COVID-19 and the Idea of Omnipotent State

While I was contemplating on the development of the trend that surrounds COVID-19 and economic shutdown, I came up with a following reflection:  

"Just an observation: I find the anatomy of the unfolding of the events since the start of covid-19 especially in relation to the character of the State both alarming and interesting. During the first two months, March and April, the posture is one of being an all-powerful and an all-knowing entity. Then around 19th of May, disappointment regarding covid-19 response became widespread and it was followed by a recognition of limitation on the part of the govt. That is somehow good and healthy to a sane society. By the end of May, there was a divergence between what is happening in the US and here in the PH. In the US, the narrative shifted from lockdown to racism, riots, and looting. Here in the PH, the rhetoric reminds us of post 911 terrorist attack. It seems to me, that due to widespread disappointment, the political and the bureaucratic class are now being exposed for all their pretensions to power and somehow their status are either being questioned or threatened. Thereby, advocates of big government have to think of some drastic measures to safeguard their interest, and of course doing all of them in the name of public safety, law, and order. God forbid that instead of freedom advancing, we will see in the days ahead, a continued and sustained attack on our freedom of expression and movement."

After posting my reflection on Facebook, my friend made a comment:  

"Magandang tingnan yung development ng estado sa OT in the case of ancient Israel. My initial observation is that: the concept of the state was somehow a late comer, instead a religious consciousness came first, and then the concept of the rule of law. It's only later that the institution of monarchy was established, and even then something that was problematized by the prophet Samuel. This observation indicates that the state in ancient Israel was never regarded as absolute and unlimited in its claims. That the Torah was given first serves to delimit and claims of the state, its legitimacy within divine ordering was framed within the provisions allowed by the covenant articulated by the Torah."

And then I replied:  

"No problem with the concept of the State in the Old Testament. As far as I know, the prevailing worldview from the dawn of human history, which includes the concept of the State is basically religious. And so the idea of the power of the Torah to delimit the power of the State in ancient Israel is consistent with such worldview. Quoting Hugo Winckler, such worldview according to Bavinck remained until the advent of 18th century, where the supranatural foundation (including the religious) of such worldview has been challenged and replaced in favor of the empirico-scientific. I suspect that in the passing of time, with the new worldview, the concept of the State has also undergone a radical change."

And then I shared with him my recent reading on welfare state 

"Just recently, I was reading a 40-page journal article on the Origins of the Welfare State in America. It was interesting how Murray N. Rothbard connected an ideology that includes postmillennial pietism, Statism, and corporate socialism to economic interests advanced by big businessmen seeking favor from the government to achieve cartelization and a growing legion of educated intellectuals and technocrats who want to restrict entry into their field via forms of licensing. Such ideology took control virtually all Protestant churches from 1830 onwards. The combination of these two forces according to Rothbard, paved the way for the existence of the welfare state. Both wealth and public opinion-molding power are at their disposal." 

"What follows afterwards is interesting. Protestant postmillennial pietism was secularized until the late 19th century. The goal was to use the power of the government 'to stamp out sin and to create a perfect society, in order to usher in the Kingdom of God on Earth.' From such goal, a concept of government evolved from a 'paternalistic mender of social problems' to a 'more and more divinized' and 'more and more seen as the leader and molder of the' society." 

"Rothbard identified a long list of names including the revivalist Charles Finney, activist women from a middle to upper class background, John Dewey, and others that contributed to the evolution of the Progressive Party launched by the Morgans in 1912. This Party spearheads the statist coalition that includes academic progressives, Morgan businessmen, social-gospel Protestant ministers, and activist women who became influential social workers who prepared the way for the success of FDR’s New Deal from 1933 to 1939. On side note, it is also interesting that Ludwig von Mises already had this concept of omnipotent State during his time. In fact, he even wrote a book in 1944 with that title describing the German State during the time of the Nazis." 

And the another friend raised a a follow-up question:

"May I know how we should perceive the empirico-scientific (what exactly characterises it) and how it challenged and replaced the power of the Torah to delimit the power of the state of ancient Israel?"

