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How Viennese Culture Shaped Austrian Economics – Article by Erwin Dekker

How Viennese Culture Shaped Austrian Economics – Article by Erwin Dekker

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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.

3 Kinds of Economic Ignorance – Article by Steven Horwitz

3 Kinds of Economic Ignorance – Article by Steven Horwitz

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The New Renaissance HatSteven Horwitz
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Do you know what you don’t know?

Nothing gets me going more than overt economic ignorance.

I know I’m not alone. Consider the justified roasting that Bernie Sanders got on social media for wondering why student loans come with interest rates of 6 or 8 or 10 percent while a mortgage can be taken out for only 3 percent. (The answer, of course, is that a mortgage has collateral in the form of a house, so it is a lower-risk loan to the lender than a student loan, which has no collateral and therefore requires a higher interest rate to cover the higher risk.)

When it comes to economic ignorance, libertarians are quick to repeat Murray Rothbard’s famous observation on the subject:

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

Economic ignorance comes in different forms, and some types of economic ignorance are less excusable than others. But the most important implication of Rothbard’s point is that the worst sort of economic ignorance is ignorance about your economic ignorance. There are varying degrees of blameworthiness for not knowing certain things about economics, but what is always unacceptable is not to recognize that you may not know enough to be speaking with authority, nor to understand the limits of economic knowledge.

Let’s explore three different types of economic ignorance before we return to the pervasive problem of not knowing what you don’t know.

1. What Isn’t Debated

Let’s start with the least excusable type of economic ignorance: not knowing agreed-upon theories or results in economics. There may not be a lot of these, but there are more than nonspecialists sometimes believe. Bernie Sanders’s inability to understand why uncollateralized loans have higher interest rates would fall into this category, as this is an agreed-upon claim in financial economics. Donald Trump’s bashing of free trade (and Sanders’s, too) would be another example, as the idea that free trade benefits the trading countries on the whole and over time is another strongly agreed-upon result in economics.

Trump and Sanders, and plenty of others, who make claims about economics, but who remain ignorant of basic teachings such as these, should be seen as highly blameworthy for that ignorance. But the deeper failing of many who make such errors is that they are ignorant of their ignorance. Often, they don’t even know that there are agreed-upon results in economics of which they are unaware.

2. Interpreting the Data

A second type of economic ignorance that is, in my view, less blameworthy is ignorance of economic data. As Rothbard observed, economics is a specialized discipline, and nonspecialists can’t be expected to know all the relevant theories and facts. There are a lot of economic data out there to be searched through, and often those data require careful statistical interpretation to be easily applied to questions of public policy. Economic data sources also require theoretical interpretation. Data do not speak for themselves — they must be integrated into a story of cause and effect through the framework of economic theory.

That said, in the world of the Internet, a lot of basic economic data are available and not that hard to find. The problem is that many people believe that certain empirical facts are true and don’t see the need to verify them by actually checking the data. For example, Bernie Sanders recently claimed that Americans are routinely working 50- and 60-hour workweeks. No doubt some Americans are, but the long-term direction of the average workweek is down, with the current average being about 34 hours per week. Longer lives and fewer working years between school and retirement have also meant a reduction in lifetime working hours and an increase in leisure time for the average American. These data are easily available at a variety of websites.

The problem of statistical interpretation can be seen with data on economic inequality, where people wrongly take static snapshots of the shares of national income held by the rich and poor to be evidence of the decline of the poor’s standard of living or their ability to move up and out of poverty.

People who wish to opine on such matters can, again, be forgiven for not knowing all the data in a specialized discipline, but if they choose to engage with the topic, they should be aware of their own limitations, including their ability to interpret the data they are discussing.

3. Different Schools of Thought

The third type of economic ignorance, and the least blameworthy, is ignorance of the multiple perspectives within the discipline of economics. There are multiple schools of thought in economics, and many empirical questions and historical facts have a variety of explanations. So a movie like The Big Short that clearly suggests that the financial crisis and Great Recession were caused by a lack of regulation might be persuasive to people who have never heard an alternative explanation that blames the combination of Federal Reserve policy and misguided government intervention in the housing market for the problems. One can make similar points about the Great Depression and the difference between Hayekian and Keynesian explanations of business cycles more generally.

These issues involving schools of thought are excellent examples of Rothbard’s point about the specialized nature of economics and what the nonspecialist can and cannot be expected to know. It is, in fact, unrealistic to expect nonexperts to know all of the arguments by the various schools of thought.

Combining Ignorance and Arrogance

What is missing from all of these types of economic ignorance — and what is often missing from knowledgeable economists themselves — is what we might call “epistemic humility,” or a willingness to admit how little we know. Noneconomists are often unable to recognize how little they know about economics, and economists are often unable to admit how little they know about the economy.

Real economic “expertise” is not just mastery of theories and facts. It is a deeper understanding of the variety of interpretations of those theories and facts and humility in the face of our limits in applying that knowledge in attempting to manage an economy. The smartest economists are the ones who know the limits of economic expertise.

Commentators with opinions on economic matters, whether presidential candidates or Facebook friends, could, at the very least, indicate that they may have biases or blind spots that lead to uses of data or interpretive frameworks with which experts might disagree.

The worst type of economic ignorance is the type of ignorance that is the worst in all fields: being ignorant of your own ignorance.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He is a member of the FEE Faculty Network.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Why Is the Middle Class Shrinking? – Article by Steven Horwitz

Why Is the Middle Class Shrinking? – Article by Steven Horwitz

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The New Renaissance HatSteven Horwitz
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Two Arguments in Favor of Economic Inequality

Economic inequality continues to be a major political issue even as the headlines scream about terrorism and climate change. Bernie Sanders has made it a centerpiece of his presidential campaign, and other candidates have addressed it along the way. And a recent study by the Pew Research Center has added new, though misplaced, fuel to the fire of those concerned about inequality.

The Pew study has been discussed in the media, and one key point has been grossly misunderstood. Among other things, the study found that the American middle class is shrinking and is now just under half of the population. Commentators quickly began to refer to the “hollowing out” of the middle class and to tie this study to the concerns about growing inequality.

However, a close look at the data shows that the middle class has shrunk since 1971 because more members of the middle class have moved up the income ladder than down it.

Don’t believe me? Look for yourself at the terrific graphic that the Financial Times created to illustrate the data:

ft2015inequalitygraphYou can watch as the folks on the left slowly slide to the right over 44 years. When you compare the 1971 distribution with the 2015 one, what do you see? A growth in households earning around $80,000 or above, adjusted for inflation, since 1971 and a significant decline in those making less than that amount (with the exception of the folks right around $0). It’s true that there’s not a fat middle class anymore, but why should that trouble us if there are more high-income households and fewer low-income households overall?

