Friday, June 29, 2012

Austrian Macroeconomics on Economic Depressions with a Monetarist Twist!

This is a quotation from Richard M. Ebeling's Austrian Macroeconomics:  Review of Roger W. Garrison's Time and Money.

What is going on here is this:  Ebeling first provides the standard Austrian School explanation of economic depressions.  This is the story involving the money supply being artificially increased followed by the artificial lowering of the market interest rate.  This then causes resources to shift into producing long-term investment projects as opposed to consumer goods production.

Then, he mentions an objection raised by Sir John Hicks.  Hick argues that the traditional Austrian theory cannot be the explanation of depression because the economy, based on this theory, will self-correct too quickly, i.e., a serious investment boom could never really start up and get going.  Resources would quickly shift back to the consumer goods industry from the longer-term investment projects and the "boom" in the longer-term investment area would quickly come to an end.  However, since long-term investment booms have started and have lasted for some time, then there is obviously a problem with having a theory that does not allow for the boom phase to even get started.

Then Ebeling mentions Roger W. Garrison's proposed solution to this problem.  Garrison brings in ideas from the Monetarist school in order to "stick a time delay" into the model.  Then, with this "time delay" a prolonged "investment boom" will occur, to be followed by the "bust" part of the business cycle.

Here is how Ebeling puts it (all emphasis is mine):

Garrison retells the Austrian story by taking his cue from the type of analysis used by the Monetarists in explaining how in the short-run a monetary expansion can push unemployment and resource use BELOW the "natural rate of unemployment."  In the short-run, an economy always has some slack, even when it is operating at "full employment."
Garrison argues an economy has the capability of temporarily functioning BEYOND its "normal" full employment production possibilities.  This, he says, is what enables the investment boom to continue for a significant period of time before the "self-reversing" process of rising consumer demand brings the investment boom to a halt.
 The longer-term investment projects CAN CONTINUE for a prolonged period of time because simultaneous with this, the short-term slack in the economy enables consumer goods production to expand as well, delaying any reduced supply of consumer goods and a rise in their prices sufficient to swamp the investment boom.
 Let me try to put this into my own words.  In the standard Austrian model of depression here is what happens.

  1. The monetary authority expands the money supply and creates an artificially low market interest rate. 
  2. Investors (assuming "elastic expectations," i.e., investors will react to the lower interest rates and start investing in longer-term projects) are induced to borrow and invest in longer term projects (as opposed to shorter-term projects and consumer goods production)
  3. To invest in these longer-term projects, they have to "bid away" resources (labor, tools, equipment) from the other shorter-term and consumer goods industries.  
  4. The factor owners (owners of the factors of production) in these longer-term industries are making really good large monetary incomes.  They want to spend their money on consumer goods.
  5. The problem is this:  if the factors of production have been shifted to longer term projects then obviously they are not available to work on the shorter term and consumption goods projects.  In other words, if the workers and machines are all dedicated to building bridges they cannot be dedicated to building consumer goods. 
  6. So now the pent up demand for consumer goods will tend to bid up prices for consumer goods.  Also, consumer goods manufacturers, seeing the potentially much higher prices, can bid up wages and other payments to factors in order to shift the factors of production BACK to the consumer goods producing industries.
Now, Garrison wants to introduce a "time delay" into his model in order to explain the prolonged investment boom.  To do so, he brings up this Monetarist idea of SLACK in the economy.  With slack (e.g., marginal workers, people working overtime, factories being used below 100% of capacity and so on), the economy can expand in BOTH sectors, i.e., the longer-term investment boom can happen AND more consumer goods can also be produced!  In the traditional version above, resources would have to "shift back" from the longer-term projects TO the consumer goods production section.  But, if the economy can tap into this "slack," then the resources DO NOT HAVE TO SHIFT BACK RIGHT AWAY.  The resources dedicated to the longer term projects can STAY THERE; the slack can fill the needs to produce the additional consumer goods demanded.

That is my interpretation of what Ebeling wrote about Garrison's model. 


Wednesday, June 27, 2012

The Abe Simpson Version of Macroeconomics?

This is a quotation from Richard M. Ebeling's article entitled Austrian Macroeconomics:  Review of Roger W. Garrison's Time and Money.  This quote reminds me of Abraham Simpson from the Simpsons show!  See if you can guess why!  In my own person life, I remember my grandpa telling me about his lived experiences in the Soviet Union (the Ukrainian Soviet Socialist Republic).  These stories certainly left a mark on me--when I think of communism, I think of how the total State starved my family members almost to death.  Also, the discussion in Ebeling's quote is very relevant to today's economic situation:  he is talking about the German hyperinflation of the early 1920s.

After an experience of credit expansion, inflation, and the business cycle, the memory remains, both of the details of how it has effected various people in their respective corners of the market and what they have learned about the mechanisms and consequences of government policy in general. 
Many Germans, over several generations, seemed to have retained a "living memory"--even when it was based on what grandpa has told--about the dangers of monetary abuse and hyperinflation derived from the experiences of the early 1920s.

Tuesday, June 26, 2012

The Role of Prices in a Free Market: The Hayekian Knowledge Problem

F. A. Hayek wrote about the importance of using the price system as a coordination tool.  "Far from being appropriate only to comparatively simple conditions," Hayek writes in The Road to Serfdom, "it is the very complexity of the division of labor under modern conditions which makes competition the only method by which such coordination can be adequately brought about."  Then Hayek adds:  "This is precisely what the price system does under competition, and which no other system even promises to accomplish.  It enables entrepreneurs, by watching the movement of comparatively few adjust their activities to those of their fellows."  (all emphasis mine)

 Richard M. Ebeling, in an article entitled Austrian Macroeconomics:  Review of Roger W. Garrison's Time and Money, writes a very concise definition of "the role of prices."  I want to put this up because I think it clearly explains why communism is impossible, i.e., why it is impossible to eliminate prices.

The role of prices under conditions of imperfect knowledge in markets with continual change is precisely to have an institutional mechanism that enables actors to coordinate their activities WITHOUT their needing to possess ALL "the data" of the market as a whole. Market actors can use their special and localized knowledge of time and place in the division of labor WITHOUT ANY OF THEM POSSESSING THE GLOBAL KNOWLEDGE OF THE ENTIRE ECONOMIC SYSTEM. (emphasis mine)

Thursday, June 21, 2012

It is NOT the People's Fault for the Plastic Bag Ban in Toronto

It is NOT the People's Fault

Ah, the blame game.  Who is to blame for the recent plastic bag ban in Toronto?  According to the National Post article by Terence Corcoran, the list of possible suspects worthy of condemnation is rather long. 

Maybe the science-be-damned environmentalists are out to get the evil plastic industry. 

Or maybe opportunistic small-time but power-hungry municipal politicians are pouncing on the chance "to make their mark."  How such slander that besmirches the reputation of our normally "altruistic" politicians could be published in a reputable newspaper is beyond me. 

Or maybe these same municipal politicians are simply "dumb" city councilors who place more value in the opinion of the Easter Bunny than in studies and research.  Why waste time and money on conducting objective research when one can simply appeal to the all-knowing wisdom of elected politicians.  The divine-right of the city councilor is, after all, a well established principle of political economy. 

Or maybe The Retail Council is a spineless jellyfish that is selling out the plastic industry due to its cowardice.  If only it had a backbone to stand up to these dumb and/or opportunistic city councilors, then something good might happen in Toronto. 

Or maybe the prime suspect is the people themselves.  As Mayor Rob Ford so eloquently put it, "it's the people's fault." 

The mayor laments the lack of citizen engagement in municipal politics.  "People are just sitting back and listening, but they don't pick up the phone, they don't go down to city hall, they don't ask questions," he says.

But the most obvious objection is simply this:  how can they, Mr. Mayor?  Doesn't the surprise nature of the vote make citizen "engagement" next to impossible?  When will the people get the chance to organize an effective opposition if the city council pulls surprise out-of-the-blue votes?  The city council is certainly not signaling much of an interest in encouraging further citizen participation.

Of course, the mayor's comments may be directed not so much at this particular incident with banning plastic bags as at a general apathy towards municipal politics.  The people have tuned out; they have abdicated their responsibility to keep these city councilors accountable.  The people have voted in terrible representation, and now they are doing nothing to correct their earlier electoral mistake. 

To begin, there is no such thing as "the people."  The mayor might as well blame Martians for the political problems in Toronto.  There is no collective blob called "the people"; there is no collective brain that does the thinking for the collective people; there are, however, many individuals living within the monopoly territory called the city of Toronto.  So the problem the mayor should be asking himself is, "why does an individual not care enough to be engaged in municipal politics?"

Maybe the reason why an individual just does not care is because he or she feels powerless to bring about effective change.  After all, the relationship between the city and an individual is an antagonistic.  A citizen may not even be a voter; clearly he or she has given no consent to any of these politicians, yet this citizen has no way to opt-out of the decisions that the city council imposes upon him or her.  The citizen is, in effect, living under the communistic principle of majority rule.  He or she, as an individual, has no power; the fictitious "will" of the majority must be obeyed. 

Maybe the citizen realizes that he or she has absolutely no way to financially control the behavior of his or her official representative, who may very well be a person the citizen did not vote for in the first place.  A government, by definition, cannot be held accountable by anyone because taxation is not voluntary.  The city does not send out friendly flyers with pixies and leprechauns on them in order to encourage the citizen to donate some love money to the city.  If the citizen doesn't pay then the city is not going to sit idly by; the city will enforce its taxation bill.

So far, the individual has no way to guarantee who his or her representative will be because the individual has this communist philosophy of majority rule imposed upon him or her.  Was the individual ever asked to sign up for such an arrangement?  Nope.  One must begin by doubting whether any of this is a true expression of individual consent, i.e., whether any of this "legitimizes" the government.  Moreover, the individual has no way to financially control the city's behavior.  This is because the city has effectively said to every individual:  you don't own your property.  Pay us your taxes or you will be in trouble big time.

So what does the mayor want an individual to do?  Call a politician on the phone.  Attend a meeting.  Ask a question.  Does the city call you politely on the phone and ask for a friendly donation of funds to pay for city's operations?  Does the city attend any public meetings or ask the people any questions?  According to Corcoran's article, the city couldn't be bothered to engage in a public review.  Instead, the city has the power to use force against you.  "Obey or die," said Trotsky.  "Obey or lose your property," says the city. 

This is not a fair fight.  This is a rigged game.  And the game is rigged against the individual.  That is the point. 

In fact, the game is so rigged that each politician has a vested interest in keeping things just the way they are now.  We will not see a parade of politicians swooping in to take advantage of this "opportunity" to increase individual participation in municipal politics.  There will be no crusade to get people excited about municipal politics as a result of this plastic bag ban.  It is against the individual self-interest of a politician to do so.  Isn't it easier to rule over people who passively submit than to rule over people who are monitoring your every move?

In conclusion, the mayor is wrong to blame the fictitious phantom he calls "the people" for the Toronto city council's decision to ban plastic bags.  What he is doing is that he is effectively blaming the victims for the crime.  Instead, he should be attacking a system without legitimate consent from all individuals, without any protection of private property, without any way for an individual to financially control politicians, and without any meaningful way for the individual to exercise his or her will.  The problem is ultimately that the city council can use coercion on its subjects and impose a non-voluntary outcome on them.  With such an imbalance of power, the people are not to blame.  The communistic rule by majority and voting are to blame. 

Tuesday, June 19, 2012

Hans-Hermann Hoppe on Original Appropriation of Bodies, Ethics, and Argumentation

This is footnote 17 from Chapter 10 of Hans-Hermann Hoppe's Democracy:  The God That Failed; The Economics and Politics of Monarchy, Democracy, and Natural Order.  The reason why I am reproducing Dr. Hoppe's footnote is because I feel that these core areas do not receive enough attention on Facebook.  The issues raised in this footnote are extremely important because they have such broad implications, yet seem to receive little to no Facebook coverage, at least not directly.  The discussion of original appropriation of bodies forms the basis of all property rights.  The discussion of argumentation as a subcategory of human action is a sophisticated way to refute socialism and its claims of being the "moral high ground."

