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Ludwig von Mises on War

Ludwig von Mises on War

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Ludwig von Mises (1881-1973)
April 15, 2014
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The following are quotations on war by Ludwig von Mises (1881– 1973), who was the leading economist of the Austrian School. This list was first published as an article on the Mises Institute website and subsequently published on Le Québécois Libre.
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History has witnessed the failure of many endeavors to impose peace by war, cooperation by coercion, unanimity by slaughtering dissidents……. A lasting order cannot be established by bayonets. (Omnipotent Government, p. 7)  
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War……is harmful, not only to the conquered but to the conqueror. Society has arisen out of the works of peace; the essence of society is peacemaking. Peace and not war is the father of all things. Only economic action has created the wealth around us; labor, not the profession of arms, brings happiness. Peace builds, war destroys. (Socialism, p. 59)

The market economy involves peaceful cooperation. It bursts asunder when the citizens turn into warriors and, instead of exchanging commodities and services, fight one another. (1st Ed. Human Action, p. 817 ; 3rd Ed. Human Action, p. 821)  
  
Economically considered, war and revolution are always bad business. (Nation, State, and Economy, p. 152) 
  
The market economy means peaceful cooperation and peaceful exchange of goods and services. It cannot persist when wholesale killing is the order of the day. (Interventionism: An Economic Analysis, p. 67)  
  
[A]ggressors cannot wage total war without introducing socialism. (Interventionism: an Economic Analysis, p. 70) 
  
War prosperity is like the prosperity that an earthquake or a plague brings. The earthquake means good business for construction workers, and cholera improves the business of physicians, pharmacists, and undertakers; but no one has for that reason yet sought to celebrate earthquakes and cholera as stimulators of the productive forces in the general interest. (Nation, State, and Economy, p. 154)  
  
War can really cause no economic boom, at least not directly, since an increase in wealth never does result from destruction of goods. (Nation, State, and Economy, p. 154) 
  
Whoever wishes peace among peoples must fight statism. (Nation, State, and Economy, p. 77) 
  
Modern society, based as it is on the division of labor, can be preserved only under conditions of lasting peace. (Liberalism, p. 44) 
  
Wars, foreign and domestic (revolutions, civil wars), are more likely to be avoided the closer the division of labor binds men. (Critique of Interventionism, p. 115) 
  
Modern war is not a war of royal armies. It is a war of the peoples, a total war. It is a war of states which do not leave to their subjects any private sphere; they consider the whole population a part of the armed forces. Whoever does not fight must work for the support and equipment of the army. Army and people are one and the same. The citizens passionately participate in the war. For it is their state, their God, who fights. (Omnipotent Government, p. 104)  
  
The existence of the armaments industries is a consequence of the warlike spirit, not its cause. (1st Ed. Human Action, p. 297; 3rd Ed. Human Action, p. 300)  
  
What basis for war could there still be, once all peoples had been set free? (Nation, State, and Economy, p. 34) 
  
The statement that one man’s boon is the other man’s damage is valid with regard to robbery, war, and booty. The robber’s plunder is the damage of the despoiled victim. But war and commerce are two different things. (1st Ed. Human Action, p. 662; 3rd Ed. Human Action, p. 666)  
  
It is certainly true that our age is full of conflicts which generate war. However, these conflicts do not spring from the operation of the unhampered market society. It may be permissible to call them economic conflicts because they concern that sphere of human life which is, in common speech, known as the sphere of economic activities. But it is a serious blunder to infer from this appellation that the source of these conflicts are conditions which develop within the frame of a market society. It is not capitalism that produces them, but precisely the anticapitalistic policies designed to check the functioning of capitalism. They are an outgrowth of the various governments’ interference with business, of trade and migration barriers and discrimination against foreign labor, foreign products, and foreign capital. (1st Ed. Human Action, p. 680; 3rd Ed. Human Action, p. 684)  
  
What has transformed the limited war between royal armies into total war, the clash between peoples, is not technicalities of military art, but the substitution of the welfare state for the laissez-faire state. (1st Ed. Human Action, p. 820; 3rd Ed. Human Action, p. 824) 

Under laissez-faire peaceful coexistence of a multitude of sovereign nations is possible. Under government control of business it is impossible. (1st Ed. Human Action, p. 820; 3rd Ed. Human Action, p. 824)  
  
Of course, in the long run war and the preservation of the market economy are incompatible. Capitalism is essentially a scheme for peaceful nations. (1st Ed. Human Action, p. 824; 3rd Ed. Human Action, p. 828)  
  
What the incompatibility of war and capitalism really means is that war and high civilization are incompatible. If the efficiency of capitalism is directed by governments toward the output of instruments of destruction, the ingenuity of private business turns out weapons which are powerful enough to destroy everything. What makes war and capitalism incompatible with one another is precisely the unparalleled efficiency of the capitalist mode of production. (1st Ed. Human Action, p. 824; 3rd Ed. Human Action, p. 828)  
  
