scope and limits of freedom of association would to my mind largely vindicate his understanding of the matter. Caldwell’s emphasis on freedom of association merits our applause, but one wonders what happened to this right when Caldwell bemoans the fate of American workers who have lost their jobs through "outsourcing." If workers are free to accept or reject an offer of employment, why are not employers equally free to make or refuse such an offer?
The book is filled with insights, and I shall end with one that is especially valuable. Caldwell notes that the spread of the elitist anti-discrimination system throughout the world has become a dominant motif of American foreign policy.
The task that civil rights laws were meant to carry out—the top-down management of various ethnic, regional, and social groups—had always been the main task of empires. At the turn of the twenty-first century, the real place of the Vietnam War in the history of American diplomacy became much clearer….[I]t had merely been one of the less successful of the experiments in global "governance"that the United States was doomed by its imperial position to make. It laid the groundwork for the "humanitarian invasions" of the 1990s and beyond. (pp. 161–62)
Caldwell has braved the perils of conformity, and his outstanding intelligence in doing so matches his courage.
The Problem with Lincoln is the culmination of Tom DiLorenzo’s many years of research on Abraham Lincoln. It is a masterly summing-up and extension of his earlier classics The Real Lincoln (2002) and Lincoln Unmasked (2006). DiLorenzo is both a historian and an economist with an expert knowledge of Austrian economics and also of the public choice school. This background enables him to grasp what most other historians of the Civil War period miss, the centralizing economic plan behind Lincoln’s policies.
DiLorenzo calls attention to a vital fact that demolishes the mythological view that Lincoln's primary motive for opposing secession in 1861 was his distaste for slavery. Precisely the opposite is true. It is well known that, in an effort to promote compromise, a constitutional amendment was proposed in Congress that forever forbade interference with slavery in states where it already existed. Lincoln referred to the proposal, the Corwin Amendment, in his first inaugural, stating that he was not opposed to the amendment, since it merely made explicit the existing constitutional arrangement regarding slavery. Of course, Lincoln was not telling the truth; nothing in the Constitution prior to the Corwin Amendment prohibited amendments to end slavery, so this new proposal did not just make the existing constitutional arrangement explicit. Readers can judge the Corwin Amendment for themselves, in a helpful set of original documents that our author includes in the book. (The Corwin Amendment is on p. 217.)
So much is well established, but DiLorenzo adds a surprising touch. Far from viewing the Corwin Amendment with grudging consent, Lincoln was in fact its behind-the-scenes promoter.
It was Lincoln himself who had instructed his soon-to-be secretary of state William Seward to suggest three resolutions, the import of the first of which was identical with that of the Corwin Amendment, to the ‘Committee of Thirteen’ in the U.S. Senate "without indicating they issued from Springfield"—that is, from Lincoln himself. (p. 28, quoting Doris Kearns Goodwin, Team of Rivals)
Extension of slavery in the territories was for Lincoln an entirely different matter, and on this issue he refused all compromise. Here we confront a paradox. If Lincoln thought it more important to preserve the Union than to oppose slavery, why was he unwilling to compromise over slavery in the territories? If he thought slavery's extension was too high a price to pay to preserve the Union, why was he willing permanently to entrench slavery wherever it already existed? It is hard to detect a moral difference between slavery in the states and the territories.
DiLorenzo readily resolves the paradox. Lincoln opposed extension of slavery, because this would interfere with the prospects of white workers. Lincoln, following his mentor Henry Clay, favored a nationalist economic program of which high tariffs, a national bank, and governmentally financed "internal improvements" were key elements. This program, he thought, would promote not only the interests of the wealthy industrial and financial powers that he always faithfully served but would benefit white labor as well. Blacks, in his opinion, would be better off outside the United States, and throughout his life Lincoln supported schemes for repatriation of blacks to Africa and elsewhere. If blacks left the country, they could not compete with whites, the primary objects of Lincoln's concern. (Lincoln, by the way, did not see this program as in any way in contradiction to his professed belief that all men are created equal. Blacks, he thought, had human rights but not political rights.)
In order to finance his economic program, high tariffs were essential.
In his first inaugural address, Lincoln threw down the gauntlet of war over tax collection….He reassured the country that "there needs to be no bloodshed or violence; and there shall be none, unless it be forced upon the national authority." (p. 30)
DiLorenzo is appropriately scathing about Lincoln’s remarks.
The myth of the sacred Union bound together by "the mystic cords of memory" was invented to provide cover for Lincoln’s coldhearted willingness to wage total war on his own country for tax revenue….There was no talk of "force" of any kind when the subject was slavery—except for forcing runaway slaves back into slavery by enforcing the Fugitive Slave Act; tax collection, on the other hand, called forth threats of total war on the entire population of the South, threats that were carried out a few months later, leading to as many as 750,000 American deaths. (p. 31)
DiLorenzo is fully prepared for the objection that even if the Southern states had ample reason to oppose Lincoln’s economic plans, they had no legal right to secede. In this view, Lincoln had a constitutional duty to preserve the Union by any means necessary. The historian Allan Guelzo claims that Southern secessionists were guilty of treason by their efforts to leave the Union. In what to my mind is the highlight of the book, DiLorenzo turns the tables on those who charge the Southern states with treason. The United States was a compact of sovereign states, and a state that no longer wished to remain part of the Union was free to leave.
This view of the matter was not dreamed up by Southern firebrands in 1860; it had behind it the weighty authority of Thomas Jefferson.
In an August 12, 1803, letter to John C. Breckinridge of Kentucky, who had inquired about the secession movement that was gaining prominence in New England at that time, Jefferson wrote that if there is to be a "separation" then "God bless them both [that is, both regions of the union that were at odds], & keep them in the union if it be for their good, but separate them if it be better." (p. 22, brackets in original)
If one accepts Jefferson’s approach, Lincoln’s nationalist understanding of the United States was, as Murray Rothbard would say, “monstrous.” As DiLorenzo writes,
Lincoln justified the military invasion of his own country and the mass killing of fellow American citizens by the hundreds of thousands with a theory that the people of the "free and independent states," as they are called in the Declaration of Independence, were not sovereign, that the Union—which is to say, the federal government—was the real sovereign; that the federal government was therefore supreme; that the Union was not voluntary; and that no state had a right to secede from it…the theory that the union of the states is older than the states themselves makes about as much sense as the theory that a marital union can be older than either spouse—in which case they would have been married before they were born….No state would ever have ratified the Constitution if this—Lincoln’s theory of the "more perfect Union"—was what the founding generation thought the document said. (pp. 109–11)
With a brilliant stroke, DiLorenzo reverses the verdict that leaving the Union was treason. Lincoln was the real traitor:
Lincoln’s invasion of the Southern states was the very definition of treason in Article 3, Section 3 of the U.S. Constitution, which defines treason as "only in levying war upon them, or in adhering to their enemies, giving them aid and comfort." The "them" and "their" in this definition of treason refer to "the United States," which are always in the plural in the founding documents, denoting that the individual, free, and independent states were uniting by a compact among them, not irrevocably surrendering their sovereignty and their very existence in favor of a sacred, perpetual, inescapable Union. (pp. 77–78)
Once Lincoln invaded the South, he and his henchmen carried on the war with great brutality. Murray Rothbard says that the Union conduct of the war
broke the 19th century rules of war by specifically plundering and slaughtering civilians, by destroying civilian life and institutions so as to reduce the South to submission. Sherman’s infamous March through Georgia was one of the great war crimes, and crimes against humanity, of the past century-and-a-half. Because by targeting and butchering civilians, Lincoln and Grant and Sherman paved the way for all the genocidal horrors of the monstrous 20th century. (quoted on p. 44)
DiLorenzo confronts an important objection to his main argument. Even if Lincoln didn’t start the war to free the slaves but rather to create a powerful central state, wasn’t war still necessary to end slavery? This seems unlikely. In an appearance on Bill Maher’s television program, Ron Paul "responded [to Maher] by pointing out that all other countries in the world that ended slavery in the nineteenth century did so peacefully, without a civil war, specifically citing how the British used tax dollars to buy the freedom of the slaves and then ended slavery legally throughout the British Empire" (p. 71).
DiLorenzo’s forthright analysis of Lincoln stands in marked contrast to a leading member of what our author, following the usage of Lerone Bennett Jr., calls the Logos school, "which treats Lincoln’s words as gospel truth. An example of this would be a statement by Lincoln scholar Harry Jaffa when I [DiLorenzo] debated him at the Independent Institute in Oakland, California, in 2003. During the question-and-answer session, an audience member—apparently a Jaffa protégé—asked Jaffa if he thought Lincoln’s speeches were the words of God. Jaffa responded that yes, he thought they were." (pp. 139–40)
Readers of The Problem with Lincoln will be forever immune to this idolatrous nonsense.
Listen to the Audio Mises Wire version of this article.
Tomorrow the World: The Birth of U.S. Global Supremacyby Stephen WertheimHarvard University Press, 2020255 pages
Two contrasting approaches to the history of American foreign policy dominate the field. In this outstanding study, Stephen Wertheim, a postdoctoral researcher at Columbia University and a member of the Quincy Institute, shows they are both wrong. In doing so, he vindicates for our time the merits of a noninterventionist foreign policy.
According to the first approach, America moved from isolationism in the eighteenth and nineteenth centuries to the global policy of today.
America’s rise to global power is anything but a new topic. Scores of books examine each major episode of the story, especially that of World War II….But the story has been consistently narrated in terms that obscure and even deny the decision for armed primacy…Americans have imbibed a version of the same tale: the United States, once in thrall to "isolationism" cast off its antipathy to global engagement and embraced "internationalism." The premise is that isolationists and internationalists squared off in a prolonged struggle, with the former winning out after one world war and the latter finally prevailing after a second. (p. 4)
The second approach is different. "In place of a reluctant and belated superpower, some critics find just the opposite: a superpower in the making all along. Did not the United States, propelled to seek profits, compelled by a sense of destiny, steadily enlarge its power until reaching its supremacy across the globe?" (p. 6). Wertheim has in mind here leftist historians such as William Appleman Williams, but the neoconservative Robert Kagan’s Dangerous Nation (2007) also fits this pattern. (See my review of it here.)
Wertheim's main criticism of these approaches is that both accept a myth. America's foreign policy was never isolationist. This was a smear term invented after the fact by proponents of US entry into World War II to characterize their opponents. The noninterventionists did not want to isolate America from dealings with other nations but in fact sought to extend commercial and social ties with lands abroad. In these policies, they continued the traditional American foreign doctrine, in place since Washington and Jefferson, of avoiding entanglement in European power politics. "Only during the war did internationalism come to be associated with military supremacy, whose architects devised the new pejorative term isolationism and redefined internationalism against it. For the same reason, it makes no sense to characterize a group of Americans as advocates of isolationism" (p. 4, emphasis in original).
