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The “Battle of Berkeley” Is a Bad Sign for Liberty – Article by Dan Sanchez

The “Battle of Berkeley” Is a Bad Sign for Liberty – Article by Dan Sanchez

The New Renaissance Hat
Dan Sanchez
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Just how close are we to repeating the political violence of interwar Germany? How bad is it, and how bad can it get?

Populist-right demonstrators and radical-left protesters clashed in Berkeley, California, on April 16, 2017. The belligerents used such weapons as fists, feet, rocks, pepper spray, smoke bombs, barricades, and a trash dumpster/battering ram. There was one reported non-lethal stabbing.

At one point, the left-radicals ill-advisedly threw a smoke bomb while they themselves were standing downwind. The smoke wafted back in their faces causing them to flee. Today, right-populists are crowing online about having “won the Battle of Berkeley,” because, after a concerted charge, they managed to seize and hold a major downtown street.

Berkeley has become a favorite battleground for these budding political street warriors. Two months ago, a scheduled speech at UC Berkeley by Alt-Right darling Milo Yiannopoulos speech was canceled due to riots, arson, and assaults on Milo-supporters. Weeks later, a “March 4 Trump” was held off-campus in Berkeley, and this too was attacked by militant leftists, using metal pipes, baseball bats, two-by-fours, and bricks.

Yesterday, the occasion was another pro-Trump rally in Berkeley celebrating “Patriot’s Day.” As usual, it was the leftists who were the main instigators. That doesn’t alter the fact that these gradually-escalating street conflicts signal a two-pronged threat to liberty.

Nationalists Versus Communists

The brawls seem like a half-hearted, semi-play-acting reenactment of the street fights of Germany’s Spartacist uprising of 1919. The “Spartacists” were Marxist insurgents who sought to overthrow the new Weimar government, take power themselves, and expropriate the bourgeoisie. The government, which itself was made up of milder Marxists, relied on nationalist militias called Freikorps to crush the uprising. Then, as yesterday, nationalists trounced communists in the streets. Yet this did not yield a happy ending.

As Ludwig von Mises points out in Omnipotent Government, when the Freikorps first arose, they were modeled after the armed bands of communist revolutionaries that they would later suppress.

“The November Revolution brought a resurgence of a phenomenon that had long before disappeared from German history. Military adventurers formed armed bands or Freikorps and acted on their own behalf. The communist revolutionaries had inaugurated this method, but soon the nationalists adopted and perfected it. Dismissed officers of the old army called together demobilized soldiers and maladjusted boys and offered their protection to the peasants menaced by raids of starving townsfolk and to the population of the eastern frontiers suffering from Polish and Lithuanian guerrilla invasions. The landlords and the farmers provided them in return for their services with food and shelter.”

The Freikorps, like today’s budding right-wing street militias, arose in response to leftist aggression. That didn’t make them any less dangerous. Mises continued:

“When the condition which had made their interference appear useful changed these gangs began to blackmail and to extort money from landowners, businessmen, and other wealthy people. They became a public calamity. The government did not dare to dissolve them. Some of the bands had fought bravely against the communists. Others had successfully defended the eastern provinces against the Poles and Lithuanians. They boasted of these achievements, and the nationalist youth did not conceal their sympathy for them.”

The Road to Nuremberg

These Freikorps were then integrated into the army, and the problem of rival armed bands subsided for a while, although it did not disappear. As Mises wrote:

“War and civil war, and the revolutionary mentality of the Marxians and of the nationalists, had created such a spirit of brutality that the political parties gave their organizations a military character. Both the nationalist Right and the Marxian Left had their armed forces. These party troops were, of course, entirely different “from the free corps formed by nationalist hotspurs and by communist radicals. Their members were people who had their regular jobs and were busy from Monday to Saturday noon. On weekends they would don their uniforms and parade with brass bands, flags, and often with their firearms. They were proud of their membership in these associations but they were not eager to fight; they were not animated by a spirit of aggression. Their existence, their parades, their boasting, and the challenging speeches of their chiefs were a nuisance but not a serious menace to domestic peace.

After the failure of the revolutionary attempts of Kapp in March, 1920, that of Hitler and Ludendorff in November, 1923, and of various communist uprisings, of which the most important was the Holz riot in March, 1921, Germany was on the way back to normal conditions. The free corps and the communist gangs began slowly to disappear from the political stage. They still waged some guerrilla warfare with each other and against the police. But these fights degenerated more and more into gangsterism and rowdyism. Such riots and the plots of a few adventurers could not endanger the stability of the social order.” [Emphasis added.]

But then, feeling threatened by the continued existence and activity of nationalist armed bands, the embattled socialist government created a new armed force consisting of loyal Marxists. As Mises explains, this caused many in the public to throw their support behind Adolf Hitler’s personal militia, the Nazi Storm Troopers.

“But these Storm Troopers were very different from the other armed party forces both of the Left and of the Right. Their members were not elderly men who had fought in the first World War and who now were eager to hold their jobs in order to support their families. The Nazi Storm Troopers were, as the free corps had been, jobless boys who made a living from their fighting. They were available at every hour of every day, not merely on weekends and holidays. It was doubtful whether the party forces—either of the Left or the Right—would be ready to fight when seriously attacked. It was certain that they would never be ready to wage a campaign of aggression. But Hitler’s troops were pugnacious; they were professional brawlers. They would have fought for their Führer in a bloody civil war if the opponents of Nazism had not yielded without resistance in 1933.” [Emphasis added.]

And the rest is History Channel programming. Once in power, the nationalist brawlers proved to be just as deadly foes to liberty as the communists they trounced in the streets and drove from power.

It’s Never Too Early to De-Escalate

We’re a long way from Weimar. The Alt-Knight and his merry band are a far cry from the brutal Storm Troopers. And the black-clad waifs of Antifa are a pale shadow of the homicidal Spartacists. In fact, there is distinctly ridiculous and even comical vibe to the scuffles, which the late, great Will Grigg aptly described as “political cosplay.” But these things have a way of escalating. The foot soldiers of the Spartacists and Storm Troopers may have gone through a harmless, posturing early phase as well. As Grigg wrote:

“…through political cosplay people can become habituated into thinking in eliminationist terms: The “other side” is not merely gravely mistaken, but irreducibly evil, and since reason is unavailing the only option that remains is slaughter.”

He also warned:

Unlike the wholesale violence that our country saw in the late 1960s and early 1970s, contemporary street-level political conflict is heavy on posturing and pretense and light on actual bloodshed – but it does whet degenerate appetites that will grow to dangerous proportions as times get leaner and meaner.

Just as the right-populists were not content to accept their “defeat” in the First Battle of Berkeley, the left-radicals will not just lick their wounds after the Third Battle of Berkeley. The right is reporting chatter among the left of bringing firearms next time. Such militarization will only breed more polarization and radicalization on the left and the right, both which are driven by a desire to wield state power. And it will provide the police state with a welcome excuse to further assault our already-decimated liberties.

The left-wing combatants claim to be anarchists, and yet are furthering centralized power. The right-wing combatants claim to be for liberty, and yet are putting liberty in danger. If these conflicts continue to escalate, no matter which side “wins,” liberty will lose.

EDIT (4/18/17): Some of the interesting responses to this article made me realize one of the key problems. Too many people are more anti-leftists and anti-communists than they are anti-leftism and anti-communism. For them, it’s more about the enemy tribes that hold pernicious ideas than the pernicious ideas themselves. This breeds a tribal warfare mentality that will only make things worse.

dan-sanchez

Dan Sanchez

Dan Sanchez is Managing Editor of FEE.org. His writings are collected at DanSanchez.me.

This article was originally published on FEE.org and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author. Read the original article.

Where Does the Term “Libertarian” Come From Anyway? – Article by Jeffrey A. Tucker

Where Does the Term “Libertarian” Come From Anyway? – Article by Jeffrey A. Tucker

The New Renaissance HatJeffrey A. Tucker
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The word “libertarian” has gained new prominence due to the strange politics of our time. According to Google Trends, its use as a search term in the US is at a 10-year high.