The funny part of this is that if you read the story in the Financial Times that accompanies this graphic, it’s as if they never actually looked at the graphic they produced. Their narrative is at odds with it, as the narrative proclaims the doom-and-gloom story that the graphic actually refutes. As they say, never let the facts get in the way of a good story.

This growth in household income may, to some extent, be a by-product of the same economic processes that have produced the concerns about inequality, illustrated in this graphic by the significant growth of the ultra-rich.

There are far more very rich people today than there were 44 years ago, but the growth of the upper class has gone hand in hand with the enrichment of a large number of less-well-off households. Are there ways in which economic inequality is good, then? I think the answer to that question is yes. If so, then, what are they? Here are two defenses of economic inequality that proponents of the free market could make.

First is the more obvious one: growing inequality is good because it might be a consequence of economic institutions that produce all kinds of results that we think are desirable. For example, if competitive markets lead to peace and rising prosperity for all but also create inequality along the way by allowing some folks to get very rich, then we should at least tolerate that inequality because the things that produce it also produce other things we like.

This is the usual defense libertarians invoke, and it’s a good argument. The critic, however, might say that even if the defense is true, it doesn’t prove that inequality is necessary for that result. There’s a difference between saying, “Good economic institutions will produce inequality while creating good economic outcomes for all,” and saying, “Good economic outcomes for all can’t be produced without inequality.” The critic would likely ask how reducing the inequality that markets produce will harm their ability to produce those good results.

And here is where we come back to the Pew study and get a second defense of inequality. One way the middle class (and all of us) has become richer in the last generation is that the cost of so many goods and services has dropped in terms of the number of hours we have to work at the average wage in order to purchase them. The lower price of basic goods has enabled more and more people to afford things like large TVs, smartphones, and new, cheaper medications.

One thing that has made this process happen is inequality. In The Constitution of Liberty, F.A. Hayek argued,

A large part of the expenditure of the rich, though not intended for that end, thus serves to defray the cost of the experimentation with the new things that, as a result, can later be made available to the poor.… Even the poorest today owe their relative material well-being to the results of past inequality.

Having a group of very rich people is what enables yesterday’s luxuries to become today’s basics.

There are two parts to this process: cost bearing and discovery. The very rich are able to afford the high prices of new technologies, thereby providing an incentive for firms to market new and expensive products. Once the rich pay the high initial price and cover the fixed costs of research and development, sellers can begin to price closer to the much lower marginal cost of producing additional units, making the good much more affordable to more people.

But the rich are also an economic canary in the coal mine that informs producers whether they are getting it right.

For example, a critic of inequality might complain that no one “really needs” a $100,000 luxury car with all kinds of new high-tech gadgets on it. But the fact that some can afford it and want to buy it helps the car companies figure out which new features might be popular. Rear-view cameras were once only available on top-end cars, but they have slowly become a standard feature. The same may soon be true of collision warning systems now available on high-end models of some cars.

In fact, everything we think of as basics today was once the province of only the well-off. The first microwaves were expensive and bought mostly by the rich. I can remember my parents paying about $900 for a VCR in the late 1970s. VCRs, of course, fetch a price close to zero these days. The rich who bought the early LCD TVs helped manufacturers defray the fixed production costs and figure out what people wanted, and now these TVs are in the vast majority of houses at a more affordable price.

The inequality at any point in time is a key part of the process that creates wealth for the rest of society over the years to follow. The very rich enable producers to experiment and cover their costs, and that makes more goods more affordable for the rest of us, from fun toys to life-saving necessities.

The inequality produced by the market is a key part of how the market moves forward, enriching all of us in the process. And that’s why the middle class is shrinking: the rich, through the competitive market, have helped make the middle class richer.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He is a member of the FEE Faculty Network.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Waking Up to the Reality of Fascism – Article by Jeffrey A. Tucker

Waking Up to the Reality of Fascism – Article by Jeffrey A. Tucker

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The New Renaissance HatJeffrey A. Tucker
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The great extant threat to liberty is nativist authoritarianism

Donald Trump is on a roll, breaking new ground in uses for [centralized] power.

Closing the internet? Sure. “We have to see Bill Gates and a lot of different people… We have to talk to them about, maybe in certain areas, closing that Internet up in some ways.”

Registering Muslims? Lots of people thought he misspoke. But he later clarified: “There should be a lot of systems, beyond databases. We should have a lot of systems.”

Why not just bar all Muslims at the border? Indeed, and to the massive cheers of his supporters, Trump has called for the “total and complete shutdown of Muslims entering the United States.”

Internment camps? Trump cites the FDR precedent: Italians, Germans, and Japanese “couldn’t go five miles from their homes. They weren’t allowed to use radios, flashlights. I mean, you know, take a look at what FDR did many years ago and he’s one of the most highly respected presidents.”

Rounding up millions of people? He’ll create a “deportation force” to hunt down and remove 11 million illegal immigrants.

Killing wives and children? That too. “When you get these terrorists, you have to take out their families.”

Political Vocabulary

This litany of ideas has finally prompted mainstream recognition of the incredibly obvious: If Donald Trump has an ideology, it is best described as fascism.

Even Republican commentators, worried that he might be unstoppable, are saying it now. Military historian and Marco Rubio adviser Max Boot tweeted that “Trump is a fascist. And that’s not a term I use loosely or often. But he’s earned it.” Bush adviser John Noonan said the same.

The mainstream press is more overt. CNN’s Chris Cuomo asked Trump point blank if he is a fascist. The Atlantic writes: “It’s hard to remember a time when a supposedly mainstream candidate had no interest in differentiating ideas he’s endorsed from those of the Nazis.”

There is a feeling of shock in the air, but anyone paying attention should have seen this last summer. Why did it take so long for the consciousness to dawn?

The word fascism has been used too often in political discourse, and almost always imprecisely. It’s a bit like the boy who cried wolf. You warn about wolves so much that no one takes you seriously when a real one actually shows up.

Lefties since the late 1930s have tended to call non-leftists fascists — which has led to a discrediting of the word itself. As time went on, the word became nothing but a vacuous political insult. It’s what people say about someone with whom they disagree. It doesn’t mean much more than that.

Then in the 1990s came Godwin’s Law: “As an online discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches 100 percent.” This law provided a convenient way to dismiss all talk of fascism as Internet babblings deployed in the midst of flame wars.

Godwin’s Law made worse the perception that followed the end of World War II: that fascism was a temporary weird thing that afflicted a few countries but had been vanquished from the earth thanks to the Allied war victory. It would no longer be a real problem but rather a swear word with no real substance.

Fascism Is Real

Without the term fascism as an authentic descriptor, we have a problem. We have no accurate way to identify what is in fact the most politically successful movement of the 20th century. It is a movement that still exists today, because the conditions that gave rise to it are unchanged.

