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Why the "New World Order" Is Impossible to Implement without Creating Mass Chaos

Sat, 13/08/2022 - 20:15

Global elites have a "wonderful" plan for the rest of us, even if they don't intend to live within its strictures.

Original Article: "Why the "New World Order" Is Impossible to Implement without Creating Mass Chaos"

This Audio Mises Wire is generously sponsored by Christopher Condon. 

Categories: Current Affairs

After Secession, What Happens to the National Debt?

Sat, 13/08/2022 - 14:15

National divorce does happen, and debts are not necessarily repudiated as a result. We can look to examples from Latin America, Eastern Europe, and the Czech-Slovak split. 

Original Article: "After Secession, What Happens to the National Debt?"

This Audio Mises Wire is generously sponsored by Christopher Condon. 

Categories: Current Affairs

Is Economic Growth Synonymous with Ecological Destruction? The NYT Gets It Wrong (Again)

Sat, 13/08/2022 - 12:00

According to the New York Times (NYT) article July 17, 2022, “The pioneering economist says our obsession with growth must end,” a major threat to our living standard is the obsession with economic growth. Herman Daly—an economist that has been exploring for more than fifty years the relationship between economic growth and individuals’ living standards—is of the view that the pursuit of economic growth causing ecological harm.

He developed arguments in favor of a steady-state economy, one that forgoes the insatiable and environmentally destructive hunger for growth, recognizes the physical limitations of our planet and seeks sustainable economic and ecological equilibrium. According to Daly, the basic question that should be asked is whether growth ever becomes uneconomic.

Daly was influenced by Georgescu-Roegen known for his 1971 “The Entropy Law and the Economic Process,” in which he argued that all natural resources are irreversibly degraded when put to use in economic activity. As a result, at some point all of earth’s mineral resources would eventually be exhausted. 

Consequently, this is going to pose a threat to human life. Hence, Daly advocates imposing permanent government restrictions on the flow of natural resources through the world economy. Georgescu-Roegen’s work was decisive for the establishing of ecological economics as an independent academic subdiscipline in economics.

Moreover, on this way of thinking if one accepts that aiming at economic growth is bad news for the ecology, then one also must believe that striving to make profits is also bad for human’s living standards.

What we have here is a similar argument to the one presented in 1798 by Thomas Malthus in his “An Essay on the Principle of Population.” According to Malthus, the food supply and other related resources expand at a linear progression while the population is growing at a geometrical progression, which at some point would threaten human life.

Wealth Generation and Ecological Issues

If free fluctuations in the prices of goods and services are allowed to occur, the market will resolve the issue of resource depletion. For instance, the increase in the price of resource A because of strong demand for it is likely to lead individuals to use the less-costly resource B. In addition, likely substitutes are going to be introduced to replace the resource A with some other more abundant resources.

Furthermore, in a free-market economy individuals’ property rights will make sure that environmental polluters are more likely to be penalized since he inflicts damages to the person and property of other individuals. When government enterprises cause pollution, however, taxpayers are forced to compensate pollution victims.

Changes in GDP Depict Monetary Growth Not Economic Growth

The ecological economists also erroneously associate wealth generation and profits with changes in gross domestic product, even though changes in GDP have nothing to do with economic growth. Increases in the money supply drive much of the GDP growth rate. Increases in the money supply set in motion the menace of the boom-bust cycle and economic impoverishment, so it is not surprising that the so-called economic growth in terms of GDP is associated with all the negatives portrayed by ecological economics.

It follows that in addition to the government interference with businesses, the tampering with the money supply by the central bank also undermines individuals’ living standards. Again, the market economy requires free fluctuations in the relative prices. (Observe that the prices of goods and services are expressed in terms of money). In a free-market economy where money is selected by the market, changes in the relative prices are likely to reflect the true state of the relative demands for goods and services.

Once the central bank money replaces the market money, this opens the door for the central bank tampering with money supply. As a result, the relative price fluctuations no longer reflect the true state of the demand for goods and services.

Consequently, changes in the relative prices most likely generate misleading signals, as businesses respond to false signals produce goods and services that are not on the highest priority list of consumers. The ongoing tampering with financial markets by the central bank also sets in motion the menace of the boom-bust cycle.

Rather than measuring the wealth formation process, GDP depicts movements in the monetary turnover because of changes in money supply. Consequently, environmental issues most likely occur because of the growth rate of GDP, which is in fact the growth rate in money supply. This however has nothing to do with genuine economic growth. Again, changes in GDP mirrors changes in money supply.

According to economist Thomas DiLorenzo:

If the profit motive is the primary cause of pollution, one would not expect to find much pollution in socialist countries, such as the former Soviet Union, China, and in the former Communist countries of Eastern and Central Europe. That is, in theory. In reality, exactly the opposite is true: The socialist world suffers from the worst pollution on earth. Could it be that free enterprise is not so incompatible with environmental protection after all?

Moreover, according, to DiLorenzo:

The new German government has claimed that nearly 40 percent of the East German populace suffers ill effects from pollutants in the air. In Leipzig, half the children are treated each year for illnesses believed to be associated with air pollution. Eighty percent of eastern Germany’s surface waters are classified as unsuitable for fishing, sports, or drinking, and one out of three lakes has been declared biologically dead because of decades of untreated dumping of chemical waste. Much of the East German landscape has been devastated. Fifteen to 20 percent of its forests are dead, and another 40 percent are said to be dying. Between 1960 and 1980 at least 70 villages were destroyed and their inhabitants uprooted by the government, which wanted to mine high-sulfur brown coal.

With respect to the former Soviet Union, DiLorenzo writes:

According to economist Marshall Goldman, who studied and traveled extensively in the Soviet Union, “The attitude that nature is there to be exploited by man is the very essence of the Soviet production ethic.” … Water pollution is catastrophic. Effluent from a chemical plant killed almost all the fish in the Oka River in 1965, and similar fish kills have occurred in the Volga, Ob, Yenesei, Ural, and Northern Dvina rivers. Most Russian factories discharge their waste without cleaning it at all. Mines, oil wells, and ships freely dump waste and ballast into any available body of water…. The declining water level in the Caspian Sea has been catastrophic for its fish population as spawning areas have turned into dry land. The sturgeon population has been so decimated that the Soviets have experimented with producing artificial caviar. Hundreds of factories and refineries along the Caspian Sea dump untreated waste into the sea, and major cities routinely dump raw sewage…. The concentration of oil in the Volga is so great that steamboats are equipped with signs forbidding passengers to toss cigarettes overboard. As might be expected, fish kills along the Volga are a “common calamity.”

In a free market economy with property rights protection, it is in the interest of individuals to look after their property without violating the property rights of others. In the framework of government regulations and controls where the effective ownership is diluted, there is a diminished incentive to look after one’s own property. Hence, it is not surprising that in the former socialistic economies ecological problems were so widespread.

Conclusion 

Contrary to ecological economics, the important factor behind the environmental pollution and various climatic issues is not economic growth but the lack of free market. In the framework of a free-market economy with minimal government and without central bank, economic growth emerges because of wealth generation. The expansion in wealth coupled with the property rights protection is likely to minimize the ecological problems.

This contrasts with the former socialist economies that suffered from terrible ecological issues. The erroneous view that strong economic growth is bad for the ecology is because economic growth is measured in terms of GDP, in which the key driving factor is money supply. Unfortunately, it is popular to blame the nonexistent free-market economy for the environmental pollution and climate issues. Further government interference with markets intensifies the undermining of efficient allocation of scarce resources. Consequently, this undermines individuals’ living standards and creates ecological issues.

Categories: Current Affairs

If Mauritius is a Tax H(e)aven, Other African Countries Must be Tax Hells

Sat, 13/08/2022 - 12:00

It is common for commentator to point to corruption, incompetence, malicious Western meddling, and other factors as the source of Africa’s continued economic woes. One seldom hears so-called experts point to taxes as a major impediment to economic development. Even “development economists” do not repudiate Africa’s paradoxically onerous tax regimes.

Worse still, powerful (and harmful) neocolonialist institutions, such as the International Monetary Fund (IMF), tend to “advise” African governments to expand tax schedules and to increase tax rates further as government debt levels grow dangerously high across Africa. Refreshingly, Mauritius has taken a different approach by implementing a relatively low and attractive tax code. Unsurprisingly, Mauritius has been denounced for its low tax posture, calling it a “tax haven.”

Tax Haven? Not Really

There is no such thing as a tax haven. “Tax havens” should, in truth, be called less tyrannical tax countries. Such jurisdictions have been deliberately labeled “tax havens” to stigmatize them in a time when heavy taxation is the norm.

Perspective and context matter. From the standpoint of governments, it makes a great deal of sense to demonize and undermine jurisdictions that maintain relatively straightforward tax codes and low tax rates for two reasons: first, to prevent “tax havens” from gaining much traction or acceptance; second, because the proliferation of “tax havens” exposes the fact that today’s “normal” tax types and rates amount to tyrannical taxation. Therefore, the more stigmatized “tax havens” are, the more unacceptable they will appear to the general public (as statist pundits largely shape public opinion) and the more legitimacy governments will attain to tax more.

The word “haven” means a place of safety or refuge. An oasis in the desert. A warm shelter in a snowy winter. Semantically, a haven is a thing or place that provides safety, security, or protection from an unpleasant, dangerous, or aggressing force. By stigmatizing low tax jurisdictions as “tax havens,” the system unwittingly admits that taxation is an unpleasant, oppressive, and aggressing force, especially considering today’s overcomplicated and burdensome tax regimes.

The system further admits that non–tax havens, places with what is considered “normal” taxation, are in fact obnoxious and overbearing tax regimes that compel those who are able and willing to escape to a haven—a place of safety and tranquility. That being so, one can contend that ultimately the phrase “tax haven” has been introduced to dupe the public, stigmatize low-tax jurisdictions, and legitimize oppressive tax regimes.

Mauritius has been criticized for being a “tax haven” in the African context. But Mauritius is not really a tax h(e)aven. We live in a world characterized by convoluted and tyrannical taxation—a world of tax hells—so introducing the concept of “tax haven” was desirable and helpful to the system. Mauritius is a “tax h(e)aven” only insofar as African (and other) countries are tax hells.

It is plausible that most individuals and businesses would much rather reside in a tax h(e)aven than in a tax hell. This is not greed. It is human nature to want to keep as much of what one has earned as possible. That is why a simple and light tax burden is naturally alluring.

Africa’s Tyrannical Taxation

According to Business Insider Africa:

Corporate tax rates are generally higher in developing countries. In Africa, the average corporate tax rate is 27.5%—the highest of any region. Chad, Comoros, Equatorial Guinea, Guinea, Sudan, and Zambia all tie for the second-highest corporate tax rate in the world at 35.0%. Many countries in the region also rank as the worse for ease of doing business, with high start-up costs and multiple barriers to entry.

No wonder Africa’s massive unemployment problem is chronic and worsening. Businesses—particularly microenterprises and small and medium firms—are an economy’s backbone and thus the principal job creators. Taxes (and bureaucratic hurdles) should be as low as possible to facilitate local capital formation, investment, and entrepreneurship, as well as attract foreign capital, businesses, and talent and the expertise they bring with them. So, the fact that the poorest region has the highest businesses tax rates globally is both revealing and bewildering. It is as though African governments were more interested in further increasing their power and control over people’s lives than in spurring economic development.

No society has ever become prosperous and stayed prosperous while maintaining heavy taxation. Indeed, Africa’s onerous tax regimes are a significant impediment to true economic growth and development. In his article “High Tax Rates Hurt Innovation and Prosperity, New Data Suggest,” Daniel J. Mitchell, an economist who specializes in fiscal policy and tax competitiveness, summed it up well: “Yet again, research shows tax rates should be as low as possible to produce as much prosperity as possible.”

The tragedy of tyrannical taxation in Africa is not limited to businesses. It is personal too. Consider the case of Ivory Coast, which has a shocking personal income tax rate of 60 percent, the highest income tax rate in the world. Another example is South Africa, whose people are among the top ten most heavily taxed globally. In fact, South Africa may have the most overbearing tax burden in Africa. This list showcases Africa’s paradoxically heavy tax rates.

As if existing tax burdens were not obnoxious and oppressive enough, some African governments, such as those of Angola, Nigeria, Ghana, Kenya, and Egypt, are scrambling to increase tax rates and impose new types of taxes. In Kenya, the government even attempted to impose a tax on church tithes and offerings, soon after imposing a 16 percent value-added tax on digital transactions. Likewise, Ghana, despite protests, has imposed a new tax digital on payments called e-levy.

One wonders whose interests African public servants have at heart.

Sound economic reasoning, historical evidence, and common sense tell us that taxation is associated with tyranny, and that the heavier the tax burden, the more tyrannical it is. The tragic irony of postcolonial Africa is that tax-wise, African governments are more oppressive and punitive than colonial regimes were. While precolonial African societies were characterized by free markets and free trade, with little to no taxation, postcolonial African societies are characterized by authoritarian governments, tyrannical taxation, and heavily regulated economic systems that choke economic development and perpetuate poverty.

Conclusion

The concept of “tax haven” was introduced to stigmatize and undermine low tax jurisdictions precisely because much of humanity is tyrannically taxed. If relatively low tax countries are h(e)avens, “normal” tax countries must be tax hells.

So, instead of bashing Mauritius, African politicians should match or surpass that nation’s tax code. Perhaps a day will come when African states try to outcompete one another in offering the simplest and lowest tax burden. Until then, sadistic people who rejoice in high taxes will remain happy with African governments because they have been doing exceedingly well in keeping African societies heavily taxed, deprived, and oppressed.

Categories: Current Affairs

Spotlight on Keynesian Economics

Sat, 13/08/2022 - 11:00
Its Significance

Fifty years ago, an exuberant American people knew little and cared less about economics. They understood, however, the virtues of economic freedom, and this understanding was shared by the economists, who supplemented common sense with sharper tools of analysis.

