Milton Friedman

Some of the Economists Pictured On My Van

Published by Papa Giorgio

Often I am asked who the pictured persons are on the back of my van. So I figured I would explain a few of them in bio form and what books by them are classics.

All books and pictures will be linked.

Milton Friedman

(More at Econ Library) Milton Friedman was the twentieth century’s most prominent advocate of free markets. Born in 1912 to Jewish immigrants in New York City, he attended Rutgers University, where he earned his B.A. at the age of twenty. He went on to earn his M.A. from the University of Chicago in 1933 and his Ph.D. from Columbia University in 1946. In 1951 Friedman received the John Bates Clark Medal honoring economists under age forty for outstanding achievement. In 1976 he was awarded the Nobel Prize in economics for “his achievements in the field of consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy.” Before that time he had served as an adviser to President Richard Nixon and was president of the American Economic Association in 1967. After retiring from the University of Chicago in 1977, Friedman became a senior research fellow at the Hoover Institution at Stanford University.

Friedman established himself in 1945 with Income from Independent Professional Practice, coauthored with Simon Kuznets. In it he argued that state licensing procedures limited entry into the medical profession, thereby allowing doctors to charge higher fees than they would be able to do if competition were more open.

His landmark 1957 work, A Theory of the Consumption Function, took on the Keynesian view that individuals and households adjust their expenditures on consumption to reflect their current income. Friedman showed that, instead, people’s annual consumption is a function of their “permanent income,” a term he introduced as a measure of the average income people expect over a few years.

In Capitalism and Freedom, Friedman wrote arguably the most important economics book of the 1960s, making a case for relatively free markets to a general audience. He argued for, among other things, a volunteer army, freely floating exchange rates, abolition of licensing of doctors, a negative income tax, and education vouchers. (Friedman was a passionate foe of the military draft: he once stated that the abolition of the draft was almost the only issue on which he had personally lobbied Congress.) Many of the young people who read it were encouraged to study economics themselves. His ideas spread worldwide with Free to Choose (coauthored with his wife, Rose Friedman), the best-selling nonfiction book of 1980, written to accompany a TV series on the Public Broadcasting System. This book made Milton Friedman a household name.

F.A. Hayek

(More at Econ Library) If any twentieth-century economist was a Renaissance man, it was Friedrich Hayek. He made fundamental contributions in political theory, psychology, and economics. In a field in which the relevance of ideas often is eclipsed by expansions on an initial theory, many of his contributions are so remarkable that people still read them more than fifty years after they were written. Many graduate economics students today, for example, study his articles from the 1930s and 1940s on economics and knowledge, deriving insights that some of their elders in the economics profession still do not totally understand. It would not be surprising if a substantial minority of economists still read and learn from his articles in the year 2050. In his book Commanding Heights, Daniel Yergin called Hayek the “preeminent” economist of the last half of the twentieth century.

Hayek was the best-known advocate of what is now called Austrian economics. He was, in fact, the only major recent member of the Austrian school who was actually born and raised in Austria. After World War I, Hayek earned his doctorates in law and political science at the University of Vienna. Afterward he, together with other young economists Gottfried Haberler, Fritz Machlup, and Oskar Morgenstern, joined Ludwig von Mises’s private seminar—the Austrian equivalent of John Maynard Keynes’s “Cambridge Circus.” In 1927 Hayek became the director of the newly formed Austrian Institute for Business Cycle Research. In the early 1930s, at the invitation of Lionel Robbins, he moved to the faculty of the London School of Economics, where he stayed for eighteen years. He became a British citizen in 1938.

Most of Hayek’s work from the 1920s through the 1930s was in the Austrian theory of business cycles, capital theory, and monetary theory. Hayek saw a connection among all three. The major problem for any economy, he argued, is how people’s actions are coordinated. He noticed, as Adam Smith had, that the price system—free markets—did a remarkable job of coordinating people’s actions, even though that coordination was not part of anyone’s intent. The market, said Hayek, was a spontaneous order. By spontaneous Hayek meant unplanned—the market was not designed by anyone but evolved slowly as the result of human actions. But the market does not work perfectly. What causes the market, asked Hayek, to fail to coordinate people’s plans, so that at times large numbers of people are unemployed?

One cause, he said, was increases in the money supply by the central bank. Such increases, he argued in Prices and Production, would drive down interest rates, making credit artificially cheap. Businessmen would then make capital investments that they would not have made had they understood that they were getting a distorted price signal from the credit market. But capital investments are not homogeneous. Long-term investments are more sensitive to interest rates than short-term ones, just as long-term bonds are more interest-sensitive than treasury bills. Therefore, he concluded, artificially low interest rates not only cause investment to be artificially high, but also cause “malinvestment”—too much investment in long-term projects relative to short-term ones, and the boom turns into a bust. Hayek saw the bust as a healthy and necessary readjustment. The way to avoid the busts, he argued, is to avoid the booms that cause them.

Hayek and Keynes were building their models of the world at the same time. They were familiar with each other’s views and battled over their differences. Most economists believe that Keynes’s General Theory of Employment, Interest and Money (1936) won the war. Hayek, until his dying day, never believed that, and neither do other members of the Austrian school. Hayek believed that Keynesian policies to combat unemployment would inevitably cause inflation, and that to keep unemployment low, the central bank would have to increase the money supply faster and faster, causing inflation to get higher and higher. Hayek’s thought, which he expressed as early as 1958, is now accepted by mainstream economists (see phillips curve).

In the late 1930s and early 1940s, Hayek turned to the debate about whether socialist planning could work. He argued that it could not. The reason socialist economists thought central planning could work, argued Hayek, was that they thought planners could take the given economic data and allocate resources accordingly. But Hayek pointed out that the data are not “given.” The data do not exist, and cannot exist, in any one mind or small number of minds. Rather, each individual has knowledge about particular resources and potential opportunities for using these resources that a central planner can never have. The virtue of the free market, argued Hayek, is that it gives the maximum latitude for people to use information that only they have. In short, the market process generates the data. Without markets, data are almost nonexistent.

Mainstream economists and even many socialist economists (see socialism) now accept Hayek’s argument. Columbia University economist Jeffrey Sachs noted: “If you ask an economist where’s a good place to invest, which industries are going to grow, where the specialization is going to occur, the track record is pretty miserable. Economists don’t collect the on-the-ground information businessmen do. Every time Poland asks, Well, what are we going to be able to produce? I say I don’t know.”

In 1944 Hayek also attacked socialism from a very different angle. From his vantage point in Austria, Hayek had observed Germany very closely in the 1920s and early 1930s. After he moved to Britain, he noticed that many British socialists were advocating some of the same policies for government control of people’s lives that he had seen advocated in Germany in the 1920s. He had also seen that the Nazis really were National Socialists; that is, they were nationalists and socialists. So Hayek wrote The Road to Serfdom to warn his fellow British citizens of the dangers of socialism. His basic argument was that government control of our economic lives amounts to totalitarianism. “Economic control is not merely control of a sector of human life which can be separated from the rest,” he wrote, “it is the control of the means for all our ends.”

To the surprise of some, John Maynard Keynes praised the book highly. On the book’s cover, Keynes is quoted as saying: “In my opinion it is a grand book…. Morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement with it, but in deeply moved agreement.”

Although Hayek had intended The Road to Serfdom only for a British audience, it also sold well in the United States. Indeed, Reader’s Digest condensed it. With that book Hayek established himself as the world’s leading classical liberal; today he would be called a libertarian or market liberal. A few years later, along with Milton Friedman, George Stigler, and others, he formed the Mont Pelerin Society so that classical liberals could meet every two years and give each other moral support in what appeared to be a losing cause. …

Thomas Sowell

(More at Famous Economists) Thomas Sowell is a renowned economist, theorist and writer hailing from the United States of America. He is known for his old-fashioned assessments of economic theory, often drawing criticism from his liberal counterparts, but still attracting appreciation from fellow conservatives for encouraging hard work and self-sufficiency.

Sowell is an African American born in North Carolina on 30 June, 1930. He spent a lot of his early childhood migrating between cities due to family issues which required him to drop out of his high school. His family’s financial predicament forced him to work different jobs at a very young age; his endeavors saw him work at a machine shop and as a delivery boy for Western Union. He was soon inducted in to the Marine Corps as an aspiring photographer, where he also learned how to operate pistols. He managed this job whilst simultaneously continuing his education, attending night classes at his high school.

After enrolling in Howard University, Sowell soon obtained a transfer to Harvard University on the back of impressive results in College Board examinations and positive recommendations from professors. Sowell graduated with a degree in economics in 1958, and then moved to Columbia University for his Masters program, after which he completed is Ph.D. studies from the University of Chicago in 1968.