The whole burden of one of the most famous pro-freedom books of the century — Hayek’s The Road to Serfdom — was to warn that fascism was a more immediate and pressing danger to the developed world than Russian-style socialism. And this is for a reason: Hayek said that “brown” fascism did not represent a polar opposite of “red” socialism. In the interwar period, it was common to see both intellectuals and politicians move fluidly from one to the other.

“The rise of Fascism and Nazism was not a reaction against the socialist trends of the preceding period,” wrote Hayek, “but a necessary outcome of those tendencies.”

In Hayek’s reading, the dynamic works like this. The socialists build the state machinery, but their plans fail. A crisis arrives. The population seeks answers. Politicians claiming to be anti-socialist step up with new authoritarian plans that purport to reverse the problem. Their populist appeal taps into the lowest political instincts (nativism, racism, religious bigotry, and so on) and promises a new order of things under better, more efficient rule.

Last July, I heard Trump speak, and his talk displayed all the features of fascist rhetoric. He began with trade protectionism and held up autarky as an ideal. He moved to immigration, leading the crowd to believe that all their economic and security troubles were due to dangerous foreign elements among us. Then came the racial dog whistles: Trump demanded of a Hispanic questioner whether he was a plant sent by the government of Mexico.

There was more. He railed against the establishment that is incompetent and lacking in energy. He bragged about his lack of interest-group ties — which is another way of saying that only he can become the purest sort of dictator, with no quid pro quos to tie him down. (My article on this topic is here.)

Trump is clearly not pushing himself as a traditional American president, heading an executive branch and working with Congress and the judicial branch. He imagines himself as running to head a personal state: his will would be the one will for the country. He has no real plans beyond putting himself in charge — not only of the government but, he imagines, the entire country. It’s a difference of substance that is very serious.

The rest of the campaign has been easy to predict. He refashioned himself as pro-family, anti-PC, and even pro-religion. These traits come with the package — both a reaction to the far left and a fulfillment of its centralist ambitions.

The key to understanding fascism is this: It preserves the despotic ambitions of socialism while removing its most politically unpopular elements. In an atmosphere of fear and loathing, it assures the population that it can keep its property, religion, and faith — provided all these elements are channeled into a grand national project under a charismatic leader of high competence.

Douthat’s Analysis

As the realization has spread that Trump is the real deal, so has the quality of reflection on its implication. Most impressive so far has been Ross Douthat’s article in the New York Times. As he explains, Trump displays as least seven features of Umberto Eco’s list of fascist traits:

A cult of action, a celebration of aggressive masculinity, an intolerance of criticism, a fear of difference and outsiders, a pitch to the frustrations of the lower middle class, an intense nationalism and resentment at national humiliation, and a “popular elitism” that promises every citizen that they’re part of “the best people of the world.”

In this, Trump is different from other American politicians who have been called fascist, writes Douthat. George Wallace was a local-rights guy and hated Washington, whereas Trump loves power and thinks only in terms of centralization. Pat Buchanan’s extreme nativism was always tempered by his attachment to Catholic moral teaching that puts brakes on power ambitions.

Ross Perot was called a fascist, but actually he was a government reformer who wanted to bring business standards to government finance, which is very different from wanting to manage the entire country. And, for all his nonsense about jobs going to Mexico, Perot generally avoided racialist dog whistles.

Why Now and Not Before?

Why has genuine fascism been kept at bay in America? Why has the American right never taken the final step that might have plunged it into authoritarian, nativist aspirations?

Here Douthat is especially insightful:

Part of the explanation has to be that the American conservative tradition has always included important elements — a libertarian skepticism of state power, a stress on localism and states’ rights, a religious and particularly Protestant emphasis on the conscience of an individual over the power of the collective — that inoculated our politics against fascism’s appeal.

Douthat singles out libertarianism as an ideological brake on fascist longings. This is precisely right. Libertarianism grows out of the liberal tradition, which is about far more than merely hating the ruling-class establishment. Classical liberalism has universalist longings, embodied in its defenses of free trade, free speech, free migration, and freedom of religion. The central-planning feature of fascistic ideology is absolutely ruled out by libertarian love for spontaneous social and economic forces at work in society.

As for “energy” emanating from the executive branch, the liberal tradition can’t be clearer. No amount of intelligence, resources, or determined will from the top down can make [central planning] work. The problem is the apparatus itself, not the personalities and values of the rulers who happen to be in charge.

(I’m leaving aside the deep and bizarre irony that many self-professed libertarians have fallen for Trump, a fact which should be deeply embarrassing to anyone and everyone who has affection for human liberty. And good for Ron Paul for denouncing Trump’s authoritarianism in no uncertain terms.)

Can He Win?

Douthat seriously doubts that Trump can finally win over Republicans, due to “his lack of any real religious faith, his un-libertarian style and record, his clear disdain for the ideas that motivate many of the most engaged Republicans.”

I’m not so sure. The economic conditions that led to a rise of Hitler in Germany, Mussolini in Italy, and Franco in Spain are nowhere close to being replicated here. Even so, income growth has stagnated, middle-class social ambitions are frustrated, and many aspects of [federal] government services are failing […] Add fear of terrorism to the mix, and the conditions, at least for some, are nearly right. What Trumpism represents is an attempt to address these problems through more of the same means that have failed in the past.

It’s time to dust off that copy of The Road to Serfdom and realize that the biggest threats to liberty come from unexpected places. While the rank and file are worrying themselves about the influence of progressive professors and group identity politics, they need to open their eyes to the possibility that the gravest threat to American rights and liberties exists within their own ranks.

If you want to understand more about fascism and its history, see this chapter from John T. Flynn’s As We Go Marching.

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, 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. 

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

This TRA feature has been edited in accordance with TRA’s Statement of Policy.

Ayn Rand and Friedrich A. Hayek: A Side-by-Side Comparison – Article by Edward W. Younkins

Ayn Rand and Friedrich A. Hayek: A Side-by-Side Comparison – Article by Edward W. Younkins

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The New Renaissance HatEdward W. Younkins
August 1, 2015
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Ayn Rand and Friedrich A. Hayek did more than any other writers in the Twentieth Century to turn intellectual opinion away from statism and toward a free society. Although they are opposed on many philosophical and social issues, they generally agree on the superiority of a free market. Rand’s defense of capitalism differs dramatically from Hayek’s explanation of the extended order. In addition, Hayek approves of state activity that violates Rand’s ideas of rights and freedom. The purpose of this brief essay is to describe, explain, and compare the ideas of these two influential thinkers. To do this, I present and explain an exhibit that provides a side-by-side summary of the differences between Rand and Hayek on a number of issues.

In their early years of writing, both Hayek and Rand were dismissed by intellectuals, but they were heralded by businessmen. Hayek began to gain some respect from intellectuals when he published The Road to Serfdom in 1944. He wrote a number of scholarly books, attained formal academic positions, and earned the Nobel Prize for economics in 1974. Rand never did write scholarly works or hold a formal academic position. Her philosophy must be extracted from her essays and her fiction.

