Let's Not "Run after a Share in the Trouble"

Of course “principles,” phrases, and catch-words are always invented to bolster up any policy which anybody wants to recommend. So in this case. The people who have led us on to shut ourselves in, and who now want us to break out, warn us against the terrors of “isolation.” Our ancestors all came here to isolate themselves from the social burdens and inherited errors of the old world. When the others are all over ears in trouble, who would not be isolated in freedom from care? When the others are crushed under the burden of militarism, who would not be isolated in peace and industry? When the others are all struggling under debt and taxes, who would not be isolated in the enjoyment of his own earnings for the benefit of his own family? When the rest are all in a quiver of anxiety, lest at a day's notice they may be involved in a social cataclysm, who would not be isolated out of reach of the disaster? What we are doing is that we are abandoning this blessed isolation to run after a share in the trouble.

—William Graham Sumner, "The Conquest of the United States by Spain" (1898)

TGIF: The Aim of Classical Liberalism

These are dark days for liberalism. I mean full, across-the-board, laissez-faire free-market, classical liberalism, otherwise known as libertarianism. While some budget-cutting and bureaucracy slimming will probably go through, those steps, though necessary to advance toward liberalism, are not sufficient.

What's conspicuously missing from the regime's activities is a ringing and unmistakable endorsement of full individual liberty, which requires a free-market economy. The imagined dichotomy between economic liberty and personal liberty is a snare and a delusion. What's more personal than how one makes and spends his money? Ominously, we've heard no such endorsement of liberty from the regime.

The cuts in government now being touted might increase liberty, even if unintended; then again, it might not. It depends on how the regime deploys the power and personnel left in place. All signs point to a regime run by a man who sees the theoretically private sector as merely an extension of his domain. A truly liberal program would combine the dramatic shrinking of government with comprehensive deregulation and other market-freeing measures so that private firms could provide the legitimate services that the government ostensibly provides now. For example, eliminating Medicaid would be paired with a radical freeing of the medical market, which would expand services and lower prices. (Admittedly, much deregulation, such as abolishing licensing, would have to occur at the state level.)

Dark days for liberalism are nothing new. That's been the norm for many decades. The economist Ludwig von Mises (1881-1973), one of the greatest liberal champions, lived through them. Throughout his long life he never stopped fighting for freedom and free enterprise, no matter how bleak the outlook. I look to him for encouragement.

Mises was born in what is now Ukraine, then part of the Austro-Hungarian Empire. He was educated at the University of Vienna, where he discovered the Austrian school of economics (a line of thought having nothing to do with Austria per se). He left Europe for America in 1940, a wanted man by the Nazis. It seems that being a liberal economist, a prominent anti-socialist, and a descendant of a Jewish family was hazardous to one's health in those days.

In 1927, after living through the catastrophe known as the Great War (later World War I), Mises published his political manifesto, Liberalism: The Classical Tradition. He had already published his pathbreaking book The Theory of Money and Credit (1912), which not only integrated money into general economic analysis but also showed that government creation of credit and fiat currency caused the boom-and-bust cycle. Next came Socialism: An Economic and Sociological Analysis (1922), which showed once and for all that socialism could never create or sustain a modern large-scale society in which everyone could prosper because private property in the means of production, which socialism forbade, was indispensable for market-price formation and thus economic calculation, without which no one (including bureaucrats) could make rational economizing plans in a world of scarcity. Had Mises retired at that point, our debt to him would have been limitless. Thankfully, he kept working despite the odds. His magnum opus, Human Action: A Treatise on Economics, was published in 1949.

In his introduction to Liberalism, section 4, Mises set out how he saw "the aim of liberalism." Let's look at what he wrote.

There is a widespread opinion that liberalism is distinguished from other political movements by the fact that it places the interests of a part of society—the propertied classes, the capitalists, the entrepreneurs—above the interests of the other classes. This assertion is completely mistaken. Liberalism has always had in view the good of the whole, not that of any special group. It was this that the English utilitarians meant to express—although, it is true, not very aptly—in their famous formula, “the greatest happiness of the greatest number.” Historically, liberalism was the first political movement that aimed at promoting the welfare of all, not that of special groups. Liberalism is distinguished from socialism, which likewise professes to strive for the good of all, not by the goal at which it aims, but by the means that it chooses to attain that goal.

Mises here was identifying a central part of what Adam Smith called the "system of natural liberty." It favored no particular group. Rather, it held out the promise of freedom and hence opportunity for all. (Obviously, it was inconsistently implemented, most horribly through slavery, though slavery had been practiced by virtually all people in virtually all places from time immemorial.) It is liberalism that ushered in the first mass production of all kinds of goods, that is, production for the entire population and not just for the aristocracy. That was revolutionary. The world was never the same afterward.

As for socialism striving for the same goal as liberalism. That was true, at least in theory, until the mid-20th century, when the New Left arose, jettisoned the goal of mass affluence, and substituted the "age of limits," that is, environmentalism.

Mises had in mind, not any good-faith critics, but "those critics of liberalism who reproach it for wanting to promote, not the general welfare, but only the special interests of certain classes." He thought they were "unfair and ignorant" because by "choosing this mode of attack, they show that they are inwardly well aware of the weakness of their own case. They snatch at poisoned weapons because they cannot otherwise hope for success."

For example, those critics accuse liberals of callousness because they oppose government interference with production. Mises showed that criticism to be baseless.

If a doctor shows a patient who craves food detrimental to his health the perversity of his desire, no one will be so foolish as to say: “The doctor does not care for the good of the patient; whoever wishes the patient well must not grudge him the enjoyment of relishing such delicious food.” Everyone will understand that the doctor advises the patient to forgo the pleasure that the enjoyment of the harmful food affords solely in order to avoid injuring his health.

Who would disagree?

But as soon as the matter concerns social policy, one is prone to consider it quite differently. When the liberal advises against certain popular measures because he expects harmful consequences from them, he is censured as an enemy of the people, and praise is heaped on the demagogues who, without consideration of the harm that will follow, recommend what seems to be expedient for the moment.

Continuing his medical metaphor:

Reasonable action is distinguished from unreasonable action by the fact that it involves provisional sacrifices. The latter are only apparent sacrifices, since they are outweighed by the favorable consequences that later ensue. The person who avoids tasty but unwholesome food makes merely a provisional, a seeming sacrifice. The outcome—the nonoccurrence of injury to his health—shows that he has not lost, but gained. To act in this way, however, requires insight into the consequences of one’s action. The demagogue takes advantage of this fact. He opposes the liberal, who calls for provisional and merely apparent sacrifices, and denounces him as a hard-hearted enemy of the people, meanwhile setting himself up as a friend of humanity. In supporting the measures he advocates, he knows well how to touch the hearts of his hearers and to move them to tears with allusions to want and misery.

Mises is right in describing the demagogue, who makes promises to the economically illiterate votes—prescribing measures that will bring general misery later. With the government's debt at over 100 percent of GDP and looming budget deficits of $2 trillion or more for the future, who would argue with him?

Antiliberal policy is a policy of capital consumption. It recommends that the present be more abundantly provided for at the expense of the future. It is in exactly the same case as the patient of whom we have spoken. In both instances a relatively grievous disadvantage in the future stands in opposition to a relatively abundant momentary gratification. To talk, in such a case, as if the question were one of hard-heartedness versus philanthropy is downright dishonest and untruthful. It is not only the common run of politicians and the press of the antiliberal parties that are open to such a reproach. Almost all the writers of the school of Sozialpolitik [interventionist social policy] have made use of this underhanded mode of combat.

The interventionists and socialists heap this abuse on liberals as a way to distract the public from the fact that the statists seek power over people's freedom in the market and society at large. The statists want to give orders for the people's own good. Really?

That there is want and misery in the world is not, as the average newspaper reader, in his dullness, is only too prone to believe, an argument against liberalism. It is precisely want and misery that liberalism seeks to abolish, and it considers the means that it proposes the only suitable ones for the achievement of this end. Let whoever thinks that he knows a better, or even a different, means to this end adduce the proof. The assertion that the liberals do not strive for the good of all members of society, but only for that of special groups, is in no way a substitute for this proof.

