Monday, December 23, 2013


Since the end of the 19th century with the return of neo-mercantilism, countries all over the world have adopted a religion of statism in the form of central planning. This form has diverse names. You can call it mixed economy, interventionism, corporatism, crony capitalism, or fascism if you want. Now that the results are becoming unpleasant, governments are looking for a scapegoat - free market capitalism. Most people are unaware that statism caused the existing global economic crisis with its programs of state welfare, state supported trade unions, state created business monopolies, and state inflated monetary supply.


Faustino Ballve, Essentials of Economics

Gary North, Tentmakers

The Mont Pelerin Society

Friday, December 20, 2013

Wiser this Time

Monetary inflation is addictive both for governments and those who benefit from it. Once started, it is difficult to stop. Politicians and bankers may think that they are wiser this time not to repeat past mistake. 

In this article, I just want to introduce Andrew D. White's book published in 1896 describing the economic experience of France in the latter part of 18th century. In reading the first 10 pages of the book, you will have an overview of France's situation at that time and how both the leaders and the people thought that they were wiser than John Law's generation. 

Introducing Andrew D. White's ebook

Several days ago, I was thinking how I could use my time meaningfully particularly in my reading of Austrian economics. Among many topics, I selected to study the most researched one, inflation. And so I dug into the available literature provided by and came up with a list of more than a hundred ebooks in my bibliography. I started with Andrew D. White's Fiat Money Inflation in France: How it Came, What it Brought, and How it Ended. 

White's ebook has only 79 pages, but summarizing the ideas contained in it is still too big to digest for an average reader. So I decided to summarize it in bite-sized portion. The ideas in this article are taken from pages 1 to 10. In reading the first ten pages of the booklet, you will see an overview of economic condition of France in the latter part of 18th century. 

France in 1789

The year was 1789. Both the national leaders and the citizens of France were fully aware of the great dangers of increasing the money supply. The memory of economic ruin during John Law's era was still fresh in their mind. They still remembered the country's suffering about seventy years ago. 

The nation's leaders knew that once the increase of paper money was issued, it is like using an addictive drug that's difficult to stop. They were totally informed about the disastrous consequences of monetary inflation. Nevertheless, they still pursued the easy path to economic recovery despite their knowledge that their action would result to long-term destruction of wealth, reduction of the purchasing power of those who depend on fixed salary, of the emergence of professional "thieves", "a class of debauched speculators" (p.1), of stimulation to overproduce, of industries' depression afterwards, of the breakdown in the habit of saving, and of the appearance of political and social immorality (pp. 5-6). The nation experienced all these bitter consequences of increasing the money supply. However, they thought they were wiser after such experience, and they would never repeat the same mistake. They were deceived.

So in 1790, the government issued the release of "four hundred millions of livres in paper money" (p. 7). Everybody was happy with the immediate results of the injection of new money into the total money supply. ". . . the treasury was at once greatly relieved; a portion of the public debt was paid; creditors were encouraged; credit revived; ordinary expenses were met, . . . trade increased and all difficulties seemed to vanish." (p. 10). 

After five months of short-term celebration, economic uneasiness and distress reappeared. Instead of admitting that the issue of paper money five months earlier was a mistake, the French unanimously cried for another dosage of monetary inflation. The country was trapped, and it appeared that nothing could stop them down to the path of economic calamity. 

Governments Never Learn

The information provided by White in his booklet deserves wider audience so that discerning readers would take necessary action to protect themselves from economic catastrophe that would certainly result from the determined action of governments to inflate their nations' money supply. This concise information teaches that not only France of 18th century failed to learn the painful lesson from John Law's generation; similar scenario is happening in our time.

Politicians and mainstream economists ignore the warning coming from the Austrian school. They think they are wiser this time, and they will never repeat the same mistake committed by the French. 


White, A. D. (1896). Fiat money inflation in France: How it came, what it brought, and how it ended. New York: The Appleton and Company. 

Thursday, December 19, 2013

Link to Libertarian Websites

Secretly Agreed, but Publicly Attacked

While reading Murray N. Rothbard's "Mystery of Banking," I stumbled with three curious paragraphs on pages 233-234 related to the creation of the Federal Reserve. It was stated that after a secret meeting at Jekyll Island, Georgia in December 1910 of most powerful banking personalities and came up with an agreement to pass a bill to create a central bank, two economists who helped in drafting the bill and the structure of the bank publicly opposed the bill they made. The question is why? Why after agreeing with the banking tycoons of that time in secret, these economists attacked the bill publicly?

Photo Credit:

These are the three paragraphs:

"With intellectuals and politicians now sympathetic to a newly centralized statism, there was virtually no opposition to adopting the European system of central banking. The various shifts in plans and proposals reflected a jockeying for power among political and financial groups, eventually resolved in the Federal Reserve Act of 1913, which the Wilson administration pushed through Congress by a large majority."

"Amid all the maneuvering for power, perhaps the most interesting event was a secret summit meeting at Jekyll Island, Georgia in December 1910, at which top representatives of the procentral banking forces met to hammer out an agreement on the essential features of the new plan. The conferees consisted of Senator Nelson W. Aldrich (R., R.I.), a Rockefeller kinsman who had headed the pro-central banking studies of the Congressionally created National Monetary Commission; Frank A. Vanderlip of Rockefeller’s National City Bank; Paul M. Warburg, of the investment banking firm of Kuhn, Loeb & Co., who had emigrated from Germany to bring to the U.S. the blessings of central banking; Henry P. Davison, a partner of J.P. Morgan & Co.; and Charles Norton, of the Morgan-controlled First National Bank of New York. With such powerful interests as the Morgans, the Rockefellers, and Kuhn, Loeb in basic agreement on a new central bank, who could prevail against it?"

"One particularly ironic note is that two economists who played an especially important role in establishing the Federal Reserve System were highly conservative men who spent the rest of their lives attacking the Fed’s inflationary policies (though not, unfortunately, to the extent of repudiating their own roles in creating the Fed). These were University of Chicago professor J. Laurence Laughlin and his former student, then a professor at Washington & Lee University, H. Parker Willis. Laughlin and Willis played a large part, not only in the technical drafting of the bill and the Fed structure, but also as political propagandists for the new central bank."


Rothbard, M. N. (2008). The mystery of banking. Online. Available:

Saturday, December 14, 2013

Activist Artists

". . . if we accept the social structures of capitalism, we are indeed left with the limited choices that undermine meaningful human agency. . ." 

"The central Marxist critique of capitalism is located on the terrain of human capacities. Capitalism is unjust and undemocratic not because of this or that imperfection in relation to ideal conceptions of equality or freedom. We reject capitalism because at its core it involves the control by some of the time, creativity, and potential of others. And the narrowness of the market discipline capitalism imposes as part of that drive to constant accumulation frustrates humanity’s capacity for social liberation." 

". . . have confirmed that the soul-destroying world that capitalism more and more offers us is a fundamental barrier to human development. . ."

Sam Gindin thinks that assimilating leftist activist ideas in art can break the pervasive fatalism that characterizes our era to achieve social change. He describes this idea as "radical art," and this can be done in two ways. First, "artists have to step beyond their studios and workplaces to act in the world as directly political people." Second, artists "must assimilate a critique of capitalism's impact on human possibilities," which to my mind, means the failures and excesses of capitalism. 

By fatalism, he is careful to distinguish it from passivity. Alternative vision is articulated and actions are taken, but there is a pervasive belief that the way to achieve the goal can never be found. He observed this fatalism represented in social democracy disempowered by the logic of capitalism and remains satisfied with its anemic neo-liberalism. Another brand of this fatalism is coming from a new generation whose vision is contrary to social democracy, but characterized with acceptance of the existing system. 

For sure, the writer likes the vision of progress found in capitalism, but rejects it as a method. He sees both imperialism and capitalism as working together. He laments that despite of obvious evidence of the failure of capitalism, its power did not diminish, but strengthened instead. 

So in his vision of seeing the emergence of activist artists, he wants that the energy and talents of this new breed of artists will focus in destroying capitalism. He shares conviction with Brecht that to allow the continuation of capitalism is to "undermine meaningful human agency." He agrees with Marxism that "capitalism is unjust and undemocratic," a barrier to social liberation, "soul-destroying," and manipulative of "time, creativity, and potential of others."


It is obvious that the above proposal springs from a Marxist's analysis of an "imperialist-capitalist" system, which Sam Gindin describes as the ruling ideology. Contrary to Gidin's idea, I see his article as a typical example of mainstream analysis, and by mainstream, I mean socialism, which is the very climate that we are in at present.

From the point of view of Austrian economics, capitalism is not the ruling system these days; it is actually, socialism. The writer fails to distinguish free market capitalism from corporatism or crony capitalism. If he is attacking the latter, I think he is accurate. 

In Planned Chaos, Ludwig von Mises distinguished between two types of socialism. These are the Russian or the communist version (which Gindin advocates) and the German version during Hitler's time, which is more appropriate to describe as interventionism. So instead of seeing Marxism as the champion to dismantle capitalism, what Gindin actually describes is a conflict between two forms of socialism using capitalism as a disguise. Government interventionism is the reigning political and economic policy these days that Gindin wrongly described as capitalism. It is this German kind of socialism that he wants to be replaced with the Russian kind of socialism in its progressive form.