Thomas Sowell occupied a number of teaching positions at various universities after completing his education. After teaching at Rutgers and Howard universities in the early 60’s, he held the title of assistant professor of economics at Cornell and the University of California, Los Angeles where he was given full professor status in 1974. Sowell has also been part of the faculty at Brandeis University and Amherst College. In 1980, he moved to Stanford University which granted him the title of Senior Fellow at its Hoover Institution. He has held this position there ever since.

Sowell initially subscribed to the Marxist school of thought in economics theory, an approach he renounced after his experience working as an intern for the U.S. Department of Labor in 1960, instead opting for free market principles. His research in his time there also made him critical of minimum wage laws, which he felt not only perpetuated unemployment, but were introduced by bureaucrats only to secure their status in the government. He orchestrated the Black Alternatives Conference in San Francisco during the Reegan regime to oppose minimum wages and call for more black representation in the government. In 1969 however, Sowell defended Cornell University against allegations of racism after observing the rebellion by black students.

Sowell also boasts remarkable credentials in the field or journalism and writing, expressing opinion on a multitude of topics such as state policies on social and racial groups, Marxist economic theory and education. He has published a number of works since 1971, with some of his best-selling books being ‘Basic Economics: A Common Sense Guide to the Economy‘, ‘Black Rednecks and White Liberals‘, and ‘Intellectuals and Society‘. Besides publishing books Sowell has written for prominent magazines and academic journals. These include the New York Times, Forbes and the Spectator. He also managed a column for the Scripps-Howard news service in the years 1984-1990.

During is elaborate career, Thomas Sowell was no stranger to controversy. His claims that inequality which persists across ethnic groups bears no connection with discrimination, but is to do with the characteristics and attitudes intrinsic to these groups was not received well by some sects. His resistance towards government assistance of economically and socially challenged groups, which he believes discourages self-sufficiency and dependence, has also been criticized. But he still remains one of the great African American thinkers of his generation given his contributions not only towards the economics, but political philosophy and social theory as well. …

Ludwig von Mises

Ludwig von Mises was one of the last members of the original austrian school of economics. He earned his doctorate in law and economics from the University of Vienna in 1906. One of his best works, The Theory of Money and Credit, was published in 1912 and was used as a money and banking textbook for the next two decades. In it Mises extended Austrian marginal utility theory to money, which, noted Mises, is demanded for its usefulness in purchasing other goods rather than for its own sake.

In that same book Mises also argued that business cycles are caused by the uncontrolled expansion of bank credit. In 1926 Mises founded the Austrian Institute for Business Cycle Research. His most influential student, Friedrich Hayek, later developed Mises’s business cycle theories.

Another of Mises’s notable contributions is his claim that socialism must fail economically. In a 1920 article, Mises argued that a socialist government could not make the economic calculations required to organize a complex economy efficiently. Although socialist economists Oskar Lange and Abba Lerner disagreed with him, modern economists agree that Mises’s argument, combined with Hayek’s elaboration of it, is correct (see socialism).

Mises believed that economic truths are derived from self-evident axioms and cannot be empirically tested. He laid out his view in his magnum opus, Human Action, and in other publications, although he failed to persuade many economists outside the Austrian school. Mises was also a strong proponent of laissez-faire; he advocated that the government not intervene anywhere in the economy. Interestingly, though, even Mises made some striking exceptions to this view. For example, he believed that military conscription could be justified in wartime.

From 1913 to 1934 Mises was an unpaid professor at the University of Vienna while working as an economist for the Vienna Chamber of Commerce, in which capacity he served as the principal economic adviser to the Austrian government. To avoid the Nazi influence in his Austrian homeland, in 1934 Mises left for Geneva, where he was a professor at the Graduate Institute of International Studies until he emigrated to New York City in 1940. He was a visiting professor at New York University from 1945 until he retired in 1969.

Mises’s ideas—on economic reasoning and on economic policy—were out of fashion during the Keynesian revolution that took over American economic thinking from the mid-1930s to the 1960s. Mises’s upset at the Keynesian revolution and at Hitler’s earlier destruction of his homeland made Mises bitter from the late 1940s on. The contrast between his early view of himself as a mainstream member of his profession and his later view of himself as an outcast shows up starkly in The Theory of Money and Credit. The first section, written in 1912, is calmly argued; the last section, added in the 1940s, is strident. ….

Frederic Bastiat

Joseph Schumpeter described Bastiat nearly a century after his death as “the most brilliant economic journalist who ever lived.” Orphaned at the age of nine, Bastiat tried his hand at commerce, farming, and insurance sales. In 1825, after he inherited his grandfather’s estate, he quit working, established a discussion group, and read widely in economics.

Bastiat made no original contribution to economics, if we use “contribution” the way most economists use it. That is, we cannot associate one law, theorem, or pathbreaking empirical study with his name. But in a broader sense Bastiat made a big contribution: his fresh and witty expressions of economic truths made them so understandable and compelling that the truths became hard to ignore.

Bastiat was supremely effective at popularizing free-market economics. When he learned of Richard Cobden’s campaign against the British Corn Laws (restrictions on the import of wheat, barley, rye, and oats), Bastiat vowed to become the “French Cobden.” He subsequently published a series of articles attacking protectionism that brought him instant acclaim. In 1846 he established the Association of Free Trade in Paris and his own weekly newspaper, in which he waged a witty assault against socialists and protectionists.

Bastiat’s “A Petition,” usually referred to now as “The Petition of the Candlemakers,” displays his rhetorical skill and rakish tone, as this excerpt illustrates:

We are suffering from the ruinous competition of a foreign rival who apparently works under conditions so far superior to our own for the production of light, that he is flooding the domestic market with it at an incredibly low price…. This rival … is none other than the sun….

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights and blinds; in short, all openings, holes, chinks, and fissures.

This reductio ad absurdum of protectionism was so effective that one of the most successful postwar economics textbooks, Economics by Paul A. Samuelson, quotes the candlemakers’ petition at the head of the chapter on protectionism.

Bastiat also emphasized the unintended consequences of government policy (he called them the “unseen” consequences). Friedrich Hayek credits Bastiat with this important insight: if we judge economic policy solely by its immediate effects, we will miss all of its unintended and longer-run effects and will undermine economic freedom, which delivers benefits that are not part of anyone’s conscious design. Much of Hayek’s work, and some of Milton Friedman’s, was an exploration and elaboration of this insight.

(Via Econ Lib)

Henry Hazlitt

Henry Hazlitt, a journalist, writer, and economist, was born in Philadelphia. His father died soon after his birth, and he attended a school for poor, fatherless boys. His mother remarried, and the family moved to Brooklyn, New York. When he graduated from high school, Hazlitt’s ambition was to go to Harvard and write books on philosophy. But his stepfather died, and he started attending the no-​tuition College of the City of New York. However, he soon left school to support himself and his mother. In those years, it was not hard for a young man to get a job. With no government- imposed obstacles to hiring or firing, no minimum wage laws, no workday or workweek restrictions, and no unemployment or social security taxes, employer and potential employee needed only to agree on the terms of employment. If things did not work out, the employee could quit or be fired. Hazlitt’s first jobs lasted only a few days each.

When Hazlitt realized that with shorthand and typing skills he could earn two or three times the $5 per week he was being paid as an unskilled office boy, he studied stenography. Determined to become a writer, he looked for a newspaper job and soon took a job with the Wall Street Journal, then a small limited-​circulation publication. Its executives dictated editorials to him, and reporters phoned in their stories. At first he knew nothing about Wall Street. On one assignment, Hazlitt was informed that a company had passed its dividend. Hazlitt thought this meant the company had approved it. But in stock market terminology, passing a dividend meant skipping it. Fortunately, in reporting the story, Hazlitt used the company’s original verb. He was learning about the market.

Having missed out on college, Hazlitt determined to study on his own. He started reading college economics texts, but was not misled by their anticapitalist flavor. Experience had taught him that businessmen did not always earn profits; they sometimes suffered losses. Hazlitt’s uncle had been forced to close his Coney Island enterprise when it rained heavily over a Fourth of July holiday and customers stayed away in droves. Hazlitt’s stepfather lost his business making children’s hats when this custom went out of fashion.

Hazlitt’s real economic education began with his study of Philip H. Wicksteed’s The Common Sense of Political Economy, which introduced him to the subjective theory of value, only recently developed by Austrian economists Carl Menger and Eugen von Böhm-​Bawerk. Hazlitt continued his self-​study program and persisted in his ambition to write. His first book, Thinking as a Science, appeared in 1916 before his 22nd birthday.

In 1916, Hazlitt left the Wall Street Journal for the New York Evening Post. He was forced to leave during World War I, serving in the Army Air Corps in Texas. However, when the war ended, the Post wired Hazlitt that he could have his job back if he was in the office in 5 days. He entrained immediately, went directly to the newspaper, and worked that day in uniform.