We must add that it is liberalization and globalization—liberty—that have nearly eradicated extreme poverty in the world. You can look it up. Mises would not be surprised. But remember, he was writing in the 1920s.

The fact that there is want and misery would not constitute an argument against liberalism even if the world today followed a liberal policy. It would always be an open question whether still more want and misery might not prevail if other policies had been followed. In view of all the ways in which the functioning of the institution of private property is curbed and hindered in every quarter today by antiliberal policies, it is manifestly quite absurd to seek to infer anything against the correctness of liberal principles from the fact that economic conditions are not, at present, all that one could wish. In order to appreciate what liberalism and capitalism have accomplished, one should compare conditions as they are at present with those of the Middle Ages or of the first centuries of the modern era. What liberalism and capitalism could have accomplished had they been allowed free rein can be inferred only from theoretical considerations.

In 2025, in light of the dramatic fall in poverty and the improvement in the other markers of well-being, we can readily see, if we look, what Mises was writing about: social cooperation founded on individual freedom, private property, the division of labor, voluntary exchange, and human creativity would empower people to live the kind of lives they want to live—unless they want to live as predators, which most people don't.

TGIF: Free the Housing Market!

Economist Bryan Caplan has done it again. His latest graphic nonfiction book is Build, Baby, Build: The Science and Ethics of Housing Regulation, illustrated by Ady Branzei and published by the Cato Institute. (His first was Open Borders: The Science and Ethics of Immigration.)

Caplan's target is a worthy one: zoning and other (anti-)housing regulations, which damage many people in various ways, some that will surprise you. While he could have written a conventional book, it almost certainly would have been dreadfully dull and accessible to only a few academics and policy wonks. That is no reflection on Caplan, an excellent writer. It's in the nature of the subject. I probably don't need to persuade many people of that statement.

So what's the problem? All state and local governments suppress the supply of houses and apartments throughout the country—and the problem has gotten worse for most of the country. Let's be clear: many more dwellings of all types, including high-rise apartments, would exist and be much cheaper were it not for government prohibitions, requirements, and other cost-boosting impediments.

The housing shortage, then, is not caused by greedy construction executives trying to squeeze buyers and renters into poverty or by immigrants. It's caused by do-gooder politicians and bureaucrats along with members of the public who just don't get it. Construction companies would love to build, sell, and, rent more units, which would drive down the price. Governments won't let them. That's criminal.

Basic economics teaches that market prices result from supply and demand. If government restricts the supply of something people want, whether or not by design, prices will rise. For housing, this is most aggravated in the most desirable parts of the country, where the demand for homes is high because of the many amenities, including high-paying jobs. In a free market, high prices beckon new competitors and increase supply, thereby lowering prices. It's a beautiful process when allowed to work.

Few things are more certain than the relationship between supply and demand on the one hand and price on the other. Yet many people don't get it.

According to Caplan, "Americans spend about 20% of their budget on housing." If builders were free to build, the average price of housing would fall to half of what it is today, he writes. This would raise living standards appreciably for nearly everyone. The effect on lower-income people would be stunning. Many aspects of life would dramatically improve: "the labor market, poverty, social mobility, family formation, long commutes, the environment, and the American dream." (See the book for details.)

The benefits would be so immense that Caplan calls housing deregulation a "panacea": so many problems would be alleviated. This includes not just obvious ones, such as the barrier to job mobility. Under current conditions the higher wage in the big coastal cities is not enough to offset the exorbitant price of houses and apartments. Why would a person relocate if he wouldn't be able to afford a home near his workplace? But it's not only that frustrated person who loses. Locations with higher pay are that way because worker productivity is higher. If regulation locks people out of high-productivity locations, everyone loses because fewer goods will be produced.

Housing deregulation would also relieve problems less obviously connected to housing. For example, with freedom the number of construction jobs would explode all over the country. That would primarily benefit young men without college diplomas, who now have a tough time getting good-paying jobs. Such unemployment or underemployment creates all kinds of problems. Caplan supplies more examples to justify his use of the descriptor panacea.

So who's against housing deregulation? For one, bureaucrats corrupted by the social-engineering mentality. They think they know better than market participants how cities and suburbs ought to look. Many regular people also oppose new housing developments. We usually think that the NIMBY crowd is trying to protect the value of their houses. However, Caplan doesn't believe that narrow economic interest is the best answer. For one thing, renters tend to oppose development too. As he puts it, "Political scientists have long known that objective self-interest poorly predicts voting. Self-interest poorly predicts partisanship. Self-interest poorly predicts issue views."

Then why do so many people oppose housing deregulation? Caplan has three explanations: economic ignorance, innumeracy, and status-quo bias. This adds up to an attitude that minimizes or overlooks the benefits of more housing and exaggerates the downside. Caplan presents reasons why housing-deregulation foes ought to change their mind: namely, they have much to gain that they never thought. For instance, cheaper housing would mean that many people's grown children could move out of their basements, start families, and afford housing close by. Deregulation would also mean that people could enjoy windfalls from the new freedom to subdivide their single-family-home lots for multifamily dwellings. How many people would rank those things over preserving the status quo?

This does not mean new building would have no downside, such as parking problems and road congestion. Caplan responds that these problems can and should be addressed in ways other than suppressing the supply of housing. What other ways? By letting the price system work. Just as there is no such thing as a free lunch, there's no such thing as truly free roads and parking. Congestion and aggravation are costs. Peak market pricing is a better answer than suppressing housing supply. Caplan discusses targeted "keyhole policies" that might be politically necessary to win adherents to the cause of house-building freedom.

In sum, he shows why people who embrace different approaches to social questions—utilitarians, egalitarians, cost-benefit trackers, and libertarians—can unite over housing deregulation.

Caplan is onto something. He demonstrates—graphically—that freedom really works.

 

National Greatness

“A nation which makes greatness its polestar can never be free; beneath national greatness sink individual greatness, honor, wealth and freedom. But though history, experience and reasoning confirm these ideas; yet all- powerful delusion has been able to make the people of every nation lend a helping hand in putting on their own fetters and rivetting their own chains, and in this service delusion always employs men too great to speak the truth, and yet too powerful to be doubted. Their statements are believed—their projects adopted—their ends answered and the deluded subjects of all this artifice are left to passive obedience through life, and to entail a condition of unqualified non-resistance to a ruined posterity.”

—Abraham Bishop (1800)

TGIF: Emergency! Emergency?

Look, as a libertarian I think the list of federal entities to be abolished soon should include the:

Consumer Financial Protection Board, Federal Trade Commission, Federal Communications Commission, Securities and Exchange Commission, Federal Reserve System, Department of Education, Department of Housing and Urban Development, Department of Health and Human Services, Department of Agriculture, Internal Revenue Service, U.S. Agency for International Development, Central Intelligence Agency and the rest of the "community," Consumer Product Safety Commission, Food and Drug Administration, Drug Enforcement Agency, Federal Bureau of Investigation, Environmental Protection, Agency, Federal Emergency Management, Agency, Department of Homeland Security, Department of Treasury, Department of Energy, Library of Congress, Department of the Interior, Office of the U.S. Trade Representative, Immigration and Customs Enforcement, Customs and Border Protection, Alcohol, Tobacco and Firearms, National Science Foundation, National Endowment for the Arts, National Endowment for Humanities, Corporation for Public Broadcasting, and all so-called government-sponsored enterprises (Fannie Mae, Freddie Mac, etc.).

That's a hastily compiled shortlist. You'll find more here. The absence of an agency is not to be construed as approval. I apologize if your favorite candidate for deletion is not there. No malice was intended. Perhaps some parts of the departments of Defense and Justice will need to be retained pending the full liberation of the free market. I'll leave that for another time.

Moreover, the national government should cease sending taxpayer money to "private" organizations around the world whether they do mischief—which I imagine dFescribes most of them—or not. In fact, it should stop taking the taxpayers' money and sending it anywhere. Government contracts should be viewed with suspicion.