Friday, December 6, 2013

Evangelii Gaudium, Free Market, and Interventionism

Pope Francis' "Evangelii Gaudium" triggered a series of responses coming from both anti-capitalists and defenders of the free market. After reading several responses particularly from the free market side, I got curious yesterday to take a look at the content of the apostolic exhortation itself. After skimming, I noticed that the media has only focused on the "tree" and missed the "forest". Out of 288 sections, only 24 sections speak about economics. That is less than 10% of the overall content. To my mind, the sections that contain economic materials are 52 to 60 and 202 to 216, and even in sections 202 to 216, only two sections directly speak about economics. So all in all, it's only 11 sections that deal with economic issues.

I think the reason why the Pope's exhortation related to economics received sharp criticism is because it touches an existing sensitive issue that divides people today. One typical example of that is a thread forum in Facebook.

Someone posted last November 27 a news from RT with a heading "Not to share wealth with poor is to steal": Pope slams capitalism as "new tyranny" in a Facebook group. After few exchanges from several members, a series of questions were addressed to me. I found them helpful in gathering my thoughts. However, I thought it's better to ask first the opinion of other Filipino free market thinkers before giving my reply. To my mind, the questions touched at least six important issues: the existence of a market that is 100% free from state interference, poor's welfare, basic nature and function of the government, deregulation, checking on TNC's books, and "partnership" between producers and consumers. I decided to limit myself only on the first four. 

These are the series of questions:

I am not an economist but at least partly involved in this intricate life of the market as having inculcate and willingly embraced the market's cultural ideology of consumerism - i consume therefore i am. but i have some qualms on seeming dearth of options and left us totally between an economy mediated by corrupt government and complex bureaucracy and of the one which is totally free from state intervention. Could you confidently say that once the market able to create totally an extraterritorial space where in they would run the whole system on their own free from the restriction of nation-state, they would take care of the situation of the poor? - there would equity on distribution of goods and profits better that what the state has given as part of its mediation work?l Could you confidently say that deregulated industries now in the Philippines such as the 3 giant gas conglomerate, Meralco, the two water distributors, among others are actually heading now into a more humane and fair costing of services they offered now that the government's hands are tied to monitor their pricing? Could we as part of this transnational system of market go directly their offices and peek on their books to see the whole transaction even without the state authority backing us up? Are we really partners in this market system...or we are partners as mere consumers of the transnational corporation who just want to maximize their income by pushing aside their partner in crime - the government?
And this is my response: 
I am also not an economist. I simply realized that to study the subject is part of my civic duty as a citizen. Concerning the questions that were raised, I just want to limit myself in four of them - existence of the market 100% free from state interventionism, poor's welfare, basic nature of the state, and deregulation. 
I acknowledge that the free market has its own defects, but I think it is far better to bear with them than the one we have right now. Historically, the closest example of a free market I have in mind is the economic system during the later part of 18th up to the middle of 19th century. Unfortunately, after that period, the history of economics saw a comeback of mercantilism under the banner of neo-mercantilism. Austrian economists describe this economic system in diverse names such as corporatism, crony capitalism, and interventionism, which is wrongly described by mainstream as capitalism. I think that's why some free market thinkers are considering of dropping the name and using "free market" instead because "capitalism" is loaded with negative meanings. As for me, I think, interventionism is more appropriate to describe the current system. 
At present, we also have few examples of free market. Though I don't share the vision of a stateless society by Anarcho-capitalism, I think that's their primary goal. Seasteading and the free state project like the one in New Hampshire are the concrete examples of this. 
Concerning poor's welfare, I think we need to distinguish between the state's legal action and the moral and personal decision on the part of individuals. Henry Hazlitt in his book, "Man vs. The Welfare State" has clearly demonstrated that instead of alleviating the condition of the poor, the inevitable outcomes of government's interference are actually leading to an economic trap and disaster. Some of these outcomes are "increase in government spending, increase in taxes, chronic deficits, chronic inflation, constant loss in the buying power of the people's earnings and savings, expansion of governmental power in the details of everybody's business and everybody's life, and concentration of power in fewer hands" (pp.1-2) that will finally end in dictatorship. In short, these are the results we are witnessing right now that cause poverty to increase all the more. And besides, the essence of "free market is all about freedom, responsibility, and equality before the law, not equality of condition. So citizens have the freedom to be industrious or be lazy, freedom to be responsible or irresponsible. So equality of condition is not guaranteed under the free market. Otherwise, people will become lazy and demand that their condition be near or at par as the most hard working people in society" (Nonoy Oplas). And that is exactly why state welfare program fails for it penalizes the industrious and encourages government dependence and laziness. 
Turning to the basic nature or functions of the State, Austrian economists and libertarians are divided. Even among those who advocate for limited government, there is disagreement. Some would consider that the government has only two indispensable functions: to protect the people from foreign aggression and to safeguard the people from criminal elements in the society. Others would include additional functions such as provision of public utility, health care, basic education, construction and maintenance of streets and roads, and provision of a trustworthy monetary system. But even in these additional functions, the precise limits are still under question. Concerning economic affairs, the proper role of the government is confined in making sure that the market functions freely, which is the exact opposite of what the government is doing. I think I have to repeat here what Dr. John V. C. Nye said in his lecture in 2011 about the primary problem of the country: 
"Philippines' major problems have less to do with macroeconomic or fiscal stability but with a badly distorted micro-economic price situation, poor and unreliable property rights and contracting, a stiflingly legalistic bureaucracy, a slew of policies and institutional constraints that are anti-investment and anti-competitive, and a political economy that favors the worst mix of populism, elite rent-seeking, and high-minded but unproductive nationalism."
Finally, about deregulation. Personally, I consider deregulation a "joke" or perhaps a "myth" and a "doublespeak". If there is real deregulation, why are there only three "giant gas conglomerate"? And concerning power and water, are they under operation of the free market or are they under crony companies? (Paul C. How)
At this point, we need to distinguish between two kinds of monopolies. Under the free market, monopolies also exist, but they are not capable to exploit the consumers. This is because under free market, a monopolist is always facing the threat of potential competitors if he charges prices that are too high or provides poor service. Competitors have incentives to enter into the monopolized industries and take market share from the monopolist by offering lower prices or better service. 
The scenario changes under government-created monopolies. When government interferes by erecting barriers through legislation, it blocks competition and restricts consumers' choice. I think the words of Adams Summers concerning deregulation also applies in Philippine economy: 
"Politicians and regulators forced a sham of a 'deregulation' scheme, and then blamed the free market when it inevitably failed! The problem was not too much free-market competition; it was too much regulation (despite the 'deregulation doublespeak)." 
I would like to conclude this response with the analysis of Mont Pelerin Society about the biggest threats that the world is facing right now. For MPS, the biggest threats to both personal and economic liberty are the expansion of government's power, welfare state, trade unions, business monopoly, and inflation. All of these are interrelated and government intervention is the common thread among them.
Related Articles:

Pope Francis’ Tragic Vision of Capitalism

Pope Francis is No Economist

Thursday, December 5, 2013

Judge Andrew Napolitano on Evangelii Gaudium

Another response to the Pope's Evangelii Gaudium. This time, it's from Judge Andrew Napolitano:
"The problem with modern capitalism — a problem that escaped the scrutiny of His Holiness — is not too much freedom, but too little. The regulation of free markets by governments, the control of the private means of production by government bureaucrats, and the unholy alliances between governments, banks and industry have raised production costs, stifled competition, established barriers to entry into markets, raised taxes, devalued savings and priced many poor out of the labor force. The Pope would do well to pray for those who have used government to steal freedom so as to satisfy their lust for power, and for those who have bowed to government so as to become rich from governmental benefits and not by the fruits of their own labors."
"Traditional Catholic social teaching imposes on all of us a moral obligation to become our brothers’ keepers. But this is a personal moral obligation, enforced by conscience and Church teaching and the fires of Hell — not by the coercive powers of the government. Charity comes from the heart. It consists of freely giving away one’s wealth. It is impossible to be charitable with someone else’s money. That’s theft, not charity."
"If the government takes money from you to buy the person a fish, half of the money will be wasted."
"The Pope seems to prefer common ownership of the means of production, which is Marxist, or private ownership and government control, which is fascist, or government ownership and government control, which is socialist. All of those failed systems lead to ashes, not wealth. Pope Francis must know this. He must also know that when Europe was in turmoil in 1931, his predecessor Pius XI wrote in one of his apostolic exhortation: 'No one can be at the same time a sincere Catholic and a true Socialist.' ”

Salvation through Government Spending

"In the early nineteen thirties, in the depth of the Great Depression, the theory became fashionable that the cause of all depressions was lack of purchasing power. The people just did not have enough money, and because of unwarranted pessimism they were refusing to spend enough even of what they had. The solution was therefore simple: at such a time the government should boldly increase its own spending, 'prime the pump,' and 'get things moving again.' Naive advocates of this theory assumed that more government spending was the whole answer. The more sophisticated advocates saw that the increased spending would not give people more purchasing power if the government kept the budget balanced and took it all away again in higher taxes. . .The trick, in other words, was deliberately to unbalance the budget—to run a deficit." - Henry Hazlitt, Man vs. The Welfare State, 1969, pp. 4-5

Jean-Baptiste Alphonse Karr (1808-1890) is right when he said, "the more things change, the more they stay the same" (Les Guêpes, 1849).

