TGIF: Socialism with a Fig Leaf

What work does democratic perform in the phrase democratic socialism? It's a fig leaf intended to conceal what would presumably be repugnant to most people: the coercive regimentation inherent in socialism, whether international (Marxist) or national (fascist).

Socialism has a nasty record dating back to 1917, so socialists have felt compelled to clean up its image. Democracy is supposed to do the cleaning up. But does it? Could it?

Before we get to that, we should remind ourselves that no single conception of socialism exists. In one version, socialism denotes central economic planning, the top-down command economy. However, other socialists envision a collection of operations governed locally and democratically by workers, perhaps with input from other so-called stakeholders. That used to be called syndicalism.

These visions do not blend readily. If each firm, factory, and farm is run by its workers, who have seized it from the creator/owner, whence the central plan?

In the market, individual productive entities do not exist in a vacuum. They buy and sell along a vertical structure of production ranging from extraction to retail. For example, a steel processor buys iron ore from a mining company and sells its products to manufacturers of producer and consumer goods. Global supply chains are so complex that no one could grasp the whole. Conditions and prices often change, requiring flexibility, foresight, intuition, improvisation—in a word, entrepreneurship. And don't get me started on transportation. Raw materials and semifinished products must move expeditiously from one place to another, often over long distances, in bad weather as well as good. Business is the original worldwide web. (See Leonard E. Read's "I, Pencil.")

Thus, coordination is indispensable if billions of people with diverse needs and tastes are to have access to the most goods at the lowest possible expenditure. The more that scarce resources are economized, the more stuff we can have. How can the coordination of diverse plans be achieved? Ludwig von Mises and F. A. Hayek, along with other sound economists, long ago demonstrated that what permits coordination is the market—that is, the price system and its institutional requirements. Prices are constantly updated guides to producer and consumer action, carrying critical, dispersed, and often unarticulated information about supply and demand. Prices are not magic. They require 1) private property in the factors of production and consumer goods, 2) markets, in which unencumbered trade of private property can take place, and 3) money, a medium of exchange, the less subject to political manipulation the better. Without these things, economic calculation, coordination (mostly with strangers), and general prosperity cannot take place.

That's how it works in a market economy, even a government-hampered one such as ours. How could this seeming miracle be accomplished under socialism, which is hostile to the market and its requirements?

A central planning board, nominally acting on behalf of society, would presumably have the power to issue orders to its personnel; everyone would be a state employee. Well, it could try, but the results would be a disaster, as history shows, because of the aforementioned coordination and knowledge problem (and incentive problem) long documented by economists and economic historians. Getting to vote for the members of the planning board, which wouldn't last long even if it began that way, could not save the system.

What about an "economy" of autonomous democratic plants, offices, and farms? We can imagine an answer. First, at the lowest level, the workers (and perhaps other stakeholders) would vote not only for their managers, but also for representatives to a council of firms at the next level up. In turn, the members of that council would vote for delegates to an ever-higher council, and so on until the pinnacle is reached, where a comprehensive plan would be promulgated and then imposed.

How could it work otherwise? If it sounds rigidly hierarchical, that's because it is. But things could hardly be expected to go smoothly. Where does the information that market prices convey come from under socialism? Moreover, even if everyone in society wants some kind of central plan, the odds of everyone wanting the same plan are precisely zero. And if everything is to be decided by majority rule—we're talking about democracy, right?—there will be no avoiding election campaigns for people and plans, campaign promises, and dubious efforts to convince voters to a point of view. In other words, there will be no escaping "the manufacture of consent," the essence of the democratic procedure, which self-styled dissidents condemn today. Ironic.

Such an arrangement has no prospect of creating or sustaining a modern industrial economy that could properly cater to billions of people worldwide.

That's the economics of the matter. The descriptor democratic before socialism, remember, is to give state regimentation a smiling face. Being able to vote within a socialist system is supposed to make all the difference. But having a mere one vote—when (at best) your whole life is to be subordinated to majority rule—is nothing compared to the sovereignty one has in the unhampered competitive market, or even in today's sea of government intervention. Mayor-elect Zohran Mamdani's signature theme of dignity through pervasive democracy is exposed as so much snake oil.

The idea that the key to dignity and liberty is voting on everything was stripped of its romance by the 19th-century Swiss/French classical liberal Benjamin Constant (1767-1830) in his must-read essay, "The Liberty of Ancients Compared with that of Moderns (1819)." His title is self-explanatory. Here's how Constant described the modern notion of liberty:

For each [person] it is the right to be subjected only to the laws, and to be neither arrested, detained, put to death or maltreated in any way by the arbitrary will of one or more individuals. It is the right of everyone to express their opinion, choose a profession and practice it, to dispose of property, and even to abuse it; to come and go without permission, and without having to account for their motives or undertakings. It is everyone’s right to associate with other individuals, either to discuss their interests, or to profess the religion which they and their associates prefer, or even simply to occupy their days or hours in a way which is most compatible with their inclinations or whims. Finally it is everyone’s right to exercise some influence on the administration of the government, either by electing all or particular officials, or through representations, petitions, demands to which the authorities are more or less compelled to pay heed.

Yes, Constant included democratic participation in his description. But note that he put it last. The rights that he lists first, if respected, would limit what the voting public, acting as the state, could do to the individual. (Keeping the system limited is the problem that has proved insurmountable. That's why the state must go.) Democratic socialism could not be expected to observe limits. How could it? It's touted as rational social engineering.

What about the ancient idea of liberty?

[It] consisted in exercising collectively, but directly, several parts of the complete sovereignty; in deliberating, in the public square, over war and peace; in forming alliances with foreign governments; in voting laws, in pronouncing judgments; in examining the accounts, the acts, the stewardship of the magistrates; in calling them to appear in front of the assembled people, in accusing, condemning or absolving them.

Constant emphasized the narrowness of the ancients’ notion of liberty: “[T]hey admitted as compatible with this collective freedom the complete subjection of the individual to the authority of the community.... All private actions were submitted to a severe surveillance. No importance was given to individual independence, neither in relation to opinions, nor to labor, nor, above all, to religion.” (Emphasis added.)

Isn't having one vote real power? Constant said no. "Lost in the multitude, the individual can almost never perceive the influence he exercises," he wrote. Can you think of one election whose outcome would have changed had you done something different on election day?

We can see that Zohran Mamdani and his fellow democratic socialists, like the conservative populists, reject liberal modernity and the individual freedom it delivered. They may style themselves "postmodernists," but in fact they are reactionaries.

(For a full discussion of democratic socialism, see Stephen Hicks's Open College podcast, episode 36, "Democratic Socialism for Beginners.")

What's Wrong with Young People?

A former Obama speechwriter faulted young people for having the faculty of abstraction when thinking about the Holocaust, genocide, Israel, and the Palestinians.

 

TGIF: The Capitalist-Socialist Asymmetry

Free-marketeers have long pointed out a particular asymmetry between capitalism and socialism (whether of the international or national variety). While anyone in a capitalist society would have a right to engage in socialism (as anyone can do now in our hampered market economy), the reverse would not hold: under socialism—that is, a centrally planned economy, democratic or not—no one would be free to engage in "capitalist acts between consenting adults" (to use Robert Nozick's phrase from Anarchy, State, and Utopia). It would upset the plan.

In other words, in a fully free society, no legal barriers would prevent people from setting up communes, worker and consumer co-ops, etc., but in a socialist society, money exchanges of land, producer goods, and labor services (and perhaps even consumer goods) would be outlawed. Goodbye, entrepreneurship, free private enterprise, and economic calculation via trade-generated market prices.

That asymmetry speaks volumes, does it not? It ought to end the debate between the proponents and opponents of capitalism. Do you wish to live as a socialist with a clear conscience? Embrace the free market.

But socialists will have none of that. For them, individual choice is unimportant, if not destructive. In their view, voluntary capitalist relations are exploitative regardless of how the participants see them. So they must be forbidden. Socialist planners and their court intellectuals know better. Thus, for their own good, mere people must be controlled.

That is the height of presumptuous and arrogant elitism. The appropriate question for the socialist is that quintessential American retort: "Who asked you?"

How do the socialists know that transactions are exploitative? We can be sure that at the time of the transaction, the parties demonstrably prefer what they give up to what they receive. "No, no!" cry the socialists. One party is weaker because he must eat, work, obtain shelter, etc. What socialists refuse to acknowledge is that market relations are how we cope with a world of natural scarcity, a world in which resources—that is, natural stuff for which human ingenuity has found uses—are finite, costly to obtain, and usable in a variety of ways. (By all means, see this video from Stephen Davies and the Institute of Economic Affairs.) Scarcity is not a capitalist plot. On the contrary, the combination of the division of labor, technology, and trade is the only way to push back the constraints of scarcity. Most of today's eight billion people live much better now than one billion did in 1800.

How do the socialists know that employees are exploited? Apparently, they just do. It has something to do with the market return on goods sold being greater than the wages employees are paid. The "surplus" collected by employers is seen as stolen. That actual employees value their wages more than the effort they expend to earn them is irrelevant as far as the socialists are concerned. But again, who asked them?