From the Post, Hazlitt went on to become either financial or literary editor of various New York papers. From 1934 to 1946, Hazlitt was an editorial writer for The New York Times. Hazlitt and the Times parted company over the Bretton Woods Agreement, against which Hazlitt had been editorializing. The Times supported the agreement, which had been endorsed by 43 nations, but Hazlitt claimed it would only lead to monetary expansion and refused to support it. Hazlitt secured a position with Newsweek and left the Times. From 1946 to 1966, he wrote Newsweek’s Business Tides column.

An analysis of Hazlitt’s libertarian sympathies must mention his association with Ludwig von Mises, the leading exponent of the Austrian School of Economics. Hazlitt first heard of Mises through Benjamin M. Anderson’s The Value of Money, published in 1917. Anderson criticized many writers on monetary theory, but said he found in Mises’s works “very noteworthy clarity and power. His Theorie des Geldes und der Umlaufsmittel [later translated into English as The Theory of Money and Credit] is an exceptionally excellent book.” Although Mises had been widely respected in Europe, he was little known in this country when he arrived as a wartime refugee in 1940. When Mises’s Socialism appeared in English in 1937, Hazlitt remembered Anderson’s remark about Mises and reviewed Socialism in the Times, describing it as “the most devastating analysis of socialism yet penned … an economic classic in our time.” He sent his review to Mises in Switzerland and, 2 years later, when Mises came to this country, he phoned Hazlitt. Hazlitt recalled Mises’s call as if coming from an economic ghost of centuries past. Hazlitt and Mises soon met and became close friends. Hazlitt’s contacts helped establish Mises on this side of the Atlantic, enabling him to continue his free-​market teaching, writing and lecturing. Hazlitt was instrumental in persuading Yale University to publish Mises’s Omnipotent Government and Bureaucracy in 1944 and then his major opus, Human Action, in 1949. As a founding trustee of the FEE, Hazlitt also was responsible for Mises’s appointment as economic advisor to that Foundation.

In 1946, Hazlitt wrote and published his most popular book, Economics in One Lesson. It became a best-​seller, was translated into 10 languages, and still sells thousands of copies each year. Its theme—that economists should consider not only the seen but also the unseen consequences of any government action or policy—was adopted from 19th-​century free-​market economist Frédéric Bastiat. Thanks to Economics in One Lesson’s short chapters and clear, lucid style, countless readers were able to grasp its thesis that government intervention fails to attain its hoped-​for objectives.

While still at Newsweek, Hazlitt edited the libertarian biweekly, The Freeman—as coeditor from 1950 to 1952 and as editor-​in-​chief from 1952 to 1953. When the left-​liberal Washington Post bought Newsweek, Hazlitt became a columnist from 1966 to 1969 for the international Los Angeles Times syndicate. ….

I Hope This Helps!

The conservative base of the Republican Party are filled with people like me and all the peeps I know. We are well read, present answers to questions with facts. Correct peoples opinions with a more reality based view. Etc. The books above [and more] helped form my opinions on economics and government, and assisted in a total worldview. A coherent worldview must be able to satisfactorily answer four questions: that of origin, meaning, morality, and destiny. All those are based in the Christian worldview and have a more coherent view within the Biblical, Judeo-Christian worldview. Meaning and direction in life are salted with the laws of economics and self governance. And church history plays a role in all this. Just one example:

A WILDERNESS OF CASUISTRY

In 1957, the great Reformation historian Johannes Heckel called Luther’s two-kingdoms theory a veritable Irrgarten, literally “garden of errors,” where the wheats and tares of interpretation had grown indiscriminately together. Some half a century of scholarship later, Heckel’s little garden of errors has become a whole wilderness of confusion, with many thorny thickets of casuistry to ensnare the unsuspecting. It is tempting to find another way into Lutheran contributions to legal theory. But Luther’s two-kingdoms theory was the framework on which both he and many of his followers built their enduring views of law and authority, justice and equity, society and politics. We must wander in this wilderness at least long enough to get our legal bearings.

Luther was a master of the dialectic — of holding two doctrinal op­posites in tension and of exploring ingeniously the intellectual power of this tension. Many of his favorite dialectics were set out in the Bible and well rehearsed in the Christian tradition: spirit and flesh, soul and body, faith and works, heaven and hell, grace and nature, the kingdom of God versus the kingdom of Satan, the things that are God’s and the things that are Caesar’s, and more. Some of the dialectics were more uniquely Lutheran in accent: Law and Gospel, sinner and saint, servant and lord, inner man and outer man, passive justice and active justice, alien righteousness and proper righteousness, civil uses and theological uses of the law, among others.

Luther developed a good number of these dialectical doctrines sepa­rately in his writings from 1515 to 1545 — at different paces, in varying levels of detail, and with uneven attention to how one doctrine fit with others. He and his followers eventually jostled together several doctrines under the broad umbrella of the two-kingdoms theory. This theory came to describe at once: (I) the distinctions between the fallen realm and the redeemed realm, the City of Man and the City of God, the Reign of the Devil and the Reign of Christ; (2) the distinctions between the sinner and the saint, the flesh and the spirit, the inner man and the outer man; (3) the distinctions between the visible Church and the invisible Church, the Church as governed by civil law and the Church as governed by the Holy Spirit; (4) the distinctions between reason and faith, natural knowledge and spiritual knowledge; and (5) the distinctions between two kinds of righteousness, two kinds of justice, two uses of law.

When Luther, and especially his followers, used the two-kingdoms terminology, they often had one or two of these distinctions primarily in mind, sometimes without clearly specifying which. Rarely did all of these distinctions come in for a fully differentiated and systematic discussion and application, especially when the jurists later invoked the two-kingdoms theory as part of their jurisprudential reflections. The matter was complicated even further because both Anabaptists and Calvinists of the day eventually adopted and adapted the language of the two kingdoms as well — each with their own confessional accents and legal applications that were sometimes in sharp tension with Luther’s and other Evangelical views. It is thus worth spelling out Luther’s understanding of the two kingdoms in some detail, and then drawing out its implications for law, society, and politics.

John Witte, Jr., Law and Protestantism: The Legal Teachings of the Lutheran Reformation (Cambridge, United Kingdom: Cambridge University Press, 2002), 94-95.

The “Essence” of the Free Market | Thomas Sowell

Published by Papa Giorgio

A good chunk of chapter four of Intellectuals and Society by Thomas Sowell read:

Intellectuals and Society by Thomas Sowell.  

Click Ron Swanson to the right to go to my CRONY CAPITALSIM page.

CHAPTER 4

Economic Systems

The most fundamental fact of economics, without which there would be no economics, is that what everybody wants always adds up to more than there is. If this were not true, then we would be living in a Garden of Eden, where everything is available in unlimited abundance, instead of in an economy with limited resources and unlimited desires. Because of this inherent scarcity—regardless of whether a particular economic system is one of capitalism, socialism, feudalism, or whatever—an economy not only organizes production and the distribution of the resulting output, it must by its very nature also have ways to prevent people from completely satisfying their desires. That is, it must convey the inherent scarcity, without which there would be no real point to economics, even though the particular kind of economy does not cause that scarcity.

In a market economy, prices convey the inherent scarcity through competing bids for resources and outputs that are inherently inadequate to supply all the bidders with all that they want. This may seem like a small and obvious point, but even such renowned intellectuals as the philosopher John Dewey have grossly misconceived it, blaming the particular economic system that conveys scarcity for causing the scarcity itself. Dewey saw the existing market economy as one “maintaining artificial scarcity” for the sake of “personal profit.”1 George Bernard Shaw likewise saw “restricting output” as the principle on which capitalism was founded.2 Bertrand Russell depicted a market economy as one in which “wealthy highwaymen are allowed to levy toll upon the world for the use of indispensable minerals.”3

According to Dewey, to make “potential abundance an actuality” what was needed was to “modify institutions.”4 But he apparently found it unnecessary to specify any alternative set of economic institutions in the real world which had in fact produced greater abundance than the institutions he blamed for “maintaining artificial scarcity.” As in many other cases, the utter absence of factual evidence or even a single step of logic often passes unnoticed among the intelligentsia, when someone is voicing a view common among their peers and consistent with their general vision of the world.

Similarly, a twenty-first century historian said in passing, as something too obvious to require elaboration, that “capitalism created masses of laborers who were poverty stricken.”5 There were certainly many such laborers in the early years of capitalism, but neither this historian nor most other intellectuals have bothered to show that capitalism created this poverty. If in fact those laborers were more prosperous before capitalism, then not only would such a fact need to be demonstrated, what would also need to be explained is why laborers gave up this earlier and presumably higher standard of living to go work for capitalists for less. Seldom is either of these tasks undertaken by intellectuals who make such assertions—and seldom do their fellow intellectuals challenge them to do so, when they are saying things that fit the prevailing vision.

Social critic Robert Reich has likewise referred in passing to twentieth-century capitalism as producing, among other social consequences, “urban squalor, measly wages and long hours for factory workers”6 but without a speck of evidence that any of these things was better before twentieth-century capitalism. Nothing is easier than simply assuming that things were better before, and nothing is harder than finding evidence of better housing, higher wages and shorter hours in the nineteenth and earlier centuries, whether in industry or agriculture.