To support his argument, Wertheim makes full use of the papers of the great American international lawyer Edwin M. Borchard, who moved from defense of the League of Nations to robust support for neutrality legislation during the 1930s. Here though, I do not altogether agree with Wertheim's line of thought. As he tells the tale, Woodrow Wilson's intervention in World War I and the League of Nations he afterwards supported did not mark a decisive turn in American foreign policy. Had America joined the league, this would have involved on its part virtually no commitment to the use of military force. Thus, he sees Borchard's support for the league as consistent with his later advocacy of American neutrality. This, to my mind, underestimates Wilson's break with noninterventionist foreign policy and with it the extent to which Borchard shifted his opinions during the 1930s, a fact not lost on his interventionist opponents. In this connection, Wertheim could usefully have devoted detailed attention to the great book of Borchard and William Lage, Neutrality for the United States (Yale, 1937), the swan song of the legalistic approach to foreign policy not only of Borchard but of his teacher John Bassett Moore as well. Wertheim's view of the league also leads him to look at James Thomson Shotwell in too favorable a light; he was much more an interventionist, even in his earlier years, than Wertheim allows.
More generally, Wertheim fails to note the extent to which the antiwar movement of the 1930s reflected a rejection of Wilson's unneutral policies in World War I. Although he mentions Harry Elmer Barnes, whom he calls a "prolific historian and public intellectual" (p. 45), he underestimates the influence of the revisionist history of Barnes, Sidney Bradshaw Fay, and Charles Callan Tansill in turning around public opinion in the 1920s and '30s. By the way, Tansill, the author of the definitive America Goes to War, would have been delighted by Wertheim's point that the Monroe Doctrine was a challenge to the British navy (p. 20).
Far more significant than these disagreements is Wertheim's careful research on the formation of American foreign policy after World War II began. As he notes, the Council on Foreign Relations cooperated closely with the State Department in planning for the end of a war that had barely begun. The unexpected fall of France to the Nazis led the CFR experts to favor all out support for Britain. "But why not accept a world peace compatible with the Axis vision of Europe for the Europeans and Asia for the Asians? In responding to the Tripartite Pact, U.S. elites foregrounded American exceptionalism: Axis supremacy in Asia and Europe would deny the destiny of the United States to define the direction of world history….For Roosevelt and [Walter] Lippmann, the Axis bid to lead the world to a new order was undertaken by the wrong party" (p. 73). Wertheim rightly emphasizes the influence of the inveterate Anglophile Walter Lippmann in moving America toward war and also places appropriate stress on Henry Luce’s famous Life magazine essay of 1941, "The American Century," with its blatant call for American world supremacy. Wertheim notes that one of the CFR planners was the Harvard historian William Leonard Langer, but he ought to have added that Langer had earlier been one of the most resolute historical revisionists and his interventionist views were something of a volte-face. In his discussion of elite American Anglophilia, Wertheim rightly draws attention to the Round Table group but surprisingly fails to cite Carroll Quigley, Tragedy and Hope (see p. 221n74 for his sources on the Round Table).
After World War II, America has continued to claim world supremacy, and Wertheim ably discusses developments under Harry Truman and his successors. The United Nations, he makes clear, had no independent power but was merely a public relations cover for US dominance. I shall leave to readers the details of Wertheim's discussion and close with an apt citation from the greatest American international lawyer from the late 1880s through the 1940s, John Bassett Moore: "In his opinion, 'nothing could be more preposterous…than the supposition that the league of nations failed to preserve the peace of the world because the United States did not become a party to it.' This supposition turned America into the indispensable nation to world peace, 'apparently ignorant of the fact that the United States had not only been guilty of aggressive foreign war, as in the case of Mexico, but had also added to the number of great civil wars'" (p. 171).
Wertheim has written one of the best recent books on American foreign policy, and I highly recommend it to all those who reject the policy of world dominance.
The Essential Austrian Economicsby Christopher J. Coyne and Peter J. BoettkeFraser Institute, 202068 pages
Christopher Coyne and Peter Boettke, both professors of economics at George Mason University, say
The purpose of this book is to present an overview of the key tenets of Austrian economics. In order to do so we draw upon and synthesize the insights from the aforementioned thinkers to present and discuss a set of eight topics that capture the core elements of Austrian economics.
By the “aforementioned thinkers,” they mean Carl Menger, Eugen von Böhm-Bawerk, Friedrich von Wieser, Ludwig von Mises, F.A. Hayek, Israel Kirzner, Murray Rothbard, and Ludwig Lachmann. They succeed very well in explaining the topics they cover in a way that students will find easy to follow. Naturally enough, there are points of detail which other Austrians might address differently, and I shall mention a few of these in what follows. (The most questionable statement in the book, oddly enough, does not concern economics at all. In their chapter “Spontaneous Order,” they say, “language emerges as people interact with one another and attempt to communicate” [p. 34]. Chomsky would reject that, and the view is quite controversial.) But the main problem with the book lies elsewhere, and this I shall address after a summary of the book.
Before they cover their eight topics, Coyne and Boettke briefly explain the marginal revolution.
The marginal revolution was a paradigm shift from the established labour theory of value to the marginal utility theory of value. The labour theory of value held that the value of a commodity is a function of the labour required to produce the item. The marginal revolutionists, in contrast, argued that value is not based on the amount of labour expended, but rather reflects how useful people perceive the commodity to be in satisfying their ends. (p. 1)
The new theory was able to solve the “diamond-water” paradox. Further, by proving that there are universally true economic laws, Menger refuted the German historical school.
The first of Coyne and Boettke’s eight topics is “Methodological Principles.” They explain in exemplary fashion the principle of methodological individualism: “Groups and organizations, which consist of people, do not engage in choice and do not have purposes and plans absent the individuals that constitute the group” (p. 5). It is precisely the purposes and plans of individuals which lie at the heart of Austrian economics, and, contrary to Alfred Marshall, the subjective nature of value determines not only the demand side of price, but costs as well.
As they note in “Economic Calculation,” the allocation in a developed economy of production goods to alternative uses requires market prices, and Mises used this fact to prove the impossibility of socialism. “Mises argued that without property rights in the means of production, which the socialists wanted to abolish, there could be no economic calculation because there would be no money prices” (p. 13). The attempts by Oskar Lange and Abba Lerner to incorporate some element of market pricing into socialism did not succeed. “The market socialists, Hayek argued, were preoccupied with a static notion of equilibrium where all relevant economic knowledge was given, known, and frozen” (qtd. on p. 15).
Coyne and Boettke then turn to another fundamental Austrian insight, one very much related to economic calculation. Capital is not a homogeneous “blob,” but consists of a wide variety of goods organized in stages of production. As Menger argued,
the value of capital goods is not inherent in the goods themselves, but instead is derived from the lower-order goods in the structure of production. Raw materials do not have inherent objective value, but instead derive their value from what they contribute to the production of other, value-added capital goods in the structure of production. These lower-order goods likewise derive their value from their contribution to the production of the final consumer good. What ultimately drives this process is the expected value of the final consumer goods (the first-order goods) as determined by consumers. On the market, these subjective valuations are captured in the market prices of capital goods. (qtd. on pp. 18–19)
The chapter relies heavily on the insights of Lachmann, fortunately from his earlier work and not from his later “kaleidic” speculations.
The next chapter, “The Market Process,” is Kirznerian in emphasis. Like Kirzner, the authors stress that the market allows individuals to coordinate their plans. “Markets are valuable because in order to accomplish our various goals we typically need to coordinate with others who are also pursuing their own goals” (p. 24). Is this true, I wonder? We can imagine, at each moment, an equilibrium that would be reached if all data were then frozen, but does it follow that individuals are endeavoring to reach this equilibrium? But this is not the place to pursue this difficult topic. Coyne and Boettke rightly note the importance of property rights, which make possible the price system by which persons can adjust to changing circumstances. Entrepreneurs are central to their market process, and their account of this vital function follows Kirzner in his emphasis on “sheer ignorance.” I am pleased to see, though, that they note the importance of loss as well as profit in their account of the entrepreneur:
The lure of profit provides an incentive for risk taking because a successful first mover can earn a significant profit by being the initial producer of a good valued by consumers. At the same time, the potential for loss makes entrepreneurs careful when making investment decisions. (p. 28)
Hayek moves to the center of attention in “Spontaneous Order.” Here the key idea is that
The systematic development of thinking about spontaneous order was achieved during the eighteenth century by scholars of the Scottish Enlightenment. Thinkers like Adam Ferguson, David Hume, and Adam Smith appreciated the idea that mechanisms existed to solve complicated problems and generate complex orders absent design or control by an individual or group of individuals. Moreover, given the nuance and complexity of these orders they could not be designed using human reason because they extended beyond what the human mind could grasp. (p. 31)
They highlight Hayek on the limits of human reason, and in doing so, they go astray in a way that I shall later address.
Coyne and Boettke return, in my view, to a state of grace with “Interventionism.” They take up Mises’s famous example of price controls for milk. Price ceilings are introduced to make milk available more cheaply to the poor. They fail to achieve their purpose, since they lead milk sellers to withdraw milk from the market. The interventionists now face a choice: they can either end the controls, returning to free market pricing, or they can institute new controls that attempt to remedy the problems of the initial set. If they do the latter, the new controls will in turn fail. If the process of intervention proceeds long enough, the result will be the end of the market system altogether.
The authors continue with another excellent chapter, “Business Cycles.” Expansion of bank credit lowers the monetary rate of interest below the “natural rate,” determined by consumers’ time preference. This leads to malinvestments that prove unsustainable when the credit expansion stops, and the liquidation of these projects constitutes the depression phase of the cycle. As the authors say, “In addition to discussing the policy response to a bust once it occurs, Austrian economists have also explored ways of avoiding the onset of a bust in the first place” (p. 47). But one could wish that when they presented the various proposals for a monetary constitution they had been more explicit about Rothbard’s proposal of a gold standard without fractional reserve banking. They say,
A monetary constitution can take a variety of forms in practice and might include such things as a rule limiting the amount of credit created within a particular time frame, the backing of credit by hard money to limit the ability of banks to print money, or monetary competition which would limit money creation by replacing a centralized monopoly supplier of money with competition among banks. (p. 48)
They conclude the chapter with an arresting remark:
The General Theory was published in 1936 and Hayek decided not to respond directly. In making this decision, Hayek committed what many defenders of the free market system consider to be one of the major tactical errors of this century. (p. 48)
The book’s final topic is “Planning and the Power Problem,” Coyne and Boettke explain Hayek’s argument in The Road to Serfdom that the attempt to impose comprehensive economic planning is liable to result in an end to liberty.