The first, initially outlined by Rothbard, proceeds via an argumentum a contrario.  If, contrary to the principle of first or original appropriation, a person A were not considered the owner of his visibly (demonstrably, and intersubjectively ascertainably) appropriated body and the standing room and places originally (prior to everyone else) appropriated through him by means of his body, then only two alternative arrangements exist.  Either another later-coming person B must be recognized as the owner of A's body and the places originally appropriated by A, or both A and B must be considered equal co-owners of all bodies and places.

(The third conceivable alternative, that no one should own any body and originally appropriated place, can be ruled out as an impossibility.  Acting requires a body and standing room and we cannot not act; hence, to adopt this alternative would imply the instant death of all of mankind).

In the first case, A would be reduced to the rank of B's slave and subject of exploitation.  B is the owner of the body and places originally appropriated by A, but A in turn is not the owner of the body and places so appropriated by B.  Using this ruling, two categorically distinct classes of persons are constituted:  slaves such as A and masters such as B, to whom different "laws" apply.  Hence, while such a ruling is certainly possible, it must be discarded from the outset as a human ethic, equally and universally applicable for everyone qua human being (rational animal).  For a rule to aspire to the rank of a law--a just rule--it is necessary that it apply equally and universally to everyone.  The rule under consideration manifestly does not fulfill this universalization requirement.

Alternatively, in the second case of universal and equal co-ownership the universalization requirement is apparently fulfilled.  However, this alternative suffers from another, even more severe deficiency, because if it were adopted all of mankind would perish immediately, for every action of a person requires the use of scarce means (at least his body and its standing room).  However, if all goods were co-owned by everyone, then no one at any time or place would be allowed to do anything unless he had previously secured everyone else's consent to do so.  Yet how could anyone grant such consent if he were not the exclusive owner of his own body (including its vocal chords) by means of which this consent would be expressed?  Indeed, he would first need others' consent in order to be allowed to express his own, but these others could not give their consent without first having his, etc.  Thus, only the first alternative--the principle of original appropriation--is left.  It fulfills the universalization requirement and it is praxeologically possible.

The second argument, first advanced by this author [i.e., Hans-Hermann Hoppe] and yielding essentially the same conclusion, has the form of an impossibility theorem.  The theorem proceeds from a logical reconstruction of the necessary conditions of ethical problems and an exact definition and delineation of the purpose of ethics. 

First, for ethical problems to arise conflict between separate and independent agents must exist (or must at least be possible); and a conflict can only emerge in turn with respect to scarce means or "economic" goods.  A conflict is possible neither with respect to superabundant or "free" goods such as, under normal circumstances, the air that we breathe, nor with respect to scarce but non-appropriable goods such as the sun or the clouds, i.e., the "conditions," rather than the "means," of human action.  Conflict is possible only with respect to controllable ("appropriable") means such as a specific piece of land, tree or cave situated in a specific and unique spatio-temporal relation vis-à-vis the sun and/or the rain clouds. 

Hence, the task of ethics is to propose rules regarding the "proper" versus the "improper" use of scarce means.  That is, ethics concerns the assignment of rights of exclusive control over scarce goods, i.e., property rights,in order to rule out conflict.  Conflict, however, is not a sufficient prerequisite for ethical problems, for one can come into conflict also with a gorilla or a mosquito, for instance, yet such conflicts do not give rise to ethical problems.  Gorillas and mosquitoes pose merely a technical problem.  We must learn how to successfully manage and control the movements of gorillas and mosquitoes just as we must learn to manage and control the inanimate objects of our environment. 

Only if both parties to a conflict are capable of propositional exchange, i.e., argumentation, can one speak of an ethical problem; that is, only if the gorilla and/or the mosquito could, in principle, pause in their conflictuous activity and express "yes" or "no," i.e., present an argument, would one owe them an answer.

The impossibility theorem proceeds from this proposition in clarifying, first, its axiomatic status.  No one can deny, without falling into performative contradictions, that the common rationality as displayed by the ability to engage in propositional exchange constitutes a necessary condition for ethical problems because this denial would itself have to be presented in the form of a proposition.  Even an ethical relativist who admits the existence of ethical questions, but denies that there are any valid answers, cannot deny the validity of this proposition (which accordingly has been referred to also as the "a priori of argumentation"). 

Second, it is pointed out that everything that must be presupposed by argumentation cannot in turn be argumentatively disputed without getting entangled in a performative contradiction, and that among such presuppositions there exist not only logical ones, such as the laws of propositional logic (e.g., the law of identity), but also praxeological ones.  Argumentation is not just free-floating propositions but always involves also at least two distinct arguers, a proponent and an opponent, i.e., argumentation is a subcategory of human action.

Third, it is then shown that the mutual recognition of the principle of original appropriation, by both proponent and opponent, constitutes the praxeological presupposition of argumentation.  No one can propose anything and expect his opponent to convince himself of the validity of this proposition or else deny it and propose something else unless his and his opponent's right to exclusive control over their "own" originally appropriated body (brain, vocal chords, etc.) and its respective standing room were already presupposed and assumed as valid.

Finally, if the recognition of the principle of original appropriation forms the praxeological presupposition of argumentation, then it is impossible to provide a propositional justification for any other ethical principle without running thereby into performative contradictions.

Friday, June 15, 2012

Dissecting the Media Spin on the Montreal Protests for "Free" College Tuition

Dissecting the Media Spin on the Montreal Protests for "Free" College Tuition

The CBC recently ran a story entitled How a Student Uprising Is Reshaping Quebec by Jennifer Clibbon consisting of interviews with two prominent francophone journalists and a political scientist, which is available at:

The interviewees have ascribed to the student protesters near-hero like status.  While the student protesters are portrayed as being incapable of doing wrong, the government of Quebec is portrayed as being incapable of doing anything right. 

I plan to first dissect this apologia for the student protesters in order to show how completely ridiculous this entire CBC article really is.  After demolishing some of the fallacious arguments made by the three interviewees, I will argue that these student protesters are actually conformists calling out to the government of Quebec to enslave them further.  If these students think they are fighting for "freedom" and "rights," then they are sorely mistaken.

The article paints the students as being ultra-modern, cutting-edge, world- and media-savvy, and on the cutting edge of technology, which differentiate them from their old and outdated elected leaders.  One interviewee goes so far as to assert that the students are "better placed than their elders to imagine what kind of education system our society needs to face the challenges of the future."  To further this point, the article stresses how the youth see no future because of the dominance of the older generations who will consume most of the tax revenues in the form of health care costs and pensions.  In other words:  the students are the future while the elected leaders are the out-of-touch past.

One of the most glaring problems with this past-future or conservative government versus progressive students dichotomy is that the student protesters have not offered one innovative, cutting-edge, or modern solution to the education problem in Canada.  If they were really revolutionaries "fighting the Establishment," they would be offering us solutions such as privatizing education in order to re-establish competition and choice in the education system or they would be demanding that the leviathan bureaucracies and teachers' unions be smashed.  With such private solutions, the student protesters could instead peacefully negotiate the price of their education with various and competing service providers. But no!  Our revolutionaries, far from being original thinkers daring enough to challenge the status quo, seem to be simply recycling the old worn out ideas of the Syndicalists.  The CBC article mentions that the student protesters use strikes, boycotts, and picket lines and that there has been "violent actions on campus against those who actively oppose the strike."  How is this any different from the definition of the Syndicalist approach advocated by George Sorel who wanted to launch, under the name action directe, tactics such as riots, strikes, general strikes, and sabotage?  How this can be called an "accelerated education in political culture" is beyond me.  If education is any sign of civilized behavior then what we are witnessing is certainly the behavior of the uneducated. 

The media certainly enjoys portraying the student protests as a spontaneous uprising of these young individuals.  I have heard it used before by other Quebec media sources and, unsurprisingly, this CBC article also mentions "the spontaneous demonstrations."  What is rather humorous--one might say ironic--about this is that the term spontaneous ordering is one of the most famous terms in economics of F. A. Hayek.  But why on earth would a Hayekian term be used to describe what these student protesters are doing?  The sweet irony here is that our anti-neo-liberal protesters--and if you ever watch CUTV they just love to mention "neo-liberal" interminably--are using a term that is neo-liberal!!!  Don't our "accessible" education freedom fighters know that Hayekian economics--the evil neo-liberal economics that they hate so passionately--is all about the study of the spontaneous--of what the student protesters allegedly do!     

The CBC article also tries to portray the student protesters as receiving a "crash course in rights and freedoms."  Unfortunately for these student protesters, even rampant grade inflation is not going to save them from failing this course.  What "rights" have these students learned about from these never-ending nightly protests?  Their "right" to use the coercive taxing power of the state in order to provide them with a "free" education paid for by the extortion of the vast majority of other people who clearly oppose this plan?  Their "right" to shape the national identity, whatever that is supposed to be?  I suppose that is their supposedly collective "right" to deny the individual his or her right to shape his or her life however he or she sees fit.  Their "right" to "build a different world" without first getting the explicit consent of all the other people affected by the imposition of their grandiose plan?  Their "right" to set up picket lines and infringe upon the egress rights of their fellow students?  Their "right" to unilaterally impede upon the use of private property and to deny the owners the ability to earn legitimate incomes from the use of their own property?  Their "right" to spout off the fallacious economic theories that they learned into their introductory political science course, which then somehow entitles them to demand that taxpayers pay for more of this "education"?  Their "right" to the "new world" of social democracy?  What rights have they learned?  Nothing!!!  Not one.  The most basic characteristic of a society is the right to freely exchange.  Nowhere in this article do these students call for free exchange.  Instead, they place demands upon people to give them what they want at the end of the government's gun and then have the temerity to claim that they are "not slackers."

Now, if they remain ignorant of rights, are they at least conversant in the idea of freedom?  Do they know what freedom is?  To understand freedom, one must begin with the insight that aggression is unjust.  When the state beats, shoots rubber bullets at, harasses, and intimidates the peaceful protesters, is this not an act of aggression against the bodies of these peaceful protesters?  Yes, it is!  But what then do these student protesters want?  They want free tuition!  But who will pay for this education?  Certainly not the students, they want the government to pay for it all.  But where will the government in Quebec City get this money from?  Will Ben "Helicopter" Bernanke make a special trip with his helicopter to Quebec City in order to rain money down on Jean Charest in order to solve his budgetary problems?  Certainly not!  The government in Quebec City will go to the taxpayers of Quebec and force them to pay for something they do not want.  Even the CBC article says that they do not want to pay for this.  "Against the students and their allies," we are told, "there is a significant part of Quebec society that doesn't support the protests (and the accompanying violence) and approves of the increase in tuition."  So, it is wrong for the government to use aggression against the allegedly peaceful protesters, but it is acceptable for the students to use the aggression of the state's power to tax people against their will in order to enrich themselves.  Maybe the problem is that the word "hypocrisy" has been confused with the word "freedom"? 

The reason for all of this confusion is that the CBC article assumes throughout that education is actually the "real" issue being debated here.  The debate has been framed in terms of "access to education" with comments claiming that "higher education [is] a vehicle for economic and social 'emancipation.'"  The simplest way to reply to this is to point out that education is a phantom--it does not exist in our public system.  In her important contribution to the history of education, Charlotte Iserbyt saw this problem right on page one of her massive study concerning the Deliberate Dumbing Down of America.  She writes:  "the philosophies of Jean-Jacques Rousseau, Wilhelm Wundt, and John Dewey et al., reflect a total departure from the traditional definition of education."  Traditional education is as dead as a Tyrannosaurus Rex.  Moreover, in his 1931 Page-Barbour Lectures at the University of Virginia, Albert Jay Nock was already lamenting the fact that education had already gone the way of the dodo and had already been replaced by the "imposter system," i.e., training.  So whatever these students are demanding of the taxpayers of Quebec, it is certainly not education because education does not exist today.  What does exist is the government's monopoly on training.