At present, economics seems to be the number one American and world problem. The newspapers are filled with complex discussions of the budget, wages and prices, foreign loans, and production. Present-day economists greatly add to the confusion of the public. The eminent Professor X says that his plan is the only cure for world economic evils; the equally eminent Professor Y claims that this is nonsense—so whirls the merry-go-round.

However, one school of thought—the Keynesian—has succeeded in capturing the great majority of economists. Keynesian economics—proudly proclaiming itself as "modern," though with its roots deep in medieval and mercantilist thought—offers itself to the world as the panacea for our economic troubles. Keynesians claim, with supreme confidence, that they have "discovered" what determines the volume of employment at any given time. They assert that unemployment can be readily cured through governmental deficit spending, and that inflation can be checked by means of government tax surpluses.

With great intellectual arrogance, Keynesians brush aside all opposition as being "reactionary," "old-fashioned," etc. They are extremely boastful of having gained the allegiance of all the young economists—a claim that has, unfortunately, a good deal of truth. Keynesian thinking has flourished in the New Deal, in the statements of President Truman, his Council of Economic Advisers, Henry Wallace, labor unions, most of the press, all foreign governments and United Nations committees, and, to a surprising extent, among "enlightened businessmen" of the Committee for Economic Development variety.

Against this onslaught, many sincere liberal-minded citizens have been swayed by the Keynesians—particularly by their argument that the wide governmental intervention they advocate will "solve the problem of unemployment." The most dismaying aspect of the situation is that the Keynesian arguments have not been countered effectively by the liberal economists, who have generally been helpless in the tidal wave. Liberal economists have confined their attacks to the political program of the Keynesians—they have not dealt adequately with the economic theory on which this program is based. As a result, the Keynesians' claim that their program will insure full employment has largely gone unchallenged.

The reason for this weakness on the part of liberal economists is understandable. They were brought up on "neoclassical economics," which is grounded on careful analysis of economic realities and based on the actions of individual units in the economic system. The Keynesian theory is based on a model of the economic system—a model that drastically oversimplifies reality and yet is extremely complex because of its abstract and mathematical nature. For this reason, liberal economists found themselves confused and bewildered by this "new" economics. Since Keynesians were the only economists equipped to discuss their system, they were easily able to convince the younger economists and students of its superiority.

To launch a successful counterattack against the Keynesian invasion, therefore, requires more than righteous indignation toward the proposals for government action in the Keynesian program. It requires a well-informed citizenry who thoroughly understand the Keynesian theory itself, with its numerous fallacies, unrealistic assumptions, and faulty concepts. For this reason it will be necessary to tread a difficult path through a complex maze of technical jargon in order to examine the Keynesian model in some detail.

Another difficulty in the task of examining Keynesianism is the sharp difference of opinion between various branches of the movement. All shades of Keynesians, however, agree in sharing a common attitude towards the function of the State, and all accept the Keynesian model as a basis for analyzing the economic situation.

All Keynesians conceive of the State as a great potential reservoir of benefits, ready to be tapped. The prime concern for the Keynesian is to decide on economic policy—what should be the economic ends of the State and what means should the State adopt to achieve them? The State is, of course, always synonymous with "we": What should "we" do to insure full employment? is a favorite query. (Whether the "we" refers to the "people" or to the Keynesians themselves is never quite made clear.)

In medieval and early modern times, the ancestors of the Keynesians who advocated similar policies also proclaimed that the State could do no wrong. At that time, the king and his nobles were the rulers of the State. Now we have the dubious privilege of periodically choosing our rulers from two sets of power-thirsty aspirants. That makes it a "democracy."1 So, the rulers of the State, being "democratically elected" and therefore representing the "people," are allegedly entitled to control the economic system and coerce, cajole, "influence," and redistribute the wealth of their reluctant subjects.

A recent important illustration of Keynesian political thinking was the Truman message vetoing income tax reduction. The main reason for the veto was that high taxes are necessary to "check inflation," since a "boom" period calls for a budget surplus to "drain off excess purchasing power."

Superficially, this argument seems convincing, and it is supported by almost all economists, including many non-Keynesian conservatives. They are all very proud of the fact that they are opposing the "politically easy" route of reducing taxes in the interests of scientific truth, national welfare, and the "fight against inflation."

It is necessary, however, to analyze the problem more closely. What is the essence of inflation? It consists of rising prices—some prices rising more rapidly than others.2 What is a price? It is a sum of money (general purchasing power) paid voluntarily by one individual to another in exchange for a definite service rendered by the second individual to the first. This service may be in the form of a tangible commodity or an intangible benefit.

On the other hand, what is a tax? A tax is the coercive expropriation of the property of an individual by the rulers of the State. The rulers use this property for whatever purposes they desire—usually the rulers will distribute it in such a manner as to insure their continuance in office, i.e., by subsidizing favored groups. In addition, the rulers decide which individuals will pay the taxes—the decision consisting of expropriating the property of groups disliked by the rulers.

A price, therefore, is a free act of voluntary exchange between two individuals, both of whom benefit by the exchange (else the exchange would not be made!). A tax is a compulsory act of expropriation, with no benefit accruing to the individual (unless he happens to be on the receiving end of property expropriated by the State from someone else).

In the light of this distinction, advocating high taxes to prevent high prices is similar to a highway robber assuring the victim that his robbery is checking inflation, since the robber doesn't intend on spending the money for quite some time or that the robber might use it to repay his own debts. When will the American people wake up to the realization that robbery only benefits the robber, and that the edict "thou shalt not steal" applies to rulers (and Keynesians) as well as to anybody else?

The Model Explained

The Keynesian theory (or model) highly oversimplifies the real world by dealing with a few large aggregates, lumping together the activity of all individuals in a nation.

The basic concept used is aggregate national income, which is defined as equal to the money value of the national output of goods and services during a given time period. It is also equal to the aggregate of income received by individuals during the period (including undistributed corporate profits).

Now, the fundamental equation of the Keynesian system is aggregate income = aggregate expenditures. The only way any individual can receive any money income is for some other individual to spend an equal sum. Conversely, every act of expenditure by an individual results in an equivalent money income for someone else. This is obviously, and always, true. Mr. Smith spends one dollar in Mr. Jones's grocery—this act results in one dollar of income for Mr. Jones. Mr. Smith receives his annual income as a result of an act of expenditure by the XYZ Company; the XYZ Company receives its annual income as a result of expenditures made by all its customers, etc. In every case, expenditures, and only expenditures, can create money income.

Aggregate expenditures are classified into two basic types: (1) final expenditure for goods and services that have been produced during the period equals consumption, and (2) expenditure on the means of production of these goods equals investment. Thus, money income is created by decisions to spend, consisting of consumption decisions and investment decisions.

Now, an individual, upon receiving his income, divides it between consumption and saving. Saving, in the Keynesian system, is defined simply as not spending on consumption. A fundamental Keynesian tenet is that, for any particular level of aggregate income, there is a certain definite, predictable amount that will be consumed and a definite amount that will be saved. This relationship between aggregate income and consumption is considered to be stable, fixed by the habits of consumers. In the mathematical Keynesian jargon, aggregate consumption (and therefore aggregate savings) is a stable, passive function of income (the famous consumption function). For example, we shall use the consumption function: consumption = 90 percent of income. (This is a highly simplified function, but it serves to illustrate the basic principles of the Keynesian model.) In this case, the savings function would be savings = 10 percent of income.

Consumption expenditures are, therefore, passively determined by the level of national income. Investment expenditures, however, are, according to the Keynesians, effected independently of the national income. At this stage, what determines investment is not important—the crucial point is that it is determined independently of the income level.

We have left out two factors that also determine the level of expenditures. If exports are greater than imports, the total amount of expenditures in a country is increased, hence national income increases. Also, a government budget deficit increases aggregate expenditures and income (provided that other types of expenditure can be assumed to be constant). Setting aside the foreign trade problem, it is obvious that government deficits or surpluses are, like investment, decided independently of the level of national income.

Thus, income = independent expenditures (private investment + government deficit) + passive consumption expenditures. Using our illustrative consumption function, income = independent expenditures + 90 percent of income. Now, by simple arithmetic, income equals ten times independent expenditures. For every increase in independent expenditures, there will be a ten-fold increase in income. Similarly, a decrease in independent expenditures will lead to a ten-fold drop in income. This "multiplier" effect on income will be achieved by any type of independent expenditure—whether private investment or government deficit. Thus, in the Keynesian model, government deficits and private investment have the same economic effect.

Let us now examine in detail the process whereby an equilibrium income is determined in the Keynesian model. The equilibrium level is the level at which national income tends to settle.

Let us assume that aggregate income = 100, consumption = 90, savings = 10, and investment = 10. Also assume that there is no government deficit or surplus. For the Keynesians, this situation is a position of equilibrium—income tends to remain at 100. A position of equilibrium is reached because both main groups in the economy—business firms and consumers—are satisfied. Business firms, in the aggregate, pay out 100. Of this 100, 10 is invested in capital and 90 is paid out while producing consumers' goods. Aggregate business firms expect this 90 to be returned to them through the sale of consumers' goods. The consumers fulfill the expectations of business firms by dividing the income of 100 into consuming 90 and saving 10. Thus, aggregate business firms are just satisfied with the situation, and aggregate consumers are satisfied because they are consuming 90 percent of their income and saving 10 percent.

Now, let independent expenditures increase to 20, either because of an increase in private investment or because of a government deficit. Now, income payments to consumers is 90 + 20 = 110. Consumers, receiving 110, will wish to consume 90 percent of it, or 99, and save 11. Now, business firms, who had expected a consumption of 90, are pleasantly surprised to see consumers bidding up prices and reducing merchants' stocks in an effort to consume 99. As a result, business firms expand their output of consumer goods to 99 and pay out 99 + 20 = 119, expecting a return of 99 in consumption sales. But again they are pleasantly surprised, since consumers will wish to spend 90 percent of 119, or 107. This process of expansion continues until income is again equal to ten times investment—when consumption is again equal to 90 percent of income. The point will be reached when income = 200, investment = 20, consumption = 180, and saving = 20.

It is important to notice that equilibrium was reached in both cases when aggregate investment = aggregate saving. The above equilibrium process can be described in terms of saving and investment: When investment is greater than saving, the economy expands and national income rises until aggregate saving equals aggregate investment. Similarly, the economy contracts if investment is less than saving, until they are again equal.

Note that two very important things must remain constant in order that equilibrium be reached. The consumption function (and therefore the savings function) is assumed to be constant throughout while the level of investment is constant at least until equilibrium is reached. The question now arises: what is so important about aggregate money income that it should be the continual focus of attention? Before this question can be answered, it is necessary to make certain assumptions.

Assume that the following things be considered as given (or constant): the existing state of all techniques, the existing efficiency, quantity, and distribution of all labor, the existing quantity and quality of all equipment, the existing distribution of national income, the existing structure of relative prices, the existing money wage rates (!), and the existing structure of consumer tastes, natural resources, and economic and political institutions.

Then, given these assumptions, for every level of national money income, there corresponds a unique, definite volume of employment. The higher the national income, the greater will be the volume of employment, until a state of "full employment" is reached. (We can define full employment as simply a very low level of unemployment.) After the full-employment level is reached, a higher money income will represent only a rise in prices, with no rise in physical output (real income) and employment.

Summing up the above model, known as the Keynesian theory of underemployment equilibrium: To each level of national income there corresponds a unique level of employment. There is, therefore, a certain level of income to which corresponds a state of full employment, without a great rise in prices. An income below this "full-employment" income will signify large-scale unemployment; an income above will mean large price inflation.

The level of income, in a private enterprise system, is determined by the level of independent investment expenditures and consumption expenditures that are a passive function of the income level. The resulting level of income will tend to settle at the point where aggregate investment equals aggregate saving.

Now (and here is the grand Keynesian climax), there is no reason whatsoever to assume that this equilibrium level of income determined in the free market will coincide with the "full-employment" income level—it may be more or less.

This is the model of the private economy accepted by all Keynesians. The State, assert the Keynesians, has the responsibility of keeping the economic system at the "full-employment" income level, since "we" cannot depend on the private economy to do so.

The Keynesian model furnishes the means by which the State can fulfill this task. Since government deficits have the same effects on income as does private investment, all that the State must do is to estimate the expected equilibrium income level of the private economy. If it is below the "full-employment" level, the State can engage in deficit spending until the desired income level is reached. Similarly, if it is above the desired level, the State can engage in budget surpluses through high taxes. The State, if it so desires, can also stimulate or discourage private investment or consumption via taxes and subsidies, or impose tariffs if it desires to create an export surplus. The favorite Keynesian prescription for stimulating consumption is progressive income taxation, since the "rich" do most of the saving. The favorite method of "encouraging private investment" is to subsidize "progressive" and "enlightened" industrialists as against "Tory big business."

The Model Criticized

We remember that for the Keynesian model to be valid, the two basic determinants of income, namely, the consumption function and independent investment, must remain constant long enough for the equilibrium of income to be reached and maintained. At the very least, it must be possible for these two variables to remain constant, even if they are not generally constant in actuality. The core of the basic fallacy of the Keynesian system is, however, that it is impossible for these variables to remain constant for the required length of time.

We recall that when income = 100, consumption = 90, savings = 10, and investment = 10, the system is supposed to be in equilibrium, because the aggregate expectations of business firms and the public are fulfilled. In the aggregate, both groups are just satisfied with the situation, so that there is allegedly no tendency for the income level to change. But aggregates are meaningful only in the world of arithmetic, not in the real world. Business firms may receive in the aggregate just what they had expected; but this does not mean that any single firm is necessarily in an equilibrium position. Business firms do not make earnings in the aggregate. Some firms may be making windfall profits, while others may be making unexpected losses. Regardless of the fact that, in the aggregate, these profits and losses may cancel each other, and each firm will have to make its own adjustments to its own particular experience. This adjustment will vary widely from firm to firm and industry to industry. In this situation, the level of investment cannot remain at 10, and the consumption function will not remain fixed, so that the level of income must change. Nothing in the Keynesian system, however, can tell us how far or in what direction any of these variables will move.