Those with only a scant acquaintance with economics often find Marx's exploitation theory plausible. However, they overlook a critical factor: time. When something happens matters to us as much as what happens. Eugen von Böhm-Bawerk, the second-generation Austrian economist who delved into this matter, put the point rather nicely:

The completely just proposition that the worker is to receive the entire value of his product can be reasonably interpreted to mean either that he is to receive the full present value of his product now or that he is to get the entire future value in the future. But … the socialists interpret it to mean that the worker is to receive the entire future value of his product now.

People value present and future goods differently. Other things equal, we prefer the results of our actions sooner rather than later. Asked if you'd want a dollar today or a dollar in a month, you'll take it today. But asked if you'd want a dollar today or two dollars next month, you may choose to wait if the extra dollar will make the wait worthwhile. If two dollars won't do it, maybe three dollars will. The time element is what explains interest. I'll let you use my money for a period if you promise to compensate me later. It's perfectly legitimate. (For more, see this.)

The employment relationship involves time too. Employees typically don't want to wait until the consumer or producer goods they work on have been sold. Most prefer to be paid regularly, predictably. Nothing wrong with that. But in that case employers who advance (lend) their employees wages out of previous savings will have to wait for the sales—which may not take place if no buyers are interested. Why shouldn't employers be compensated for doing what their employees are unwilling to do: namely, assume the risk and uncertainty of waiting? If socialists don't like it, let them start businesses. (Gene Epstein points out that unions are flush with money from their members' dues. Why don't they start worker-owned firms? Why don't the union members demand it?)

In market-oriented but not fully free economies, we see few if any worker-owned businesses. Why? Probably because most people don't want the risk and responsibility of ownership. So they forgo some money in return for the relative security of employment. That's their right. But employees should not begrudge employers because the latter earn profits (which comprise both interest on the loans to employees and entrepreneurial rewards for spotting price discrepancies that others overlooked).

Socialists who dislike conventional enterprise should stop complaining and set up worker-owned firms. On the other hand, it's easier and less risky to complain about capitalism. Admittedly, in one respect, socialists would not be free to engage in socialism. They could not force anyone to go along.

Orwell on Socialists

"The truth is that, to many people calling themselves Socialists, revolution does not mean a movement of the masses with which they hope to associate themselves; it means a set of reforms which ’we’, the clever ones, are going to impose upon ’them’, the Lower Orders." —George Orwell, The Road to Wigan Pier, 1937

TGIF: Benevolent Self-Interest

The most famous sentence in Adam Smith's 1776 treatise, An Inquiry into the Nature and Causes of the Wealth of Nations, appears in Book I, Chapter 2:

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.

It's a beautifully written sentence (except that he should have twice written "his" instead of "their"). He might have written, "It is not from the benevolence of producers that we expect consumer goods, but from their attending to their businesses." Ho hum. Who would have remembered it?

More importantly, however, Smith's sentence pointed to a core truth of full liberalism, or what he called the "obvious and simple system of natural liberty": namely, you cannot properly own other people and should not act as if you do. That's the pro-freedom, anti-slavery premise, written about 30 years before Great Britain would begin to stop the slave trade between African chieftains and Europeans, among others. Let's never forget that while the West did not invent slavery (far from it), the West, uniquely, did invent anti-slavery both in theory and practice. The first anti-slavery organization was founded by Quakers in 1774-75 in Philadelphia, my hometown. English Quakers followed in 1787. No known anti-slavery societies in Africa, Arabia, or Asia have come to our attention.

In his sentence Smith was saying that if you want someone (other than, say, a loved one or friend) to do something for you, you offer money or some product he wants in return. You transact business. The person behind the counter does not exist for your sake, and you should not expect him to work long hours out of duty. He has a life precious to him and need not justify his existence. He is an end in himself, as John Locke had written in the previous century. (Yes, Kant said it too, but for him it was not connected to the pursuit of happiness.)

Smith continued:

We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens....

Here I differ with Smith. Self-love, that is, concern with one's interests, is part of our humanity. No conflict exists between making the most of the one life one lives and goodwill toward others. We are engaged in a common challenge—living—and empathy naturally flows from that fact. It is a pernicious doctrine, indeed, that holds otherwise. Clearly, a merchant or manufacturer prospers by attending to his customers' preferences. Real liberals have always emphasized the fundamental harmony of interests in the market. The great libertarian journalist John Stossel calls this the "double thank you" that consummates transactions.

I suspect that the word selfish acquired its unfortunate and exclusively negative sense as a consequence—emanating from Jerusalem, not Athens—of a hidden agenda aimed at acquiring power. Smith regretted that moral philosophy had become detached from the Greek notion of the pursuit of happiness. The Wealth of Nations (Book 5, Chapter 1, Part III) includes this passage:

Ancient moral philosophy proposed to investigate wherein consisted the happiness and perfection of a man, considered not only as an individual, but as the member of a family, or a state, and of the great society of mankind. In that philosophy, the duties of human life were treated of as subservient to the happiness and perfection of human life. But, when moral as well as natural philosophy came to be taught only as subservient to theology, the duties of human life were treated of as chiefly subservient to the happiness of a life to come. In the ancient philosophy, the perfection of virtue was represented as necessarily productive to the person who possessed it, of the most perfect happiness in this life. In the modern philosophy, it was frequently represented as almost always inconsistent with any degree of happiness in this life, and heaven was to be earned by penance and mortification, not by the liberal, generous, and spirited conduct of a man.... By far the most important of all the different branches of philosophy became in this manner by far the most corrupted. [Emphasis added.]

He must have had a premonition about Kant, who developed his duty-based moral theory in the following decades. How Smith's passage relates to his first book, The Theory of Moral Sentiments, I will leave to others. We don't need to explain empathy in terms of sentiment or impartiality. Rational self-interest will get us where we want to go.

Continuing with Smith's point about market transactions (Book IV, Chapter 2):

But it is only for the sake of profit that any man employs a capital in the support of industry; and he will always, therefore, endeavour to employ it in the support of that industry of which the produce is likely to be of the greatest value, or to exchange for the greatest quantity either of money or of other goods.... [E]very individual ... intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

Then Smith goes a step further:

Nor is it always the worse for the society that it was no part of [his intention]. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

People who dislike market-oriented society seem to despise what Smith celebrated. "It's not enough to provide wanted goods and services to strangers," they'd say, "You should do it because you love them." Profit is seen as a spoiler. In this view, the profit seeker lacks moral worth because he benefits from serving customers. However, that's a feature, not a bug: in the broader context, the pursuit of self-interest in a free society ultimately benefits us all.

Abolish the Corporation Tax and All Other Taxes on Investment

Corporate taxes and other taxes on investment constitute double and sometimes triple taxation. That's more unjust than taxation of labor or consumption. Businesses can't pay taxes; only people can. But who pays business taxes need bear no relation to whom the lawmakers targeted. The corporate tax has been known to reduce wages and dividends (to retirees of moderate wealth) and indirectly to increase prices to consumers. How's that help anyone? Capital accumulation is what raises labor productivity and wages. Thus, taxes on capital steal from workers, among others. As economist Roy Cordato writes:

Corporate taxes are hidden and fraudulent. The people who pay them do not know they pay them, and thus such taxes help mask the actual cost of government. If it is true that companies are finding ways to avoid these taxes and less revenue is being generated, then we should cheer those companies on. Ultimately corporate taxes should be abolished. Lovers of big government have no better friend than a tax that everyone thinks someone else pays.

Latest Interview

Michael Liebowitz and I had a conversation recently on his podcast, The Rational Egoist. Enjoy!

TGIF: Envy, Ignorance, Barbarism Triumph in New York

Democratic socialist Zohran Mamdani's mayoral victory in New York City is a triumph of moral barbarism, economic illiteracy, illogic, and just plain envy. Mamdani's campaign had a double pitch: billionaires should not exist, and "the people" deserve free stuff.

At first I thought his supporters did not understand the old free-market meme, TANSTAAFL: There Ain't No Such Thing As A Free Lunch. Nature provides only raw materials, which are useless in their original state. Ingenuity turns them into resources. But then I realized that while Mamdani used the word free, he also said he would get the money for the free stuff by further taxing the rich. The people who voted for him heard that, so they couldn't have thought that bus rides, daycare, and whatever else he has plans for would really be free—just free to them.

The demand that other people should pay—whether they want to or not, under threat of imprisonment—for what you want is monstrous on many levels. The economic harm from the variants of this demand has been documented theoretically and empirically many times over many years. You can look it up. Begin with Henry Hazlitt's Economics in One Lesson. Then read up on the Soviet Union, pre-1979 China, pre-1991 India, Cambodia, North Korea, Cuba, or Venezuela.

Like the laws of physics, the laws of human action (economics) cannot be repealed; if they are ignored, the consequences are catastrophic, especially for the most vulnerable, who are the ostensibly intended beneficiaries of giveaways. When bus rides are free, how long will it be before civilized people find them unusable? When rents are frozen, which Mamdani's supporters robotically demand, how long before apartments deteriorate even further or are taken off the market?