So what then do these students want? What these students want is to be enslaved.  To make such a claim is certainly shocking and rightly so.  They have failed to learn from one of the greatest political philosophers of all time, Étienne de la Boétie who wrote of the mindset of these Quebec students in his famous work The Politics of Obedience:  The Discourse of Voluntary Servitude.  La Boétie warned the French of his day of the dangers of tyranny when he observed that people are trained to adore rulers.  It is fairly easy to see this parrot-like training of students in introductory business courses.  The economy is in a depression, what should we do?  The government should intervene and spend!  Too many marketers are unscrupulous, what should we do?  The government should intervene and push some sort of "social responsibility" agenda!  Prices are rising too quickly, what should we do?  The government through its central bank should intervene and slow down the rate of new money supply creation!  The government has all the answers.  The right answer to every question is the government knows best.  To put this in terms that a teenager will certainly get:  the public "education" system is indistinguishable from the system imposed by the Movementarian leadership on Edna Krabappel's classroom.  Do you really want to be in a system in which Bart Simpson gets every answer right because the answer to every question is "the Leader" did it?

In conclusion, training has nothing to do with "education"; training has everything to do with maintaining the status quo, i.e., of locking in one ruling group.  To call for more public "education," i.e., to call for more training is, in essence, to call for more rulers, more conformity to the parrot-like memorize and regurgitate system, and more tyranny over the minds of men.  This is not a system that encourages the development of an original mind; this is a system that produces trained automatons.  If these students really want a lesson in rights and freedoms they should ponder this question:  why do you want to uphold a monopoly system--a monopoly over your mind--when monopoly is the very antithesis of the freedom you supposedly are seeking?

Niagara-on-the-Lake, Ontario
June 5, 2012

My Rejoinder to Ed Finn's "Reform Capitalism or Scrap It?"

Rejoinder to Ed Finn's Reform Capitalism or Scrap It?:  It's not just the climate that's damaged by capitalism


This paper will critically analyze Ed Finn's article entitled Reform Capitalism or Scrap It?:  It's not just the climate that's damaged by capitalism, dated March 1, 2012 and available at:

I plan to analyze the article from a market anarchist or anarcho-capitalist perspective in order to provide an original critique of this article published by the Canadian Centre for Policy Alternatives.  The article being criticized is clearly written for an audience of Marxists, socialists, and social democrats.  I suspect that few anarcho-capitalists will ever read it because they most likely will reject the article as radically-leftist propaganda, which distorts and misrepresents capitalism deliberately in order to slander it.  I, however, have taken the article seriously.  I assume that the author is serious in his beliefs and arguments with no evil or slanderous intentions in order to follow the approach taken by F. A. Hayek;[i] consequently, I try to remain as detached and objective as possible when addressing critically the author's laundry list of allegations against capitalism. 

The major arguments addressed in my paper are as follows:

  • My paper begins with some introductory remarks on terminology in order to address potential confusion over the term "capitalism."  The term has multiple connotations; the readers of my article will quickly see that "capitalism" from a market anarchist point of view and "capitalism" from the point of view of Ed Finn are completely different terms with completely different meanings.  In fact, from a market anarchist perspective, capitalism does not exist in the current world; instead, socialism is the only system in operation today.  Since capitalism and socialism are defined from this point of view in terms of property relations, then the conclusion that our world is, in fact, suffering from rampant socialism will be seen as self-evident. 
  • Then, my paper addresses the author's interpretation of "capitalist" history in the twentieth-century.  The author paints a picture of twentieth-century economic history that follows a simply chain of events of the form bad, good, and then bad making a comeback in order to suppress the previous good.  To clarify, the author perceives a world of unbridled capitalism, which got too greedy, and this "unchecked greed" then caused the Great Depression in the 1930s.  Then, the good guys intervene in order to rescued capitalism, apparently against its will, by adopting the "caring and sharing" system of Keynesian economics.  The world was now a better place; the forces of good beat those of evil.  But then the forces of darkness regrouped and nefariously overthrew the nirvana of Keynesian economics by restoring the "rapacious" system of laissez-faire capitalism.  Consequently, the current world situation is once again laissez-faire capitalism, which is spiraling out of control, once again, but the good guys will save the world from the coming capitalist apocalypse of "global warming" by instituting a world government.  My article argues that this interpretation of the history of the twentieth-century is incorrect because laissez-faire capitalism was already effectively dead at the beginning of the twentieth-century because of deliberate government interventions designed to placate existing big businesses.  The claim that Keynesian economics was some sort of salvation for the little guy, a protection of the weak from the strong, is addressed and attacked by examining the fact that Keynesian economics is establishment economics with a built-in tendency to favor the interests of both commercial and investment bankers.
  • Playing off the currently popular 1% versus 99% rhetoric, the author of the article brings up the "concentration of wealth" issue, which he will solve by transferring the resources of all the governments of the world to one central world government.  I address the obvious logical contradiction of trying to solve one "concentration" problem by creating an even larger one.  Moreover, I point out why the author's "one big cartel" solution is theoretically impossible; his solution cannot work because it will lead to a rational economic calculation problem.  I conclude this section by utilizing a historical illustration from the Soviet Union's disastrous attempt to create the "one big cartel" in the late 1910s.
  • Then, I address the numerous problems in the author's assertion that our current global economy is, in fact, the paragon of free trade.  The author of the article takes it for granted that the current world is "obviously" an example of the free-market mentality, which is out of control because the market has been "unshackled" from its beneficial Keynesian restraints.  From the market anarchist perspective, the current situation is "obviously" not an example of the free-market mentality; the current world is an "obvious example" of conservative socialism and social democratic socialism.  The reason for the confusion, as will be explained, is that the author of the article fails to distinguish a bureaucratically managed trade system from a genuinely free (i.e., voluntary, without government) trade system. 
  • The author of the article then levels an extended attack against competition by accusing it of causing numerous problems in the world, such as poverty, war, wealth concentration, and waste of resources.  Lurking in the background of the author's article, I suspect, is a Marxist assumption that capitalists are suicidal in their interminable drive to "accumulate" capital.  To starve off the day of reckoning, i.e., to postpone all the nasty effects of "competition," capitalists supposedly engage in wars and imperialism.[ii]  To address the author's claims against competition, I begin by explaining why it is impossible to eliminate competition so long as humans act, i.e., so long as humans attempt to substitute a better state of affairs for a worse one.  Then, I address the accusations made by the author of the article in a point-by-point rebuttal format in order to show that the author's self-evident claims are not so self-evident after all.  I examine how monetary policy manipulation--not capitalism--instigated economic wars in the 1930s that then fomented the armed conflicts of World War II, how American banking history from as early as the 1860s showed ongoing and deliberate attempts to suppress competition through various forms of government-granted privileges, why the highly dynamic and unpredictable nature of a free-market made the maintenance and concentration of wealth impossible, why free-markets were beneficial to the poor as illustrated by Robert LeFevre's statistical study of wealth distribution before and after the Industrial Revolution, and how a free market avoided warfare through the implementation of the harmony of interests concept, which stands in sharp contrast to the competing concept called the Montaigne dogma.
  • I then address the author's bizarre claim that capitalism is based upon the assumptions of limitless growth and limitless resources.  The author's claims are obviously meant to imply that capitalism is destroying the earth by causing an environmental catastrophe; this environmental apocalypse, which will destroy civilization, can only be thwarted through the author's proposed solutions of world government and curtailing economic growth.  The author's argument is bizarre because socialist propaganda has always proposed that it would create a "world of plenty" (i.e., limitless growth of goods) if only capitalist production with its "artificial scarcity" could be halted.  Capitalism cannot be both simultaneously suppressing the supply of goods by creating scarcity and overproducing the supply of goods by engaging in limitless growth. 
  • Next, I examine the author's "animistic" or "by design" world view.  He seems to think, not surprisingly, that a capitalist conspiracy is afoot in the world today.  In reply, I examine the history of early capitalism in order to stress that capitalism was born not by deliberate design but by a spontaneous ordering in an anarchistic environment.  
  • The last issue I address is the author's inconsistent "moral high ground" argument.  Socialism, the author's preferred solution, was born as a totalitarian reaction against the liberalism of the French Revolution; thus, the author's "self-evident" claim to a "moral high ground" is very suspicious.  I conclude by noting the obvious self-refuting nature of the entire article.  At the beginning of the article, capitalism's collapse is inevitable, but by the end of the article, deliberately organizing a plan to overthrow capitalism is now needed. 

Issues Regarding the Use of the Term "Laissez-Faire Capitalism":

The fundamental essence of market anarchy is expressed by Hans-Hermann Hoppe as "a pure private property society, an anarchy of private property owners, regulated exclusively by private property law."[iii]  From this perspective, capitalism and socialism are defined in terms of property with

socialism being an institutionalized policy of aggression against property, and capitalism being an institutionalized policy of the recognition of property and contractualism [i.e., non-aggressive relationships between property owners].[iv]

Contrary to the assertions of the author of the article, this property-based definition does not imply that capitalism is biased in favor of "big business."  Capitalism opposes what F. A. Hayek calls the socialists of "all parties," including the privilege-seeking protectionist behavior displayed by many big businesses.  "There is some justification," writes Hayek, "in the taunt that many of the pretending defenders of 'free enterprise' [emphasis added] are in fact defenders of privileges and advocates of government activity."[v]  To grant any government privilege to anyone (rich or poor) for any reason is to engage in private property violations, i.e., to engage in socialism. 

Given such a definition of capitalism, which certainly is not how the term is construed by socialists,[vi] one must conclude that capitalism does NOT exist in our current world.  The modern world is, by definition, nothing but violations of private property rights because the modern world is still populated by states and states are by definition property violators.  Murray N. Rothbard summarizes the inherently anti-capitalistic nature of the state when he writes that

the State necessarily lives by the compulsory confiscation of private capital, and since its expansion necessarily involves ever-greater incursions on private individuals and private enterprise, we must assert that the State is profoundly and inherently anticapitalist.[vii]

The protection of private property is, in fact, illusory in our statist world because each government continues to possess not only a judicial monopoly over its territory but also the involuntary power to tax property.[viii]  Therefore, from a market anarchist perspective, the author of the article is mistaken when he continually blames all of the problems in the world on capitalism.  Capitalism does not exist in the current world because the existing institutional arrangements are inherently anti-property in their nature; socialism, i.e., aggression against property, is what exists in the current world.  

