Friday, August 29, 2014

Seeking Wisdom Early

I love them that love me; and those that seek me early shall find me. Riches and honour are with me; yea, durable riches and righteousness. My fruit is better than gold, yea, than fine gold; and my revenue than choice silver (Proverbs 8:17-19 - King James Version).
How soon should men seek wisdom? Early. By seeking wisdom early, men are guaranteed success. The harlot (folly) calls to men in the twilight, to spend the night illicitly. Wisdom calls early, as at daybreak. The day is to be given over to seeking wisdom. He who is diligent in the quest will be rewarded.

By comparing the treasures of wisdom with the precious metals, Proverbs drives the point into the minds of men: the most valuable asset of all is wisdom. Solomon was already wise when he asked for wisdom; he recognized that he was asking for the most valuable of all assets. Wealth subsequently flowed to his kingdom (I Kings 10:14–21). The fame of this rule spread everywhere (I Kings 4:3–11). The powerful and wealthy came to him for counsel (I Kings 10:11–13). In short, he achieved indirectly, through wisdom, the goals that other men seek directly through intrigue, magic, and violence.

God speaks clearly to men. They can understand His words because they are made in His image. He communicates to them by means of analogies and metaphors. When He compares the value of wisdom with gold, He speaks a universal language. Like the pocketbook parables of Jesus, the economic language of wisdom personified can be grasped by anyone, in the day of Solomon or in the twenty-first century.

The universality of gold and silver as desirable assets to lay up in one’s treasury reinforces the words of wisdom. When men think about the universal forms of wealth, they think of gold and silver. Across the globe, men understand the value of the precious metals. Abraham’s wealth was counted in these metals (Gen. 13:2). When men speak out against the economic importance of gold and silver, they speak nonsense. When John Maynard Keynes spoke of gold in 1923 as a barbarous relic, and when Lenin suggested in 1921 that the victorious Bolsheviks would someday use gold for public lavatories, they proclaimed utopianism (“utopia”: no place). These two spokesman of their era spoke for both sides of the Iron Curtain. Both men had contempt for Christian society. Keynes the atheistic homosexual and Lenin the atheistic revolutionary knew enough about Christianity to prefer the harlot of the twilight.


Excerpt from Wisdom and Dominion: An Economic Commentary on Proverbs by Gary North pages 83-84.

Tuesday, August 12, 2014

DAP and the PH Economy

A Facebook friend shared an article from GMA News online explaining to us what DAP is. The article summarized DAP as a government "program to accelerate public spending and boost the economy." 

And then I asked a question: "How does public spending boost the economy?" "By pump-priming the economy, infusing money in the marketplace", my friend responds. And then he adds, "by building the needed infrastructure."

"I agree as a short-term solution." And the I asked another question: "How about as a long-term solution? What is the long-term impact of public spending on the economy?" He replied: "If the spending is focused on infrastructure, education and health, it will benefit the economy in the long-term."

This friendly exchanges reminds me of an article I wrote last January this year based on the The Freeman article, "Abundance Down There, and Back Up". 

And then I gave a longer response: 
"That's why I think understanding Henry Hazlitt's 'Economics in One Lesson' is very important. In that book, he talks about short-term/long-term and visible/invisible results of any economic policy or activity. I believe that the government has the authority to spend taxpayers money within its sphere of legitimate functions. However, concerning health and education, and add to it, energy, I don't think they are within the legitimate duties of the government. Of course, in case of health and education, we have been used to them and it's now difficult to break the customary ways of doing things. But for free market advocates, I think it is part of their idealism that somehow one day these sectors of the economy will be liberated from the political class. The Freeman article exactly touched this subject. For the writer, government interference in healthcare, education, and energy is exactly the reason why the products and services in these industries 'are getting worse. slower, and more expensive.'" 

And then I searched for another article and I found Jonathan M. Finegold Catalan's "Government Spending Is Bad Economics". In it, he identified several features and setbacks of government spending. They include the following: 

1. Government spending brings about the negative side effect of discouraging production. 

2. Government spending is inherently inferior to private spending.

3. Though the government is the biggest economic player, it does not play according to the rules of the market (my paraphrase version).

4. The reason why the state does not need to economize, because it can borrow, tax, and simply print more money.

5. Public spending distorts the entire notion of scarcity, because government can acquire any economic good at any cost. 

6. Government spending is not a method of improving the market's efficiency, nor is it a method of employing allegedly idle resources (This reminds me of the sources of DAP). 

7. The result of government spending is foregone opportunities; the cost is the gain in wealth that would have occurred had economization been allowed to take place.