It’s long. It’s awkward. It always needs explaining. In America, it’s a word for both a party and an ideology. And the wars over what it actually means never end.

What I haven’t seen is a serious investigation into the modern origins of the use of the term that might allow us to have a better understanding of what it means.

Thanks to FEE’s archiving project, we now have a better idea. As it turns out, libertarianism is not a strange new ideology with arcane rules and strictures, much less a canon of narrowly prescribed belief. It predates the Libertarian Party’s founding in 1972. The term came into use twenty years earlier to signal a broad embrace of an idea with ancient origins.

To be sure, if we go back a century, you will find a 1913 book Liberty and the Great Libertarians by Charles Sprading (reviewed here). It includes biographies of many classical liberals but also some radicals in general who didn’t seem to have much affection for modern commercial society. It’s a good book but, so far as I can tell, the use of the term in this book is an outlier.

Apart from a few isolated cases – H.L. Mencken had described himself as a libertarian in 1923 –  the term laid dormant on the American scene for the following 50 years.

The Liberty Diaspora

Toward the end of World War II, a small group of believers in liberty set out to fight and reverse the prevailing ideological trends in media, academia, and government. During the war, the government controlled prices, wages, speech, and industrial production. It was comprehensive planning – a system not unlike that practiced in countries the US was fighting.

A flurry of books appeared that urged a dramatic change. In 1943, there was Rose Wilder Lane’s Discovery of Freedom, Isabel Paterson’s The God of the Machine, and Ayn Rand’s Fountainhead. In 1944, there was F.A. Hayek’s Road to Serfdom, Ludwig von Mises’s Omnipotent Government, and John T. Flynn’s As We Go Marching.

These powerful works signaled that it was time to counter the prevailing trend toward the “planned society,” which is why Leonard Read established the Foundation for Economic Education in 1946. It was the first institute wholly dedicated to the cause of human freedom.

As of yet, no word was used to describe the ideological outlook of this group of thinkers. To understand why, you have to put yourself back in the confusing period in question. The war had entrenched the New Deal and dealt a serious blow to those who wanted the US to stay out of foreign entanglements. The political resistance to the New Deal was completely fractured. The attack on Pearl Harbor had driven the anti-war movement into hiding. The trauma of war had changed everything. The pro-liberty perspective had been so far driven from public life that it had no name.

Resisting Labels

Most of these dissident thinkers would have easily described themselves as liberals two decades earlier. But by the mid-1930s, that word had been completely hijacked to mean its opposite. And keep in mind that the word “conservative” – which had meaning in the UK (referring to the Tories, who were largely opposed to classical liberalism) but not in the US – had yet to emerge: Russell Kirk’s The Conservative Mind wasn’t published until 1953.

In addition, Leonard Read resisted labeling the pro-freedom ideology, and for good reason. An ideological system with a name seems also to indicate a plan for how society ought to be managed and what a nation ought to strive for in detail. What he and others favored was exactly the opposite: the freedom for each individual to discover the right way through an emergent process of social evolution that never stops. There was no end state. There was only a process. They rightly believed labels distract from that crucial point.

We Need a Word

And yet, people will necessarily call you something. The problem of what that would be vexed this first generation after the war, and the struggle was on to find the right term. Some people liked the term “individualist,” but that has the problem of de-emphasizing the thriving sense of community, and the vast and intricate social cooperation, that result from a free society.

Kirk’s book on “conservatism” appeared in 1953, but this term frustrated many people who believed strongly in free markets. Kirk had hardly mentioned economics at all, and the traditionalism he highlighted in the book seemed to exclude the classical liberal tradition of Hume, Smith, Jefferson, and Paine. The book also neglected the contributions of 20th century advocates of freedom, who had a new consciousness concerning the grave threats to liberty from both the right and left.

In 1953, Max Eastman wrote a beautiful piece in The Freeman that discussed the reversal of the terms left and right over the course of the century, and deeply regretted the loss of the term liberalism. Among other suggestions, Eastman proposed “New Liberalism” to distinguish them from the New Deal liberals. But in addition to being awkward in general, the phrase had a built-in obsolescence. He further toyed with other phrases such as “conservative liberal,” but that had its own problems.

We are Liberals but the Word Is Gone

They were all struggling with the same problem. These people were rightly called liberals. But the term liberalism was taken from them, and they were now homeless. They knew what they believed but had no memorable term or elevator pitch.

A solution was proposed by Dean Russell, a historian of thought and a colleague of Read’s who had translated many works of Frédéric Bastiat. In May 1955, he wrote the seminal piece that proposed that the term libertarian be revived:

Many of us call ourselves “liberals.” And it is true that the word “liberal” once described persons who respected the individual and feared the use of mass compulsions. But the leftists have now corrupted that once-proud term to identify themselves and their program of more government ownership of property and more controls over persons. As a result, those of us who believe in freedom must explain that when we call ourselves liberals, we mean liberals in the uncorrupted classical sense. At best, this is awkward and subject to misunderstanding.

Here is a suggestion: Let those of us who love liberty trade-mark and reserve for our own use the good and honorable word “libertarian.””

So there we have it: libertarian is a synonym for what was once called liberal. It meant no more and it meant no less. It is not a new system of thought, a new ideology, a new revelation of some highly rarified political outlook with detailed answers to all of life’s problems. It was proposed as nothing more than a term to describe a tradition of thought dating back hundreds of years in the West and with even ancient origins.

Liberalism = Libertarianism

Liberalism is a term that describes the general conviction that freedom is the best solution to the whole problem of social interaction. Put another way, liberalism celebrates the primacy of freedom and rejects power and central authority as both ineffective and morally corrupting.

Russell then goes into specifics. Libertarianism is “the opposite of an authoritarian. Strictly speaking, a libertarian is one who rejects the idea of using violence or the threat of violence—legal or illegal—to impose his will or viewpoint upon any peaceful person.”

A libertarian believes government should “leave people alone to work out their own problems and aspirations.”

A libertarian, continued Russell, “respects the right of every person to use and enjoy his honestly acquired property—to trade it, to sell it, or even to give it away—for he knows that human liberty cannot long endure when that fundamental right is rejected or even seriously impaired.” A libertarian “believes that the daily needs of the people can best be satisfied through the voluntary processes of a free and competitive market” and “has much faith in himself and other free persons to find maximum happiness and prosperity in a society wherein no person has the authority to force any other peaceful person to conform to his viewpoints or desires in any manner. In summary: “The libertarian’s goal is friendship and peace with his neighbors at home and abroad.”

Chodorov Weights In

He must have made a persuasive case. Frank Chodorov came on board, making exactly the same point in an essay in National Review, printed on June 20, 1956:

“The bottle is now labeled libertarianism. But its content is nothing new; it is what in the nineteenth century, and up to the time of Franklin Roosevelt, was called liberalism — the advocacy of limited government and a free economy. (If you think of it, you will see that there is a redundancy in this formula, for a government of limited powers would have little chance of interfering with the economy.) The liberals were robbed of their time-honored name by the unprincipled socialists and near socialists, whose avidity for prestige words knows no bounds. So, forced to look for another and distinctive label for their philosophy, they came up with libertarianism — good enough but somewhat difficult for the tongue.”

Read Comes Around

Even Leonard Read himself came around to using the term. He used it freely in his famous 1956 essay “Neither Left Nor Right.” Then in 1962, Read wrote The Elements of Libertarian Leadership. He again made the point that a libertarian is no more or less than a substitute for the term liberal:

“The term libertarian is used because nothing better has been found to replace liberal, a term that has been most successfully appropriated by contemporary authoritarians. As long as liberal meant liberation from the authoritarian state, it was a handy and useful generalization. It has come to mean little more than state liberality with other people’s money.”

A Big Tent

There you have it. The content is nothing new. It is a broad umbrella of people who put the principle of freedom first. In its inception, libertarianism included: constitutionalists, believers in limited government, objectivists, anarchists, localists, agorists, pacifists, brutalists, humanitarians, and maybe monarchists too. It included deontologists, consequentialists, and empiricists.