When the state forces other people to pay for what you want, that's slavery. Mamdani and his ilk insist on the right to medical care, housing, education, "affordable" groceries, etc. But how can such rights exist? Each of those services must be provided by individuals. Don't they have the right to life, liberty, property, and the pursuit of happiness? If A has a right to B's labor or the fruits thereof, then B must be A's slave. I thought good people were against slavery. Did I miss the memo?

Ayn Rand taught us that people's extraordinary achievements and resulting financial success do not justify declaring open season on them. They have the same rights as those who achieve less or nothing at all. Treating them as sacrificial animals is unjust (and self-defeating). Great producers of wealth have no duty to serve those who produce little or nothing, just as no one has a duty to serve the great producers. Each life is an end in itself requiring no justification. Respecting all people's rights, that is, living by reason not force, is constitutive of the self-interested life. (Selfishness, as most people use that word, is actually myopia, that is, under-concern, not over-concern, with self.) The code of self-sacrifice, as Rand pointed out, is incoherent because if applied universally, no one would be entitled to receive the booty. In practice, when someone preaches self-sacrifice, she said, someone is planning on collecting the sacrifices..

The oppressive bigotry against the "rich" is unseemly because it is a resentment of achievement in itself. The exploitation claim is long-demolished nonsense. (Making a fortune off the taxpayers is another kettle of fish.) Moreover, it ought to be obvious that punishing people for their success will discourage the thought and effort that make success possible. Incentives matter. Considering that innovators earn only a small fraction of the value that they make possible for others, how does punishing success help the people Mamdani says he cares about? Thanks to innovators—in the technological and management senses—the "poorest" Americans are actually among the richest people who ever walked the earth. Extreme poverty has been plummeting for decades. The rest of the world has been catching up with the bourgeois West thanks to technology, increasing liberty, and global trade. What has Mamdani and the Democratic Socialists of America done to benefit anyone?

A final word about that qualifier democratic in "democratic socialism." It is meant to dupe the naive; that is, it is intended to dissociate socialism from the Marx-inspired tyrannies that produced a hundred million corpses beginning in 1917. Communist East Germany was officially the German Democratic Republic, just as communist North Korea is the Democratic Republic of Korea.

That this PR trick fools anyone anymore is hard to believe. Even if elections were held under socialism, how would that change it into something benign? Democratic or not, socialism is government planning of people's lives, in contrast to capitalism—the competitive market economy in which people make their own plans and peacefully coordinate with others through the price system and mutually beneficial free exchange. Periodically casting one vote among many for those who will formulate and carry out the plan would not fix what's wrong with socialism. Even under majority rule, the minority must obey or starve, as the nice Bolshevik Trotsky so charmingly put it. Any individual is a potential threat to the plan and therefore must not be tolerated. Central planning and social cooperation through individual freedom cannot coexist.

Either Mamdani does not know this or he won't acknowledge it. That destroys his claim to care about people. For him, the people are mere stage props (as are the Palestinians). His ideology would oppress them. Despite the democratic sales pitch, this child of the elite aspires to implement the most elitist of oppressive systems. Fanatic or grifter? You decide.

 

TGIF: Separating Powers

We may be sure that the "separation of powers" doctrine is of no interest to the vulgar egotist currently residing in the White House, which happens to be undergoing the most glorious renovation the world has ever known. Or so we hear. But it stands to reason that the doctrine is vital to personal liberty. No imagination is needed to understand what concentrated political power is likely to mean for the individual and society.

The name most closely associated with the separation of powers is Charles Louis de Secondat, baron de La Brède et de Montesquieu (1689-1755), a judge, philosopher, and historian whose 1748 book, The Spirit of Law, sometimes called The Spirit of the Law[s], heavily influenced the founders of the United States and the framers of the U.S. Constitution. Living in a censorial regime, Montesquieu originally published the work anonymously.

I won't attempt to divine what Montesquieu really thought about the doctrine. A glance indicates that this is no simple matter, as indicated by his several seemingly conflicting statements and competing scholarly interpretations. I will only venture to say that the doctrine is essential to limiting government, if government we must have. (I'm not convinced.) Any principle or taboo that would inhibit the growth of the state and leave room for individual freedom is to be desired. As Thomas Jefferson wrote, "The natural progress of things is for liberty to yeild [sic], and government to gain ground." Thus, he also said, the proper attitude toward government is not confidence but vigilance.

At any rate, it doesn't really matter how committed Montesquieu was to the doctrine. We can make up our own minds. Quoting Montesquieu on behalf of the doctrine should be useful to liberty-minded people. So let's do it. The passage is from Chapter VI: Of the Constitution of England. Montesquieu wrote:

The political liberty of the subject is a tranquillity of mind arising from the opinion each person has of his safety. In order to have this liberty, it is requisite the government be so constituted as one man need not be afraid of another.

When the legislative and executive powers are united in the same person, or in the same body of magistrates, there can be no liberty; because apprehensions may arise, lest the same monarch or senate should enact tyrannical laws, to execute them in a tyrannical manner.

Again, there is no liberty if the judiciary power be not separated from the legislative and executive. Were it joined with the legislative, the life and liberty of the subject would be exposed to arbitrary controul; for the judge would be then the legislator. Were it joined to the executive power, the judge might behave with violence and oppression.

There would be an end of every thing, were the same man, or the same body, whether of the nobles or of the people, to exercise those three powers, that of enacting laws, that of executing the public resolutions, and of trying the causes of individuals....

Here, then, is the fundamental constitution of the government we are treating of. The legislative body being composed of two parts, they check one another by the mutual privilege of rejecting. They are both restrained by the executive power, as the executive is by the legislative.

To say the least, this is out of step with today's chief executive, who presses for autocratic power on virtually every front—from redesigning the White House to "emergency" tariffs to detention and deportation without due process to extrajudicial murder on the high seas and in Somalia. His attempt to control speech and generally dictate the terms of our economic relations betrays a failure to appreciate an even more important separation: of the government and our private lives. He didn't begin the erosion of those separations; that happened long ago. But he certainly has accelerated it.

If political power must exist, it must be contained, and the way to do that is dispersion among branches and levels. To be sure, the separation of powers and the related checks and balances could impede efforts to roll back power, but preventing new expansions of power seems the higher priority now. No one said that establishing full liberty would be easy.

Mr. Trump no doubt regards the separation-of-powers doctrine as a mere petty annoyance, something his enemies only recently concocted to thwart his grand ambition to be adored a thousand years from now. With barely any exception, the legislative branch of the central government has had no stomach to challenge him. Fortunately, some courts have pushed back. How The Maestro takes a major setback at the Supreme Court, if one should occur, will be instructive.

TGIF: The Libertarian Apostle of Peace

With Donald Trump furiously, ineptly, and fraudulently campaigning for the Nobel Peace Prize, it may interest liberals—the classical variety, libertarians—to know that the first Nobel Peace Prize, awarded in 1901, was shared by one of their own. This was a man who espoused the same political-economic philosophy as his fellow Frenchman Frédéric Bastiat and Englishman Richard Cobden. Its pillars were freedom, unrestricted trade, and peace.

That man was Frédéric Passy (1822-1912). Passy shared the prize with Henry Dunant, founder of the International Committee of the Red Cross and originator of the Geneva Convention. That was no small honor. Passy was cited “for his lifelong work for international peace conferences, diplomacy and arbitration."

According to the Nobel Foundation’s website:

 In both age and prominence, he was the dean of the international peace movement. Both as an economist and as a politician, he maintained that free trade between independent nations promoted peace. Passy founded the first French Peace Society, which held a congress in Paris during the 1878 World Exhibition. As an independent leftist republican in the French Chamber of Deputies, he opposed France's colonial policy because it did not accord with the ideals of free trade.

Passy was also one of the founders of the Inter-Parliamentary Union, an organization for cooperation between the elected representatives of different countries. Despite his age, Passy kept up his work for peace after 1901.

Don't let the word leftist in the first paragraph throw you. Since the French Revolution, members of the national legislature who opposed the monarchical ancien regime sat on the left side of the chamber; defenders sat on the right. Thus the "left' included socialists like Proudhon and individualist free-market radicals like Bastiat. It was a historical quirk.

Passy's more in-depth biography at the Nobel site states:

An admirer of Richard Cobden, he became an ardent free trader, believing that free trade would draw nations together as partners in a common enterprise, result in disarmament, and lead to the abandonment of war. Passy lectured on economic subjects in virtually every city and university of any consequence in France and continued a stream of publications on economic subjects.

If Trump wants the prize badly enough, maybe he should embrace free trade. The free-trade movement routinely linked peace, liberty (including property), and unrestricted global commerce as an integrated program. "If goods don't cross borders, soldiers will," a liberal once said. The connection should require no explanation. Cobden, who with John Bright brought an end to Britain's hunger-imposing grain tariffs, eloquently pointed out that trade and violence were opposites.