As Hayek pointed out in his 1944 book, The Road to Serfdom, economic planning by government policymakers necessarily violates the rule of law because planners must have discretion to address unforeseeable situations that cannot be anticipated ex ante….Given what planning entails, successful seekers of government office will be those who are comfortable designing plans based on their preferences and imposing their vision on others who would have pursued different activities if left to their own, voluntary choices. Hayek argued that the very desire of planners to organize life according to a single, overarching plan emerges from the desire for power to control and shape the world according to the planner’s vision. (pp. 51–52)
Although the various topics are for the most part handled well, there is, as I suggested at the start, a fundamental problem with the book. The authors do not have a clear sense of economics as a separate body of a priori truths about human action, and it is significant that the word “praxeology” nowhere appears in the text. True enough, they say,
The theorems of economics—that is, the concepts of marginal utility and opportunity cost, and the principle of demand and supply—are all derived from reflection upon purposefulness in human action. Economic theory does not represent a set of testable hypotheses, but rather a set of conceptual tools that aid us in reading and understanding the complexities of the empirical world. (p. 6)
But they mix together praxeological theorems with other things. It is true, as they say, that we can understand a postman’s activity in stuffing pieces of paper into boxes by reference to “ideal types,” but, as Mises explicitly said, ideal types are not part of economic theory. Hayek’s speculations on the limits of human reasoning are worth attention, but once more they are not part of praxeology. The notion that under economic planning “the worst get on top” is very plausible, but again the psychological and historical insights need to validate this stand outside of praxeology.
The authors’ failure to delimit praxeology more thoroughly leads to a related problem. The authors rightly say, “The Weberian doctrine of Wertfreiheit—‘value freedom’—was adopted by Mises as a foundational principle of what it meant to do economic science” (p. 9). But the book abounds in value judgments. They say, for example, and I entirely agree, that “The appropriate response to a bust is to allow entrepreneurs, through the operation of the market process, to reallocate and regroup scarce resources in the capital structure” (p. 47). This is clearly a value judgment, and the way in which one can use praxeological knowledge to attain various policy goals needs more clarification than we find here. But all in all, The Essential Austrian Economics is useful and helpful, if not altogether essential.
Listen to the Audio Mises Wire version of this article.
The Cult of Smart: How Our Broken Education System Perpetuates Social Injusticeby Fredrik deBoerAll Points Books, 2020276 pages
What is the Cult of Smart? According to Fredrik deBoer, who has been for much of his adult life an educator,
It is difficult to overstate how thoroughly the collegiate arms race dominates the life of ambitious teenagers. Young people invest manic effort in their scrambles up the academic ladder, and cannot avoid their culture’s insistence that this is all that matters, that to fail to achieve academically is to ruin your own life and to give up on your dreams…they hear it in the causal way that intelligence is over and over again equated with overall human value. This is the Cult of Smart. (p. 5)
Is this true? No doubt for some students academic success exceeds all else in value, and to fail to be admitted to an elite university, ideally among the Ivy League, is a fate hardly to be borne, but surely Americans value many other things besides academic “smarts.” Aren’t athletes, entertainers, and successful entrepreneurs admired for their various achievements rather than for their grade point averages at top schools? Many years ago Robert Nozick wrote a paper on “Why Intellectuals Hate Capitalism,” and his answer was that intellectuals excel in school but must face the fact, which they resent, that those they regard as intellectual inferiors do far better financially than they manage to. A top professor in the humanities may earn over $200,000 a year, and a few graduates from Harvard and Yale Law Schools over $1,000,000, but the members of the Kardashian family, no Einsteins, are worth enormously more.
Though deBoer exaggerates the importance of the pursuit of academic success, he makes some very useful points about education. The government spends vast amounts of money on educational programs that aim to give “equal opportunity” to those deemed disadvantaged, but there is little or no evidence that these programs achieve anything. For example,
Few educational initiatives are treated with as much unrestrained optimism as pre-kindergarten, or pre-K, academic programs that serve children from ages three to five who are too young to take part in the public school system….Unfortunately, pre-K does not have nearly the revolutionary impact that its proponents often claim….There’s similar bad news when it comes to afterschool programs, which are designed to give students safe, academically enriching places to stay after school while their parents are still at work….It seems neither pre-K nor afterschool programs can be justified on the basis of the research record. (pp. 165–67)
Not only are these programs without much effect: the point extends more generally. Academic success to a large extent rests on innate abilities, and schools by comparison have little impact. The author rejects what he calls “plasticity of outcome,” the view that “there are truly no limits to how much education molds students” (p. 87). To the contrary, deBoer says, behavioral genetics firmly establishes the innatist position. As a Marxist in good standing, he hastens to assure us that he rejects racism: it is not innate racial differences, but innate individual differences in academic ability, which he accepts. He concludes that “[e]quality of opportunity, in light of our modern understanding of the world, is impossible. It’s a dream that can’t be realized in a world where different individual human beings have profoundly different academic potential” (p. 162).
We need to recognize, the author goes on, that higher education is not for everybody. Some teenagers will gain nothing from high school, and they should be allowed to drop out at the age of twelve.
The simple fact of the matter is that not everyone is meant for school, for reasons of desire as much as ability…there will always be a portion of adolescents who have no interest in continuing formal schooling, and forcing them to do so not only impinges on their freedom but wastes time, energy, and resources better spent on those who want to learn. (p. 170)
Employers often rely on credentials from universities, especially from institutions of high rank, as a proxy for intelligence. Firms are often forbidden by law to administer intelligence tests directly, but if you have graduated from Harvard, you must be smart. Accordingly, students from Harvard do much better in their careers than graduates from lower-ranking universities, but this does not show, deBoer suggests, that gaining entrance to Harvard is the road to success. The causation goes the other way. Harvard and other top-ranking universities take great pains to admit students whose test scores and other qualifications indicate their innate ability, and that is why their graduates have higher success rates than others. The author is no opponent of higher education. Far from it: he defends universities as places of learning. But the pursuit of degrees as a way to show superiority to competitors on the job market is wasteful and unnecessary.
Some readers may be inclined to say, “If this is Marxism, it is a Marxism we can live with.” But deBoer does not propose to get the government out of education and allow the free market to proceed unhindered by the false goal of equal opportunity. He recognizes unequal ability but thinks it should not affect how much money people make. People do not deserve their superior intelligence any more than they deserve other “natural assets.” These arise from “moral luck” and this should not be the basis of superior economic position.
But in the great sorting system of our society, in the progression through school and the rewards and opportunities afforded there, I believe we should fully recognize the vagaries of chance. With our contemporary understanding of how profoundly our genetic heritage shapes our outcomes, it’s past time that we tear down a system of human reward that is based on a naïve blank-slate philosophy. (p. 153)
DeBoer appeals to the “veil of ignorance” of John Rawls. If we didn’t know our own abilities, wouldn’t we choose a social system that made the position of the worst off as good as possible, rather than one that allowed those of higher abilities to seek as much as they could, without regard for the poor? After all, when we exit the veil, we might turn out to be among the less able. The author thus favors, in ideal circumstances, economic equality. At present, we should approach this goal as closely as we now can through high taxes on the rich and massive aid programs to the poor.
To cite Mises and Rothbard in opposition to this would leave deBoer unmoved, but his proposals can be found wanting by using the veil of ignorance to which he appeals. Rawls recognizes that if inequalities benefit the worst off, the resulting situation is better than equality. That is the point of his “difference principle.” Indeed, Rawls goes further. If you prefer equality to a situation in which others having more than you makes you better off, you are irrational. (There are some complications to this that I shall here pass by.) DeBoer would, I am sure, deny that the free market does make the poor better off than the redistributionist programs he favors, but he does not support his claims with careful argument. He conjures into existence with a wave of a hand the money to pay for these programs. This is what socialist morality requires, so they must be affordable and beneficial! Many of us will find this insufficient.
The ironic thing about Michael Malice's book The New Right: A Journey to the Fringe of American Politics is that it mostly deals with the Left. What unites the Right, argues Malice, is that they all hate the Left. His definition of the New Right reads:
a loosely connected group of individuals united by their opposition to progressivism, which they perceive to be a thinly veiled fundamentalist religion dedicated to egalitarian principles and intent on totalitarian world domination via globalist hegemony.
Everyone from radical conservatives to Murray Rothbard–following anarchists to those whom the press sloppily calls "alt-right," all get lumped into the same category—hence the label. While almost everyone in those groups would strongly object to the affiliation, Malice has found the common denominator among them: they all hate the evangelical left. The New Right, as he sees it, is formed and fueled by this opposition, and so Malice spends page after page describing the progressive power that rules the social, intellectual, and political world.
It works remarkably well, partly, I suspect, because Malice is extraordinarily well versed in the hidden world of internet trolls and the intellectual dark web, as well as more conventional conservative and libertarian ideas. He tells of secret meetings, of invites-only events for trolls and white nationalists, of conversations he’s had, online and offline, with prominent figures of the movement he describes. Skillfully, too, he manages to dissect what it means to be a progressive in America today—a necessary step to even begin to understand this right-wing contramovement.
Malice captures the progressives’ extreme attachment to equity: the dissecting of and the overturning of hierarchies, power, privilege, and, above all, fairness. Elitism and natural hierarchies are inevitable, but the Left won’t have it. Even in the mundane, say, jokes in the locker room or jokes on a stand-up scene, "for the evangelical left, with humor as with everything else, if it’s not for everyone then it’s not for anyone." This idea, institutionalized and universalized, is the core of what it means to be left-wing in America today.
The distinguishing feature of a left-leaning ideologue, as shown in the Jonathan Haidt research that Malice discusses, is a strong focus on fairness and harm to the exclusion of everything else. Malice eloquently shows that fairness isn’t well defined, and that it is mostly devoid of meaning; it "simply means "what I approve of.'" A discussion over fairness is therefore useless.
A person on the left in the late 2010s, and increasingly so in the 2020s, tries to "impose meaning rather than to understand." Picking illustrative examples from Hillary Clinton and those more extreme than her, Malice shows that progressives usually ascribe ideas and values to their opponents, dismiss their words as "hate speech," and then "end the conversation before it has even begun."