The term was designed to apply to everyone who was not a partisan of central planning. It did not refer to a narrow doctrine but to a general tendency, exactly the same as liberalism itself. And that liberal principle was that individuals matter and society needs no overarching managerial authority to work well.

Nor does it need to refer only to people who have a consistent and comprehensive worldview. Let’s say you want lower taxes, legal pot, and peace, and these are the issues that concern you. It strikes me that you can rightly call yourself a libertarian, regardless of what you might think on other issues once pressed.

For this reason, the endless fights over who is and who isn’t a libertarian are beside the point. There are better and worse renderings, better and worse arguments, better and worse implications, and it is up to all of us to do the hard work of discovering what those are. Whatever the results, no one can lay exclusive claim to the term. There are as many types of libertarians as there are believers in liberty itself.

To be sure, there are still plenty of problems with the term. It is still too long, and it is still too awkward. It will do for now, but notice something: the left-wing partisans of central planning don’t seem to embrace the word “liberalism” as they once did. They prefer the term “progressive” – a misnomer if there ever was one!

Does that leave the word liberal on the table for the taking? Maybe. That would be some beautiful poetry. I say again, let’s take back the word “liberal”.

Jeffrey Tucker

Jeffrey Tucker

Jeffrey Tucker is Director of Content for the Foundation for Economic Education and CLO of the startup Liberty.me. Author of five books, and many thousands of articles, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.  Follow on Twitter and Like on Facebook. Email

Bring Back Classical Feminism – Article by Eileen L. Wittig

Bring Back Classical Feminism – Article by Eileen L. Wittig

The New Renaissance HatEileen L. Wittig
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As a college-educated, employed young woman with Opinions, my conversations and social media posts should be filled with angry tirades against The Oppressive Male and strong words demanding Women’s Rights, preferably at the expense of Men’s Rights. Right?

How sexist of you to assume so. Or it would be, if third-wave feminism hadn’t declared that anyone without those opinions is himself (or herself, to be fair) sexist.

Flipping the Tables

Feminism, as with all movements, has become more and more radical with each wave. Members see themselves go from -5 to 0 to break even, and they decide they want to try to get to +5. Sometimes this escalation is good; or, at least, not harmful. But when it progresses to the point where it commits all the wrongdoings it was originally meant to protest, it becomes a problem.

Feminism has gone from being a movement for equality, to a movement for supremacy. What was feminism, originally? It was a movement that advanced “the radical notion that women are people”: individuals just as deserving of life, liberty, and property as men.

What does feminism mean, now? It is a movement that advocates the radical notion that men are lesser than women as people; that men are less deserving of life, liberty, and property than women; that they are entitled to things just for being women; that one sex is better than the other, just ‘cause. It has gone from being a movement for equality, to a movement for supremacy.

This is stupid.

It seems counterintuitive that I, a woman, who would profit from this inequality, thinks that this is stupid. But I don’t profit. No one does. Moreover, it makes my life complicated, and the whole thing is insulting.

The Modern Manifestations

According to third-wave feminism, I should want to be paid more for simply being a woman; possibly to make up for the many years that women were paid less than men as a matter of course. But the whole idea of being given a raise or promotion based on gender is insulting to my abilities as a person (yes, and as a woman).

I do not need to be given that promotion thanks to something I can’t even help. I can earn it, thank you very much. My brain is more than capable; I don’t need the physical attributes of my double-X chromosomes to do it for me.

Third-wave feminists intimidate me. Just as men do, I get a little nervous when a woman emphatically identifies herself as a feminist to me. I spend the rest of the time waiting to be accused of hating my sex, being a barnacle on the wheel of progress, and just generally being a horrible example of womanhood.

I’m a feminist, but I’m a “classical feminist” – I am all for voting rights and equal pay and the cultural destruction of everyday sexism. I get mad when a man praises me in a voice dripping with patronage, all but resisting the urge to vocalize the implied clause, “…for a girl.”

I’m tired of the double standard we have for sexual promiscuity, one that blames and even attacks women while men are excused for “just being men.” But don’t lower your expectations for me to the standards for men – raise theirs to mine!

I ardently want real equality between the sexes. But to third-wavers, that often does not make me feminist enough.

Third-wave feminists intimidate men, too. That’s the point. But then what happens? Men stop stepping up. They back off, they stop trying, they become enfeebled. Suddenly humanity’s “other half” becomes less productive, less interesting, and more pathetic. Women, feminists included, then have to contribute much more heavily to the economy and society to support the weaker, less productive half they created. They would hate that. So would I.

Men descending to a lower level does not raise women to a higher one: quite the opposite.

Third-wave feminism says I should hate men. I’m supposed to think they’re big, stupid oafs. I don’t. I think men are wonderful. I have a lot of close male friends who I would trust with my life if I had to. I don’t understand them all the time, but I don’t understand women all the time either. I don’t even understand myself all the time. But I don’t hate myself.

Peaceful Feminism

As Ludwig von Mises said in 1922, when my classical feminist forbears were paving the way for their radical followers, “So far as Feminism seeks to adjust the legal position of woman to that of man, so far as it seeks to offer her legal and economic freedom to develop and act in accordance with her inclinations, desires, and economic circumstances – so far it is nothing more than a branch of the great liberal movement, which advocates peaceful and free evolution.”

Fighting for women’s equality is a wonderful thing. But it only works if it’s fighting for equality, not total dominance, to the detriment of everyone else, without earning it. It’s a fine line that needs to be walked in every aspect of life. We need to get used to doing it, but it is possible.

Eileen_WittigEileen L. Wittig

Eileen Wittig is the Associate Editor at the Foundation for Economic Education.

This article was originally published on FEE.org. Read the original article.

How Viennese Culture Shaped Austrian Economics – Article by Erwin Dekker

How Viennese Culture Shaped Austrian Economics – Article by Erwin Dekker

The New Renaissance HatErwin Dekker
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Schools of thought are frequently named after their country or place of origin. The Chicago School, the Frankfurt School, and the Scottish Enlightenment are just some of the many examples. The geographical place is a simple shorthand for something that would otherwise be difficult to specify and name. That is also the case for the Austrian School of Economics. Or at least that is what we commonly believe. Austrian is nothing more than a shorthand for a school of economics that focuses on market process rather than outcomes, emphasizes the subjective aspects of economic behavior, and is critical of attempts to plan or regulate economic processes. Sure it originated in Austria, but it is largely neglected there today, and currently the school lives on in some notable economics departments, research centers, and think tanks in the United States. The whole ‘Austrian’ label is thus largely a misnomer, a birthplace, but nothing else.

But what if Austrian, or more specifically Viennese, culture is essential to understanding what makes this school of thought different? What if the coffeehouse culture of the Viennese circles, the decline of the Habsburg Empire, the failure of Austrian liberalism, the rise of socialism and fascism, and the ironic distance at which the Viennese observed the world, are all essential to understanding what the school was about? It would be exciting to discover that the Vienna of Gustav Mahler, Ludwig Wittgenstein, Sigmund Freud, Gustav Klimt, and Adolf Loos, would also be the Vienna of Carl Menger, Ludwig von Mises, and Friedrich Hayek. And if that is so, how would that change how we think about this school and about the importance of cultural contexts for schools of thoughts more generally?

That is the subject of my recent book The Viennese Students of Civilization (Cambridge University Press, 2016). It demonstrates that the literature, art, and cultural atmosphere are all essential ingredients of Austrian economics. The Viennese circles, of which the most famous was the Vienna Circle or Wiener Kreis, are the place where this type of economics was practiced and in which it came to maturity in the interwar period.