The Nobel biographical essay notes that, like Cobden, Passy worked to substitute arbitration for war and old-fashioned balance-of-power diplomacy. In those days, that was a standard liberal principle. As a member of France's Chamber of Deputies from 1881-89, he staunchly opposed colonization.

Passy was also a friend of the Belgian libertarian economist Gustave de Molinari (1819-1912), author of "The Production of Security" (1849), apparently the first explicitly anarchocapitalist essay, which applied competitive market principles to rights protection. In 1904 Passy wrote a prefatory letter to the English edition of Molinari’s book The Society of the Future (sometimes translated as The Society of To-morrow, first published in French in 1899). Passy praised Molinari as

the doyen of our economists—I should say of our liberal economists—of the men with whom, though, alas! few in number, I have been happy to stand side by side during more than half a century. Their principles were proclaimed and defended in England through the mouths of Adam Smith, Fox, Cobden, Gladstone, and Bright. In France they were championed by Quesnay, Turgot, Say, Michel Chevalier, Laboulaye, and Bastiat. And my belief grows yearly stronger that, but for these principles, the societies of the present would be without wealth, peace, material greatness, or moral dignity.

The Nobel website essay concludes:

Passy’s thought and action had unity. International peace was the goal, arbitration of disputes in international politics and free trade in goods the means, the national units making up the Interparliamentary Union the initiating agents, the people the sovereign constituency. Through his prodigious labors over a period of half a century in the peace movement, Passy became known as the apostle of peace.

Freedom's advocates should rejoice at Monsieur Passy's deserved recognition as a leading peace-mongering free-trader.

TGIF: The Absurdity of Democracy

If the continuing incompetence of Congress over passing a budget and reopening the U.S. government doesn't show the absurdity of unlimited representative republicanism, what could do so? Whether or not to extend COVID-era special subsidies for medical insurance appears to be the main issue, but other issues are undoubtedly involved. If it isn't one thing, it's another. That's politics.

The problem is that the government has its hands in everything. That means a constituency exists for each thing the government does. If you want to upset and mobilize a group of people, call for an end to some privilege or restriction, which must come at the expense of the freedom and wealth of everyone but the favored beneficiaries. That's how "democratic" government works, after all. This sets off a mad quest for favor, which some contenders will be more capable of securing than others. Don't fall for the canard that the bureaucrats and politicians rationally produce useful things. If something looks, quacks, and waddles like a canard, you can be sure it's a canard. "Who rules" is a secondary question. The first should be: what are the rules?

Rejecting democracy—representative republicanism, more precisely—does not entail accepting authoritarianism in any form. Quite the contrary. It entails full acceptance of the protection of individual liberty and property rights—the rights to life, liberty, and the pursuit of happiness, as Thomas Jefferson, inspired by John Locke, put it in the Declaration of Independence. If we cannot have market-ordered, individualist, anarchism, then at least let's keep the government strictly limited to barring physical force. If it ventures beyond that boundary, it sets off a civil war over the people's private wealth and liberty. If you seek the consequences, look around. They are blindingly evident.

As Adam Smith wrote in The Wealth of Nations:

All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society. According to the system of natural liberty, the sovereign has only three duties to attend to; three duties of great importance, indeed, but plain and intelligible to common understandings: first, the duty of protecting the society from the violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions.

But isn't pervasive government necessary to engineer a decent society? No, it is not. Thomas Paine, no anarchist he, understood this. As he wrote in The Rights of Man:

Great part of that order which reigns among mankind is not the effect of government. It has its origin in the principles of society and the natural constitution of man. It existed prior to government, and would exist if the formality of government was abolished. The mutual dependence and reciprocal interest which man has upon man, and all the parts of civilised community upon each other, create that great chain of connection which holds it together.

 

 

TGIF: Hooked on the State

Since the government partial shutdown began, we've been seeing panicked headlines about states being denied federal money for promised or already-started energy and infrastructure projects. Other sorts of subsidies are also in jeopardy. You'd think that not getting money from Washington was the worst thing that could happen. Oh my goodness, federalism might be breaking out!

Unfortunately, we can be sure that no restoration is in the works. We are not about to return to the long-gone world in which the national government had few powers and the people of the 50 states grappled with governments that were nearby as well as competitive with one another, thanks to their residents' freedom to exit an oppressive jurisdiction for a freer one. This occurs today to a degree, but that ultimate safeguard of liberty—exit—diminishes when Washington imposes or strongly incentivizes uniformity nationwide—when it sets a coercive baseline. Revenue that looks like free money has been an effective way to accomplish that end. So much the worse for liberty, considering that a major factor leading to original free-market, small-government liberalism in Western Europe was the relatively low cost of fleeing tyranny. In practice, the more centralized the power, the less free we are.

The panic to which I refer did not begin with the recent so-called shutdown. We saw it when Trump cut back on tax money to universities and other organizations earlier this year. It was as if a divine right had been abolished. For decades before that, presidents have threatened to withhold federal funds if states didn't do things like impose a 55-mph speed limit or raise the drinking age to 21.

How was that not a violation of the spirit, if not the letter, of federalism and decentralization, which, at least theoretically, was the distinctive American system? (Market-ordered anarchism would be even better, but it's not on the menu today.)

It's a good time to remember, or realize for the first time, that throughout the 20th century, American classical liberals, or libertarians, warned of the dangers of national funding for every sort of thing. There was the New Deal, of course, the beginning of the national welfare state, which included Washington-run relief and pensions systems. Many people might have been willing to forgive that because of the Great Depression, but centralization didn't end after that crisis and World War II. The programs were accepted and thus became permanent. We later saw national funding for highways, education, and housing, often tied to imagined crises, such as the Soviet presence.

A few politicians (such as Robert Taft and Barry Goldwater) and writers (such as Leonard Read, Felix Morley, and Henry Hazlitt) warned that money from Washington jeopardized liberty. They foresaw that people would get hooked on the money, that the government slope was slippery, that each program would be a precedent for the next, that mission creep was to be expected, that even a reduction in an anticipated spending increase would be seen as a heartless cutback, and that with money comes strings. For their troubles, they were smeared as paranoid, reactionary, and extremist. What they really were was libertarian.

But the Cassandras were right! They said people would become habituated to money from the national government—and they did! For many, no alternative exists to Washington. Even the possibility of a delay of one dime prompts street demonstrations demanding that the government "keep its hands" off some government program. How absurd!

The champions of centralized government have been winning for over a century. That the relatively free parts of the private sector keep enriching us is a tribute to capitalism, not to the politicians and bureaucrats. No doubt, many, if not all, of the architects of centralization intended that once they got the ball rolling, there would be no going back. Their opponents certainly knew it, but they were shunned, disparaged as old-fashioned, and shut up.

Is there a way back? That is the question. If we cherish freedom, we must find it.

TGIF: Free Movement Increases Wealth

In a recent interview with Nathan Goodman of the Mercatus Center at George Mason University, Professor Michael Clemens, a GMU specialist in migration economics, put forth "a strange and striking fact about the world economy." A lower-skilled person's location in the world can make a significant difference in how much wealth he creates, not just for himself but for society in general.

According to Clemens, few people appreciate that, say, a poor shoeshiner in Haiti could earn far more money doing the same work in a wealthy American city because his customers, who are rich by world and historical standards, have much to gain by paying the Haitian to free up their time. By the law of comparative advantage, even a CEO who can shine shoes better than anyone would benefit from paying the shoeshiner.

That principle applies to any kind of work. The free movement of people from impoverished to affluent places increases wealth overall. That's why Clemens titled one of his scholarly papers "Economics and Emigration: Trillion-Dollar Bills on the Sidewalk?" (Journal of Economic Perspectives, Summer 2011).

As Clemens told Goodman:

It's not just taking a fixed quantity away from one person or group of people and giving it to another, a reallocation of resources; it creates value. It adds to aggregate prosperity. And when you have a world in which ... the exact same Haitian worker in Cap-Haitien can [perform] labor whose value is about $10 a day at home, but has a value of $10 an hour in the United States, that means that the same person over the course of a year could go from adding value that is valued by the world market at $3,000 a year to $30,000 a year.

Immigration restrictions leave money on the sidewalk. Clemens said that "those kinds of large changes add up quickly with even modest movements of people. It doesn't take a large movement of people across borders to add quite a lot to the world economy."

He described his scholarly paper this way:

 I just did a back-of-the-envelope calculation that was ... just a scenario to illustrate how large those gains are at the global level. And the bottom line is that even the movement of one in 20 people from poorest countries to much richer countries would add more value in aggregate to the world economy than the total elimination of ... all remaining barriers to goods trade and all remaining barriers to cross-border capital movement put together.... That was a ... calculation to suggest what is the impact of a marginal change in border regulations, and that impact is just vast.

Note well: the new increment of wealth from only one in 20 people in the poorest countries moving to rich countries would be greater than the increment produced by abolishing all restrictions on the global movement of products and capital. How can we afford to keep people out?