Historical Problems Regarding the Interpretation of the American Depression in the 1930s, Keynesian Economics, and the Post-World War II Period up to the Present:

The author presents an interpretation of economic history, beginning with the American Depression in the 1930s.  The author's major points are as follows:

  • Capitalism, plagued by "avarice" [i.e., by "greed"] and financial "knavery," caused the Great Depression of the 1930s
  • Capitalism was then "saved" apparently against its will thanks to the "caring and sharing" concepts of John Maynard Keynes
  • A wonderful world was unleashed, which included income being more "fairly" distributed, more labor unionization, better wages and working conditions for labor, and more social programs financed by "progressive" taxation
  • But the rapacious capitalists fought back by breaking their "Keynesian shackles" and then re-established their "ruthless" system of capitalism
  • This "ruthless" system of capitalism now is completely out of control causing every conceivable calamity including a global environmental crisis

To begin, the author's assertion that capitalism was "running amok" immediately prior to the Great Depression is historically incorrect.  In reality, laissez-faire capitalism never existed in its pure form for the most part; a quasi-version did exist but was intentionally suppressed starting in the Progressive Era of American history, i.e., the suppression preceded the 1930s by decades.  Consider Gabriel Kolko's reinterpretation of the Progressive Era in the United States, roughly covering the period from the second half of the 1800s to 1916.  Kolko states bluntly that "the federal government was always involved in the economy in various crucial ways, and that laissez faire NEVER EXISTED [emphasis added] in an economy where local and federal governments financed the construction of a significant part of the railroad system."[ix]  In fact, the Progressive Era was dominated by the leaders of big business deliberately suppressing free-market competition.  Continuing with Kolko, the lesson from history is that large corporations seek and receive government regulations as a form of protectionism because the existing large corporations are afraid of capitalism in its pure form.  Kolko notes that "although there was a formal commitment to varieties of laissez faire economic theory in most of the academic world, big businessmen developed their own functional doctrine very much opposed to competition [emphasis added] as either a desirable mechanism or as a goal."[x]  The rest of Kolko's study explains how the leaders of big business (including the big banks) went about deliberately shutting down capitalism and replacing it with a government-protected monopoly system.  Because "competition was unacceptable to many key business and financial interests,"[xi] and because various voluntary attempts to restrict competition had all failed,[xii] the leaders of big business deliberately turned to the government for a political solution to their capitalist problem.[xiii]  These observations pertaining to the deliberate government sponsored suppression of competition were made again by F. A. Hayek regarding the Great Depression when he writes that "anyone who has observed how aspiring monopolists regularly seek and frequently obtain the assistance of the power of the state to make their control effective can have little doubt that there is nothing inevitable about this development."[xiv]

The period from roughly 1900 to 1930 was not a period of unbridled capitalist greed characterized by unregulated markets.  On the contrary, it was a period of centralizing and consolidating power.  The end of the first World War brought about a shift from Marxist ideology to a system of "planning."  Ludwig von Mises mentions this important turning point in the history of the West when he writes that

the attitude of the German "majority socialists" adopted in 1918 and 1919 marks a turning point in the socialist movement in the countries of Western industrial civilization.  The nationalization issue receded more and more into the background....With all other foes of the market economy the party cry is now "planning."[xv]

Moreover, during this 1900-1930 period, centralized global coordination of the economy began.  The most obvious example is the birth of central bank coordination between the New York Federal Reserve and the Bank of England.  Writing about the coordinated control of the economies of both America and Europe by their respective central banks, Murray N. Rothbard notes that

less well known is the fact that close collaboration between Benjamin Strong, Governor of the Federal Reserve Bank of New York, and Montagu Norman, head of the Bank of England, began much earlier....As early as 1916, Strong began private correspondent relations with the Bank of England, as well as with other European Central Banks.[xvi]

Thanks to all of these earlier government and central bank interventions, the economic situation did not look even remotely like laissez-faire capitalism on the eve of the American Great Depression.  In fact, a centrally coordinated system in banking existed domestically in the United States in addition to the global coordination spearheaded by Benjamin Strong.  Murray N. Rothbard writes about the obviously anti-laissez-faire economic situation that existed in the spring of 1929:

As Bernard M. Baruch explained in an optimistic interview in the spring of 1929, they [i.e., the new tools for central control] were (a) expanded cooperation between government and business [emphasis added]; and (b) the Federal Reserve Act, "which gave us coordinated control of our financial resources and...a unified banking system [emphasis added]."[xvii]

Now compare this 1929 centrally coordinated banking system to the pre-Federal Reserve System as described by Gabriel Kolko, i.e., a system of relatively decentralized and competitive banking compared with what happened later in American history.  Kolko describes the operation of a pre-central bank banking industry, which was marked by a rise in choice and a decrease in the relative power of New York banks:

But had the complete centralization of capital been the dominant fact of the financial structure at the beginning of this century [i.e., the twentieth century], the proliferation of new entries into most industries and the failure of the merger movement to establish industrial control [emphasis added] would be inexplicable.  For central finance would have withheld funds from undesirable competitors.  Clearly, a much more complex situation existed, and the extent of this complexity has not been fully appreciated.  The crucial fact of the financial structure at the beginning of this century was the relative decrease in New York's financial significance and the rise of many alternate sources of substantial financial power [emphasis added].[xviii]

Therefore, the author's assertion that capitalism existed in the late 1920s and then caused the Great Depression in the 1930s is wrong because capitalism never existed in a pure form and the relatively free-market system that had existed was destroyed in the Progressive Era. 

Continuing with the author's description of twentieth century economic history, the claim that Keynesian economics was instituted out of benevolent "caring and sharing" motives is rather shocking.  Keynesian economics has nothing to do with benevolent altruism as the author of the article seems to believe.  The fact is that Keynesianism is "the pure economics of power, committed only to keeping the Establishment-system going."[xix]  From roughly the 1930s to the early 1970s, "Keynesianism rode high in the economics profession and in the corridors of power in Washington [emphasis added]."[xx]  The most obvious question is "why would bankers and establishment players want Keynesian economics?"  The most obvious answer is that they benefit the most from perpetual deficit financing, i.e., large deficits during recessions and smaller deficits during booms.[xxi]  How do bankers benefit from the Keynesian policy of interminable deficit financing?  The answer to this question is provided by Rothbard in a discussion on why the interests of both commercial and investment banks are advanced by statism and deficits.  Rothbard explains why the establishment players want Keynesian economics when he writes that

bankers are inherently inclined toward statism [emphasis added].
            Commercial bankers, engaged as they are in unsound fractional reserve credit, are, in the free market, always teetering on the edge of bankruptcy.  Hence they are always reaching for government aid and bailout [emphasis added].
            Investment bankers do much of their business underwriting government bonds, in the United States and abroad.  Therefore, they have a vested interest in promoting deficits [emphasis added] and in forcing taxpayers to redeem government debt.[xxii]

Therefore, based on considerations of the self-interest of commercial and investment bankers, the claim that Keynesian economics was intended to further "shackle" capitalism is, in fact, correct.  The stated 1936 goal of Keynesian economics was to defend two untenable economic policies, namely, inflationism and labor unionism; neither was conducive to capitalism.[xxiii]  To accomplish these anti-capitalist goals, Keynesian economics resurrected the old ideas held by the so called "monetary cranks":

Keynes did not add any new idea to the body of inflationist fallacies, a thousand times refuted by economists.  His teachings were even more contradictory and inconsistent than those of his predecessors who, like Silvio Gesell, were dismissed as monetary cranks.  He merely knew how to cloak the plea for inflation and credit expansion in the sophisticated terminology of mathematical economics.[xxiv]

The death of Keynesian economics was not caused by some sort of capitalist conspiracy to reestablish the "rapacious" system that supposedly existed prior to the Great Depression.  Keynesian economics died in the 1970s because reality demonstrated that the Keynesian theory was wrong; the Keynesian theory was unable to explain what was happening in the real world.  "In the early and the late 1970s," writes Rothbard, "the wind was taken out of their sails by the arrival of inflationary recession [emphasis added], a phenomenon which they not only failed to predict, but whose very existence violates the fundamental tenets of the Keynesian system [emphasis added]."[xxv]  Rothbard explains the paradox of Keynesianism when applied to the real world problem of an inflationary recession:

For if the government was supposed to step on the spending accelerator during recessions, and step on the brakes during booms, what in blazes is it going to do if there is a steep recession (with unemployment and bankruptcies) and a sharp inflation at the same time?  What can Keynesianism say?  Step on both accelerator and brake at the same time [emphasis added]?[xxvi]

The author's thesis is, in the final analysis, simply of the form:  bad era, good era, and a return to another bad era, with the good era consisting of big government intervening in the economy perpetually and the bad eras consisting of a lack of government meddling in the economy.  What the author of the article completely ignores is the fact that the economic history of the twentieth century was influenced heavily by ongoing interventions in the form of imposed monetary orders.  The claim that parts of the twentieth-century lacked regulations over the economy is simply not true.  The world experienced a flip-flopping between two different and competing establishment monetary systems, i.e., between the Keynesian and the Friedmanite monetary orders.  The world flip flopped between the Keynesian fixed exchange rate system combined with international economic coordination and a Friedmanite fiat money system with relative values of currencies fluctuating in accordance with supply and demand but still a governing central bank existed.[xxvii]  Contrary to the author's claim, which suggests that Keynesian economics is the salvation of the poor and destitute, both systems are establishment systems, i.e., neither system is meant to help the poor or working classes.  Therefore, the author's interpretation of the economic history of the twentieth century has been exposed as spurious.

The Impossibility of the "One Big Global Cartel" Solution to the Alleged Global Warming Crisis:

The author makes two contradictory claims.

  • First, he claims to be opposed to the concentration of power into the hands of a few individuals by citing some examples of how the capitalists of today have done so already.  The "plutocrats at Davos," "the top 1%" who refuse to "share among the 99%," now possess "immense power."
  • Second, he claims to want to establish a world government in order to save humanity from the global warming crisis allegedly caused by capitalism and its "overproduction" of carbon dioxide emissions.  He writes, "the world's governments should be joined together, pooling their resources [emphasis added], and making the campaign against global warming their top priority." 

The author has fallen into a classic trap of Marxism or state socialism, namely, he wants to solve an alleged monopoly problem (i.e., the monopoly capitalist problem) by creating an even bigger and more centralized monopoly (i.e., a world government).  The American individualist anarchist Benjamin Tucker nicely summarizes the self-refuting nature of the position taken by the author of the article:

Marx, its [i.e., State Socialism's] founder, concluded that the only way to abolish the class monopolies was to centralize and consolidate all industrial and commercial interests, all productive and distributive agencies, in one vast monopoly in the hands of the State.... Competition must be utterly wiped out.  All industrial and commercial activity must be centered in one vast, enormous, all-inclusive monopoly.  The remedy for monopolies is monopoly.[xxviii] 

In addition to the logical contradiction of trying to solve a monopoly problem by creating an even bigger monopoly, the author's proposed solution, which consists of a global government with the pooling of all the resources of all the world's governments at one central global control point, is both historically and theoretically infeasible.  The author is probably unaware of the fact that his article sounds similar to 1920-1930 era economics, such as the Soviet experiment and the Hayek-Lange-Dickinson debates at the London School of Economics with the earlier Misesian article  Economic Calculation in the Socialist Commonwealth certainly instigating much of this later debate.

From a theoretical perspective, the idea of pooling all the resources of the world's governments is addressed in modern times by Murray N. Rothbard under the label "The One Big Cartel Problem."  Rothbard discusses not only the calculability problem faced by any attempt to establish a global cartel but also the long-term instability problem faced by a global cartel once established.  Rothbard writes that

in order to calculate the profits and losses of each branch, a firm must be able to refer its internal operations to external markets for each of the various factors and intermediate products.  When any of these external markets disappears, because all are absorbed within the province of a single firm, calculability disappears, and there is no way for the firm rationally to allocate factors to that specific area.  The more these limits are encroached upon, the greater and greater will be the sphere of irrationality, and the more difficult it will be to avoid losses.  One big cartel would not be able rationally to allocate producers' goods at all and hence could not avoid severe losses.  Consequently, it could never really be established, and, if tried, would quickly break asunder.[xxix]

The calculability and instability concerns raised by Rothbard are not news to someone familiar with economic history.  In fact, Rothbard's entire argument is simply a restatement of arguments made by at least three major writers, namely, Boris Brutzkus, Max Weber, and Ludwig von Mises in the 1920-21 time period.  The impossibility of rational economic calculation under a scenario that pools all resources under one central global government can be seen by starting with the Soviet experiment and then thinking about whether this experiment could be replicated on a global scale.  The eminent economist F. A. Hayek mentions in one of his many papers on this socialist calculation problem that

Boris Brutzkus, a distinguished economist mainly known for his studies in the agricultural problems of Russia, subjected to a searching criticism in a series of lectures the doctrines governing the action of the Communist rulers....Like Professor Mises and Max Weber, his criticism centers round the impossibility of a rational calculation in a centrally directed economy from which prices are necessarily absent [emphasis added].[xxx]

The theoretical prediction that economic chaos will be the result of the "one big cartel" scenario with its inherent inability to engage in rational calculation is further confirmed when the historical record regarding attempts to implement the theory in practice is consulted.  When the factors of production are nationalized into what amounts to a national level "one big cartel," factor prices cannot form because no market exists on which the factors of production can be bought and sold.  The resulting economic chaos was best illustrated by the events in Bolshevik Russia.  Murray N. Rothbard mentions how full-blown communism did not work forcing the communists to backtrack on their plans:

When the Bolsheviks assumed power in late 1917, they tried to leap into full "communism" by abolishing money and prices, an experiment so disastrous (it was later dubbed "War Communism") that Lenin, always the supreme realist, beat a hasty retreat to a mere semisocialist system in the New Economic Policy (NEP).[xxxi]

In conclusion, the author's proposal, presented with the mellifluous terms of "cooperation," "equity," and "social justice," is inoperable in the real world.  The author has presented a completely utopian solution for solving the alleged capitalist-made global warming crisis.  The lessons of both theory and history advise against implementing the author's proposal to establish a world government meant to control the pooled resources of humanity.