Modern war is merciless, it does not spare pregnant women or infants; it is indiscriminate killing and destroying. It does not respect the rights of neutrals. Millions are killed, enslaved, or expelled from the dwelling places in which their ancestors lived for centuries. Nobody can foretell what will happen in the next chapter of this endless struggle. This has little to do with the atomic bomb. The root of the evil is not the construction of new, more dreadful weapons. It is the spirit of conquest. It is probable that scientists will discover some methods of defense against the atomic bomb. But this will not alter things, it will merely prolong for a short time the process of the complete destruction of civilization. (1st Ed. Human Action, p. 828; 3rd Ed. Human Action, p. 832)  
  
To defeat the aggressors is not enough to make peace durable. The main thing is to discard the ideology that generates war. (1st Ed. Human Action, p. 828; 3rd Ed. Human Action, p. 832)  
  
Social development is always a collaboration for joint action; the social relationship always means peace, never war. Death-dealing actions and war are anti-social. All those theories which regard human progress as an outcome of conflicts between human groups have overlooked this truth. (Socialism, p. 279) 
  
But what is needed for a satisfactory solution of the burning problem of international relations is neither a new office with more committees, secretaries, commissioners, reports, and regulations, nor a new body of armed executioners, but the radical overthrow of mentalities and domestic policies which must result in conflict. (Omnipotent Government, p. 6) 
  
For only in peace can the economic system achieve its ends, the fullest satisfaction of human needs and wants. (Omnipotent Government, p. 50) 
  
If men do not now succeed in abolishing war, civilization and mankind are doomed. (Omnipotent Government, p. 122) 
  
If you want to abolish war, you must eliminate its causes. What is needed is to restrict government activities to the preservation of life, health, and private property, and thereby to safeguard the working of the market. Sovereignty must not be used for inflicting harm on anyone, whether citizen or foreigner. (Omnipotent Government, p. 138)  
  
Only one thing can conquer war – that liberal attitude of mind which can see nothing in war but destruction and annihilation, and which can never wish to bring about a war, because it regards war as injurious even to the victors. (Theory of Money and Credit, p. 433) 
  
The first condition for the establishment of perpetual peace is, of course, the general adoption of the principles of laissez-faire capitalism. (The Ultimate Foundation of Economic Science p. 137) 
  
He who wants to prepare a lasting peace must……be a free-trader and a democrat and work with decisiveness for the removal of all political rule over colonies by a mother country and fight for the full freedom of movements of persons and goods. (Nation, State, and Economy, p. 86) 
  
Liberalism rejects aggressive war not on philanthropic grounds but from the standpoint of utility. It rejects aggressive war because it regards victory as harmful, and it wants no conquests because it sees them as an unsuitable means for reaching the ultimate goals for which it strives. Not through war and victory but only through work can a nation create the preconditions for the well-being of its members. Conquering nations finally perish, either because they are annihilated by strong ones or because the ruling class is culturally overwhelmed by the subjugated. (Nation, State, and Economy, p. 87)  
  
Whoever on ethical grounds wants to maintain war permanently for its own sake as a feature of relations among peoples must clearly realize that this can happen only at the cost of the general welfare, since the economic development of the world would have to be turned back at least to the state of the year 1830 to realize this martial ideal even only to some extent. (Nation, State, and Economy, p. 151) 
  
The losses that the national economy suffers from war, apart from the disadvantages that exclusion from world trade entails, consist of the destruction of goods by military actions, of the consumption of war material of all kinds, and of the loss of productive labor that the persons drawn into military service would have rendered in their civilian activities. Further losses from loss of labor occur insofar as the number of workers is lastingly reduced by the number of the fallen and as the survivors become less fit in consequence of injuries suffered, hardships undergone, illnesses suffered, and worsened nutrition. (Nation, State, and Economy, p. 151 – 52)  
  
There are circumstances which make the consumption of capital unavoidable. A costly war cannot be financed without such a damaging measure….There may arise situations in which it may be unavoidable to burn down the house to keep from freezing, but those who do that should realize what it costs and what they will have to do without later on. (Interventionism: an Economic Analysis, p. 52) 
  
It is not the war profits of the entrepreneurs that are objectionable. War itself is objectionable! (Interventionism: an Economic Analysis, p. 74)
Norman Borlaug Saved a Billion Lives – Article by Bradley Doucet

Norman Borlaug Saved a Billion Lives – Article by Bradley Doucet

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Bradley Doucet
April 13, 2014
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Wheat
A statue honouring Norman Borlaug was unveiled in DC earlier this week on what would have been the celebrated biologist’s 100th birthday. Borlaug’s work developing and promoting high-yield crop varieties is credited with averting the mass famines that were predicted in the 1960s and saving as many as a billion people in the developing world from starving to death. Yes, that’s “billion” with a “b.” In 1970, he was awarded the Nobel Peace Prize for his history-altering humanitarian efforts.
Born in Iowa in 1914, Borlaug lived through the Dust Bowl, whose effects he noticed were less severe where newer, high-yield farming methods were in use. In the 1940s, he went to work for the Rockefeller Foundation in Mexico, teaching Mexican farmers the latest agricultural techniques and leading a research effort to perfect a high-yield, disease-resistant strain of wheat. In the 1960s, he moved to Pakistan and India, where he also successfully promoted the use of modern farming and high-yield wheat.