Hayek was read in college classes sooner, and to a much greater extent, than was Rand. He was viewed by intellectuals as a responsible and respected scholar, and Rand was not. His vision of anti-statism was more acceptable to intellectuals because he called for some exceptions to laissez-faire capitalism. In his writings he permitted concessions for some state interventions. In his immense and varied body of work, he touched upon a great many fields, including anthropology, evolutionary biology, cognitive science, philosophy, economics, linguistics, political science, and intellectual history. During the last 25 years or so, Rand’s works have been increasingly studied by scholars. There is now an Ayn Rand Society affiliated with the American Philosophical Association and a scholarly publication devoted to the study of her ideas—The Journal of Ayn Rand Studies. In addition, her writings are now being covered in college classes.

A Summary Comparison

Exhibit I provides a summary comparison of Rand and Hayek based on a variety of factors and dimensions. With respect to metaphysics and epistemology, Rand holds that “A is A” and that reality is knowable. Contrariwise, Hayek argues that reality is unknowable and that what men see are distorted representations or reproductions of objects existing in the world. The skeptic Hayek goes so far as to state that the notion of things in themselves (i.e., the noumenal world) can be dismissed. Whereas Rand’s foundation is reality, the best that Hayek can offer as a foundation is words and language.

Hayek supports the view that the human mind must have a priori categories that are prior to, and responsible for the ability to perceive and interpret the external world. He adds to this Kantian view by making the case that each individual mind’s categories are restructured according to the distinct experiences of each particular person.   Each person’s neural connections can therefore be seen as semi-permanent and affected by his or her environment and experiences. The mind’s categories evolve as each specific person experiences the world. According to Hayek, there is pre-sensory knowledge embedded in the structure of the mind and the nervous system’s synaptic connections which can be further created and modified over time. For the neo-Kantian Hayek, knowledge always has a subjective quality.

Reason for Rand is active, volitional, and efficacious. It follows that she sees rationality as man’s primary virtue. She sees progress through science and technology as the result of the human ability to think conceptually and to analyze logically through induction and deduction. Rand also contends that people can develop objective concepts that correspond with reality.

In his philosophy, Hayek relegates reason to a minor role. He argues for a modest perspective of people’s reasoning capabilities. He contends that reason is passive and that it is a social product. Hayek’s message of intellectual humility is primarily aimed at constructivist rationalism rather than critical rationalism. As an “anti-rationalist,” he explained that the world is too complex for any government planner to intentionally design and construct society’s institutions. However, he is a proponent of the limited potential of critical rationalism through which individuals use local and tacit knowledge in their everyday decisions. Hayek views progress as a product of an ongoing dynamic evolutionary process. He said that we cannot know reality but we can analyze evolving words and language. Linguistic analysis and some limited empirical verification provide Hayek with somewhat of an analytical foundation. His coherence theory of concepts is based on agreement among minds. For Hayek, concepts happen to the mind. Of course, his overall theory of knowledge is that individuals know much more than can be expressed in words.

Rand makes a positive case for freedom based on the nature of man and the world. She explains that man’s distinctive nature is exhibited in his rational thinking and free will. Each person has the ability to think his own thoughts and control his own energies in his efforts to act according to those thoughts. People are rational beings with free wills who have the ability to fulfill their own life purposes, aims, and intentions. Rand holds that each individual person has moral significance. He or she exists, perceives, experiences, thinks and acts in and through his or her own body and therefore from unique points in time and space. It follows that the distinct individual person is the subject of value and the unit of social analysis. Each individual is responsible for thinking for himself, for acting on his own thoughts, and for achieving his own happiness.

Hayek denies the existence of free will. However, he explains that people act as if they have free will because they are never able to know how they are determined to act by various biological, cultural, and environmental factors. His negative case for freedom is based on the idea that no one person or government agency is able to master the complex multiplicity of elements needed to do so. Such relevant knowledge is never totally possessed by any one individual. There are too many circumstances and variables affecting a situation to take them all into account. His solution to this major problem is to permit people the “freedom” to pursue and employ the information they judge to be the most relevant to their chosen goals. For Hayek, freedom is good because it best promotes the growth of knowledge in society. Hayek explains that in ordering society we should depend as much as possible on spontaneous forces such as market prices and as little as possible on force. Acknowledging man’s socially-constructed nature, he does not view individuals as independent agents but rather as creatures of society.

According to Rand, the principle of man’s rights can be logically derived from man’s nature and needs. Rights are a moral concept. For Rand, the one fundamental right is a person’s right to his own life. She explains that rights are objective conceptual identifications of the factual requirements of a person’s life in a social context. A right is a moral principle that defines and sanctions one’s freedom of action in a social context. Discussion of individual rights are largely absent from Hayek’s writings. At most he says that rights are created by society through the mechanism of law.

Whereas Rand speaks of Objective Law, Hayek speaks of the Rule of Law. Objective laws must be clearly expressed in terms of essential principles. They must be objectively justifiable, impartial, consistent, and intelligible. Rand explains that objective law is derived from the rational principle of individual rights. Objective Law deals with the specific requirements of a man’s life. Individuals must know in advance what the law forbids them from doing, what constitutes a violation, and what penalty would be incurred if they break the law. Hayek says that the Rule of Law is the opposite of arbitrary government. The Rule of Law holds that government coercion must be limited by known, general, and abstract rules. According to Hayek certain abstract rules of conduct came into being because groups who adopted them became better able to survive and prosper. These rules are universally applicable to everyone and maintain a sphere of responsibility.

Rand espouses a rational objective morality based on reason and egoism. In her biocentric ethics, moral behavior is judged in relation to achieving specific ends with the final end being an individual’s life, flourishing, and happiness. For Hayek, ethics is based on evolution and emotions. Ethics for Hayek are functions of biology and socialization. They are formed through habits and imitation.

Rand advocates a social system of laissez-faire capitalism in which the sole function of the state is the protection of individual rights. Hayek, or the other hand, allows for certain exceptions and interventions to make things work. He holds that it is acceptable for the government to supply public goods and a safety net.

For Rand, the consciousness of the individual human person is the highest level of mental functioning. For Hayek, it is a supra-conscious framework of neural connections through which conscious mental activity gains meaning. He states that this meta-conscious mechanism is taken for granted by human beings. The set of a person’s physiological impulses forms what Hayek calls the sensory order. Perception and pattern recognition follow one’s sensory order which is altered by a person’s own perception and history of experiences

Aristotle is Rand’s only acknowledged philosophical influence. They both contend that to make life fully human (i.e., to flourish), an individual must acquire virtues and make use of his reason as fully as he is capable. Hayek was influenced by Kant and Popper in epistemology, Ferguson and Smith in evolutionary theory, Hume in ethics, and Wittgenstein in linguistics.