While I want these agencies and departments zeroed out and their employees freed for productive work, as a libertarian I am also concerned with how this should be done. My worry is not over the government employees being retired. The government should not be a jobs program. Every government employee, who is paid through the theft known as taxation, could be producing goods in the market economy, where consumers rule through consent and exchange. Consumers have more agency than taxpayers do and will be able to let former government employees know whether they are productive or not. If the privatized workers are unproductive in some endeavors, they will have to find others. That's how the free market works.

In judging Trump's frenzy of activity, we should remember that he has not enunciated a coherent vision of the relationship between the individual and government. We can tell that he's a nationalist social engineer who sees the theoretically private sector as his to manipulate as he thinks necessary. Look at his use of tariffs, which interfere with private trade. Even using the tariff threat as a bargaining tool is objectionable, however. How, for example, are entrepreneurs to plan their businesses if any plan could be upset tomorrow by a presidential tariff threat that may or may not be carried out for who-knows-how-long? When Javier Milei slashed the government in Argentina, he had already set out a free-market vision, which allowed reasonable expectations to form. Compare that to Trump, whose mind must resemble an unmade bed.

Although we can enjoy the panic experienced by the advocates of big government, who fear losing power and access to our wealth, process does matter. Even the seeming chaos might be satisfying. But it's short-sighted. If someone were to seize control of the national government in a coup and abolish Congress and the courts along with the federal agencies, I'd be concerned. The reason is not that I like those branches; it's that as long as political power exists, we're better off if it is divided at the federal level and between the federal and state levels. Concentrated power is dangerous. No novel insight there.

Congress long ago began to create independent agencies—the so-called alphabet agencies—with the power to regulate our peaceful pursuits. As many people have long pointed out, Congress has in effect illegally created a fourth branch of government by fiat, not by constitutional amendment, which seems to be required. That needs to be reversed—but not autocratically, unless a specific statute permits it.

The new president has been signing executive orders apace. Some of them are to be applauded (for instance, the end of DEI, the ban on censorship); but some not so much (the attempted abolition of constitutionally acknowledged birthright citizenship). He's done some of this by declaring national emergencies, which is doubly worrying. The record of governments abusing people after declaring emergencies is horrible.

Over many years Congress has given the executive branch the unchecked power to declare emergencies, authorizing the exercise of extraordinary powers. Invoking an emergency is not new with Trump. (See the recent pandemic.) People who liked that power when other presidents exercised it now object. That's politics for you.

Trump indeed has declared emergencies related to immigration, energy, and trade. Where are these emergencies? They are invented. The immigrants are not a hostile foreign army; they are workers looking for better lives. The unsightly border mess could be fixed by legalizing immigration. On energy, U.S. oil and gas production is high, which is reflected in its prices. He doesn't need an emergency to get Congress to free the energy market. World trade delivers to consumers a cornucopia of affordable goods. That's no emergency requiring new taxes. Trump's emergencies are bogus excuses.

Jacob Sullum of Reason reports that libertarian legal scholar Ilya Somin demonstrates justifiable concern over Trump's emergency-mongering:

As George Mason law professor Ilya Somin notes, "an emergency is a sudden, unexpected crisis, not an ongoing policy issue on which the president wants to redirect resources in ways not authorized by Congress." The situation at the southern border "doesn't even come close to qualifying" as an emergency, Somin argues, especially since "illegal entries are down to their lowest level since August 2020, when the rate was unusually low due to the Covid pandemic." If the president "can declare an emergency and tap a vast range of special emergency powers anytime he wants for any reason he wants," Somin warns, "that makes a hash of the whole concept of an emergency, raises serious constitutional problems, and creates a dangerous concentration of power in the hands of a single person."

Sullum and Somin rightly point out that Trump's invocation of the notorious 1798 Alien Enemies Act and his labeling of drug cartels as terrorist organizations is ominous. Drug cartels are the products of U.S. drug prohibition and its inevitable black market.

For more insight let's turn to one of the great presidency watchers: Gene Healy of the Cato Institute, author of The Cult of the Presidency. In a blog post the other day Healy identified good, bad, and ominous actions in Trump's conduct. Lots of things Joe Biden did by executive order surely needed undoing. Unfortunately, that's not all Trump has done.

"[A]t some point," Healy writes, "you have to ask yourself, is this any way to run a country?" He goes on:

In Federalist 70, Alexander Hamilton insisted that “energy in the executive” would foster “steady administration of the laws.” But living with the turbocharged modern presidency means whipsawing between extremes as the law changes radically whenever the office changes hands. That system isn’t just stupid, it’s dangerous: By raising the stakes of the transfer of power, it risks making every presidential election a “Flight 93 election.”

He goes on to say how this threat might be addressed:

There’s no shortage of smart legislative proposals for reining in presidential power. If we don’t want the president to be able to unlock new statutory powers by saying the magic words “national emergency,” Congress could amend the National Emergencies Act so those powers quickly expire unless Congress votes to approve the national emergency declaration.

Sen. Rand Paul’s REPUBLIC Act aimed to do just that—while also blocking the use of the International Emergency Economic Powers Act as a trade-war weapon. Other bills from Senator Paul and Sen. Mike Lee would require congressional approval for presidentially imposed trade restrictions. But while the REPUBLIC Act cleared committee last September, none of these proposals even made it to the floor—let alone the president’s desk.

That would be a good—if modest—start. But we have to start somehow and somewhere. Those of us who want (at least) a radical downsizing of federal domestic and foreign powers should not get so caught up in current events that we ignore the long-term dangers and precedents of an autocratic presidency.

Abolish Antitrust!

"That there is inequality of ability or monetary income on the free market should surprise no one. As we have seen above, men are not “equal” in their tastes, interests, abilities, or locations. Resources are not distributed “equally” over the earth.16 This inequality or diversity in abilities and distribution of resources insures inequality of income on the free market. And, since a man’s monetary assets are derived from his and his ancestors’ abilities in serving consumers on the market, it is not surprising that there is inequality of monetary wealth as well.

"The term 'free competition,' then, will prove misleading unless it is interpreted to mean free action, i.e., freedom to compete or not to compete as the individual wills.

"It should be clear from the foregoing discussion that there is nothing particularly reprehensible or destructive of consumer freedom in the establishment of a 'monopoly price' or in a cartel action. A cartel action, if it is a voluntary one, cannot injure freedom of competition and, if it proves profitable, benefits rather than injures the consumers. It is perfectly consonant with a free society, with individual self-sovereignty, and with the earning of money through serving consumers.

As Benjamin R. Tucker brilliantly concluded in dealing with the problem of cartels and competition:

'That the right to cooperate is as unquestionable as the right to compete; the right to compete involves the right to refrain from competition; cooperation is often a method of competition, and competition is always, in the larger view, a method of cooperation ... each is a legitimate, orderly, non-invasive exercise of the individual will under the social law of equal liberty....

'Viewed in the light of these irrefutable propositions, the trust, then, like every other industrial combination endeavoring to do collectively nothing but what each member of the combination might fully endeavor to do individually, is, per se, an unimpeachable institution. To assail or control or deny this form of cooperation on the ground that it is itself a denial of competition is an absurdity. It is an absurdity, because it proves too much. The trust is a denial of competition in no other sense than that in which competition itself is a denial of competition. (Italics ours.) The trust denies competition only by producing and selling more cheaply than those outside of the trust can produce and sell; but in that sense every successful individual competitor also denies competition.... The fact is that there is one denial of competition which is the right of all, and that there is another denial of competition which is the right of none. All of us, whether out of a trust or in it, have a right to deny competition by competing, but none of us, whether in a trust or out of it, have a right to deny competition by arbitrary decree, by interference with voluntary effort, by forcible suppression of initiative.'