The hands-off attitude first practiced at the Viennese Medical School, where it was called therapeutic skepticism, spread among intellectuals. They dissected a culture which was coming to an end, without seemingly worrying too much about it. As one commentator wrote about this attitude “nowhere is found more resignation and nowhere less self-pity.”¹ One American proponent of the Viennese medical approach even called it the ‘laissez-faire’ approach to medicine.² The therapeutic skepticism, or nihilism as the critics called it, bears strong resemblance to the Austrian school’s skepticism of the economic cures propounded by the government. Some of the Austrian economists, for instance, have the same ironic distance, in which the coming of socialism is lamented, but at the same time considered inevitable. That sentiment is strongest in Joseph Schumpeter. But one can also find it in Ludwig von Mises, especially in his more pessimistic writings. In 1920, for example, he writes: “It may be that despite everything we cannot escape socialism, yet whoever considers it an evil must not wish it onward for that reason.”³

That same resignation, however, is put to the test in the 1930’s when Red Vienna, the nickname the city was given when it was governed by the Austro-Marxists, becomes Black Vienna, the nickname it was given under fascism. The rise of fascism posed an even greater threat to the values of the liberal bourgeois, and at the same time it demonstrated that socialism might not be inevitable after all. One of my book’s major themes is the transformation from the resigned, and at times fatalistic, study of the transformation of the older generation, to the more activist and combatant attitude of the younger generation. Friedrich Hayek, Karl Popper, Peter Drucker as well as important intellectual currents in Vienna start to oppose, and defend the Habsburg civilization from its enemies. That is one of the messages of Freud’s Civilization and its Discontents, of Hermann Broch’s novel The Death of Virgil, of Malinowski’s Civilization and Freedom, of Hayek’s The Road to Serfdom, Drucker’s The End of Economic Man, and of course Popper’s The Open Society and its Enemies. It is also the message of the most famous book of the period on civilization The Civilizing Process by the German sociologist Norbert Elias. These intellectuals fight the fatalism and the acceptance of decline, and instead start to act as custodians or defenders of civilization.

In the process the relationship between natural instincts, rational thought, and civilization undergoes a major transformation. Civilization — our moral habits, customs, traditions, and ways of living together — is no longer believed to be a natural process or a product of our modern rational society. Rather, it is a cultural achievement in need of cultivation and at times protection. Civilization is a shared good, a commons, which can only be sustained in a liberal culture, and even there individuals will feel the ‘strain of civilization’ as Popper put it. That is the strain of being challenged, of encountering those of different cultures, and of carrying the responsibility for our own actions. Hayek adds the strain of accepting traditions and customs which we do not fully understand (including the traditions and customs of the market). Similar arguments are made by Freud and Elias.

If that is their central concern then the importance and meaning of their contributions is much broader than economics in any narrow sense. That concern is the study, cultivation and, when necessary, protection of their civilization.

To some this might diminish the contributions of the Austrian school of economics for they might feel that they were responding to a particular Viennese experience. The respected historian Tony Judt for example has claimed that: “the Austrian experience has been elevated to the status of economic theory [and has] come to inform not just the Chicago school of economics but all significant public conversation over policy choices in the contemporary United States.”⁴ He maximizes the distance between us and them, saying that they were immigrants and foreigners with a different experience than ours. But that response only makes sense if the alternative is some disembodied truth, outside of historical experience.

My book, to the contrary, argues that what is valuable, interesting, and of lasting value in the Austrian school is precisely its involved, engaged approach in which economics is one way of reflecting on the times. And those times might be more similar to ours than you might think, as the great sociologist Peter Berger has argued. Troubled by mass migration, Vienna experienced populist politics. The emancipation of new groups lead to new political movements which challenged the existing rational way of doing politics. A notion of liberal progress which had seemed so natural during the nineteenth century could no longer be taken for granted in fin-de-siècle and interwar Vienna. That foreign experience, might not be so foreign after all.

Viennese-Students-Civ

For more information on my book, The Viennese Students of Civilization: The Meaning and Context of Austrian Economics Reconsidered, click here.


Erwin Dekker is a postdoctoral fellow for the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics. He is assistant professor in cultural economics at the Erasmus University in Rotterdam, the Netherlands.


References

1. Edward Crankshaw. (1938). Vienna: The Image of a Culture in Decline, p. 48.
2. Maurice D. Clarke. (1888). “Therapeutic Nihilism.” Boston Medical and Surgical Journal 119 (9), p. 199.
3. Ludwig von Mises. (1920). Nation, State, and Economy. p. 217.
4. Tony Judt. (2010). Ill Fares The Land. p. 97–98.

Why Modern Luddites Are Attacking Uber Drivers – Article by Mateusz Machaj

Why Modern Luddites Are Attacking Uber Drivers – Article by Mateusz Machaj

The New Renaissance HatMateusz Machaj
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Earlier this year, a number of Uber cars in Poland came under attack by a group of vandals who were likely taxi drivers. In general, these types of vandalism have a long tradition in human history and have contributed to keeping populations’ general living standards at very low levels.

Attacks on Uber drivers are simply the latest chapter in a long story of efforts to intimidate and destroy innovators who are moving markets and societies in new and unfamiliar directions.

Reactions to Early Machines
For a very long time, separation of grain from the chaff was done in a very primitive manner. The process took weeks, involved hard working men, hard working women feeding them, and also children working as additional helpers. Finally, someone invented a threshing machine that allowed farmers to get rid of all this hard work: the machine could do the job much faster with less physical labor involved.

The change happened contrary to what many historical books claim: the move to threshing machines did not occur because of the patent system put in place 150 years before the change. It happened because social and political forces were too weak to stop it from happening.

Beginning in the eighteenth century in Europe, the entrepreneurial class was growing. They were a group of small profit-driven innovators interested in selling various products, and beating their competitors to markets. This “Great Change” was driven forward by many cultural, religious, political, legal, and technological factors.

At first, threshing machines were very imperfect. They didn’t always work well, and they also were expensive. There was a lot of room for improvements, and for making them better, faster, and cheaper. As they were slowly improved, it quickly became apparent the new machines were more efficient than the old manual methods. It was only a matter of time until someone would realize that steam engines could be combined with the threshing machines.

Not surprisingly, threshing machines were not welcomed by everyone. Swing Riots flared up and the Luddite movement attempted to crush technological innovation. Despite such obstacles, the entrepreneurs won out, paving the way for the future chain of market innovations, well symbolized by the modern farmer sitting in the modern air-conditioned tractor (with a good stereo system). Over the past two hundred years, agricultural workers were reduced from more than 80 percent of workers to less than 5 percent.

Economic Growth and Social Change
One of the big mysteries of human history is the question of why rapid technological and innovative growth started only around the nineteenth century. Many new ideas and technological changes were present for ages (and invented centuries before). Other cultures introduced many new innovative ideas as well.

Some steam engines were even being used in ancient times. They were applied in narrow places, however, due to social and political circumstances.

One early example of political resistance is related to us through the Roman Emperor Vespasian’s opposition to new labor saving innovations. Faced with the prospect of replacing workers with machines, Vespasian reputedly said: “You must let me feed my poor commons.”

Vespasian’s reaction is understandable; it is hard to predict what will happen in response to innovations that make certain job skills obsolete. And it’s not just the workers who fear the change. The ruling class, faced with an idle and unemployed population might also fear social upheaval.

The words of Peter Green summarize many of these concerns:

The ruling class were scared, as the Puritans said, of Satan finding work for idle hands to do. One of the great things about not developing the source of energy that did not depend on muscle power was the fear of what the muscles might get up to if they weren’t kept fully employed. The sort of inventions that were taken up and used practically were the things that needed muscle power to start with, including the Archimedean screw. On the other hand, consider that marvelous box gear of Hero’s: it was never used. That would have been a real conversion of power. What got paid for? The Lagids tended to patronize toys, fraudulent temple tricks in large quantities, and military experiments.

Naturally, human history is complicated and subject to many different factors. Nevertheless, there appears to be some truth in the argument that fixed social and political structure did not favor society open to the widespread adoption of innovation. Otherwise, it is hard to explain why so many new technical discoveries were not applied for so long, even though science and intelligence supplied them centuries before. We had to wait for the new political and social arrangements that either were tolerant of new innovations, or were unable to stop them.