Yet this Green Revolution, as it came to be called, met with serious resistance from environmentalists, who to this day bemoan the need for inorganic fertilizers and industrial irrigation. Many greens promote the preservation of, and indeed a return to, traditional subsistence farming, even though it requires more land to grow an equivalent amount of food. Realistically, the choice humanity faces is between a) modern farming, b) razing our forests to make room for traditional farming, or c) mass starvation. And actually, without modern farming methods, razing our forests probably would not be enough to prevent mass starvation.

Thanks in part to the well-meaning but ill-conceived opposition of greens, the Green Revolution has barely begun to reach sub-Saharan Africa, the one part of the world where dire poverty is not hastily retreating. Thanks to too many people romanticizing traditional farming and demonizing modern agriculture, millions continue to suffer and die needlessly. As Borlaug himself once said, “Some of the environmental lobbyists of the Western nations are the salt of the earth, but many of them are elitists. They’ve never experienced the physical sensation of hunger. They do their lobbying from comfortable office suites in Washington or Brussels. If they lived just one month amid the misery of the developing world, as I have for fifty years, they’d be crying out for tractors and fertilizer and irrigation canals and be outraged that fashionable elitists back home were trying to deny them these things.”

Penn and Teller called Norman Borlaug “the greatest human that ever existed.” On his 100th birthday, let’s honour his unparalleled achievement by embracing agricultural technology and moving beyond simplistic and misleading fear-mongering. Let’s try to complete the glorious Green Revolution and spread prosperity across the globe—and save the world’s forests in the bargain.

Bradley Doucet is Le Québécois Libre‘s English Editor and the author of the blog Spark This: Musings on Reason, Liberty, and Joy. A writer living in Montreal, he has studied philosophy and economics, and is currently completing a novel on the pursuit of happiness. He also writes for The New Individualist, an Objectivist magazine published by The Atlas Society, and sings.
The Paradox of Public Assistance – Article by David J. Hebert

The Paradox of Public Assistance – Article by David J. Hebert

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David J. Hebert
January 26, 2014
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Let’s put ideology aside for a moment. One might not think it’s morally or politically justifiable to take from one person in order to help another. But for now, let’s ask another question: Does it help?

A lot of people see the existence of “poverty amid plenty,” wherein a few people have acquired a lot of wealth while the overwhelming majority struggles to make ends meet. The standard call is to provide some means of transferring those resources from the haves to the have-nots, either through a progressive tax policy or via some direct transfer program.

The problem with these policies is obviously not in their stated goals. Who could argue against the desire to help people? Nor is it, entirely, the coercive nature of redistribution. The real problem comes in the ability of welfare advocates to actually reduce poverty in an effective and long-lasting manner.

World Coyne

In his latest book, Doing Bad by Doing Good, Chris Coyne discusses problems with delivering effective humanitarian aid to other countries. Coyne identifies two potential problems: the planner’s problem and the incentive problem.

Briefly, the planner’s problem refers to the impossibility of people outside of a society actually to possess the information required to assist in fostering continued economic development. The incentive problem refers to the idea that the planners may face perverse incentives to go ahead and do something that the planner’s problem suggests is impossible to start with.

These points are all well and good, and should be well received at least by readers of this publication. But I think we can go further to urge that the problems Coyne identifies apply equally to issues related to domestic intervention.

Disconnect

The people who advocate most strongly for poverty relief programs are not, in fact, people who are poor. Rather, they are people who are typically either politicians seeking reelection or wealthy people who have some overwhelming desire to do something (usually they want to get other people to give them money to do something). They are not poor, but rather they simply do not like seeing poor people suffer and feel some desire to help. However, because they are not poor themselves, they have absolutely no idea what it is that poor people actually want.

Do they want shelter, clothing, and food? Yes. Do they want education, hygiene, and employment? Of course. But in what order, how much, and of what type? In a world of scarcity, the answers to these questions are of crucial importance if we are to find ways to help the most people as quickly and effectively as possible. And yet, the answers to these questions are wholly unknowable to outside observers.

Similarly, and perhaps more importantly, the incentive problem that the planners face also applies to domestic intervention. Politicians are people who, just like us, are primarily concerned with helping themselves. Given their position, what is in their interest might sometimes in be the interest of the “general public” (providing genuine public goods, the rule of law, etc.) but as James Buchanan and Gordon Tullock rightfully point out in their groundbreaking book, The Calculus of Consent, this is not guaranteed to be true at all times and in all cases. In fact, it may be the case that as a direct result of political involvement, incentives may direct their behavior in ways that enrich concentrated interests and impoverish poor people even more.

The War on Poverty

One answer is that the disparity might be much, much worse without government intervention—that is, the rich would be even richer and the poor would be even poorer. But another possibility is that the war on poverty directly contributes to a burgeoning underclass. How can we adjudicate between these positions?

On the surface, giving people aid seems like a straightforward proposition. We observe people suffering and then send resources to them to alleviate that suffering. On the other hand, as Buchanan pointed out in 1975, we run into problems in which the aid designed to alleviate poverty actually perpetuates it, creating dependency. This dependency, in turn, means that an increasing number of people derive the majority of their income from aid.