"This is not to say, of course, that joint co-operation or combination is necessarily 'better than' competition among firms. We simply conclude that the relative extent of areas within or between firms on the free market will be precisely that proportion most conducive to the well-being of consumers and producers alike. This is the same as our previous conclusion that the size of a firm will tend to be established at the level most serviceable to the consumers."

—Murray N. Rothbard, Man, Economy, and State

TGIF: Free Speech Restored?

Don't get accustomed to me praising Donald Trump, but exceptions will occur now and then. Trump is no principled friend of liberty, not by a long shot. Judging by most of his actions and words, he recognizes no impenetrable boundary between the government and the private sector, the market economy. We may infer that he sees the central government and the country itself as a company that he runs with few restraints. He seems to imagine himself as the chairman and CEO of the United States, with only a toothlessly subservient board of directors. I need only point to his trade and immigration policies to support this inference. It shows itself in many other ways.

Trump is a collectivist of the nationalist variety. He's a devotee of industrial policy, in which the central government aspires to guide the free-enterprise economy in lots of ways. For him, free-ish enterprise may be permitted when it doesn't conflict with his preferences—but only then. He decides. Put another way, he is an advocate of the corporate state in an earlier sense of the term. It doesn't mean that government does the bidding of large corporations. Rather, it means the nation-state is seen as a single organism with one set of interests. Society is the body (Latin: corpus), and the ruler—Trump—is the head.

But (cautious) credit should be given where it is due. Before that, however, something must be said about how even good things are done. Government by executive order and emergency declaration is ominous. The division of powers and the checks and balances among the three branches have at least the potential to stave off government threats to liberty. Those checks should be strengthened. The Department of Education and USAID, to name just two federal entities, should unquestionably be abolished! But is autocratic decree a good thing? It's certainly satisfying to see employees and supporters of those agencies panic over their closing, but the issue is bigger than that. The next president may undo any pro-liberty decrees and issue new ones inimical to liberty. Precedents matter.  An imperial presidency, one that can amend the Constitution unilaterally, does not serve freedom and the market economy.

Now for the credit. On Jan. 20, 2025, shortly after his inauguration, Trump signed an executive order titled "Restoring Freedom of Speech and Ending Federal Censorship" in response to one of the worst things Joe Biden and his administration did. They had effectively suppressed the speech of Americans by threatening—at least implicitly but in no uncertain terms—private social-media companies if they did not suppress lawful posts about the Covid pandemic and the Hunter Biden laptop. In other words, as a judge put it, Biden set up an Orwellian ministry of truth to crack down on dissent and inconvenient facts. Lawful speech was smeared as disinformation and misinformation, perhaps of foreign origin. Even true statements were to be suppressed, however subtly, if they undermined confidence in the government's objectives. Individuals were maligned.

That is not supposed to happen in a free society, where freedom of speech and press are enshrined in the First Amendment to the Constitution, which theoretically, if not actually, restrains the exercise of government power. The government may not censor; therefore it may not use private firms to do what it may not do. The government's bad conduct was challenged in court, initially successfully, but the Supreme Court eventually ruled against the free-speech advocates, claiming they had no standing. (See Murthy v. Missouri.)

So kudos to Trump for issuing an executive order to prevent such misconduct from happening again. The executive order spoke the truth with its opening words:

The First Amendment to the United States Constitution, an amendment essential to the success of our Republic, enshrines the right of the American people to speak freely in the public square without Government interference.  Over the last 4 years, the previous administration trampled free speech rights by censoring Americans’ speech on online platforms, often by exerting substantial coercive pressure on third parties, such as social media companies, to moderate, deplatform, or otherwise suppress speech that the Federal Government did not approve.  Under the guise of combatting “misinformation,” “disinformation,” and “malinformation,” the Federal Government infringed on the constitutionally protected speech rights of American citizens across the United States in a manner that advanced the Government’s preferred narrative about significant matters of public debate.  Government censorship of speech is intolerable in a free society.

The order goes on to declare that it is now the policy to

ensure that no Federal Government officer, employee, or agent engages in or facilitates any conduct that would unconstitutionally abridge the free speech of any American citizen;

ensure that no taxpayer resources are used to engage in or facilitate any conduct that would unconstitutionally abridge the free speech of any American citizen; and

identify and take appropriate action to correct past misconduct by the Federal Government related to censorship of protected speech.

It then declares that "no Federal department, agency, entity, officer, employee, or agent may act or use any Federal resources in a manner contrary to ... this order."

It also directs that the "Attorney General, in consultation with the heads of executive departments and agencies, shall investigate the activities of the Federal Government over the last 4 years that are inconsistent with the purposes and policies of this order and prepare a report ... with recommendations for appropriate remedial actions to be taken based on the findings of the report."

Why did I give only cautious credit? Here's why: "Media outlets must not cave to Trump’s lawfare." As the Foundation for Individual Rights and Expression (FIRE), put it. "What happens to freedom of the press when the president can bully media outlets he doesn’t like into paying big money to end his meritless lawsuits against them? Buckle up. We’re about to find out." FIRE points with alarm to "Trump’s dictatorial appetite to use lawfare to silence or punish outlets that publish content he doesn’t like." 

This is ominous. With Trump, there will be no rest.

Back on the Bob Murphy Show!

TGIF: Birthright Citizenship and the Constitution

All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States....

—U.S. Constitution, Amendment XIV

Donald Trump says he wants a "revolution of common sense." If he means it, he will abandon his unilateral attempt to cancel birthright citizenship, which the 14th Amendment to the U.S. Constitution, ratified in 1868, expressly acknowledges. The opening words of that amendment have a common-sense meaning that requires grotesque mental contortions to evade.

Opponents of birthright citizenship will seek refuge in the amendment's legislative history and case law, but I don't see how that trumps the plain meaning of words. The amendment says that if you were born in the United States, you are a citizen unless a parent was a foreign diplomat. It's worth remembering that the debate over birthright citizenship is merely one part of the all-out assault on the freedom to move and work that Trump is spearheading. Since violations of this freedom affect foreigners as well as Americans, the controversy is worth paying attention to.

The Constitution does not instruct its readers on how to interpret its clauses. Common sense is called for, and no one applied common sense to the law more clearly than the 19th-century libertarian and constitutional scholar Lysander Spooner. Spooner was also an abolitionist during the slave era. He insisted, contrary to his fellow abolitionists, that the constitutional text did not sanction slavery. He spelled this out in The Unconstitutionality of Slavery.

Spooner insisted that the language of a constitution must not be interpreted contrary to the very purpose of the document itself unless the language was so unambiguous as to preclude any other interpretation. In the American case, a pro-liberty reading is required if it is not expressly ruled out. He proceeded to show that the purportedly pro-slave language of the Constitution had to be construed in a way that was consistent with individual natural rights and natural law because the purported aim of the Constitution was to protect natural rights. Nowhere in the original Constitution were the words slave or slavery used. He wasn't arguing that the framers did not intend to protect slavery. Rather, his point was that no one was bound by what the framers meant but did not say. That makes perfect sense. If those men wanted to say something, they should have said it. What stopped them? We have no obligation to perpetuate injustice.

"[I]n the interpretation of all statutes and constitutions," Spooner wrote, "the ordinary legal rules of interpretation be observed. The most important of these rules, and the one to which it will be necessary constantly to refer, is the one that all language must be construed 'strictly' in favor of natural right." (Spooner's emphasis.)

Also: "The legal rules of interpretation, heretofore laid down, imperatively require this preference of the right, over the wrong, in all cases where a word is susceptible of different meanings."

And "[A]n innocent meaning must be given to all words that are susceptible of it."

Surely, Spooner would have applied this principle to the opening words of the 14th Amendment. It's unclear what meaning, other than the natural-right meaning, could possibly be given to those words. Some will argue that the post-Civil War amendment was only meant to recognize the citizenship of the freed slaves. So why didn't they say that? We are not bound by a meaning that contradicts natural law if the text can be read otherwise. .

How do we know the plain meaning is consistent with natural rights and natural law? We know because only under the plain meaning will the state leave people alone who have violated no one's rights. That was the original American way. If you did not aggress against persons or property, you were unlikely to come into contact with government officers.