Similarly, in the Keynesian theory of the adjustment process toward the level of equilibrium, if aggregate investment is greater than aggregate saving, the economy is supposed to expand toward the level of income where aggregate saving equals aggregate investment. In the very process of expansion, however, the consumption (and savings) function cannot remain constant. Windfall profits will be distributed unevenly (and in an unknown fashion) among the numerous business firms, thus leading to varying types of adjustments. These adjustments may lead to an unknown increase in the volume of investment. Also, under the impetus of expansion, new firms will enter the economic system, thus changing the level of investment.

In addition, as income expands, the distribution of income among individuals in the economic system necessarily changes. It is an important fact, usually overlooked, that the Keynesian assumption of a rigid consumption function assumes a given distribution of income. Therefore, the change in the distribution of income will cause change of unknown direction and magnitude in the consumption function. Furthermore, the undoubted emergence of capital gains will change the consumption function.

Thus, since the basic Keynesian determinants of income—the consumption function and the level of investment—cannot remain constant, they cannot determine any equilibrium level of income, even approximately. There is no point toward which income will move or at which it will tend to remain. All we can say is that there will be a complex movement in the variables of an unknown direction and degree.

This failure of the Keynesian model is a direct result of misleading aggregative concepts. Consumption is not just a function of income; it depends, in a complex fashion, on the level of past income, expected future income, the phase of the business cycle, the length of the time period under discussion, on prices of commodities, on capital gains or losses, and on the cash balances of consumers.

Furthermore, the breakdown of the economic system into a few aggregates assumes that these aggregates are independent of each other, that they are determined independently and can change independently. This overlooks the great amount of interdependence and interaction among the aggregates. Thus, saving is not independent of investment; most of it, particularly business saving, is made in anticipation of future investment. Therefore, a change in the prospects for profitable investment will have a great influence on the savings function, and hence on the consumption function. Similarly, investment is influenced by the level of income, by the expected course of future income, by anticipated consumption, and by the flow of savings. For example, a fall in savings will mean a cut in the funds available for investment, thus restricting investment.

A further illustration of the fallacy of aggregates is the Keynesian assumption that the State can simply add or subtract its expenditures from that of the private economy. This assumes that private investment decisions remain constant, unaffected by government deficits or surpluses. There is no basis whatsoever for this assumption. In addition, progressive income taxation, which is designed to encourage consumption, is assumed to have no effect on private investment. This cannot be true, since, as we have already noted, a restriction of savings will reduce investment.

Thus, aggregative economics is a drastic misrepresentation of reality. The aggregates are merely an arithmetic cloak over the real world, where multitudes of firms and individuals react and interact in a highly complex manner. The alleged "basic determinants" of the Keynesian system are themselves determined by complex interactions within and between these aggregates.

Our analysis is confirmed by the fact that the Keynesians have been completely unsuccessful in their attempts to establish an actual, stable consumption function. Statistics bear out the fact that the consumption function shifts considerably with the month of the year, the phase of the business cycle, and over the long run. Consumer habits have definitely changed over the years. In the short run, a change in family income will only lead to a change in consumption after a lag of a certain period of time. In other cases, changes in consumption may be induced by expected changes in income (e.g., consumer credit). This instability of the consumption function eliminates the possibility of any validity of the Keynesian model.

Still another fundamental fallacy in the Keynesian system is the assumed unique relation between income and employment. This relation depends, as we have noted above, upon the assumption that techniques, the quantity and quality of equipment, and the efficiency and wage rate of labor are fixed. This assumption leaves out factors of basic importance in economic life and can only be true over an extremely short period. Keynesians, however, attempt to use this relation over long periods as a basis for predicting the volume of employment. One direct result was the Keynesian fiasco of predicting eight million unemployed after the end of the war.

The most important device that insures the unique relation between income and employment is the assumption of constant money wage rates. This means that in the Keynesian model, an increase in expenditures can only increase employment if money wage rates do not rise. In other words, employment can only increase if real wage rates fall (wage rates relative to prices and to profits). Also, there cannot be an equilibrium level of large-scale unemployment in the Keynesian model unless money wage rates are rigid and are not free to fall.

This result is extremely interesting, since classical economists have always maintained that employment will only increase if real wage rates fall, and that large-scale unemployment can only persist if wage rates are prevented from falling by monopolistic interference in the labor market. Both Keynesians and liberal economists recognize that money wage rates, particularly since the advent of the New Deal, are no longer free to fall due to monopolistic governmental and trade-union control of the labor market.

Keynesians would remedy this situation by deceiving unions into accepting lower real wage rates, while prices and profits rise via government deficit spending. They propose to accomplish this feat by relying on trade-union ignorance, coupled with frequent appeals to a "sense of responsibility by the labor leadership." In these days when unions emit cries of anguish and threaten to strike at every sign of higher prices or larger profits, such an attitude is incredibly naive. Far from having a sense of responsibility, the aim of most unions seems to be wage rates that increase rapidly and continuously, lower prices, and nonexistent profits.

It is evident that the liberal solution of reestablishing a freely competitive labor market through the elimination of union monopolies and governmental interference is an essential requisite for the rapid disappearance of unemployment as it arises in the economic system.

Keynesians, particularly those who are rabid partisans of the "liberal-labor movement", attempt to refute this solution by contending that cuts in money wage rates would not 1ead to a reduction of unemployment. They claim that wage-incomes would be reduced, thereby reducing consumer demand, and lowering prices, leaving real wage rates at their previous level.

This argument rests on a confusion between wage rates and wage incomes. A reduction in money wage rates, particularly in industries where wage rates have been most rigid, will lead immediately to an increase in hours worked and the number of men employed. (Of course, the amount of the increase will vary from industry to industry.) In this way, the total payroll is increased, thus increasing wage incomes and consumer demand. A fall in money wage rates will have an especially favorable employment effect in the construction and capital-goods industries. It is just these industries that now have the strongest unions.

Furthermore, if wage incomes are reduced, then the incomes of entrepreneurs and others will be increased and total "purchasing power" in the community will not decline.

The "Mature Economy"

It is important to recall that Keynesianism was born and was able to capture its widespread following under the impetus of the Great Depression of the thirties, a depression unique in its length and severity, and, especially, in the persistence of large-scale unemployment. It was its attempt to furnish an explanation for the events of the thirties that gained Keynesianism its popular following. Using a model with assumptions that restrict its application to a very short period of time, and completely fallacious in its dependence on simple aggregates, all Keynesians confidently ordered government deficits as the cure.

In interpreting the significance of the Depression, however, Keynesians part company. "Moderates" maintain that it was simply a severe depression in the familiar round of business cycles. "Radical" Keynesians, headed by Professor Hansen of Harvard, assert that the thirties ushered in an era in the United States of "secular (long-run) stagnation." They claim that the American economy is now mature, that opportunities for investment and expansion are largely ended, so that the level of investment expenditures can be expected to remain at a permanently low level, at a level too low to ever provide full employment. The cure for this situation, according to the Keynes-Hansenites, is a permanent government program of deficit expenditures on long-range projects, and heavy progressive income taxation to permanently increase consumption and discourage savings.

Where the Hansen stagnation thesis goes beyond the Keynesian model is in its attempt to explain the determinants of the level of investment. Investment is supposed to be determined by the "extent of investment opportunities" that are, in turn, determined by (1) technological improvement, (2) the rate of population growth, and (3) the opening of new territory. The Hansenites go on to draw a gloomy picture of private investment opportunities in the modern world.

The decade of the thirties was the first in American history with a decline in population growth, and there is no new territory to develop—the "frontier" is closed. Consequently, we can rely only on technological progress to provide investment opportunities, opportunities that have to be much greater than in the past to "make up" for the unfavorable changes in the other two factors. As for technological progress, that too is slowing down. After all, the railroads have already been built and the automobile industry has reached maturity. Whatever minor improvements there might be will probably be withheld by "reactionary monopolists," etc.

Let us examine each of Hansen's alleged determinants of investment. The gloom concerning the lack of new lands to develop—the vanishing of the "frontier"—can be dispelled quickly. The frontier disappeared in 1890 without appreciably affecting the rapid progress and prosperity of America; obviously it can be no source of trouble now. This is borne out by the fact that, since 1890, investment per head in the older sections of America has been greater than in the recent frontier sections.

It is difficult to see how a decline in population growth can adversely affect investment. Population growth does not provide an independent source of investment opportunity. A fall in the rate of population growth can only affect investment adversely if

  1. All the wants of existing consumers are completely satisfied. In that case, population growth would be the only additional source of consumer demand. This situation clearly does not exist; there are an infinite number of unsatisfied wants.

  2. The decline would lead to reduced consumer demand. There is no reason why this should be the case. Will not families use the money that they otherwise would have spent on their children for other types of expenditures?

In particular, Hansen claims that the catastrophic drop in construction in the thirties was caused by the decline in population growth, which reduced the demand for new housing. The relevant factor in this connection, however, is the rate of growth in the number of families; this did not decline in the thirties. Furthermore, Manhattan has had a declining total population (not merely the rate of growth) since 1911, yet in the 1920s Manhattan had the biggest residential building boom in its history.

Finally, if our malady is underpopulation, why has no one suggested subsidizing immigration to cure unemployment? This would have the same effect as a rise in the rate of growth of population. The fact that not even Hansen has suggested this solution is a final demonstration of the absurdity of the "population growth" argument.

The third factor, technological progress, is certainly an important one; it is one of the main dynamic features of a free economy. Technological progress, however, is a decidedly favorable factor. It is proceeding now at a faster rate than ever before, with industries spending unprecedented sums on research and development of new techniques. New industries loom on the horizon. Certainly there is every reason to be exuberant rather than gloomy about the possibilities of technological progress.

So much for the threat of the mature economy. We have seen that of the three alleged determinants of investment, only one is relevant, and its prospects are very favorable. The Hansen mature-economy thesis is at least as worthless an explanation of economic reality as the rest of the Keynesian apparatus.

So ends our lengthy analysis of the most successful and pernicious hoax in the history of economic thought—Keynesianism. All of Keynesian thinking is a tissue of distortions, fallacies, and drastically unrealistic assumptions. The vicious political effects of the Keynesian program have only been briefly considered. They are only too obvious: the rulers of the State engaging in direct robbery through "progressive" taxation, creating and spending new money in competition with individuals, directing investment, "influencing" consumption—the State all-powerful, the individual helpless and throttled under the yoke. All this is in the name of "saving free enterprise". (Rare is the Keynesian who admits to being a socialist.) This is the price we are asked to pay in order to put a completely fallacious theory into effect!

The problem of the explanation of the Great Depression, however, still remains. It is a problem that needs thorough and careful investigation; in this context, we can only indicate briefly what appear to be promising lines of inquiry. Here are some of the facts: during the decade of the thirties, new investment fell sharply (particularly in construction); consumer expenditures rose; tariffs were at a record high; unemployment remained at an abnormally high level throughout the decade; commodity prices fell; wage rates rose (particularly in construction); income taxes rose greatly and became much more sharply progressive; strikes and trade-union membership increased greatly, especially in the capital-goods industries. There was also a huge growth of federal bureaucracy, burdensome "social legislation," and the extremely hostile antibusiness attitude of the New Deal government.

These facts indicate that the Depression was not the result of an economy that had suddenly become "mature," but of the policies of the New Deal. A free economy cannot successfully function under the constant attacks of a coercive police power. Investment is not decided according to some mystical "opportunity." It is determined by the prospects for profit and the prospects of keeping that profit. Prospects for profit depend on costs being low in relation to expected prices, and the prospects for retaining the profit depend on the lowest possible level of taxation.

The effect of the New Deal was to drastically increase costs through building up a monopoly union movement, which led directly to increasing wage rates (even when prices were low and falling) and to lowered efficiency via "make-work," slowdowns, strikes, seniority rules, etc. Security of property was jeopardized by the continual onslaughts of the New Deal government, especially by the confiscatory taxation that dried up the needed flow of savings and left no incentive to invest productively the savings that remained. These savings, instead, found their way into purchasing government bonds to finance all types of boondoggling projects.

Economic well-being, therefore, as well as the basic principles of morality and justice, lead to the same necessary political goal: the reestablishment of the security of private property from all forms of coercion, without which there can be no individual freedom and no lasting economic prosperity and progress.

This report was written in 1947, and first published in 2008 by the Mises Institute.

  • 1. This does not imply that democracy is evil. It means that democracy should be considered as a desirable technique for choosing rulers competitively, so long as the power of these rulers is strictly limited.
  • 2. The cause of rising prices is generally an abundance of fiat money created by past or present government deficits.
Categories: Current Affairs

Why Federal Agencies Go Rogue

Fri, 12/08/2022 - 21:15

The IRS plans to hire 87,000 new armed agents, while an FBI raid on Trump–the administration's open political rival–draws allegations of corruption. Economists and political scientists, from Mises to Robert Higgs to James Burnham to public choice scholars, explain why mission creep and abuse by state agencies is the rule rather than the exception. 

Jonathan Turley on Trump being disqualified from office: Mises.org/HAP356-1 Mises on the managerial state: Mises.org/Bureaucracy James Burnham's The Managerial Revolution: Mises.org/Burnham Bob Murphy Show Episode on the FBI: Mises.org/BMS92

 

Categories: Current Affairs

The Agenda behind Climate Change Catastrophism

Fri, 12/08/2022 - 20:15

On top of Congress passing the "Climate Relief Bill," environmentalists also demand that President Joe Biden declare a "climate emergency" in order to seize new powers ostensibly to combat dreaded climate change. However, climate alarmism is not based on reality.

Original Article: "The Agenda behind Climate Change Catastrophism"

This Audio Mises Wire is generously sponsored by Christopher Condon. 