The difference between creating a reality and conveying a reality has been crucial in many contexts. The idea of killing the messenger who brings bad news is one of the oldest and simplest examples. But the fundamental principle is still alive and well today, when charges of racial discrimination are made against banks that turn down a higher proportion of black applicants for mortgage loans than of white applicants.

Even when the actual decision-maker who approves or denies loan applications does so on the basis of paperwork provided by others who interview loan applicants face-to-face, and the actual decision-maker has no idea what race any of the applicants are, the decisions made may nevertheless convey differences among racial groups in financial qualifications without being the cause of those differences in qualifications, credit history or the outcomes that result from those differences. The fact that black-owned banks also turn down black applicants at a higher rate than white applicants, and that white-owned banks turn down white applicants at a higher rate than Asian American applicants,7 reinforces the point—but only for those who check out the facts that are seldom mentioned in the media, which is preoccupied with moral melodrama that fits their vision.i Among the many differences among black, white and Asian Americans is that the average credit rating among whites is higher than among blacks and the average credit rating of Asian Americans is higher than among whites.8

In light of the many differences among these three groups, it is hardly surprising that, while blacks were turned down for mortgage loans at twice the rate for whites in 2000, whites were turned down at nearly twice the rate for Asian Americans.9 But only the black-white comparison saw the light of day in much of the media. To have included data comparing mortgage loan denial rates between Asian Americans and whites would have reduced a moral melodrama to a mundane example of elementary economics.

CHAOS VERSUS COMPETITION

Among the other unsubstantiated notions about economics common among the intelligentsia is that there would be chaos in the economy without government planning or control. The order created by a deliberately controlled process may be far easier to conceive or understand than an order emerging from an uncontrolled set of innumerable interactions. But that does not mean that the former is necessarily more common, more consequential or more desirable in its consequences.

Neither chaos nor randomness is implicit in uncontrolled circumstances. In a virgin forest, the flora and fauna are not distributed randomly or chaotically. Vegetation growing on a mountainside differs systematically at different heights. Certain trees grow more abundantly at lower elevations and other kinds of trees at higher elevations. Above some altitude no trees at all grow and, at the summit of Everest, no vegetation at all grows. Obviously, none of this is a result of any decisions made by the vegetation, but depends on variations in surrounding circumstances, such as temperature and soil. It is a systemically determined outcome with a pattern, not chaos.

Animal life also varies with environmental differences and, while animals like humans (and unlike vegetation) have thought and volition, that thought and volition are not always the decisive factors in the outcomes. That fish live in the water and birds in the air, rather than vice versa, is not strictly a matter of their choices, though each has choices of behavior within their respective environments. Moreover, what kinds of choices of behavior will survive the competition that weeds out some kinds of responses to the environment and lets others continue is likewise not wholly a matter of volition. In short, between individual volition and general outcomes are systemic factors which limit or determine what will survive, creating a pattern, rather than chaos.

None of this is difficult to understand in the natural environment. But the difference between individual, volitional causation and constraining systemic causation is one seldom considered by intellectuals when discussing economies, unless they happen to be economists. Yet that distinction has been commonplace among economists for more than two centuries. Nor has this been simply a matter of opinion or ideology. Systemic analysis was as common in Karl Marx’s Capital as in Adam Smith’s The Wealth of Nations, and it existed in the eighteenth century school of French economists called the Physiocrats before either Marx or Smith wrote about economics.

Even the analogy between systemic order in nature and in an economy was suggested by the title of one of the Physiocratic writings of the eighteenth century, L’Ordre Naturel by Mercier de la Rivière. It was the Physiocrats who coined the phrase laissez-faire, later associated with Adam Smith, based on their conviction that an uncontrolled economy was not one of chaos but of order, emerging from systemic interactions among the people competing with, and accommodating to, one another.

Karl Marx, of course, had a less benign view of the pattern of outcomes of market competition than did the Physiocrats or Adam Smith, but what is crucial here is that he too analyzed the market economy in terms of its systemic interactions, rather than its volitional choices, even when these were the choices of its economic elites, such as capitalists. Marx said that “competition” creates economic results that are “wholly independent of the will of the capitalist.”10 Thus, for example, while a new technology with lower production costs enables the capitalist to lower his prices, the spread of that technology to competing capitalists compels him to lower his prices, according to Marx.11  

Likewise in his analysis of downturns in the economy— depressions or economic “crises” in Marxian phraseology— Marx made a sharp distinction between systemic causation versus volitional causation:

A man who has produced has not the choice whether he will sell or not. He must sell. And in crises appears precisely the circumstance that he cannot sell, or only below the price of production, or even that he must sell at a positive loss. What does it avail him or us, therefore, that he has produced in order to sell? What concerns us is precisely to discover what has cut across this good intention of his.12  

Neither in his theory of economics nor in his theory of history did Marx make end results simply the carrying out of individual volition, even the volition of elites. As his collaborator Friedrich Engels put it, “what each individual wills is obstructed by everyone else, and what emerges is something that no one willed.”13 Economics is about the pattern that emerges. Historian Charles A. Beard could seek to explain the Constitution of the United States by the economic interests of the individuals who wrote it, but that volitional approach was not the approach used by Marx and Engels, despite how often Beard’s theory of history has been confused with the Marxian theory of history. Marx dismissed a similar theory in his own day as “facile anecdote-mongering and the attribution of all great events to petty and mean causes.”14

The question here is not whether most intellectuals agree with systemic analysis, either in economics or elsewhere. Many have never even considered, much less confronted, that kind of analysis. Those who reason in terms of volitional causation see chaos from conflicting individual decisions as the alternative to central control of economic processes. John Dewey, for example, said, “comprehensive plans” are required “if the problem of social organization is to be met.”15 Otherwise, there will be “a continuation of a regime of accident, waste and distress.”16 To Dewey, “dependence upon intelligence” is an alternative to “drift and casual improvisation”17—that is, chaos—and those who are “hostile to intentional social planning” were depicted as being in favor of “atomistic individualism.”18

Here, as in other cases, verbal virtuosity transforms the arguments of people with opposing views into mere emotions. In this case the emotion is hostility to social planning. That hostility is presumably due to the leftover notions of a by-gone era that society can depend on “the unplanned coincidence of the consequences of a vast multitude of efforts put forth by isolated individuals without reference to any social end,” according to Dewey’s characterization of those with whom he disagreed.19 By the time John Dewey said all this—1935—it was more than a century and a half since the Physiocrats first wrote their books, explaining how competitive markets systemically coordinate economic activities and allocate resources through supply and demand adjustments to price movements.

Whether or not one agrees with the Physiocrats’ explanations, or the similar and more sophisticated explanations of later economists, these are the arguments that would have to be answered if such arguments were not so widely evaded by reducing them to emotions or by using other arguments without arguments. Professor Ronald Dworkin of Oxford, for example, simply dismissed arguments for systemic causation in general, whether in the economy or elsewhere, as “the silly faith that ethics as well as economics moves by an invisible hand, so that individual rights and the general good will coalesce, and law based on principle will move the nation to a frictionless utopia where everyone is better off than he was before.”20

Here again, verbal virtuosity transforms an opposing argument, rather than answering it with either logic or evidence. Moreover, as of the time when Professor Dworkin made this claim, there were numerous examples of countries whose economies were primarily market economies and others whose economies clearly were not, so that empirical comparisons were readily available, including comparisons of countries composed of the same peoples—East Germany versus West Germany or North Korea versus South Korea, for example. But verbal virtuosity made both analytical and empirical arguments unnecessary.

Economic competition is what forces innumerable disparate individual decisions to be reconciled with one another, as transactions terms are forced to change in response to changes in supply and demand, which in turn change economic activities. This is not a matter of “faith” (as Dworkin would have it) or of ideology (as Dewey would have it), but of economic literacy. John Dewey could depict businesses as controlling markets but that position is not inherent in being ideologically on the left. Karl Marx was certainly on the left, but the difference was that he had studied economics, as deeply as anyone of his time.

Just as Karl Marx did not attribute what he saw as the detrimental effects of a market economy to the ill will of individual capitalists, so Adam Smith did not attribute what he saw as the beneficial effects of a market economy to the good will of individual capitalists. Smith’s depictions of businessmen were at least as negative as those of Marx,21 even though Smith is rightly regarded as the patron saint of free market economics. According to Smith, the beneficial social effects of the businessman’s endeavors are “no part of his intention.”22 Both in Adam Smith’s day and today, more than two centuries later, arguments for a free market economy are based on the systemic effects of such economies in allocating scarce resources which have alternative uses through competition in the marketplace. Whether one agrees or disagrees with the conclusions, this is the argument that must be confronted—or evaded.