If Trump has his way, people who have harmed no innocent persons or property could be rounded up by armed government agents and exiled. That would violate those people's rights. Therefore, the pro-liberty meaning is the common-sense meaning and must prevail if the Constitution is to fulfill what we are told is its purpose: "establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity"

As Spooner put it, "[I]n order that the contract of government may be valid and lawful, it must purport to authorize nothing inconsistent with natural justice, and men’s natural rights. It cannot lawfully authorize government to destroy or take from men their natural rights: for natural rights are inalienable, and can no more be surrendered to government—which is but an association of individuals—than to a single individual."

The case presented here might seem to justify no more than legal residency. What about citizenship? To take that step, one need only consider that a legal resident is subject to the government's power to tax and regulate. Since his bid for exemption from U.S. government impositions would not be recognized, we are forced to the second-best disposition, namely, that the legal resident ought to have a say—as small as it is—over government policy, that is, the privileges and immunities of citizens. Those who are concerned that this could bring growth in an already overgrown government should turn their attention directly to the size and scope of the state, rather than seeking to limit individual rights. Besides, the offspring of American citizens have not exactly been genetically or culturally predisposed against big government, have they? Immigrants are not responsible for America's falling score on the world indices of freedom.

Ironically, anti-immigration action is what would make the government bigger and more intrusive. If you ask the state to "protect" the culture from foreigners, don't be surprised when you wake up in bed with a monster.

The Constitution has serious basic flaws, as Spooner himself would later elaborate in "The Constitution of No Authority," but as long as it's the supreme law of the land, liberty's advocates are obliged to push the interpretation that most constrains the state and expands freedom.

TGIF: Why McKinley?

Now what will hasten the day when our present advantages will wear out and when we shall come down to the conditions of the older and densely populated nations? The answer is: war, debt, taxation, diplomacy, a grand governmental system, pomp, glory, a big army and navy, lavish expenditures, political jobbery—in a word, imperialism. —William Graham Sumner

In his inaugural address on Monday, Donald Trump paid tribute to only one former president, William McKinley, No. 25, who Trump said "made our country very rich through tariffs and through talent." He praised the Republican McKinley in touting his plan to take control, militarily if necessary, of the Panama Canal. McKinley, who was assassinated in 1901 and succeeded by Theodore Roosevelt, began the expansionist process that led to the canal's construction. (No doubt Greenland was on Trump's mind too.)

Perhaps Trump's choice of a president to honor was revealing for another reason. McKinley took America to war against Spain in 1898. As the late historian Ralph Raico wrote, the war against Spain was "our first engagement with a foreign enemy in the dawning age of modern warfare. Aside from a few scant periods of retrenchment, we have been embroiled in foreign politics ever since." It was the war that inaugurated the American empire and made the United States a Pacific power. The U.S. government took possession of Puerto Rico, Guam, and the Philippines, where it savagely repressed an independence movement from 1899 to 1902. It established influence over but did not annex Cuba.

The country burst with pride over America's new world-power status. Well, not everyone. Some advocates of the old republicanism, with its pillars of individual liberty, free enterprise, and barely noticeable government objected. One of the best-known among them was William Graham Sumner, the Yale professor of sociology and laissez-faire liberal. In 1898 Sumner delivered a lecture at Yale with the shocking title "The Conquest of the United States by Spain." After the stunning and quick military victory over the old Spanish empire, what could Sumner have meant?

He started by giving a preview:

Spain was the first, for a long time the greatest, of the modern imperialistic states. The United States, by its historical origin, its traditions, and its principles, is the chief representative of the revolt and reaction against that kind of a state. I intend to show that, by the line of action now proposed to us, which we call expansion and imperialism, we are throwing away some of the most important elements of the American symbol and are adopting some of the most important elements of the Spanish symbol. We have beaten Spain in a military conflict, but we are submitting to be conquered by her on the field of ideas and policies.

Sumner was asking: for what shall it profit a nation if it shall gain the whole world, and lose its own soul?

Sumner drew the stark contrast between Spain, "the first, for a long time the greatest, of the modern imperialistic states," and the United States, "the chief representative of the revolt and reaction against that kind of a state." Empire versus Republic. Which way, America?

I intend to show that, by the line of action now proposed to us, which we call expansion and imperialism, we are throwing away some of the most important elements of the American symbol and are adopting some of the most important elements of the Spanish symbol. We have beaten Spain in a military conflict, but we are submitting to be conquered by her on the field of ideas and policies.

Sumner was a secular prophet who respected the law of identity. A republic can not take on the features of an empire and remain unchanged in other ways.

Expansionism and imperialism are nothing but the old philosophies of national prosperity which have brought Spain to where she now is. Those philosophies appeal to national vanity and national cupidity. They are seductive, especially upon the first view and the most superficial judgment, and therefore it cannot be denied that they are very strong for popular effect. They are delusions, and they will lead us to ruin unless we are hard-headed enough to resist them.

He warned of the perils to liberty from the unintended consequences of foreign adventurism.

We talk about “liberty” all the time in a big and easy way, as if liberty was a thing that men could have if they want it, and to any extent to which they want it. It is certain that a very large part of human liberty consists simply in the choice either to do a thing or to let it alone. If we decide to do it, a whole series of consequences is entailed upon us in regard to which it is exceedingly difficult, or impossible, for us to exercise any liberty at all. The proof of this from the case before us is so clear and easy that I need spend no words upon it. Here, then, you have the reason why it is a rule of sound statesmanship not to embark on an adventurous policy. A statesman could not be expected to know in advance that we should come out of the war with the Philippines on our hands, but it belongs to his education to warn him that a policy of adventure and of gratuitous enterprise would be sure to entail embarrassments of some kind. What comes to us in the evolution of our own life and interests, that we must meet; what we go to seek which lies beyond that domain is a waste of our energy and a compromise of our liberty and welfare. If this is not sound doctrine, then the historical and social sciences have nothing to teach us which is worth any trouble.

But that was not all.

There is another observation, however, about the war which is of far greater importance: that is, that it was a gross violation of self-government. We boast that we are a self-governing people, and in this respect, particularly, we compare ourselves with pride with older nations. What is the difference after all? The Russians, whom we always think of as standing at the opposite pole of political institutions, have self-government, if you mean by it acquiescence in what a little group of people at the head of the government agree to do. The war with Spain was precipitated upon us headlong, without reflection or deliberation, and without any due formulation of public opinion. Whenever a voice was raised in behalf of deliberation and the recognized maxims of statesmanship, it was howled down in a storm of vituperation and cant. Everything was done to make us throw away sobriety of thought and calmness of judgment and to inflate all expressions with sensational epithets and turgid phrases. It cannot be denied that everything in regard to the war has been treated in an exalted strain of sentiment and rhetoric very unfavorable to the truth.

Sumner was pointing out that the war had not been a policy freely chosen by the American people. They were stampeded into it by glory-seeking, even if well-intended rulers supported by romantic newspapermen with their tales of horror, who do their best to manipulate public opinion and suppress dissent. Sound familiar?

At present the whole periodical press of the country seems to be occupied in tickling the national vanity to the utmost by representations about the war which are extravagant and fantastic. There will be a penalty to be paid for all this. Nervous and sensational newspapers are just as corrupting, especially to young people, as nervous and sensational novels. The habit of expecting that all mental pabulum shall be highly spiced, and the corresponding loathing for whatever is soberly truthful, undermines character as much as any other vice. Patriotism is being prostituted into a nervous intoxication which is fatal to an apprehension of truth. It builds around us a fool's paradise, and it will lead us into errors about our position and relations just like those which we have been ridiculing in the case of Spain.

So what do Americans, who prosper through freedom, get out of the gore and glory?