Uber and Beyond
Everywhere we look, we see both the creative and destructive power of innovation. First threshing machine sellers lead to reductions in agricultural employment. Later, tractors killed the threshing machines. Telegraph and railway killed communication systems that relied on horses. Cars destroyed the horse industry. Mass production of textiles destroyed the demand for hand-crafted items. Big stores destroyed smaller shops, now discount shops (in parts of Europe) are destroying big stores. Video rentals hampered the cinema industry, now Netflix and others killed video rentals, while Napster’s success (despite its illegality) predicted a coming end to the old music industry. China’s growth and cheap efficient outsourcing reshaped traditional industries in developed countries. (From an economic perspective there is no difference between hiring cheaper labor or hiring a better machine.)

Dell smashed the traditional computer industry with eliminating many middle men. Ikea did something similar in the furniture industry. The internet destroyed regular newspapers, while Google smashed the marketing industry. Amazon destroys bookstores around the world, while Uber is doing the same with the taxi industry.

Economic progress decreases employments in one place, allows for creation of new ones, even in the service sector. During the process of liquidating employment positions, huge economic development is capable of multiplying per capita production within one generation, positively affecting all social classes.

The current state of affairs is not the end of history. Those companies, innovative today, will be endangered tomorrow. Even Jeff Bezos, creator of Amazon.com, admits Amazon won’t last forever:

Companies have short life spans. … And Amazon will be disrupted one day. I don’t worry about it ’cause I know it’s inevitable. Companies come and go. And the companies that are, you know, the shiniest and most important of any era, you wait a few decades and they’re gone.

Mateusz Machaj, PhD in economics; is a founder of the Polish Ludwig von Mises Institute. He has been a summer fellow at the Ludwig von Mises Institute. He is assistant professor at the Institute of Economic Sciences at the University of Wroclaw.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Mises on Protectionism and Immigration – Article by Matt McCaffrey

Mises on Protectionism and Immigration – Article by Matt McCaffrey

The New Renaissance HatMatt McCaffrey
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The economic causes and consequences of immigration are among the most important issues facing the world today. Both pro- and anti-immigration advocates are digging in their heels, and both sides look increasingly unlikely to relent. Despite the bleak outlook, however, there is still hope for a peaceful and charitable discussion of the economics of immigration.

With that in mind, I want to consider Mises’s thoughts on the topic. For Mises, emigration and immigration are motivated by a simple economic fact: the conditions of production are not the same in all places. Natural and human conditions change constantly, and as a result, the productivity of land, labor, and capital do so as well. Therefore in order to take advantage of changing conditions and produce in the most productive ways possible, people must constantly migrate to those places where their contributions are most valuable (1919, pp. 84–85).

The desire to move from low-productivity to high-productivity regions is for Mises the fundamental explanation for the migration of peoples, and limits overpopulation (1919, p. 85). We can say a country is relatively overpopulated when the same amount of capital and labor is less productive there than in another nation. Reducing overpopulation means reducing this “disproportion” by allowing for the mobility of persons and goods (1919, p. 86). In Mises’s view, mobility was an achievement of liberalism:

The principles of freedom, which have gradually been gaining ground everywhere since the eighteenth century, gave people freedom of movement. … Now, however — as a result of a historical process of the past — the earth is divided up among nations. Each nation possesses definite territories that are inhabited exclusively or predominantly by its own members. Only a part of these territories has just that population which … it would also have under complete freedom of movement, so that neither an inflow or an outflow of people would take place. The remaining territories are settled in such a way that under complete freedom of movement they would have either to give up or to gain population. Migrations thus bring members of some nations into the territories of other nations. That gives rise to particularly characteristic conflicts between peoples. (1919, pp. 86–87)

Mises has two types of conflict in mind: economic and social. Economic conflict occurs because domestic workers resent that fact that immigration bids down their wages:

[I]n territories of immigration, immigration depresses the wage rate. That is a necessary side effect of migration of workers and not, say, as Social Democratic doctrine wants to have believed, an accidental consequence of the fact that the emigrants stem from territories of low culture and low wages. (1919, p. 87)

Social conflict can also arise. Mises emphasized, however, that in most cases immigrants are obliged to give up their national identity and adapt themselves to the culture of their new home. Only in relatively extreme cases, such as European imperialism, was it historically possible for immigrants to replace original inhabitants and their cultures (1919, p. 89). In fact, according to Mises, strong cultures need not resort to government in order to protect themselves:

A nation that believes in itself and its future, a nation that means to stress the sure feeling that its members are bound to one another not merely by accident of birth but also by the common possession of a culture that is valuable above all to each of them, would necessarily be able to remain unperturbed when it saw individual persons shift to other nations. A people conscious of its own worth would refrain from forcibly detaining those who wanted to move away and from forcibly incorporating into the national community those who were not joining it of their own free will. To let the attractive force of its own culture prove itself in free competition with other peoples — that alone is worthy of a proud nation, that alone would be true national and cultural policy. The means of power and of political rule were in no way necessary for that. (1919, pp. 103–04)

However, for Mises, cultural considerations are mainly an aside. In general, he saw conflicts over immigration as being driven mostly by protectionism rather than insurmountable differences in human beings or cultures (1935). In particular, domestic unions support government policies to restrict immigration and thus keep low-wage competition out of the labor market:

Public opinion has been led astray by the smoke-screen laid down by Marxist ideology which would have people believe that the union-organized “proletariat of all lands” have the same interests and that only entrepreneurs and capitalists are nationalistic. The hard fact of the matter — namely that the unions in all those countries which have more favorable conditions of production, relatively fewer workers and thus higher wages, seek to prevent an influx of workers from less favored lands—has been passed over in silence. (1935)

As Per Bylund notes, this is precisely what is happening in Sweden, where unions prevent the integration of immigrants so as to keep wages high. Protectionism at home also breeds protectionism abroad, as foreign nations try to cope with lower productivity through their own regulations designed to counter “unfair” competition on the world market. As economic conditions worsen in those countries where migration is prevented by the state, conflict becomes inevitable:

[People in these countries] will certainly still have just as much cause to complain as before — not over the unequal distribution of raw materials, but over the erection of migration barriers around the lands with more favorable conditions of production. And it may be that one day they will reach the conclusion that only weapons can change this unsatisfactory situation. Thus, we may face a great coalition of the lands of would-be emigrants standing in opposition to the lands that erect barricades to shut out would-be immigrants. … Without the reestablishment of freedom of migration throughout the world, there can be no lasting peace. (1935)

In this way, protectionist policies inevitably lead to conflict and the destruction of human life and welfare. In fact, Mises even hints that government policies aiming to control the movement and employment of individuals suffer from the same problems socialist central planning does (1919, p. 85). At the same time, entrepreneurship and the division of labor are the foundations of a rational social order, and neither is possible without free labor markets.

The main threat facing society then is illiberal ideology, and the only solution to this “principle of violence” is to develop a consistent liberal philosophy to serve as the basis for a peaceful society (1951, p. 49).

Mises believed that any society that rejected the values of liberalism was doomed. In an age of nationalism, protectionism, and war, it’s easy to see what he meant.

Matt McCaffrey is assistant professor of enterprise at the University of Manchester.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Technology Needs Capital To Produce Economic Growth – Article by Frank Shostak

Technology Needs Capital To Produce Economic Growth – Article by Frank Shostak

The New Renaissance Hat
Frank Shostak
June 8, 2015
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In his article “The Big Meh” Paul Krugman complains that despite all the information technology advances the effect so far has been negligible as far as economic growth is concerned.

Krugman writes “That the whole digital era, spanning more than four decades, is looking like a disappointment. New technologies have yielded great headlines but modest economic results. Why? … The answer is that I don’t know — but neither does anyone else.”

Indeed if one looks at the real gross domestic product to the potential real gross domestic product ratio the economy does appear to be hovering below potential with the ratio of 0.977 registered in Q1 this year.

shostak_june 8 300_1

Contrary to Krugman, we suggest that economists such as Ludwig von Mises and Murray Rothbard have provided a clear answer to the issue of technology and economic growth.