Contrary to Dewey and many others, systemic arguments are independent of any notions of “atomistic individualism.” These are not arguments that each individual’s well-being adds up to the well-being of society. Such an argument would ignore the systemic interactions which are at the heart of economic analysis, whether by Adam Smith, Karl Marx or other economists. These economic arguments need not be elaborated here, since they are spelled out at length in economics textbooks.23 What is relevant here is that those intellectuals who see chaos as the alternative to government planning or control have seldom bothered to confront those arguments and have instead misconceived the issue and distorted the arguments of those with different views.

Despite the often expressed dichotomy between chaos and planning, what is called “planning” is the forcible suppression of millions of people’s plans by a government-imposed plan. What is considered to be chaos are systemic interactions whose nature, logic and consequences are seldom examined by those who simply assume that “planning” by surrogate decision-makers must be better. Herbert Croly, the first editor of the New Republic and a major intellectual figure in the Progressive era, characterized Thomas Jefferson’s conception of limited government as “the old fatal policy of drift,” as contrasted with Alexander Hamilton’s policy of “energetic and intelligent assertion of the national good.” According to Croly, what was needed was “an energetic and clear-sighted central government.”24 In this conception, progress depends on surrogate decision-makers, rather than on millions of others making their own decisions and exerting their own efforts.

Despite the notion that scarcity is contrived for the sake of profit in a market economy, that scarcity is at the heart of any economy—capitalist, socialist, feudal or whatever. Given that this scarcity is inherent in the system as a whole—any economic system—this scarcity must be conveyed to each individual in some way. In other words, it makes no sense for any economy to produce as much as physically possible of any given product, because that would have to be done with scarce resources which could be used to produce other products, whose supply is also inherently limited to less than what people want.

Markets in capitalist economies reconcile these competing demands for the same resources through price movements in both the markets for consumer goods and the market for the resources which go into producing those consumer goods. These prices make it unprofitable for one producer to use a resource beyond the point where that resource has a greater value to some competing producer who is bidding for that same resource, whether for making the same product or a different product.

For the individual manufacturer, the point at which it would no longer be profitable to use more of some factor of production—machinery, labor, land, etc.—is indeed the point which provides the limit of that manufacturer’s output, even when it would be physically possible to produce more. But, while profitability and unprofitability convey that limit, they are not what cause that limit—which is due to the scarcity of resources inherent in any economic system, whether or not it is a profit-based system. Producing more of a given output in disregard of those limits does not make an economy more prosperous. On the contrary, it means producing an excess of one output at the cost of a shortage of another output that could have been produced with the same resources. This was a painfully common situation in the government-run economy of the Soviet Union, where unsold goods often piled up in warehouses while dire shortages had people waiting in long lines for other goods.25  

Ironically, Marx and Engels had foreseen the economic consequences of fiat prices created by government, rather than by supply and demand, long before the founding of the Soviet Union, even though the Soviets claimed to be following Marxian principles. When publishing a later edition of Marx’s 1847 book, The Poverty of Philosophy, in which Marx rejected fiat pricing, Engels spelled out the problem in his editor’s introduction. He pointed out that it is price fluctuations which have “forcibly brought home to the individual commodity producers what things and what quantity of them society requires or does not require.” Without such a mechanism, he demanded to know “what guarantee we have that necessary quantity and not more of each product will be produced, that we shall not go hungry in regard to corn and meat while we are choked in beet sugar and drowned in potato spirit, that we shall not lack trousers to cover our nakedness while trouser buttons flood us in millions.”26

On this point, the difference between Marx and Engels, on the one hand, and many other intellectuals of the left on the other, was simply that Marx and Engels had studied economics and the others usually had not. John Dewey, for example, demanded that “production for profit be subordinated to production for use.”27 Since nothing can be sold for a profit unless some buyer has a use for it, what Dewey’s proposition amounts to is that third-party surrogates would define which use must be subordinated to which other use, instead of having such results be determined systemically by millions of individuals making their own mutual accommodations in market transactions.

As in so many other situations, the most important decision is who makes the decision. The abstract dichotomy between “profit” and “use” conceals the real conflict between millions of people making decisions for themselves and having anointed surrogates taking those decisions out of their hands.

A volitional view of economics enables the intelligentsia, like politicians and others, to dramatize economics, explaining high prices by “greed”j and low wages by a lack of “compassion,” for example. While this is part of an ideological vision, an ideology of the left is not sufficient by itself to explain this approach. “I paint the capitalist and the landlord in no sense couleur de rose,” Karl Marx said in the introduction to the first volume of Capital. “My stand-point,” he added, however, “can less than any other make the individual responsible for relations whose creature he socially remains, however much he may subjectively raise himself above them.”28 In short, prices and wages were not determined volitionally but systemically.

Understanding that was not a question of being on the left or not, but of being economically literate or illiterate. The underlying notion of volitional pricing has, in our own times, led to at least a dozen federal investigations of American oil companies over the years, in response to either gasoline shortages or increases in gasoline prices—with none of these investigations turning up facts to support the sinister explanations abounding in the media and in politics when these investigations were launched. Many people find it hard to believe that negative economic events are not a result of villainy, even though they accept positive economic events— the declining prices of computers that are far better than earlier computers, for example—as being just a result of “progress” that happens somehow.

In a market economy, prices convey an underlying reality about supply and demand—and about production costs behind supply, as well as innumerable individual preferences and trade-offs behind demand. By regarding prices as merely arbitrary social constructs, some can imagine that existing prices can be replaced by prices controlled by government, reflecting wiser and nobler notions, such as “affordable housing” or “reasonable” health care costs. A history of price controls going back for centuries, in countries around the world, shows negative and even disastrous consequences from treating prices as mere arbitrary constructs, rather than as symptoms and conveyances of an underlying reality that is not nearly as susceptible of control as the prices are.

As far as many, if not most, intellectuals are concerned, history would show that but does not, because they often see no need to consult history or any other validation process beyond the peer consensus of other similarly disposed intellectuals when discussing economic issues.

The crucial distinction between market transactions and collective decision-making is that in the market people are rewarded according to the value of their goods and services to those particular individuals who receive those goods and services, and who have every incentive to seek alternative sources, so as to minimize their costs, just as sellers of goods and services have every incentive to seek the highest bids for what they have to offer. But collective decision-making by third parties allows those third parties to superimpose their preferences on others at no cost to themselves, and to become the arbiters of other people’s economic fate without accountability for the consequences.

Nothing better illustrates the difference between a volitional explanation of economic activity and a systemic explanation than the use of “greed” as an explanation of high incomes. Greed may well explain an individual’s desire for more money, but income is determined by what other people pay, whether those other people are employers or consumers. Except for criminals, most people in a market economy receive income as a result of voluntary transactions. How much income someone receives voluntarily depends on other people’s willingness to part with their money in exchange for what the recipient offers, whether that is labor, a commodity or a service. John D. Rockefeller did not become rich simply because he wanted money; he became rich because other people preferred to buy his oil, for example, because it was cheaper. Bill Gates became rich because people around the world preferred to buy his computer operating system rather than other operating systems that were available.

None of this is rocket science, nor is it new. A very old expression captured the fallacy of volitional explanations when it said, “If wishes were horses, beggars would ride.” Yet volitional explanations of prices and incomes continue to flourish among the intelligentsia. Professor Peter Corning of Stanford University, for example, attributes high incomes to personality traits found supposedly in one-third of the population because “the ‘free market’ capitalist system favors the one-third who are the most acquisitive and egocentric and the least concerned about fairness and justice.”29 This description would apply as readily to petty criminals who rob local stores and sometimes shoot their owners to avoid being identified, often for small sums of money that would never support the lifestyle of the rich and famous. The volitional explanation of high incomes lacks even correlation, much less causation.

The tactical advantage of volitional explanations is not only that it allows the intelligentsia to be on the side of the angels against the forces of evil, but also that it avoids having to deal with the creation of wealth, an analysis of which could undermine their whole social vision. By focusing on the money that John D. Rockefeller received, rather than the benefits that millions of other people received from Rockefeller—which provided the reason for turning their money over to him in the first place, rather than buying from somebody else—such transactions can be viewed as moral melodramas, rather than mundane transactions for mutual advantage. Contrary to “robber baron” rhetoric, Rockefeller did not reduce the wealth of society but added to it, his own fortune being a share in that additional wealth, as his production efficiencies and innovations reduced the public’s cost of oil to a fraction of what it had been before.

ZERO-SUM ECONOMICS

Among the consequences of the economic illiteracy of most intellectuals is the zero-sum vision of the economy mentioned earlier, in which the gains of one individual or one group represent a corresponding loss to another individual or another group. According to noted twentieth-century British scholar Harold Laski, “the interests of capital and labor are irreconcilable in fundamentals—there’s a sum to divide and each wants more than the other will give.”30 This assumption is seldom spelled out this plainly, perhaps not even in the minds of most of those whose conclusions require such an implicit zero-sum assumption as a foundation. But the widespread notion, coalescing into a doctrine, that one must “take sides” in making public policy or even in rendering judicial decisions, ignores the fact that economic transactions would not continue to take place unless both sides find these transactions preferable to not making such transactions.