8. Government, in fact, is a large disequilibrating force on the market. It forcibly redistributes economic goods, removing them from a process of economization and instead investing them toward the realization of less important, or less preferred, ends. 

9. We can safely conclude that government spending causes more harm than good; it redistributes the means of production toward the attainment of ends considered inferior by the individuals who make up the society that government is allegedly acting to improve.

Tuesday, August 5, 2014

The Same Old Story?

The remarkable thing in the present situation is not the fact that we have just passed through a period of credit-expansion that has been followed by a period of depression, but the way in which governments have been and are reacting to these circumstances. The universal endeavour has been made, in the midst of the general fall of prices, to ward off the fall in money wages, and to employ public resources on the one hand to bolster up undertakings that would otherwise have succumbed to the crisis, and on the other hand to give an artificial stimulus to economic life by public works schemes. This has had the consequence of eliminating just those forces which in previous times of depression have eventually effected the adjustment of prices and wages to the existing circumstances and so paved the way for recovery. The unwelcome truth has been ignored that stabilization of wages must mean increasing unemployment and the perpetuation of the disproportion between prices and costs and between outputs and sales which is the symptom of a crisis.

This attitude was dictated by purely political considerations. Governments did not want to cause unrest among the masses of their wage-earning subjects. They did not dare to oppose the doctrine that regards high wages as the most important economic ideal and believes that trade-union policy and government intervention can maintain the level of wages during a period of falling prices. And governments have therefore done everything to lessen or remove entirely the pressure exerted by circumstances upon the level of wages. In order to prevent the underbidding of trade-union wages, they have given unemployment benefit to the growing masses of those out of work and they have prevented the central banks from raising the rate of interest and restricting credit and so giving free play to the purging process of the crisis. 

Source: Ludwig von Mises, "Theory of Money and Credit", 1953, p. 15

Does it sound contemporary? It's the same old problem. Is this not a proof of the saying that history repeats itself? Mises was describing the economic situation from 1926 to 1929. They got it wrong during those years. They blamed the market! They looked to governments to provide answers. The answers given were artificial stimulus and the use of public funds to stabilize wages and prices. They prevented economic recovery. They increased unemployment. 

How about the response to 2008 global economic crisis? Once again, the market was blamed. We heard of QEs. The goal was the same. The good thing is that we have an advantage today that they didn't have in the 1930s; it is the fast and free flow of information made possible by the Internet. More people now know the real cause and looking for answers. But the main story remains the same. How long will people buy the demagogues' rhetoric? How I wish something will change this time. The sooner the better. 

But so far, instead of looking for economic solution, those in power provided the only answer they know, political solution. They resort to political action to solve an economic problem. Will it work? 

They no longer want to repeat the mistake that happened in the 1930s. They thought the Fed then did not print enough paper money. That's why this time, they're committed to a prolonged pumping of "artificial stimulus" to boost the economy. This means more spending as a way out of economic slump. 

If a drug addict asked you for help, will you give him more drugs? That makes him feel better. At least for a time. But actually, you are killing him. That's exactly what they're doing with the economy. This "artificial stimulus", which we call today "quantitative easing" has the same effect on global economy. It appears that the "patient" is once again normal; the economy "has recovered". It even gives us an appearance of growth. As a short-term "cure", so far, we're just doing fine, but in the long run, I doubt . . . 

Sunday, August 3, 2014

Sound Money?

FORTY years have passed since the first German-language edition of this volume was published. In the course of these four decades the world has gone through many disasters and catastrophes. The policies that brought about these unfortunate events have also affected the nations' currency systems. Sound money gave way to progressively depreciating fiat money. All countries are today vexed by inflation and threatened by the gloomy prospect of a complete breakdown of their currencies. 
There is need to realize the fact that the present state of the world and especially the present state of monetary affairs are the necessary consequences of the application of the doctrines that have got hold of the minds of our contemporaries. The great inflations of our age are not acts of God. They are man-made or, to say it bluntly, government-made. They are the off-shoots of doctrines that ascribe to governments the magic power of creating wealth out of nothing and of making people happy by raising the 'national income'. 
One of the main tasks of economics is to explode the basic inflationary fallacy that confused the thinking of authors and statesmen from the days of John Law down to those of Lord Keynes. There cannot be any question of monetary reconstruction and economic recovery as long as such fables as that of the blessings of 'expansionism' form an integral part of official doctrine and guide the economic policies of the nations. 
None of the arguments that economics advances against the inflationist and expansionist doctrine is likely to impress demagogues. For the demagogue does not bother about the remoter consequences of his policies. He chooses inflation and credit expansion although he knows that the boom they create is short-lived and must inevitably end in a slump. He may even boast of his neglect of the long-run effects. In the long run, he repeats, we are all dead; it is only the short run that counts. 
But the question is, how long will the short run last? It seems that statesmen and politicians have considerably over-rated the duration of the short run. The correct diagnosis of the present state of affairs is this: We have outlived the short run and have now to face the long-run consequences that political parties have refused to take into account. Events turned out precisely as sound economics, decried as orthodox by the neo-inflationist school, had prognosticated. 
In this situation an optimist may hope that the nations will be prepared to learn what they blithely disregarded only a short time ago. It is this optimistic expectation that prompted the publishers to re-publish this book and the author to add to it as an epilogue an essay on monetary reconstruction.
Source: Ludwig von Mises, "Theory of Money and Credit", 1953, pp. 9-10