In Man, Economy, and State, Rothbard says that technology, while important, must always work through the investment of capital in order to generate economic growth.

On this issue, Rothbard quotes Mises who says,

What is lacking in (underdeveloped counties) is not knowledge of Western technological methods (“know how”); that is learned easily enough. The service of imparting knowledge, in person or in book form, can be paid for readily. What is lacking is the supply of saved capital needed to put the advanced methods into effect.

Most modern theories that emphasize the importance of new ideas and new technologies give the impression that these ideas and technologies have a “life of their own.” Many experts hold that because of the limited amounts of capital and labor, without technological progress, the opportunities for growth will eventually run out.

We Need Funding To Implement New Ideas

Ideas, unlike material inputs, are not themselves scarce. Consequently, it is argued, new ideas for more efficient processes and new products can make continuous growth possible.

We suggest that regardless of how many ideas people have, what matters is whether these ideas can be implemented. What always limits the implementation of various new techniques is the availability of funding. While ideas and new techniques can result in a better use of scarce resources, they can however, do very little without the pool of real savings.

So regardless of how clever we are and regardless of various technological ideas, without an adequate pool of funding nothing will emerge. It is through the expansion in the pool of real savings that an increase in the stock of capital goods is possible. And it is the increase in the capital goods per worker that permits economic growth to emerge.

To Get More Funding, We Need Savings

Obviously, new ideas and new technology can be introduced during the production of new capital goods (i.e., new technology) and will be imbedded in the capital goods stock. The crux of the matter however, is that capital goods cannot emerge without a prior increase in the pool of funding or pool of real savings.

Take, for instance, a baker John who produced ten loaves of bread. He consumes two loaves of bread whilst the other two loaves — his real savings — he employs to purchase a new part to improve his oven. With a better oven he can now raise the output of bread to twenty loaves. If he still consumes only two loaves, then with a larger savings (now stands at eighteen loaves) he can enhance further his oven by introducing new parts, which will enable the introduction of new technology. Note that all this is made possible on account of real savings.

We suggest that despite new technologies, a major impediment to economic growth has been the relentless central bank tampering with financial markets.

Since 2008 this tampering was made manifest in the extremely loose monetary policy of the Fed that resulted in the massive monetary expansion of the Fed’s balance sheet and the lowering of interest rates to almost nil.

These policies have been responsible for a severe erosion of the pool of real savings and thus a weakening of the process of capital formation. This in turn has undermined real economic growth notwithstanding new information technology.

For Krugman and his followers savings is bad news — it is seen as less demand — hence one shouldn’t be surprised that Krugman is puzzled as to why new ideas haven’t manifested in a more robust economic growth. Contrary to Krugman, boosting so-called aggregate demand whilst undermining the capital formation process, and hence the ability to produce goods and services, cannot strengthen economic growth over time. In fact this way of thinking results in the notion that something can be generated out of nothing.

Frank Shostak is an adjunct scholar of the Mises Institute and a frequent contributor to Mises.org. His consulting firm, Applied Austrian School Economics, provides in-depth assessments and reports of financial markets and global economies.

This article was originally published by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.

Why Do We Celebrate Rising Home Prices? – Article by Ryan McMaken

Why Do We Celebrate Rising Home Prices? – Article by Ryan McMaken

The New Renaissance Hat
Ryan McMaken
May 26, 2015
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In recent years, home price indices have seemed to proliferate. Case-Shiller, of course, has been around for a long time, but over the past decade, additional measures have been marketed aggressively by Trulia, CoreLogic, and Zillow, just to name a few.

Measuring home prices has taken on an urgency beyond the real estate industry because for many, home price growth has become something of an indicator of the economy as a whole. If home prices are going up, it is assumed, “the economy” must be doing well. Indeed, we are encouraged to relax when home prices are increasing or holding steady, and we’re supposed to become concerned if home prices are going down.

This is a rather odd way of looking at the price of a basic necessity. If the price of food were going upward at the rate of 7 or 8 percent each year (as has been the case with houses in many markets in recent years) would we all be patting ourselves on the back and telling ourselves how wonderful economic conditions are? Or would we be rightly concerned if incomes were not also going up at a similar rate? Would we do the same with shoes and clothing? How about with education?

With housing, though, increases in prices are to be lauded, we are told, even if they outpace wage growth.

We’re Told to Want High Home Prices

But in today’s economy, if home prices are outpacing wage growth, then housing is becoming less affordable. This is grudgingly admitted even by the supporters of ginning up home prices, but the affordability of housing takes a back seat to the insistence that home prices be preserved at all costs.

Behind all of this is the philosophy that even if the home-price/household-income relationship gets out of whack, most problems will nevertheless be solved if we can just get people into a house. Once someone becomes a homeowner, the theory goes, he’ll be sitting on a huge asset that (almost) always goes up in price, meaning that any homeowner will increase in net worth as the equity in his home increases.

Then, the homeowner can use that equity to buy furniture, appliances, and a host of other consumer goods. With all that consumer spending, the economy takes off and we all win. Rising home prices are just a bump in the road, we are told, because if we can just get everyone into a home, the overall benefit to the economy will be immense.

Making Homes Affordable with More Cheap Debt

Not surprisingly, we find a sort of crude Keynesianism behind this philosophy. In this way of thinking, the point of homeownership is not to have shelter, but to acquire something that will encourage more consumer spending. In other words, the purpose of homeownership is to increase aggregate demand. The fact that you can live in the house is just a fringe benefit. This macro-obsession is part of the reason why the government has pushed homeownership so aggressively in recent decades.

The fly in the ointment, of course, is if home prices keep going up faster than wages — ceteris paribus — fewer people will be able to save enough money to come up with either the full amount or even a sizable down payment on a loan.

Not to worry, the experts tell us. We’ll just make it easier, with the help of inflationary fiat money, to get an enormous loan that will allow you to buy a house. Thus, rock-bottom interest rates and low down payments have been the name of the game since the late 1980s.

We started to see the end game at work during the last housing bubble when Fannie Mae introduced the 40-year mortgage in 2005, which just emphasized that when it comes to being a homeowner, the idea is not to pay off the mortgage, but to “buy” a house and just pay the monthly payment until one moves to another house and gets a new thirty- or forty-year loan.

It Pays To Be in Debt

On the surface of it, it’s hard to see how this scenario is fundamentally different from just paying rent every month. If the homeowner stops paying the monthly payment, he’s out on the street, and the bank keeps the house, which is very similar to the scenario in which a renter stops paying a landlord. There’s (at least) one big difference here, however. It makes sense for the homeowner to get a home loan rather than rent an apartment because — if it’s a fixed-rate loan — price inflation ensures the real monthly payment will go down every month. Residential rents, on the other hand, tend to keep up with inflation.

But why would any lending institution make these sorts of long-term loans if the payment in real terms keeps getting smaller? After all, thirty years is a long time for something to go wrong.

Lenders are willing and able to do this because the loans are subsidized and underwritten through government creations like Fannie Mae (which buys up these loans on the secondary market), through bailouts, and through a myriad of other federal programs such as FHA. Naturally, in an unhampered market, a loan of such a long term would require high interest rates to cover the risk. But, Congress and the Fed have come to the rescue with promises of bailouts and easy money, meaning cheap thirty-year loans continue to live on.

So, what we end up with is a complex system of subsidies and favoritism on the part of lenders, homeowners, government agencies, and the Fed. The price of homes keeps going up, increasing the net worth of homeowners, and banks can make long-term loans on fairly risky terms because they know bailouts of various sorts will come if things go wrong.

But problems begin to arise when increases in home prices begin to outpace access to easy money and cheap loans. Indeed, we’re now seeing that homeownership rates are going down in spite of low interest rates, and vacancy rates in rental housing are at a twenty-year low. Meanwhile, new production in housing units is at 1992 levels, offering little relief from rising prices and rents. Obviously, something isn’t going according to plan.

Who Loses?