Contrary to Laski and many others with similar views, there is no given “sum to divide,” as there would be with manna from heaven. It is precisely the cooperation of capital and labor which creates a wealth that would not exist otherwise, and that both sides would forfeit if they did not reconcile their conflicting desires at the outset, in order to agree on terms under which they can join together to produce that output. It is literally preposterous (putting in front what comes behind) to begin the analysis with “a sum to divide”—that is, wealth—when that wealth can be created only after capital and labor have already reconciled their competing claims and agreed to terms on which they can operate together to produce that wealth.

Each side would of course prefer to have the terms favor themselves more, but both sides must be willing to accept some mutually agreeable terms or no such transaction will take place at all, much less continue. Far from being an “irreconcilable” situation, as Laski claimed, it is a situation reconciled millions of times each day. Otherwise, the economy could not function. Indeed, a whole society could not function without vast numbers of both economic and non-economic decisions to cooperate, despite the fact that no two sets of interests, even among members of the same family, are exactly the same. The habit of many intellectuals to largely ignore the prerequisites, incentives and constraints involved in the production of wealth has many ramifications that can lead to many fallacious conclusions, even if their verbal virtuosity conceals those fallacies from others and from themselves.

Intervention by politicians, judges, or others, in order to impose terms more favorable to one side—minimum wage laws or rent control laws, for example—reduces the overlapping set of mutually agreeable terms and, almost invariably, reduces the number of mutually acceptable transactions, as the party disfavored by the intervention makes fewer transactions subsequently. Countries with generous minimum wage laws, for example, often have higher unemployment rates and longer periods of unemployment than other countries, as employers offer fewer jobs to inexperienced and low-skilled workers, who are typically the least valued and lowest paid—and who are most often priced out of a job by minimum wage laws.

It is not uncommon in European countries with generous minimum wage laws, as well as other worker benefits that employers are mandated to pay for, to have inexperienced younger workers with unemployment rates of 20 percent or more.31 Employers are made slightly worse off by having to rearrange their businesses and perhaps pay for more machinery to replace the low-skilled workers whom it is no longer economic to hire. But those low-skilled, usually younger, workers may be made much worse off by not being able to get jobs as readily, losing both the wages they could earn otherwise and sustaining the perhaps greater loss of not acquiring the work experience that would lead to better jobs and higher pay.

In short, “taking sides” often ends up making both sides worse off, even if in different ways and to different degrees. But the very idea of taking sides is based on treating economic transactions as if they were zero-sum events. This zero-sum vision of the world is also consistent with the disinterest of many intellectuals in what promotes or impedes the creation of wealth, on which the standard of living of a whole society depends, even though the creation of more wealth has lifted “the poor” in the United States today to economic levels not reached by most of the American population in past eras or in many other countries even today.

Just as minimum wage laws tend to reduce employment transactions with those whose pay is most affected, so rent control laws have been followed by housing shortages in Cairo, Melbourne, Hanoi, Paris, New York and numerous other places around the world. Here again, attempts to make transactions terms better for one party usually lead the other party to make fewer transactions. Builders especially react to rent control laws by building fewer apartment buildings and, in some places, building none at all for years on end.

Landlords may continue to rent existing apartments but often they cut back on ancillary services such as painting, repairs, heat and hot water—all of which cost money and all of which are less necessary to maintain at previous levels to attract and keep tenants, once there is a housing shortage. The net result is that apartment buildings that receive less maintenance deteriorate faster and wear out, without adequate numbers of replacements being built. In Cairo, for example, this process led to families having to double up in quarters designed for only one family. The ultimate irony is that such laws can also lead to higher rents on average— New York and San Francisco being classic examples—when luxury housing is exempted from rent control, causing resources to be diverted to building precisely that kind of housing.

The net result is that tenants, landlords, and builders can all end up worse off than before, though in different ways and to different degrees. Landlords seldom end up living in crowded quarters or on the street, and builders can simply devote more of their time and resources to building other structures such as warehouses, shopping malls and office buildings, as well as luxury housing, all of which are usually not subject to rent control laws. But, again, the crucial point is that both sides can end up worse off as a result of laws and policies based on “taking sides,” as if economic transactions were zero-sum processes.

One of the few writers who has explicitly proclaimed the zero-sum vision of the economy—Professor Lester C. Thurow of M.I.T., author of The Zero-Sum Society—has also stated that the United States has been “consistently the industrial economy with the worst record” on unemployment. He spelled it out:

Lack of jobs has been endemic in peacetime during the past fifty years of American history. Review the evidence: a depression from 1929 to 1940, a war from 1941 to 1945, a recession in 1949, a war from 1950 to 1953, recessions in 1954, 1957–58, and 1960–61, a war from 1965 to 1973, a recession in 1969–70, a severe recession in 1974–75, and another recession probable in 1980. This is hardly an enviable economic performance.32  

Several things are remarkable about Professor Thurow’s statement. He reaches sweeping conclusions about the record of the United States vis-à-vis the record of other industrial nations, based solely on a recitation of events within the United States—a one-nation international comparison when it comes to facts, rather than rhetoric. Studies which in fact compare the unemployment rate in the United States versus Western European nations, for example, almost invariably show Western European nations with higher unemployment rates, and longer periods of unemployment, than the United States.33 Moreover, the wars that Professor Thurow throws in, in what is supposed to be a discussion of unemployment, might leave the impression that wars contribute to unemployment, when in fact unemployment virtually disappeared in the United States during World War II and has been lower than usual during the other wars mentioned.34  

Professor Thurow’s prediction about a recession in 1980 turned out to be true, though that was hardly a daring prediction in the wake of the “stagflation” of the late 1970s. What turned out to be false was the idea that large-scale government intervention was required to head off more unemployment—that, in Thurow’s words, the government needed to “restructure the economy so that it will, in fact, provide jobs for everyone.”35 What actually happened was that the Reagan administration took office in 1981 and did the exact opposite of what Lester Thurow advocated—and, after the recession passed, there were twenty years of economic growth, low unemployment and low inflation.36

Professor Thurow was not, and is not, some fringe kook. According to the material on the cover of the 2001 reprint of his 1980 book The Zero-Sum Society, “Lester Thurow has been professor of management and economics at MIT for more than thirty years.” He is also the “author of several books, including three New York Times best sellers, he has served on the editorial board of the New York Times, as a contributing editor of Newsweek, and as a member of Time magazine’s Board of Economics.” He could not be more mainstream—or more wrong. But what he said apparently found resonance among the elite intelligentsia, who made him an influence on major media outlets.

Similar prescriptions for active government intervention in the economy have abounded among intellectuals, past and present. John Dewey, for example, used such attractive phrases as “socially organized intelligence in the conduct of public affairs,”37 and “organized social reconstruction”38 as euphemisms for the plain fact that third-party surrogate decision-makers seek to have their preferences imposed on millions of other people through the power of government. Although government is often called “society” by those who advocate this approach, what is called “social” planning are in fact government orders over-riding the plans and mutual accommodations of millions of people subject to those orders.

Despite whatever vision may be conjured up by euphemisms, government is not some abstract embodiment of public opinion or Rousseau’s “general will.” Government consists of politicians, bureaucrats, and judges—all of whom have their own incentives and constraints, and none of whom can be presumed to be any less interested in the promotion of their own interests or notions than are people who buy and sell in the marketplace. Neither sainthood nor infallibility is common in either venue. The fundamental difference between decision-makers in the market and decision-makers in government is that the former are subject to continuous and consequential feedback which can force them to adjust to what others prefer and are willing to pay for, while those who make decisions in the political arena face no such inescapable feedback to force them to adjust to the reality of other people’s desires and preferences.

A business with red ink on the bottom line knows that this cannot continue indefinitely, and that they have no choice but to change whatever they are doing that produces red ink, for which there is little tolerance even in the short run, and which will be fatal to the whole enterprise in the long run. In short, financial losses are not merely informational feedback but consequential feedback which cannot be ignored, dismissed or spun rhetorically through verbal virtuosity.

In the political arena, however, only the most immediate and most attention-getting disasters—so obvious and unmistakable to the voting public that there is no problem of “connecting the dots”—are comparably consequential for political decision-makers. But laws and policies whose consequences take time to unfold are by no means as consequential for those who created those laws and policies, especially if the consequences emerge after the next election. Moreover, there are few things in politics as unmistakable in its implications as red ink on the bottom line is in business. In politics, no matter how disastrous a policy may turn out to be, if the causes of the disaster are not understood by the voting public, those officials responsible for the disaster may escape any accountability, and of course they have every incentive to deny having made mistakes, since admitting mistakes can jeopardize a whole career.