Instant Utopia

"In the last generation politicians and governments have been promising the voters that they could not only bring perpetual full employment, prosperity, and 'economic growth,' but solve the age-old problem of poverty overnight. And the end result is not merely that accomplishment has fallen far short of promises, but that the attempt to fulfill the promises has brought an enormous increase in government spending, an enormous increase in the burden of taxes, chronic deficits, chronic inflation, and a constant loss in the buying power of the people's earnings and savings. . . Another result of the promise of instant utopia has been a gigantic growth of governmental power—of interference in the details of everybody's business and everybody's life. As this power has increased, it has also become concentrated in fewer and fewer hands. . . One mark of the welfare state everywhere has been the gathering of power into the hands of one man. This is no mere unfortunate coincidence; it has been inevitable." - Henry Hazlitt, Man vs. The Welfare State, 1969, pp.1-2

Is there truth in the above quotation from Henry Hazlitt? Try to assess the governments of the world today on the basis of the idea in this quotation and then judge for yourself whether Hazlitt's analysis is accurate or not.

In the Philippines, if my memory still serves me right, I think all the presidents in my lifetime so far had given their promise to fight poverty. However, from Marcos, Cory, Ramos, Erap, Arroyo, and now Pnoy, none of them have succeeded in alleviating the condition of the poor, but instead, again, if my common sense is right, I think Filipinos now are poorer than ever. I accept that there are people who do not share this common sense, and could easily come up with the latest data to contradict this personal observation. But as far as myself is concerned, I think Hazlitt's analysis describes if not most, I think all of the governments today including our own.

So the government's fight against poverty is not bringing the results that we all desired. Instead, what we see are failed promises and greater poverty. One question that bothers me is about the sincerity of those in office. Are they really sincere in their goal or is it just a political slogan? Let us grant that they are sincere, and then another question must be asked: Why are they failing to produce the desired results despite their sincerity? Is it not because they are mistaken in their basic understanding of the nature and function of the government?

Instead of alleviating the condition of the poor, Hazlitt identifies seven inevitable outcomes of government's fight against poverty. And these outcomes are actually addictive for those in power and leading to economic trap and disaster. What are these outcomes? They are as follows:

  • Increase in government spending

  • Increase in taxes

  • Chronic deficits

  • Chronic inflation

  • Constant loss in the buying power of the people's earnings and savings

  • Gigantic growth of governmental power or interference in the details of everybody's business and everybody's life

  • Concentration of power in fewer hands that will finally end in dictatorship. 

All these outcomes or results are obvious now in the US. Here in the Philippines? I think it is still not so obvious, but our instincts feel it.

Tuesday, December 3, 2013

Interventionism and Neo-Malthusian Solution to Overpopulation

For the past several days, I was sidetracked by numerous readings, but I accomplished almost nothing in terms of writing a review. So among numerous ebooks I have on economics, I choose Henry Hazlitt's "The Conquest of Poverty" for review. But it has twenty chapters. It's too big for me in view of the fact that I also have many teaching responsibilities. So I decided to digest the book two chapters at a time. 

In reading the first two chapters, I selected three quotations, which I consider best capture the idea of the chapter. In chapter 1, the "Problem of Poverty", my chosen quotation is about the impact of government intervention on the economy of Argentina and Russia. Here is the quote:

"Foolish governmental interference led the Argentine, once the world's principal producer and exporter of beef, to forbid in 1971 even domestic consumption of beef on alternate weeks. Soviet Russia, one of whose chief economic problems before it was communized was to find an export market for its huge surplus of grains, has been forced to import grains from the capitalist countries. One could go on to cite scores of other examples, with ruinous consequences, all brought on by short-sighted governmental policies." (p. 19)

This quote from Hazlitt speaks about the economic destruction resulting from government intervention in the affairs of the free market. Hazlitt can identify additional examples, but he limits himself only in the experiences of Argentina and Russia.

In chapter 2, "Poverty and Population", the name of Thomas Robert Malthus plays a significant role. This is because he wrote a book that is considered a landmark in the discussion about the correlation between poverty and overpopulation. 

The two quotations I selected talk about the contrast between Malthus and neo-Malthusians' solutions to the problem of overpopulation and poverty. Malthus as an individualist and libertarian, the solution he proposed to overpopulation was both voluntary and simple. For him, the role of an individual particularly individual responsibility is primary. A responsible individual will not bring a child into this world without first finding the necessary livelihood to support him. 

However, the neo-Malthusians didn't follow the footstep of Malthus. Since the neo-Malthusians are collectivist in ideology, they came up with a different solution. Their remedy to overpopulation resorted to government coercion, propaganda, sterilization of men and women, and even abortion. To my mind, this shows their determination to stop populationg growth at any cost. Moreover, they justified their action by claiming that since it is the community's responsibility to keep an individual alive, it is also the community's prerogative to decide whether to procreate or not. 

Here are the two quotes from chapter 2: 

"What, then, is the solution? Most of the neo-Malthusians, unfortunately, are collectivist in their thinking; they want to solve the problem in the aggregate, and by government coercion. They not only want governments to flood their countries with propaganda for The Pill, The Loop, and other methods of contraception, encouraging even abortion; they want to sterilize men and women. They demand 'Zero Population Growth Now.' A professor of 'human ecology' at the University of California declares that the community cannot 'watch children starve.' Therefore: 'If the community has the responsibility of keeping children alive it must also have the power to decide when they may be procreated. Only so can we save ourselves from the degradation of runaway population growth.' " (p. 29).

"Malthus was an individualist and a libertarian. His own proposed remedy for overpopulation was both voluntary and simple: 'I see no harm in drawing the picture of a society in which each individual is supposed strictly to fulfill his duties The happiness of the whole is to be the result of the happiness of individuals, and to begin first with them. No co-operation is required. Every step tells. He who performs his duty faithfully will reap the full fruits of it, whatever be the number of others who fail. This duty is intelligible to the humblest capacity. It is merely that he is not to bring beings into the world for whom he cannot find the means of support.' If each of us adhered to this principle, no overpopulation problem would exist." (p. 30).

Source: Hazlitt, H. 1996. The Conquest of Poverty. New York: The Foundation for Economic Education, Inc. 

Monday, December 2, 2013

Abolish the Fed and the IRS!

In US Generals Now Take Action to Watch Obama, F. Michael Maloof enumerates actions that retired US Army Gen. Paul E. Vallely and Air Force Brig. Gen. Charles Jones believe must take place for the recovery of American economy. I like six of these actions, and they are the following:

1. Abolish the Federal Reserve

2. Abolish the IRS

3. Eliminate and consolidate federal agencies. 

4. Get rid of Department of Energy

5. Repeal Obamacare, and

6. Eliminate income tax

How I wish similar actions will also take place in the Philippines. 

Major Crash

"A major crash is coming. The bubble and the housing bubble were not crashes, at least as I imagine a crash. They were the beginnings of corrections that were aborted by government economic intervention. The country survived these two major bubbles, but only at the cost of making the next one bigger. Government did not save us from these two events. They created them and by deferring their correction assured the next one would be bigger and more painful." - Monty Pelerin's World


I taught the subject, Rizal for two semesters in the Presbyterian Theological Seminary located at Dasmarinas, Cavite. I forgot the exact year. After surveying the available textbooks in our library, I decided to use Constantino and Abaya. I don't like Agoncillo and Zaide. My goal that time was not to give too much attention to Rizal, but to challenge the students to think, and somehow to arouse their spirits towards nationalism or patriotism. I was clueless about the difference between these two terms. 

Reading just now, "The Last Betrayal of Dr. Jose Rizal" from Vincenton, the blogger mentions about the difference between the terms. He wrote that "Rizal was a PATRIOT, not a 'nationalist'." For him, nationalism is a recent invention and those who fail the distinction between these two words are "politically and philosophically CLUELESS." That describes me. 

The Vinceton article is well-thought and written. I stumbled with four new additional insights. They include the evil results of ignorance of our rights, an important distinction in relation to human rights and happiness, a libertarian way to see Rizal's political book, and correcting altruism. 

The evil results of man's ignorance of his rights are taken from an important line contained in France's Declaration of the Rights of Man: ". . . the ignorance, neglect, or contempt of the rights of man are the sole cause of public calamities and of the corruption of governments . . ." This statement is old (1789), but its message is most relevant in a day where the growing power of the State is causing "public calamities" and "corruption". 

Another insightful distinction is made by the blogger. This time it is between "the right to happiness" and "the right to pursue happiness". I thought they're the same. 

The writer claims that Rizal does not believe that man has basic right to happiness simply because he exists. Instead, what man has is the right "to pusue" happiness. This distinction is so important particularly in understanding socio-political issues today. 

Concerning Rizal's political book, Noli Me Tangere, here's what the owner of Vinceton has to say:

"There must be some more profound reason why he titled his first novel 'Noli Me Tangere' (Touch Me Not). It sounds almost the same– or it almost has the same import– as the French’s 'Laissez-nous faire' (Let us be or Leave us alone). This reveals Rizal’s not fully articulated understanding that government is force, a political idea first expressed by America’s founding fathers, particularly George Washington, who wrote that 'Government is not reason. It is not eloquence. It is force. Like fire, it is a dangerous servant and a fearful master.' ”
"Rizal’s Noli was his political protest against the Spanish theocratic BIG GOVERNMENT. In France, the term 'Laissez-faire' was French businessman M. Le Gendre’s protestation against his economically restrictive/intrusive French BIG GOVERNMENT."
And finally about altruism:

"Rizal was NO altruist. While he treated the indigent for free, he charged his wealthy patients, both locals and foreigners, for his medical services. His wealthy patients paid handsomely for his excellent services. In other words, he could afford to help the poor, and this is NON-SELF SACRIFICIAL. Take note that ALTRUISM means self-sacrifice or putting the welfare/interest of others above your own."