And here is my reply:

"That's actually the language of Herman Bavinck in his book The Philosophy of Revelation. Relying on Winckler, he was arguing that in the entire history of humanity, there are only two general worldviews, which he describes as "supranatural" and "empirico-scientific." The latter, from the combination of two terms themselves, you can see obviously that basically, it is naturalistic. It considers any claim beyond the realm of nature as primitive and unscientific. The concept of the Torah within that framework can be explained in naturalistic terms. To insist that the Torah is a product of divine revelation and therefore has the power to serve as a corrective to the excessive exercise in political power doesn't make sense. Such power of the Torah is only acknowledged within the supranatural worldview. But of course, this kind of thinking is no longer new. In the postmodern age, we are now witnessing the crashing of the foundation of the empirico-scientific worldview and a return to the supranatural where revelation is again recognized. But you know, even in information age, ideas need considerable time before they reach public consciousness. Still, existing institutions and policies work on the basis of the modern project."

Part 1's Summary

Ludwig von Mises cites historical accounts, quotes references, and utilizes reason and common sense as he compares and contrasts sociological and economic realities between liberalism (see page 60 to understand the meaning of this term as Mises employs it) and socialism. Part 1 of Socialism: An Economic and Sociological Analysis contains a rich material in answering this question: Where do ownership and property, democracy and equality, peace, femininity, marriage, family, and even sexuality (here Mises talks about free love, promiscuity, and prostitution) thrive more? Under a liberal social order? Or under a socialist social order? 

     

Marxism's Three Primary Principles

I forgot the exact time I decided to postpone my reading of Ludwig von Mises' "Socialism: An Economic and Sociological Analysis". After watching a youtube video that the leading presidential candidate was a self-confessed socialist and after stumbling with few Facebook status updates advocating socialism, they motivated me to delay no longer my reading of  Mises' book.

Digesting Mises' book on socialism is vital to have an informed understanding of the conflict between socialism and capitalism. I don't want to follow the example of what Mises describes as "irresponsible babbler" who publicly talks and writes a lot about capitalism and socialism without familiarizing himself with what the economists have to say about these issues (Ludwig von Mises, "The Anti-Capitalistic Mentality," 2008, p. 47). 

Mises' book on socialism has a credible reputation to have refuted the socialist paradise. The author argued that the central weakness inherent in socialism is  the impossibility to have a sound economic calculation and planning due to the absence of price system. As such, socialism will inevitably lead to waste of resources and poverty.   

Returning to my reading of this book, my goal was to finish it, digest its content and write my summary and reflection of it. In achieving this goal, I want to bite the 600-page book one small piece at a time. And so I want to post a series of excerpts, which I think will show the flow of thought proving the central argument of the book. And I would like to start with the "Preface to the Second German Edition" identifying the three primary principles of Marxism: 

"Thus about the middle of the nineteenth century, it seemed that the ideal of socialism had been disposed of. Science had demonstrated its worthlessness by means of strict logic and its supporters were unable to produce a single effective counter-argument. 

"It was at this moment that Marx appeared. Adept as he was in the Hegelian dialectic - a system easy of abuse by those who seek to dominate thought by arbitrary flights of fancy and metaphysical verbosity - he was not slow in finding a way out of the dilemma in which socialists found themselves. Since Science and Logic had argued against Socialism, it was imperative to devise a system which could be relied on to defend it against such unpalatable criticism. This was the task which Marxism undertook to perform. It had THREE LINES OF PROCEDURE.  

• First, it denied that Logic is universally valid for all mankind and for all ages. Thought, it stated, was determined by the class of the thinkers; was in fact an 'ideological superstructure' of their class interests. The type of reasoning which had refuted the socialist idea was 'revealed' as 'bourgeois' reasoning, an apology for capitalism.

• Secondly, it laid it down that the dialectical development led of necessity to Socialism; that the aim and end of all history was the socialization of the means of production by the expropriation of the expropriators - the negation of negation.