Categories: Current Affairs

Who Is Most Responsible for the Ongoing War in Ukraine?

Fri, 12/08/2022 - 20:00

John Mearsheimer recently gave an important lecture on the Ukrainian war. He warns that “the United States is now effectively at war with Russia.” Mearsheimer argues, “The United States is principally responsible.” Alexander Stubb contends in a reply to Mearsheimer, “The only place to blame is the Kremlin, Putin, and Russia.”

Commentators who play the blame game over Ukraine do not understand the cause of war in the modern world. The Ukrainian war is the latest chapter in an ongoing hundred years’ war that began in 1914. Those who fail to realize this cannot understand the cause of the war nor how to end it and prevent future wars.

All of the governments entangled in the Ukrainian war share responsibility. Government intervention in the free market economy is the fundamental cause of all modern wars, including the Ukrainian war. All of the governments involved have systematically intervened with the free market economy for decades. Thus they are all to blame for this war.

Protectionism, Imperialism, and War

To fully understand the Ukrainian war, it is necessary to understand what caused the First World War.1 Many historians agree that a “fresh wave of territorial imperialism” after 1880 resulted in the First World War.2 But most historians cannot explain what caused the frenzy of imperialism from 1880 to 1914. The answer is protectionism.

In July 1879, Otto von Bismarck introduced a new tariff in Germany.3 As economists stress, a tariff benefits domestic producers at the expense of two groups: 1) domestic consumers and 2) foreign producers. A tariff impairs business in foreign nations, and foreigners naturally resent this.4

Bismarck’s tariff was a great mistake. However, as Ludwig von Mises emphasizes, “even if all other nations cling to protection, a nation best serves its own welfare by free trade.”5 Rather than embracing free trade, Germany’s neighbors foolishly raised their tariffs. As the table below illustrates, “all the large countries (except the United Kingdom) had very protective trade policies in 1913.”6

What does protectionism have to do with imperialism? A nation cannot profit from an empire in a world of free trade. By contrast, a protectionist nation can benefit from an empire.7 Consequently, protectionist governments are impelled to violent territorial expansion. The return of protectionism after 1880 started a new wave of territorial imperialism that culminated in the First World War.

Consequences of the First World War

Protectionism was the fundamental cause of the First World War, and the war unleashed terrible forces. For Russia and Ukraine, the war led to the 1917 Russian Revolution.8 The Union of Soviet Socialist Republics (USSR) was only possible because of protectionism before 1914.

There were many problems with the 1919 Versailles Treaty. Still, the essential problem was that it enshrined the imperial-protectionist order of 1914. The First World War’s victors created the League of Nations to prevent other nations from expanding. Yet they did not remove the root cause of territorial expansion—namely, protectionism. In fact, British, French, German, and Italian tariffs were higher in 1925 than in 1914.9

Furthermore, the First World War created massive financial problems. These problems guaranteed that the 1920s and 1930s would be a period of intense economic instability. Unfortunately, the major powers reacted to the economic chaos of the early 1930s with even more severe protectionist policies.10

The First World War and the economic problems it created convinced many in Germany, Italy, and Japan that economic self-sufficiency—or autarky—was the only way to survive. To be economically self-sufficient, however, they thought they needed lebensraum (living space).11 And waging war was the only way to obtain more economic space. Economic nationalism—that is, protectionism and autarky—was the fundamental cause of the Second World War.12

The US saved Soviet socialism during the war. The USSR could not even conquer Finland in the 1930–40 Winter War. The Winter War exposed Soviet socialism’s inherent weaknesses and encouraged Adolf Hitler to invade the USSR in June 1941.13

Those who believe that the USSR defeated Nazi Germany are victims of Soviet propaganda. In actuality, the US defeated the Axis Powers with its economic might. The USSR would have been unable to produce weapons without steel, aluminum, copper, and other key materials from the US.14 Moreover, the US prevented a transport crisis in the USSR by providing huge amounts of transportation equipment.15

Historians debate whether the US should have been allied with the mass murderer Joseph Stalin. But even defenders of the US-Soviet alliance must admit that Franklin D. Roosevelt should have reduced Lend-Lease aid to the USSR after Germany lost the Battle of Stalingrad in February 1943. Instead, Roosevelt continued feeding the beast in 1944 and 1945, and the Soviet Union grew into the most formidable power in Europe.16

The Cold War, NATO, and the Collapse of the USSR

The dysfunctional USSR barely survived 1941–42. So how was it powerful enough to spread socialism after 1945? Free war materiel from the US. The Soviets rolled across Europe and Asia on American transportation equipment, spreading socialism along the way.17 The Soviet weapons that flooded Communist Europe and Asia were made with US Lend-Lease materials.18

With the onset of the Cold War, the US needed a way to stop the Soviet monster Roosevelt had created with Lend-Lease. In 1949, the US spearheaded the North Atlantic Treaty Organization to stop the USSR from spreading socialism.19 NATO has provoked the Russians ever since.

It is an economic law that socialism causes chaos.20 Roosevelt prolonged the life of the USSR and thereby condemned millions to misery. Nevertheless, it was impossible to keep Soviet socialism alive forever. The Soviet Union’s inevitable collapse began in the late 1980s.

Ukraine was the key player in the collapse. Russians knew the Soviet Union would disintegrate if Ukraine left. Ukraine finally moved toward independence in 1991, and the USSR dissolved. Intransigent socialists blamed Ukraine for the collapse. In reality, the chaotic socialist system made the collapse inevitable.

The Ukrainian war of 2022 is an aftershock of Soviet socialism’s collapse. The partition of the Soviet Union’s socialized energy system between Russia and Ukraine has caused serious tension for decades. Beyond that, the issue of Ukrainian membership in NATO has irritated Russia since 2008.

In 2021, Volodymyr Zelenskyy and Joe Biden made great mistakes over NATO. In 2022, Vladimir Putin made a great mistake by invading Ukraine. Then Biden made a great mistake by sanctioning Russia. Now the US is effectively at war with Russia, and the war is unlikely to end any time soon.

Conclusion

The Ukrainian war’s long roots stretch back to the pre-1914 protectionist era. Protectionism led to the First World War, the Second World War, the Cold War, the Korean War, the Vietnam War, countless wars in the Middle East, and the Ukrainian war. In effect, protectionism before 1914 caused a hundred years’ war. At least 150 million lives have been lost in this tragic hundred years’ war.

The only way to prevent war is to remove its root cause. If the twentieth century can teach us anything, it is that protectionism and socialism cause war. Eliminating government intervention in the economy is the key to preventing war. As Ludwig von Mises advises, “there is but one system that makes for durable peace: a free market economy.”21

  • 1. David Fromkin, Europe’s Last Summer (New York: A.A. Knopf, 2004), pp. 6–8.
  • 2. Richard Overy, Blood and Ruins (New York: Viking, 2022), pp. 2–3.
  • 3. Paul Barioch, Economics and World History (Chicago: University of Chicago Press, 1995), p. 24.
  • 4. Ludwig von Mises, Human Action: A Treatise on Economics (Auburn, AL: Ludwig von Mises Institute, 1998), p. 680–84.
  • 5. Ludwig von Mises, Omnipotent Government (Indianapolis, IN: Liberty Fund, 2011), p. 87.
  • 6. Bairoch, Economics and World History, p. 25.
  • 7. Mises, Human Action, p. 820. Also see Mises, Omnipotent Government, pp. 3–5.
  • 8. Robert Service, Lenin: A Biography (Cambridge, MA: Harvard University Press, 2000), p. 369.
  • 9. Bairoch, Economics and World History, p. 40.
  • 10. Richard Overy, The Origins of the Second World War (New York: Routledge, 2016), pp. 32–33. Also see Overy, Blood and Ruins, pp. 27, 54–55.
  • 11. Overy, Blood and Ruins, p. 36.
  • 12. Mises, Omnipotent Government.
  • 13. Sean McMeekin, Stalin’s War (New York City: Basic Books, 2021), p. 150.
  • 14. McMeekin, Stalin’s War, p. 368.
  • 15. Overy, Blood and Ruins, pp. 564–65.
  • 16. McMeekin, Stalin’s War, p. 665.
  • 17. McMeekin, Stalin’s War, p. 663.
  • 18. Victor D. Hanson, The Second World Wars (New York: Basic Books, 2017), p. 527.
  • 19. McMeekin, Stalin’s War, p. 658.
  • 20. Mises, Human Action, p. 694–97.
  • 21. Mises, Omnipotent Government, p. 320.
Categories: Current Affairs

Patents and Progress

Fri, 12/08/2022 - 17:00

Murray Rothbard rejected patents, and other writers, following and extending his views, have developed a wide array of arguments against patents in particular and intellectual property (IP) in general. Stephan Kinsella’s Against Intellectual Property is the most detailed and carefully argued of these studies. Not all of those inclined in a free market direction agree with this position, though, and in this week’s article, I’d like to look at some arguments in defense of patents found in Adam Mossoff’s article “Intellectual Property,” in The Routledge Companion to Libertarianism (pp. 471–85). The article sets out very well the main arguments for and against IP; and although Mossoff is a strong proponent of IP, which he defends from the standpoint of Objectivism, the article’s aim is to explain the arguments in the controversy rather than to defend his own position.

Opponents of patents say that you can’t own an idea, and Mossoff responds that in one sense, they are right.

If IP rights literally meant people owned ideas … then thinking about a patented invention or a copyrighted book would be patent or copyright infringement. But this has never been true: IP rights protect only real-world inventions, books, movies, songs, corporate logos, and commercial secrets by preventing unauthorized copies, sales, or uses of these products or processes. (p. 474)

Here a problem arises if, like Rothbard, you hold that people acquire unowned resources by appropriating them—i.e., by being the first to use them. This is a “Lockean” view, though to avoid problems pointed out by David Hume, among others, it is perhaps better to drop John Locke’s phrase that you acquire resources by “mixing your labor” with them. In this theory, it isn’t at all clear how arriving at a new idea, and making this public through a recognized process, would give you rights over a physical object. It’s interesting to note, though, as Mossoff points out, that Locke himself accepted patents (in effect) and copyright, though he did not know the former word; but in arriving at our own position, what is of interest is the essential truth, if truth it be, of the Lockean theory rather than the ipsissima verba of its inventor. Further, as Stephan Kinsella has pointed out to me, Locke did not take copyrights and patents to be natural rights.

Mossoff would respond by rejecting Lockean theory. If, as I think we can, we attribute to him the views he ascribes to Ayn Rand, Mossoff would argue in this way:

Although Rand’s justification for property rights is often associated with Lockean or natural rights, it is distinct from it in several respects, such as her unique concept of “value” and her insight in creating and using values … Rand justified IP rights as “the legal implementation of the base of all property rights: a man’s right to the product of his mind.” (p. 477)

In Rand’s usage, a “value” is not the subjective process of valuing but rather what we aim to gain or keep, and she is certainly right that it is ideas that have made possible the tremendous growth in productivity since the Industrial Revolution, greatly aiding human survival. But I think there is danger of a misstep here. “Value,” in the sense of what we aim to gain or keep, must be distinguished from the economic value or price of something, which is determined by market actors’ subjective valuations. The Austrian theory of economic value is quite compatible with Rand’s account of “value,” though I’m not sure whether Objectivists do in fact accept it. But the misstep is to assume that in acquiring resources, people come to own the economic value of what they acquire and, as a corollary, to assume that people can acquire only things that the market values. Thus, if someone is the first to appropriate some rocks that no one else wants but that he, for reasons of his own, finds worth acquiring, he is just as much their owner as someone who sees the rocks’ economic potential and because of that is the first to use them.

For this reason, the fact mentioned by Mossoff, that oil was not a valuable resource “until humans invented steam engines and generators requiring lubricating oil and combustion engines requiring fuel” (p. 481) is no doubt true, but not on point, as this does not provide grounds for acquiring the physical resource of oil. If someone had been the first to use some deposit of oil, even though oil had no market value, why wouldn't have acquired it as his property?

Rand would disagree, as she holds that the

ultimate source of property … remains value-creating productivity … which is what is recognized and secured by IP rights … what makes something a value depends on the question to whom and for what. For instance, a desert is a disvalue to a farmer who instead requires fecund soil. Yet a desert may be of tremendous value to individuals inventing and producing integrated circuits, which requires silicon. The value is not the (scarce) object as such, but rather the value it represents to the rational mind, who is producing and using it in human life—the fundamental moral justification of all property. (p. 481)

All of this, to reiterate, seems to me to confuse why we want physical things and the basis on which we acquire them.

You might object that it’s unfair to deny inventors IP rights. Their ideas contribute more to the production process than anything else. Once an invention becomes known, why shouldn’t the inventor have the right to the economic gain people get from its use, at least for a period of time?

One answer to this is to appeal to and extend a point Rand herself makes in arguing for limited rather than perpetual patents. As Mossoff explains her view,

unlike with static material values, such as an automobile, dynamic claims to production of values do not require continued actions to sustain or keep them as values. Without having to maintain the value, such as taking one’s automobile to the mechanic to repair it, IP rights could over time become used by people doing nothing to sustain the value, but simply using the IP rights parasitically to leech from the value creation by others in creating new values (property) (p. 477)

Rand argues, in my view correctly, that holders of IP rights who do not contribute to the production process act parasitically: they say, “You must pay me for the use of the idea to which I hold a patent, even though the idea is public knowledge once disclosed.” Extending the argument, isn’t anyone who demands a fee for using his idea acting parasitically? If the inventor of an idea uses it in a production process, he gains the economic value of using it, and he secures extra gains if he’s the first user of the idea, but why do ideas entitle inventors to more than this?