Note: In the Introduction of Omnipotent Government, Ludwig von Mises clarified the distinction between nationalism and patriotism. 

Thursday, November 14, 2013

Someone Proud of Being a Conspiracy Theorist 5

Then what is the hope? The hope is for people of principle to educate their own children and other children who may want to come along for the ride. Educate them in the principles of persuasion rather than power. Parents are going to have to fund their own children’s educations, and to keep those children away from the public school textbooks. They are going to have to develop new curriculum materials. They are going to have to teach, or find reliable people on the Web to teach, in order to help their children avoid the indoctrination by all tax-funded education. That is the minimum place that we have to begin. Anything beyond this is gravy.

This is our principle of action: replacement, not capture. We should not attempt to take over the existing systems of power and influence; we should attempt to create alternatives that are more reliable, more efficient, and more beneficial to the general public. We can’t beat something with nothing. We also can’t beat the system by capturing the system and maintaining the system. We are not smart enough to do this, and in any case, we are not ruthless enough to do it.

What I have outlined here I was taught almost 50 years ago. Rushdoony understood this. Leonard E. Reed understood it, and so did the editor of The Freeman, Paul Poirot. These men persuaded me that the quest for power in today’s society is the devil’s own quest.

I do have a sense of optimism about the younger members of the movement, who follow Ron Paul . . . Paul understands these principles. He is the only politician in my generation at the national level who has understood this position. This is why he is now known to millions of people, and no other congressman is. He stood alone when it paid nothing to stand alone, and he is now the representative of a movement that could turn into an effective political force at the local level. He exercises this influence precisely because he has not sought to extend power to the Federal government. He has not been involved in a quest for power; he has been in a quest for the decentralization of power, and the de-funding of power.

When the Soviet Union proved that communism could no longer maintain power, Western Marxists lost their faith. They had been Marxists only because they believed in power, and they somehow believed that they, as intellectuals, would be powerful people in a Communist society. They had not read carefully what Stalin did to intellectuals. They had not read what the Pol Pot did to intellectuals in Cambodia. He sent them to the farms or had them executed, if they had hands without calluses or if they wore glasses. He knew an intellectual when he saw one. They died.

You don’t change the system from the inside. You create an alternative system, and you wait for the existing system to go belly up. That is how you change people’s minds.

You can’t beat something with nothing. This is why people don’t really want to change it. It costs too much money, too much commitment, and too much time. That is why we face a crisis. 

But, if individuals at the local level begin to organize, this may change. 

We also have to develop institutions that are based on persuasion rather than power. 


Someone Proud of Being a Conspiracy Theorist 4

It does no good to expose the conspirators. Hardly anyone will believe you, and even if the person does believe you, there’s not a thing you or he can do about it. The public has finally figured out that the system at the top is structured against them, because they saw what happened to the banks in 2008. They saw the banks get the bailout money, not the man in the street. This upsets them, because they wanted the bailout money. . . They have only come to this conclusion recently. The far Left and the far Right have known about it since 1913. But who took them seriously?

I enjoy reading books about conspiracies. I especially enjoy reading heavily footnoted, carefully documented books about conspiracies. I enjoy books that do three things. First, they follow the money. Second, they follow the confession of faith. Third, they follow the media. If you show me what leaders believed, how they financed their beliefs, and how they got out their message to the general public, you have shown me what I really need to know about the history of any organization, any society, and any government. I don’t care whether you’re talking about conspiracies or the good old boys who were aboveboard about everything. You have to show me what they believed, how they financed what they believed, and how they got their message out to the voters.

Almost no book does this. You can look at the anti-conspiracy books, and they may follow the money, but they don’t usually concentrate on what the fundamental ideas were all about. And they almost never talk about media, except after 1930.

So, I am a conspiracy theorist. I believe there are lots of conspiracies, and most of them fail. 

The problem is not the conspiracies. The problem is the widespread acceptance by the voting populations around the world that it is legitimate for the government to send out tax collectors and extract wealth from certain groups of society in order to fund the favored boondoggles of some other group in society. The moment people think that they can make a living by voting instead of making a living by producing, they turn the government and the social order over to one or another conspiracy.

Secret or not, they could not get into our wallets unless we allowed them to. It is the essence of the conspiracy to persuade the public that the right and moral thing to do is to allow the state to help some group. As soon as the conspiracy persuades the public of this, the game switches from persuasion to power. It switches from donations to taxation. It switches from liberty to tyranny.


Someone Proud of Being a Conspiracy Theorist 3

Think about the World Wide Web. The establishments of the world did not think in 1990 that anything like this would be possible. The basic communications technology existed, but until Tim Berners-Lee developed a system for setting up addresses on the Internet, the World Wide Web did not exist. The Web now is undermining establishments all over the world. Yet there are people who are convinced that the Web is itself a conspiracy, and the conspirators are somehow using the Web to gain control over the population. I realize that there are not many of these people, but I do get e-mails from time to time telling me that the Web is capable of being used effectively by the conspiracies against defenders of truth, justice, and the American way.

The problem is not the conspiracies; the problem is the corruption in the hearts of the people. The fact that the voters would allow and even promote the creation of the modern welfare state is indicative of the fact that larceny is in their hearts. It does no good to replace one conspiracy with another conspiracy if you leave the system intact that enables the conspiracies to gain power.

This goes back to the famous chapter 10 in F. A. Hayek’s book, The Road to Serfdom. The chapter is titled, “Why the Worst Get on Top.” Hayek argued that the modern socialist state, meaning the modern welfare state, encourages the worst people to get on top, because the worst people are the most successful in seeking and maintaining power.

Because central economic planning centralizes power, it grants to the state the right to confiscate the wealth of the public. We should not expect kindly people to be successful in the pursuit of power within such a system. We will find, and what we have found, is that the most ruthless people seek out the levers of power, precisely because the levers of power enable them to achieve their goal: control over other people.

. . . it is a moral obligation to preach and teach against the welfare state, because the welfare state is based on the principle of theft. It is based on the principle of the right of one group legally to extract wealth from another group. The moral foundation of the welfare state is corrupt.


Someone Proud of Being a Conspiracy Theorist 2

I was fortunate in the fact that I first discovered about conspiracies from my study of America’s entry into World War II. I wrote a high school term paper in 1958 on how Roosevelt maneuvered the United States into the war by pressuring the Japanese government to attack us. I have not changed my mind. This alerted me to the fact that wars are major means of expanding the power of the Federal government. I understood early that Presidents maneuver the country into war in order to expand their own power and the government’s power over the general population. Presidents find that the public does not oppose the entry into war, once we’ve gone into war. All resistance ceases. The expansion of the government then can go on without resistance. This is beneficial for the groups that are associated with weaponry. It is also beneficial to all the groups associated with the banking system, which funds the expansion of the arms industry.

In graduate school in 1965, this suggestion was considered a form of lunacy. Later, this began to change when Johnson pushed deeper into Vietnam, and the Gulf of Tonkin attack turned out to be a myth. In graduate school, Franklin Delano Roosevelt was untouchable. He was retroactively the great saint of the 20th century. Any suggestion that Franklin Roosevelt deliberately lured the country into war was considered conspiratorial crackpotism. I was one of the crackpots, so I generally kept my mouth shut on this issue, except in an upper division course on revisionist histories of World War I and World War II — the only such class in the United States in 1962.

This attitude has not changed today. The difference is, today more historians are willing to admit that Roosevelt did maneuver the Japanese into war. What we find, however, is that these historians say that Roosevelt’s action was wise. They applaud the fact that he used conspiratorial tactics to get the country into war. Anyone who says it was wrong for Roosevelt to have done this is regarded as a crackpot, but at least these days you can say that Roosevelt did it. You just are not supposed to say that was a bad thing that he did. 


Someone Proud of Being a Conspiracy Theorist

I would like to share a series of excerpts from a proud "conspiracy theorist", Gary North. I took these excerpts from his two articles posted in The second article is very long and not many people today are patient enough to read such a long content. So readability is the reason why I divided North's articles into five.


I have been a conspiracy buff for over 45 years. I got my spurs at age 16 when I wrote a paper on Roosevelt and Pearl Harbor. As far as I am concerned, that one is still in the top five. 

Over the years, I have stumbled into lots more conspiracies. Their name is legion. Some are more evil than others. Some are harder to prove than others. Some are hidden in plain sight — or, in the case of 9/11, plane site. Others are deep.

There are so many of them that no one can pursue all of them. In fact, the mark of a deranged conspiracy buff is someone who pursues dozens of them at once. He believes that there is one grand conspiracy behind all of them. . .

All of us who have spent any time following through on this or that conspiracy have met these deranged people. Their world is filled with conspiracies. 

I feel sorry for them. They do not specialize. They really do not know much about any of these conspiracies. . .

. . . For these people, there are only four kinds of people: conspirators, the ignorant masses, disciples, and enemies. 


A man who sees conspiracy everywhere is a gravedigger. . .a gravedigger gives up hope. He works diligently, but he has no future. He is not going to be able to escape the plans of the executioners. This is how thousands of conspiracy theorists view their own efforts. They give up any thought of reforming the system that has been infiltrated. They offer no plans to replace it. They just wring their hands and cry, “The Conspiracy! The Conspiracy!”

I recall one man who spent his life clipping newspapers and photocopying items about how conspirators have done this or that. I never heard him offer a solution. I never heard him offer a theory of civil government or economics that would serve as an alternative. Yet he spent 35 years in the presence of the libertarian activists and conservative leaders. I never heard him quote an idea from Mises, Rothbard, Hayek, or anyone else. He was completely devoid of ideas. His entire life was spent with no theory of God, man, law, sanctions, and the future. He had no theory of conspiracies and causation. He only had clippings.