The clear religious nature of progressivism that emerges is clear. Replacing God with "the saving grace of progressivism," the Left has found that racism is the default setting of man, and a person "is able to escape that fallen state" only through their leftish repentance. Another key element of progressive beliefs is to feel good rather than do good:
Since the progressive religion is based on salvation through faith and not via works, there are often no positive achievements to demonstrate one’s salvation—either to others or even to oneself. Progressives are thereby forced to "do something" without actually doing anything.
Think pins on your jacket, various in-group messages on bags, or the piercing red X taped across the Apple logo of your computer—since, as a good person, you obviously don’t support Apple but still happily use their products. Jeff Deist’s review of Malice’s book is spot-on:
The Left’s religiosity, complete with canonical texts and an ever-narrowing range of faith based opinions, is a key point of Malice’s argument: debate is passé on the Left, if not verboten. The science is settled, and to hell with those outside the faith. Convert or be cast out.
Echoing Orwell’s classic Politics and the English Language, progressive language use is tremendously important. Not only regarding the sensitivity of those who hear it, but as a measure of signaling that the speaker is on board with the Party program. Malice argues that replacing "black" with "African American" or "people of color" isn’t so much a sign of respect or a more accurate description of the group one is discussing, but an in-group signal that the speaker "is on the correct team."
While clever, it’s easy for outsiders to just say the words: "it costs nothing," writes Malice, "for someone to adopt the correct term in their speech." Instead, it becomes an arms race between those who invent new politically correct terms to signal their progressive goodness and those who merely want to get by without vitriol and accusations of being a "white supremacist" (or want to avoid detection).
The ingenuity of the system is that while it costs an outsider almost nothing to co-opt the latest correct word, to avoid tripping any of the many progressive wires, one must internalize a full language. In time, one supposes, a full ideology.
The Members of the New Right What sits most odd for someone not involved in the world Malice depicts is how normal it is; filled with internal quibbles and breaks along sectarian lines, with regular people doing regular things up until they reveal some of their controversial opinions. What most stood out to me were Malice’s personal stories, and how utterly polite many New Righters are: at an event with big-time pundit Ann Coulter attending, everyone was mesmerized by her but too shy to approach.
That’s not the kind of aura that New Right events conjure up in your mind. Another time Malice describes how attendees to an "NRx gathering" were tentatively "eyeing one another to see what was safe to say. As thought-criminals, we were used to biting our tongues." This is familiar territory for all of us who hold opinions that diverge even a tiny bit from otherwise allowable opinion.
What emerges is a display of and some in-depth interviews with commonly held crazies—Gavin McInnes, Milo Yiannopoulos, Jim Goad, Alex Jones—that make them seem surprisingly humane. Indeed, that’s the point of Malice’s book: "to present logical, rational explanations for the New Right's foundational beliefs. They're not crazy. They're not suicidal. They're as American as apple pie."
Most progressives mistakenly think that with the end of Trump, it’ll be the end of the nefarious factions he spawned and justified. With the evil leaders goes the evil tribe and now America is finally back on its divine, progressive track. That couldn’t be further from the truth. To the New Right, politics is downstream from culture, and whoever rules Washington at any given time is unimportant; all that matters is the larger battle, the long-term fight, the wars over culture. Cutting the head of the snake does nothing, as the New Right is more akin to a scattered hydra, growing new heads in new places whenever an old one is severed.
While a delight to read, some chapters of the book are thoroughly odd. You wouldn’t think that Milo, the effective media provocateur and now forgotten New Right troll, has much to do with the founding of the American Economic Association in 1885, or the moral supremacy ("degeneration") of the universities. The connection, Malice asserts briskly before ending the chapter, is Christian social gospel.
No explanation; full confusion. And Malice is often all over the place: Pat Buchanan’s and Murray Rothbard’s political campaigns in the 1990s, the pickup artists of Neil Strauss’s The Game, and human nature as explored by Thomas Sowell’s great A Conflict of Visions. On the same page he then briefly mentions the Silk Road operator Ross Ulbricht and calls bitcoin “magic internet money.”
Still, captivating and hard to put down.
Drawing to a close, the book ends with a somber reflection that "nation after nation in Europe is finding it impossible to form consensus on virtually anything." The unstated implication is that if we can’t agree with one another, perhaps we shouldn’t have to…?
The Hoppe-inspired meme to "physically remove" socialists and democrats from a free society might be upside down: perhaps we must not remove deviants, but merely disassociate and self-segregate away from those we cannot stand. After the mad political and cultural fights of 2020, does anyone think that’s such a bad idea?
[Review: Reflections on Ethics, Freedom, Welfare Economics, Policy, and the Legacy of Austrian Economics. By Israel M. Kirzner. Peter J. Boettke and Frédéric Sautet, eds. Liberty Fund 2018. Xiv + 782 pages.]
Everyone interested in Austrian economics owes a great debt to the editors of the vast collection of articles by Israel Kirzner, one of the foremost students of Ludwig von Mises. Readers will find that Kirzner stresses certain themes repeatedly, and I should like to comment on two of these.
Enemies of the free market often claim that defenders of capitalism are ideologically motivated. Mises, for example, worked in Vienna as an official of the Chamber of Commerce, and he does not disguise his ardent support of the free market. Can those with other ideological commitments reasonably dismiss his views? Kirzner argues that they cannot. Economics is strictly value-free. Mises’s personal values and political allegiances make no more difference to the validity of his economic theory than Einstein’s political views do to the validity of the theory of relativity.
Kirzner puts the point in this way: “Mises, the passionate ideologue on behalf of classical liberalism insisted---in fact he passionately insisted---on the wertfreiheit of the economist. Precisely because he believed that economic science can offer powerful support for classical liberalism, he saw it is as crucially important that the reputability of that science be maintained beyond suspicion.. . But the economist’s teachings can have the desired effect, Mises realized, only if the economist qua scientist maintains an austere detachment from the political ideological debates to which the science may be able to make crucial contributions.”(pp.214-215, emphasis in original)
Even so strong a critic of the free market as Gunnar Myrdal recognized the commitment of the Austrian school to value freedom: “When Gunnar Myrdal wrote his The Political Element in the Development of Economic Theory. . .he gave the Austrian School high marks for refraining from permitting their political aims to shape their science.”(p.213)
As an example, when Mises shows that economic calculation under socialism is impossible, this conclusion is in no way dependent on Mises’s own disdain for that system. It is a strictly scientific conclusion.
Important though this theme is, another theme surpasses it in interest to students of contemporary Austrian economics. Kirzner does a good deal to clear up the mystery surrounding his account of the entrepreneur, and in so doing narrows the gap between his position and the “causal realist” view that Joseph Salerno and Peter Klein have taken over and further developed from Mises and Rothbard. Some distance remains, but using material Kirzner himself provides, we can see why the causal realist account is better than its rival.
The key difficulty with Kirzner’s account concerns the opportunities for entrepreneurial discovery that he holds are “out there,” waiting to be found. Is this not bad metaphysics? Kirzner himself recognizes the difficulty: “My theory of entrepreneurship has sometimes been criticized as viewing the future as a kind of tapestry waiting to be unfolded: it is already there; it is simply behind the screen; it has only to be unrolled and then the future will come into the field of vision, whereas the truth surely is, the critics point out, that the future does not ‘exist’ in any philosophically valid sense. It must be created so the notion of alertness in the sense of seeing what is out there in the future is a mistaken notion.” (p.696)
Kirzner accepts the criticism. He is not, he says, assuming that discoveries are “out there” but means only that entrepreneurs try to anticipate the future: “I recognize the philosophical validity of this kind of criticism.. . .I think the distinction surely is one between an ex ante and an ex post perspective. . .From this perspective, the philosophical validity of the idea of future events is really not to the point. Ex post we look back and say: if only I had seen this coming. The opportunity was there. Does an opportunity exist? An opportunity is always something in the future: it does not exist. Yet we do talk about an opportunity existing, meaning that ex post we can say: well, the action I took was successful; or the action I took missed being a more proximate action that I might have taken.”(p.695)
Has not Kirzner here come closer to Rothbard’s view that capitalist entrepreneurs appraise profit-making opportunities in the face of an uncertain future? Kirzner does not recognize this. He says, “Murray N. Rothbard. . .has argued that this recognition and emphasis by Mises on the role of uncertainty in the generation of pure profit is inconsistent with the interpretation which the present writer [Kirzner] has given Mises’s theory. For Rothbard, an ‘alertness’ theory of profit of profit must do away with uncertainty. . .I have not been able to follow Rothbard’s reasoning on this matter. . .”(p.349, note 33)
But exactly the target of Rothbard’s criticism was the view of profit-making opportunities as “out there” in the world, a view Kirzner has given up. In the article that Kirzner cites, Rothbard says: “Moreover, by stressing alertness, Kirzner is emphasizing a quality of perception, of perceiving an opportunity that virtually exists, as a real thing out there. In reality, however, any profit opportunity is uncertain, and rather than be a real existing entity, it must always be subject to uncertainty. It is never as simple as mere alertness.” (See "Professor Hebert on Entrepreneurship”
The difference that remains between Kirzner and the causal realists centers on profits and losses to the entrepreneur. The causal realists stress profits and losses to capitalist investors , but Kirzner is not satisfied: “It is true that the disembodied purely entrepreneurial function cannot be observed in the real world. . .So that indeed entrepreneurial losses will, in the real world, be suffered by owners of assets. But this does not mean that the phenomenon of pure entrepreneurial loss is intrinsically associated with the purely capitalist function. . .Entrepreneurial profit and loss is to be traced to the purely entrepreneurial function.” (p.742)
We can use points Kirzner makes elsewhere to render his claim irrelevant. In his penetrating discussion of the Chicago School’s “economic imperialism” Kirzner very effectively notes that, absent the pursuit of monetary profit and loss in the capitalist market, no mechanism exists to enable good insights to drive out bad ones. “Within the setting of the market the entrepreneurial element in human action can be expected to set in motion a process of mutual discovery. . .But outside the market setting. . .there is nothing in the character of interpersonal interaction which suggests any systematic discovery process(analogous to the discovery process inspired in markets by the lure of pure entrepreneurial profit.” (p165)
In his skeptical remarks about non-market “spontaneous order,” Kirzner returns to this theme. “The emergence within society of a common language, a common set of standards for weight and measurement, and common codes of social behavior, differ sharply from the emergence of a market-clearing price for wheat or for unskilled labor in competitive markets.. .The demonstration that widely accepted social conventions can emerge without central authoritarian imposition does not necessarily point to any optimality in the resulting conventions. What is demonstrated . . .by short-run coordination theory (i.e., by the theory of the free-market economy) is that there does exist a spontaneous tendency toward social optimality under the relevant conditions.” (pp.64-66)
Kirzner has thus given us sufficient grounds to render nugatory his insistence on “pure” returns to the entrepreneur outside the capitalist market. Nevertheless, readers will close the volume with admiration for Kirzner’s devotion to Austrian economics, immense learning, and dialectical skill
[John Kay and Mervyn KingRadical Uncertainty: Decision-Making beyond the NumbersNorton, 2020. xvi + 528 pages]
Kay and King are not Austrians, but in this important book, they lend aid and comfort to several key points of Austrian economics. Kay teaches economics at Oxford, and King, who was formerly governor of the Bank of England, teaches at NYU. (King in an earlier book, The End of Alchemy, that I had occasion to review warns against the dangers of fractional reserve banking in a way that will delight admirers of Murray Rothbard.)