• Finally, it was ruled that no one should be allowed to put forward, as the Utopians had done, any definite proposals for the construction of the Socialist Promised Land. Since the coming of socialism was inevitable, Science would best renounce all attempt to determine its nature."

Source: Ludwig von Mises, "Socialism: An Economic and Sociological Analysis," 1951, pp. 15-16. 

The Danger of Ignoring the Past and the Wisdom of Economists

"Attempts to carry out economic reforms from the monetary side can never amount to anything but an artificial stimulation of economic activity by an expansion of the circulation, and this, as must constantly be emphasized, must necessarily lead to crisis and depression. Recurring economic crises are nothing but the consequence of attempts, despite all the teachings of experience and all the warnings of the economists, to stimulate economic activity by means of additional credit." 

(Source: Ludwig von Mises, The Theory of Money and Credit, 1953, p. 21)

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As Ludwig von Mises concluded his 1934 Preface to the English edition of his book, he emphasized once again the danger of increasing credit expansion, which will eventually end into economic crisis. I wonder why after more than eight decades and with the accessibility of information in our time, the wisdom of the Austrian school of economics is still largely ignored by academic institutions and policy makers. I cannot avoid but to think that perhaps the political control of money is really addictive on the part of government officials and those who benefit from the system. Perhaps, it is really such a great temptation that is too difficult to resist. And so regardless of setting up parameters to avoid the abuse of this power, history teaches us that government's control over the monetary system has always been abused to the detriment of the people's welfare.

Credit Expansion, Economic Crisis, and War

"The dislocation of the monetary and credit system that is nowadays going on everywhere is not due . . . to any inadequacy of the gold standard. The thing for which the monetary system of our time is chiefly blamed, the fall in prices during the last five years, is not the fault of the gold standard, but the inevitable and ineluctable consequence of the expansion of credit, which was bound to lead eventually to a collapse. And the thing which is chiefly advocated as a remedy is nothing but another expansion of credit, such as certainly might lead to a transitory boom, but would be bound to end in a correspondingly severer crisis." 

"The difficulties of the monetary and credit system are only a part of the great economic difficulties under which the world is at present suffering. It is not only the monetary and credit system that is out of gear, but the whole economic system. For years past, the economic policy of all countries has been in conflict with the principles on which the nineteenth century built up the welfare of the nations. International division of labour is now regarded as an evil, and there is a demand for a return to the autarchy of remote antiquity. Every importation of foreign goods is heralded as a misfortune, to be averted at all costs. With prodigious ardour, mighty political parties proclaim the gospel that peace on earth is undesirable and that war alone means progress." 

(Source: Ludwig von Mises, The Theory of Money and Credit, 1953, pp.20-21) 

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The role of the depreciation of local currency exerts big influence in an attempt of any nation to boost its export industry and to reduce importation of foreign products. Ludwig von Mises is clear at this point that this is one of the short-term effects of currency devaluation. However, such a stance is inimical to the interest of countries that rely more on their exports to strengthen their economy. If Mises' description therefore of the situation of global economy during his time is also appearing in our time particularly in relation to the way nations see the international division of labor and the importation of foregin goods, it is no wonder that we also have been hearing in our time the message that progress can only be obtained by means of war. In fact, not a few analysts are making a parallel between what's going on right now in global economy with the period prior to WW1 and WW2. 

The two paragraphs above tell us about the interlocking connection among the condition of money, credit, and the economy. In particular, Ludwig von Mises talks about the dislocation of money and credit due to credit expansion. He even told us that "It is not only the monetary and credit system that is out of gear, but the whole economic system" due to the abandonment by the policy makers of his time of the principles that made capital formation and growth possible during the 19th century. Reading this, I see Mises as prescient as if he is also describing our time. 

And then Mises proceeds to defend the gold standard that those who blame it for falling prices were actually mistaken. It was not the fault of the gold standard that prices fall. Instead, he identified credit expansion as the primary culprit. 