Paid to Be Poor

That some of the poor get most of their income from the government is not to argue that welfare recipients are lazy or don’t wish to work. Rather it suggests that the incentives they face may make them reluctant to accept employment opportunities at offered wages. We can think through this proposition logically: Suppose I offer you $240 per week in financial aid while you are between jobs. You would be receiving that money for zero hours of work per week. Being an honest person, you go out and look for work, eventually finding a job that pays you $8 per hour, or $320 per week working full time. Should you take that job?

On the one hand, you would receive more money by taking that job than you would by accepting the aid. However, economics teaches us the value in thinking at the margin. Doing so reveals that you would only receive an additional $120 per week in exchange for your 40 hours of work. In other words, taking into account your opportunity cost, you would really only be earning $3 per hour! While I certainly cannot speak for everyone, I feel reasonably confident in saying that few people in this country value their time at only $3 per hour. Realizing this, it is no puzzle why people receiving aid tend to stay unemployed for so long. The Cato Institute recently published a study offering evidence of the work versus welfare trade-off, which can be found here.

Politics and Perquisites

Now that we understand why domestic aid programs may lead to the perpetuation of poverty among the poor, we’re ready to discuss how they may lead to the enrichment of the already wealthy. When politicians decide to try to do something about an issue, one of the first things that they do is convene special hearings about the issue. Here, they call upon the testimonies of experts to try to figure out (1) what can be done and then (2) how best to do it.

The problem here is that the very people who are best equipped to detail how to solve the problem will typically explain that they themselves (or the people that they represent) are in fact the best to solve the problem and should be awarded the contract to solve the problem. We see this in government all the time. Take, for example, the company that was placed in charge of rebuilding Iraq after the US invasion in 2006: Halliburton, which was formerly run by then-Vice President Dick Cheney. Is it any wonder why this company was awarded these contracts? Kwame Kilpatrick, when he was mayor of Detroit, would routinely award offices and several perks to his friends and family members. Don’t forget about the legendary William Tweed, better known as “Boss Tweed.” The point here is not that all politicians are corrupt, but that knowing a politician who is in a position to award perks puts you in good stead to be the recipient of largesse. And, of course, if that’s true, you have very good reasons to create incentives for the politician to steer favors in your direction. It is the nature of politics.

What to Do

Evidencing the failure of domestic aid to help combat poverty, Abigail Hall has an excellent article, forthcoming in the Journal of Private Enterprise, detailing the failure of the Appalachian Regional Commission. This line of research might lead one to the sobering conclusion that there is little that can be done to alleviate the suffering of the poor. Nothing could be further from the truth, however.

We can take away a couple of things from this type of work:

1) The limits of what can be directly achieved through political means of alleviating poverty; and

2) The idea that the expansion of opportunity ultimately drives economic growth and helps the poor.

Rather than focusing on giving poor people the resources to live well, we should instead focus on removing the barriers that prevent people from discovering ways to be productive. Doing so would not only provide them with the tools to lift themselves out of poverty, but would also provide the basis of dignity.

David Hebert is a Ph.D. student in economics at George Mason University. His research interests include public finance and property rights.

This article was originally published by The Foundation for Economic Education.
Remembrance Day 2038 – Short Story by Bradley Doucet

Remembrance Day 2038 – Short Story by Bradley Doucet

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Bradley Doucet
November 11, 2013
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One hundred years ago, humanity was on the verge of global war. Hitler’s Germany had already annexed Austria, and Hirohito’s Japan had invaded China, Mongolia, and the USSR. Tens of millions of people would die in the ensuing Second World War, the deadliest conflict in human history. Today, we remember the fallen, both military and civilian, in this and other wars. We remember, and we give thanks for the current peace, which we have good grounds for believing will be an enduring one.

As recently as 25 years ago, such optimism would have seemed naïve. Though the world was already becoming much less violent in general, the terrorist attacks of September 11, 2001 were still an open psychic wound for many Americans, and isolated wars raged on in many regions. Fears of nuclear proliferation threatened to spark further conflicts in the already volatile Middle East.

But parallel to these political events and tensions, the global economy kept growing, spreading the benefits of industrialization and trade to more and more people in more and more countries. The more obvious the connection became between basic economic freedom and rising standards of living, the harder it became for even the most authoritarian regimes to resist the push for freer markets. Dire poverty has now been all but eradicated and real economic security is commonplace. And as people have more to live for, they are less willing to die for their countries. Pragmatic negotiations have become more attractive, and violent conflict less so.

The change that humanity has undergone can be summed up by a simple but profound slogan: Make trade, not war. As we have become more accustomed to seeing our neighbours as potential trading partners in positive-sum exchanges, killing them no longer seems to make a lot of sense. We remember today the wars of the past, that we might better appreciate our present peace and extend it indefinitely into the future.

Bradley Doucet is Le Québécois Libre‘s English Editor and the author of the blog Spark This: Musings on Reason, Liberty, and Joy. A writer living in Montreal, he has studied philosophy and economics, and is currently completing a novel on the pursuit of happiness. He also writes for The New Individualist, an Objectivist magazine published by The Atlas Society, and sings.