Although Rand and Hayek are opposed on many philosophical questions, they generally agree on the desirability of a free market and are among the most well-known defenders of capitalism in the twentieth century. The works of both of these intellectual giants are highly recommended for any student of liberty.

 Exhibit I

A Summary Comparison

 

Rand

  

Hayek
Foundation Reality Words and Language
Knowledge Reality is knowable. Skepticism – The idea of things in themselves can be dismissed.
Reason Reason is active, volitional, and efficacious. Reason is passive and a social product.
Progress Based on power of human reason and conscious thought Evolution and social selection
Analytic Method Logical analysis, including induction and deduction Linguistic analysis and empiricism
Theory of Concepts Objective concepts that correspond with reality Coherence or agreement among minds
Freedom Positive case for freedom Negative case for “freedom”
Free Will Man has free will. Man is determined but acts as if he has free will.
Subject of value and unit of social analysis Individual happiness Perpetuation of society (i.e., the group)
The Individual Independent Dependent—man is socially constituted
Rights Based on the nature of the human person Created by society through law
Law Objective Law Rule of Law
Ethics and Morality Rational objective morality based on reason and egoism Evolutionary and emotive ethics based on altruism which is noble but cannot be implemented because of ignorance. Established through habits and imitation
Desired Social System Laissez-faire capitalism Minimal welfare state that supplies public goods and safety net
Highest level of understanding and mental functioning Consciousness of the Individual Meta-conscious framework—neural connections
Philosophical influences Aristotle Ferguson, Smith, Kant, Hume, Popper, Wittgenstein
Blurred Lines: The Humanitarian Threat to Free Speech – Article by Aaron Tao

Blurred Lines: The Humanitarian Threat to Free Speech – Article by Aaron Tao

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The New Renaissance HatAaron Tao
June 25, 2015
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“Think of liberalism … as a collection of ideas or principles which go to make up an attitude or ‘habit of mind.’” – Arthur A. Ekirch

In Democracy in America, Alexis de Tocqueville was keen to observe that “once the Americans have taken up an idea, whether it be well or ill founded, nothing is more difficult than to eradicate it from their minds.”

Reflecting upon my experience as a first-generation immigrant who grew up in the United States, I concur with Tocqueville; this inherent feature of the culture and character of the American people holds true even today.

In America, there are no sacred cows, no one is above criticism, and no one has the final say on any issue. It is worth emphasizing that today, the United States stands virtually alone in the international community in upholding near-absolute freedom of personal expression, largely thanks to the constitutional protections provided by the First Amendment.

But without certain internalized values and principles, the legal bulwark of the First Amendment is nothing more than a parchment barrier.

As cliché as it may sound, it is important to recognize that our cherished freedom to think, speak, write, and express ourselves should not be taken for granted. Defending the principle of free speech is a perennial conflict that has to be fought in the court of public opinion here and abroad.

Unfortunately, a number of recent developments have greatly alarmed civil libertarians and may very well carry long-term negative repercussions for the United States as a free and open society.

In his new book, Freedom from Speech, Greg Lukianoff, the president of the Foundation for Individual Rights in Education (FIRE) and tireless free speech advocate, highlights a troubling cultural phenomenon: the blurring of physical safety with psychological and ideological comfort.

It is a disturbing trend that is not limited to the United States:

People all over the globe are coming to expect emotional and intellectual comfort as though it were a right. This is precisely what you would expect when you train a generation to believe that they have a right not to be offended. Eventually, they stop demanding freedom of speech and start demanding freedom from speech.

On the other side of Atlantic, Great Britain is undergoing what one writer describes as a “slow death of free speech.” The land of Milton is now home to luminaries who wish to reinstate Crown licensing of the press (not seen since 1695!).

Meanwhile, ordinary people face jail time for callous tweeting. In British universities, student-driven campaigns have successfully shut down debates and banned pop songs, newspapers, and even philosophy clubs.

While the United States is fortunate enough to have the First Amendment prevent outright government regulation of the press, cultural attitudes play a greater role in maintaining a healthy civil society.

Lukianoff reserves special criticism for American higher education for “neglecting to teach the intellectual habits that promote debate and discussion, tolerance for views we hate, epistemic humility, and genuine pluralism.”

Within academia, “trigger warnings” and “safe places” are proliferating. In a truly Bizarro twist, it has now come to the point that faculty members are defending individual rights and due process and decrying mob rule, while their students run off in the opposite direction.

We now hear on a regular basis of campus outrages involving a controversial speaker or perceived injustice, and the “offended” parties responding with a frenzied social media crusade or a real-world attempt to shame, bully, browbeat, censor, or otherwise punish the offender.

A small sampling from this season include attempts to ban screenings of American Sniper at the University of Michigan and the University of Maryland, resolutions to create a Stasi-like “microaggression” reporting system at Ithaca College, and the controversy involving AEI scholar Christina Hoff Sommers speaking at Oberlin College.

These incidents are just the tip of the iceberg.

With the endless stream of manufactured outrages, perhaps it is fitting that George Mason University law professor David Bernstein would raise the question, “Where and when did this ‘makes me feel unsafe’ thing start?”

My personal hypothesis: When postmodernism found itself a new home on Tumblr, spread across the left-wing blogosphere, became reinforced by mobs and echo-chambers, and spilled into the real world.

Luckily, not all progressives have sacrificed the basic principles of liberalism to the altar of radical identity politics and political correctness. One liberal student at NYU courageously pointed out the grave dangers posed by the ideology embraced by many of his peers:

This particular brand of millennial social justice advocacy is destructive to academia, intellectual honesty, and true critical thinking and open mindedness. We see it already having a profound impact on the way universities act and how they approach curriculum. …

The version of millennial social justice advocacy that I have spoken about — one that uses Identity Politics to balkanize groups of people, engenders hatred between groups, willingly lies to push agendas, manipulates language to provide immunity from criticism, and that publicly shames anyone who remotely speaks some sort of dissent from the overarching narrative of the orthodoxy — is not admirable.

It is deplorable. It appeals to the basest of human instincts: fear and hatred. It is not an enlightened or educated position to take. History will not look kindly on this Orwellian, authoritarian perversion of social justice that has taken social media and millennials by storm over the past few years.

I, too, am convinced that these activists, with their MO of hysterical crusades, are one of today’s biggest threats to free speech, open inquiry, and genuine tolerance, at least on college campuses. The illiberal climate fostered by these their ideologues seems to be spreading throughout academia and is continuing to dominate the headlines.

As of this writing, Northwestern professor (and self-described feminist) Laura Kipnis is undergoing a Kafkaesque Title IX inquisition for writing a column in the Chronicle of Higher Education and making comments on Twitter that offended a number of students. The aggrieved mobilized in full force to have her punished under the federal sex discrimination law.