Austrians hold that the dynamics of the market depend on profit-seeking entrepreneurs, whose judgments of appraisement are of necessity subjective, irreducible to monetary calculation. As Joseph Salerno explains,
Mises presents a penetrating critique of the Walrasian view that, in the plans of producers, prices substitute for knowledge of the economic data or, rather, for entrepreneurial understanding and appraisement of future variations of these data. Mises's critique is grounded on the incontrovertible fact that “The prices of the market are historical facts expressive of a state of affairs that prevailed at a definite instant of irreversible historical time.” As such, realized prices can never serve as an unambiguous guide to production; which is always aimed at supplying a market of the more or less remote future involving a different configuration of the economic data.
Mises’s argument depends on the distinction, made famous by Frank Knight, between risk and uncertainty. In a situation of risk, the actor knows the possible outcomes and can apply the probability calculus to them. In a situation of uncertainty, he cannot do so, either because he cannot use the probability calculus or because he does not know all the possible outcomes. He must rely on his judgment about the particular case. Mises calls this the distinction between class and case probability. He says in Human Action about case probability: “Case probability means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing. Case probability has nothing in common with class probability but the incompleteness of our knowledge. In every other regard the two are entirely different.”
Mainstream neoclassicals do not accept this distinction. Milton Friedman says, “[I]n his seminal work, Frank Knight drew a sharp distinction between risk, as referring to events subject to a known or knowable probability distribution, and uncertainty, as referring to events for which it was not possible to specify numerical probabilities. I’ve not referred to this distinction because I do not believe it is valid….We may treat people as if they assigned numerical probabilities to every conceivable event.” If Friedman is correct, a key tenet of Austrian economics is wrong; entrepreneurial appraisement must exit the scene.
Mises acknowledges that you can say things like “I think there is a 50 percent chance the Republicans will win the coming election.” But this is just an expression of how confident you feel about this, and it is meaningless to use probability calculus here. He says,
On the eve of the 1944 presidential election people could have said:…(c) I estimate Roosevelt's chances as 9 to 1….This is a proposition about the expected outcome couched in arithmetical terms. It certainly does not mean that out of ten cases of the same type nine are favorable for Roosevelt and one unfavorable. It cannot have any reference to class probability. But what else can it mean? It is a metaphorical expression….For the comparison is based on a conception which is in itself faulty in the very frame of the calculus of probability, namely the gambler's fallacy. In asserting that Roosevelt's chances are 9:1, the idea is that Roosevelt is in regard to the impending election in the position of a man who owns 90 per cent of all tickets of a lottery in regard to the first prize. It is implied that this ratio 9:1 tells us something substantial about the outcome of the unique case in which we are interested. There is no need to repeat that this is a mistaken idea.
Knight has an amusing comment on this issue. He says, “The saying often quoted from Lord Kelvin…that where you cannot measure, your knowledge is meagre and unsatisfactory; as applied in mental and social science is misleading and pernicious…the Kelvin dictum very largely mean[s] in practice, if you cannot measure, measure anyhow!”
Friedman has an answer to this objection. It does not matter, he says, whether people actually do assign probabilities to every conceivable event. This is just an assumption economists make, and what counts for a good theory is not the realism of its assumptions. Rather, a good theory is one that generates good predictions.
Kay and King reject this view, and here they again render Austrian economics a service, though, to reiterate, they themselves aren’t Austrians. The method of Austrian praxeology is deductive, and unless your premises are true, you have no guarantee that the conclusions you deduce from them are also true. Thus, Austrians must reject Friedman’s position.
Kay and King reject Friedman’s methodology because there is almost never clear evidence that the predictions of a theory are false. You can always adjust something in the theory to make it come out true, and that is what all too many economists do:
Friedman’s article [on methodology] appeared in a brief period of intellectual history in which a version of Popperian falsificationism—the idea that a hypothesis acquires scientific status only if there is a possibility that it might be refuted was in fashion….The decisive rejection of this falsificationist view is encapsulated in what philosophers know today as the Duhem-Quine hypothesis: such refutation is rarely definitive, because any test requires a range of auxiliary assumptions, and it is always possible to argue that these assumptions have not been fulfilled.
There is an additional point that strengthens the argument against Friedman. It isn’t clear that his claim about probability estimates generates any predictions at all. If you make a series of bets that don’t conform to the principles he sets forward, he can show through what is called a “Dutch-book” argument that you will lose money. But that is hardly a prediction that anyone will in fact make a series of bets of this kind.
Kay and King suggest that, in fact, most people won’t make bets in the circumstances that Friedman assumes.
In a world of radical uncertainty, most people do not choose among lotteries, far less enter them, and for good reasons….They shun randomness. They are reluctant to make commitments in situations they do not understand, especially when other people may have a better understanding of them….Of course, there are people who will take a bet on anything, but that is a mark of weirdness, not rationality.
Friedman’s rejection of the risk-uncertainty distinction is part of a general effort of the Chicago school to judge the free market by external standards of “efficiency,” here again a point of divergence from the Austrian school. (By “Chicago school,” I refer to the period that began with Friedman's dominance; Knight and Henry Simons did not share Friedman’s views.) The authors give another example of this Chicago tendency. Herbert Simon criticizes the neoclassical view that people try to maximize their expected utility on the ground that, often, what is “good enough” suffices. If, for example, you are selling your house and you get an offer that seems satisfactory, you may take it. You won’t keep investigating to see if you can get a better offer. Simon called this “bounded rationality” or “satisficing.”
Simon’s point does not faze the Chicago economists. They argue that if you accept the offer, you are still maximizing, if account is taken of the search and transactions costs of looking for something better. Thus, they transform what Simon argues into its exact opposite. “Simon is reported to have joked that he should take legal action against his successors who misused his terminology and neglected his insights.”
Austrian school economists also reject the use of the conditions for general equilibrium as a standard to judge the free market, and here once more Kay and King agree. They tell us that Kenneth Arrow and Gerard Debreu, who first proved that competitive prices can under certain conditions result in a general equilibrium, realize that their model is unrealistic: “Arrow and Debreu recognized that they were describing an imaginary world akin to that of Through the Looking-Glass. And they interpreted that world as a rhetorical device, like those literary fictions, illustrative of propositions which might—or might not—be true in any real world.”
Kay and King have written an impressive and erudite book that ranges over many disciplines. It is often repetitious; though the book is about radical uncertainty, readers will rarely be uncertain what the authors are going to say. The book is filled with anecdotes, and I’ll close with one that illustrates the authors’ criticism of the neoclassicals: “The new macroeconomic theorists followed a different approach….Ronald Coase attributed a satirical description of it to the English economist Ely Devons: ‘If economists wished to study the horse, they wouldn’t go and look at horses. They’d sit in their studies and say to themselves, ‘What would I do if I were a horse?”’
[Conceived in Liberty: The New Republic, 1784–1791. By Murray N. Rothbard. Edited by Patrick Newman. Mises Institute, 2019. 332 pages.]
We owe Patrick Newman a great debt for his enterprise and editorial skill in bringing to publication the fifth volume, hitherto thought lost, of Murray Rothbard’s Conceived in Liberty. The details of his rescue of the lost manuscript are indeed dramatic, but rather than recount them here, I should like to concentrate on a theme central to the new book.
It is well known that Rothbard took the American Revolution to be mainly libertarian in its inspiration. The libertarian impulses of the Revolution were betrayed by a centralizing coup d’état. As Rothbard puts it:
Basically, urban merchants and artisans, as well as many slaveholding planters, united in support of a strong nation-state that would use the power of coercion to grant them privileges and subsidies. The subsidies would come at the expense of the average subsistence yeoman farmer who might be expected to oppose such a new nationalism. But against them, to support a new constitution, were the commercial farmers aided by the southern plantation-farmers who also wanted power and regulation for their own benefit. Given the urban support, the split among the farmers, and the support from wealthy educated elites, it is not surprising that the nationalist forces were able to execute their truly amazing political coup d’état which illegally liquidated the Articles of Confederation and replaced it with the Constitution. In short, they were able to destroy the original individualist and decentralized program of the American Revolution. (p. 128)
The theme I should like to concentrate on is this: what happens to the way we understand the Constitution if Rothbard is right that it was a centralizing document? The Anti-Federalists, with whom Rothbard agreed, denounced it for that reason. For example, in Virginia Patrick Henry, one of Rothbard’s heroes, said:
When the American spirit was in its youth, the language of America was different: liberty, sir, was then the primary object….But now, sir, the American spirit, assisted by the ropes and chains of consolidation, is about to convert this country into a powerful and mighty empire….Such a government is incompatible with the genius of republicanism. There will be no checks, no real balances, in this government. What can avail your specious, imaginary balances, your rope-dancing, chain-rattling, ridiculous ideal checks and contrivances? But, sir, we are not feared by foreigners; we do not make nations tremble. Would this constitute happiness, or secure liberty? (p. 262)
With all this as background, we can now consider the theme I’d like to stress. If the Anti-Federalists were right. We cannot say that the Constitution as originally written gave us a limited government that later regimes have ruthlessly and recklessly expanded. In taking this approach, Rothbard set himself firmly against the dominant trend in American conservative thought. He remarks:
The Constitution was unquestionably a high-nationalist document, creating what Madison once referred to as a “high mounted government.” Not only were the essential lines of the nationalistic Virginia Plan Report carried out in the Constitution, but the later changes made were preponderantly in a nationalist direction….While it is true that the general congressional veto over state laws and the vague broad grant of powers in the original Virginia Plan were whittled down to a list of enumerated powers, enough loopholes existed in the enumerated list: the national supremacy clause; the dominance of the federal judiciary; the virtually unlimited power to tax, raise armies and navies, make war, and regulate commerce; the necessary and proper clause; and the powerful general welfare loophole; all allowed the virtually absolute supremacy of the central government. While libertarian restraints were placed on state powers, no bill of rights existed to check the federal government. (p. 211)
We can argue that later regimes extended national power beyond what the Constitution contemplated, but if Rothbard is right, the Constitution as written provides ample scope for tyranny.