Economies are Not Destroyed in a Day – Article by Nicolás Cachanosky

Economies are Not Destroyed in a Day – Article by Nicolás Cachanosky

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Nicolás Cachanosky
October 26, 2013
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Earlier this month, Argentina’s leading conservative paper, La Nación published an unsigned editorial comparing the economies of Argentina and Venezuela. The editorial concluded that as economic freedom declines in Argentina, and as Argentina adopts more of what Chavez called “twenty-first century socialism,” it is becoming increasingly similar to Venezuela. Is this true? Will Argentina suffer the same fate as Venezuela where poverty is increasing and toilet paper can be a luxury?

The similarities of regulations and economic problems facing both countries are indeed striking in spite of obvious differences in the two countries. Yet, when people are confronted with the similarities, it is common to hear replies like “but Argentina is not Venezuela, we have more infrastructure and resources.”

Institutional changes, however, define the long-run destiny of a country, not its short-run prosperity.

Imagine that Cuba and North Korea became, overnight, the two most free-market, limited-government countries in the world. The two countries would have immediately gained civil liberties and economic freedom, but they would still have to accumulate wealth and to develop their economies. The institutional change affects the political situation immediately, but a new economy requires time to take shape. For example, as China opened parts of its economy to international markets, the country started to grow, and we are now seeing the effects of decades of relative economic liberalization. It is true that many areas in China continue to lack significant freedoms, but it would be a much different China today had it refused to change its institutions decades ago.

The same occurs if one of the wealthiest and developed countries in the world were to adopt Cuban or North Korean institutions overnight. The wealth and capital does not vanish in 24 hours. The country would shift from capital accumulation to capital consumption and it might take years or even decades to drain the coffers of previous accumulated wealth. In the meantime, the government has the resources to play the game of Bolivarian (i.e., Venezuelan) populist socialism and enjoy the wealth, highways, electrical infrastructure, and communication networks that were the result of the more free-market institutional realities of the past.

Eventually, though, highways start to deteriorate from the lack of maintenance (or trains crash in the station killing dozens of passengers), the energy sector starts to waver, energy imports become unavoidable, and the communication network becomes obsolete. In other words, economic populism is financed with resources accumulated by non-populist institutions.

According to the Fraser Institute’s Economic Freedom of the World project, Argentina ranked 34th-best in the year 2000. By 2011, however, Argentina fell to 137, next to countries like Ecuador, Mali, China, Nepal, Gabon, and Mozambique. There is no doubt that Argentina enjoys a higher rate of development and wealth than those other countries. But, can we still be sure that this will be the situation 20 or 30 years from now? The Argentinean president is known for having said that she would like Argentina to be a country like Germany, but the path to becoming like Switzerland or Germany involves adopting Swiss and German-type institutions, which Argentina is not doing.

The adoption of Venezuelan institutions in Argentina, came along with high growth rates. These growth rates, however, are misleading:

First, economic growth, properly speaking, is not an increase in “production,” but an increase in “production capacity.” The growth in observed GDP after a big crisis is economic recovery, not economic growth properly understood.

Second, you can increase your production capacity by investing in the wrong economic activities. Heavy price regulation, as takes place in Argentina (now accompanied by high rates of inflation), misdirects resource allocation by affecting relative prices. We might be able to see and even touch the new investment, but such capital is the result of a monetary illusion. The economic concept of capital does not depend on the tangibility or size of the investment (i.e, on its physical properties), but on its economic value. When the time comes for relative prices to adjust to reflect real consumer preferences, and the market value of capital goods drops, capital is consumed or destroyed in economic terms even if the physical qualities of capital goods remains unchanged.

Third, production can increase not because investment increases, but because people are consuming invested capital, as is the case when there is an increase in the rate that machinery and infrastructure wear out.

I’m not saying that there is no genuine growth in Argentina, but it remains a fact that a nontrivial share of the Argentinean GDP growth can be explained by: (1) recovery, (2) misdirection of investment, and (3) capital consumption. If that weren’t the case, employment creation wouldn’t have stagnated and the country’s infrastructure should be shining rather than falling into pieces.

Most economists and policy analysts seem to have a superficial reading of economic variables. If an economy is healthy, then economic variables look good, GDP grows, and inflation is low. But the fact that we observe good economic indicators does not imply that the economy is healthy. There’s a reason why a doctor asks for tests from a patient that appears well. Feeling well doesn’t mean there might not be a disease that shows no obvious symptoms at the moment. The economist who refuses to have a closer look and see why GDP grows is like a doctor who refuses to have a closer look at his patient. The Argentinian patient has caught the Bolivarian disease, but the most painful symptoms have yet to surface.

NOTE: This is a translated and expanded version of an original piece published in Economía Para Todos (Economics for Everyone).

Nicolás Cachanosky is Assistant Professor of Economics at Metropolitan State University of Denver. See Nicolás Cachanosky’s article archives.

You can subscribe to future articles by Nicolás Cachanosky via this RSS feed.

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.

On Brakes and Mistakes – Article by Sanford Ikeda

On Brakes and Mistakes – Article by Sanford Ikeda

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Sanford Ikeda
March 30, 2013
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Here’s an observation from a recent column in The Economist magazine on “The Transience of Power”:

“In 1980 a corporation in the top fifth of its industry had only a 10% chance of falling out of that tier in five years. Eighteen years later that chance had risen to 25%.”