This excerpt is a Preface to the new edition of the book "The Theory of Money and Credit". There are two other Prefaces. Ludwig von Mises wrote this on June 1952. In it, he was describing an event that was true in 1912. That's 102 years far away from our time. The immediate question that comes to mind is what's the connection of that 1912 event to our situation in 2014? That's not an easy question. To find the answer, reading this 500-page book is a must. 

Mises was describing that from 1912 to 1952, "many disasters and catasthrophes" had happened to humanity. These disasters and catasthrophes had originated from economic policies that impacted not only the German currency, but the currencies of all nations. Those of us who are not familiar with monetary system, and have been used to fiat currency since the day of our birth might think that Mises was just dreaming to aspire for the recovery of sound money. In fact, it is us who are dreaming, and we have been sleeping for so long thinking that nothing is wrong with our monetary system. Soon we will wake up. I just do not know when. The only thing I know is that our awakening will only happen when we can no longer endure the pain of sleeping, that is, when our existing monetary system will purchase products and services less and less though the nominal value of our salary is increasing.

Mises was referring to monetary inflation. The disaster brought by this monetary policy is "man-made", to be exact, it is "government-made". The government does it by printing money out of thin air. This is magic. 

This is why basic knowledge of economics is a necessity. If reputable book authors and statesmen could be confused, what would you expect from an average citizen? Remember that the path to monetary reconstruction and economic recovery will never take place unless the economic policies of nations are altered. And these policies will never change unless citizens are economically informed. Expect that demagogues will do their best to hinder the path to recovery. They enjoy watching you lying on your bed. 

Saturday, August 2, 2014

Sacrificing Liberty through Bureaucracy

Mises, L. (1944). Bureaucracy. New Haven: Yale University Press. 135 pages. 

Those of us who advocate personal and economic freedom should remind ourselves occasionally not to be surprised anymore if most people we know take the expanding power of the government for granted. To expect otherwise is unrealistic simply because the progressive propaganda has been successful and has already conquered mainstream education and media for so long. Inflation, deficit spending, and bigger welfare package are just few examples of the activities of bigger government that people consider normal. I think this is not only confined in the Philippines; it is a global trend. And the most effective tool that has brought this economic disaster is the growth of bureaucracy. 

In Bureaucracy, Ludwig von Mises argues throughout the book that economic and personal freedom has been consistently coerced by the State through the gradual expansion of bureaucratic management. Though citizens feel this coercion through the subtle squeezing of their pockets, it is very rare to find someone who knows the details how it is being done. I think the book will give us such ability to distinguish the voice of freedom from the counterfeit ones.

Content and Outline of the Book

The book has seven chapters. Chapter 1 introduces the concept of profit management. Chapters 2 to 4 deal with bureaucratic management: the second chapter explains bureaucratic management in general; the third, bureaucratic management of publicly owned enterprises, and; the fourth, bureaucratic management of private enterprises. The following two chapters elaborate about implications and consequences of bureaucratization. The fifth chapter focuses on social and political implications, and the sixth, on psychological consequences. The last chapter is about the remedy to reduce the size of the government

The concept of profit management is explained under four sections: the basic operation of the market, economic calculation, its nature, and the nature of managing personnel. Under basic operation of the market, Mises brings to light two important themes: consumer sovereignty and economic democracy. In explaining economic calculation, Mises identified two additional components, price and profit, which can only be found under free market. Again, about the nature of profit management, two important records are emphasized, profit-and-loss account and the balance sheet. These records serve as the basis in evaluating the performance of personnel.