. . . people who are looking for ways to avoid personal responsibility for working to change the infiltrated system have a tendency to blame the conspiracy for having infiltrated any organization that might plausibly produce significant social change. In other words, they dismiss the activities of individuals who really are working diligently to transform the system. 

. . . whenever I found myself surrounded by people who attribute most of what takes place in life to a single conspiracy, I would be wise to disassociate myself from that group. He was convinced that it does no good to participate as a gravedigger. The goal is to transform society, and the way to do this is through religious and intellectual evangelism. 

. . . word and deed evangelism is a system. He (North referring to his father-in-law) was convinced that any form of evangelism, for whatever perspective, that does not include programs for transforming the world is simply spinning its wheels. He called this pietism. He also called it Neoplatonism. He was convinced that both pietism and Neoplatonism were basic to 20th-century Christianity. 


Thursday, October 10, 2013

Blame Shifting

IMF warns that any US default on its debt obligations would imperil global economy. - Marjorie Olster

Reading Marjorie Olster's article, U.S. default would shake global economy?, three things caught my attention. The first one is the statement from Jose Vinals, IMF's financial counselor. Olster quoted him saying, " 'So let's hope that we never get there.' " He was referring to the negative impact of possible US default on global economy. In his mind, the global economy is already recovering and that unless the Republicans would listen to President Obama to stop the government shutdown, the end result would be a debt default that could terminate the ongoing recovery and revert the global economy to a far more serious crisis. That's how I understand Vinal's statement.

However, there are writers who don't believe that the global economy has already recovered from 2008 crisis. The owner of Monty Pelerin's World is just one of them. 

The second thing that caught my attention is the addition of the word "partial" to describe US government shutdown. During the first few days that I have been reading mainstream articles about US shutdown, I did not encounter such description. In fact, the impact of the news was too strong during its first appearance. I actually suspect, it was intentionally exaggerated to create an atmosphere of fear and anger. But it's now changing. It's more moderate now. What's the reason for the change? Is it not because they were not able to achieve their desired end?

The third thing that caught my attention is about US health care plan. For the Democrats, it was already a "settled law" and so the Republicans are waging an "undemocratic" strategy by connecting it to budget approval. I do not know why the Republicans resorted to such "tactic". Maybe they think that's the only way to protect the American people from financial danger caused by President Obama's health care program. 

So those are the three things that caught my attention. Concerning the article's title, though it is in question form, to me, it is a subtle way of implying big things in a smooth way. Instead of asking about the possibility of the negative impact of US default on global economy, I would rather ask, why US in the first place came to such point of default? I think looking for an answer to this question will get us nearer to what's really going on.

By sticking to the possibility of US default resulting from the Republicans "irrationality" would divert the attention of the public from the real issue. Instead of seeing that the existing situation was brought about by the action of the Federal Reserve, the blame is shifted to the Republicans, to the Tea Party movement, to Ron Paul himself, to Austrio-libertarian way of thinking, and then finally, to Mises, Hayek, and Rothbard.

Wallis or North?

Yesterday, I listened to Jim Wallis' idea about US shutdown. After watching, I read Gary North's critique of Jim Wallis' video. Both claim to have biblical basis for their messages. No wonder, many are confused. Whose voice do you think tells the truth?

Sunday, October 6, 2013

US "Shutdown"

I am not sure about my feeling concerning what's happening right now in the US related to government "shutdown". Others said, "Why care? It's none of your business. It has nothing to do with PH affair. We have our own issues to pay attention to". That's how many people think. 

Let us not forget that the USD is still the world reserve currency and remains the biggest in world economy. I guess that if this existing tension in the white house get worse, other countries cannot avoid its ripple effect.

As expected, both political parties have their own explanation about the current issue. The dominant camp said that it was the Tea Party dominated Republicans that caused this crisis. The other party responded that actually it was not a shutdown, but a temporary suspension of selected government services such as museums and parks. Then why exaggerate? What is the intention in painting such a dark description? Is it not to frighten the public and place the blame on the Republicans?

Just today, two additional accusations are thrown to the Republicans - bully and tantrum . Robert Reich wrote that the Republicans have been bullying the US president since 2011. I thought those who are capable to bully others are "bigger" and "stronger". Is it really convincing that a weaker party could bully a dominant party? 

Regarding the second accusation, Robert Parry  claimed that the current crisis was the result of the tantrum of white and Tea Party dominated Republicans. And he added a racist color to the debate. The other camp retorted, "No! It was Obama's tantrum!"

As far as my personal opinion is concerned, the outcome of this current debate aiming to shape public opinion will have a great political and economic repercussion not only in the U.S. but in many countries including the PH in the coming days. I wish, I'm wrong.

The Intellectuals Are Divided: 

Peter G. Klein

Daisy Luther

Michael Snyder

Mark Thornton

Peter G. Klein again

Jim Wallis

Gary North

John Boehner

Bill O'Reilly

Bill Moyers

Paul Krugman

Noam Chomsky

Friday, September 20, 2013

Chapter 1 - Profit Management

In the Introduction of Bureaucracy, Mises presents two ways to conduct the politico-economic affairs - profit and bureaucratic managements. For him, the choice between bureaucratic and profit managements is inseparable from the choice between socialism and capitalism. In the first chapter of the book, we will explore Mises' understanding of profit management under four sections - basic operation of the free market, economic calculation, the nature of profit management, and the nature of managing personnel under the profit system. 

1. Basic operation of the free market. Mises provides the meaning and goal of the free market. He understands free market as a "system of social cooperation and division of labor that is based on private ownership of the means of production" (p. 20). Profit is the goal in this system. 

One important feature of market economy is the sovereignty of consumers. They are the real bosses. They don't care about the track record of the company or of the entrepreneur. Their only concern is the present quality and lowest price of the product they are buying. And that is why business efficiency is measured by profit and loss, which is dependent on the decision of the consumers. Mises describes this mechanism as "economic democracy in which every penny gives a right to vote" (p. 21).

2. Economic calculation. In order to appreciate the importance of economic calculation, one must first grasp the significance of market prices and the origin and nature of profit. Market prices exist together with private ownership and profit motivation. However, bureaucratic management opposed these two basic foundation of the free market. Socialists think that maintaining them is detrimental to national interest. For Mises, this kind of mindset is prevalent among totalitarian governments: "It has been frequently objected that this orientation of economic activity according to the profit motive . . . . leaves out of consideration the interests of the nation as a whole and takes account only of the selfish interests of individuals, different from and often even contrary to the national interests. This idea lies at the bottom of all totalitarian planning. Government control of business, it is claimed by the advocates of authoritarian management, looks after the nation's well-being, while free enterprise, driven by the sole aim of making profits, jeopardizes national interests" (p. 23). 

This is one major difference between socialism and capitalism and at the same time between bureacratic management and profit management. No economic calculation exists under socialism and bureacratic management due to the absence of market prices, which serves as the common denominator among various factors in the economy. Without the market prices, there is no way to account the diverse skills of the large number of manpower, physical properties of material factors of production and the consideration of different places where these material factors are available. So without the market prices, the planners are blind. 

Concerning profit, it originates in an economic situation that is constantly changing. Without this change, the idea of profit is alien and also in such a world, there is no need for an entrepreneur. This is so simply because an entrepreneur is always seeking for an opportunity to make a profit. As soon as the entrepreneur realizes that the anticipated price of a certain commodity will be higher than the production cost, he takes advantage of it. If the entrepreneur is correct in his assessment, he gains a profit; but if he is wrong he suffers losses. This is the real world of the free market. 

However, profit for a certain commodity does not stay for so long. It starts to disappear when "the prices of the factors of production . . . go up and, . . . those of the products begin to drop" (p. 28). So profit occurs due to "change in market conditions and in methods of production" (ibid.). 

Moreover, in the ideal world where the economic situation is permanent, both entrepreneurship and profit have no place. And without entrepreneurship and profit motivation, market prices do not exist. This makes economic calculation impossible. Therefore, to remove private ownership, entrepreneurship, and profit motivation and to replace them with bureacratic aims in the name of national interest is heading towards economic disaster for central planners are groping in the dark without economic calculation due to the absence of market prices. 

3. The nature of profit management. Under profit management, records such as the profit-and-loss account and the balance sheet are so important to determine the present status and future of an enterprise. Mises called them the "conscience of business" and the "compass of an entrepreneur" (p. 32). By studying them, the business owner can see the total picture of the business without digging into the details. These records are also beneficial to the general manager for he could easily detect which department of the enterprise is contributing to the growth of the company. And after knowing the situation, he could recommend expansion for the growing department and reform or shutting down a poor-performing department in order to arrest the continuous loss. 

4. The nature of managing personnel under the profit system. The records also help in assessing the performance of personnel. In the case of a department manager, his only concern is to see his department contributing profit to the company. If not, as mentioned above, the department will either closed down or the manager himself will be replaced with a more efficient one. So as the department manager does his best, it is not only for the benefit of the company, but also for the sake of his career or for possible financial incentives. 

Compare this under bureaucratic management where there is no record to show about profit and loss. In such an environment where there is no basis for performance, it is easy to retain incompetent workers due to personal considerations or sentimental reasons. Such practices are unsustainable under profit management for the consumers care for nothing but the quality and low price of products and services.