Mossoff has with great skill compressed a large amount of material into his article, and I have been able to comment on only a few of his arguments. I do not think, though, that the other material requires revising my view that patents are unwarranted, though readers must judge for themselves. Patents lack a basis in natural rights; to the contrary, they may be, as Wendy McElroy has suggested, a patent absurdity.1

 
  • 1. I am grateful to Stephan Kinsella, whose knowledge of this topic far exceeds my own, for helpful comments.
Categories: Current Affairs

Economies Cannot Produce Wealth without Patience and Long-Term Horizons

Fri, 12/08/2022 - 14:15

People decrying poverty in developing countries usually overlook the fact that there is a dearth of long-term economic thinking.

Original Article: "Economies Cannot Produce Wealth without Patience and Long-Term Horizons"

This Audio Mises Wire is generously sponsored by Christopher Condon. 

Categories: Current Affairs

Yes, Precolonial Africa Had Technology and Economic Life before Colonialism

Fri, 12/08/2022 - 12:00

Despite the blooming of literature on preindustrial African technology, the centrality of invention in precolonial Africa remains an obscure topic. Updated research has shown that precolonial Africa was a wellspring of creativity rather than a den of stagnation. Africans employed unique methods in response to environmental changes and were also experts in iron production.

Of all African precolonial activities, iron production has received the most attention. Iron was not only widely used throughout East and West Africa, but some posit that several techniques emerged in Africa independent of European influence. Historians estimate that copper and iron were introduced to West Africa in the middle of the first millennium BC. By the medieval ages, iron production would be ubiquitous.

African workmen’s expertise was such that archaeologists argue that African furnaces generated more iron per smelt than European techniques. It has also been stated that African ironworkers created ingenious iron-smelting processes that are yet to be recorded anywhere else on the planet. Foreman Bandama shows that innovation was not unusual in precolonial Africa:

In Southern Africa in the second millennium CE, the inception of tin and bronze production is also considered an innovation. Though the influence for the alloying of copper with tin may have come from Indian Ocean trade connections, the techniques and demand for this alloy largely remained local and regional. Other innovations include slag-tapping for both iron and copper smelting processes in Southern Africa. The use of tall furnaces in which air was fed convectionally without forced draught power in sub-Saharan Africa is another innovation without direct evidence of transfer from outside the continent.

Considerable importance was placed on the transmission and acquisition of skills that would enhance iron production. Among the Toro people of Uganda, apprenticeship programs transmitted technical skills and knowledge that participants could only share with specific parties.

Iron production catered to both local and export markets. In precolonial Uganda, iron was processed to make tools, weapons, and religious ornaments for local use. But in Togo, Bassar was a center of large-scale production for supraregional export.

Iron production proved to be quite lucrative. Prior to the colonial era, Africa had already developed a booming industry. Bunyoro was noted for the high quality of its product, and by the early twentieth century, ironworking and potterymaking had become its most significant economic activities. However, we cannot examine iron’s significance in African history without exploring the role of blacksmiths.

Blacksmiths were respected for their acumen in producing iron products for domestic consumption and warfare. Iron allowed the manufacturing of more lethal weapons that made it easier for armies to secure victories. Controlling iron could aid royal ambition, bolster military authority, and promote regional security. Research on precolonial Africa reanimates the revered status of blacksmiths:

The technology of iron metallurgy appeared to be ubiquitous and was domiciled with the blacksmith who was acclaimed to wield divine knowledge on the extraction and fabrication of iron into domestic, spiritual and war implements…. He was proclaimed the custodian of the god of iron who must be consulted to fortify the army and make some predictions in times of war.

Blacksmiths were a reservoir of technical knowledge and stimulated industrial development. In northern Nigeria, blacksmiths were crucial to the success of indigenous manufacturing, providing the labor to create consumer goods. Furthermore, in agriculture, blacksmiths manufactured sophisticated tools that increased productivity and raised farmers’ incomes. Likewise, before the advent of colonialism, blacksmiths in the Nkwerre community competently built guns, padlocks, keys, and other items.

History aptly shows that Africans demonstrated technological ingenuity before contact with Europeans. However, colonial policies derailed indigenous industries, and blacksmiths bore the brunt of those policies. For instance, colonial reforms outlawed the bearing and production of weapons and transferred ownership of land and resources to the British, which denied smelters access to land and minerals.

Shehu Tijjani Yesuf’s work on blacksmithing in northern Nigeria best illustrates colonialism’s pernicious impact on African commerce:

The British also undermined the craft of smithing by promulgating laws that regulated the felling of trees. Such laws disrupted smithing, which depended on wood for fuel. The felling of productive economic trees for firewood was restricted, as proclamations declared some trees to be “protected” and exploitable only by licence or permit, and a levy was also introduced on the commercial exploitation of trees. The negative influence of such proclamations can be gauged, especially as blacksmiths relied on smelters and charcoal burners for raw materials…. In addition, the British introduced a series of proclamations that disrupted iron-ore smelting and thus further jeopardized the smithing craft.

Yet despite the trials of colonialism and external shocks, Africans still managed to compete by adopting a process called “coldsmithing.” Although this was not novel, it had to be tailored local circumstances, as Yesuf points out:

The technology of coldsmithing was adapted to imitate manufactured European metal products. It was essentially a lightweight craft technology as few of the tools and technical processes of real smithing are used in coldsmithing. Whereas the technical process in blacksmithing requires more than one man, coldsmithing is relatively simple and requires only one-man production units…. Coldsmiths were always searching for imported products that could be adapted and reproduced locally, which is evidence of their innovativeness and entrepreneurship.

The problem of precolonial Africa was never a lack of invention, but rather low population densities that inhibited the broad diffusion of knowledge and a paucity of institutions to scale inventions. Indeed, precolonial Africa did not pioneer an industrial revolution, but there is no evidence to suggest that Africans were incapable of inventing without European assistance.

Categories: Current Affairs

Green Myths and Hard Realities: Sri Lanka as a Warning

Thu, 11/08/2022 - 20:15

While renewable energy and organic farming are considered sustainable, they're anything but. The collapse of Sri Lanka's green agricultural sector is a warning to the rest of the world.

Original Article: "Green Myths and Hard Realities: Sri Lanka as a Warning"

This Audio Mises Wire is generously sponsored by Christopher Condon. 

Categories: Current Affairs

We Don't Believe You

Thu, 11/08/2022 - 20:00

David French, maybe National Review’s most reliably wrong scribe, issued this gem in response to the FBI raid on Donald Trump’s residence in Florida:

Imagine thinking federal police agents and lawyers will be “held accountable,” or that presidents are not above the law! Is this an afterschool special? “Let’s wait and see, folks, before we judge the situation. It might be perfectly on the up and up! Have faith in the rule of law and trust the process!”

French, in keeping with the listless residue of Conservative Inc., either can’t or won’t face the reality of postgoodwill America. This starts and ends with politics. If politics is war by other means, subterfuge is part and parcel of every battle and skirmish in that war. We are not required to take a combatant’s claims at face value, blundering ahead like Lucan and Cardigan at Balaclava. The contrary, in fact. Any political statement made today, by any politician or candidate or public official, can be answered thus: “We don’t believe you.” And with this comes a corollary: “We don’t trust you.”

When the Left talks about banning assault rifles, for example, we all know the true ambition of the gun controllers—many of whom are open and honest about their desire to completely eliminate private ownership of firearms in America. Progressives apply the same lens to bans on late-term abortion. But the Trump era, enhanced by the perverse dopamine incentives of social media, took this disbelief and distrust to a new rhetorical level. Witness today’s poisonous political lexicon, one that makes clear that any presumption of good intentions is gone: insurrection, treason, racist, Nazi, fascist, domestic terrorist, MAGAt. These terms are not used to persuade, but to dehumanize and banish. Which of course is nothing new in politics. But it’s worth pointing out the Frenchist folly of claiming that democratic norms are poised to reassert themselves and bring us together once Orange Man is gone.

The FBI raid on Mar-a-Lago is an obvious example of America watching two politicized movies. We are not required to judge it apart from the broader political context, like children examining a single rock. The entire event is bound up with the larger war against Trump, one which began almost immediately after he was elected, with the Russiagate campaign. The goal of that ongoing war is to ruin both Trump and his family, salting the earth with their populist movement of Deplorables. Trump and his supporters must be destroyed politically (at the very least), ensuring Trump cannot run for president again but also that no candidate outside the uniparty’s acceptable parameters can ever run again. So one of the most important campaigns in America’s political war effectively seeks to criminalize a whole category of dissent—or at least place dissenters outside the bounds of acceptable society. If you doubt any or all of the 2020 presidential election results, you are an election denier. If you protested at the Capitol, you are an insurrectionist. If you question Russian collusion, you are a Putin supporter. And so forth.

We have not seen the FBI’s warrant or the supporting evidence presented to the magistrate. Was the raid an actual step toward a criminal prosecution? What were the actual crimes contemplated and the specific evidence sought? We don’t know, but at this point, it doesn’t matter. Merrick Garland surely knew Republican partisans would view the raid as pure political harassment, a warning to Trump, his family, and close associates. He also surely knew that many Democratic partisans hope to gin up legal arguments to disqualify the former president from running again (either under the Fourteenth Amendment or, more dubiously, under this federal statute). And of course he know a media brouhaha would ensue. So there are two broad but conflicting interpretations of Garland’s actions. First, he is a brave defender of the rule of law who doggedly follows the evidence wherever it goes, with no consideration for politics, appearances, or timing whatsoever. Second, he knew exactly how ardent Trump fans would react to the warrant and seizures, and actively intended this effect. In other words, he intended to send a threatening message and quell political enthusiasm for Trump 2024.

Decent people can and should resist a world organized around politics, and deplore the politicized state of America. Ordinary Americans don’t want to live political lives and have their personal and professional relationships defined by this terrible environment. But politics is interested in us, as the saying goes. So we arm ourselves with a clear-eyed worldview, put away childish things, and never accept political pronouncements at face value. “We don’t believe you” is always the default position.

Categories: Current Affairs

Economic Causes of War

Thu, 11/08/2022 - 20:00

War is a primitive human institution. From time immemorial, men were eager to fight, to kill, and to rob one another. However, the acknowledgment of this fact does not lead to the conclusion that war is an indispensable form of interpersonal relations and that the endeavors to abolish war are against nature and therefore doomed to failure.

We may, for the sake of argument, admit the militarist thesis that man is endowed with an innate instinct to fight and to destroy. However, it is not these instincts and primitive impulses that are the characteristic features of man. Man's eminence lies in his reason and in the power to think, which distinguishes him from all other living creatures. And man's reason teaches him that peaceful cooperation and collaboration under the division of labor is a more beneficial way to live than violent strife.

I do not want to dwell on the history of warfare. It is enough to mention that in the 18th century, on the eve of modern capitalism, the nature of war was very different from what it had been in the age of barbarism. People no longer fought one another with the aim of exterminating or enslaving the defeated. Wars were a tool of the political rulers and were fought with comparatively small armies of professional soldiers, mostly made up of mercenaries. The objective of warfare was to determine which dynasty should rule a country or a province. The greatest European wars of the 18th century were wars of royal succession, for example, the wars of the Spanish, Polish, Austrian, and finally the Bavarian successions. Ordinary people were more or less indifferent about the outcomes of these conflicts. They were not much concerned about the question of whether their ruling prince was a Habsburg or a Bourbon.

Nevertheless, these continuous struggles placed a heavy burden upon mankind. They were a serious obstacle to the attempts to bring about greater prosperity. As a result, the philosophers and economists of the time turned their attention to the study of the causes of war. The result of their investigation was the following:

Under a system of private ownership of the means of production and free enterprise, with the only function of government being to protect individuals against violent or fraudulent attacks on their lives, health, or property, it is immaterial for the citizens of any nation where the frontiers of their country are drawn. It is of no concern for anyone whether his country is big or small, and whether it conquers a province or not. The individual citizens do not derive any profit from the conquest of a territory.

It is different with the princes or ruling aristocracies. They can increase their power and their tax revenues by expanding the size of their realms. They can profit from conquest. They are bellicose, while the citizenry is peace loving.

Hence, the old liberals concluded, there would be no more wars under a system of economic laissez faire and popular government. Wars would become obsolete because the causes for war would disappear. Since these 18th- and 19th-century classical liberals were fully convinced that nothing could stop the movement toward economic freedom and political democracy, they were certain that mankind was on the eve of an age of undisturbed peace.

What was needed to make the world safe for peace, they argued, was to implement economic freedom, free trade and goodwill among the nations, and popular government. I want to stress the importance of both of these requirements: free trade at home and in international relations, and democracy. The fateful error of our age has consisted in the fact that it dropped the first of these requirements, namely free trade, and emphasized only the second one, political democracy. In doing so, people ignored the fact that democracy cannot be permanently maintained when free enterprise, free trade, and economic freedom do not exist.

President Woodrow Wilson was fully convinced that what was needed to make the world safe for peace was to make it safe for democracy. During the First World War it was believed that if only the German royal house of the Hohenzollern and the privileged German landed aristocracy, the Junkers, could be removed from power, a durable peace could be achieved. What President Wilson did not see was that within a world of growing government omnipotence this would not be enough. In such a world of growing government power, there exist economic causes of war.

Does the Citizen Profit from Conquest?

The eminent British pacifist, Sir Norman Angell, repeats again and again that the individual citizen cannot derive any profit from the conquest of a province by his own nation. No German citizen, says Sir Norman, profited through his nation's annexation of Alsace-Lorraine as a result of the Franco-Prussian War of 1870–1871. This is quite correct. But that was in the days of classical liberalism and free enterprise. It is another thing in our day of government interference with business.

Let us take an example. The governments of the rubber-producing countries have entered into a cartel arrangement in order to monopolize the market for natural rubber. They have forced the planters to restrict production in order to raise the price of rubber far above the level it would have attained on a free market. This is not an exceptional case. Many vital and essential foodstuffs and raw materials have been subject to similar policies implemented by governments around the world. They have imposed compulsory cartelization on numerous industries, as a result of which their control was shifted away from private entrepreneurs to the hands of government. Some of these schemes, it is true, have failed. But the governments concerned have not abandoned their plans. They are eager to improve the methods applied and are confident that they will be more successful after the present Second World War.