One of the leading arguments of Constitutional conservatives is that since Congress is granted the power to declare war, military engagements by later presidents that bypass Congress are unconstitutional. (In several reviews, I have argued this way myself.) Rothbard does not agree. He says:
Congress’ proposed broad military powers occasioned much debate. The nationalists tried to narrow Congress’ power to make war into a more concentrated, and therefore a more controllable, form: Pinckney to the Senate only, Butler to the president himself. While these were defeated, Madison cunningly moved to alter congressional power: ‘make war’ became ‘declare war,’ which left a broad, dangerous power for the president, who was grandiosely designated in the draft as the ‘commander in chief’ of the U.S. army and navy, and of all the state militias. For now, the president might make war even if only Congress could formally declare it.” (p. 185)
Rothbard finds similar slippery language in the Tenth Amendment, imagined by some defenders of limited government to be a principal means to thwart efforts by the federal government to centralize power:
This amendment did in truth transform the Constitution from one of supreme national power to a partially mixed polity where the liberal anti-nationalists had a constitutional argument with at least a fighting chance of acceptance. However, Madison had cunningly left out the word “expressly” before the word “delegated,” so the nationalist judges were able to claim that because the word “expressly” was not there, the “delegated” can vaguely accrue through judges’ elastic interpretation of the Constitution….The Tenth Amendment has been intensely reduced, by conventional judiciary construction, to a meaningless tautology. (pp. 302–3)
(Note that Rothbard does not disagree with the nationalist judges’ interpretation.) Rothbard does see some hope of restraining the central government in the “forgotten” Ninth Amendment, but this was not to be invoked in a serious way by the Supreme Court until the 1960s.
Defenders of the Constitution as a bulwark of limited government often invoke the wisdom to be found in the Federalist Papers, but Rothbard views them as deceptive propaganda:
The essays contained in The Federalist were designed not for the ages—not as an explanation of nationalist views—but as a propaganda document to allay the fears and lull the suspicions of the Antifederal forces. Consequently, these field marshals of the Federalist campaign were concerned to make the Constitution look like a mixed concoction of checks-and balances and popular representation, when they really desired, and believed that they had, a political system of overriding national power. What is remarkable is the fact that historians and conservative political theorists have seized upon and canonized these campaign pieces as fountains of quasi-divine political wisdom, as hallowed texts to be revered, even as somehow a vital part of American constitutional law. (pp. 269–70)
James Madison’s argument that a large national republic would better cope with the dangers of factionalism than a small one is often invoked for its profundity, but Rothbard is not impressed:
Madison claimed that the greater diversity of interests over a large area will make it more difficult for a majority of the interests to combine and oppress a minority. It is difficult to see, however, why such a combination should be difficult….But the main fallacy in Madison’s argument is that it is part and parcel of the antidemocratic Federalist doctrine that the danger of despotic government comes, not from the government, but from among the ranks (i.e., the majority) of the public. The fallacy of this by now should be evident. Even if a majority approves an act of tyranny, it almost never initiates or elaborates or executes such action; rather they are almost always passive tools in the hands of the oligarchy of rulers and their allied favorites of the state apparatus. (pp. 270–71)
Rothbard concludes with this verdict on the Constitution:
Overall, it should be evident that the Constitution was a counterrevolutionary reaction to the libertarianism and decentralization embodied in the American Revolution. The Antifederalists, supporting states’ rights and critical of a strong national government, were decisively beaten by the Federalists, who wanted such a polity under the guise of democracy in order to enhance their own interests and institute a British-style mercantilism over the country. Most historians have taken the side of the Federalists because they support a strong national government that has the power to tax and regulate, call forth armies and invade other countries, and cripple the power of the states. The enactment of the Constitution in 1788 drastically changed the course of American history from its natural decentralized and libertarian direction to an omnipresent leviathan that fulfilled all of the Antifederalists’ fears. (p. 312)
There is evidence that Rothbard wrote the manuscript of this book before 1967 (see p. 312, editor’s note 7). But I do not think that he later changed his mind about the Constitution. Those who wish to challenge his brilliant analysis have a difficult task ahead of them.
How refreshing to read a widely published economics book which casts the Austrian School in its proper light!
The Economics Book is part of DK’s popular series, Big Ideas Simply Explained. The series takes an historical approach to over a dozen subjects such as religion, psychology, art, science, history, and literature.
The Economics Book starts with the early Greeks and progresses through the 2008 Financial Crisis. Along the way, the Austrian School features prominently, sometimes heroically. The authors characterize Austrians as “vociferous defenders of the free market” who “have carved out a unique place within the discipline” and “trod an uncompromising path” in favor of free markets.
By the late 18th century, economists like Adam Smith still puzzled over the diamond-water paradox, a mystery that remained unsolved for yet another century, when finally Menger and Bohm-Bawerk set forth diminishing marginal utility and the subjective theory of value — both foundational economic concepts. Thus was born the Austrian School “which defends the free market against the ideas of socialism.”
Next up, Friedrich von Wieser elucidates opportunity cost in 1914, establishing another cornerstone of economics.
Mises is cited no less than eleven times and is highlighted in the section on Central Planning in which a large pictogram concludes, “Socialism is the abolition of rational economy.” Much of the section is devoted to Mises’s economic calculation argument, which provided an ironclad rebuke of Marxism.
Hayek vies with Keynes for the title of “the 20th century’s most influential economist”. Hayek’s works on perfect competition (Individualism and Economic Order), socialism (The Road to Serfdom), spontaneous order (The Fatal Conceit), central planning (The Use of knowledge in Society), and Monetary Policy ( Denationalization of Money) profoundly impacted both economics and policy.
Schumpeter is noted for his work on innovation and entrepreneurship, a critical addition to land, labor, and capital as factors of production.
Looking at the many Austrian contributions to bedrock economic theory, a reader wonders where economics would be without the Austrians. Similarly, in light of the bulwarks against socialism built by Mises and Hayek one wonders where civilization itself would otherwise be.
Of course, many famous economists (Marx, Keynes, Krugman) have spent their careers searching for flaws in the market and Economics duly catalogs their many complaints while noting, “The Austrian School does not accept the concept of market failure, or at least sees it as trumped by government failure.”
While the historical sections give full credit to the Austrian School and its many important contributions, the section on Contemporary Economics presents mostly mainstream views. Its explanation of the 2008 housing crisis points toward market failure as lenders adopted irresponsible practices, borrowers became overconfident, and the market went off the rails:
“In the 1970s and 80s the standard mortgage was sold in a way that made sure that the interest and capital could be paid off, in what Minsky viewed as hedge units. However, by the end of the 1990s a sustained period of growth had pushed house prices up, persuading an increasing number of people to use interest-only mortgages as they speculated that prices would continue to rise. The financial system then began to supply a whole array of “Ponzi”-style mortgage deals to borrowers who had incomes so low that they could not afford to pay even the interest on the loan...”
True enough, but consulting Tom Woods’s Meltdown and other Austrian works would explain what caused the sustained period of growth and why lending standards deteriorated. These “market failures” were actually the result of market interferences; below market interest rates, politically mandated lending requirements, liar loan purchases by Fannie Mae, and a host of other market insults. A sidebar on Austrian Business Cycle Theory would have fit nicely in this section.
Nevertheless, The Economics Book is a terrific addition to popular economics; it’s comprehensive, even-handed, and well written. Many readers who might otherwise never hear of the Austrian School find an accurate portrayal of a principled, uncompromising champion of free markets, anchored by a series of intellectual giants.
Well done!
Why Does Inequality Matter?by T.M. ScanlonOxford University Press, 2018, 170 pp.
T.M. Scanlon, who taught philosophy for many years at Princeton and Harvard, is one of the leading moral and political philosophers of the past fifty years or so. Though far from a libertarian, he takes libertarian views with great seriousness and has endeavored to respond to them. He thinks that libertarianism gives inadequate consideration to the importance of certain kinds of equality, especially equality of income and wealth and also substantive equality of opportunity in chances to attain socially esteemed positions.
I’m going to address only these kinds of equality in what follows, though there are other senses of “equality” as well. As Scanlon recognizes, libertarians think that everyone has the same rights, and in this way accept equality; in Kantian terms, all persons have moral worth or dignity. This sense of “equality” certainly matters, and for most people isn’t controversial.
Scanlon distinguishes two sorts of concern with the kinds of equality I’m discussing here. Sometimes people favor equality because a sufficient degree of inequality can have bad effects on people, e.g., by causing them to lose self-respect; this is “equality in the broader sense.” There is also “equality in the narrower sense,” and this is what I shall mainly be talking about in this review. This concerns equality just taken as such: in this view, the fact that some people have much more than others is objectionable, even if those with less aren’t adversely affected by the difference.
If Scanlon’s criticisms of libertarianism are correct, he needs to show that equality of the sort he favors is morally mandated. Libertarians don’t think that it is, and simply to assume egalitarianism at the start would beg the question against them. Scanlon fully recognizes this requirement, and indeed goes further by saying that there appears to be a case that concern with equality is irrational. He says,
Insofar as a reason for reducing inequality is even broadly egalitarian—insofar as it is a reason for objecting to the difference between what some have and what others have—it might seem to count in favor of reducing that difference even if this made no one better off, and left some people (the rich) worse off. The apparent irrationality of such a move is the basis of what has been called the “leveling down objection.” (p. 3; see my discussion of the leveling down argument here)
To understand Scanlon’s response to this, we must first look at his standpoint in normative theory. He is a contractarian. Very roughly, he thinks that people in a society try to arrive at moral rules that no one could reasonably reject, assuming that everyone shares the wish to arrive at such rules. He does not think that strict equality, unmodified by any other considerations, is a rule that no one could reasonably reject. People might prefer rules that allow some degree of inequality, if this will make everyone better off, or at least no one worse off. This resembles John Rawls’s difference principle, but Scanlon’s requirement is less strict. The difference principle requires features of the basic structure permitting that departures from equality benefit the worst-off class to the greatest extent, compared with other rules that allow inequalities, but Scanlon requires only that allowing inequalities benefits the poor. He thinks that in practice, though, his requirement would come close to the same outcomes as Rawls’s. What could not be reasonably rejected is taking equality as the benchmark, from which departures have to be justified. He summarizes his requirement in this way: “[A] necessary condition for features of a basic structure that generate significant inequalities: it must be true that these inequalities could not be eliminated without infringing important personal liberties or that they are required in order for the economic system to function in a way that benefits all” (p. 141, emphasis in original). What Scanlon objects to here isn’t, then, the mere existence of a large inequality, but the fact that the inequality could be lessened without worsening the condition of the less well off or infringing important personal liberties.