Sunday, September 15, 2013

Ludwig von Mises' Economic Policy

Mises, M. (1979). Economic Policy: Thoughts for Today and Tomorrow. Chicago: Regnery/Gateway, Inc. (122 pages).

Margit von Mises compiled her husband's lectures in Argentina in 1959. The outcome is the book, Economic Policy: Thoughts for Today and Tomorrow. Regnery/Gateway, Inc., Chicago first published this book in 1979. 

Mises argued in the book that the best economic policy is to limit the government to its proper role and to make it sure that the market environment is conducive to its free operation. The focus of the government should be the protection of life, freedom, and private property of citizens both from domestic and foreign aggression. The author expounded this idea into six lectures on capitalism, socialism, interventionism, inflation, foreign investment, and policies and ideas. 


The first lecture centers on misconceptions about capitalism. It is about interconnected economic facts that are not widely known about capitalism. Examples of these facts include its historical setting and distinction from feudalism, its contribution to population growth, savings and higher standard of living, and the origin of animosity against it. 

1. Feudalism, historical setting of capitalism. Most people do not appreciate capitalism for they fail to compare it from feudalism. Under feudalism, the people did not have access to products and services that aristocrats enjoyed. And add to it the fact, that there was no social mobility. 

Capitalism replaced the socio-economic structure of feudalism. Access to products and services that the elites enjoy was opened to the public and any individual can now climb up to the social ladder through innovative ideas and entrepreneurship. 

2. Improved standard of living, population growth, and benefits of savings. During the previous social structure, mortality rate was so high due to poverty, malnutrition, and starvation. The entrance of capitalism increased the standard of living and contributed to the increase of human population. Savings played an important role to the growth of capital that benefit not only the savers, but other players in the market such as the entrepreneurs, unemployed, producers of raw materials and existing wage-earners (p.11).

3. Origin of animosity. Still another unpopular facts is connected to the origin of animosity against capitalism. People are fooled to believe that hatred towards capitalism originated from the masses, the working class, the "proletariat". This is a "succesful" historical distortion. Enmity against capitalism actually originated among the aristocrats (Even the term "capitalism" did not come from the proletariat. It was actually coined by Karl Marx, a bourgeois and capitalism's strongest enemy, p. 10). They didn't like capitalism for it diminished their economic power. Mises narrated: "It is a fact that the hatred of capitalism originated not with the masses, not among the workers themselves, but among the landed aristocracy—the gentry, the nobility, of England and the European continent. . . . They blamed capitalism for something that was not very pleasant for them: at the beginning of the nineteenth century, the higher wages paid by industry to its workers forced the landed gentry to pay equally higher wages to their agricultural workers. The aristocracy attacked the industries by criticising the standard of living of the masses of the workers." (p. 6).

Another historical distortions include the so-called "unspeakable horror of capitalism", which Mises designates as "one of the greatest falsehoods of history". This is related to the exploitation of women and children. Mises corrected this story: "The mothers who worked in the factories had nothing to cook with; they did not leave their homes and their kitchens to go into the factories, they went into factories because they had no kitchens, and if they had a kitchen they had no food to cook in those kitchens. And the children did not come from comfortable nurseries. They were starving and dying." (pp.6-7).

4. Other misconceptions. Still additional misconceptions concerning capitalism are related to wage rate and socio-economic gap between the rich and the poor. As a result of Marxian influence, people think that employers determine wage rate. They fail to see that ultimately consumers determine the wage rate of employees (p.9). Concerning the alleged widening gap between the rich and the poor inherent in capitalism, Marxists argue that as wealth is concentrated only in the hands of the few, mass revolution is inevitable. 

Mises refused to accept such faulty analysis for facts show that nations that embarced capitalism actually improved the condition of the masses. So the argument is completely mistaken. Mises asserts, "The scornful depiction of capitalism by some people as a system designed to make the rich become richer and the poor become poorer is wrong from beginning to end." (p.12).

And finally, another faulty idea is the belief that labor unions could improve the economic condition of the working class. Mises refuted labor unions' advocacy for higher wage rate, shorter work hours, and public ownership of means of production that they actually make the economic situation of the working class worse. Among numerous Marxist themes, Mises specifically identified "iron law of wages" theory as fallacious for its model was taken from biology. 

After reading the above misconceptions about capitalism, I dream to see increasing number of people listening to the message of the strongest defender of capitalism, Ludwig von Mises himself. 


The second lecture is about socialism. The first few pages contained a discussion about economic freedom. It was followed by an explanation of consumer sovereignty. Then the next few pages were devoted to the exposition of the use of state laws and the meaning of irreconcilable conflict of interest. The bulk of the last pages was spent in elaborating about central planning and the fundamental problem of the impossibility of calculation and planning under socialism.

1. Economic freedom. Mises described economic freedom as a system and a process. As a system, "it is the market economy, it is the system in which the cooperation of individuals in the social division of labor is achieved by the market" (p. 17). As a process, "it is the way in which, by selling and buying, by producing and consuming, the individuals contribute to the total workings of society" (ibid.). 

Mises made some necessary qualifications in his understanding of economic freedom. I find three: First, in relation to nature, he acknowledged that man is not free but has to follow the regularity of its laws. Second, he also denied perfect freedom from a metaphysical standard. Third, he confined his discussion of economic freedom in the context of society. Within this context, the various types of freedom are interconnected. Economic freedom therefore is vital and cannot be separated from other forms of freedom. He considered it illusory to think that people are really free without economic freedom.

2. Consumer sovereignty. Consumer sovereignty is a corollary theme of economic freedom. In the free market, a capitalist cannot lord over without the support of the people simply because the real sovereign under the free market is the consumer. "The fact is", said Mises, "under the capitalistic system, the ultimate bosses are the consumers. The sovereign is not the state, it is the people" (p. 21). And the proof of such sovereignty is the right to commit mistakes. Slaves do not have such right. 

3. Use of legislation. It is exactly this right to commit mistakes that occasioned the use of legislation to "protect" the people from economic mistakes. But the primary trouble with this kind of idea is that once it is accepted, the question of limitation is difficult to decide. The government could possibly restrict its citizens from reading "revolutionary" books, watching unwholesome movies, and listening to bad music. In fact, this kind of use of legislation is coercing individuals and the opening of the path to slavery. 

4. Irreconcilable conflict of interest. One favorite themes in socialism is the emphasis on irreconcilable conflict of interest between the proletariat and the bourgeois. Mises argued that Marx was mistaken in applying this idea to capitalism for the examples used by the latter were all taken from the pre-capitalistic era. Mises described this pre-capitalistic era as a status society. Marx failed to see the distinction between these two societies. In the status society, the aristocrats could retain their status for hundreds of years regardless of their moral quality. In the capitalist society, social mobility is constant.

Marx took the concept of irreconcilable conflict of interest from status society and misapplied it to a capitalist society. To see the significance of this point, it is best to read two paragraphs from Mises: "In a status society a man was not, for example, born a Frenchman; he was born as a member of the French aristocracy or of the French bourgeoisie or of the French peasantry. In the greater part of the Middle Ages, he was simply a serf. And serfdom, in France, did not disappear completely until after the American Revolution. In other parts of Europe it disappeared even later" (p.24).

And another paragraph: "But the worst form in which serfdom existed—and continued to exist even after the abolition of slavery—was in the British colonies abroad. The individual inherited his status from his parents, and he retained it throughout his life. He transferred it to his children. Every group had privileges and disadvantages. The highest groups had only privileges, the lowest groups only disadvantages. And there was no way a man could rid himself of the legal disadvantages placed upon him by his status other than by fighting a political struggle against the other classes. Under such conditions, you could say that there was an 'irreconcilable conflict of interests between the slave owners and the slaves,' because what the slaves wanted was to be rid of their slavery, of their quality of being slaves. This meant a loss, however, for the owners. Therefore, there is no question that there had to be this irreconcilable conflict of interests between the members of the various classes" (ibid.).

5. Central planning. Central planning is another popular form of socialism. In discussing this subject, Mises mentioned a popular book in his time written by a certain British lady who happened to be a member of the Upper House. The title of her book is "Plan or No Plan". In that book, Mises discerned that the author was advocating the kind of plan originally proposed by Lenin and Stalin. This type of plan covers the entire life of a nation and excludes the personal plans of the people. For Mises, the title of the book was misleading for the contrast actually was not between the existence and absence of national plan, but between two kinds of plan - central plan or personal plans. 

6. Impossibility of calculation and planning. The central weakness inherent in socialism is its inability for economic calculation and planning due to the absence of price system, which can only be provided by the free market. And since socialism is basically an economic system that abolished the free market, it is actually running blind without the price system. 


Those who are not familiar with free market literature would consider interventionism as a strange subject. I hope that by coming to this third lecture such unfamiliarity will be removed and we will begin to realize the crucial played by this economic policy in modern economics and politics.

Interventionism is the most influential economic policy in our time. An interventionist government is characterized by product regulation, price and salary control, business interference, welfare, import and export control. These activities indicate that the government is moving beyond its proper scope and this is not good for the economy. 

So interventionism is all about the government inclination to go beyond its appropriate function into the affairs of the free market. In short, interventionism is all "about government interference with the market" (p.40). Specifically, this means government interference "with prices, with wage rates, interest rates, and profits" (ibid.). Both the immediate and the long-term results of such interference will be the transfer of economic power from the consumers to the state and the bureaucrats.

In Mises' lecture on interventionism, we will see its real nature under three sections: the proper role of the government, mixed economy, and the distinction between mixed economy and interventionism. 