In chapter 2, Mises discussed the general character of bureaucratic management in relation to five sub-topics: bureaucracy under despotic government, bureaucracy within a democracy, its essential features, the crux of bureaucratic management, and its own unique feature of personnel management. Despotic government, unavoidably kills the eagerness of its personnel through strict compliance to regulations. As a result, the quality of service deteriorates. Within democracy, bureaucracy functions in relation to the rule of law and the budget. And due to the growth of bureaucratic management, in time, judicial arbitrariness threatens the rule of law, and public officers utilize public fund for their own ends. The essential features of bureaucratic management include the limitation of the discretion of subordinates, inability to verify the objectives in monetary terms, disconnection between revenue and expenses, and the absence of market price. This last feature is the crux of bureaucratic management, which is to say that the kind of service provided by the government has no market value. And because of this, poor performance is inevitable. Three additional mechanisms that contribute to the deterioration of government personnnel consist of increasing regulation to protect clerks from their superiors, the existence of superficial machinery for application and promotion, and the role of senior bureaucrats. 

Bureaucratic management of publicly owned enterprises is the subject of Chapter 3. It discusses about the impracticability of government all-round control, and public enterprise within a market economy. Other terms for government all-round control are central planning and socialism. Again, the primary reason why such system did not and will never work is due to the absence of market price that makes economic calculation impossible. Public enterprise within a market economy has numerous flaws such as the goal to provide service ignoring the market price, the transfer of the financial burden to the taxpayers, the absence of criterion to assess the usefulness of government services, and the wasteful expenditures of public fund. 

The focus of Chapter 4 is bureaucratic management of private enterprises. Here, we will find how government intervention created bureaucratization of private enterprises in the first place. This is done in two ways: interfering in company profit and in the choice of personnel. The chapter ends identifying the unfortunate results of this type of bureaucratization. 

Chapter 5 enumerates the social and political implication of bureaucratization. They include contempt for human laws, complacency, increase in government spending, bureaucratization of the mind, and the supremacy of the tyrant's will. 

Chapter 6 is all about psychological consequences. These are the misdirection of the youth, the crisis of progress and civilization, the emergence of elite paternal government, perpetual violence leading to endless civil war, and the disappearance of the critical sense.

The last Chapter shows us the way to reduce the size of the government. The way is not easy due to the popularity of government interference and the intimidation by the professionals. However, Ludwig von Mises was calling the average citizens of the nations of the world to seriously take the responsibility to personally educate themselves how the economy works. This is the only way to stop the bureaucratic invasion of liberty. This is "the first duty of a citizen of a democratic community. . ." (p. 111) for without it, "democracy becomes impracticable" (p. 120). Democracy is not "a good that people can enjoy without trouble", but "a treasure that must be daily defended and conquered anew by strenuous effort" (p. 121). 

Reasons for Writing the Book

Why Ludwig von Mises said all of these? Was his description unique only in his time? Is the message of Bureaucracy no longer applicable in the 21st century? Reading Bureaucracy for yourself will help you find out the answers to these questions.