The old debt-based tricks that once kept homeownership climbing and accessible in the face of rising home prices are no longer working.

From a free market’s perspective, renting a home is neither good nor bad, but American policymakers long ago decided to favor homeowners over renters. Consequently, we’re faced with an economic system that pushes renters toward homeownership — price inflation and the tax code punishes renters more than owners — while simultaneously pushing home prices higher and higher.

During the last housing bubble, however, as homeownership levels climbed, few noticed or cared about this. So many renters became homeowners that rental vacancies climbed to record highs from 2004 to 2009. But in our current economy, one cannot avoid rising rents or hedge against inflation by easily leaving rental housing behind.

This time around, the cost of purchasing housing is going up by 6 to 10 percent per year, but few renters can join the ranks of the homeowners to enjoy the windfall. Instead, they just face record-high rent increases and a record-low inventory in for-sale houses.

There once was a time when rising home prices and rising homeownership rates could happen at the same time; it was possible for the government to stick to its unofficial policy of propping up home prices while also claiming to be pushing homeownership. We no longer live in such a time.

Ryan W. McMaken is the editor of Mises Daily and The Free Market. He has degrees in economics and political science from the University of Colorado, and was the economist for the Colorado Division of Housing from 2009 to 2014. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre. 

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Michel Chevalier’s Case Against the Patent System – Article by Louis Rouanet

Michel Chevalier’s Case Against the Patent System – Article by Louis Rouanet

The New Renaissance Hat
Louis Rouanet
April 17, 2015
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Michel Chevalier (1806–1879) was a very influential French economist during the second half of the nineteenth century. He is still widely known in France for being the architect of the Cobden-Chevalier Treaty of 1860 which was the free-trade agreement between France and Great Britain. Michel Chevalier is, however, less known for his major contribution to the intellectual property debate. [1] Contrary to Jean Baptiste Say, Gustave de Molinari, and many other French economists, Chevalier fiercely opposed the patent system. As Fritz Machlup remarked: “Among French economists, Michel Chevalier was probably the most emphatic in the joint antagonism to tariffs and patents, declaring that both ‘stem from the same doctrine and result in the same abuses.’”

Taking a fresh look at Michel Chevalier’s major work, Les Brevets d’invention (1878), we find it to be not only a well-written and powerful book, but also has remained impressively relevant. The arguments advanced by Chevalier anticipate the current arguments of the present opponents of intellectual property.

Patents as Contrary to Freedom and Economic Progress

Michel Chevalier argues that patents cannot be justified if they are contrary to freedom, even if beneficial to technological change. For him “From the moment we can make effective the patent only through inquisitorial expedients, violence, and subversion of liberty of labor, it is proof that we must renounce patents.” Chevalier rejects utilitarianism as a sufficient method to justify or refute the patent system. Chevalier’s opposition to patents, however, is not just based on moral arguments but shows the disastrous effects of this system for both foreign trade and the economy in general.

According to Chevalier, patents are of the same nature as privileges and monopolies which were prevalent during the Ancien Régime. They are also comparable in their effects to protectionist policies:

In absolute terms, patents diminish the productive power of nations that recognize them: evident proposition for those who believe that freedom, free competition, is the great lever of industrial progress.

Chevalier goes on to note the conservative and anti-innovation nature of monopolies and gives many examples of monopolies during the Ancien Régime. According to him, the innovators during the Ancien Régime weren’t rewarded, not because of the absence of patents, but because of the corporation guild system which was destroying competition and freedom to entry into markets. Thus, the innovators were constantly sued by guilds and consumers rarely benefited from their inventions. This argument is still relevant today. Indeed, companies protected from competition and government-owned corporations are often less innovative and more subject to conservative measures. Sectors typically run by government such as schools experience very little technological progress. On the other hand, the competitive process of the market gives incentives for the actors to differentiate from the other producers. As Pascal Salin stated, the company which makes the highest profits on a free market is the company which is the best positioned to “invent the future.” The essential virtue of competition is that it encourages producers to innovate in order to better serve the needs of consumers.

As one of his more striking examples, Chevalier examines the case of aniline — a dye and major innovation in the chemical industry — and shows how monopoly, resulting from patents, leads to hampered innovation. His interpretation of the problems caused by patents in the chemical industry at the time is consistent with more recent studies done by Boldrin and Levine in Against Intellectual Monopoly, now the seminal work on the topic.

Innovation as a Process

Chevalier understood that innovation is, above all, a process and that giving privileges to the innovator will destroy this process, leading to less and not more inventions. He wrote:

Every industrial discovery is the product of the general ferment of ideas, the result of an internal work which was accomplished with the support of a large number of successive or simultaneous collaborators in society, often for centuries.

This argument regarding the cumulative nature of innovation is still the most powerful argument against intellectual monopoly today and has also been the theme of several recent studies.2 Similar to Chevalier, Hayek saw innovation as a process and stated that “it is not obvious that such forced scarcity [intellectual property] is the most effective way to stimulate the human creative process.”

In an 1862 debate in the Académe des Sciences Morales et Politiques, Chevalier gave the example of Louis Daguerre, one of the inventors of photography, who didn’t seek a patent for his system of photography. According to Chevalier, the absence of a patent led to necessary improvements of the daguerreotype and fostered its widespread use. His conclusion is the following:

The spirit of man proceeds only by successive trials and repeated attempts. Discoveries do not arrive with a single bound to the degree of perfection or completion, which is reserved for them; there must be renewed, persevering efforts, cut by breaks that allow, so to speak, to breath. … If it is true that the invention must pass through the hands of twenty people before reaching its final state, it follows that the exclusive privilege granted to the first patented, and to each of his followers, prevents this practical result rather than facilitate it.

The Increasing Number of Patents and Negative Consequences

Already during the nineteenth century, legal instability and uncertainty challenged the actual efficiency of the patent system and the economists were very much aware of this problem. Chevalier warned that the patent system would lead to legal uncertainty for the companies and would lead the industry back to a guild system where no entrepreneur would dare to enter a market for fear of being sued by patent holders. Chevalier was ahead of his time by denouncing what can be considered the ancestors of today’s patent trolls.

Chevalier concluded his 1862 article by stating: “I think I have said enough to show that the patent legislation has been an eccentricity of the legislator.” He went further in 1863 and added that “[a]ll friends of industrial and social progress must work together to rescue the industry of obstacles, obsolete remains of the past. Patents must disappear first.” [3]

1. Fritz Machlup and Edith Penrose briefly discussed Michel Chevalier in “The Patent Controversy in the Nineteenth Century,” Journal of Economic History, 1950.

2. See Alberto Galasso et Mark Schankerman, “Patents and Cumulative Innovation: Causal Evidence from the Courts”, NBER working paper, 21 June 2014 ; and also, Alessandro Nuvolari, “Collective Invention during the British Industrial Revolution: The Case of the Cornish Pumping Engine,” Cambridge Journal of Economics 28, No. 3 (2004).

3. Quoted in Eugène Pouillet, “Traité théorique et pratique des brevets d’invention et de la contrefaçon,” 1909, pp. x–xi.

Louis Rouanet is a student at Sciences Po Paris (Institute of Political Studies) where he studies economics and political science.

This article was originally published by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.

A Portrait of the Classical Gold Standard – Article by Marcia Christoff-Kurapovna

A Portrait of the Classical Gold Standard – Article by Marcia Christoff-Kurapovna

The New Renaissance Hat
Marcia Christoff-Kurapovna
April 15, 2015
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“The world that disappeared in 1914 appeared, in retrospect, something like our picture of Paradise,” wrote the economist Cecil Hirsch in his June 1934 review of R.W. Hawtrey’s classic, The Art of Central Banking (1933). Hirsch bemoaned the loss of the far-sighted restraint that had once prevailed among the “bankers’ banks” of the West, concluding that modern times “had failed to attain the standard of wisdom and foresight that prevailed in the 19th century.”That wisdom and foresight was once upon a time institutionalized throughout an international monetary culture — gold-based, wary of credit, and contemptuous of debt, public or private. This world included central banks including the Bank of England, the Bank of France, the Swiss National Bank, the early Federal Reserve, the Imperial Bank of Austria-Hungary, and the German Reichsbank. But the entrenched hard-money ideology of the time restrained all of them. The Bank of Russia, for example, which once required 50 percent to 100 percent gold backing of all notes issued, possessed the second largest gold reserves on the planet at the turn of the twentieth century.