1. Proper role of the government. There are three views about the role of the government in relation to the free market - interventionism, anarchy, and limited government. Unlike Rothbard, Mises advocates limited government. So again limited government means that the primary task of the government is to protect its citizens' life, freedom, and private property. Going beyond this is harmful to the economy. 

2. Mixed economy. Mises did not believe in the existence of third economic system. However, interventionism should not be confused with the existence of the so-called "mixed economy" where both private and public ownership of corporations are allowed. 

3. Distinction between mixed economy and interventionism. In order to clarify the distinction between mixed economy and interventionism, Mises gave three examples - price control, rent control and cartels. 

Under price control, we see two historical examples of failure of price control, an analysis of reasons for such failure, its extension to other products, and its end result. Examples of price control in the past tell us about the response of the government once prices started to increase as a result of inflating the money supply. Mises gave two examples: the Roman Emperor Diocletian and French Revolution.

The Roman emperor debased the silver coins in the second hald of the 3rd century. The government mixed increasing amount of copper into the silver coins. This is currency debasement that resulted into price increase followed by price control. Those who violated the price control law were severely punished. The final outcome "was the disintegration of the Roman Empire and the system of the division of labor" (p.41).

Similar mistake was repeated during the French Revolution. Since printing press had already been invented, the French used a different mode of currency debasement. They increased the money supply by printing huge quanitity of paper currency. The immediate result was price increase and again followed by price control. Even the method in punishing the violators was also changed. This time, it was through guillotine. 

In analyzing the failure of price control, Mises takes milk as an example. It all starts with people's dissatisfaction with the increasing price of milk. As a response, the government decides to fix the maximum price for milk, which is lower than the market price. Two immediate results will follow: the demand for milk will increase and the producers of milk will suffer loss as a result of lower price.

In order to continue and protect the business from the impact of government imposed price, it is natural that producers will do the following action: restrict milk production, reduce the number of cows by selling them and focus instead on other products made out of milk. The long-term results then of price control will be less supply of milk, greater demand, price increase, smaller number of people can avail the product, and rationing. 

Then the government will inquire the reason for less supply of milk. The producers will respond that the cost of production is higher than the government imposed price. And as the government traces other items necessary for production, these items will be subjected also to price control. The same result that happened in the milk supply will also occur to related items. And if the government does the same thing with other basic necessities, similar result will take place. 

The final result of government interference in the market is socialism. This happened both in Germany and Great Britain in World War 1. Both countries inflated their money supply, which resulted to price increase and imposition of price controls. The government of Germany controlled the entire national economy through the "Hindenburg Plan" that resulted to the collapse of bureaucratic apparatus and bloody end. England would also about to suffer the same fate, if not for the entrance of the US into war that provided the necessary supply. 

During the 2nd World War, the same process was repeated. Price control was already present before Hitler came to power. During Hitler's time, the free enterprise was still allowed to operate but no longer under the control of entrepreneurs. Instead, they were called shop keepers. The entire operation of the free market is but a show. Everything is regulated from the kind and quantity of products, source and price of raw materials, buyers and price of goods to the designated works for people and amount of salary. This is the free market under German socialism. 

Great Britain followed the same pattern. It became socialist during the time of Sir Winston Churchill. Nationalization was the game of the day. For Mises, the difference between the two countries is unimportant for in both cases, it was the government's order, which had to be obeyed in all areas. 

The same process in controlling the price of milk is applicable in housing. Housing shortage is an outcome of similar mechanism, but this time, it is rent control. 

Mises identifies a series of results from rent control: people will not choose to transfer to smaller apartments when their conditions changed, many cities in the US suffered financial difficulty, shortage in housing, and then the government spent billions for building of new houses. 

Another economic consequence of interventionism in the form of "protectionism" is the formation of cartels. Mises describes the formation of cartels as a result of government's attempt "to isolate the domestic market from the world market" (pp. 51-52). Then the government "introduces tariffs which raise the domestic price of a commodity above the world market price, making it possible for domestic producers to form cartels" (p.52). Once cartels are formed, the government will call for anti-cartel legislation. Observing the process, you will see the absurdity of the government's call for legislation while in fact, cartels are formed due to its intervention. So if the government really wants to stop cartels, it must stop intervening in the affairs of the market. 

Interventionism is not a new development. It is a revival of an old idea that a king was the "messenger of God" with supernatural powers. It came back to the modern times through the influence of a German professor, Werner Sombart. This professor believes that Hitler's orders directly came from God Himself, "the Fuhrer of the Universe". For Mises, the return of this belief is inexcusable in modern times and in a country recognized "as the nation of philosophers and poets" (p.54). The only remedy to interventionism is the power of the citizens.


The fourth lecture is about inflation. In addition to interventionism, inflation is the other tool of socialism. Under this lecture, I see five interconnected topics: solution to government's financial problem, most affected sector by inflation, duration of inflation, labor unions, and full employment.

1. Solution to the financial problems of the government. There are two ways to solve the government's financial problems. The legitimate way to do it is by taxing the citizens. But since taxing the people is considered not good for political career, another way of addressing the government's financial difficulties was made. This time it is by printing paper money.

In directly taxing the people, at least the people are aware about the deduction in their salary and they can adjust their expenses to a new financial situation brought about by new taxes. And another advantage of direct tax compared to printing paper money is that the price of goods and services is not affected. The only negative repercussion of such an act is the increase in buying power for the government and less on the part of private citizens. 

This is not the case when government decides to print paper money to solve its financial trouble. It is also a tax, but people do not see it for it is done indirectly. And it also does not affect anyone's political career. 

What's detrimental in this form of indirect tax is that since people do not see any reduction in their income, they think that they can still buy the same amount of goods that they previously buy when the quantity of money is not yet increased. They do not realize that the purchasing power of their money has been reduced since the certain consequence of printing more money is price increase. And since prices of goods and services have already increased as a result of additional money, those who receive the same amount of salary when the new money was not yet introduced will suffer. And since most people do not know how their money lost its value, they simply consider it as something natural.

2. Most affected sector by inflation. The fact is, price increase and the lost of purchasing power are not natural. It is an inescapable outcome of government's act of printing money to address its financial problems. So the financial burden is transferred from the government to the citizens without them knowing it. 

The problem here is the way the government obtains money. Due to the preference of the government to use printed money rather than direct tax, some people will have greater advantage than others. Those who receive the new money earlier are in a better position than those who receive it late. This reminds me of Ron Paul's words about “speculators, bureaucrats, and the special interests favored by the government” (Pillars of Prosperity, 2008, p.110) as early beneficiaries. The sufferers are the laborers and savers. Among them are the teachers and ministers (p.61).

3. Duration of inflation. The Roman Empire, Han Dynasty, and Germany are used as typical examples to demonstrate the catasthropic end of continually increasing the supply of money. Mises thinks that inflation will stay "as long as people are convinced that the government, sooner or later,...will stop printing money..." (pp.63-64). When people do not believe this anymore, then they will realize that prices will continue to increase. As a response, they will start "buying at any price, causing prices to go up to such heights that the monetary system breaks down" (ibid. p. 64). 

Under inflationary monetary system, becoming a debtor is considered wise. Anyone who understands the system could take advantage of it and could utilize it to attain easy wealth. Another feature of inflationary policy is the perception about the government's power. It is looked upon by the people as all-powerful. People ask the government to take care of them for with an unlimited supply of money, the government can do anything. 

In order to correct the wasteful spending of the government, Mises believed in returning to the gold standard. He argued that the gold standard is a form of protection from extravagant government. One great advantage of it is that "the quantity of money under the gold standard is independent of the policies of governments and political parties" (p.65). 

4. Labor Unions. Next to the government, labor unions possess the power to influence wage rates. The problem with the wage rate demanded by unions is that it is above the level of wage in free market. As a result laborers are only employed by industries prepared to suffer loss. When businesses could no longer afford losses, they shut down resulting to more unemployment.

5. Full Employment. John Maynard Keynes was a strong advocate of inflationary policy. For him, this is the only way to solve unemployment. For Mises, there is no need to resort to Keynes' strategy of "cheating the workers" (p.70). Instead, the market should be allowed to operate freely without the interference coming from both the governments and the labor unions. This is the only way to achieve full employment (pp.70-71). 

Mises concluded this lecture by emphasizing that inflation is a monetary policy and it can be changed. And the only way to change it is for the intellectuals to do their role in shaping public opinion. Once the public are informed about the disastrous results of inflation, Mises was confident that politicians will abandon this monetary policy.

Foreign Investment

The fifth lecture is about foreign investment. It tells us that increasing the capital is the only key for developing nations to attain prosperity. This is Ludwig von Mises' central argument in this lecture. Mises explained this topic under five headings - reason for lower income, three important events, numerous enemies of capital growth, situation in many countries, and the key to the prosperity of developing countries. 

1. Lower income. In developing countries, the standard of living is lower simply because the average income is also lower compared to similar type of work in developed countries. And the reason for this is not inferiority of workers or business ignorance. Instead, it is dependent on economic situation and availability of capital in the country, both foreign and domestic. 