Immigration policy favors highly skilled workers, although Trump inexplicably proposes to charge $100,000 for H-1B visas. Unfortunately, the contributions of lower-skilled workers go largely unnoticed. Clemens has some interesting things to say about how such workers benefit us all. The reason is the complementarity of labor in a market economy. Workers in one line of production compete against similar workers, but they also complement the efforts of other workers. They add crucial value. Regarding the disparagement of lower-skilled immigrants, Clemens said:

[T]his is another area where there's just a lot of magical thinking.... Sure, Silicon Valley runs on programmers and highly educated entrepreneurs. What I wish people understood more is that Silicon Valley runs crucially on farm workers. It runs crucially on delivery workers and security workers and construction workers and childcare workers and many other essential inputs to that production process.

In other words, to produce great value, the highest-skilled people require a huge array of supporting goods and services produced by lower-skilled people. Without them the high-skilled workers' productive efforts would suffer or disappear. Here's how Clemens explained it:

The example I often give to students is a surgeon and a cleaner. There are zero people who want to have surgery in a dirty surgery room. There are essentially zero surgeons who are going to clean the surgery room. So there needs to be somebody to clean that surgery room if there's going to be any surgery, and it's not going to be the surgeon. That doesn't mean that the surgeon isn't essential to surgery, but the cleaner is equally essential to the surgery because my demand is zero for surgery in a dirty, bloody surgery room. And the necessity for workers at all levels of formal education and tacitly acquired skill[s] to complement each other is something that I wish were a greater part of the public discussion of immigration.

When you look at the wages of migrants, which reflect their marginal productivity relative to their best option, the surgeon earns more and the cleaner earns less. That doesn't mean that at the margin the economy only benefits from admitting marginal surgeons and never marginal cleaners. They are inputs to a joint production function that complement each other.

Someone is bound to respond that without immigrants, Americans would gain jobs. But, Clemens noted, research earlier in this century indicates that, perhaps counterintuitively, a crackdown on immigrant labor "eliminate[d] employment of native workers....  [T]he net effect was strongly negative." How so? "[B]y deterring business activity, by deterring the formation of new businesses and by encouraging the exit of existing businesses."

In other words, "small landscaping firms that just never get founded, and all of the US jobs that would be associated with that within the firm or outside the firm—to do the books for that landscaping firm, to deliver fuel or supplies to that landscaping firm—and all the ripple effects that would generate US employment in both inside and outside that firm are gone."

Markets are marvelous. Interference eventually harms us all.

The Great Enrichment Is Real

From about 1800 to the present the world's economy did something good, which looks to be permanent and looks to be justified. If contrary to the evidence we cling to our prejudices about economic history—our view that the Industrial Revolution was improverishng, or that the Grteat Enrichment was an irremediable environmental disaster, or that Europe is rich only because of poverty in the Third World, or that the new rich are always getting relatively richer, or that after all any enrichment is vulgar—we will mistake how we got here and will give mistaken advice on how to move forward. We will betray the remaining poor of the world.

—Deirdre Nansen McCloskey, Bourgeois Equality

TGIF: Trump Fibbed about Favoring Free Speech

Trump fibbed when he signed his first executive order in January, the one that promised never to repeat the Biden-era barriers to free speech. Everyone knows this by now. FIRE (the Foundation for Individual Rights and Expression) summed it up well, yet only scratched the surface: "We cannot be a country where late night talk show hosts serve at the pleasure of the president."

The Maestro dislikes being criticized, and he regularly displays his willingness to use government power to get revenge. We see this with his string of lawsuits against newspapers and networks for being "unfair" and defamatory (Trump apparently hasn't been informed that in 1964 the Supreme Court, in New York Times v. Sullivan, raised the defamation bar for public figures extremely high). It's also clear in his expressed interest in yanking licenses from broadcasters. There is little need to rehearse FCC Chairman Brendan Carr's Don Corleone impression aimed at ABC and affiliates over late-night host Jimmy Kimmel. Carr offended even Sen. Ted Cruz, who's on the red team. Trump has other television talk shows in his sights.

More broadly, Attorney General Pam Bondi, ignorant of the First Amendment and its underlying philosophy, distinguished protected free speech from presumably unprotected "hate speech." The non-rookie made an embarrassing rookie error (U.S. law makes no such distinction), and Trump applauded. She later said (after having it explained to her?) that she meant speech that incites violence. Conservatives ought to tread lightly here. Some Americans think it's hateful and inciteful to say (correctly) that for human beings, sex is binary and unchangeable or that people should be judged according to their talent and not their skin tone, ethnicity, or gonads. Red and blue hypocrisy has been thick throughout this whole controversy. The blue team cheered when Biden violated freedom of speech over social media during the pandemic. Now it's red's turn. Who supports cancel culture now?

Re Kimmel, the pro-Trump narrative is that the preemption by ABC and its affiliates (since partly reversed) was a business response not to government threats, but to upset viewers. Unlikely. Nevertheless, Trump and Carr muddied the waters with the threats. Had they kept quiet, we might have been able to see how bottom-up the preemptions were.

But even then, we couldn't be sure because the government holds life-and-death licensing power over traditional broadcasters, who surely did not need reminding. (Trump has renewed his threats against ABC, which owns some stations, and its affiliates that reinstated Kimmel's show.) Broadcasters are not free in the land of the free to thumb their noses at the FCC or at a president who expects the FCC to do its bidding. Furthermore, the FCC and other regulatory agencies have the power to cast thumbs up or down for company mergers and acquisitions, which means businesses that displease the administration could have their plans destroyed by frowning bureaucrats. That's not capitalism, i.e., free private enterprise.

Traditional television and radio stations are privately owned companies, but they do not own the frequencies over which they broadcast. In contrast, factories and stores sit on private land. We would not regard an economy as capitalist if the government owned all the land and licensed it to businesses in return for promises to serve the public interest as defined by government officials.

But that is precisely how it works with broadcasters. The airwaves are not treated like private resources that were homesteaded by pioneering entrepreneurs who grasped the potential of radio and television. That could have been the case except that one man, about a century ago, kept it from being so: Herbert Hoover, the Republican secretary of commerce before he was elected president in 1928. Hoover gave us the regime under which the government "permits" companies to use "the public's airwaves" in return for the promise to serve the public. Of course, a government commission decides what's in the public interest. Mere consumers acting in the market can't be trusted with such a grave mission. (A former FCC chairman once said that the public interest is not necessarily what interests the public.) The public-ownership theory was always inane. How could the collective that didn't even know the airwaves existed have an equal ownership claim to individuals who saw the potential and did something about it?

That Hoover nationalized the broadcasters' key means of production should be a tip-off that he was not the crusty laissez-faire president the teachers make him out to be. Far from it. He was a "progressive" statist who derailed the common-law, private-property evolution of the airwaves that was underway in the 1920s with court recognition. (On Hoover's "progressive" presidential conduct after the stock market crashed in 1929, see Murray Rothbard's America's Great Depression.)

Here's a question: how does government licensing power square with the First Amendment, which guarantees that "Congress shall make no law ... abridging the freedom of speech, or of the press"? The circle cannot be squared.

A great myth of American history is that nationalizing the airwaves was the only answer to the chaos that was said to be occurring at the dawn of radio. That's false. Economist and historian Thomas W. Hazlett, a long-standing authority on this matter, debunked that myth most recently in "Abolish the FCC," published by Reason last year.

In 1927, mass-market electronic communications had already arisen under the common law rule of "first come, first served" and did not need federal micromanagement. What the new Federal Radio Commission later deemed "five years of orderly development" (1921–26) was disrupted by strategic regulatory dancing that preempted enforcement of such property rights. Sen. Clarence Dill (D–Wash.), author of the 1927 Radio Act, explained that the purpose "from the beginning … was to prevent private ownership of wave lengths or vested rights of any kind in the use of radio transmitting apparatus." [Emphasis added.]

Predictably, the regulatory apparatus did not serve any authentic public interest; that was a fig leaf. Instead, the bureaucrats, among other insults, impeded new technologies as a favor to incumbent interests, to the detriment of consumers and upstart, innovative producers. Hazlett writes:

FM radio, invented in the 1930s, was stymied for decades; cellular telephone networks, designed during World War II, were sandbagged by the spectrum allocation process until the 1980s. Countless other wireless innovations died stillborn.

Besides stifling technology, the FCC has long been used by presidents for political purposes. What would you expect? (On the slippery notion of the public interest, see this.)

Markets serve the public (consumers), and governments don't. As Hazliett puts it, "It's taken too long to grasp the marvel of spectrum markets. Another century for the brainchild of Herbert Hoover seems needlessly inert. Let the invisible hand regulate the invisible resource."

The old media are declining because consumers prefer all of the alternatives that use new technologies. The irony is that while critics of capitalism exploit those alternatives with gusto, they have yet to acknowledge that capitalism is what has made those cheap or free alternatives possible.

Privatizing the airwaves wouldn't stop Trump from interfering with free expression, but it would be a worthwhile first step.