Why the transfer of economic decisions from the individuals and organizations directly involved—often depicted collectively and impersonally as “the market”—to third parties who pay no price for being wrong should be expected to produce better results for society at large is a question seldom asked, much less answered. Partly this is because of rhetorical packaging by those with verbal virtuosity. To say, as John Dewey did, that there must be “social control of economic forces”39 sounds good in a vague sort of way, until that is translated into specifics as the holders of political power forbidding voluntary transactions among the citizenry.

FOOTNOTES

1 John Dewey, Liberalism and Social Action (Amherst, N.Y.: Prometheus Books, 2000), p. 43.

2 Bernard Shaw, The Intelligent Woman’s Guide to Socialism and Capitalism (New York: Brentano’s Publishers, 1928), p. 208.

3 Bertrand Russell, Sceptical Essays (New York: W.W. Norton & Co., Inc., 1928), p. 230.

4 John Dewey, Liberalism and Social Action, p. 65.

5 Aida D. Donald, Lion in the White House: A Life of Theodore Roosevelt (New York: Basic Books, 2007), p. 10.

6 Robert B. Reich, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (New York: Vintage Books, 2008), p. 21.

7 Harold A. Black, et al., “Do Black-Owned Banks Discriminate against Black Borrowers?” Journal of Financial Ser vices Research, February 1997, pp. 185– 200.

8 Board of Governors of the Federal Reserve System, Report to the Congress on Credit Scoring and Its Effects on the Availability and Affordability of Credit, submitted to the Congress pursuant to Section 215 of the Fair and Accurate Credit Transactions Act of 2003, August 2007, p. 80.

9 United States Commission on Civil Rights, Civil Rights and the Mortgage Crisis (Washington: U.S. Commission on Civil Rights, 2009), p. 53.

10 Karl Marx, Capital: A Critique of Political Economy (Chicago: Charles H. Kerr & Co., 1909), Vol. III, pp. 310– 311.

11 Karl Marx, “Wage Labour and Capital,” section V, Karl Marx and Frederick Engels, Selected Works (Moscow: Foreign Languages Publishing House, 1955), Vol. I, p. 99. See also Karl Marx, Capital, Vol. III, pp. 310–311.

12 Karl Marx, Theories of Surplus Value: Selections (New York: International Publishers, 1952), p. 380.

13 Karl Marx and Frederick Engels, Selected Correspondence 1846–1895, translated by Dona Torr (New York: International Publishers, 1942), p. 476.

14 Ibid., p. 159.

15 John Dewey, Liberalism and Social Action, p. 73. “Unless freedom of individual action has intelligence and informed conviction back of it, its manifestation is almost sure to result in confusion and disorder.” John Dewey, Intelligence in the Modern World: John Dewey’s Philosophy, edited by Joseph Ratner (New York: Modern Library, 1939), p. 404.

16 John Dewey, Human Nature and Conduct: An Introduction to Social Psychology (New York: Modern Library, 1957), p. 277.

17 John Dewey, Liberalism and Social Action, p. 56.

18 Ibid., p. 50.

19 Ibid., p. 65.

20 Ronald Dworkin, Taking Rights Seriously (Cambridge, Mass.: Harvard University Press, 1980), p. 147.

21 Adam Smith denounced “the mean rapacity, the monopolizing spirit of merchants and manufacturers” and “the clamour and sophistry of merchants and manufacturers,” whom he characterized as people who “seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.” As for policies recommended by such people, Smith said: “The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.” Adam Smith, The Wealth of Nations (New York: Modern Library, 1937), pp. 128, 250, 460. Karl Marx wrote, in the preface to the first volume of Capital: “I paint the capitalist and the landlord in no sense couleur de rose. But here individuals are dealt with only in so far as they are the personifications of economic categories, embodiments of particular class-relations and class-interests. My stand­point, from which the evolution of the economic formation of society is viewed as a process of natural history, can less than any other make the individual responsible for relations whose creature he socially remains, however much he may subjectively raise himself above them.” In Chapter X, Marx made dire predictions about the fate of workers, but not as a result of subjective moral deficiencies of the capitalist, for Marx said: “As capitalist, he is only capital personified” and “all this does not, indeed, depend on the good or ill will of the individual capitalist.” Karl Marx, Capital: A Critique of Political Economy (Chicago: Charles H. Kerr & Company, 1919), Vol. I, pp. 15, 257, 297.

22 Adam Smith, The Wealth of Nations, p. 423.

23 My own sketch of these arguments can be found in Chapters 2 and 4 of my Basic Economics: A Common Sense Guide to the Economy, fourth edition (New York: Basic Books, 2011). More elaborate and more technical accounts can be found in more advanced texts.

24 Herbert Croly, The Promise of American Life (Boston: Northeastern University Press, 1989), pp. 44, 45.

25 See, for example, Nikolai Shmelev and Vladimir Popov, The Turning Point: Revitalizing the Soviet Economy (New York: Doubleday, 1989), pp. 141, 170; Midge Decter, An Old Wife’s Tale: My Seven Decades in Love and War (New York: Regan Books, 2001), p. 169.

26 Frederick Engels, “Introduction to the First German Edition,” Karl Marx, The Poverty of Philosophy (New York: International Publishers, 1963), p. 19.

27 John Dewey, Characters and Events: Popular Essays in Social and Political Philosophy, edited by Joseph Ratner (New York: Henry Holt and Company, 1929), Vol. II, p. 555.

28 Karl Marx, Capital, Vol. I, p. 15.

29 Peter Corning, The Fair Society: The Science of Human Nature and the Pursuit of Social Justice (Chicago: University of Chicago Press, 2011), p. 125.

30 Harold J. Laski, Letter to Oliver Wendell Holmes, September 13, 1916, Holmes-Laski Letters: The Correspondence of Mr. Justice Holmes and Harold J. Laski 1916–1935, edited by Mark DeWolfe Howe (Cambridge, Massachusetts: Harvard University Press, 1953), Vol. I, p. 20.

31 Holman W. Jenkins, Jr., “Business World: Shall We Eat Our Young?” Wall Street Journal, January 19, 2005, p. A13.

32 Lester C. Thurow, The Zero-Sum Society: Distribution and the Possibilities for Economic Change (New York: Basic Books, 2001), p. 203.

33 Beniamino Moro, “The Economists’ ‘Manifesto’ On Unemployment in the EU Seven Years Later: Which Suggestions Still Hold?” Banca Nazionale del Lavoro Quarterly Review, June-September 2005, pp. 49–66; Economic Report of the President (Washington: U.S. Government Printing Office, 2009), pp. 326–327.

34 Theodore Caplow, Louis Hicks and Ben J. Wattenberg, The First Measured Century: An Illustrated Guide to Trends in America, 1900–2000 (Washington: AEI Press, 2001), p. 47.

35 Lester C. Thurow, The Zero-Sum Society, p. 203.

36 “The Turning Point,” The Economist, September 22, 2007, p. 35.

37 John Dewey, Liberalism and Social Action, p. 53. See also p. 88.

38 Ibid., p. 89.

39 Ibid., p. 44.

Nick Freitas | Today, we discuss one of the greatest economists of our time—his books, articles, and thoughts on wealth, poverty, and how politicians ignore economics for political gain.

BONUS THINKING

Starring comedian Andrew Heaton, EconPop takes a surprisingly deep look at the economic themes running through classic films, new releases, TV shows and more from the best of pop culture and entertainment. Heaton brings a unique mix of dry wit and whimsy to bear on the dismal science of economics and the result is always entertaining, educational and irreverent. It’s Econ 101 meets At The Movies, with a dash of Monty Python.

I, Pencil

I, Pencil – FINAL CUT from Nicholas Tucker on Vimeo.

The “Original ‘I-Pencil'”

“Greed” and the Free Market (Milton Friedman)

Published by Papa Giorgio

Few people have had as profound an impact on modern economics as economist Milton Friedman. His Nobel Prize-winning ideas on free enterprise resonated throughout the world and continue to do so. Johan Norberg, Senior Fellow at the Cato Institute, tells Friedman’s fascinating story.

With the recent passing of Walter Williams, I watched a video of him [Thomas Sowell’s tribute] that reminded me of a video of Milton Friedman on the Donahue Show. So I wanted to combine them for affect.

BAM! What Is Crony Capitalism

Published by Papa Giorgio

Actually, it is not “crony capitalism,” it is “CRONY CORPORATISM.”

This election season there’s a lot of talk about corruption, about politicians being “bought and sold”, and about “crony capitalism”. What do those terms mean? Why should we care? Is there a way to reduce corruption and restore our trust in government? Author Jay Cost, staff writer at The Weekly Standard, answers these questions and proposes a solution that every society could benefit from.