For Mises, the reason he investigated the growth of bureaucracy in US, France, Germany, and Russia is that he thinks that this is the best way to study the conflict betwen socialism and capitalism. Through this study, one can see whether human society is heading towards "freedom, private initiative, and individual responsibility" (p. iii) or towards a coercive and interventionist state or in other words, towards "individualism and democracy" or "authoritarian totalitarianism" (ibid.). Again in page 10, Mises elaborates more about the nature of this conflict:
"The main issue in present-day political struggles is whether society should be organized on the basis of private ownership of the means of production (capitalism, the market system) or on the basis of public control of the means of production (socialism, communism, planned economy). Capitalism means free enterprise, sovereignty of the consumers in economic matters, and sovereignty of the voters in political matters. Socialism means full government control of every sphere of the individual's life and the unrestricted supremacy of the government in its capacity as central board of production management. There is no compromise possible between these two systems. Contrary to a popular fallacy there is no middle way, no third system possible as a pattern of a permanent social order. The citizens must choose between capitalism and socialism . . . ." 
And so for Mises, socialism utilizes bureaucracy to gradually lead society to totalitarianism. Bureaucracy and totalitarianism are interconnected. In our days, though we do not see full-blown government control of everything yet, but the growing expansion of bureaucracy is a sure indication that nations are heading into that direction. In other words, the most and highly bureaucratized society will experience constant suppression of personal and economic liberty. The reason why our time is more dangerous than the previous ones is because majority of the people do not have this realization. They don't see bureaucratization as a threat to liberty. They think that the compromise between socialism and capitalism is the way to go. They do not see that it is actually this "middle way" that is accomplishing this totalitarian goal. Again, see how Mises explains the correlation between bureaucratism and totalitarianism:
"Totalitarianism is much more than mere bureaucracy. It is the subordination of every individual's whole life, work, and leisure, to the orders of those in power and office. . . . It forces the individual to renounce any activity of which the government does not approve. It tolerates no expression of dissent. It is the transformation of society into a strictly disciplined labor army- as the advocates of socialism say-or into a penitentiary- as its opponents say. At any rate it is the radical break from the way of life to which the civilized nations clung in the past. It is not merely the return of mankind to the oriental despotism under which, as Hegel observed, one man alone was free and all the rest slaves, . . . . It is different with modern socialism. It is totalitarian in the strict sense of the term. It holds the individual in tight rein from the womb to the tomb. . . . The State is both his guardian and his employer. The State determines his work, his diet, and his pleasures. The State tells him what to think and what to believe in" (p. 17). 
Reading Chapters 5 and 6 of the book, you will realize that additional reasons exist in the mind of Ludwig von Mises that caused him to write this book. In Chapter 5, he mentioned one alarming social and political implication of bureaucratization, the bureaucratization of the mind. Mises observes that educational institutions no longer provide the necessary training of the mind, to think liberally, that is, the kind of education that protect personal liberty and the market economy. He laments that economic education has already been expelled from mainstream universities and has been replaced with "wirtschaftliche Staatswissenschaften (economic aspects of political science)" (p. 83). Notice how Mises describes the absence of economics in mainstream education and factors that contributed to such condition: 
"The modern trend toward government omnipotence and totalitarianism would have been nipped in the bud if its advocates had not succeeded in indoctrinating youth with their tenets and in preventing them from becoming acquainted with the teachings of economics" (p. 81). 
"The outstanding fact of the intellectual history of the last hundred years is the struggle against economics. The advocates of government omnipotence did not enter into a discussion of the problems involved. They called the economists names, they cast suspicion upon their motives, they ridiculed them and called down curses upon them" (p. 82). 
"In most countries of the European continent the universities are owned and operated by the government. They are subject to the control of the Ministry of Education . . . The teachers are civil servants like patrolmen and customs officers. Nineteenth-century liberalism tried to limit the right of the Ministry of Education to interfere with the freedom of university professors to teach what they considered true and correct. But as the government appointed the professors, it appointed only trustworthy and reliable men, that is, men who shared the government's viewpoint and were ready to disparage economics, and to teach the doctrine of government omnipotence" (ibid.). 
And here is the end result of the bureaucratization of the mind:
"All that the students of the social sciences learned from their teachers was that economics is a spurious science and that the so-called economists are, as Marx said, sycophantic apologists of the unfair class interests of bourgeois exploiters, ready to sell the people to big business and finance capital. The graduates left the universities convinced advocates of totalitarianism either of the Nazi variety or of the Marxian brand" (p. 86). 
Due to the success of the bureaucratization of the mind, Mises is right in saying, "The universities paved the way for the dictators" (p. 87). 

And so I think, Mises wrote Bureaucracy to counter the trend towards the bureaucratization of the mind and shift it towards liberty. 

Again in Chapter 6, we find that through this book, Ludwig von Mises offers direction to the misguided and activist youth. He desires to stop the crisis of progress and civilization. He hopes for a peaceful society where bureaucratic violence and endless civil war have no place. And finally, he dreams to see the critical sense among the citizens of democratic society restored. 

As a whole, this book is the attempt of Ludwig von Mises to provide the basic training of the mind to understand the critical issues of our time. This is his way to inform the average citizens of democratic nations by providing them fundamental understanding how bureaucracy affects personal and economic liberty. 

Is Mises Correct?

Is Mises correct in his assertion that the conflict between socialism and capitalism being decided in favor of the former through bureaucratic expansion? Is his message still relevant that the struggle between private ownership and state or collective ownership of factors of production being advanced in favor of totalitarianism through bureaucracy? Is he correct that the bureaucratization of the mind has been successful in producing university graduates who advocate totalitarianism either the German or Russian brand? Is he correct that the growth of bureaucracy the primary cause of social unrest, violence, and civil wars? 

Obviously, the answer to the above questions is affirmative. And only basic economic education is the remaining antidote to stop all this insanity. Many other writers agree with this. 