The Bogeymen of "Free Trade" and of "Free-Market Global Economy" Existing Today:

The author repeatedly attacks both free trade and the global economy with calls for their abolition.  The author makes the following statements with regard to the issue of free trade.

  • but as soon as free trade [emphasis added], deregulation, privatization, and new world-spanning technologies enabled them to break the Keynesian shackles, they quickly re-established capitalism
  • the free-market ideology [emphasis added] that has dominated the global economy [emphasis added] for more than three decades
  • cancelling most free trade agreements [emphasis added]

The author makes two major mistakes in his discussion of free trade.  First, he erroneously assumes that free trade actually exists today; in reality, genuine free trade does not exist currently.  The author makes this mistake because he fails to distinguish between mercantilism and true free trade.[xxxii]  Second, the author is wrong when he claims that a free-market ideology governs our global economy.  To improve upon the author's analysis, a look at both the social democratic ideology and the conservative socialist ideology is in order, especially with regard to the issue of redistributing property titles.

The first point to be made is that genuine free trade does not exist today.  To make this point starkly clear, a look at the early history of free trade is in order.  The rise of a class of free traders under the feudal system is an example of a group of people trying to avoid government interventions in their private affairs by effectively ignoring the artificial international boundaries of states.  As Hans-Hermann Hoppe documents,

there was resistance to this [feudal] system.  Interestingly enough though (from a present-day perspective), it was not the peasant population who suffered most from the existing order, but the merchants and traders who became the leading opponents of the feudal system [emphasis added].  Buying at a lower price in one place and traveling and selling at a higher price in a different place, as they did, made their subordination to any one feudal lord relatively weak [emphasis added].  They were essentially a class of "international" men, crossing the borders of various feudal territories constantly.[xxxiii]

Free trade, then, implies a situation in which international movements of both goods and people take place without regard to government or their boundary lines.  Simply put, "under a system of completely free trade, capital and labor would be employed wherever conditions are most favorable for production"[xxxiv] with both capital and labor moving across borders without any artificial obstacles getting in their way. 

Now by distinguishing between genuine free trade and government-managed trade, Ron Paul not only helps to clarify what is actually happening in the current environment but also helps to illustrate where the author of the article is in error:

To establish genuine free trade, no such transfer of power [by the United States to the World Trade Organization] is necessary.  True free trade does not require treaties or agreements between governments [emphasis added].  On the contrary, true free trade occurs in the absence of government intervention in the free flow of goods across borders.  Organizations like the WTO and NAFTA represent government-managed trade schemes, not free trade [emphasis added].[xxxv]

The extent of these government-managed trade schemes to regulate, not deregulate economies as the author alleges, is illustrated nicely by Murray N Rothbard.  He writes that

externally, the EC [European Community] can and does use its power to raise general tariffs with nations outside the bloc [emphasis added].  But even internally, the result has increased trade restrictions and regulations [emphasis added] inside the bloc.  Thus, the EC has been building a burgeoning European super-government and bureaucracy in Brussels, that has often increased regulation throughout the area [emphasis added].  One pernicious measure of the EC has been to require low-tax countries in Europe to raise their taxes so as to make sure that each country enjoys a "fair and level playing field" [emphasis added] with the others.[xxxvi]

The fact that the European Community, the "noble example of a vast regional free-trade area,"[xxxvii] engages in a policy of equalization in order to create a "fair and level playing field" demonstrates, contrary to the claim of the author of the article, that no alleged free-market ideology is at work.  Instead of a free market ideology, a social democratic ideology is in existence today, which is obvious because of the ongoing emphasis on equalization in the context of these alleged "free-trade deals."  Equalization signals that the social democracy ideology is at work today because social democracy is defined as "income taxation and equalization [emphasis added], and, ... equalization of opportunity [emphasis added], as being the true cornerstones of socialism."[xxxviii]

To further illustrate the anti-free-market ideology inherent in free trade agreements, a look at the position taken by Jeffrey Tucker, a laissez-faire economist, is valuable.  Notice that Tucker stresses two important points.  First, "free-trade agreements" are a form of mercantilism.  Second, contrary to the claim made by the author of the article, the Keynesian "shackles" have not been broken by the rapacious capitalists; on the contrary, Keynesian planning is alive and well in the form of these so called "free-trade agreements."  Tucker captures these two points nicely by writing that

the Mises Institute has consistently favored free trade--the real thing--while criticizing "free-trade agreements" as mercantilism in disguise [emphasis added].  The position is a lonely one...even battling as forms of Keynesian planning [emphasis added].  So there is a tradition here that would lead modern Austrians [i.e., members of the Austrian School of Economics] to oppose efforts like the North American Free Trade Agreement and all the others that have followed.[xxxix]

As a final illustration of this anti-free-market ideology point, Llewellyn H. Rockwell Jr. notes that organizations such as the World Trade Organization are designed explicitly to regulate the global economy.  He observes that the WTO has nothing to do with genuine free trade but rather everything to do with what sounds very similar to World War II era calls for World Planning or International Planning combined with talk of international agreements and regulations [emphasis added].[xl]  Rockwell writes on this global economic regulation issue that

the WTO incorporates legal mechanisms for regulating the world economy [emphasis added]...the original charter included a tip-of-the-hat to these special-interest concerns.[xli]

The idea of regulating the entire world economy has nothing to do with laissez-faire capitalism or the free-market ideology.  What is being described here is actually an example of what Hans-Hermann Hoppe calls conservative socialism.  Conservative socialism consists of policies that attempt "to preserve the status quo through economic and behavioral regulations [emphasis added] and price controls."[xlii]

Therefore, the author is grossly mistaken if he believes that our current situation ought to be classified as an example of free-market ideology.  A better classification would stress the social democratic and conservative socialist ideas at work today.  Suffice it to say that such a confused system, which combines the "forced change" aspect of equalization and social democracy with the "preservation of the status quo" aspect of conservative socialism, is not laissez-faire capitalism.  The fact that the actual state of affairs consists of a confused and contradictory mixture of ideas is unsurprising since such mixtures have been the hallmark of socialism for some time now.  Mises notes this tendency toward mixing contradictory policies when he writes that

the social and economic teachings of the self-styled "un-orthodox Progressives" are a garbled mixture of divers particles of heterogeneous doctrines incompatible with one another.  The main components of this body of opinion were taken from Marxism, British Fabianism, and the Prussian Historical School.  Essential elements were also borrowed from the teachings of those monetary reformers, inflationists who were long known only as "monetary cranks."  And the legacy of Mercantilism is important too.[xliii]

Addressing the Author's Attack on Competition:

The author portrays his world government solution for the global warming crisis as the "cooperative" solution supposedly in order to make the situation appear as a choice between his "cooperative" solution and the non-cooperative "competitive" solution of capitalism.   He specifically writes that "when international cooperation was never more desperately needed, capitalism promoted competition as the predominant form of human relations."  The author's way of framing the entire debate is a classic example of the hypostatization of "society" fallacy, which invariably leads to the assertion that the interests of the supposedly cooperating collective outweigh those of the supposedly atomistic individuals.[xliv]  Moreover, it is a contradiction in terms to call a world government a cooperative solution because every government, by definition, is a coercive solution.  As Mises so eloquently put it, "the essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning.  Those who are asking for more government interference are asking ultimately for more compulsion and less freedom."[xlv] 

Even though the author has committed the epistemological fallacy of hypostatization, has erroneously rejected methodological individualism, and has advanced tyranny in the name of a cooperative solution, I still feel that the author's multiple attacks on competition warrant a full and detailed rebuttal.  The author attacks competition by making such accusations as follows:

  • Competition causes waste and consumption
  • Competition causes an "obscene accumulation of wealth by a ruthless minority" (i.e., competition causes wealth concentration)
  • Competition causes all these horrible outcomes including impoverishment of half the world's population (i.e., competition causes poverty)
  • Competition deprives the poor from access to food, shelter, education, and health care
  • Competition causes war and "other conflicts" (presumably the author means imperialism?)
  • Competition is meant to finance war profiteering
  • Competition causes our current "national security" problems (presumably the author is trying to imply that things such as the Patriot Act and invasive TSA scanners are symptoms of competition run amuck?)

The author's prolonged attack on competition can only make sense if humans live in a world of scarcity.  If we were to live in a world of superabundance with no scarcity then there would be no reason for people to compete over access to resources.  In the next section of my paper, I will discuss the author's contradictory claim that our entire economic system is based on "limitless" natural resources that can be "endlessly" exploited, i.e., our entire economic system is based on superabundance and not scarcity.  The author has created an imaginary figure called a "capitalist" who simultaneously holds contradictory views.  In this section, the "capitalist" engages in competition; the "capitalist" is therefore assuming that scarcity exists.  However, in the next section, this same "capitalist" operates in a world of "limitless" and "endless" exploitation of resources, i.e., a world without scarcity, a world without competition.  So, if this section is correct, i.e., if the "capitalist" is really engaging in competition, then the next section must necessarily be false.  Similarly, if the next section is correct, i.e., if the "capitalist" is really living in a superabundant world without competition, then this section must necessarily be false.  Whichever way one looks at the situation, the author has refuted himself.  The world cannot be simultaneously competitive and non-competitive, nor can it be simultaneously an example of scarcity and no scarcity.   A capitalist will never permit himself to be simultaneously engaged in rigorous competition if he also believes that resources are endlessly exploitable.  In order to reply to the author, I will try to play along with him and assume, in this section, that scarcity does exist; consequently, I assume for the moment that people are engaged in competition over scarce resources.

In a world of scarcity, all the objections raised by the author are, in fact, immaterial; the author misses the point.  The reason is that in a world of scarcity, it is IMPOSSIBLE TO ELIMINATE COMPETITION.  As Ludwig von Mises points out in one of his shorter works, that humans, because they act, i.e., because they strive to substitute a better state of affairs for a less satisfactory one, must be engaged in continuous competition:

Competition can never be eliminated [emphasis added].  As there will always be positions which men value more highly than other positions, people will strive for them and try to outstrip their rivals.  It is immaterial whether we call this emulation rivalry or competition. ... The question is only what kind of competition should exist [emphasis added].[xlvi]

In fact, one of the author's proposed solutions would actually intensify not reduce competition.  By writing that his plan "entails curbing economic growth," the author wants to intensify the scarcity problem by restricting the amount of available goods and services and by limiting the number of opportunities for labor and capital.  This enhanced scarcity problem implies, of course, that the intensity of competition will increase, not decrease, thus undermining the author's claim that he is fighting against the pernicious outcomes of competition.  If the author were being consistent, i.e., if the author really wanted to solve the competition "problem," he would recommend making more goods available in order to bring mankind closer to the utopia state of superabundance, at least superabundance of material goods and services.[xlvii] 

The reality of the situation, as illustrated by economic history, is as follows.  Scarcity exists; competition therefore also exists.  Since many capitalists do not like competition, a recurring theme in economic history is that of deliberately suppressing competition.  Consider as an illustrative example the discussion of Benjamin Tucker on what he calls the "money monopoly."  I have deliberately picked the history of banking in order to illustrate that our "progressive" author is either intentionally or more likely unintentionally advocating for a position that favors the big banks--surely a rather strange position for a progressive writer to take!  In Tucker's discussion of the "most evil" of the monopolies, he singles out the money monopoly for his harshest opprobrium.  The reason why is that the government grants privileges to favored producers in order to suppress competition from rival firms; such suppression of competition is obviously being done to protect the privileged from the rivalry of the unprivileged.  Tucker writes that

in the importance of its evil influence they [i.e., Pierre-Joseph Proudhon and Josiah Warren] considered the money monopoly, which consists of the privilege given by the government to certain individuals [emphasis added], or to individuals holding certain kinds of property, of issuing the circulating medium, a privilege which is now enforced in this country [i.e., America; Tucker published in Massachusetts] by a national tax of ten per cent., upon all other persons who attempt to furnish a circulating medium [emphasis added], and by State laws making it a criminal offense to issue notes as currency.[xlviii]

