Friday, August 1, 2014

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.