In September 29, 2012, Art Carden of Forbes wrote "The Greatest Thinker You've Never Read: Ludwig von Mises". For Carden, Mises "was the greatest social thinker of the twentieth century." Carden sees that Mises' greatest contribution was the "demonstration that socialism cannot function as a rational economic system and that private ownership of the means of production is necessary if value is going to be maximized and waste is going to be minimized in the production process." And so Carden agrees that Mises "ended the debate over whether an economic system based on common or social ownership of the means of production could function" with the essay Economic Calculation in the Socialist Commonwealth. Carden ends his article with a solemn warning taken from Human Action:
“The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race.”
Carden is not alone. Mises' wife and other reputable authors and leaders in the not so recent past confirmed the greatness of Mises and his ideas. 

Margit von Mises shared her two aspirations. One, that all presidents of the United States on their inauguration should get "a complete set of Lu's books", and; two, "that every university or college where economics and political science are taught would. . . add a course on freedom of the market to their curriculum" (My Years with Ludwig von Mises, 1976, p. 181). Margit thinks that Mises' "books should be marked for special recommended readings concerning government interference, socialism, and inflation" (ibid.). Doing this, Margit believes that the knowledge of Mises' works "would help to preserve freedom in the United States" (ibid.). 

Sylvester Petro, former professor of labor law at New York University describes Mises' writings as a different kind "from anything I had ever read before" (p. 157). He said this in spite of his wide reading "in the classics, in logic, in philosophy, in epistemology, in law, in economics, in social theory, in politics and all the rest" (ibid.). 

Leonard Read, "the founder of the Foundation for Economic Education" said of Mises' ideas as "a fountain source of new students for generations to come" (p.133). 

And finally Lawrence Fertig, "an American advertising executive and a libertarian journalist and economic commentator" compared Mises with mainstream economists: 
"Great honors were showered on economists whose major accomplishments had been to promote a major inflation which, by the end of the 20th Century, was acknowledged to be the source of tremendous social unrest and economic crises. These were the fashionable economists who were sponsored by wealthy Foundations and indeed by most of the intellectuals of Academe. But when economic historians of the future came to evaluate precisely who had made the most significant contributions to economic theory-to those broad and fundamental principles which explain human actions in the practical world people must live in-their puzzlement increased. For they could find only a meager record of academic honors or monetary prizes by leading ivy-league universities accorded to the one economist who had discovered and formulated some of the most brilliant economic theories of that century. His name was Ludwig von Mises" (p.178).
If Mises and his ideas are really great as the above men described, how come his books are not studied in the universities? Isn't this relegation of Mises' books to the shadow the fulfillment of his foresight, that socialism has been advancing for so long though not easily recognized due to bureaucratic means? I wonder why I never encountered Ludwig von Mises' books during my bachelor and master's degree, and not even when I took some units in my doctoral course in educational leadership. It was only in 2009 through the books of Robert Kiyosaki, the least expected person to arouse my interest to examine the Austrian school. 

If you are still not convinced about the relevance of Mises' ideas, try now to read a newspaper or any article on current economic and political issues anywhere in the world and see how problems are explained. You will always find one common theme: the government has to do something due to market failure. It is as if the government always knows how to solve the problem. It never enters in the mind of most people to question how the problem originates in the first place. If you are curious enough to pick up a particular problem such as income inequality and massive unemployment and dig into the source of the problem, you will always find the State through its bureaucratic agents. In short, the State claims to solve the problem that it created in the first place. 

In the Philippines, we have yet to see a public figure, whether a politician, a political and economic commentator or a journalist who advocates personal responsibility, economic liberty, and limited government. So far, the political and economic stance of most public figures we know are statist, socialist, nationalist, interventionist, and progressive. Filipino citizens do not have to wait for the emergence of a libertarian leader. Why not begin studying the books of Ludwig von Mises? Besides short books like Bureaucracy, Anti-Capitalistic Mentality, and Economic Policy: Thoughts for today and Tomorrow, Mises also wrote The Theory of Money and Credit, Socialism: An Economic And Sociological Analysis, Human Action, and Theory and History. offers all these books to anyone for free.

Friday, August 1, 2014

Summaries of Chapters of Bureaucracy

Economically Informed Citizenry

At last, I am done with my summary of "Bureaucracy", a very short book, but very difficult to read and vital to understand current issues from Misesian point of view. After my separate summaries of the book's six chapters, I came to the conclusion that the social problem Mises discussed 70 years ago is still with us in the 21st century. And he identified this problem as totalitarianism. He believed that "mankind is manifestly moving toward totalitarianism" (p. 109). 

I suspect that many these days will simply dismiss this conclusion as antiquated. Perhaps, the skeptics will argue on the basis of the difference of external manifestations between Mises' time and our time. During Mises' time, both Hitler and Lenin's threat was visible and real. In our time, socialism both in its German and Russian patterns are considered thing of the past; at least, this is what most people think. 