TGIF: Social Peace through Government Retrenchment

For at least 200 years, classical liberals (aka libertarians) have warned that the more power the government wields, the greater the lengths people will go to get their hands on it before their ideological opponents do.

This is not rocket science, yet resistance to the implications endures. If politicians and bureaucrats can readily confiscate wealth from its producers and distribute it to others, or if they can grant privileges to those they favor and impose restrictions on those they don't, you can bet that individuals and groups will work overtime for access to that power. That's a recipe for civil strife; it leads to what Ayn Rand called an institutionalized civil war.

Imagine what our society would look like if there were no liberty-robbing political power to vie for. People would have to mind their own business and set up the communities they deem suitable. They could engage in persuasion, but they couldn't tap the taxpayer to pay for coercive crusades against others. (I leave aside the heretofore unsolved problem of limiting government strictly to the protection of life and property, as well as the question of whether market-ordered individualist anarchism is the only promising approach.)

All attempts to turn the government into something other than a due-process-bound peacekeeper must incite conflict. The early classical liberals in France identified the state and its power to legally plunder—that is, to tax—as the source of "class conflict." The state (the great fiction by which everyone seeks to live at the expense of everyone else—Bastiat) necessarily divides society into tax producers (the industrious, whether employer, employee, or independent) and tax consumers (who prefer the fruits of plunder to work). Most people do not fall neatly into one or the other category, so the term net applies. Classes—or better, castes—were not a natural outcome of society; they were political constructs, imposed by state force. In the free market, open-border classes will exist, but not castes.

The state does more than take money from A and give it to B. At A's request (or not), the government may impose requirements or prohibitions on B. He usually objects. Such may be done for A's financial gain, but it may also be done in the sincere belief that B and everyone else would be better off morally if they were forced to live this way or that. Sometimes the motives coexist. Examples have included forced abstention from various alleged sins, such as alcohol, drugs, and racial color blindness.

In a virtually unlimited democracy, one can immediately see the danger this poses to social peace. Any meddlesome group that manages to amass a majority of voters has the potential to impose values on the rest. It helps to have a leader with something like charisma. That potential will attract those who have a taste for lording it over others, but it will also attract those whose motive is only defensive: "If I don't have the power, my opponents will." Those are different motives, but the consequences are the same. Someone imposes; others are imposed on. A third motive might be retribution for past wrongs, real or imagined.

The high-stakes quest for power promotes the demonization of adversaries, increasing the social temperature and danger. Every election becomes the most important in our lifetime or even perhaps the last. The Other must be stopped because civilization depends on it. This is a time bomb whose source is the omnipotent state. Someone needs to write a book titled (without apologies to Christopher Hitchens) Government Is Not Great: How Politics Poisons Everything.

Classical liberalism seems to be the only approach that rejects this framework. Or to put it another way, any approach—whatever you call it—that rejects aggressive force qualifies as classical liberal. The only thing that gets "imposed" is the nonaggression obligation. Not to put too fine a point on it, in a fully liberal society, the law (in Hayek's bottom-up sense) is similar to the rules of the road: it doesn't tell you where to go, but only how to get where you want to go. Distinguishing between aggression and defense may occasionally be difficult, but that's why we have courts, which would exist as well under market-ordered anarchism. Violence is costly, peaceful bargaining much less so. (See David Friedman's The Machinery of Freedom, among others, for details.)

Another way to put this is that we should avoid utopianism. The utopian has a vision of the ideal society down to the smallest detail and harbors the temptation not only to impose his vision, but to punish those who see things differently. Utopianism rejects the liberal insight, as the late historian Ralph Raico said many times, that "society runs itself." The welfare-enhancing market order is produced by individuals who peacefully pursue their chosen ends, freely trusting, coordinating, cooperating, and trading with others, often strangers. But for this to happen, the institutions and mores must be right, among them respect for persons, property, and contract. There are no guarantees, but those can be best protected by small government (if not market-based rights protection), small jurisdictions, and the freedom of exit.

Original pro-market liberalism is not so much a set of answers as a moral-legal-political framework in which individuals search for answers by relying on persuasion and consent, never aggressive force. Worthy causes are left to voluntary organizations, such as mutual-aid societies and charities. Social power replaces state power, to use individualist Albert Jay Nock's exhaustive alternatives.

Why would anyone who favors peace accept anything else?

(For more, see my "Disagreement without Conflict.")

Mass Production Equals Mass Consumption

[R]elative shares in national income have remained substantially constant over the last hundred years. This, however, is true only if we measure them in money. Measured in real terms, relative shares have substantially changed in favor of the lower income groups. This follows from the fact that the capitalist engine is first and last an engine of mass production which unavoidably means also production for the masses....

Electric lighting is no great boon to anyone who has money enough to buy a sufficient number of candles and to pay servants to attend to them. It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth [I] owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.

--Joseph Schumpeter, Capitalism, Socialism, and Democracy, 1942

Murder

Why would anyone think that condemning a murder must imply any particular judgment about the victim?

TGIF: Hurray for the Industrial Revolution!

Unbelievably, in 2025, walking among us are people, many of them young and college-educated, who believe the Industrial Revolution (spawned by the liberal Enlightenment) was a disaster for most of mankind. They yearn for what they imagine was the tranquil, plentiful, and happy communalism of the Middle Ages. I'm not referring only to people on the fringes. Glenn Greenwald, the cosmopolitan journalist who has done important reporting on civil liberties and foreign policy, recently lamented the loss of medieval life in a paean to the anti-industrial manifesto (but not the murderous actions) of Ted Kaczinski. He was the Unabomber.

What's shocking is that the data showing what a blessing industrial capitalism has been are readily available. It's a big literature, and it may seem difficult to know where to start. So thanks (again) to Phil Gramm and Donald Boudreaux for presenting the facts in a succinct but detailed chapter in their important book, The Triumph of Economic Liberty: Debunking the Seven Great Myths of American Capitalism. The first chapter is "The Genesis Myth: The Industrial Revolution Impoverished Workers."

No, it did not, the authors demonstrate. It enriched them.

The propagators of the myth begin with a distorted picture of what preceded the Industrial Revolution. As Gramm and Boudreau correct the record:

In the communal world of the Middle Ages, the worker owed fealty to the crown, church, guild, and village. Those “stakeholders,” as they would be called today, extracted large shares of the output produced by the sweat of workers’ brows and the fruits of their thrift. Rewards for effort and saving were thus leeched away. Unsurprisingly, the economic output was so sparse and economic growth so slow that they were noticeable only across the span of centuries.

Life was not solitary (privacy was nonexistent), but it was certainly poor, nasty, brutish, and short, wracked with violence, disease. Serfdom, anyone? Who could lament the end of that era? Fortunately, it did end. Had it not ended, hardly anyone alive today would have been born, much less be flourishing. Gramm and Boudreaux write:

This dreary reality suddenly (in historical terms) changed in the seventeenth and eighteenth centuries. Starting in northwestern Europe, the Enlightenment of the era gave birth to liberalism, which—true to its name—liberated mind, soul, and property. Individuals were freed and empowered to think their own thoughts and, ultimately, have a voice in their government. Men and women secured the right to worship as they chose, as well as to own the fruits of their labor, thrift, risk-taking, and entrepreneurial creativity.

Even Karl Marx, the infamous resentful nihilist, had to acknowledge capitalism's astounding record of production for the masses. Before the liberal, capitalist industrial era, mass production was not even a figment of the imagination.

In this newly enlightened and liberated world, individuals were empowered to pursue their own private interests instead of being conscripted by law or tradition into assisting the elite in pursuing their private interests. The economist W. H. Hutt described the change succinctly: “One of the main social results of the factory regime seems to have been the evolution of the idea of a wage contract, replacing the former idea of servitude.”

To some people, that was barely progress. Noam Chomsky thinks that chattel slavery is only slightly worse than wage employment. He rejects the proposition that "renting" someone is much different from buying him. Contract labor, chattel slavery: it's pretty much the same. The wage earners would have disagreed.

Gramm and Boudreaux explain that endless Victorian poetic and fictional depictions of how bad life was in the industrial cities were in fact a sign of capitalism's progress in enriching the masses. When everyone but the nobility was poor, no one noticed it; that's just how things were. But once life began to improve, thanks to capitalism and industry, those who did not experience progress as quickly as others stood out. The authors quote F. A. Hayek: "Economic suffering both became more conspicuous and seemed less justified, because general wealth was increasing faster than ever before.”

"Remarkably," Gramm and Boudreaux write, "these historical and romantic critiques were written about a period that, by every available economic measure, was the beginning of a golden age of material well-being—especially for workers."  The claim of impoverishment, they add,

is refuted by every major measure of material well-being. In a single century, from 1800 to 1900, wages, life span, and literacy expanded at rates never before experienced. The Industrial Revolution, beginning in Britain and then spreading to continental Europe, the United States, and eventually, most of the globe, ushered in a golden age for workers that continues to this day.