Competition makes it hard to stay at the top even as it offers a way off the bottom. Data on income mobility also support the idea. And despite occasional downturns (some quite large, as we well know), per-capita gross domestic product in the United States keeps rising steadily over time. These two phenomena, economic growth and competitive shaking out, are of course connected.

Different Ways of Thinking About Economic Growth

Economists in the mainstream (neoclassical) tradition are trained to think of growth mainly as raising the rate of producing existing products. For example, a higher rate of saving allows firms to employ more and more capital and labor, generating ever-higher rates of output. It reminds me of the Steve Martin movie, The Jerk, in which a man who is born in a run-down shack eventually strikes it rich and builds himself a much bigger house that is just a scaled-up version of the old shack.

But economist Paul Romer, for one, has said,

“If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking.”

So growth through innovation, technical advance, and making new products is more important than just using more inputs to do more of the same thing. The late Harvard economist Joseph Schumpeter came even closer to the truth when he famously described competitive innovation as a “gale of creative destruction”—building up and tearing down—with creation staying just ahead of destruction.

But standard economic theory has had trouble incorporating the kind of economic growth driven by game-changing innovators such as Apple, Facebook, and McDonalds. Mathematically modeling ignorance and error, ambition and resourcefulness, and creativity and commitment has so far been too challenging for the mainstream.

What’s the Source of Economic Growth?

Achieving economic growth through innovation means someone is taking chances, sometimes big chances, to break new ground. As Schumpeter put it, what it takes is finding “the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization.” Although talented people are behind this process, we sometimes put too much stress on bold “captains of industry” such as Steve Jobs, Mark Zuckerberg, and Ray Kroc. The personalities of the players are important—but so are the rules of the game.

Imagine if cars had no brakes. How slowly and cautiously we would have to drive!  Clearly, brakes on cars enable us to drive faster and safer. How? Well, brakes give us the freedom to make a lot of mistakes—entering a turn too fast or taking our eyes off the road for too long—without causing disaster. We can take more chances with brakes than without them. (Of course, good brakes can also seduce us into driving recklessly, but that’s a story for another day.) Similarly, economic development of the Schumpeterian variety presupposes lots of experimentation, and that in turn means making plenty of mistakes.

Markets Mean Mistakes

Now imagine a world in which people looked down on innovators. That’s hard to do in our time, but as Deirdre McClosky argues in her 2010 book, Bourgeois Dignity: Why Economists Can’t Explain the Modern World,  it wasn’t that long ago when most people disdained innovators who challenged established ways of thinking and doing. The result was cultural and economic stagnation. Making an innovator a figure of dignity worthy of respect, which she says began to take hold about 400 years ago, has sparked unprecedented economic development and prosperity.

But a smart, creative, ambitious, and committed person is likely to make mistakes. And so a culture that lauds spectacular success also needs to at least tolerate spectacular failure. You can’t have trial without error or profit without loss.

Let me be clear. I’m not saying that people in an innovative society should champion failure. I’m saying they must expect potential innovators to make a lot of mistakes and so have not only the right institutions in place (private property, contract, and so on) but also the right psychological mindset—which is something static societies can’t do.

Change, Uncertainty, and Tolerance

If you think you already know everything, anyone who thinks differently must be wrong. So why tolerate them?

One of the great differences between the modern world and the various dark ages mankind has gone through is how rapidly today our lives change. There’s immeasurably more uncertainty in the era of creative destruction than in times dominated by the “tried and true.”  But the more we realize how much uncertainty there is about what we think we know, the more we ought to be willing to admit that we may be wrong and the other guy may, at least sometimes, be right. And so if we see someone succeed or fail, we think, “That could have been me!” In a sense, an advancing society welcomes mistakes as much as it embraces triumphs, just as a fast car needs brakes as much as it needs an engine.

That’s not just fancy talk. The evidence—prosperity—is all around us.

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

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

Dynamists vs. Stasists: Virginia Postrel’s “The Future and Its Enemies”, 15 Years Later – Article by Bradley Doucet

Dynamists vs. Stasists: Virginia Postrel’s “The Future and Its Enemies”, 15 Years Later – Article by Bradley Doucet

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The New Renaissance Hat
Bradley Doucet
February 18, 2013
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This article was originally published as part of the 15th anniversary issue of Le Québécois Libre.
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Fifteen years ago, in 1998, Le Québécois Libre was launched by Martin Masse and Gilles Guénette. I did not know them at the time. I was finishing up my bachelor’s degree that year, and only met them seven years later, in 2005, shortly after submitting my first article to them. I quickly became a regular contributor, and three years after that, in 2008, English Editor. To date, I have written 64 articles and reviews for the QL, along with 34 shorter Illiberal Beliefs, and a handful of blog entries in French. I’m proud of this work, and proud to have been a part of this web magazine for the past eight years, and I look forward to many more.
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For this 15th anniversary edition, then, I thought I would look back at a book that was published way back in 1998. I did a little sleuthing and found an excellent one in my library, one that appropriately enough has its gaze firmly fixed forward: Virginia Postrel’s The Future and Its Enemies: The Growing Conflict Over Creativity, Enterprise, and Progress. On one level, Postrel’s book is a celebration of the technological wonders of the modern world. She writes eloquently about the benefits of everything from biotechnology to computers, from tampons to contact lenses. But on a deeper level, she is celebrating the creativity and enterprise that generate open-ended, unpredictable progress—and warning us against those who would stifle it or stop it altogether.