The individual citizens do not derive any profit from the conquest of a territory. … Hence, the old liberals concluded, there would be no more wars under a system of economic laissez faire and popular government.

There is a lot of talk nowadays about the necessity for international planning. However, no planning, whether it be national or international, is required to make planters grow rubber, coffee, and any other commodity. They embark upon the production of these commodities because it is the most advantageous way for them to make a living. Planning in this connection always means government actions for the restraint of output and the establishment of monopoly prices.

Under such conditions it is no longer true that a nation may not appear to derive a tangible profit from a victorious war. If the nations dependent on the importation of rubber, coffee, tin, cocoa, and other commodities could force the governments of the producing countries to abandon their monopolistic practices, they would improve the economic welfare of their citizens.

To mention this state of affairs does not imply a justification for aggression and conquest. It only demonstrates how utterly mistaken are pacifists like Sir Norman Angell, who base their arguments in favor of peace on the unstated assumption that all nations are still committed to the principles of free enterprise.

Sir Norman Angell is a member of the British Labour Party. This party stands for the outright socialization of business. But the members of the Labour Party are too dull to realize what must be the economic and political consequences of the socialization of business.

The Case of Germany

I want to explain these consequences by referring, first of all, to the situation in Germany.

Like all other European nations, Germany is poor in natural resources. It can neither feed nor clothe its population out of its own available domestic resources. Germans must import huge quantities of raw materials and foodstuffs, and must pay for these badly needed imports by exporting manufactures, most of which are produced out of those imported raw materials. Under free enterprise, Germany brilliantly adjusted itself to this circumstance. Sixty or seventy years ago, in the 1870s and 1880s, Germany was one of the world's most prosperous nations. Its entrepreneurs succeeded extremely well in building up very efficient manufacturing plants. Germany's industry was foremost on the European continent. Its products triumphantly swept the world market. The Germans—all classes of the German population—became more prosperous from year to year. There was no reason to alter the structure of German business.

But most of the German ideologists and political writers, the government-appointed professors and the socialist party leaders, as well as the government bureaucrats, did not like the free-market system. They disparaged it as capitalist, plutocratic, bourgeois, and as Western and Jewish. They lamented the fact that the free-enterprise system had incorporated Germany into the international division of labor.

All these groups and political parties wanted to substitute government management of business for free enterprise. They wanted to do away with the profit motive. They wanted to nationalize business and to subordinate it to the commands of the government. This is a comparatively simple thing in a country that by and large can live in economic self-sufficiency. Russia, occupying one-sixth of the earth's surface, can do without almost any imports from abroad. But it is different with Germany. Germany cannot eschew imports and consequently must export manufactures. This is precisely what a government bureaucracy can never achieve. Bureaucrats are only able to flourish in sheltered domestic markets. They are not fit to compete on foreign markets.

Most people in Nazi Germany today want the government to control business. But the fact is that government control of business and foreign trade are incompatible. A socialist commonwealth must aim at autarky. This is where aggressive nationalism—once referred to as Pan-Germanism, and today called National Socialism—comes into the picture. We are a powerful nation, the National Socialists say; we are strong enough to crush all other nations. We must conquer all those countries whose resources are essential for our own economic well-being. We need autarky and therefore we must fight. We need Lebensraum (living space) and Nahrungs freiheit (freedom from a scarcity of food).

Both terms mean the same thing, the conquest of a territory so large and rich in natural resources that the Germans could live without any foreign trade at a standard of living not lower than that of any other nation. The term Lebensraum is fairly well known abroad. But the term Nahrungs freiheit is not. Freiheit means freedom; Nahrungs freiheit means freedom from a state of affairs under which Germany must import foodstuffs. It is the only "freedom" that matters in the eyes of the Nazis.

Both the Communists and the Nazis agree that the essence of what they mean by democracy, liberty, and popular government lies in the establishment of full government control of business. Whether one calls this system socialism or communism or planning is immaterial. Regardless of what it is called, this system requires economic self-sufficiency. But while Russia can, by and large, live in economic self-sufficiency, Germany cannot. Therefore a socialist Germany is committed to a policy of Lebensraum or Nahrungs freiheit, that is, to a policy of aggression.

The pursuit of a program of government control of business must finally result in a rejection of the international division of labor. From the viewpoint of Nazi philosophy, the only proper mode of international relations is war. Their most eminent men take pride in referring to a dictum of Tacitus. This Roman historian, almost two thousand years ago, said that the Germans consider it shameful to acquire by hard work what could be acquired by bloodshed. It was not a slip of the tongue when Kaiser Wilhelm II, in 1900, raised the Huns as a model for his soldiers. It was the encapsulation of a conscious policy.

Dependent on Imports

Germany is not the only European country depending on foreign imports. Europe—excluding Russia—has a population of about 400 million people, more than three times the population of the continental United States. But Europe does not produce cotton, rubber, copra, coffee, tea, jute, and many essential metals. And it has a quite insufficient production of wool, fodder, cattle, meat, hides, and of many cereals.

In 1937, Europe produced only fifty-six million barrels of crude petroleum, as compared with the US production of 1,279 million barrels. Besides, almost all of Europe's petroleum production is located in Romania and in eastern Poland. But as a result of the present war, these areas will come under the control of Russia. Manufacturing and exporting manufactures are the essentials of Europe's economic life. However, exporting manufactures is almost impossible under government control of business.

Such is the stark reality which no socialist rhetoric can conjure away. If the Europeans want to live they must cling to the well-tried methods of free enterprise. The alternative is war and conquest. The Germans have tried it twice and failed both times.

However, the politically most influential groups in Europe are far from realizing the indispensability of economic freedom. In Great Britain and France, in Italy and in some smaller countries there is a powerful agitation for full government control of business. The case for economic freedom is almost a hopeless cause with the governments of these countries. The British Labour Party and those British politicians who wrongly still call their party the Liberal Party look upon this war not only as a fight for their nation's independence, but no less as a revolution for the establishment of government control of business. The third British party, the Conservative Party, by and large sympathizes with these endeavors. The British want to defeat Hitler, but they are eager to adopt his economic methods for their own country. They do not suspect that state socialism in Great Britain spells the doom of the British masses. Britain must export manufactures in order to buy raw materials and foodstuffs from abroad. Any drop in British exports lowers the standard of living of the British masses.

Conditions in France and Italy and in most other European countries are similar to those in Great Britain.

In supplying the domestic consumer with various necessities a socialist government is sovereign. The citizen must take what the government gives him. But it is different with any export trade. The foreign consumer buys only if both the quality and the price of the commodity offered for sale are attractive to him. In this international arena of serving foreign consumers, capitalism has shown its greater efficiency and adaptability. The high level of prewar Europe's economic well-being and civilization was not the outcome of the activities of government bureaus and agencies. It was an achievement of free enterprise. Those German cameras and chemicals, those British textiles, those Paris dresses, hats, and perfumes, those Swiss watches, and Vienna leather fancy goods were not the product of government-controlled factories. They were the products of entrepreneurs indefatigably intent upon improving the quality and lowering the price of their merchandise. Nobody is bold enough to assume that a government agency could successfully replace the private entrepreneurs in this function.

Privately conducted foreign trade is the private affair between private firms of various countries. If some disagreements result, they are the conflicts between private firms. They do not create conflicts in the political relations between nations. They concern a Mr. Meier and a Mr. Smith. But if foreign trade is a matter of government, such conflicts are transformed into political issues.

Suppose the Dutch government prefers to buy coal from Great Britain rather than from the German Ruhr. Then the German nationalists may think, Why tolerate such behavior on the part of a small nation? It took the Third Reich precisely four days to smash the armed forces of the Netherlands in 1940. Let us try it again! Then we will enjoy all the products of the Netherlands, but without having to pay for them.

"Fair" Distribution of Resources

Let us analyze the frequently expressed demand of the Nazi and Fascist aggressors for a new and fair distribution of the natural resources around the globe. In a world of free enterprise, a man who wants to drink coffee and is not himself a coffee planter must pay for it. Whether it is a German or an Italian or a citizen of the Republic of Colombia, he must render some services to his fellow men, earn a money income and spend part of it on the coffee he desires. In the case of a country that does not produce coffee within its own borders, this means exporting goods or resources to pay for the coffee that is imported. But Messrs. Hitler and Mussolini do not imagine such a solution to the problem. What they would want is to annex a coffee-producing country. But since the citizens of Colombia or Brazil are not enthusiastic about becoming the slaves of either the German Nazis or the Italian Fascists, this means war.

Another striking example is provided by the case of the cotton industry. For more than a hundred years, one of the main industries of all European countries was the spinning of cotton and the manufacture of cotton goods. Europe does not grow any cotton. Its climate is unfavorable. But the supply was always sufficient, with the only exception being the years during the American Civil War in the 1860s, when the conflict interrupted the supply of cotton from the Southern states. The European industrial countries acquired enough cotton not only for the needs of their own domestic consumption, but no less for undertaking a considerable export trade in cotton goods.

But in the years just preceding the start of the Second World War, conditions changed. There was still an ample supply of raw cotton on the world market. But the system of foreign exchange controls that was adopted by most European countries prevented private businessmen from buying all the cotton they needed for their production processes. Hitler's contribution to the decline of the German cotton-goods industry consisted in restricting their production and making them discharge a large part of their workforce. Hitler did not worry much about the fate of these discharged workers. He sent them to work, instead, in the munitions factories.

As I already point out, there are no economic causes for armed aggression within a world of free trade and free enterprise. In such a world, no individual citizen can possibly derive any advantage from the conquest of a province or a colony. But in a world of totalitarian states, many citizens may come to believe in an improvement of their material well-being from the annexation of a territory rich in resources. The wars of the 20th century have been, to be sure, economic wars. But they have not been caused by capitalism, as the socialists would have us believe. They are wars caused by governments aiming at complete political and economic omnipotence, and have been supported by the misguided masses of these countries.

The three main aggressor nations in this war—Nazi Germany, Fascist Italy, and Imperial Japan—will not attain their ends. They have been defeated, and they know it already. But they may try it again at a later date, because their counterfeit philosophy—their totalitarian creed—does not know of any other method of trying to improve the material conditions of the people other than war. For the totalitarian, conquest is the only viable political means to attain their economic ends.

Economic Mentality

I do not say that all wars of all nations and in all ages were motivated by economic considerations, that is, by the desire to make the aggressors rich at the expense of the defeated. There is no need for us to investigate the root causes of the crusades or the religious wars of the 16th and 17th centuries. What I want to say is that, in our age, the great wars have been the outcome of a specific economic mentality.

The Second World War is certainly not a war between the white and the colored races. No racial differences separate the British, Dutch, and the Norwegians from the Germans, or the French from the Italians, or the Chinese from the Japanese. It is not a war between Catholics and Protestants. After all, there are Catholics and Protestants in both belligerent camps. It is not a war between democracy and dictatorship. The claim of several of the United Nations (Soviet Russia in particular) to the appellation "democratic" is rather questionable. On the other hand, Finland (which is allied with Nazi Germany) is a country with a democratically elected government.

My argument that recent wars have been motivated by economic considerations is not meant to be a justification of the aggressor's policies. Viewed as an economic means for the attainment of certain economic benefits, the policy of aggression and conquest is self-defeating. Even if technically successful in the short run, it would never attain in the long run the ends at which the aggressors are aiming. Under the conditions of modern industrialism, there cannot be any question of a social system such as the Nazis plan under the name of a "New Order." Slavery is not a method for industrial societies. If the Nazis had conquered their adversaries, they would have destroyed civilization and brought back barbarism. They would certainly not have erected a thousand-year New Order, as Hitler promised.

Thus, the main problem is how to avoid new wars. The answer is not to be found in setting up a better League of Nations; neither is it a question of the establishment of a better World Court, nor even in the implementation of a World Police Force. The real issue is to make all nations—or at least the most populous nations of the world—peace loving. This can be achieved only by going back to free enterprise.

If we want to abolish war, we must remove the causes of war.

The great idol of our time is the State. The State is a necessary social institution, but it should not be deified. It is not a god; it is a device of mortal men. If we make it an idol, we must sacrifice to it the flower of our youth in coming wars.

What is needed to make a lasting peace is much more than new offices and a new court for the League of Nations in Geneva, or even a new international police force. What is needed is a change in political ideologies and a return to a sound free-market economic system.

This is the major part of a lecture delivered in Orange County, California, in October 1944. It was published by the Foundation for Economic Education in 2004.

Categories: Current Affairs

Thomas Piketty Wants to Bring Back Communism in the Guise of Democratic Socialism

Thu, 11/08/2022 - 17:00

Thomas Piketty
A Brief History of Equality
Harvard University Press, 2022

Thomas Piketty’s Brief History is the fourth installment of his assault on economic inequality, following as it does the best-selling Capital in the Twenty-First Century and Capital and Ideology. The third, Time for Socialism: Dispatches from a World on Fire, 2016–2021, is just a collection of popular articles based on which the New York Times dubbed Piketty a “vaguely left-of-center” economist. This slim fourth volume from Harvard University Press calls for far-reaching socialist policies to establish economic equality. It is a siren song of communism: “economic justice” without any cost or noteworthy harm to society.

The primary reason for my concern with Piketty and this book is the relative influence of Karl Marx’s Communist Manifesto (written with Frederick Engels) versus his Kapital: A Critique of Political Economy. The Manifesto was short, on point, and politically actionable while Kapital was long, jargony, filled with footnotesand nebulous concerning political action. Indeed, Marx’s view of history told Kapital readers to sit tight for generations and suffer, while the Manifesto was an immediate call to arms around the world!