These groups and their tactics represent what Jonathan Rauch would describe as the “humanitarian” challenge to free speech. In his must-read book, Kindly Inquisitors: The New Attacks on Free Thought, Rauch identified how these “humanitarians” sought to prevent “offense” to “oppressed and historically marginalized” peoples. In the name of “compassion,” words became conflated with physical action.

As speech codes spread and the definition of “harassment” (reading a book in public, for instance) became broader within the bureaucracy of academia, an “offendedness sweepstakes” was cultivated and turned into the norm.

Rauch’s book was published in 1993, but his diagnosis and arguments still apply today, if not more, in the age of social media when the “offendedness sweepstakes” are amplified to new levels.

Nowadays, PC grievance mongers can organize much more effectively and more often than not, get rewarded for their efforts. The future of a free society looks very bleak should these types become a dominant force on the political landscape. I can’t help but shiver at the prospect of seeing the chronically-offended eggshells of my generation becoming tomorrow’s legislators and judges. The chilling effects are already being felt.

Even as numerous challenges emerge from all corners, free speech has unparalleled potential for human liberation in the Digital Age. The eternal battle is still that of liberty versus power, and the individual versus the collective. I remain confident that truth can still prevail in the marketplace of ideas. It is for this reason we should treasure and defend the principles, practices, and institutions that make it possible.

Last month marked the birthday of the brilliant F.A. Hayek, the gentleman-scholar who made landmark contributions to fields of economics, philosophy, political science, and law, and established his name as the twentieth century’s most eminent defender of classical liberalism in the face of the collectivist zeitgeist.

For all his accomplishments, Hayek practiced and urged epistemological humility (a position that should be natural to any defender of free speech) in his Nobel lecture. Looking back on his life’s work, Hayek was highly skeptical of the nebulous concept of “social justice” and its totalitarian implications. He even went as far as to devote an entire volume of his magnum opus, Law, Legislation, and Liberty, to completely demolish The Mirage of Social Justice.

Hayek concluded:

What we have to deal with in the case of “social justice” is simply a quasireligious superstition of the kind which we should respectfully leave in peace so long as it merely makes those happy who hold it, but which we must fight when it becomes the pretext of coercing other men [emphasis added].

And the prevailing belief in “social justice” is at present probably the gravest threat to most other values of a free civilization.

Hayek did not predict that “social justice” would be first used to silence dissent before moving on to its long-term agenda, but it would not have surprised him. Weak ideas always grasp for the censor in the face of sustained criticism — and feeble ideas made strong by politics are the most dangerous of all.

Humanitarians with guillotines can be found from the French Revolution to present day. Modern day defenders of individual liberty would do well to heed Hayek’s warning and resist the Siren song of “social justice,” the rallying cry of collectivists who cannot realize their vision without coercion.

Aaron Tao is the Marketing Coordinator and Assistant Editor of The Beacon at the Independent Institute.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Socialism Is War and War Is Socialism – Both Forms of Central Planning Are Reactionary, Not Progressive – Article by Steven Horwitz

Socialism Is War and War Is Socialism – Both Forms of Central Planning Are Reactionary, Not Progressive – Article by Steven Horwitz

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Steven Horwitz
June 10, 2015
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“[Economic] planning does not accidentally deteriorate into the militarization of the economy; it is the militarization of the economy.… When the story of the Left is seen in this light, the idea of economic planning begins to appear not only accidentally but inherently reactionary. The theory of planning was, from its inception, modeled after feudal and militaristic organizations. Elements of the Left tried to transform it into a radical program, to fit into a progressive revolutionary vision. But it doesn’t fit. Attempts to implement this theory invariably reveal its true nature. The practice of planning is nothing but the militarization of the economy.”

—Don Lavoie, National Economic Planning: What Is Left?

Libertarians have long confounded our liberal and conservative friends by being both strongly in favor of free markets and strongly opposed to militarism and foreign intervention. In the conventional world of “right” and “left,” this combination makes no sense. Libertarians are often quick to point out the ways in which free trade, both within and across national borders, creates cooperative interdependencies among those who trade, thereby reducing the likelihood of war. The long classical liberal tradition is full of those who saw the connection between free trade and peace.

But there’s another side to the story, which is that socialism and economic planning have a long and close connection with war and militarization.

As Don Lavoie argues at length in his wonderful and underappreciated 1985 book National Economic Planning: What Is Left?, any attempt to substitute economic planning (whether comprehensive and central or piecemeal and decentralized) for markets inevitably ends up militarizing and regimenting the society. Lavoie points out that this outcome was not an accident. Much of the literature defending economic planning worked from a militaristic model. The “success” of economic planning associated with World War I provided early 20th century planners with a specific historical model from which to operate.

This connection should not surprise those who understand the idea of the market as a spontaneous order. As good economists from Adam Smith to F.A. Hayek and beyond have appreciated, markets are the products of human action but not human design. No one can consciously direct an economy. In fact, Hayek in particular argued that this is true not just of the economy, but of society in general: advanced commercial societies are spontaneous orders along many dimensions.

Market economies have no purpose of their own, or as Hayek put it, they are “ends-independent.” Markets are simply means by which people come together to pursue the various ends that each person or group has. You and I don’t have to agree on which goals are more or less important in order to participate in the market.

The same is true of other spontaneous orders. Consider language. We can both use English to construct sentences even if we wish to communicate different, or contradictory, things with the language.

One implication of seeing the economy as a spontaneous order is that it lacks a “collective purpose.” There is no single scale of values that guides us as a whole, and there is no process by which resources, including human resources, can be marshaled toward those collective purposes.

The absence of such a collective purpose or common scale of values is one factor that explains the connection between war and socialism. They share a desire to remake the spontaneous order of society into an organization with a single scale of values, or a specific purpose. In a war, the overarching goal of defeating the enemy obliterates the ends-independence of the market and requires that hierarchical control be exercised in order to direct resources toward the collective purpose of winning the war.

In socialism, the same holds true. To substitute economic planning for the market is to reorganize the economy to have a single set of ends that guides the planners as they allocate resources. Rather than being connected with each other by a shared set of means, as in private property, contracts, and market exchange, planning connects people by a shared set of ends. Inevitably, this will lead to hierarchy and militarization, because those ends require trying to force people to behave in ways that contribute to the ends’ realization. And as Hayek noted in The Road to Serfdom, it will also lead to government using propaganda to convince the public to share a set of values associated with some ends. We see this tactic in both war and socialism.

As Hayek also pointed out, this is an atavistic desire. It is a way for us to try to recapture the world of our evolutionary past, where we existed in small, homogeneous groups in which hierarchical organization with a common purpose was possible. Deep in our moral instincts is a desire to have the solidarity of a common purpose and to organize resources in a way that enables us to achieve it.