However, my difficulty in accepting the credibility of the above objection is that the existing social symptoms deny it. Blaming free market for massive unemployment is still popular. Government interference in almost all aspects of the citizens' life is considered acceptable. Growth of government spending is uncritically accepted as necessary to boost the economy. In short, bureaucratic management is still growing despite the fact that many books have been published criticizing the inefficiency of the system. In this concluding article, I want to share the solution to the crisis of our time as Mises saw it, and the two great obstacles that citizens of democratic society must overcome. The material in this article is taken from Chapter 7 and from the Conclusion of the book. 

The Solution: Economic Education

One certain sign that Mises' analysis still describes our time is the absence of economically informed citizenry. For him, that was the need of his time, and I personally believe still remains the need of our time. This is the solution to contemporary crisis. Unless ordinary citizens are economically educated, there is no way for us to stop the onslaught of bureaucratization. The only remedy to stop mankind's direction toward totalitarianism is for the public to have a basic understanding how the economy works. 

Mises lamented that past attempts to stop bureaucratization and socialization failed in spite of illustrious names that attacked the system. Both legal and satirical books failed. Yes, people were amused, but bureaucratization continued. For Mises, the reason why they failed was because the core of the problem was not touched. To him, "Bureaucratization is only a particular feature of socialization. The main matter is: Capitalism or Socialism? Which?" (p. 110).

Mises asked whether the interpretation of the supporters of socialism of capitalism was really correct or not. Is it really true "that capitalism is an unfair system of exploitation, that it is extremely detrimental to the welfare of the masses and that it results in misery, degradation, and progressive pauperization of the immense majority?" (ibid.). Are socialists correct or not? For Mises, this is the most important question. 

The above question can only be answered through economic reasoning, and that's why Mises was calling for a citizenry that is economically informed. He does not trust the experts to do this task in behalf of the people. To allow such to happen is equivalent to the giving up of the right of "self-determination" (p. 120), which is the essence of democracy. See how Mises describes the significance of economic education in answering the central question between capitalism and socialism:
"This is entirely an economic problem. It cannot be decided without entering into a full scrutiny of economics. The spurious catchwords and fallacious doctrines of the advocates of government control, socialism, communism, planning, and totalitarianism cannot be unmasked except by economic reasoning. Whether one likes it or not, it is a fact that the main issues of present-day politics are purely economic and cannot be understood without a grasp of economic theory. Only a man conversant with the main problems of economics is in a position to form an independent opinion on the problems involved" (pp. 110-111). 
For Mises, to obtain this economic education is "the first duty of a citizen of a democratic community. . ." (p. 111). Without this education "democracy becomes impracticable" (p. 120). Furthermore, Mises describes democracy not as "a good that people can enjoy without trouble", but as "a treasure that must be daily defended and conquered anew by strenuous effort" (p. 121). 

Once a citizen fulfills this duty, he will be able to see the mistake in blaming the capitalists for mass unemployment; he will realize that unemployment under free market is only temporary, and; he will finally understand that "unemployment as a mass phenomenon is the outcome of allegedly 'pro-labor' policies of the governments and of labor-union pressure and compulsion" (p. 112). Moreover, an informed citizen will no longer "believe that government spending can create jobs for the unemployed"; he will grasp that "there is but one way toward an increase of real wage rates for all those eager to earn wages: the progressive accumulation of new capital and the improvement of technical methods of production which the new capital brings about", and; he will recognize that "the true interests of labor coincide with those of business" (ibid.). 

The Two Biggest Obstacles

However, fulfilling the above duty is not easy. There are many obstacles to overcome, and two of them are intimidation by professionals who strongly advocate bureaucratization and socialization, and the settlement to compromise between capitalism and socialism, the third way. Let us deal first with the first obstacle.

Intimidation by professionals. In this battle of ideas, an ordinary citizen has no match when confronted with objections coming from professionals. Mises identified that these professionals are almost everywhere:
"There are, first of all, the hosts of employees of the governments' and the various parties' propaganda offices. There are furthermore the teachers of various educational institutions which curiously enough consider the avowal of bureaucratic, socialist, or Marxian radicalism the mark of scientific perfection. There are the editors and contributors of 'progressive' newspapers and magazines, labor-union leaders and organizers, and finally leisured ambitious men anxious to get into the headlines by the expression of radical views" (p. 116). 
When these professionals raised objections, an ordinary citizen is immediately silenced, and does not how to identify the error in their reasoning. Mises gave at least two objections that a layman must anticipate. This is the first objection:
"The fallacy of the gentleman's reasoning has long since been unmasked by the famous German professors, Mayer, Muller, and Schmid. Only an idiot can still cling to such antiquated and done-for ideas" (ibid.).
And the second objection:
"This gentleman is so ignorant as not to know that the scheme proposed succeeded very well in socialist Sweden and in red Vienna" (p. 117). 
The reason why a citizen cannot respond to the first objection is because "He has never heard the names of these eminent German professors" (p. 116). But Mises claims that the books of those professors "are simple humbug, full of nonsense, and that they did not touch the problems which" (ibid.) the layman raised. And concerning the second objection, again, it is true that it is difficult to respond since an ordinary citizen has no opportunity to get accurate "information from the original sources" (p. 117). However, Mises assures us "that almost all English-language books on Sweden and Vienna are propaganda products badly distorting the facts" (ibid.). 