I do not think Scanlon’s argument succeeds. He is right that if society is viewed as a scheme for social cooperation, people would reasonably reject any rule that would leave them worse off by entering the society than by staying out. But nothing more demanding than this is reasonably required, and it is only Scanlon’s importation of his own commitment to equality into his decision procedure for the rules of the basic structure that leads him to think otherwise.
The difference between what Scanlon’s principle of reasonable rejection actually requires and what he wrongly takes it to require emerges clearly in this passage.
Whether a particular system of property rights … is justifiable, and therefore violations of the rights it defines are therefore wrongful, depends on the system of holdings and exchange that the system creates. Such a system is justifiable if the benefits it provides are sufficiently important to make it unreasonable for people to object to being excluded from the system from access to objects and other opportunities they have reason to want. (p. 108)
It does not follow from this principle that all acceptable systems of holdings and exchange must ensure equal access to these goods, unless those who do not have equal access benefit from the allowed inequality. Equal access and total exclusion are two very different matters. I would go further. The standard of reasonable rejection doesn’t rule out exclusion from some, though not the entirety, of the objects and other opportunities people have reason to want so long as it meets the “worse off” requirement mentioned in the paragraph above.
Scanlon makes the same jump when he discusses substantive equality of opportunity. In his words, “Procedural Fairness concerns the process through which individuals are selected through positions of advantage. The requirement I have called Substantive Opportunity concerns the education and other conditions that are necessary to become a good candidate for selection through such a process” (p. 53). Once more, it does not follow from the fact that someone would reasonably reject a social system that denied him any chance of access to the best positions that he must reasonably reject systems that fell well short of the substantive equality that Scanlon favors. Scanlon’s notion of “reasonable rejection” leaves open more options than he recognizes.
Many critics of Lockean accounts of property acquisition, including Scanlon, claim that these accounts fail to recognize that most property rights are conventional rather than natural. I don’t think this criticism is correct, but it’s one I won’t be talking about here. I mention it only to bring out a feature of my main objection to Scanlon. Just as he and other critics of Lockean accounts argue that these theories fail to recognize how much is left open even when the right to acquire and hold property is acknowledged, I maintain that “reasonable rejection” leaves open how much social and economic inequality is morally permissible.
Many egalitarians dismiss Robert Nozick’s Wilt Chamberlain example, in which fans voluntarily pay Chamberlain a quarter from their incomes to watch him play basketball, but Scanlon to his credit does not. He says,
The extra dollars that Wilt receives from his fans for the pleasure of watching him play lead to a significant increase in economic inequality. Even if this inequality is something there is reason to prevent, it cannot be prevented by forbidding what Wilt and his fans do. What good is money if one can’t spend it on tickets to basketball games if that is what one wants to do? And it has to be up to Wilt whether to play for a given amount or not. (p. 110)
He goes on to argue, though, that recognizing these freedoms does not exclude taxing Chamberlain on his gains in order to preserve equality. Scanlon seems to me right to this extent. If you accept his contractarian framework, agreement on a system with this consequence is possible, though, as he recognizes, the taxation would have to be carefully designed so that it would not wipe out people’s exercise of their liberty to make exchanges. But, and this is the point I take to be crucial, a system of this sort isn’t required by that framework. If Scanlon thinks otherwise, this is another instance of his making his version of contractarianism more egalitarian than he has shown to be reasonably required.
Some people, such as the economist Gregory Mankiw, argue that people deserve to be paid according to what they contribute to production, i.e., that they should receive their marginal product. (As Scanlon correctly points out, this isn’t Nozick’s view, though in a free market this is what people will in fact tend to be paid.) Scanlon raises an objection to this. He points out that someone’s marginal product “is the difference that adding or subtracting a unit of what that participant does would make to the value of what is produced But … this purely subjunctive idea need not correspond with what a given participant ‘has contributed’ in the sense that seemed to apply to my first example” (p. 129). The first example in question has to do with causing or bringing about a product, and Scanlon’s point is that having a marginal product in the subjunctive sense need not involve this. Someone who coordinates the labor of others, e.g., may enable others to increase production but isn’t producing anything; nevertheless, the person has a marginal product. This objection seems to me misplaced. Scanlon’s argument here rests on the view, which I take to be a common economic fallacy, that only those engaged in certain types of labor are “really” producing things. Even if you see matters in Scanlon’s way, though, this contention has nothing to do with the fact that marginal product is defined subjunctively. If his “real” producers have a marginal product, that product will meet the subjunctive criterion and won’t be given some “real” economic value different from this.
If I am right, Scanlon hasn’t shown that his own contractarian framework requires the strongly egalitarian conclusions he thinks it does. His book deserves careful study, but my answer to “Why does [economic] inequality matter?” would be “It doesn’t.”
The Monetary Conservative: Jacques Rueff and Twentieth-Century Free Market Thoughtby Christopher S. ChivvisNorthern Illinois University Press, 2010xiv + 234 pages
The French economist Jacques Rueff was the foremost opponent in the twentieth century of the gold exchange standard, and his defense of the classical gold standard deserves close study. In this outstanding intellectual biography of Rueff, Christopher Chivvis, a political scientist working for the RAND Corporation, shows that belief in monetary stability dominated Rueff’s long and distinguished career.
Rueff’s commitment to the free market stemmed from his days as a student at L’École polytechnique, “a venerable training ground for future servants of the French state” (p. 19). Here he came under the influence of the economist Clément Colson, a strong supporter of the free market, although he was not a strict supporter of laissez-faire in the style of Paul Leroy-Beaulieu, the leader of the “Paris school.” Rueff adopted the position he had learned from Colson and held it throughout his professional life: although the free market was for the most part desirable, there was a role for the state as well. He did not fully share what in an essay in honor of Mises he called the latter’s “intransigence,” though on the deficiencies of the gold exchange standard he equaled or exceeded it.
Rueff’s fundamental argument is this. The greatest danger to the system of market prices is inflation, which impedes, if it does not altogether prevent, market coordination. What leads a government to inflate is deficit spending. If government programs are not paid for through taxes, the market is disoriented. People make investment and consumption decisions that lack a basis in genuine preferences because of the false prices that guide their actions. Inflation was “the work of the devil, because it respects appearances without destroying anything but the realities” (Rueff, qtd. on p. 105).
Rueff argues that inflation leads to totalitarianism.
Rueff’s analysis of the consequences of inflation is clearly rooted in and intended as an explanation of the interwar crisis. Faced with a cacophony of demands in the wake of World War I, one European government after another was driven down the road toward deficit spending, inflation, and eventually rationing and price fixing. Price fixing only created false rights…as social disorder increased, so did the appeal of totalitarian solutions to society’s problems. The destruction of property rights and the uprooting of the legal and constitutional foundation of society thus created the perfect environment for the rise of totalitarian dictatorships, which came to be seen as the only means of repressing inflation and restoring order. (p. 108)
The battle against inflation must be waged in the international monetary system as well as within each national economy, and here Rueff’s struggle against the gold exchange standard comes to the fore. In the Bretton Woods arrangements after World War II, the US dollar was convertible into gold at a fixed rate of exchange, but other countries’ monies needed only to be convertible to dollars.
Rueff’s central claim was that the U.S. deficit was the product of the Bretton Woods system…the problem was rooted in the growing use of dollars as foreign exchange reserves, which allowed the United States to run a balance of payments deficit without experiencing any contraction of domestic credit. Though dollars might theoretically be converted into gold, thus leading to a contraction in the U.S. monetary base, in practice, countries were very unlikely to contract when they could simply reinvest their dollars in U.S. money markets, which, unlike gold, earned interest….As long as this was the case, however, the U.S. deficit would continue to plague the system, and the dollar’s gold link would grow increasingly tenuous. (pp. 163–64)
Rueff turned out to be right, and under Nixon, the Bretton Woods system collapsed. But the US substituted for it an even more expansionary arrangement, just the opposite of the solution Rueff favored:
Rueff’s remedy for this situation was an end to the use of dollars as foreign exchange reserves and a return to convertible money. If the use of the dollar as a reserve currency were eliminated and the gold standard were reestablished, he wrote, the U.S. deficit would automatically require a restriction in the U.S. monetary base, a contraction in the United States, and a reduction of the U.S. deficit. In other words, a return to the gold standard would impose discipline on the United States, forcing it to spend within its means, while at the same time reducing the global inflationary impulse the Bretton Woods system was engendering. The deficit would come to an end, as would the arbitrary growth of government credit. (p. 165)
Rueff’s steadfast defense of the classical gold standard set him at odds with Keynesian economics, and Rueff proved equal to the challenge. He developed a penetrating critical analysis of Keynes’s General Theory. In brief, Keynes argues that the sum of consumption and investment spending can be insufficient to generate full employment if hoarding of money is widespread. Rueff responds that, given price flexibility, the demand to hold cash will not cause unemployment. Instead, it will shift resources to meet this demand.
Rueff attacked Keynes’s argument on the grounds that a shift from demand for goods and services to demand for liquidity or cash balances could not have a significant long-term effect on an economy. The claim was most easily illustrated in the case of the gold standard, where an increase in demand for cash would create an increased demand for gold and thus shift resources away from the production of other goods and services toward gold. This, in turn, would tend to increase the profitability of producing gold, increasing employment in that sector, and thereby resolving the unemployment that the original shift away from consumption had created. Rueff had more difficulty explaining how this same mechanism would function under a nonmetallic system, but he insisted that it did. (p. 135)
One could wish that Chivvis had made more of an effort to explain Rueff’s reasoning.
If we turn to Rueff’s article “The Fallacies of Lord Keynes’ General Theory” (available in The Critics of Keynesian Economics, ed. Henry Hazlitt, pp. 238–63), it is easy to excuse Chivvis’s truncated exposition. Rueff has his own way of explaining things, in large part influenced by his training as an engineer at the Polytechnique, and he is frequently hard to follow. For that reason, the article has been neglected (though Rothbard cites it in Man, Economy, and State), but it is a major effort of striking originality and depth.
Much of The Monetary Conservative offers a detailed account, here passed over, of Rueff’s long career in high financial circles. One can only admire the consistency of Rueff’s defense of sound money from the days of Raymond Poincare in the 1920s to Charles de Gaulle in the 1950s and ’60s. I hope that Chivvis’s book will lead to a revival of interest in this great economist and defender of freedom.