When they say every "major measure," they mean not only material wealth, but infant and child mortality, survival in childbirth, literacy, nutrition, and much more. The graph makes a hockey stick: no progress for thousands of years, and then around 1800—Zoom!—all signs of progress skyrocket.

As Gramm and Boudreaux suggest, it is absurd to judge those early years of growth by today's standards. Poverty is the natural state. Wealth is artificial (manmade). The proper comparison, then, is with what went before the industrial era, feudalism and mercantilism. Once human freedom and ingenuity were liberated, progress took time. Even so, set against all of human history, progress was swift. And recall that this was the beginning of mass production, which must precede mass consumption.

Gramm and Boudreaux turn to the economic historian Deirdre McCloskey for more evidence. I've been reading McCloskey's eye-opening work (Bourgeois Virtues, Bourgeois Dignity, and Bourgeois Equality; also, with Art Carden, Leave Me Alone and I'll Make You Rich). I can attest to its power. McCloskey, write Gramm and Boudreaux,

estimates that since the Industrial Revolution—what she calls the “Great Enrichment”—began just over two hundred years ago, living standards in countries such as Britain, the United States, Japan, and Finland have risen by at least 3,000 percent and perhaps—if improvements in product quality are more fully taken into account—by as much as 10,000 percent!"

Let that sink in. Per capita wealth has increased 3,000 to 10,000 percent since 1800.

You need more evidence? Citing economic historian Gregory Clark, Gramm and Boudreaux write,

At the dawn of the nineteenth century, real wages were no higher than they had been at the dawn of the thirteenth.... [A] revolution in economic production accelerated around the start of the 1800s, and the quality of life in Britain underwent more rapid improvement than had ever occurred in recorded human history. Wages that had largely stagnated for thirty generations began to rise rapidly.... During the Victorian era, from 1840 to 1900, the real wages of skilled builder craftsmen increased by 113 percent, and the real wages of unskilled builder helpers rose by 124 percent.

Explain that one, you lovers of the Middle Ages. Or this: compared to life as a "downstairs" servant on an aristocrat's estate, "The factories," write Gramm and Boudreaux, "offered higher pay, shorter hours, better working conditions, and even more fresh air."

Okay, but what about child labor? That will always come up. Gramm and Boudreaux quote economic historians Carolyn Tuttle and Simone Wegge: “Child labor did not begin during the Industrial Revolution of Great Britain but had existed for centuries across Europe." Remember, it took time and ingenuity for per-worker productivity to increase to where an adult could support a family. That wasn't the fault of capitalism. Little boys were chimney sweeps before the industrial era. At any rate, Gramm and Boudreaux say that "most young working children did not toil in factories or mines. Agriculture, services, trades, and clerical duties together employed far more children than did factories and mines....

"Furthermore, the economist Clark Nardinelli of the University of Virginia found that the employment of children in factories was declining before the Factory Acts were passed.... The Factory Acts codified the market process that was already underway. In closing the ugly ten-millennial chapter of child labor by the end of 1900, the Industrial Revolution had ushered in a new chapter of more intense childhood nurturing and learning."

What did the workers think about industrialization? Gramm and Boudreaux note that historian Emma Griffin, who read 350 writings of regular workers, reported, "It is time to think the unthinkable: that these writers viewed themselves not as downtrodden losers, but as men and women in control of their destiny; that the industrial revolution heralded the advent not of a yet 'darker period', but of the dawn of liberty...."

Gramm and Boudreaux sum up: "The best evidence, which can be found both in statistics and in the written testimony of workers who lived during the Industrial Revolution, strongly suggests that the initial spark of the lavish material prosperity that we enjoy today was not struck at the expense of the first few generations of workers who toiled in Britain’s water- and steam-powered factories. They, too, benefited, as the Great Enrichment made even those workers and their families richer, freer, and happier."

The same is true for America. In the second half of the 1800s, Americans "experienced unprecedented and broad-based economic growth. Between 1865 and 1900, inflation-adjusted GDP nearly tripled, expanding by an extraordinary 297 percent. Nothing
like this had ever happened in American history."

Thus, "The Gilded Age, in short, was an era of unparalleled improvement in living standards for almost all Americans."

Read this book.

Enclosure Revision

More than a decade ago, I ventured into the subject of English agricultural land enclosure as the Industrial Revolution was coming on. I regret that I did so before doing adequate research. It's a complicated subject. To somewhat rectify my offense, I refer readers to Donald Boudreaux's recent Cafe Hayek post on the subject.

Boudreaux points out that economic historian Deirdre McCloskey, in Bourgeois Dignity (p. 54), notes that Karl Marx:

instanced enclosure in England during the sixteenth century (which has been overturned by historical findings that such enclosure was economically minor) and in the eighteenth century (which has been overturned by findings that the labor driven off the land by enclosure was a tiny source of the industrial proletariat, and enclosure happened then mainly in the south and east where in fact little of the new sort of industrialization was going on, and where agricultural employment in newly enclosed villages in fact increased).

Then McCloskey writes (172-3):

By now, though, several generations of agricultural historians have argued (contrary to the Fabian theme first articulated in 1911, which followed Marx) that eighteenth-century enclosures were in many ways equitable and did not drive people out of the villages…. Contrary to the pastoralism of [Oliver Goldsmith’s 1770] poem – which as usual reflects aristocratic traditions in poetry back to Horace and Theocritus more than evidence from the English countryside – the commons was usually purchased rather than stolen from the goose. One can point with sympathy to the damaging of numerous poor holders of traditional rights without also believing what appears to be false – that industrialization depended in any important way on the taking of rights from cottagers to gather firewood on the commons. Industrialization, after all, occurred first in regions to the north and west, mainly enclosed long before, such as Lancashire or Warwickshire, and especially (as Eric Jones pointed out) in areas bad for agriculture, not in the fertile East Midlands or East Anglia or the South – the places where the parliamentary acts of the eighteenth century did transform many villages, though non “deserted.” In such freshly enclosed areas, I repeat, the local populations increased after enclosure.

TGIF: Trump and the Separation of Powers

The U.S. Court of Appeals' rejection last week of the Trump administration's global "emergency" tariff program was a welcome affirmation of the separation-of-powers doctrine. Next stop: the U.S. Supreme Court. I'm keeping my fingers crossed for a 9-0 ruling that Trump grossly exceeded his constitutional powers. One can hope.

Liberty is never secure. However, if we must have a state, the separation of powers may provide some measure of security. The framers, drawing on Montesquieu, understood this. Unfortunately, politicians have weakened the doctrine over the centuries. Most egregiously, presidents have waged war without congressional authorization, as the U.S. Constitution requires.

The first U.S. constitution, the Articles of Confederation, was better than its successor because, among other things, it lacked the powers to tax and regulate trade. (Hard to believe.) The replacement, alas, did assign Congress those powers in Article I, Section 8. Too bad, but at least it did not give them to the executive under Article II. Autocracy is always a danger. (See my America's Counter-Revolution: The Constitution Revisited.)

Trump's minions apparently hadn't informed him that he lacks these powers, but now the Court of Appeals for the Federal Circuit has told him. He is not happy. He condemned the "Highly Partisan Appeals Court" for its "incorrect" decision.

In V.O.S. Selections, Inc. v. Donald Trump, the court, by a 7-4 vote, held that Trump exceeded his power under the International Emergency Economic Powers Act (IEEPA) when, through five executive orders, he imposed tariffs virtually across the board and on virtually all countries after declaring national emergencies ostensibly related to trade reciprocity and drug trafficking.

No, you don't, Mr. President, said the court. In so saying, the judges upheld a ruling by the U.S. Court of International Trade (CIT). The government was "permanently enjoined from imposing the tariffs, but was allowed to continue them until October 14. The administration appealed to the Supreme Court.

All that is at issue in the case is the separation of powers. The administration claimed that the IEEPA authorizes the president to "regulate," with "importation" mentioned as a factor that might trigger the finding of an emergency. Hence, Trump's people said, the president can impose tariffs.

The majority of judges felt it necessary to give Trump a history lesson:

The Constitution grants Congress the power to “lay and collect Taxes, Duties, Imposts and Excises” and to “regulate Commerce with foreign Nations." ... Tariffs are a tax, and the Framers of the Constitution expressly contemplated the exclusive grant of taxing power to the legislative branch; when Patrick Henry expressed concern that the President “may easily become king,” ... James Madison replied that this would not occur because “[t]he purse is in the hands of the representatives of the people.”

Tariffs are a tax. Right.

The judges went on to point out that "at the time of the Founding, and for most of the early history of the United States, tariffs were the primary source of revenue for the federal government.... Setting tariff policy was thus considered a core Congressional function."

Since the late 1800s, the Court stated, Congress has delegated "limited authority to 'activate or suspend' tariff rates through international agreements." But those acts were express delegations of tariff authority and bound by "substantive limitations." As the Court put it:

Taken together, these other statutes indicate that whenever Congress intends to delegate to the President the authority to impose tariffs, it does so explicitly, either by using unequivocal terms like tariff and duty, or via an overall structure which makes clear that Congress is referring to tariffs. This is no surprise, as the core Congressional power to impose taxes such as tariffs is vested exclusively in the legislative branch by the Constitution; when Congress delegates this power in the first instance, it does so clearly and unambiguously.