Socialism and war appeal to so many because they tap into an evolved desire to be part of a social order that looks like an extended family: the clan or tribe. Soldiers are not called “bands of brothers” and socialists don’t speak of “a brotherhood of man” by accident. Both groups use the same metaphor because it works. We are susceptible to it because most of our history as human beings was in bands of kin that were largely organized in this way.

Our desire for solidarity is also why calls for central planning on a smaller scale have often tried to claim their cause as the moral equivalent of war. This is true on both the left and right. We have had the War on Poverty, the War on Drugs, and the War on Terror, among others. And we are “fighting,” “combating,” and otherwise at war with our supposedly changing climate — not to mention those thought to be responsible for that change. The war metaphor is the siren song of those who would substitute hierarchy and militarism for decentralized power and peaceful interaction.

Both socialism and war are reactionary, not progressive. They are longings for an evolutionary past long gone, and one in which humans lived lives that were far worse than those we live today. Truly progressive thinking recognizes the limits of humanity’s ability to consciously construct and control the social world. It is humble in seeing how social norms, rules, and institutions that we did not consciously construct enable us to coordinate the actions of billions of anonymous actors in ways that enable them to create incredible complexity, prosperity, and peace.

The right and left do not realize that they are both making the same error. Libertarians understand that the shared processes of spontaneous orders like language and the market can enable all of us to achieve many of our individual desires without any of us dictating those values for others. By contrast, the right and left share a desire to impose their own sets of values on all of us and thereby fashion the world in their own images.

No wonder they don’t understand us.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

How the West Invented Individualism – Article by Roger McKinney

How the West Invented Individualism – Article by Roger McKinney

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Roger McKinney
April 1, 2015
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Inventing the Individual, by Larry Siedentop, Belknap Press, 2014

I lived in Morocco a few decades ago and needed some furniture for our apartment. A college student I had befriended, Hamid, offered to take my cash and negotiate with the dealer for me while I drank coffee in a nearby qahwa because, as he said, the price of the furniture would triple if the merchant glimpsed an American within a block of his store.

I hesitated to take Hamid’s offer only because I didn’t want to put him to so much trouble, but he mistook my pause for distrust. So he assured me that he could not cheat me because I had eaten dinner with him and his family and therefore enjoyed a status similar to that of a family member.

No Moroccan can cheat a family member or anyone who has eaten at their table. I gave Hamid my cash and later returned home to find a nice selection of furniture at a good, Moroccan, price.

Later, I met the owner of a construction firm who enlightened me further on business ethics in Morocco. He told me he spent a large part of his time thwarting the efforts of suppliers, customers, and employees to cheat him. The cleverness that went into dreaming up new ways to cheat him surprised me. He confirmed what Hamid had told me: cheating others is not considered unethical at all but a sign of an astute businessman. But cheating family members is immoral.

Moroccan business ethics might be appalling to westerners, but ancient Greeks and Romans would have understood and applauded them according to Larry Siedentop in his latest book, Inventing the Individual: The Origins of Western Liberalism.

In Siedentop’s words, the book is “… a story about the slow, uneven and difficult steps which have led to individual moral agency being publicly acknowledged and protected, with equality before the law and enforceable ‘basic’ rights.”

Like Moroccans, ancient Greeks and Romans cared little for non-family members. Those “… outside the family circle were not deemed to share any attributes with those within. No common humanity was acknowledged, an attitude confirmed by the practice of enslavement.”

The past is a foreign country but foreign countries are more foreign than politicians and economists in the West understand. The prize for the reader in Siedentop’s package is the understanding that the individualism at the core of classical liberalism is a new and rare gem.

When we fail to recognize its uniqueness, we project onto past and modern cultures our own values. Siedentop explains the failures of attempts at nation building by US politicians in the Middle East as well as the aborted efforts at economic development by mainstream economists without mentioning either.

Classical liberal individualism did not exist in the ancient world. Siedentop wrote, “Since the sixteenth century and the advent of the nation-state, people in the West have come to understand ‘society’ to mean an association of individuals.” For the ancient Romans and Greeks society consisted of a collection of extended families. The heads of the families, including family-based clans and tribes, held all the power and made all of the decisions. Only the heads of families could become citizens in the polis.

Antiquity had no notion of the powers of the government being limited by the rights of individuals, even for family heads. “Citizens belonged to the city, body and soul.” Women, children, slaves and non-citizens held no rights and lived only at the pleasure of the family head.

The ancients had no concept of the equality of man, either. Even for Plato and Aristotle, a natural hierarchy of humanity existed, much like the caste system of India. Some were born to rule, others to serve or fight. Submitting to the needs of the city as determined by the family heads was the only reason for existence and any person who failed to contribute to the cause could be legally killed — or worse — exiled. Politics and war became the noblest occupations while commerce was held in contempt.

Siedentop devotes just the first chapter to the culture of ancient Greece and Rome, but I think it’s the most important chapter because it forces the reader to face the stark contrast between that culture and the culture of the modern West. The story of the painfully slow gestation of individualism from its conception in early Christianity through the monastic movements, revolutions in church government, the creation of secular space, and finally its birth during the Reformation is rewarding, but the real value of the book lies in the understanding that this process took place only in the West and nowhere else in the world in history.

To grasp the impact of Siedentop’s thesis, readers need to place it alongside the works of Helmut Schoeck, Geert Hofstede, and Shalom H. Schwartz. Schoeck informs us that envy is the organizing principle of society and the enemy of individualism. Hofstede and Schwartz show that the distinguishing feature of the West today is the classical liberal individualism that the rest of the world not only does not share, but abhors. Within the West, the US stands out as an extreme outlier on individualism.

Of course, to round out the topic people need to read Hayek’s essay, “Individualism: True and False” to understand how socialists created a pseudo-individualism that is for the most part a resurrection of ancient Greek and Roman collectivism.

Classical liberal individualism does not exist in the modern world outside of the US and Europe, and it is dying here. The collectivist cultures of the rest of the world differ little from those of ancient Greece and Rome. If economists and politicians understood the uniqueness of classical liberalism, they would quit trying to pour new wine into old wine skins, which causes the old to explode. And they would mourn the rise of socialism.

Roger McKinney is an analyst for an HMO and teaches economics for a small private college.

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.

GDP Economics: Fat or Muscle? – Article by David J. Hebert

GDP Economics: Fat or Muscle? – Article by David J. Hebert

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David J. Hebert
November 1, 2014
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Recently, Italy “discovered” it was no longer in a recession. Why? The nation started counting GDP figures differently.

Adding illegal revenue from hookers, narcotics and black market cigarettes and alcohol to the eurozone’s third-biggest economy boosted gross domestic product figures.