Let us be well assured that self-government is not a matter of flags and Fourth of July orations, nor yet of strife to get offices. Eternal vigilance is the price of that as of every other political good. The perpetuity of self-government depends on the sound political sense of the people, and sound political sense is a matter of habit and practice. We can give it up and we can take instead pomp and glory. That is what Spain did.... She lost self-government and saw her resources spent on interests which were foreign to her, but she could talk about an empire on which the sun never set and boast of her colonies, her gold-mines, her fleets and armies and debts. She had glory and pride, mixed, of course, with defeat and disaster, such as must be experienced by any nation on that course of policy; and she grew weaker in her industry and commerce and poorer in the status of the population all the time. She has never been able to recover real self-government yet. If we Americans believe in self-government, why do we let it slip away from us? Why do we barter it away for military glory as Spain did?

Unless the nation changed course, the future would be bleak, despite the promise of glory.

The most important thing which we shall inherit from the Spaniards will be the task of suppressing rebellions. If the United States takes out of the hands of Spain her mission, on the ground that Spain is not executing it well, and if this nation in its turn attempts to be school-mistress to others, it will shrivel up into the same vanity and self-conceit of which Spain now presents an example. To read our current literature one would think that we were already well on the way to it. Now, the great reason why all these enterprises which begin by saying to somebody else, We know what is good for you better than you know yourself and we are going to make you do it, are false and wrong is that they violate liberty; or, to turn the same statement into other words, the reason why liberty, of which we Americans talk so much, is a good thing is that it means leaving people to live out their own lives in their own way, while we do the same. If we believe in liberty, as an American principle, why do we not stand by it? Why are we going to throw it away to enter upon a Spanish policy of dominion and regulation?

He concluded:

My patriotism is of the kind which is outraged by the notion that the United States never was a great nation until in a petty three months' campaign it knocked to pieces a poor, decrepit, bankrupt old state like Spain. To hold such an opinion as that is to abandon all American standards, to put shame and scorn on all that our ancestors tried to build up here, and to go over to the standards of which Spain is a representative.

Sumner insisted that America could not be made into a great empire—with all the brutality and presumptuousness that implied—without killing what was best in America politically. The figure who signed the death warrant was President William McKinley—the man Trump would presumably nominate to the next vacancy on Mount Rushmore.

TGIF: The H-1B Controversy

Does anyone still believe that the market process should set prices, including wages? Apparently not. Take the controversy surrounding the H-1B visa, the program that "permits" employers to hire highly educated and skilled foreign workers, such as hi-tech personnel.

Judging by the narrow range, everyone involved in the debate is a social engineer. Only three options are on the menu: continue the program, reform it to prevent its misuse, and end it. What's missing? The "let the market set wages" option Sorry, that's not on offer.

Let's start with how the U.S. Department of Labor describes the program:

The H-1B program applies to employers seeking to hire nonimmigrant aliens as workers in specialty occupations or as fashion models of distinguished merit and ability. A specialty occupation is one that requires the application of a body of highly specialized knowledge and the attainment of at least a bachelor’s degree or its equivalent. The intent of the H-1B provisions is to help employers who cannot otherwise obtain needed business skills and abilities from the U.S. workforce by authorizing the temporary employment of qualified individuals who are not otherwise authorized to work in the United States.

The law establishes certain standards in order to protect similarly employed U.S. workers from being adversely affected by the employment of the nonimmigrant workers, as well as to protect the H-1B nonimmigrant workers.

Of course, the government has something to say about wages:

Employers must attest to the Department of Labor that they will pay wages to the H-1B nonimmigrant workers that are at least equal to the actual wage paid by the employer to other workers with similar experience and qualifications for the job in question, or the prevailing wage for the occupation in the area of intended employment – whichever is greater.

Is anyone offended that in a country that thinks itself free, the government decrees that employers need permission to hire "nonimmigrant aliens" and can get it only if certain conditions apply? "Nonimmigrant aliens" are people, in case anyone needs reminding. How's that good for a country supposedly devoted to freedom and free enterprise?

The standard answer is that those jobs are American jobs. However, if capitalist entrepreneurs want the freedom to hire consenting workers living abroad, the jobs obviously are not American jobs. Who has the right to declare them otherwise? A job is a continuing transaction between an employer and an employee. It has no national label. To insist that it does have such a label because the employer operates on U.S. soil is to accept a premise that requires proof, namely, that the government or a majority of voters owns the country. That premise glaringly clashes with the principle of liberty. It makes freedom a delusion.

When left free, the market sets prices, including wages, through the process that emerges from countless choices by individuals collaborating to achieve their personal goals. These choices include selling, renting, and buying material resources and products. Supply and demand generate a vast money-price system that enables everyone to make plans using economic calculation, as Ludwig von Mises long ago spelled out. Without calculation we could not make more than the simplest plans or judge a project's success or failure—through profit or loss—afterward. Waste would abound In a world of scarcity, which would be a disaster. Poverty would rule.

Among other things, prices and wages signal to producers what consumers want most keenly. Again, in a world of scarcity, that's important. Since we can't have everything right now, we must make choices. Resources producing automobiles cannot be producing washing machines or computers. What to do? Let the price system work its magic—except that it is not magic. It is human action and its welfare-enhancing consequences. When the government prohibits the price system from doing its job, scarce resources are wasted as far as consumers are concerned. In a free and competitive economy, their choices shift resources to the purposes consumers most want to be fulfilled. The whole point of an economy is to serve consumers, remember?

This is no less true for labor. If high-tech companies can find satisfactory foreign software engineers who are willing to work for less than their American counterparts, that's a signal to be heeded. The Americans have asked too much. They have no right to those jobs or a higher wage. There's other work to be done—or would be if the government did not interfere. Consumers are never fully satisfied.

Those are the basics. What about H-1B? That is not a market institution. It's an intervention to somewhat ameliorate the predicament of employers who are denied the full freedom to hire whomever they want. It's no more than second-best, and it has downsides. For example, its restrictions enable employers to pay foreign workers less than those workers would have earned if they could work freely in America. To get a visa, foreign workers must have employer sponsors. If they wish to quit their jobs, they must find other qualifying jobs or be deported. That undoubtedly keeps visa holders in jobs they would prefer to quit. That's not right.

But beware those shedding tears over H-B1 "indentured servants." Those are crocodile tears because those opponents would not replace the visa program with open visas, that is, free immigration. They would shut down the program altogether. My hunch is that visa candidates would prefer the current program to closed borders. They wouldn't come here if the conditions were not superior to those at home. So let's hear no more sobbing from "left" and "right" statist populists like Steve Bannon and Batya Ungar-Sargon. These opponents of freedom should not be making economic policy.

Has the program been misused, that is, used contrary to its stated purpose? Undoubtedly. That's standard operating procedure. When the government hands out favors, political entrepreneurship will emerge on the part of those who don't want to be left out. This is purely the result of government violations of freedom. Get rid of the program and you get rid of the misuse.

It is certainly to be expected that if foreign workers can freely come to America, some wages will go down. That's supply and demand. On the other hand, other wages will go up. Immigrants buy consumer goods and start businesses, in some cases, highly successful businesses. Lower market-set wages, by the way, bring lower consumer prices, raising the standard of living. As noted, wage differences signal consumers' most highly valued wants.

Finally, some might say that we Americans could have the benefits of high-skilled foreign workers without importing them. How? Through trade with their countries. But hold on. The same people who want to shut down H-1B also want tariffs against foreign goods to "protect American jobs." Even if we have free trade, however, that is not a good answer. Foreigners are much more productive here than they are over there. Why? Because America has more capital and better management techniques than India and elsewhere. Because capital investment per worker is so high in America, any human being will be many times more productive here than anywhere else. That's good for the workers—and for consumers. Remember: everyone is a consumer.

This matter is not "just economics." Freedom itself is at stake.

Production Is Spiritual, Not Material

"Production is not an act of creation; it does not bring about something that did not exist before. It is a transformation of given elements through arrangement and combination. The producer is not a creator. Man is creative only in thinking and in the realm of imagination. In the world of external phenomena he is only a transformer. All that he can accomplish is to combine the means available in such a way that according to the laws of nature the result aimed at is bound to emerge....