The IEEPA says nothing about tariffs. It only allows the president to:

investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States.

"Notably," wrote the Court, "IEEPA does not use the words 'tariffs' or 'duties,' nor any similar terms like 'customs,' 'taxes,' or 'imposts.' IEEPA also does not have a residual clause granting the President powers beyond those which are explicitly listed."

How have other presidents used the IEPPA?

Since IEEPA was promulgated almost fifty years ago, past presidents have invoked IEEPA frequently. But not once before has a President asserted his authority under EEPA to impose tariffs on imports or adjust the rates thereof. Rather, presidents have typically invoked IEEPA to restrict financial transactions with specific countries or entities that the President has determined pose an acute threat to the country’s interests.

Finally, the Court made it clear that "we are not addressing whether the President’s actions should have been taken as a matter of policy. Nor are we deciding whether IEEPA authorizes any tariffs at all. Rather, the only issue we resolve on appeal is whether the Trafficking Tariffs and Reciprocal Tariffs imposed by the Challenged Executive Orders are authorized by IEEPA. We conclude they are not."

Trump has predicted calamity if his tariffs are erased. He has bragged that the Treasury has collected more than $200 billion in duties and warns that refunding that money would sink the economy. Earlier his lawyers argued against a preliminary injunction on the grounds that the money could easily be paid back. Now he seems to have forgotten that when the government takes, private individuals are taken from. Thus the Treasury's loss would be the people's gain. That would be good for "the economy" (that is us). On the other hand, the government runs a $2 trillion deficit, so the money must be gone, and the government would have to sell more bonds—monetized by the Fed—to pay it back. We lose no matter what.

Trump has faced judicial setbacks on tariffs, deportations, and his National Guard deployment in Los Angeles. What's next? How will he react if the Supreme Court affirms the decisions? Buckle your seatbelts.

Capitalism Civilizes

"Participation in capitalist markets and bourgeois virtues has civilized the world. It has 'civilized' the world in more than one of the word's root senses, that is, making it 'citified,' from the mere increase in a rich population. It has too, I claim, as many eighteenth-century European writers also claimed, made it courteous, that is, 'civil.' 'The terrestrial paradise,' said Voltaire, 'is Paris.'"

—Deirdre N. McCloskey, Bourgeois Virtues

TGIF: The Chicanery Behind Inequality Data

If self-described progressives decry anything more fiercely than poverty, it is income and wealth inequality. Some have even suggested that they would prefer low-income equality to inequality, regardless of how affluent the lowest level was. What counts is the gap.

The terms poor and low-income are relative, of course. We'd be better off talking about the poorer and lower-income. Also, it's better to be poor in America than anywhere else if we factor in immeasurables such as good prospects. However, some people don't understand the point or perhaps don't want to understand it. Reasonable people ask, "How am I doing and how can I do better?" not, "How much less am I making than Jeff Bezos and Elon Musk [but not Taylor Swift or Juan Soto]?"

So let's talk about inequality—not in the legal and political sense but in terms of income and wealth. You can't go a day without hearing politicians and commentators complain about the top 1, 10, or 20 percent. Those complaints seem to be backed up by government statisticians and parts of the economics and sociology professions. Dissenters are rarely invited on television and podcasts. The impression given, to which compassionate laypeople will be vulnerable, is that America is riddled with extreme, even obscene (so Bernie Sanders says) inequality. Is it true?

Economists Phil Gramm and Donald Boudreaux make an overwhelming case against it in their book, The Triumph of Economic Freedom: Debunking the Seven Great Myths of American Capitalism. Gross inequality is one of those myths. (Last week I discussed their chapter on poverty.)

"[T]he claim that income inequality in America is high and rising on a secular basis is almost universally accepted as true," Gramm and Boudreaux report. But: "Census numbers overstate the difference between the top and bottom quintile household incomes by over 300 percent." Can they back up that claim? Let's see.

The U.S. Census Bureau tells us that in 2017 the average income of households in the richest quintile (the top 20 percent) was 16.7 times greater than the average in the lowest quintile. No one can say, without other information, whether that number is appropriate or not. But is it accurate?

"The official Census data also show," Gramm and Boudreaux continue, "that income inequality has grown on a secular basis and, by 2017, was 22.9 percent higher than in 1947." That's not all. According to the Organization for Economic Co-operation and Development, the United States has the worst record on this count among the wealthy countries—and it's been getting worse.

Let's pause for a word about the morality of income and wealth inequality. Individuals contribute unequally to the production of wealth, which improves living standards even for those who contribute little or nothing. So why would anyone expect their incomes and wealth to be equal? Now back to our regularly scheduled program.

Gramm and Boudreaux disclose a puzzle about the government's numbers: "According to the official statistics of the nation’s two leading statistical agencies, the bottom 20 percent of American households had an average income of $13,258 in 2017 yet, in that same year, consumed $26,091 of goods and services."

This fact raises the obvious question of how the bottom 20 percent of households can consume twice their income. This extraordinary gap between the official measure of income and the official measure of consumption has grown more or less steadily since 1967, when funding for the War on Poverty began to ramp up."

That indeed is a puzzle. Could it be that the government agencies do not count everything that's relevant? Write Gramm and Boudreaux:

[T]he Census Bureau does not count two-thirds of all transfer payments to the recipients as income [88 percent for the lowest quintile], instead counting only $0.9 trillion of $2.8 trillion of government transfer payments. In addition, the Census Bureau neither adjusts household income for taxes paid nor counts tax credits as income received by the recipients, even though they receive checks from the Treasury. Census does not count food stamps as income, despite beneficiaries receiving debit cards to pay for groceries. Also not counted as income are benefits received from Medicaid, under which the government pays for each beneficiary’s health care. And also uncounted as income are the transfer payments dispensed through more than one hundred other federal, state, and local programs.

In other words, the government understates the incomes of the poorest, while overstating the incomes of the richest, ignoring that America has a generous welfare state (coercively paid for) and the most progressive income tax in the world. That strikes me as a rather shoddy way of estimating income inequality.

"Because the Census Bureau excludes $1.9 trillion of transfer payments as income received and fails to count $4.4 trillion of taxes paid as income lost to taxpayers," Gramm and Boudreaux write, "the Census measure of household income ignores some 40 percent of national income, which is either gained in transfer payments or lost in taxes."

The advocates of even more confiscation and distribution do not want to acknowledge what is really going on. Why not? The resulting distortion is scandalous. The authors show that instead of the officially estimated top-versus-bottom income ratio of 16.7 to 1, the real ratio is 4 to 1, a fourth of the often-lamented official estimate.

"But even these numbers for household income," Gramm and Boudreaux write, "overstate income inequality by failing to account for differences in the number of individuals living in the average-sized household of each income quintile." The average top-level household contains more people than the bottom-level household (3.10 versus 1.69). (See the book for details.)

What has happened to inequality over time, considering that transfer payments and taxes have increased? Gramm and Boudreaux report:

Over the seventy years from 1947 to 2017, after adjusting for inflation, the real value of all transfer payments grew 212.2 percent, faster than earned personal income had grown. Taxes grew less dramatically, rising only 7 percent faster than earned income over these seventy years. Income and payroll taxes rose 21 percent faster than income. Sales, excise, and property taxes rose 8.3 percent slower than income. The net result was that the US income-tax system became significantly more progressive in the seventy years leading up to the COVID-19 pandemic as an ever-larger share of the tax burden has been shifted from low- and middle-income households onto higher-income households, reducing income inequality. [Emphasis added.]

They also show that while the standard international method for measuring inequality, the Gini coefficient, indicates an increase, "much of this increase was due simply to two very significant changes made in the way the Census Bureau collects and records data." The Bureau acknowledges that those changes distort the picture, but it does not adjust accordingly.

In fact, "the [adjusted] Gini coefficient is actually slightly lower today than it was in 1947...," Gramm and Boudreaux write. "America’s Gini coefficient falls to a level roughly in the middle of the seven largest developed countries."

I began by denying the importance of income equality to human wellbeing. As Gramm and Boudreaux explain, more equal does not mean richer: "Major developed nations that have more equal distributions of income than the United States have significantly lower incomes overall....  [They] also have larger portions of their populations that are poor." Beware a fixation on equality. Better to agitate for the repeal of government obstacles to the creation of wealth, starting with taxes on savings and investment.

A closing note for envious readers who despise the 1 percent. Gramm and Boureaux write that according to a study titled “Income Inequality in the U.S.: Using Tax Data to Measure Long-term Trends” (2024), "when all transfer payments and taxes are counted, the share of national income going to the top 1 percent of American households is about the same as it was in the mid-1960s." [Emphasis added.]

Of course, there is no such thing as "national income," as Gramm and Boufdreaux would agree. That's a statistical category. In reality, there is only your, my, and their income.