GDP rose slightly from a 0.1 percent decline for the first quarter to a flat reading, the national institute of statistics said.

Italian officials are, of course, celebrating. In politics, perceptions are more important than reality. But such celebration is troubling for several reasons, which have less to do with headlines or black markets and more to do with fat.

One of F. A. Hayek’s lasting insights was that aggregate variables mask an economy’s underlying structure. For example, a country’s GDP can be calculated by summing the total amount of consumption, investment, government spending, and net exports in a given year. The higher this number, the better an economy is supposed to be doing. But adding these figures together and looking only at their sum can be wildly misleading.

One way to illustrate why is through the following example: I am currently six foot one and weigh 217 pounds. As it turns out, Adrian Peterson, a running back for the NFL’s Minnesota Vikings, is the same height and weight. Looking at only these two variables, Peterson and I are identical. Obviously, this isn’t true.

Likewise, cross-country GDP comparisons are difficult to make. If two nations grow at the same rate, for example, but one nation “invests” in useless boondoggles while the other grows sustainable businesses, we wouldn’t want to claim that both countries have equally healthy economies.

But what about comparisons of a country’s year-to-year GDP? Is this valuable information? Well, yes and no.

If we know that more stuff is being produced this year than last year, we can infer that more activity is happening. However, this doesn’t mean that government should subsidize production in order to increase activity. In that case, all they’re accomplishing is increasing the number of things that are being done at the expense of other things that could have been done.

What economists should be looking for are increases in economically productive activity from year to year. For example, digging a hole and then filling it back in does increase the measure of activity, but it’s not adding any value to society. Digging a hole in your backyard and filling it with water is also activity, but it’s productive because you now have a swimming pool, which you value enough to employ people to create.

It’s no mystery that Italy is seeing a higher GDP as a result of its change in measurement and that as a result it’s avoided a recession on paper. That is, it’s counting more activities as “productive” than it was previously. It is wrong to conclude, though, that more production is actually happening in Italy. These activities were happening before; they just weren’t being counted in any official statistics.

There are many problems with using GDP as a measure for an economy’s health. Changing what counts toward GDP only introduces yet another confounding factor. When I step on the scale, I can get some basic idea of how healthy I am. But when I take my shoes off and step on the scale again, I didn’t magically become healthier. I just changed what’s counting toward my weight. It would be wrong for me to conclude that I can skip the gym today as a result of this recorded weight loss. Similarly, citizens of Italy should not be celebrating their increased GDP. They still face the same problems as before and must still address them.

David Hebert is an Assistant Professor of Economics at Ferris State University. His interests include public finance and property rights.

This article was originally published by The Foundation for Economic Education.

My Tiny Cosmopolitan Apartment – Article by Joseph S. Diedrich

My Tiny Cosmopolitan Apartment – Article by Joseph S. Diedrich

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Joseph S. Diedrich
October 25, 2014
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Global trade made my little flat a place of international treasures.

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I live in a studio apartment, so my kitchen is my living room is my bedroom. The other day, I was staring out my sole window when something startled me. (And it wasn’t the subwoofer two floors up.)

It was my coffee. While sipping from my mug, I glanced at the bag of beans. It read, “Origin: Ethiopia.” Next, I read the text on the bottom of my laptop: “Designed by Apple in California. Assembled in China.” I looked down at my necktie: “Bruno Piatelli. Roma.”

This little exercise became a game. From what other far-off places did my stuff come? I sleep on bed sheets from Egypt. I drink bottles of Shiraz from Australia. I pour Canadian maple syrup on my pancakes. Some things weren’t technically “foreign,” but they still came a long way: books printed in New York, apples grown in Washington orchards, and beer brewed in St. Louis.

Within the narrow confines of my apartment was an expansive world market — a veritable microcosm of the global economy.

What startled me most wasn’t that so much had traveled so far. Rather, it was that I found nothing from my own city. While I had purchased some items in Madison, they didn’t originate here.

What about the “buy local” bandwagon? If I were to follow the consumer movement du jour to its fullest extent, I’d be much poorer. Because of a much more constrained division of labor, I’d spend more money on lower quality goods. I probably wouldn’t even have coffee, and I certainly wouldn’t own an Italian necktie.

Yet I don’t intentionally avoid local goods. Every Saturday morning, like a ritual, I visit the county farmers market. I buy delicious seasonal fruits, vegetables, and cheeses from nearby farmers — not because they’re local, but because they’re the best. Produce tends to be tastier if it hasn’t spent a week on a flatbed.

Adam Smith once wrote, “In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest.” The less trade is restricted between individuals and across borders, the more “the body of people” can “buy whatever they want” the “cheapest.” As society becomes more and more integrated, we can better take advantage of the division of labor, leading to lower prices, greater prosperity, and a higher standard of living for everyone.

When I buy a preferable foreign product instead of its domestic counterpart, I obviously benefit myself. I receive a better product at a better price. I also clearly help the foreign producer.

I benefit the domestic economy, too. By purchasing cheaper foreign goods, I reserve more of my money to spend elsewhere, including in domestic exchange. More importantly, I send a signal to domestic producers: don’t waste your time making that thing! By doing so, I incentivize domestic producers to reallocate their resources to more highly valued endeavors.

It’s true that free trade and globalization make the rich richer. But they also make the poor richer. Trade provides cell phones to people in developing countries. It increases wages. It fosters international peace. And it makes denizens of tiny dwellings feel like the freest, richest people in the world.

Four hundred fifty square feet doesn’t sound like much. Yet somehow I’ve managed to fit states, countries, and even continents inside. The most remarkable thing of all? I didn’t intend for this to happen. I didn’t decide one day to start purchasing only “foreign” goods. I never consciously attempted to avail myself of “exotic” treasures.

Nobody ever intends for this to happen. Every day, we make countless, often subconscious cost-benefit analyses. When it comes to purchasing actual goods, we weigh all the factors we care about — price, quality, size, shape, taste, and so on. We search for the highest quality consumer goods within our respective price ranges. Just by buying what we like, we unwittingly amass personal bazaars.

We are capable of planning only for our individual selves. Despite the ubiquity of cosmopolitan collections of consumer goods, nobody could ever plan for such a thing. We simply lack the capacity to organize an entire economy to fit our specific needs.

This was the keen insight of economist F.A. Hayek, who recently celebrated the 40th anniversary of his Nobel Prize. While he admitted that “all economic activity” involves planning, not all planning is the same. Because there’s “no dispute about whether planning is to be done or not,” what matters is “whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.”

My apartment has only one window, but I feel like I can see the whole world. Every treasure I own is a window to a place I’ve never been and to people I’ve never met.

Joseph S. Diedrich is a Young Voices Advocate, a law student at the University of Wisconsin, and assistant editor at Liberty.me.

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This article was originally published by The Foundation for Economic Education.