"Only the human mind that directs action and production is creative. The mind too appertains to the universe and to nature; it is a part of the given and existing world. To call the mind creative is not to indulge in any metaphysical speculations. We call it creative because we are at a loss to trace the changes brought about by human action farther back than to the point at which we are faced with the intervention of reason directing human activities. Production is not something physical, material, and external; it is a spiritual and intellectual phenomenon. Its essential requisites are not human labor and external natural forces and things, but the decision of the mind to use these factors as means for the attainment of ends. What produces the product are not toil and trouble in themselves, but the fact that the toiling is guided by reason. The human mind alone has the power to remove uneasiness.

"The materialist metaphysics of the Marxians misconstrues these things entirely. The 'productive forces' are not material. Production is a spiritual, intellectual, and ideological phenomenon. It is the method that man, directed by reason, employs for the best possible removal of uneasiness. What distinguishes our conditions from those of our ancestors who lived one thousand or twenty thousand years ago is not something material, but something spiritual. The material changes are the outcome of the spiritual changes."

—Ludwig von Mises, Human Action

TGIF: Efficient Bureaucracy?

With all the talk about government efficiency, it would be useful to remind ourselves why bureaucracies differ radically from for-profit businesses. Ludwig von Mises devoted a short but enlightening volume to this subject in 1944, Bureaucracy. Elon Musk and Vivek Ramaswamy, who will co-chair the nongovernmental Department of Government Efficiency, should do some homework by reading that book.

Mises, as an advocate of limited government, did not argue that bureaucracy has no place in a free society. In contrast to anarcho-capitalists, he thought government and therefore some bureaucracy was necessary to protect what he valued most: peaceful social cooperation through the division of labor—that is, the market economy. Violence against persons and property was clearly antithetical to the continuing welfare-enhancing collaboration we call the market process. But Mises did not want bureaucracies trying to do what free, private, and competitive enterprises could do better. Moreover, if the government went beyond its mere peacekeeping duties, it would undermine the market process and make us all less well off despite any good intentions.

Mises began by reminding readers (or perhaps teaching them from scratch) what the free market is and what it accomplishes. It's a great primer for those who lack the time to read his longer works. He wrote:

Capitalism or market economy is that system of social cooperation and division of labor that is based on private ownership of the means of production. The material factors of production are owned by individual citizens, the capitalists and the landowners. The plants and the farms are operated by the entrepreneurs and the farmers, that is, by individuals or associations of individuals who either themselves own the capital and the soil or have borrowed or rented them from the owners. Free enterprise is the characteristic feature of capitalism. The objective of every enterpriser—whether businessman or farmer—is to make profit.

The uninitiated might ask who runs things. He replied: "The capitalists, the enterprisers, and the farmers are instrumental in the conduct of economic affairs. They are at the helm and steer the ship."

However, let's not jump to conclusions about who really runs things, Mises advsed:

But [the capitalists, etc.] are not free to shape [the ship's] course. They are not supreme, they are steersmen only, bound to obey unconditionally the captain’s orders. The captain is the consumer.

Neither the capitalists nor the entrepreneurs nor the farmers determine what has to be produced. The consumers do that. The producers do not produce for their own consumption but for the market. They are intent on selling their products. If the consumers do not buy the goods offered to them, the businessman cannot recover the outlays made. He loses his money. If he fails to adjust his procedure to the wishes of the consumers, he will very soon be removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him.

All the conventional controversy about bosses and workers overlooks the critical point:

The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor. They are no easy bosses.

Capitalism is not a profit system, Mises taught. It is a profit-and-loss system. If the consumers give thumbs down to a product, the entrepreneur could lose everything. He may have to seek a job from a superior entrepreneur.

The performance of businesses, Mises wrote, can be appraised only because private property in the means of production, free exchange, and the resulting money prices permit economic calculation and thus planning by economizing individuals. This was Mises's pathbreaking demolition of the economic case for central planning—socialism in its national and international forms—over a century ago.

Economic calculation matters when comparing a business to a bureaucracy. As Mises wrote:

The manager of the whole [business] concern hands over an aggregate to the newly appointed branch manager and gives him one directive only: Make profits. This order, the observance of which is continuously checked by the accounts, is sufficient to make the branch a subservient part of the whole concern and to give to its manager’s action the direction aimed at by the central manager....

As success or failure to attain this end can be ascertained by accounting not only for the whole business concern but also for any of its parts, it is feasible to decentralize both management and accountability without jeopardizing the unity of operations and the attainment of their goal. Responsibility can be divided. There is no need to limit the discretion of subordinates by any rules or regulations other than that underlying all business activities, namely, to render their operations profitable.

What about a bureaucracy? The answer is implicit in what has already been stated. By nature a bureaucracy faces no profit-and-loss test. It has money expenses in a market-oriented society: it hires willing workers and buys equipment and supplies from willing vendors. However, it does not offer its output to potential consumers, that is, people who are free to say no and take their money elsewhere. Instead of consumers, a bureaucracy has taxpayers, who must pay whether they want the output or not. This disconnect must have far-ranging consequences. (Government services for which user fees are charged differ in this respect, but the government typically forbids competition.)

Instead of the business directive "Make profits," Mises wrote:

Bureaucratic management is management bound to comply with detailed rules and regulations fixed by the authority of a superior body. The task of the bureaucrat is to perform what these rules and regulations order him to do. His discretion to act according to his own best conviction is seriously restricted by them....

The absence of the seller-buyer relationship makes a big difference:

The objectives of public administration cannot be measured in monetary terms and cannot be checked by accountancy methods.... In public administration there is no connection between revenue and expenditure....

In public administration there is no market price for achievements....

Now we are in a position to provide a definition of bureaucratic management: Bureaucratic management is the method applied in the conduct of administrative affairs the result of which has no cash value on the market. Remember: We do not say that a successful handling of public affairs has no value, but that it has no price on the market, that its value cannot be realized in a market transaction and consequently cannot be expressed in terms of money....

Bureaucratic management is management of affairs which cannot be checked by economic calculation.

This would be a valuable lesson for Musk and Ramaswamy to take to heart. Their task should not be primarily to search for ways to make the bureaucracies more efficient. Rather their task ought to be to identify those current functions the government should not be performing, those that should be turned over to free, private, profit-motivated, and competitive enterprise. We ought to replace coercion with consent.

We must, in other words, revisit the question: what is the proper role of government, if any, in a society that aspires to be free?

Competition Is Cooperation

"The pricing process is a social process. It is consummated by an interaction of all members of the society. All collaborate and cooperate, each in the particular role he has chosen for himself in the framework of the division of labor. Competing in cooperation and cooperating in competition all people are instrumental in bringing about the result, viz., the price structure of the market, the allocation of the factors of production to the various lines of want-satisfaction, and the determination of the share of each individual. These three events are not three different matters. They are only different aspects of one indivisible phenomenon which our analytical scrutiny separates into three parts. In the market process they are accomplished uno actu. Only people prepossessed by socialist leanings who cannot free themselves from longing glances at socialist methods speak of three different processes in dealing with the market phenomena: the determination of prices, the direction of productive efforts, and distribution."

—Ludwig von Mises, Human Action

TGIF: Capitalist Exploitation or Interest?

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.

—Eugen von Böhm-Bawerk

The free-market economy—laissez-faire capitalism—may be unpopular because people think it authorizes the exploitation of workers. They are not paid the full value of their product—or so it seems. This indictment has been wielded to justify not only full socialism but also substantial government interference with the market economy, including strong pro-union measures.

Few people realize, however, that the market economy was decisively acquitted of the exploitation charge back in 1884 by the second-generation Austrian economist Eugen von Böhm-Bawerk in his History and Critique of Interest Theories. The key to understanding the acquittal is time.