In terms of relevance, the Manifesto’s ten-point program would become the political action platform for democratic socialists worldwide and public policy in leading nations by 1917. In contrast, the highly improbable Marxist takeover of Russia had no blueprint from Kapital, led to one economic disaster after another, and ended in failure, as Ludwig von Mises predicted. Piketty may have at least learned that lesson and advocates a social-democratic-type takeover.

All of Piketty’s books are terrible from an economic perspective. Most importantly, all are as dangerous to political economy as Marx’s books were catastrophic to hundreds of millions of people, especially the lower-income people Marx and Piketty propose to help. The brevity of this book makes it potentially the most socially devastating of the four.

Brief History

Up until two centuries ago, more than 95 percent of humanity lived in “extreme poverty.” That number had fallen to about one-third of the global population by the end of the 1980s and is now less than 10 percent, and still falling, all during a period of rapid population increase. This is one of the most important facts you can say about the entire history of humanity, and yet it seems not widely known—and how it was achieved is completely lost on Piketty.

Piketty gives no indication to me that he is an economist or any kind of disinterested objective scientific observer. However, his statistic- and chart-filled books give the impression of a scientific basis for his policy conclusion. Piketty is a Marxist, an advocate for communism, but all in the guise of a conventional democratic socialism. However, his dedication of the book reminds readers of the Manifesto’s finale.

He does admit that the last quarter millennium has also been a powerful movement toward greater economic equality, but he largely ignores how the enormous, sustained increase in the standard of living was achieved. It just happened. He does want readers to understand his views that this improvement was not the result of capitalism, that sociopolitical systems are just a matter of democratic choice, and that various forms of socialist and union agitation are to be credited with economic progress.

His beliefs, which the intelligentsia and other second-hand dealers of ideas widely share, fly in the face of the facts. Individual rights, free markets, and freedom to trade created the opportunity for economic growth, wages above subsistence, and greater economic equality. Capitalism improved conditions for labor, hurt the wealthy and powerful in a comparative sense, and led to the emergence of the entrepreneurial, or bourgeois, class. The Industrial Revolution shifted the entire focus of the economy’s structure of production from the nobility’s demands to the workers’ needs; of this there is little doubt. It made people more equal, economically and otherwise, compared to the medieval system of authorities and serfs or even twentieth-century communism.

Instead, Piketty would like to attribute all these good developments to political action and uprisings. While there is a tinge of truth here, the main driver of all improvement is capitalism, even with all its political warts and injustices. It is just as clear that even most “Marxist” events, such as the French and Russian Revolutions, were driven by the emerging bourgeois and entrepreneurial classes, broadly conceived as the middle class, not the peasants.

Piketty ignores these facts and allies himself with the social democratic notion that outcomes can be achieved with a variety of voting systems and political choices regarding the nature of property systems, so that capitalism is no longer necessary. Furthermore, he believes that the equality that has been achieved is due to “conflicts and revolts against injustice” (p. 10), which is clearly not the case. For example, things like modern unions, socialist-leaning political parties, and “progressive” political platforms emerged after the surge of economic development and the spread of equality, not before. Indeed, the Industrial Revolution started in England after the political powers to control labor, capital, and trade were dissipated, not augmented.

Piketty also writes about politics and tactics in a way that might puzzle readers not intimately familiar with Marxist dogma and dialogue. However, make no mistake about it: Marxist, socialist, and progressive leaders, and the policies they advocate, are inherently violent, and they are not interested in pursuing scientific truth. They prefer that their opposition offer no resistance and ask no questions. Piketty’s recommendations knit together a system that helps guarantee no institutional chance of losing power, elections, and legislative majorities for the social democratic parties.

In terms of violence, of course, the favorite progressive policies, such as those in the Communist Manifesto’s ten-point program, are highly coercive and potentially violent. The ten points can be distilled into taking your land, income, and inheritance; i.e., “nationalizing” banking, communication, transportation, and the means of production; forced labor and resettlement; and all-encompassing cradle-to-grave propaganda.

Piketty extends his assault on history by declaring that progress—i.e., national wealth—exists. He fails to explain how that comes to be or is sustained, even though economists, at least since the time of Richard Cantillon and Adam Smith, have long considered it the essential question for economics to answer. Piketty also doesn’t explain why there was essentially no or little progress and often extreme inequality in the previous thousands of years.

Instead, Piketty wants to measure progress with education and health attainment statistics, which he attributes to the beginnings of the welfare state. He makes this claim even though education and healthcare were available to those outside the nobility long before the welfare state existed. Indeed, there were little education or healthcare opportunities before capitalism, and both metrics increased quickly with the movement toward freer markets. He tries to hide his subterfuge by displaying global and average statistics that disguise important national and marginal changes that would be more enlightening about freedom’s benefits, such as the remarkable increase in real wage rates in England during the nineteenth century.

Even with the undeniable progress toward more equality, Piketty’s personal view is that inequality remains “extremely high,” and he finds a problem with economic growth because he sees it as caused by population growth and global warming. He sees population growth rates as unsustainable and harmful. But does any serious social scientist see current population growth rates as a problem or perpetually sustainable? In our age of capitalism, population growth is now seen as more a matter of individual choice, not some mystical unknown or biological imperative. Social scientists have moved closer to the economic theory of population, first sketched out by Cantillon, and have moved on to the existing problems of declining population growth rates, declining populations, and the unbalanced demographics that have resulted from government policies in advanced economies such as China and Japan. Malthus is dead and has been for a long time.

At one point, Piketty attacks his own approach of using government statistics such as income measures, gross domestic product, and consumer price indices, as well as statistical averages and aggregates, as problematic for his purpose. Indeed, colleagues of mine have reexamined these government statistics, found them extremely misleading, and upon proper recalculation have found that most of the statistics propagated are monumental misrepresentations of reality in terms of economic inequality.

Instead, Piketty asks us to examine consumption, not money income, to assess inequality. But other economists have already done so, and their findings indicate that inequality in the US is much less a problem than the misleading income and poverty statistics suggest.

It is unclear how shifting focus to global warming and the “infernal life” it has wrought can save Piketty’s analysis or his policy agenda. The quality and integrity of that data are clearly bad, the science is deeply tarnished by government funding, and it is obvious to other scientists, engineers, and economists that capitalist and wealthy countries don’t face the imminent dangers, that global warming theorists allege, such as rising sea levels, but that noncapitalist economies might be negatively impacted if and when these dangers do emerge.

Piketty is an enemy of private property rights, which even most non-Austrian economists consider a necessary condition for prosperity. He does note that property is now more evenly divided than it was two centuries ago, before capitalism, but he seems unconcerned about how a middle class might have developed and flourished during that time. He thinks the question of ownership and control is a purely political one without substantive economic and legal ramifications. His whole discussion of these matters amounts to making wealth a Marxist-spawned whipping boy for even more progressive-income, wealth, and inheritance taxes and an ever-expanding welfare state.

Piketty does oppose colonialism and slavery, but he would no doubt be surprised to learn that it was liberals like Adam Smith (the philosopher of human happiness and empathy toward fellow citizens) that led the opposition to such institutions. He does quote Smith in these chapters, not as an opponent of colonialism and slavery, but as a strong supporter of Marxism’s nemesis, property rights!

If you properly understand capitalism as the union of market forces and the state, then the state has expanded and defended slavery, while market forces are what led to its withering away in both ancient and modern times. I can think of no other episode that better explains the state’s role in slavery than Piketty’s own country’s response to the slave revolt in Haiti, but that is a lesson lost on him.

Most remarkable of all is Piketty’s explanation for what he calls the “great redistribution,” which he dates from 1914–1980 (before World War I to when Reagan became US president and Thatcher became prime minister of the United Kingdom). He does say that this period was “no piece of cake” but that it ushered in progressive income taxation and the welfare state, thus creating the heavenly transformation of capitalism into increased economic equality, only to be set back by small steps toward market liberalization after 1980.

US statistics do indicate that after World War II, the middle class grew, that poverty shrank until President Johnson’s War on Poverty began in the mid-1960s, and that income inequality declined—to create what others have called the “Great Leveling.” Statisticians and accountants, including Piketty, have done yeoman-like work trying to estimate what happened to the numbers during this period. As fascinating as all that tinkering is for economists, it misses the bigger points regarding cause and effect.

The “leveling” occurred largely because of all the death, dislocation, and reduced family formation caused by World War I, the Spanish flu, the Great Depression, and World War II. When appalling numbers of young people die or are economically depressed, the subsequent number of births decreases. This leads to higher wage rates and results in a compressed, or leveled, income distribution. Under capitalism, real wage rates can and do increase, poverty declines, people get rich, and economic opportunity and equality improve without massive waves of death and destruction.

In contrast, Piketty sees progressive taxation and the welfare state as true salvation. He wants much more of both, in the form of a democracy that produces “progressive” increases in state power. You do not have to read too much between his lines to see that Piketty wants a complete Marxist state without the bad image of Marxism’s past economic failures, mass starvations, and genocides.

Conclusions

Piketty is a Marxist who has written a great deal on income distribution to promote income redistribution and other Marxist goals. He exhibits no knowledge of economics and economic theory except that implied by the construction of economic statistics. His proposed solutions are implicitly violent, destructive, and unable to achieve the desired results.

His books have been robust sellers by academic standards. Yet I am hard pressed to know of anyone who has read them, including all the economists I know and even people who work on this topic. I know a couple of younger economists who have read some of his coauthored papers.

Who bought these books? Who read them? Why did they get so little academic attention—serious reviews and critiques from economists? As a result, Piketty and his backers, largely unchallenged, have provided academic cover for socialism, higher taxes, and greater welfare spending to gain widespread acceptance.

Categories: Current Affairs

A Political Victory for the Joes Is a Loss for the Country

Thu, 11/08/2022 - 14:15

Sen. Joe Manchin has agreed to support a "Build Back Better" lite that proponents claim will reduce inflation, give us better weather, and "pay for itself" through price controls and taxes. Perhaps we should be wary of such political "victories" for the political elites.

Original Article: "A Political Victory for the Joes Is a Loss for the Country"

This Audio Mises Wire is generously sponsored by Christopher Condon. 

Categories: Current Affairs

Africa Needs Conventional Fuels, Not Windmills and Solar Panels

Thu, 11/08/2022 - 12:00

The energy and climate goals that Western governments, the United Nations, and other organizations are pushing on Africa constitute a crippling blow to its economies. As the least developed region, Africa should unequivocally prioritize economic development. One would think that amid energy poverty in Africa, Western governments and “development” institutions would prioritize energy security for African countries over energy transition.

African countries must have reliable, abundant, and cheap energy (e.g., fossil fuels) to accelerate economic development. Fossil fuels power economies and people’s lives. To deny these countries the possibility of developing with fossil fuels by imposing climate goals that the Western world itself fails to achieve is hypocritical. And malicious.

Climate Alarmism and Energy Hypocrisy

Many environmental and energy experts acknowledge the imperative to address climate change but reiterate that there is no need for apocalyptic alarmism. Bjørn Lomborg is one such expert. In his book False Alarm, he makes the case that climate panic costs trillions of dollars and hurts people in undeveloped countries disproportionately. He warns:

With 194 signatories, the 2015 Paris Agreement on climate change, the most expensive pact in human history, is likely to incur costs of some $1–$2 trillion per year by 2030. With ever more nations making promises to go carbon neutral over the next decades, these costs could escalate to tens of trillions of dollars annually in the coming years.

Any response to climate change will cost money (if addressing the problem made money, doing so wouldn’t be contentious and we’d already be doing it). If a relatively low-cost policy could fix most of the problem, that could be money well spent. However, it turns out that the Paris Agreement in its best-case scenario will achieve just one percent of what the politicians have promised (keeping temperature rises to 1.5°C (2.7°F)), and at huge cost. It is simply a bad deal for the world.

Worse still, like most governments, African governments are technically insolvent and thus dependent on systemic aid (i.e., loans and grants) to stay afloat. Africa’s tax burdens are rather heavy already. More debt, deficit spending, and heavier taxes further damage Africa’s economies. Fiat money printing cannot help either. In short, African governments cannot afford Western/UN-imposed climate and energy transition goals.

Another such voice is Michael Shellenberger, a veteran environmentalist and author of Apocalypse Never: Why Environmental Alarmism Hurts Us All. Shellenberger has penned a letter in which, on behalf of all environmentalists, he apologizes for the false climate scare. A part of the letter reads:

On behalf of environmentalists everywhere, I would like to formally apologize for the climate scare we created over the last 30 years. Climate change is happening. It’s just not the end of the world. It’s not even our most serious environmental problem. I may seem like a strange person to be saying all of this. I have been a climate activist for 20 years and an environmentalist for 30. But as an energy expert asked by Congress to provide objective expert testimony and invited by the Intergovernmental Panel on Climate Change (IPCC) to serve as Expert Reviewer of its next Assessment Report, I feel an obligation to apologize for how badly we environmentalists have misled the public.

Climate alarmism, indeed.

In his article “The Reason Renewables Can’t Power Modern Civilization Is Because They Were Never Meant To,” Shellenberger also notes that:

Between 2000 and 2019, Germany grew renewables from 7 percent to 35 percent of its electricity. And as much of Germany’s renewable electricity comes from biomass, which scientists view as polluting and environmentally degrading, as from solar. Of the 7,700 new kilometers of transmission lines needed, only 8 percent have been built, while large-scale electricity storage remains inefficient and expensive. “A large part of the energy used is lost,” the reporters note of a much-hyped hydrogen gas project, “and the efficiency is below 40% … No viable business model can be developed from this.”

Meanwhile, the 20-year subsidies granted to wind, solar, and biogas since 2000 will start coming to an end next year. “The wind power boom is over,” Der Spiegel concludes.

All of which raises a question: if renewables can’t cheaply power Germany, one of the richest and most technologically advanced countries in the world, how could a developing nation like Kenya ever expect them to allow it to “leapfrog” fossil fuels?