In the preceding quotation, Tucker is probably alluding to the banking reforms brought in during the Lincoln administration.  In his attack on the Hamiltonian inspired "American System," Thomas DiLorenzo focuses his attention on the privileges given to the favored "national banks" at the expense of the unprivileged "state banks."  DiLorenzo writes that

they [i.e., the Republicans] passed the National Currency Acts of 1863 and 1864, which created a system of nationally chartered (and regulated) banks that could issue currency.  A punitive 10 percent tax was placed on state-chartered banks in order to drive them into bankruptcy [emphasis added].  The neo-Hamiltonians were candid about their intention to create an "unqualified government monopoly..."[xlix]

The deliberate and discriminatory suppression of competition by certain politically connected big banks at the expense of all other banks, i.e., at the expense of their competitors, is, in fact, one of the common denominators running throughout the history of banking.  As a further and later example, consider also the history of the creation of the Federal Reserve System in the United States; this history reveals that one of the major reasons for establishing a central bank was to deliberately suppress competition.  As Gabriel Kolko observes in his reinterpretation of the history of the Progressive Era, the machinations of the bankers trying to establish a central bank contain many references to competition suppression and specifically to the suppression of state-bank competition.  Kolko, in reviewing a discussion about the Aldrich Plan, mentions that

the participants were fully aware of the menace of the growing state banking movement [emphasis added], and referred to it many times. ... It was generally appreciated that the plan would increase the power of the big national banks to compete with the rapidly growing state banks, help bring the state banks under control [emphasis added], and strengthen the position of the national banks in foreign banking activities.[l]

Why did these big national bankers want to suppress competition beginning with legislative movements in the Civil War era?  Were they driven by the altruistic "caring and sharing" motives of the Keynesians?  Were the big bankers suppressing competition in order to eliminate "waste" and "poverty"?  Were the big bankers deliberately trying to suppress competition so that they could prevent the wars sparked by unregulated competition?  Were the big bankers worried about the "war profiteering" of competition, so they deliberately set up a central bank in order to suppress it?  Are we to believe that the big bankers, honestly concerned about the "dangerous wealth concentration" effects of competition, intervened in the economy in order to suppress competition and thereby to help redistribute wealth more evenly?  The author of the article is in a precarious position because on the one hand he wants to abolish competition, which is favored by the big banks (a rather non-"progressive" position to take), but on the other hand he wants to overthrow the rich bankers (a more "progressive" position perhaps), which is obviously not favored by them. 

What seems to be going on here is that the author is couching his argument for his seizing of power in terms of "cooperation" and the suppression of supposedly "bad" competition.  History teaches that the bankers were motivated in the late nineteenth-century and early twentieth-century to suppress competition in order to establish a single dominating power over the entire economy.  Kolko mentions this startlingly candid revelation from A. Barton Hepburn regarding the real intentions for suppressing bank competition:

The measure recognizes and adopts the principles of a central bank.  Indeed, if it works out as the sponsors of the law hope, it will make all incorporated banks together joint owners of a central dominating power [emphasis added].  Why, then, should not the principle, once recognized, be correctly applied?[li]

Suppressing competition is all about establishing a central dominating power over the economy and hence life itself.  I suspect that the author's real concern is that he wants to control the power of the state in order to impose what he thinks is right; unfortunately, power is not in his hands but rather in those of the bankers and other elites. Consequently, the author has couched his power grab in terms of cooperation and saving the environment.  He is trying to put an ethical spin on his unethical world government proposal.[lii] 

Now I will shift away from the more abstract issues of scarcity and centralizing power by addressing specifically the laundry list of complaints raised by the author against competition in some detail. 

  • I must confess that I do not fully understand what the author means when he says that competition causes "consumption" because consumption is necessary for humans to stay alive.  All production happens in order to, eventually, satisfy the consumption needs of consumers.  Maybe he is alluding to "conspicuous consumption" and thinks that this "conspicuous consumption" is a form of "waste."  Maybe he is concerned about consumers having choice and changing their minds; choice and change might then threaten stable unionized jobs because they shift demand from one group of producers to another.
  • With regard to the claim that competition causes waste, see Ludwig von Mises's Nation, State, and Economy:  Contributions to the Politics and History of Our Time, pages 155-157.[liii]  Mises critiques some of Karl Kautsky's ideas regarding how to raise the standard of living of the proletarian class substantially.  Mises specifically addresses Kautsky's laundry list of alleged "savings of very many kinds," which are to appear when "wasteful" capitalism is abolished and replaced by "non-wasteful" socialism (e.g., by eliminating wasteful advertising expenses).  Also see F. A. Hayek, The Road to Serfdom pages 96-97 where he discusses attempts to increase abundance by establishing "compulsory standardization" and "prohibition of variety" as possible ways to reduce the "waste" of "choice."[liv]
  • With regard to the claim that competition causes wealth concentration, see Ludwig M. Lachmann's article The Market and the Distribution of Wealth, in which he discusses how a truly free market creates such a dynamic environment that wealth concentration becomes an impossibility.  He emphasizes that "in a world of unexpected change the maintenance of wealth is always problematical; and in the long run it may be said to be impossible."[lv]  For a further discussion of the problems in this rather Marxist assertion that competition causes wealth concentration, see Murray N. Rothbard's discussion on the concentration of capital and on the law of the centralization of capital in his Classical Economics.  Rothbard concedes that "there is a great amount of expansion of scale of plant and firm in the modern world," but cautions that "the law is scarcely apodictic [i.e., the law is not unquestionably true]."[lvi]  In addition, consider Robert LeFevre's audio commentary on the impact of the Industrial Revolution in Great Britain on the distribution of wealth.  He compares the distribution of wealth before the Industrial Revolution (1650-1700) to the distribution after the Industrial Revolution (1850). 

    In the 1650 to 1700 (i.e., before the rapid industrialization):
    • 2% of the people had 80% of the wealth
    • 8% of the people had 10% of the wealth
    • 90% of the people had 10% of the wealth

Around 1850 (i.e., after the rapid industrialization):
    • 2% of the people had 30% of the wealth
    • 58% of the people had 50% of the wealth
    • 40% of the people had 20% of the wealth

LeFevre stresses that everyone is better off because of the rapid industrialization period (i.e., because of capitalism), including the top 2%, even thought their percentage share of the total wealth was reduced from 80% to 30%.  The reason is because the total amount of wealth in existence expanded so much that it is better to have 30% of the wealth in 1850 than to have 80% of the wealth in 1650 or 1700.  The middle class has rapidly grown in size going from 8% of the population to 58%; the lower classes have shrunk from 90% of the population to 40% and have become better off since a larger percentage of the total wealth is now available to the lower classes.[lvii]
  • With regard to the claim that competition causes pain and suffering to the poor, see W. H. Hutt's paper The Factory System of the Early Nineteenth Century, which contains a thesis that states that "there has been a general tendency to exaggerate the 'evils' which characterized the factory system before the abandonment of laissez faire."[lviii]  Also see Murray N. Rothbard's The Ethics of Liberty, which contains a discussion about how the poor benefit from economic competition.  Rothbard's point is that "unrestrained economic individualism led... to peaceful and harmonious exchange, which benefitted most precisely the 'weak' and the 'sheep'; it is the latter who could not survive in the statist rule of the jungle, who reap the largest share of the benefits from the freely competitive society."[lix]
  • With regard to the claim that competition causes profitable wars and other forms of conflict, see again Mises's Nation, State, and Economy:  Contributions to the Politics and History of Our Time, pages 148-9, especially footnote 2.  Mises mentions that socialism is inherently militaristic and imperialistic.  This is because socialism wants to "arrange the future state on the model of an army."  Also see Rothbard's discussion of the rise of American imperialism and especially the machinations of Charles Conant in Rothbard's The Origins of the Federal Reserve.  In particular, imperialism was supported, at least intellectually, by a theory of surplus capital; however, the facts of history refute the theory.  "The Republican also attacked the new theory of surplus capital, pointing out that only two or three years earlier, businessmen had been loudly calling for more [emphasis added] European capital to be invested in American ventures."[lx]  For a discussion on why competition does not lead to conflict but rather to a harmonious alignment of all interests, see Ludwig von Mises's Economics as a Bridge for Interhuman Understanding, where Mises discusses the difference between the Montaigne fallacy (i.e., the fallacy behind mercantilism) and the harmony of interests doctrine of classical liberalism, which Mises refers to as the "law of association."[lxi]  For a discussion on the monetary cause of war, see Murray N. Rothbard's Making Economic Sense (2nd ed.)  Rothbard identifies the monetarist-Friedmanite version of an international monetary order as a causal factor of World War II.  Rothbard explains how monetary policy manipulations cause warfare by observing that the monetarist system offers governments temptations to "intervene heavily in exchange rates, precipitating the world into currency blocs, protectionist blocs, and 'beggar-my-neighbor' policies of competing currency devaluations such as the economic warfare of the 1930s that helped generate World War II [emphasis added]."[lxii]  In discussing the fluctuating fiat currency system that existed from 1931 to 1945, Rothbard discusses why this system is internally self-refuting because it contains the naive assumption that a government and central bank with complete power over a money supply will self-regulate and avoid abusing that power.  "The chaos and the unbridled economic warfare of the 1930s," writes Rothbard, "points up an important lesson:  the grievous political the Milton Friedman-Chicago School monetary scheme."  The scheme leaves "the absolute control of each national currency in the hands of its central government issuing fiat paper as legal tender--and then advise[s] each government to allow its currency to fluctuate freely with respect to all other fiat currencies, as well as to refrain from inflating its currency too outrageously."[lxiii]

In conclusion, each and every specific point raised against competition by the author of the article is wrong.  Competition does not cause waste; on the contrary, the rational economic calculation crisis of the author's proposed world government will cause so much waste because of the misallocation of all of the factors of production.  Competition does not cause a wealth concentration problem.  On the contrary, competition will make the world much more dynamic, and a dynamic world ensures that holding onto wealth will become impossible.  Competition does not cause poverty; in fact, the system of competition, namely capitalism, makes everybody better off materially as illustrated statistically by LeFevre.  Competition does not cause wars.  Wars are caused by governments manipulating currencies in order for some governments to gain at the expense of other governments, i.e., wars are caused by governments falling into the Montaigne fallacy.  Competition cannot be eliminated so long as humans act.  To eliminate competition through the establishment of a world government means that only this world government acts.  Each individual will be denied the right to act, but to deny the individual the right to act means that the individual can only obey orders.  The solution offered by the author is, in the final analysis, blatantly tyrannical.  Finally, competition does not really exist in our current world, so the author's fears of competition are unwarranted.  Economic history, from the Civil War Era to the present, shows an ongoing and deliberate war against competition, which has been supported nonstop by states.  The banking industry is the most important illustration of this fact.  The money monopoly, to use Tucker's terminology, is the key command post of the entire economy.[lxiv]  This key central command post is clearly not competitive because it is a monopoly, and it is not competitive by deliberate design.  

The Bizarre Claim that Capitalism is based on an Assumption of "Limitless Growth/Limitless Resources":

In the preceding section, the author claims that capitalism is evil because capitalists engage in destructive and ruinous competition.  For this argument to hold, capitalists must be assuming the existence of scarcity, because people compete only when access to resources is limited.  However, in this section, the author makes the opposite case.  Now, the author asserts, capitalists deny the existence of scarcity as demonstrated by the fact that capitalists now supposedly operate under the assumption of "limitless growth" or "endless exploitation" of resources.  The author cannot have it both ways.  Either scarcity exists or it does not.  If it does, then competition exists and this entire section is spurious.  If, on the other hand, scarcity does not exist, then the previous section on competition is spurious.  I have already demonstrated that the previous section against competition is spurious; I will now demonstrate that the current section on "capitalist superabundance" is also spurious.