The goal in attaining economic education is "not to make every man an economist" (p. 115). Instead, "The idea is to equip the citizen for his civic functions in community life" (ibid.) and "to make the civic leaders fit for such encounters with professional preachers of bureaucratization and socialization" (p. 117). This type of education is important for "The conflict between capitalism and totalitarianism, on the outcome of which the fate of civilization depends, will not be decided by civil wars and revolutions. It is a war of ideas. Public opinion will determine victory and defeat" (p. 115). 

Settling for the third way, government interventionism. Now, in the mind of Mises, this second obstacle, settling for the third way is the most destructive result of the average citizen's disgust to seriously look into economic problems. Mises gave us a more elaborated explanation of the nature of this compromise:
The citizen "looks upon the conflict between capitalism and socialism as if it were a quarrel between two groups, labor and capital each of which claims for itself the whole of the matter at issue. As he himself is not prepared to appraise the merits of the arguments advanced by each of the parties, he thinks it would be a fair solution to end the dispute by an amicable arrangement: each claimant should have a part of his claim. Thus the program of government interference with business acquired its prestige. There should be neither full capitalism nor full socialism, but something in between, a middle way. This third system, assert its supporters, should be capitalism regulated and regimented by government interference with business. But this government intervention should not amount to full government control of all economic activities; it should be limited to the elimination of some especially objectionable excrescences of capitalism without suppressing the activities of the entrepreneur altogether. Thus a social order will result which is allegedly as far from full capitalism as it is from pure socialism, and while retaining the advantages inherent in each of these two systems will avoid their disadvantages. Almost all those who do not unconditionally advocate full socialism support this system of interventionism today and all governments which are not outright and frankly pro-socialist have espoused a policy of economic interventionism. There are nowadays very few who oppose any kind of government interference with prices, wage rates, interest rates, and profits and are not afraid to contend that they consider capitalism and free enterprise the only workable system, beneficial to the whole of society and to all its members" (pp. 117-118). 
For Mises, to see the differences between socialism and capitalism as simply "a struggle between two parties for a greater share in the social dividend" is equivalent "to a full acceptance of the tenets of the Marxians and the other socialists" (p. 118). This perspective is based on a fallacious economic reasoning. Mises concluded that this act of compromise would end in disaster: 
"Economic interventionism is a self-defeating policy. The individual measures that it applies do not achieve the results sought. They bring about a state of affairs, which-from the viewpoint of its advocates themselves-is much more undesirable than the previous state they intended to alter. Unemployment of a great part of those ready to earn wages, prolonged year after year, monopoly, economic crisis, general restriction of the productivity of economic effort, economic nationalism, and war are the inescapable consequences of government interference with business as recommended by the supporters of the third solution. All those evils for which the socialists blame capitalism are precisely the product of this unfortunate, allegedly 'progressive' policy. The catastrophic events which are grist for the mills of the radical socialists are the outcome of the ideas of those who say: "I am not against capitalism, but ..." Such people are virtually nothing but pacemakers of socialization and thorough bureaucratization. Their ignorance begets disaster" (p. 119). 
I think there is no proper way to end this article than to quote a paragraph from the last page of the book. Ludwig von Mises describes the many inconsistencies of those who are proud to call themselves as champions of socialism: 
"The champions of socialism call themselves progressives, but they recommend a system which is characterized by rigid observance of routine and by a resistance to every kind of improvement. They call themselves liberals, but they are intent upon abolishing liberty. They call themselves democrats, but they yearn for dictatorship. They call themselves revolutionaries, but they want to make the government omnipotent. They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office. Every man but one a subordinate clerk in a bureau, what an alluring utopia! What a noble cause to fight for!" (p. 125). 

Source: Mises, L. (1944). Bureaucracy. New Haven: Yale University Press.