Though Germany may be one of the most severely affected countries in the developed world, the energy crisis is undoubtedly global. As such, Germany, the US, China, and other countries are looking to increase coal-fired power generation to mitigate the crisis. In the US, the Biden administration chokes off domestic fossil fuel production but asks Saudi Arabia to increase its own output. Likewise, Europe is looking to African and other countries to secure access to natural gas as the continent moves away from Russian energy.

So, the developed West is looking to fossil fuels to solve its energy problems, but undeveloped Africa should transition to solar and wind?

This brings us to the hypocrisy part. Lomborg wrote:

The developed world’s response to the global energy crisis has put its hypocritical attitude toward fossil fuels on display. Wealthy countries admonish developing ones to use renewable energy. Last month the Group of Seven went so far as to announce they would no longer fund fossil-fuel development abroad. Meanwhile, Europe and the U.S. are begging Arab nations to expand oil production. Germany is reopening coal power plants, and Spain and Italy are spending big on African gas production. So many European countries have asked Botswana to mine more coal that the nation will more than double its exports.

Meanwhile, South Africa is getting money from Western countries to phase out coal while the same Western countries look to increase coal-fired electricity generation. The display of hypocrisy is blatant and will severely undermine Africa’s economic development. But though Western meddling has been harmful, if today African economies are still undeveloped and in a precarious state—over fifty years since “independence,” Africans should look at the leadership, or the lack thereof, as the ultimate culprit.

Energy Transition? Not Exactly

In theory, there is an energy translation happening. In reality, no such thing is taking place. Today’s global energy crisis conclusively demonstrates that the world desperately needs more, not less, fossil fuels. Consider the case of biomass, the first energy source used by humans. Despite tremendous advancements in technology and the existence of coal, oil, and natural gas, biomass is still part of today’s energy mix. This being the case, it does not make sense even to talk about phasing out fossil fuels, which meet almost 80 percent of the world’s energy needs. To think otherwise is absurd.

There is no such thing as an energy transition happening. What we do have is energy source accumulation. Humanity started with biomass and over time added coal, hydro, oil, natural gas, nuclear, wind, and solar. Today we can use these energy sources combined. Not exactly a transition.

picture1.jpg Tacanho1 Source: Visual Capitalist

A transition from fossil energy to wind and solar is unattainable for material, technological, and environmental reasons, among others. All existing wind and solar farms’ combined energy output does not even supply 5 percent of the world’s energy needs, yet their environmental harm is already noticeable. For example, West-funded wind farms in Kenya threaten birdlife, including endangered species. Same in the US, where wind turbines have been killing eagles and other rare birds.

Only one energy source can enable humanity to phase out coal, oil, and natural gas. And that is nuclear. Nuclear power can provide clean, reliable, abundant, and cheap energy for everyone and for the foreseeable future. So, if we are serious about net-zero emissions and environmental protection, we must embrace nuclear power. Yes, it is safe, and can be made even safer.

picture2.jpg Tacanho2   Africa’s Way Out of Energy Poverty

Before I was born, Angola already was mired in severe and chronic energy problems. I am gravitating toward forty years of age, and Angola is still mired in these problems.

The government controls the production and distribution of energy products and services through companies that it wholly or partially owns. Undeniably, the government has failed to provide Angolans with reliable, abundant, and cheap energy goods and services. Angola’s government is not the only African government that failed to deliver energy prosperity to its people. Energy woes are entrenched across the continent. Even in South Africa, Africa’s most developed energy state, the energy situation is going from bad to worse.

African governments should finally step aside, which is the least they could do after decades of accumulated policy failures, and let free enterprise and free trade reign in energy production and distribution. Anyone able and willing to produce, distribute, and sell energy goods and services should be free to do so. The onerous mountains of regulations and bureaucratic measures must be removed.

Politicians failed to deliver energy prosperity. Now politicians should have humility and let markets perform their economic miracle. The free market is the fastest and most effective approach to making African societies sustainably energy rich.

Conclusion

Climate change is real. And so are climate alarmism, ecocolonialism, and Western energy hypocrisy. Environmental and energy policies based on pseudoscience and exaggerated reports are pushing even advanced economies such as Germany and California toward energy precarity and potential blackouts. But that pales in comparison to the harm ecocolonialism can do, and in fact does, to African economies and lives. Still, however hypocritical and malicious Western regimes may be, the responsibility for energy abundance and economic development lies entirely with Africa’s decision-makers.

 
Categories: Current Affairs

Despite Our Own Inflation, the Dollar Dominance Takes Down the Yen and Euro

Wed, 10/08/2022 - 20:15

Even though the Fed has been inflating the US dollar with impunity, neither the yen nor the euro can challenge the USD.

Original Article: "Despite Our Own Inflation, the Dollar Dominance Takes Down the Yen and Euro"

This Audio Mises Wire is generously sponsored by Christopher Condon. 

Categories: Current Affairs

The Income Tax Really Is Evil

Wed, 10/08/2022 - 20:00

This was, to be sure, "the home of the free and the land of the brave." Americans were free simply because the government was too weak to intervene in the private affairs of the people—it did not have the money to do so—and they were brave because a free people is always venturesome. The obligation of freedom is a willingness to stand on your own feet.

The early American wanted it that way. He was wary of government, especially one that was out of his reach. He had just rid himself of a faraway and self-sufficient political establishment and he was not going to tolerate anything like it in his newly founded country. He recognized the need of some sort of government, to keep order, to protect him in the exercise of his rights, and to look after his interests in foreign lands. But he wanted it understood that the powers of that government would be clearly defined and be limited; it could not go beyond specified limits. It was in recognition of this fear of centralized power that the Founding Fathers put into the Constitution—it never would have been ratified without them—very specific restraints on the federal government.

In other matters, the early American was willing to put his faith in home government, in a government of neighbors, in a government that one could keep one's eyes on and, if necessary, lay one's hands on. For that reason, the United States was founded as a Union of separate and autonomous commonwealths. The states could go in for any political experiments the folks might want to try out—even socialism, for that matter—but the federal government had no such leeway. After all, there were other states nearby, and if a citizen did not like the way one state government was managing its affairs, he could move across the border; that threat of competition would keep each state from going too far in making changes or in intervening in the lives of the citizens.

The Constitution, then, kept the federal government off balance and weak. And a weak government is the corollary of a strong people.

The Sixteenth Amendment changed all that. In the first place, by enabling the federal government to put its hands into the pockets and pay envelopes of the people, it drew their allegiance away from their local governments. It made them citizens of the United States rather than of their respective states. Theft loyalty followed theft money, which was now taken from them not by their local representatives, over whom they had some control, but by the representatives of the other forty-seven states. They became subject to the will of the central government, and their state of subjection was emphasized by every increase in the income tax levies.

The state governments likewise lost more and more of their autonomy. Not only was their source of revenue being dried up by federal preemption, so that they had less and less for the social services a government should provide, but they were compelled in their extremity to apply to the central authorities for help. In so doing they necessarily gave up some of their independence. They found it difficult to stand up to the institution from which they had to beg grants-in-aid. Furthermore, the federal government was in position to demand subservience from the state governments as a condition for subventions. It has now become politically wise for governors, legislators, and congressmen to "play ball" with the central government; they have been reduced to being procurement officers for the citizens who elect them. The economic power which the federal government secured by the Sixteenth Amendment enabled it to bribe the state governments, as well as the citizens, into submission to its will.

In that way, the whole spirit of the Union and of its Constitution has been liquidated. Income taxation has made of the United States as completely centralized a nation as any that went before it; the very kind of establishment the Founding Fathers abhorred was set up by this simple change in the tax laws. This is no longer the "home of the free," and what bravery remains is traceable to a tradition that is fast losing ground.

For those of us who still believe that freedom is best, the way is clear: we must concentrate on the correction of the mistake of 1913. The Sixteenth Amendment must be repealed. Nothing less will do. For it is only because it has this enormous revenue that the federal government is able to institute procedures that violate the individual's right to himself and his property; enforcement agencies must be paid. With the repeal of the amendment, the socialistic measures visited upon us these past thirty years will vanish.

The purchase of elections with federal money will no longer be possible. And the power and dignity of the home governments will be restored.

This measure should be supported by the governors and legislators of all the states. Every state in the Union now contributes in income taxes to the federal government more than it gets back in grants-in-aid; this is inevitable, because the cost of maintaining the huge federal machinery must come out of the taxes before the citizen can get anything. With the abolition of income taxation the states will be better able to serve its citizens, and because the state governments are closer and more responsive to the will of the people, there is greater chance that the citizens will get their full dollar's worth in services.

However, the principal argument for the repeal of the Sixteenth Amendment is that only in that way can freedom from an interventionist government be restored to the American people.

Published as the foreword to Frank Chodorov's The Income Tax: Root of all Evil (1954).

Categories: Current Affairs

Low Interest Rates and High Taxes Won't Help against Inflation: The Economy Needs Savings and Real Investment

Wed, 10/08/2022 - 17:00

With the Consumer Price Index (CPI) hitting a forty-year high of 9.1 percent, the Bank of England has responded by raising interest rates to 1.25 percent, up by 0.25 from the previous period. This, alongside ex-chancellor and PM hopeful Rishi Sunak planning to “tackle inflation before tax cuts,” signals a poor plan for combating the rising effects of inflation.

First, inflation must be defined by its cause rather than its effect for the monetary authorities to enact a sound recovery policy. Inflation in the truest sense is an excess increase in the money supply over the real demand for money (MS > MD). MD, which is an inverse of velocity, is measured by the quantity of nominal pounds sterling economic actors hold over a period of time in order to acquire a higher purchasing power for future consumption. This means individuals are withholding current consumption in preference of future consumption.

This time preference is an important concept, as it is what makes interest possible. Other variables may affect interest rates, such as risk or time until final settlement, but the time preference for future/current consumption lays the foundation. Despite Milton Friedman’s wise words, inflation is not simply a monetary phenomenon but a monetary and time phenomenon.

The time lapse between production and consumption, alongside the furlough scheme during the 2020 covid outbreak, can help us better understand the financial cost and tradeoffs people now face and what the monetary authorities should do.

picture1.jpg Ascough1

The Hayekian triangle above, where the production process is hypothesized as an input-output process, denotes the stages and time process of production; “the horizontal leg is representative of the production time, and the vertical leg is a measurement of the value of consumable outputs.”

As economic actors restrict their current consumption in favor of future consumption, social savings pool. This changes the structure of the multiperiod production process: the later stages of production contract and the early stages expand. This allows the interest rate to fall, as there are more financial resources available for loans, investment, and expansion.

By refraining from current consumption, people expand earlier stages of production so that future consumers will be able to consume more goods they value at a lower price.

This is what occurs under “normal” circumstances. Due to lockdowns and the furlough scheme, however, the money and time markets have been distorted.

Another way of looking at the nature of the high inflation rate is that excess money has entered the economy faster than goods and services have been produced. This can be observed by returning to an adjusted Hayekian triangle:

picture2.jpg Ascough2

Here the darker triangle represents the production process during the covid outbreak and lockdown, and the scattered gray triangle represents current consumption. With production processes in many stages halted and with furlough payments going to businesses and workers who were not being productive, the money supply was increasing faster than production during the lockdown.

So Why Are We Only Now Feeling Inflation’s Effects?

The distorting effects of inflation are not felt instantaneously because money circulates through the economy at differing velocities for different sectors. This is why it is important to look not only at the average rate, but at all the price changes for the goods within the CPI basket; this helps to identify where the excess money is circulating and how much.

Therefore, not all price distortions will be the same: some prices will rise faster than others, some much slower; others may increase by larger percentages, while goods valued less may increase by lower percentages.

This is seen by looking at the CPI basket of goods and Produce Price Index (PPI) input goods in the March 2022 reports:

picture3.jpg Ascough3 picture4.jpg Ascough4 As shown above, the most extreme changes in the CPI and PPI reports were a 31.4 percent increase for housing and household services and a 98.0 percent increase for crude oil. Furthermore, we can visualize the spread of the price distortions by using a dot plot: picture5.png Ascough5

Getting back to the matter, the Bank of England’s low-rate policy and the remaining high tax rates are not effective policy measures for curbing the rising inflation.

The high tax rates leave consumers with less expendable income, forcing up their cost of living and discouraging them from saving. Moreover, government spending contributes to the circulation of excess money and simply changes the makeup of our gross domestic product. Instead of the goods they want, consumers get more of what government wants; instead of more houses and petrol, we get more ditches being dug up to be refilled.

Additionally, the Bank of England’s low-rate policy fails to address the reality that the excess money is being spent faster than it is being saved; a low rate of interest fails to reflect not only people’s expectation of higher inflation to come, but also economic actors’ present preference for current consumption.

So What Should the Monetary Authorities Do?

With the nominal interest rate being 1.25 percent, the real rate is negative, adjusting for inflation:

The Bank of England should aim to raise interest rates to a minimum of 13.50 percent, so as to ensure that after adjusting for inflation, the real rate would not be negative but would sit at 4.4 percent. This would help to properly signal that now is an appropriate time to save and would assist in incentivizing the private sector to take such actions. This would also, in principle, help curb incentives for banks to take high-risk loans.

By increasing the interest rate to a nominal level of 13.5 percent, savers and investors will see there is a high demand to allow earlier stages of production to expand, allowing for high future output.

Additionally, the government should temporarily freeze value-added taxes and sales taxes in order to reduce the tax burden on consumers during the cost-of-living crisis. Finally, the government should temporarily freeze the capital gains tax until inflation falls to its target rate of 2 percent. This would ensure that investors receive 100 percent of their returns, further incentivizing large-scale investments to expand production processes and creating new, value-inducing jobs.

The inflation and cost-of-living crises were created by large injections of money into the economy, and it is saving and investment that will help fix the distortions, by allowing for growth and deflation. Despite the Keynesian “paradox of thrift,” increased saving is not a decrease in economic activity, but a dynamic process that invests in a wider, more affordable future consumption.

Categories: Current Affairs

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