In this section, the reader is forced to assume that capitalism operates under an assumption that scarcity does not exist.  The author makes this point by saying such things as:

  • the central fiction on which our economic model [i.e., the modern rapacious capitalist model] is based:  that nature is limitless [emphasis added] (i.e., modern capitalism assumes that natural resources, factors of production, are limitless)
  • the fatally flawed assumption of capitalism is "that we will always be able to find more [emphasis added] of what we need" (i.e., capitalists assume superabundance of all factors of production)
  • if something runs out it can be seamlessly replaced by another resource that we can endlessly exploit [emphasis added]
  • its irresponsible reliance on infinite economic growth [emphasis added] on a finite planet

The author has linked capitalism with a world of superabundance, i.e., a world without scarcity.  This entire train of thought is rather shocking given the history of socialist claims with regard to the scarcity of resources issue.  As will be demonstrated, socialism has traditionally claimed that it will save humanity from the "artificial" scarcity problem created by evil capitalists.  Normally, the propaganda asserts that capitalism means scarcity or artificially engineered scarcity but socialism means superabundance and bliss.  A quick review of the literature demonstrates that the socialist position has traditionally been:
·        Socialism was to create the world of plenty; the scarcity problem was to be abolished
·        Once the proletarians had abolished private property and capitalism, communist industrial production was to take over and grow output at a very rapid rate

Hayek, in discussing his 1944 situation in Europe, paints a picture of a world in which socialism was speaking of limitless resources, not the other way around:

In their wishful belief that there is really no longer an economic problem people have been confirmed by irresponsible talk about "potential plenty"--which, if it were a fact, would indeed mean that there is no economic problem which makes the choice inevitable.  But although this snare has served socialist propaganda under various names as long as socialism has existed, [emphasis added] it is still as palpably untrue as it was when it was first used over a hundred years ago.[lxv]

Continuing with the issue of rapid and "infinite growth," a look at the writing of Friedrich Engels, The Principles of Communism, shows that communism desires to create such a rampant rate of industrial growth that superabundance would be achieved.  Rothbard, citing Engel's views on how communism can achieve superabundance, writes that

private property can be abolished only when the economy is capable of producing the volume of goods needed to satisfy everyone's requirements... The new rate of industrial growth will produce enough goods to satisfy all the demands of society [emphasis added].[lxvi]

Socialism proposes to abolish the economic problem of scarcity, and socialism proposes to grow industrial output at a rapid rate thus creating the world of plenty.  These claims, of course, are meant to position socialism as the salvation of mankind from the artificial scarcity problem created by the rapacious capitalists.  In fact, two of the major non-economic theories used to explain from where scarcity came blame capitalism.  The traditional Marxian view labels scarcity as a "historical category," which will be abolished by ending private property, i.e., by abolishing capitalism.  A second view blames scarcity on the machinations of bankers and other exploiters (i.e., on capitalists once again), but this time the capitalists create an artificial scarcity by imposing checks on credit and new money creation.[lxvii]  Given this historical background, which clearly blames capitalism for all the scarcity problems of the world, one certainly should be shocked by the author's claim that capitalism is currently producing as thought no scarcity exists.   

From a market anarchist perspective, the claim that capitalists operate under the assumption of "no scarcity" is ludicrous.  The existence of scarcity is taken as self-evident:  "It does not need much comment to see that there is indeed scarcity of goods, of all sorts of goods, everywhere, and the need for property rights is thus evident."[lxviii]  To deny the existence of scarcity, as socialists do, is to invite mockery and derision from those familiar with laissez-faire capitalism.  For example, classical liberal writers used to mock socialist writers for their naive socialist superabundance fairytales.  As a case in point, Ludwig von Mises, in his 1927 work on liberal thought, sardonically writes of the views of Trotsky as well as those of other socialist writers.  Mises writes that

socialist authors promise not only wealth for all, but also happiness in love for everybody, the full physical and spiritual development of each individual, the unfolding of great artistic and scientific talents in all men, etc.  Only recently Trotsky stated in one of his writings that in the socialist society "the average human type will rise to the heights of an Aristotle, a Goethe, or a Marx.  And above this ridge new peaks will rise.  The socialist paradise will be the kingdom of perfection, populated by completely happy supermen.  All socialist literature is full of such nonsense [emphasis added].[lxix]

In conclusion, capitalists are not utopians; they do not assume that the world has limitless natural resources, which can be exploited interminably.  They accept as self-evident the claim that scarcity does, in fact, exist.  In fact, market anarchy goes so far as to assert that it is impossible to eliminate scarcity.  "Because of the scarcity of body and time," writes Hoppe, "even in the Garden of Eden property regulations would have to be established."[lxx]  Since capitalists accept scarcity as a real and insoluble problem, the author's claims to the contrary must be rejected as false.  

The Author's Ahistoric Animistic Worldview:

The author of the article makes a revealing comment about his worldview when he writes, "they [the capitalists] quickly re-established capitalism as the truly ruthless and rapacious system it was designed to be" [emphasis added].  The key point is that the author claims that capitalism was designed by a conspiracy of capitalists, who continue to plot not only against the vast number of indigent and helpless human beings, but also against the Earth and the environment.  A number of points can be raised against the author's animistic point of view.   

First, the claim of a conspiracy by design on the part of capitalists is ahistoric.  The emergence of capitalism is not an example of conscious design but rather an example of spontaneous ordering of a complex system; this spontaneous ordering took place in an anarchistic environment.  Professor T. S. Ashton, a respected economic historian, observes that

the truth is (as Professor Koebner has said) that neither Marx nor Sombart (nor, for that matter, Adam Smith) had any idea of the real nature of what we call the Industrial Revolution.  They overstressed the part played by science and had no conception of an economic system that develops spontaneously without the help of either the state or the philosopher [emphasis added].[lxxi]

The claim that capitalism arose in an anarchistic environment is further substantiated by Nobel Prize winning economist Friedrich August von Hayek, referring to Jean Baechler's work on the origins of capitalism.  Hayek notes that "of the revival of European civilisation during the later Middle Ages it could be said that the expansion of capitalism--and European civilisation--owes its origins and raison d'être to political anarchy."[lxxii]

Second, Hayek's discussion of the two different types of scientists provides a possible explanation for why the author of the article selects an animistic worldview.  Hayek distinguishes between the "chemist" type of scientist who is familiar with complex phenomena and the "other" type of scientist who is not.  The "other" type of scientist is more "accustomed to explaining everything in terms of simple connections between a few observable events."[lxxiii]  The author of the article might very well be classified as a member of the "other" type of scientist group.  The reason is that members of this "other" group are "tempted to interpret more complex structures [such as an economy] animistically as the result of design, and to suspect some secret and dishonest manipulation--some conspiracy, as of a dominant 'class'--behind 'designs' whose designers are nowhere to be found."[lxxiv]

Third, the author of the article may have selected an animistic worldview simply because he is a socialist.  Such a "naive and childlike animistic view of the world," writes F. A. Hayek, "has come to dominate social theory and is the foundation of socialist thought."[lxxv]

In conclusion, a complex capitalist economic system is the product of an spontaneous ordering, i.e., a complex ordering without design.  What the author of the article is actually observing is not capitalism but rather the "planned chaos" of government interventionism.

The Logical Inconsistencies When Claiming to Take the Moral High Ground:

The author ends his paper with various hyperbolic "moral high ground" or "global salvation type" exclamations:

  • It's also going to be difficult, at least initially to this titanic endeavour [emphasis added]
  • to stand idly by while runaway capitalism carries everyone with it to the abyss [emphasis added]--surely that will not be the conscious decision [emphasis added] most of us make
  • I can't believe we will be so cowed by them that we remain passive onlookers instead of striving, as strenuously as we can, [emphasis added] to avert disaster on a planetary scale

To begin, the claim that socialism is the means to salvation is rather shocking, at least to somebody who knows its early history.  As F. A. Hayek notes, socialism, in its early days, was unashamedly totalitarian in its views:

It is rarely remembered now that socialism in its beginnings was frankly authoritarian.  The French writers who laid the foundations of modern socialism had no doubt that their ideas could be put into practice only by a strong dictatorial government.  To them socialism meant an attempt to "terminate the revolution" [i.e., to terminate the liberalism of the French Revolution] by a deliberate reorganization of society on hierarchical lines and by the imposition of a coercive "spiritual power."[lxxvi]

The author claims that his proposals will bring salvation to humanity, and he energetically rallies his readers to join his "crusade" against the capitalist overlords.  The reality is that these "moral high ground" proposals advocated for by the author will end in a global level tyranny.  Socialism was designed specifically to bring about a top-down dictatorship; the author's proposal to establish a world government in the name of fighting global warming will certainly facilitate the longstanding socialist plan dating to the French Revolution.[lxxvii]

The last criticism that I will make of the author's article is simply that the conclusion contradicts the introduction.  He begins the article with statements of inevitability; not surprisingly, he begins his article with the unsubstantiated prophecy that capitalism is about to "inevitably" collapse.  Notice for example, the author writes:

  • Capitalism inevitably [emphasis added] faces the same fate.
  • It is [Capitalism is] not going to hit the pavement any time soon, but is obviously on an irreversible downward plunge [emphasis added]

But when he reaches the conclusion part of the article, the author switches gears by adopting a purposeful or teleological view of the world.  The conclusion section of the article is obviously calling upon the readers to take deliberate action.  The author even goes so far as to spell out a rudimentary plan of the things he wants to see changed along with the things he wants to see adopted. 

The author has fallen into another classic Marxist trap by first arguing in terms of dialectical materialism, which talks of propelling society toward socialism "with the inexorability of a law of nature," and then by arguing in terms of a teleological world view when he calls for people to implement deliberately a revolutionary plan of global social change.  This particular problem is examined in depth by Ludwig von Mises when he trenchantly observes that

the best illustration is provided by Marxism.  It teaches perfect foreordination, yet still aims to inflame people with revolutionary spirit.  What is the use of revolutionary action if events must inevitably turn out according to a preordained plan, whatever men may do?  Why are the Marxians so busy organizing socialist parties and sabotaging the operation of the market economy if socialism is bound to come anyway "with the inexorability of a law of nature"?[lxxviii]   


The author of the article begins his paper by claiming that the world today is a shining example of an "unchecked free enterprise economy."  He then proceeds by providing evidence to support his initial claim.  He sees a world of deregulation, free trade agreements, cutthroat competition, unbridled capitalist greed, a global free market ideology, capitalistic environmental destruction, and an animistic capitalist conspiracy to hurt the poor and downtrodden.  After highlighting all of these horrible results of capitalism, the author provides a socialist solution--cooperation through a world government.  By implementing the proposed solution, the author believes that he will create a better world consisting of cooperation, equity, and social justice.

I deny that our current world should be classified as "unchecked free enterprise" because the existence of the state ensures that private property will be violated continually.  I argue that the author's interpretation of twentieth-century economic history is distorted and misleading especially the claim that Keynesian economics was meant to help the weak and poor in society.  The description of the current world as the paragon of free trade is false; the current world is best described as an example of government-managed trade and mercantilism.  The author levels an intense attack against competition; I systematically reply in order to defend competition against all of the author's charges.  I particularly stress the fact that economic history shows a deliberate trend of competition suppression starting in the early 1860s.  I spend a lot of my time pointing out the contradictions in the paper such as the issue of scarcity and superabundance existing simultaneously, the conflicting mixture of conservative socialism with social democracy, and the mixing of Marxian foreordination with deliberate teleological planning.  I also argue that the author's proposed solution to pool all of the existing governmental resources into a world government is infeasible.  The author's proposed solution will not work; it will collapse as demonstrated by the early Soviet experiment.      

Niagara-on-the-Lake, Ontario
May 29, 2012

                [i] F. A. Hayek, "History and Politics," in Capitalism and the Historians, ed. F. A. Hayek (Chicago:  University of Chicago Press, 1963), 25. 