2. Three important events. Mises identified three important events in the economic history of the world. These are the introduction of foreign investment in the 19th century, the story of American subsidies in between and after two world wars, and the development of anti-capitalist mentality after World War 1. Without the aid of British capital in the 19th century, the development of US economic system is unintelligible. In addition to British capital, US economic policy during those times was friendly to foreign investment. This explains the unprecendeted growth of American economy. But after World War 1, economic climate changed with the development of anti-capitalist mentality. Countries were no longer friendly to foreign investment. The previous condition that encouraged foreign investment was removed. Expropriation of investments became the norm. Mises described this backwardness: "Starting with the First World War, there began a period of worldwide open warfare against foreign investments. Since there is no remedy to prevent a government from expropriating invested capital, there is practically no legal protection for foreign investments in the world today. The capitalists did not foresee this. If the capitalists of the capital exporting countries had realized it, all foreign investments would have come to an end forty or fifty years ago. But the capitalists did not believe that any country would be so unethical as to renege on a debt, to expropriate and confiscate foreign capital. With these acts, a new chapter began in the economic history of the world" (p.82).

3. Enemies of capital growth. Aside from direct expropriation, "innovative" way of expropriating capital also exists. And this problem is rampant in developing countries. Mises mentioned two ways of doing this - foreign exchange control and tax discrimination. And then referring to tax system, he described the existing policy in the US as insane, and should not be followed by other countries. He called it double taxation and progressive (p.84).

Two additional forces that prevent capital growth are protectionism and labor unionism. Protectionism prevents "the importation of capital and industrialization into the country" (p.87). Labor unions on the other hand "use violence against entrepreneurs and against people they call strikebreakers" (ibid.). They "cannot industrialize the country, they cannot raise the standard of living of the workers", and they bring nothing but "permanent, lasting unemployment" (ibid.).

4. Situation in many countries. Many countries are in serious trouble due to these anti-investment policies. The end result of this is harmful to national economy. It destroys confidence that cause the retreat of foreign investment. For Mises, his proposed solution was to establish an international law that remove foreign investments from national jurisdiction. Mises explained the seriousness of this problem: "But in many other countries the problem is very critical. There is no—or not sufficient—domestic saving, and capital investment from abroad is seriously reduced by the fact that these countries are openly hostile to foreign investment. How can they talk about industrialization, about the necessity to develop new plants, to improve conditions, to raise the standard of living, to have higher wage rates, better means of transportation, if they are doing things that will have precisely the opposite effect? What their policies actually accomplish is to prevent or to slow down the accumulation of domestic capital and to put obstacles in the way of foreign capital" (p.85).

5. The key to prosperity. Mises emphasized that the only thing missing among developing countries for them to improve their standard of living is capital accumulation operating not under the control of the government, but under the discipline of the free market. And to achieve the desired result, capital requires a stable monetary unit. This would mean total absence of any kind of monetary inflation. 

So at the end of the day, the key to the prosperity for developing countries is all about economic policy and for Mises this is the decisive point: "One must realize that all the policies of a country that wants to improve its standard of living must be directed toward an increase in the capital invested per capita" (pp.87-88). "As I said before, there is only one way a nation can achieve prosperity: if you increase capital, you increase the marginal productivity of labor, and the effect will be that real wages will rise" (p.88).

Two questions come to mind while reading this lecture. What is the economic situation in the country? And what prevents the availability of both domestic and foreign capital? Dr. John V. C. Nye of George Mason University described the existing economic policy in the country as "Badly distorted micro-economic price situation", "poor and unreliable property rights and contracting", "legalistic bureaucracy" and "policies and institutional constraints that are anti-investment and anti-competitive". 

Policies and Ideas

In this final lecture, Ludwig von Mises answered these two questions: What caused the collapse of the Roman Empire during the 3rd century that is also threatening our civilization now? Is the collapse of Western civilization really inevitable as various thinkers and critics argue? We divide our answer to these questions under four sections: internal corruption, shift to interventionism, similarities and differences, and the need for better ideas. 

1. Internal corruption. Ludwig von Mises strongly acknowledged that the internal forces that corrupted the Roman Empire are also present within Western civilization. He identified them as economic interventionism and monetary inflation. However, he strongly contradicted the opinions of influential scholars such as the German teacher Oswald Spengler and the British historian Arnold Toynbee who predicted the inevitability of the collapse of Western civilization. For him, the metaphorical comparison between the death of "civilization to a plant is completely arbitrary" (p.101). Though he admitted that there are similarities between the Roman Empire and Western civilization, he also argued about the existence of differences. And in these differences, better ideas play a critical role to change the direction of present civilization. 

What follows next is a narration how this process of internal corruption started. In order to trace the economic root of existing political troubles, we need to see the significance of the frustration of the hopes of 18th century Enlightenment. Thinkers during that time was characterized by strong optimism as to the dawn of the new age of freedom, prosperity, and progress. Such optimism was indeed followed by unprecedented economic improvement for the following two centuries. However, in the 20th century, a "warlike spirit" started to return alongside with humanity's disappointment with the constitutional system developed at the end of the 18th century. Most people did not see the connection between the change in economic policy and the growing political problems. 

Mises argued that you cannot separate the two. In fact, political turmoils that time were just natural consequences of replacing the previous economic policy with a new one. And it was exactly at this point, that interventionism started to appear. Mises stated that the so-called, "...decay of freedom, of constitutional government and representative institutions, is the consequence of the radical change in economic and political ideas. The political events are the inevitable consequence of the change in economic policies" (p.94). 

2. The shift to interventionism. With the shift to interventionism, everything changed. A new entity has emerged out of interventionist climate. The classical meaning of political parties has been lost and replaced by special interest groups or "pressure groups" (p.96). Mises understands this new entity as "a group of people who want to attain for themselves a special privilege at the expense of the rest of the nation" (ibid). Under interventionism, it is considered "the duty of the government to support, to subsidize, and to give privileges" (ibid.) to these groups. Special privileges may include "tariff on competing imports", "subsidy", or making of laws to prevent other groups "from competing with the members of the pressure group" (ibid.). 

Mises even observed that the retention of the two-party system in the US is just "a camouflage of the real situation" (ibid.). Both parties have their own pressure groups representing various economic interests such as silver, wheat, meat, oil, and many more. In this kind of political atmosphere, the interest of the nation as a whole is sacrificed. In fact, pressure groups are so powerful that it influences even the nation's foreign policy. 

Other consequences of interventionism include the weakening of nations' power and of representatives to resist tyranny, constant increase in public consumption, incapability of governments to stop inflation, and the decline of Western civilization. It was at this point that Mises mentioned the names of Spengler and Toynbee who wrote about the inevitability of the collapse of Western civilization. 

3. Similarities and differences. Mises acknowledged the similarities between the Roman Empire and the Western civilization. He described how interventionism and inflation destroyed the Roman Empire from within: "The result, of course, was that the supply of foodstuffs in the cities declined. The people in the cities were forced to go back to the country and to return to agricultural life. The Romans never realized what was happening. They did not understand it. They had not developed the mental tools to interpret the problems of the division of labor and the consequences of inflation upon market prices. That this currency inflation, currency debasement, was bad, this they knew of course very well. . . . Consequently, the emperors made laws against this movement. There were laws preventing the city dweller from moving to the country, but such laws were ineffective. As the people did not have anything to eat in the city, as they were starving, no law could keep them from leaving the city and going back into agriculture. The city dweller could no longer work in the processing industries of the cities as an artisan. And, with the loss of the markets in the cities, no one could buy anything there anymore" (p. 103). 

So what Mises was saying was that as a result of interventionism and inflation, the supply of food declined, people abandoned the cities and returned to countryside and to agriculture, and markets disappeared from the cities. The emperor's decree to stop the migration was powerless when people had nothing to eat. In fact, during the last stage of the empire's decline, emperors were assassinated "on the average of every three years" (ibid.).

An interesting part in Mises' description was the absence of people's awareness about what was happening to them. They lacked the necessary "mental tools" to interpret their struggle. I think it is in this part where we can see the differences between the Roman Empire and Western civilization. For Mises, we are in a more advantageous situation than the people during the 3rd century simply because more and more people are becoming aware about the real problem of present civilization. Unlike, in those days, nobody dared to contradict the Roman government. But today, centers promoting free market ideas are increasing in number all over the world.

4. The need for better ideas. For Mises, the real struggle lies in providing better ideas. And in this struggle, the role of intellectuals is vital. In the first place, the crisis in current civilization is an offshoot of the labors of the intellectuals under Marxist's spell. It is them who shaped the mind of the policy makers. 

Marxism must be replaced with free market ideas. It is not true that this ideology works for the good of the masses simply because none of its formulators came from the masses. All the intellectuals that developed anti-free market ideas including Marx himself came not from the proletariat, but from the bourgeois. For Mises, the free enterprise provides better ideas. See how he described such need: "Everything that happens in the social world in our time is the result of ideas. Good things and bad things. What is needed is to fight bad ideas...We must substitute better ideas for wrong ideas. We must refute the doctrines that promote union violence. We must oppose the confiscation of property, the control of prices, inflation, and all those evils from which we suffer. . . .These ideas must be brought to the public in such a way that they persuade people. We must convince them that these ideas are the right ideas and not the wrong ones. The great age of the nineteenth century, the great achievements of capitalism, were the result of the ideas of the classical economists, of Adam Smith and David Ricardo, of Bastiat and others. . . . What we need is nothing else than to substitute better ideas for bad ideas. This, I hope and am confident, will be done by the rising generation. Our civilization is not doomed, as Spengler and Toynbee tell us. Our civilization will not be conquered by the spirit of Moscow. Our civilization will and must survive. And it will survive through better ideas than those which now govern most of the world today, and these better ideas will be developed by the rising generation" (p. 105).

Mises concluded this final lecture with a positive attitude: "I hope that in a few years the number of those who are supporting ideas for freedom in this country, and in other countries, will increase considerably. I myself have full confidence in the future of freedom, both political and economic" (p. 105).