A good example of a monopoly like the one Dr. Friedman refers to is MA BELL (click pic to enlarge):

…..The crusade to create a monopolistic telephone industry by government fiat finally succeeded when the federal government used World War I as an excuse to nationalize the industry in 1918. AT&T still operated its phone system, but it was controlled by a government commission headed by the postmaster general. Like so many other instances of government regulation, AT&T quickly “captured” the regulators and used the regulatory apparatus to eliminate its competitors. “By 1925 not only had virtually every state established strict rate regulation guidelines, but local telephone competition was either discouraged or explicitly prohibited within many of those jurisdictions.”….

(NET NEUTRALITY – MA BELL)

(Via MOONBATTERY) Crony capitalism is as much a betrayal of true capitalism as postmodern art is a betrayal of true art. It results in those who have made $zillions in the free market calling for more suffocating government regulation. Like socialism, it is a way for those who have succeeded to pull up the ladder after them so that others cannot follow and compete with them.

John Stossel has had enough of it. The solution: to reduce the power of the government to reward its friends and break the kneecaps of its enemies.

STOSSEL’S INDEPTH LOOK

This video may contain copyrighted material. Such material is made available for educational purposes only. This constitutes a ‘fair use’ of any such copyrighted material as provided for in Title 17 U.S.C. section 107 of the US Copyright Law.

Here is the latest COVID update.

Sad and shameful!

CAROL ROTH

Since the start of the Covid crisis, the American economy has been turned on its head. Times are good for the big guys — Big Business and Big Government. But what about for the small business owner, the personification of the American dream? Carol Roth discusses Crony Corporatism/Capitalism and is the author of, “The War on Small Business: How the Government Used the Pandemic to Crush the Backbone of America“

Corporations Pay ZERO% In Taxes

Published by Papa Giorgio

I feel like I shouldn’t have to upload this ECON 101 type stuff, however, many may not realize this fact… ESPECIALLY if they went to college. I clip Dennis Prager noting this truth and then add a classic from Milton Friedman (longer video is HERE). See as well Congressman Bill Posey make the same point on the House floor.

The Free Market Works

Published by Papa Giorgio

Did you know that since 1970, the percentage of humanity living in extreme poverty has fallen 80 percent? How did that happen? Arthur Brooks, president of the American Enterprise Institute, explains.

This post is connected with another that is similar in it’s point.

Here, Thomas Sowell writes about the pernicious lie that comes from the Left by speaking about a great book by Arthur C. Brooks from AEI. What prompted me to post this is the indoctrination of our youth in this Facebook post that is horribly wrong in many respects:

“But seriously, to claim that we live in a post racial era is the epitome of absurdity. Although i’m all about forging unity we can’t do so while ignoring the reality of racial injustice, white supremacy, and national oppression in this country. Malcolm X perhaps said it best when he said you can’t have capitalism without racism. The capitalist system thrives off of racism and the division it creates amongst the masses of people. To fight tooth and nail against this order exploitation requires a relentless struggle against racism,white privilege, and all forms of bigotry.”

BONO on the free markets:

Here is Thomas Sowell’s review of Arthur Brooks book… there is the pencil example by Nobel winning economist Milton Freidman as well as an Artur C. Brooks presentation at the end. Econ class 150 is in session:

More frightening than any particular beliefs or policies is an utter lack of any sense of a need to test those beliefs and policies against hard evidence. Mistakes can be corrected by those who pay attention to facts but dogmatism will not be corrected by those who are wedded to a vision.

One of the most pervasive political visions of our time is the vision of liberals as compassionate and conservatives as less caring.

[….]

A new book, titled Who Really Cares by Arthur C. Brooks examines the actual behavior of liberals and conservatives when it comes to donating their own time, money, or blood for the benefit of others. It is remarkable that beliefs on this subject should have become conventional, if not set in concrete, for decades before anyone bothered to check these beliefs against facts.

What are those facts?

People who identify themselves as conservatives donate money to charity more often than people who identify themselves as liberals. They donate more money and a higher percentage of their incomes.

It is not that conservatives have more money. Liberal families average 6 percent higher incomes than conservative families.

You may recall a flap during the 2000 election campaign when the fact came out that Al Gore donated a smaller percentage of his income to charity than the national average. That was perfectly consistent with his liberalism.

So is the fact that most of the states that voted for John Kerry during the 2004 election donated a lower percentage of their incomes to charity than the states that voted for George W. Bush.

Conservatives not only donate more money to charity than liberals do, conservatives volunteer more time as well. More conservatives than liberals also donate blood.

According to Professor Brooks: “If liberals and moderates gave blood at the same rate as conservatives, the blood supply of the United States would jump about 45 percent.”

Professor Brooks admits that the facts he uncovered were the opposite of what he expected to find — so much so that he went back and checked these facts again, to make sure there was no mistake.

What is the reason why some people are liberals and others are conservatives, if it is not that liberals are more compassionate?

Fundamental differences in ideology go back to fundamental assumptions about human nature. Based on one set of assumptions, it makes perfect sense to be a liberal. Based on a different set of assumptions, it makes perfect sense to be a conservative.

The two visions are not completely symmetrical, however. For at least two centuries, the vision of the left has included a belief that those with that vision are morally superior, more caring and more compassionate.

[….]

The two visions are different in another way. The vision of the left exalts the young especially as idealists while the more conservative vision warns against the narrowness and shallowness of the inexperienced. This study found young liberals to make the least charitable contributions of all, whether in money, time or blood. Idealism in words is not idealism in deeds.

Here is Brooks short presentation

Some Later Additions:

Some Misconception About the Rich and Taxes

Published by Papa Giorgio

A caller challenged Michael Medved on the “system” backing the rich… to which Michael responded with some counter-points. The conversation turned to taxes, and I learned a bit about the flat-tax and the “graduated” aspect of even it.

Great call and great learning curve of a response.

Here is a related issue via the great Milton Friedman:

Larry Elder On This Election w/Some Historical Perspective

Published by Papa Giorgio

Mind you, this Larry Elder audio opens with Ronald Reagan discussing Milton Friedman.

In this fill in for Dennis Prager on Monday, Larry Elder’s first two segments of the show are really a “GOP vs Ideals” 101 course. Economics, Donald Trump, GOP nominees since 1988, Milton Friedman, Ronald Reagan, Obama, and more are covered in “Sage” fashion.

As usual I learn from Larry and I share this with you in the hopes you will as well.

For more clear thinking like this from Larry Elder… I invite you to visit: http://www.larryelder.com/ ~AND~ http://www.elderstatement.com/

Chess Master Garry Kasparov on Bernie Sanders

Published by Papa Giorgio

Front Page Magazine has some great insights by ex-soviet and chess master, Garry Kasparov:

Chess Grandmaster Garry Kasparov lived in the USSR and he is not feeling the bern.

I’m enjoying the irony of American Sanders supporters lecturing me, a former Soviet citizen, on the glories of Socialism and what it really means! Socialism sounds great in speech soundbites and on Facebook, but please keep it there. In practice, it corrodes not only the economy but the human spirit itself, and the ambition and achievement that made modern capitalism possible and brought billions of people out of poverty. Talking about Socialism is a huge luxury, a luxury that was paid for by the successes of capitalism. Income inequality is a huge problem, absolutely. But the idea that the solution is more government, more regulation, more debt, and less risk is dangerously absurd.

[….]

That reminds me of that Pavlov said about Communism as an experiment. Sure, let’s experiment with Socialism some more until everyone is poor or dead.

American Thinker continues the theme via Kasparov:Sanders Dos XX

Perhaps in response to those who claim that Sanders is really more about Scandinavian-style socialism than the actual ownership of all means of production by the state, Kasparov wrote:

Yes, please take Scandinavia as an example! Implementing some socialistic elements AFTER becoming a wealthy capitalist economy only works as long as you don’t choke off what made you wealthy to begin with in the process. Again, it’s a luxury item that shouldn’t be confused with what is really doing the work, as many do. And do not forget that nearly all of the countless 20th-century innovations and industries that made the rest of the developed world so efficient and comfortable came from America, and it wasn’t a coincidence. As long as Europe had America taking risks, investing ambitiously, and yes, being “inequal,” it had the luxury of benefiting from the results without making the same sacrifices. Who will be America’s America?

Exactly so.  And I would add that Sweden has moved away from high taxes and government domination because socialism has led to stagnation and declining standing in the world. 

Dan Bongino On Bernie Sanders, Socialism, Health-Care, and more

Published by Papa Giorgio

Video description:

First time really hearing Dan. His blog is here.

I loved his style/verve. I uploaded the second half of the program, after he got done talking about Friedmans four ways to spend money (below right).

Great stuff. Make sure to follow him on Twitter.

For more clear thinking like this from Mark “the Great One” Levin… I invite you to visit:

The animated portion of Bernie Sanders came from Sam Seder, “Bernie Sanders Through the Eyes of Your Crazy Uncle” (https://youtu.be/ZWyzGtv5jSQ) ~ Sam Seders site is here: http://majority.fm/