Ludwig von Mises, a student of Böhm-Bawerk, and Murray Rothbard, a student of Mises, refined Böhm-Bawerk's pioneering work when they examined the overriding importance of time in the market process. This sadly neglected matter is obviously relevant to the exploitation charge. Here's Mises in Human Action:

The prices of consumers’ goods are by the interplay of the forces operating on the market apportioned to the various complementary factors cooperating in their production. As the consumers’ goods are present goods, while the factors of production are means for the production of future goods, and as present goods are valued higher than future goods of the same kind and quantity, the sum thus apportioned ... falls behind the present price of the consumers’ goods concerned. This difference is the originary interest.... [Emphasis added.]

The difference between the sum of the prices of the complementary factors of production and the products which emerges ... is an outcome of the higher valuation of present goods as compared with future goods. As production goes on, the factors of production are transformed or ripen into present goods of a higher value. This increment is the source of specific proceeds flowing into the hands of the owners of the factors of production, of originary interest.

He went on:

Originary interest is the ratio of the value assigned to want-satisfaction in the immediate future and the value assigned to want-satisfaction in remote periods of the future. It manifests itself in the market economy in the discount of future goods as against present goods. [Emphasis added.]

In other words, all action takes place in time, including the production of consumer goods, which in an advanced economy takes place through many stages over long periods, each progressively closer to the final consumer-goods stage. It is helpful to think of all the factors of production as unfinished consumer goods to some degree. The capitalist pays factor owners in the present to combine their labor, land, and capital goods to advance the "ripening" of the factors into future finished consumer goods. Consumption is what the market process is all about. He can do this through free market exchanges because some people more eagerly prefer money sooner, before the goods are finished and sold, rather than later, after the finished goods are sold. Because we prefer money sooner rather than later, present money is discounted against future money. Waiting for a future payment requires a premium, that is, interest; advance payment requires a discount of the future amount.

What looks to the unschooled like exploitation, is not exploitation at all. The workers and landowner must have found the exchange worthwhile or they would not have agreed to it. If the capitalist's vision of the future is wrong and consumers don't like the final product or the asking price, the capitalist is out of luck. He suffers losses. He can't get a refund from the workers and landowners.

In Man, Economy, and State, Rothbard explained the structure of production and the remuneration of the factor owners in much greater detail, drawing on the pioneering work in capital, rent, and interest theory by the American "Austrian" economist, Frank A. Fetter (1863-1949). Joseph Salerno has noted that Rothbard's 1962 treatise was a major original contribution to our economic understanding. Rothbard wrote (all emphasis in the original):

An individual or a group of individuals acting jointly can..., at present, offer to pay money to the owners of land and labor, thus buying the services of their factors. The factors then work and produce the product, which, under the terms of their agreement, belongs to the new class of product-owners. These product-owners have purchased the services of the land and labor factors as the latter have been contributing to production; they [product-owners] then sell the final product to the consumers.

What has been the contribution of these product-owners, or “capitalists,” to the production process? It is this: the saving and restriction of consumption, instead of being done by the owners of land and labor, has been done by the capitalists. The capitalists originally saved, say, 95 ounces of gold which they could have then spent on consumers’ goods. They refrained from doing so, however, and, instead, advanced the money to the original owners of the factors. They paid the latter for their services while they were working, thus advancing them money before the product was actually produced and sold to the consumers.

That is known as a harmony of interests, not exploitation. Diverging time preferences create opportunities for mutual gains from trade.

The capitalists, therefore, made an essential contribution to production. They relieved the owners of the original factors from the necessity of sacrificing present goods and waiting for future goods. Instead, the capitalists have supplied present goods from their own savings (i.e., money with which to buy present goods) to the owners of the original factors. In return for this supply of present goods, the latter contribute their productive services to the capitalists, who become the owners of the product.

Or as he put it elsewhere, "[W]hen a capitalist hires a worker or rents land, he will pay now, not the factor’s full marginal product, but the expected future marginal product discounted by the social rate of time-preference."

Rothbard emphasized that what prompts the capitalist's offer to workers and landowners is the anticipated spread between what he pays now and what he expects to reap when he sells his goods later. That spread is the interest rate. The return is not to capital; it's to waiting. Time and time preference permeate the market process.

Rothbard made a crucial point about the ownership of capital goods that further debunks the exploitation theory:

[T]hese capital goods, it must be stressed, do [the owner] no good whatever. Thus, suppose that a capitalist has already advanced 80 ounces over a period of many months to owners of labor and land in a line of production. He has in his ownership, as a result, a mass of fifth-, fourth-, and third-order capital goods. None of these capital goods is of any use to him, however, until the goods can be further worked on and the final product obtained and sold to the consumer. [My boldface emphasis.]

The capitalist's vulnerability is not to be envied. What does he own? Goods-in-process-of-completion (capital goods), which may require many more stages over a long period before they are ready for the retail shelves—assuming shoppers will want them at the price asked. Consumers have no use for unfinished goods. Rothbard wrote:

Popular literature attributes enormous “power” to the capitalist and considers his owning a mass of capital goods as of enormous significance, giving him a great advantage over other people in the economy. We see, however, that this is far from the case; indeed, the opposite may well be true. For the capitalist has already saved from possible consumption and hired the services of factors to produce his capital goods. The owners of these factors have the money already for which they otherwise would have had to save and wait (and bear uncertainty), while the capitalist has only a mass of capital goods, a mass that will prove worthless to him unless it can be further worked on and the product sold to the consumers.

Another reason the capitalist's revenues might exceed his payments to factor owners is pure entrepreneurial profit. Profit, as opposed to interest, is a confirmation of the entrepreneur's hunch that the market had undervalued the factors of production with respect to consumers' wants. Israel Kirzner, a student of Mises, would say that the entrepreneur has improved market coordination. The entrepreneur might have been wrong and suffered a loss. The future is uncertain. Profits do not last, however, because they attract competitors, who bid up the factor prices and lower the price of the consumer good.

The socialists have it wrong. What they see is not exploitation. Rather, it is all-pervasive time, time preference, interest, and risk tolerance.

Crucial Economic Calculation

"The advocates of totalitarianism consider 'capitalism' a ghastly evil, an awful illness that came upon mankind. In the eyes of Marx it was an inevitable stage of mankind’s evolution, but for all that the worst of evils; fortunately salvation is imminent and will free man forever from this disaster. In the opinion of other people it would have been possible to avoid capitalism if only men had been more moral or more skillful in the choice of economic policies. All such lucubrations have one feature in common. They look upon capitalism as if it were an accidental phenomenon which could be eliminated without altering conditions that are essential in civilized man’s acting and thinking. As they neglect to bother about the problem of economic calculation, they are not aware of the consequences which the abolition of the monetary calculus is bound to bring about. They do not realize that socialist men for whom arithmetic will be of no use in planning action, will differ entirely in their mentality and in their mode of thinking from our contemporaries. In dealing with socialism, we must not overlook this mental transformation, even if we were ready to pass over in silence the disastrous consequences which would result for man’s material well-being."

—Ludwig von Mises, Human Action

Which Came First: The Individual or the Group?

"It is illusory to believe that it is possible to visualize collective wholes. They are never visible; their cognition is always the outcome of the understanding of the meaning which acting men attribute to their acts. We can see a crowd, i.e., a multitude of people. Whether this crowd is a mere gathering or a mass (in the sense in which this term is used in contemporary psychology) or an organized body or any other kind of social entity is a question which can only be answered by understanding the meaning which they themselves attach to their presence. And this meaning is always the meaning of individuals. Not our senses, but understanding, a mental process, makes us recognize social entities.

"Those who want to start the study of human action from the collective units encounter an insurmountable obstacle in the fact that an individual at the same time can belong and—with the exception of the most primitive tribesmen—really belongs to various collective entities. The problems raised by the multiplicity of coexisting social units and their mutual antagonisms can be solved only by methodological individualism."

—Ludwig von Mises, Human Action

The Socialist Spirit

"Of course, not Marxists alone, but most of those who emphatically declare themselves anti-Marxists, think entirely on Marxist lines and have adopted Marx’s arbitrary, unconfirmed and easily refutable dogmas. If and when they come into power, they govern and work entirely in the socialist spirit."

—Ludwig von Mises, Socialism, Preface to 2nd German edition