Pro vs. Con

Postrel refers to those who embrace the idea of an open-ended future as “dynamists.” Although they are a diverse group and certainly not a proper coalition, dynamists “share beliefs in spontaneous order, in experiments and feedback, in evolved solutions to complex problems, in the limits of centralized knowledge, and in the possibilities of progress.” While many libertarians will recognize themselves in such attitudes (Postrel herself was the editor of the libertarian Reason magazine from July 1989 to January 2000), so will others who consider themselves progressives, liberals, or conservatives, or who are frankly apolitical. Dynamism is a broad category, and it cuts across party lines.

So, too, is its opposite. People who are opposed to the idea of an open-ended future, Postrel dubs “stasists,” and they in turn fall into two broad subcategories: “reactionaries, whose central value is stability, and technocrats, whose central value is control.” Certain types of conservatives who long for the way they imagine the world to have been in the 1950s (or the 1850s) are examples of reactionaries, but so are certain environmentalists who long for the way they imagine the world to have been before the Industrial Revolution, or before agriculture, or before man. Technocrats, for their part, do not want to stop or reverse change; they just want to tame it, to bring it under centralized, expert control by subsidizing and regulating businesses, controlling international trade and immigration, and requiring their stamp of approval before anything new can be allowed to flourish.

In countering reactionaries, dynamists need to emphasize the great benefits that have accrued to humankind from things like penicillin, modern dentistry, and electric motors, which have eliminated many early deaths and much pain and backbreaking toil. In responding to the siren call of technocrats, dynamists need to explain why the future cannot be effectively controlled without crippling it, that in order for there to be much technological innovation and material progress, people need the freedom to experiment.

Reactionaries, says Postrel, used to be opposed to technocrats, but now “they attack dynamism, often in alliance with their former adversaries.” In response, one of her tacks is to celebrate dynamism as being, in fact, more truly natural than either stability or centralized control. She also cleverly counters the charge that people who value freedom are “atomistic” by pointing out that atoms are rarely found alone in nature; they form molecular bonds, and free people form social bonds without having to be coerced into doing so. In closing, she calls on dynamists to start seeing themselves as a real coalition, a coalition not based primarily on fear or self-interest, but rather “bound by love: love of knowledge, love of exploration, love of adventure, and, just as much, love of small dreams, of the textures of life.”

The World Today

A lot can change in fifteen years. In celebrating the gradual development of contact lenses through the messy, undirected process of trial and error, Postrel imagines what the future of this technology might be: “Someday we may expect our contact lenses to function as computer screens and navigation guides, to see infrared or enhance night vision. Or we may displace them altogether with laser surgery or other procedures, as yet undiscovered.” Laser eye surgery, which was still very new in 1998, has more than come into its own in 2013, as my friend and QL colleague Adam Allouba personally experienced just recently.

But if technology has not stopped evolving, the dynamist coalition Postrel envisioned to defend the future does not yet appear to have become a significant player on the political scene. Part of the reason is surely the 2001 destruction of the World Trade Centre in New York, which breathed new life into old Cold War, hawk-dove political divisions that had up until then been fading, and thereby forestalled any restructuring along dynamist-stasist lines. It also gave technocratic peddlers of fear on the right another excuse to exert more centralized control, as the 2008 financial crisis did for technocratic peddlers of fear on the left.

Part of the challenge for libertarians has been to show that both of these traumatic events were failures of rigid, centralized, bureaucratic control—and that flexible, spontaneous order can do better. Hopefully, given the work we do here at Le Québécois Libre, and the work done by Postrel and many others around the world, in another fifteen years, the kinds of lessons contained in The Future and Its Enemies will be more widely appreciated, and that dynamist coalition for an open-ended future will be a burgeoning reality.

Bradley Doucet is Le Quebecois Libré‘s English Editor. A writer living in Montreal, he has studied philosophy and economics, and is currently completing a novel on the pursuit of happiness.
TANSTAAFL and Saving: Not the Whole Story – Article by Sanford Ikeda

TANSTAAFL and Saving: Not the Whole Story – Article by Sanford Ikeda

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The New Renaissance Hat
Sanford Ikeda
October 3, 2012
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How often have you heard someone say, “There ain’t no such thing as a free lunch,” or, “Saving is the path to economic development”?  Many treat these statements as the alpha and omega of economic common sense.

The problem is they are myths.

Or, at least, popular half-truths.  And they aren’t your garden-variety myths because people who favor the free market tend to say them all the time.  I’ve said them myself, because they do contain more than a grain of truth.

“There ain’t no such thing as a free lunch” (or TANSTAAFL) means that, with a limited budget, choosing one thing means sacrificing something else.  Scarcity entails tradeoffs.  It also implies that efficiency means using any resource so that no other use will give a higher reward for the risk involved.