“The countries that were tied together in the gold standard system represented to a not inconsiderable degree a community of interest in and responsibility for the maintenance of economic and financial stability throughout the world,” recounted Aldoph C. Miller, member of the Federal Reserve Board from 1914 to 1936, in The Proceedings of the Academy of Political Science, in May 1936. “The gold standard was the one outstanding symbol of unity and economic solidarity which the nineteenth century world had developed.”

It was a time when “automatic market forces,” as economists of the day referred to them, prevailed over monetary management. Redeemability of money in (fine) gold ensured, within limits, stability in foreign exchange rates. Credit was extended only as far as reserve ratios would allow, and central banks were required to keep fixed reserves of gold against notes-in-circulation and against demand deposits.

When Markets Dominated Monetary “Policy”

Gold flows regulated international price relationships through markets, which adjusted themselves accordingly: prices rose when there was an influx of gold — for example, when one country received a debt payment from another country (always in gold), or during such times as the California or Australian gold rushes of the 1870s. These inflows meant credit expansion and a rise in prices. An outflow of gold meant credit was contracted and price deflation followed.

The efficiency of that standard was not impeded by the major central banks in such a way that “any disturbance of economic or financial character originating at any point in the world which might threaten the continued maintenance of economic equilibrium was quickly detected by foreign exchanges,” Miller, the Federal Reserve board member, noted in his paper. “In this way, the gold standard system became in a very real sense a regime or rule of economic health, a method of catching economic disturbances in the bud.”

The Bank of England, the grand master of them all, was the financial center of the universe, whose tight handle on its credit policies was so disciplined that the secured the top spot while not even holding the largest gold reserves. Consistent in its belief that protection of reserves was the chief, and only important, criterion of credit policy, England became the leading exporter of capital, the free market for gold, the international discount market, and international banker for the trade of other countries, as well as her own. The world was in this sense on the sterling standard.

The Bank of France, wisely admonished by its founder, Napoleon, to make sure France was always a creditor country, was so replete with reserves it made England a 500 million franc loan (in 1915 numbers) at the onset of the World War I. Switzerland, perhaps the last “19th-century-style” hold-out today with unlimited-liability private bankers and strict debt-ceiling legislation, also required high standards of its National Bank, founded in 1907. By the 1930s that country had higher banking reserves than the US; the Swiss franc was never explicitly devalued, unlike nearly every other Western nation’s currency, and the country’s domestic price level remained the most stable in the world.

For a time, the disciplined mindset of these banks found its way across the Atlantic, where the idea of a central bank had been long the subject of hot debate in the US. The economist H. Parker Willis, writing about the controversy in The Journal of the Proceedings of the Academy of Political Science, October 1913, admonished: “The Federal Reserve banks are to be ‘bankers’ banks,’ and they are intended to do for the banker what he himself does for the public.”

At first, the advice was heeded: in September 1916, almost two years after its founding on December 23,1913, the fledgling Fed worked out an amendment to its gold policy on the basis of a very conservative view of credit. This new policy sought to restrain “the undue and unnecessary expansion of credit,” wrote Fed board member Miller, in an article for The American Economic Review, in June 1921.

The Bank of Russia, during the second half of the nineteenth century steered itself through the Crimean War, the Russo-Turkish War, the Russo-Japanese War, impending Balkan wars — not to mention all that was to follow — and managed to emerge with sound fiscal policies and massive gold reserves. According to The Economist of May 20, 1899, Russian holdings were 95 million pounds sterling of gold, while the Bank of France held 78 million sterling worth. (Austria-Hungary held 30 million sterling worth of gold and the Bank of England 30 million sterling worth of both gold and silver.) “Russia up to the very moment of rupture [with Japan, 1904–1905], was working imperturbably at the progressive consolidation of her finances,” reported Karl Helfferich of the University of Berlin, at a meeting of The Royal Economic Society [UK] in December 1904. “Even in years of industrial crises and defective harvest, her foreign trade showed an excess of exports over imports more than sufficient to compensate payments sent abroad. And, as guarantee her monetary system she has succeeded in a amassing and maintaining a vast reserve of gold.”

These banks, in turn, drew on the medieval/Renaissance and Baroque-era banking traditions of the Hanseatic League, the Bank of Venice, and Amsterdam banks. Payment-on-demand “in good and heavy gold” was like a blood-oath binding the banker-client relationship. The transfer of credit “did not arise from any such substitution of credit for money,” noted Charles F. Dunbar, in The Quarterly Journal of Economics of April 1892, “but from the simple fact that the transfer in-bank saved the necessity of counting coin and manual delivery of every transaction.”

Bankers were forbidden to deal in certain commodities, could not make loans or create credit for the purchase of such commodities, and forbade both foreigners and citizens from buying silver on credit unless the same amount in cash was in the bank. According to Dunbar, a Venetian law of 1403 on reserve requirements became the basis of US banking law on the deposits of public securities in the late 1800s.

After the fall of bi-metallism in the 1870s, gold continued to perform monetary functions among the main countries of the Western world (and the well-administered Bank of Japan). It was the only medium of exchange and the only currency with unrestricted legal tender. It became the vaunted “measure of value.” Bank currency notes were simply used as auxiliary to gold and, in general, did not enjoy the privilege of legal tender.

The End of An Era

It was certainly not a flawless system, or without periodic crises. But central banks had to act in an exceptionally prudent manner given the all-over public distrust of paper money.

As economist Andrew Jay Frame of the University of Chicago, writing in The Journal of Political Economy, in January 1912, noted: “During panics in Britain in 1847 and 1866, when cash payments were suspended, the floodgates of cash were opened [by The Bank of England], the governor sent word to the street that solvent banks would be accommodated, and the panic was relieved.” Frame then adds: “However, this extra cash and the increased loans that went with it were very quickly put to an end to avoid credit expansion.”

The US was equally confident of its prudent attitude. Aldoph Miller, writing of Federal Reserve policy, remarked: “The three chief elements of the policy of a central bank or system of reserve holding institutions are best disclosed in connection with the attitude towards 1) gold 2) currency 3) credit.” He noted proudly: “The federal reserve system has met [these] tests on the whole with remarkable success.”

But after World War I, a different international landscape was left behind. England had been displaced as the center of international finance; the US and France emerged as the chief post-war creditor countries. The mechanism of the gold standard to which depreciated currencies could be related no longer existed. Only the US was left with a full gold standard. England and France had a gold bullion standard and other countries (Germany, primarily) had a gold-exchange standard.

A matrix of unbalanced trade relationships began to saturate the international economy. Then, with so many foreign countries attendant upon its speculative boom, the US manipulated its own domestic credit policies to ease credit and exchange-standard controls. This eventually culminated in an international financial crisis of 1931. Under Bretton Woods (1944), the gold standard was effectively abandoned: domestic convertibility was illegal and the role of gold was very constrained in favor of the dollar.

“It was, at least in theory, simple enough in the old days,” wrote a wistful W. Randolph Burgess, head of the New York Federal Reserve, in 1938. “In the present strange new world, where the old gold portents have lost their former meaning, where is the radio beam which the central banker may follow? What is the equivalent of gold?

The men of his era and of the late nineteenth century understood the meaning of such a question and, more importantly, why it is one that must be asked. But theirs was a different world, indeed — one without “QE,” ZIRP,” or “Unknown Knowns” as fiscal policy. And there were no helicopters, either.

Marcia Christoff-Kurapovna is at work on the biography of a prominent European head of state and businessman.  Her work has appeared in such publications as The Wall Street Journal, The Economist and Foreign Affairs.

This article was originally published by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.