                [ii] Murray N. Rothbard, Classical Economics, vol. 2 of An Austrian Perspective on the History of Economic Thought (Auburn: Ludwig von Mises Institute, 2006), 418.
                [iii] Hans-Hermann Hoppe, The Economics and Ethics of Private Property: Studies in Political Economy and Philosophy, 2nd ed. (Auburn: Ludwig von Mises Institute, 2006), 378.

                [iv] Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Auburn: Ludwig von Mises Institute, 2010), 18.

                [v] F. A. Hayek, "'Free' Enterprise and Competitive Order," in Individualism and Economic Order (Chicago: University of Chicago Press, 1980), 107.

                [vi] F. A. Hayek, "History and Politics," in Capitalism and the Historians, ed. F. A. Hayek (Chicago:  University of Chicago Press, 1963), 14-15.  Hayek discusses the socialist origins of the term "capitalism"; he emphasizes that the "modern connotations" of capitalism are directly traceable to a socialist interpretation of economic history. 

                [vii] Murray N. Rothbard, Anatomy of the State (Auburn: Ludwig von Mises Institute, 2009), 42.

                [viii] Hans-Hermann Hoppe, Democracy: The God That Failed; The Economics and Politics of Monarchy, Democracy, and Natural Order (New Brunswick: Transaction Publishers, 2001), 246.
                [ix] Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916 (New York: The Free Press, 1977), 4.

                [x] Ibid., 13.

                [xi] Ibid., 4.

                [xii] Ibid., 55-56.

                [xiii] Ibid., 39, 42, 78.

                [xiv] F. A. Hayek, The Road to Serfdom:  Text and Documents, vol. 2 of The Collected Works of F. A. Hayek (Chicago:  University of Chicago Press, 2007), 93.

                [xv] Ludwig von Mises, "Small and Big Business," in Economic Freedom and Interventionism:  An Anthology of Articles and Essays, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2006), 242.

                [xvi] Murray N. Rothbard, America's Great Depression, 5th ed. (Auburn: Ludwig von Mises Institute, 2000), 143-44.
                [xvii] Murray N. Rothbard, Making Economic Sense (Auburn: Ludwig von Mises Institute, 1995), 244.

                [xviii] Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916 (New York: The Free Press, 1977), 140.
                [xix] Murray N. Rothbard, Making Economic Sense (Auburn: Ludwig von Mises Institute, 1995), 46.

                [xx] Ibid., 45.

                [xxi] Ibid., 46.

                [xxii] Murray N. Rothbard, Wall Street, Banks, and American Foreign Policy, 2nd ed. (Auburn: Ludwig von Mises Institute, 2011), 1.

                [xxiii] Ludwig von Mises, "Professor Hutt on Keynesianism," in Economic Freedom and Interventionism:  An Anthology of Articles and Essays, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2006), 162.

                [xxiv] Ludwig von Mises, Human Action:  A Treatise on Economics, Scholar's ed. (Auburn: Ludwig von Mises Institute, 1998), 787.

                [xxv] Murray N. Rothbard, Making Economic Sense (Auburn: Ludwig von Mises Institute, 1995), 42.

                [xxvi] Ibid., 46.

                [xxvii] Murray N. Rothbard, Making Economic Sense, 2nd ed. (Auburn: Ludwig von Mises Institute, 2006), 300.
                [xxviii] Benjamin Tucker, "Individual Liberty," The Anarchist Library, HTML/Benjamin_Tucker_Individual_Liberty.html (accessed May 11, 2012).

                [xxix] Murray N. Rothbard, Man, Economy, and State with Power and Market, 2nd ed. Scholar's ed. (Auburn: Ludwig von Mises Institute, 2009), 659.

                [xxx] F. A. Hayek, "Socialist Calculation I:  The Nature and History of the Problem," in Individualism and Economic Order (Chicago: University of Chicago Press, 1980), 144-45.

                [xxxi] Murray N. Rothbard, "The Myth of Monolithic Communism," Ludwig von Mises Institute, (accessed May 15, 2012); also Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Auburn: Ludwig von Mises Institute, 2010), 55.  Hoppe mentions that the disappointing experience of orthodox Marxist socialism in Russia caused a shift in popularity away from this style of socialism to social-democratic socialism.

                [xxxii] "They approve the fundamental thesis of mercantilism that the gain of one nation is the damage of other nations; that no nation can win but by the loss of others.  They think an irreconcilable conflict of interests prevails among nations."  Ludwig von Mises, Theory and History: An Interpretation of Social and Economic Evolution, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2005), 197.
                [xxxiii] Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Auburn: Ludwig von Mises Institute, 2010), 84-85.

                [xxxiv] Ludwig von Mises, Liberalism:  The Classical Tradition, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2005), 98.
                [xxxv] Ron Paul, The Revolution: A Manifesto (New York: Grand Central Publishing, 2008), 96.

                [xxxvi] Murray N. Rothbard, Making Economic Sense (Auburn: Ludwig von Mises Institute, 1995), 271.

                [xxxvii] Ibid.

                [xxxviii] Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Auburn: Ludwig von Mises Institute, 2010), 59.
                [xxxix] Jeffrey Tucker, "Free Trade versus Free-trade Agreements," Mises Economics Blog, entry posted March 10, 2008, (accessed May 14, 2012).

                [xl] Ludwig von Mises, Omnipotent Government:  The Rise of the Total State and Total War, ed. Bettina Bien Greaves (Indianapolis:  Liberty Fund, 2011), 269, 275.

                [xli] Llewellyn H. Rockwell Jr., "The WTO:  Threat to Free Trade," Ludwig von Mises Institute, (accessed May 14, 2012).

                [xlii] Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Auburn: Ludwig von Mises Institute, 2010), 12-13.

                [xliii] Ludwig von Mises, "The Objectives of Economic Education," in Economic Freedom and Interventionism:  An Anthology of Articles and Essays, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2006), 206.

                [xliv] Ludwig von Mises, The Ultimate Foundation of Economic Science: An Essay on Method, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2006), 70-71.

                [xlv] Ludwig von Mises, Human Action:  A Treatise on Economics, Scholar's ed. (Auburn: Ludwig von Mises Institute, 1998), 715.
                [xlvi] Ludwig von Mises, Bureaucracy, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2007), 86.

                [xlvii] It should be noted that it is impossible given the fact that human beings are mortal to ever fully abolish the scarcity problem.  Even in a utopia consisting of a superabundance of resources, and even if "socialist production" really did work to raise production in the manner suggested by Karl Kautsky for example, mankind will still need to address the scarcity of body and the scarcity of time problems.  See Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Auburn: Ludwig von Mises Institute, 2010), 18-20.

                [xlviii] Benjamin Tucker, "Individual Liberty," The Anarchist Library, HTML/Benjamin_Tucker_Individual_Liberty.html (accessed May 16, 2012).

                [xlix] Thomas J. DiLorenzo, Hamilton's Curse:  How Jefferson's Archenemy Betrayed the American Revolution--and What It Means for Americans Today (New York:  Crown Forum, 2008), 127.

                [l] Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916 (New York: The Free Press, 1977), 186.

                [li] Ibid., 235.

                [lii] "The State is an inherently illegitimate institution of organized aggression, of organized and regularized crime against the persons and properties of its subjects." Murray N. Rothbard, The Ethics of Liberty (New York: New York University Press, 2002), 187.

                [liii] Ludwig von Mises, Nation, State, and Economy:  Contributions to the Politics and History of Our Time, ed. Bettina Bien Greaves, trans. Leland B. Yeager (Indianapolis: Liberty Fund, 2006), 155-57.

                [liv] F. A. Hayek, The Road to Serfdom:  Text and Documents, vol. 2 of The Collected Works of F. A. Hayek (Chicago:  University of Chicago Press, 2007), 97.

                [lv] Ludwig M. Lachmann, "The Market and the Distribution of Wealth," Ludwig von Mises Institute, (accessed May 18, 2012).

                [lvi] Murray N. Rothbard, Classical Economics, vol. 2 of An Austrian Perspective on the History of Economic Thought (Auburn: Ludwig von Mises Institute, 2006), 419-420.

                [lvii] Robert LeFevre, "The Industrial Revolution: Part Two," Ludwig von Mises Institute,
media/1161/The-Industrial-Revolution-Part-Two/2 (accessed May 22, 2012).
                [lviii] W. H. Hutt, "The Factory System of the Early Nineteenth Century," in Capitalism and the Historians, ed. F. A. Hayek (Chicago:  University of Chicago Press, 1963), 184.

                [lix] Murray N. Rothbard, The Ethics of Liberty (New York: New York University Press, 2002), 218.

                [lx] Murray N. Rothbard, The Origins of the Federal Reserve (Auburn: Ludwig von Mises Institute, 2009), 46.

                [lxi] Ludwig von Mises, "Economics as a Bridge for Interhuman Understanding," in Economic Freedom and Interventionism:  An Anthology of Articles and Essays, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2006), 260.

                [lxii] Murray N. Rothbard, Making Economic Sense, 2nd ed. (Auburn: Ludwig von Mises Institute, 2006), 300.

                [lxiii] Murray N. Rothbard, What Has Government Done to Our Money? (Auburn: Ludwig von Mises Institute, 2008), 94.
                [lxiv] Murray N. Rothbard, Anatomy of the State (Auburn: Ludwig von Mises Institute, 2009), 54n.
                [lxv] F. A. Hayek, The Road to Serfdom:  Text and Documents, vol. 2 of The Collected Works of F. A. Hayek (Chicago:  University of Chicago Press, 2007), 131.

                [lxvi] Murray N. Rothbard, Classical Economics, vol. 2 of An Austrian Perspective on the History of Economic Thought (Auburn: Ludwig von Mises Institute, 2006), 327.

                [lxvii] Ludwig von Mises, Human Action:  A Treatise on Economics, Scholar's ed. (Auburn: Ludwig von Mises Institute, 1998), 236.

                [lxviii] Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Auburn: Ludwig von Mises Institute, 2010), 18-19.
                [lxix] Ludwig von Mises, introduction to Liberalism:  The Classical Tradition, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2005), xxxi.

                [lxx] Hans-Hermann Hoppe, A Theory of Socialism and Capitalism (Auburn: Ludwig von Mises Institute, 2010), 20.

                [lxxi] T. S. Ashton, "The Treatment of Capitalism by Historians," in Capitalism and the Historians, ed. F. A. Hayek (Chicago:  University of Chicago Press, 1963), 58.

                [lxxii] F. A. Hayek, The Fatal Conceit:  The Errors of Socialism, vol. 1 of The Collected Works of F. A. Hayek (Chicago:  University of Chicago Press, 1991), 33.

                [lxxiii] Ibid., 82.

                [lxxiv] Ibid.

                [lxxv] Ibid., 47.

                [lxxvi] F. A. Hayek, The Road to Serfdom:  Text and Documents, vol. 2 of The Collected Works of F. A. Hayek (Chicago:  University of Chicago Press, 2007), 76.

                [lxxvii] David Gordon, ed., Strictly Confidential: The Private Volker Fund Memos of Murray N. Rothbard (Auburn: Ludwig von Mises Institute, 2010), 28.  The reason for mentioning this work is to address a possible objection that could be raised against Hayek's assertion that socialism is unequivocally tyranny.  In this particular memo, Rothbard addresses the feasibility of establishing left-wing anarchism, which takes the form of syndicalism in practice.  Could socialism escape the Hayekian charge of tyranny by appealing to left-wing anarchism as the escape hatch?  Rothbard argues that left-wing anarchism will quickly degrade back into statism, which is synonymous with tyranny.  He writes that "left-wing anarchism must in practice signify either regular Communism or a true chaos of communistic syndics.  In both cases, the actual result must be that the State is reestablished under another name.  It is the tragic irony of left-wing anarchism that, despite the hopes of its supporters, it is not really anarchism at all.  It is either Communism or chaos." 
                [lxxviii] Ludwig von Mises, Theory and History: An Interpretation of Social and Economic Evolution, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2005), 54.