That saving is necessary for rising labor productivity and prosperity also contains an economic truth.  No less an authority than the great Austrian economist Ludwig von Mises has stated this many times.  In an article published in The Freeman in 1981, for example, he said:

The fact that the standard of living of the average American worker is incomparably more satisfactory than that of the average [Indian] worker, that in the United States hours of work are shorter and children sent to school and not to the factories, is not an achievement of the government and the laws of the country. It is the outcome of the fact that the capital invested per head of the employees is much greater than in India and that consequently the marginal productivity of labor is much higher.

The Catalyst

But the statement is true in much the same way that saying breathable air is necessary for economic development is true.  Saving and rising capital accumulation per head do accompany significant economic development, and if we expect it to continue, people need to keep doing those activities.  But they are not the source–the catalyst, if you will–of the prosperity most of the world has seen in the past 200 years.

What am I talking about?  Deirdre McCloskey tells us in her 2010 book, Bourgeois Dignity: Why Economics Can’t Explain the World:

Two centuries ago the world’s economy stood at the present level of Bangladesh. . . .  In 1800 the average human consumed and expected her children and grandchildren and great-grandchildren to go on consuming a mere $3 a day, give or take a dollar or two [in today’s dollars]. . . .

By contrast, if you live nowadays in a thoroughly bourgeois country such as Japan or France you probably spend about $100 a day.  One hundred dollars as against three: such is the magnitude of modern economic growth.

(Hans Rosling illustrates this brilliantly in this viral video.)

That is unprecedented, historic, even miraculous growth, especially when you consider that $3 (or less) a day per person has been the norm for most of human history.  What is the sine qua non of explosive economic development and accelerating material prosperity?  What was missing for millennia that prevented the unbelievable takeoff that began about 200 years ago?

A More Complete Story

Economics teaches us the importance of TANSTAAFL and capital investment.  Again, the trouble is they are not the whole truth.

As I’ve written before, however, there is such a thing as a free lunch, and I don’t want to repeat that argument in its entirety.  The basic idea is that what Israel M. Kirzner calls “the driving force of the market” is entrepreneurship.  Entrepreneurship goes beyond working within a budget–it’s the discovery of novel opportunities that increase the wealth and raises the budgets of everyone in society, much as the late Steve Jobs or Thomas Edison or Madam C.J. Walker (probably the first African-American millionaire) did.  Yes, those innovators needed saving and capital investment by someone–most innovators were debtors at first–but note: Those savings could have been and were invested in less productive investments before these guys came along.

As McCloskey, as well as Rosenberg and Birdzell, have argued, it isn’t saving, capital investment per se, and certainly not colonialism, income inequality, capitalist exploitation, or even hard work that is responsible for the tremendous rise in economic development, especially since 1800.

It is innovation.

And, McCloskey adds, it is crucially the ideas and words that we use to think and talk about the people who innovate–the chance takers, the rebels, the individualists, the game changers–and that reflect a respect for and acceptance of the very concept of progress.  Innovation blasts the doors off budget constraints and swamps current rates of savings.

Doom to the Old Ways

Innovation can also spell doom to the old ways of doing things and, in the short run at least, create hardship for the people wedded to them.  Not everyone unambiguously gains from innovation at first, but in time we all do, though not at the same rate.

So for McCloskey, “The leading ideas were two: that the liberty to hope was a good idea and that a faithful economic life should give dignity and even honor to ordinary people. . . .”

There’s a lot in this assertion that I’ll need to think through.  But I do accept the idea that innovation, however it arises, trumps efficiency and it trumps mere savings.  Innovation discovers free lunches; it dramatically reduces scarcity.

Indeed, innovation is perhaps what enables the market economy to stay ahead of, for the time being at least, the interventionist shackles that increasingly hamper it.  You want to regulate landline telephones?  I’ll invent the mobile phone!  You make mail delivery a legal monopoly?  I’ll invent email!  You want to impose fixed-rail transport on our cities?  I’ll invent the driverless car!

These aren’t myths. They’re reality.

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

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.

Anthropogenic Global Warming, Liberty, and Technology – Video by G. Stolyarov II

Anthropogenic Global Warming, Liberty, and Technology – Video by G. Stolyarov II

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Mr. Stolyarov argues that, whether or not anthropogenic global warming is real, political interference is not the proper way to address it. The solution is maximum individual liberty and freedom for entrepreneurs to innovate and develop improved technologies.

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Automation, Jobs, and Human Prosperity – Video by G. Stolyarov II

Automation, Jobs, and Human Prosperity – Video by G. Stolyarov II

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Contrary to popular belief, automation does not lead to the loss of jobs. Automation is humankind’s best friend in terms of raising standards of living and freeing up human efforts to be devoted to truly creative and innovative tasks. Furthermore, Mr. Stolyarov argues that jobs are not in themselves a desirable goal; higher prosperity is – and higher prosperity allows humans to enjoy greater leisure while producing more than their ancestors could with more primitive tools.

Remember to LIKE, FAVORITE, and SHARE this video in order to spread rational discourse on this issue.