A new edition of Political Ponerology, by Andrew M. Łobaczewski, edited by Harrison Koehli, is now available on Amazon.Andrew M. Łobaczewski, Political Ponerology: The Science of Evil, Psychopathy, and the Origins of Totalitarianism, ed. Harrison Koehli, trans. Alexandra Chciuk-Celt, with a foreword by Michael Rectenwald, rev. ed. (Otto, NC: Red Pill Press, 2022). This strange and provocative book argues that totalitarianism is the result of the extension of psychopathology from a group of psychopaths to the entire body politic, including its political and economic systems. Political Ponerology is essential reading for concerned thinkers and all sufferers of past and present totalitarianism. It is especially crucial today, when totalitarianism has once again emerged, this time in the West, where it is affecting nearly every aspect of life, including especially the life of the mind.
When I first encountered Political Ponerology, I had been struggling to understand just how totalitarian leftism had effectively taken over the United States of America. Ever since my encounters with the rabid social justice warriors as a professor at New York University—recounted in my book Springtime for Snowflakes—I began to note, with no little alarm, the totalitarian character of the contemporary Left. Then the emergence of “woke” ideology and its metastasis from academia into the entire social body set me on a mission to understand the rise of totalitarianism—because I believed, and still do, that “wokism” is totalitarian. Far from being “liberal” in the classical sense, woke ideology is akin to the Jacobinism that fueled the communist revolutions in Russia, China, and elsewhere. It aims to tear down the established order in its entirety, and to remake the world in its image of utopia.
I began with the study of the Bolshevik revolution in Russia and continued by examining the exportation of Bolshevik variants to Eastern Europe and Asia. Communism was more interesting to me than Nazism and a much more neglected terrain in the US academy. Further, it was more relevant in the current context. In attempting to research leftist political criminality, I was both amazed and enraged at how the academy had buried much of the history. For example, searches for the practices of “struggle sessions” and “autocritique,” which were so prevalent during the Cultural Revolution in China, yielded next to nothing. These and related topics were either not treated or else simply disappeared. I suspected that a vast coverup had been undertaken.
Mind you, this area of study had never been my specialty. I had been an academic for almost thirty years. My work had been in the history of science and its intersections with culture in nineteenth-century Britain. I had latched onto a little-known development called “secularism,” founded by George Jacob Holyoake in 1851.See for example, Michael Rectenwald, “Secularism and the Cultures of Nineteenth-Century Scientific Naturalism,” British Journal for the History of Science 46, no. 2 (2012): 231–54, https://doi.org/10.1017/s0007087412000738; Michael Rectenwald, Nineteenth-Century British Secularism: Science, Religion, and Literature (New York: Palgrave Macmillan, 2016); and Michael Rectenwald, “Mid-Nineteenth-Century British Secularism and Its Contemporary Post-secular Implications,” in Global Secularisms in a Post-secular Age, ed. Michael Rectenwald, Rochelle Almeida, and George Levine (Boston: De Gruyter, 2015), 43–64. So, having relegated myself to this academic niche, I had quite a bit of catching up to do. Naturally, I foraged in The Black Book of Communism, a volume that is infamous among Western Marxists and which, thanks to their blithe dismissal, was a book I’d never even bothered to open while a Marxist myself, let alone read. There was so much studying to do, including digging in the Stalinist Digital Archive, which is available to me as an official retiree from NYU. I also read the classic texts on totalitarianism, the literary accounts written by now famous but still too-neglected authors, and later, the works of the Austrian school of economics.
Łobaczewski made the bold claim that he’d uncovered “the general laws of the origin of evil.” If true, the book was on par with Newton’s Principia in the physical sciences, while being of greater practical importance. And he approached this domain from the disciplinary perspective of psychology. Such an “individualist” methodology had been dismissed as mere “psychologism” in my own and many other fields of the humanities and social sciences. Łobaczewski’s insistence to focus on individual psychological disorders to understand the unfolding of “macrosocial evil” seemed mistaken to me initially, but this approach accords well with Joseph Schumpeter’s methodological individualism, which became a hallmark of the Austrian school. My assumption had always been that one needed to study political ideology and economics and that political ideology and economic theory explained nearly everything one needed to know about how and why totalitarian evil comes about.
But I started to become convinced that indeed a “mass formation psychosis”—a phrase recently reintroduced by dissidents and maligned by mainstream media in the context of covid propaganda—could begin with pathological individuals and spread throughout society, overtaking entire nations.
Łobaczewski walks the reader through the process, from beginning to inglorious end. I recognized the patterns that the author takes great pains to lay out. First, readers mistake the writing of schizoidal personalities—like Karl Marx and Friedrich Engels, for example—for profundity that they should take seriously:
That is the first mistake. The oversimplified schema of reality—pessimistic regarding human nature and devoid of psychological color—tends to be suggestive, exerting an intense attracting influence on individuals who are insufficiently critical, frequently frustrated as result of downward social adjustment, culturally neglected, or characterized by some psychological deficiencies of their own. Such writings provoke others to harsh criticism based on their healthy common sense, though they also fail to grasp the essential cause of the error (189).
Interpretations of such “doctrinaire” writing falls into three categories: aversion on the part of many on moralistic grounds; “critically-corrective” acceptance by normal people who incorporate the more valuable elements of the work and “trivialize the obvious errors” while supplementing “the schizoid deficiencies by means of their own richer worldview”; and “pathological acceptance” by those “afflicted with personality malformations or who have been injured by social injustice.” This last type of interpretation “often brutalizes the authors’ concepts and inspires acceptance of violent methods and revolutionary means” (189–90). I like to think that my own earlier acceptance of Marxism was of the second type.
The doctrinaire writing of often schizoidal personalities attracts “characteropathic personalities,” who take the ideologies purveyed and “recast them into an active propaganda form, and disseminate it with their characteristic pathological egotism and paranoid intolerance for any philosophies which may differ from their own” (191). These characteropathic personalities thus take what had circulated in limited circles and activate it on a societal level. Thus, the stage is set for psychopaths to emerge as party leaders.
This pattern matches the facts of historical totalitarianism. And I noted that the pattern holds today, down to the percentage of people that succumbs to totalitarian political ideology as well as the percentage that resists.
Speaking of ideology, Political Ponerology explains a phenomenon that had vexed me. How did Communist ideologues manage to convince the masses that they undertook their crimes for “the workers,” “the people,” or egalitarianism? But even more perplexing, how did the ideologues convince themselves that their crimes were for the good of the common man? Łobaczewski explains that totalitarian ideology operates on two levels; the terms of the original ideology are taken at face value by true believers, while the party insiders substitute secondary meanings for the same terms, and normal people are subjected to gaslighting. Only the cognoscenti, the psychopaths, know and understand the secondary meanings. They recognize that actions purportedly undertaken on behalf of “the workers” translate into the domination of the party and the state on behalf of the psychopaths themselves. The truth is the opposite of what the party insiders claim to be the case, and they know it. Political Ponerology thus explains the origin of “doublespeak,” which George Orwell portrays so well. Coincidentally, Łobaczewski finished Political Ponerology in 1984.
The book is both an anomaly and a monumental achievement. It represents the inaugural volume in a new science—ponerology, or the science of evil. It explains the emergence and development of macrosocial evil thoroughly and with scientific precision.
Just how did this book come to be written and this scientific field discovered? Both were born in a living laboratory. Łobaczewski was not only one of the scientists developing its methods. He was also a subject in that laboratory. Łobaczewski came of age under Nazism, during the German occupation of Poland, and later lived under communism. He became a psychologist and, given his clinical understanding of psychopathology, began to descry the psychopathological character of the Communist political system that had overtaken his homeland.
As I have mentioned, in Political Ponerology, Łobaczewski intervenes in the science of evil with a methodology that had been thought inapplicable to it—the methodological individualism and materialism of psychology. He claims for this new science of ponerology the prospect of understanding, and more or less remedying, what is among the most pernicious developments in modern history and the source of untold suffering.
Łobaczewski argues that an adequate study of totalitarianism had hitherto been impossible because it had been undertaken in the wrong registers. It had been treated strictly in terms of economics, literature, ideology studies, history, religion, political science, and international politics, among other approaches. One is reminded of the literary accounts and studies of the Soviet Union, the Eastern Bloc, and Nazi Germany—of the classic works by Hannah Arendt, Aleksandr Solzhenitsyn, Václav Benda, Václav Havel, and many others. These made indispensable contributions but had, owing to no fault of their own, necessarily failed to grasp the root of the problem—namely, the psychopathological dimension of the inception and development of “pathocracy,” or rule by psychopaths.
The responses of normal human beings to the gross injustices and disfigurement of reality perpetrated by the ruling bodies had hitherto only been understood by members of the social body in terms of conventional worldviews. Emotionality and moral judgments blinded victims to what beset them. The deficiencies in the approaches of scholars, as well as the moralism of laypersons, had left pathocracy essentially misapprehended and likewise left humanity without any effective defenses against it. Łobaczewski redresses these deficiencies and provides these defenses. In this sense—that is, in using a scientific methodology to treat socialism—Łobaczewski’s work is analogous to Ludwig von Mises’s Socialism: An Economic and Sociological Analysis, first published one hundred years ago.
Like Mises, Łobaczewski considers an appropriate taxonomy crucial to conveying scientific knowledge. He goes to great lengths to explain the necessity of taxonomy and to justify the introduction of objective, scientific terms, as well as the concepts they convey. Every science that enters an unknown territory has had to do the same, the author reminds us. Łobaczewski rightly deems terminology essential to the task of the scientific endeavor at hand because it isolates and defines the elements and provides the tools for controlling them. “I had no choice,” Łobaczewski writes, “but to resort to objective biological, psychological, and psychopathological terminology in order to bring into focus the true nature of the phenomenon” (5). Such naming, he makes clear, provides the best defense against the development and spread of pathocracy.
Sections of the book say so much that they may seem to convey mere generalities. But the reader must pay close attention as Łobaczewski discusses the normal psychological and psychosocial conditions of individuals and societies so that pathological characters, with their telling characteristics, can be discerned. Only with this knowledge can pathological characters be recognized, and, if possible, prevented from coming into positions of power. Łobaczewski discusses their characteristics with penetrating insight and remarkable lucidity. As I did, the reader living under similar conditions will take note of patterns and will validate the author’s findings by comparison to his or her own experience. The reader will thereby begin to find the defenses against the effects of pathocracy that the author promises. As Łobaczewski writes, “With reference to phenomena of a ponerogenic nature, mere proper knowledge alone can begin healing individual humans and helping their minds regain harmony” (8). Reading Political Ponerology thus constitutes an extended therapy session for those struggling to maintain their own sanity and humanity in the midst of insanity and inhumanity. It did for me.
Thus begins “an overall therapy of the world” (8).