What is tragic is that further credit expansion is perceived as the solution while ignoring the fact that it was the source of economic malaise in the first place. For majority of policy makers today, this faulty idea still remains. Yes, as we've seen in the formation of two recent bubbles (tech bubble and housing bubble in periods prior to 2000 and 2008 respectively), this credit expansion have resulted into "transitory boom," which will unavoidably lead to an economic collapse far worse than the two previous ones. 

The Superiority of the Gold Standard

"Gold is not an ideal basis for a monetary system. Like all human creations, the gold standard is not free from shortcomings; but in the existing circumstances there is no other way of emancipating the monetary system from the changing influences of party politics and government interference, either in the present or, so far as can be foreseen, in the future. And no monetary system that is not free from these influences will be able to form the basis of credit transactions. Those who blame the gold standard should not forget that it was the gold standard that enabled the civilization of the nineteenth century to spread beyond the old capitalistic countries of Western Europe, and made the wealth of these countries available for the development of the rest of the world." - (Source: Ludwig von Mises, The Theory of Money and Credit, 1953, p.19) 

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What does Ludwig von Mises want to communicate through the above passage? How would you interpret it? And how is it relevant to the existing monetary system? 

The passage talks about the superiority of the gold standard over any form of political intervention in monetary affairs. Yes, Ludwig von Mises acknowledged that the gold standard is not perfect. However, he saw it as the only way to emancipate the monetary system from political control. It is implied in his words that the political control of monetary system is a threat to credit transaction for its very basis is unreliable. And then he concludes that those who dislike the gold standard have actually lost any historical sense. He cited the 19th century wealth formation and expansion as the outcome of following the gold standard.

How about our existing monetary system? Is it not under political control? Many people are not aware that the existing fiat currency is not actually an outcome of free-market monetary system; it is a product of the policy of interventionist government. Our money therefore is not a market money, but a political one. This explains the existing chaos both in the economic and monetary affairs of nations for these two are inseparable; money is the lifeblood of the economy. Once you tamper with it, you are overturning the foundation of society. John Maynard Keynes put it this way: 

“There is no subtler nor surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Race to the Bottom

"Today we see considerations of the value of money driving all other considerations into the background in both domestic and international economic policy. We are not very far now from a state of affairs in which 'economic policy' is primarily understood to mean the question of influencing the purchasing power of money. Are we to maintain the present gold-content of the currency unit, or are we to go over to a lower gold-content? That is the question that forms the principal issue nowadays in the economic policies of all European and American countries. Perhaps we are already in the midst of a race to reduce the gold-content of the currency unit with the object of obtaining transitory advantages (which, moreover, are based on self-deception) in the commercial war which the nations of the civilized world have been waging for decades with increasing acrimony, and with disastrous effects upon the welfare of their subjects." - (Source: Ludwig von Mises, The Theory of Money and Credit, 1953, p.18) 

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In today's text, Ludwig von Mises mentioned a kind of "race" and "war" related to monetary system. I think such race and war did not stop in his time, but have been continuing to the 21st century. They might have changed in external forms, but the susbtance remains the same. I see the relevance of the text in relation to a popular idea in our time, the reality of the so-called "race to the bottom". 

Today, the concept of race to the bottom is understood in different ways. In Financial Times, it is defined as:

"The situation in which companies and countries try to compete with each other by cutting wages and living standards for workers, and the production of goods is moved to the place where the wages are lowest and the workers have the fewest rights."

This is not the kind of race I see in reading Mises' text. The race that Financial Times describes pertains to a situation related to competition, the reduction of "wages and living standards of workers", and the transfer of goods and services to areas "where the wages are lowest and the workers have the fewer rights." To me, such definition paints a negative impression of those who are perceived to have authority in reducing the salary and the living standards of workers. The definition fails to account the source of the reduction of wage and living standard, which the Mises' text can provide. 

Another definition of "race to the bottom" is given by Wikipedia:

"The race to the bottom is a socio-economic phenomenon in which governments deregulate the business environment or taxes in order to attract or retain economic activity in their jurisdictions, resulting in lower wages, worse working conditions and fewer environmental protections. An outcome of globalization and free trade, the phenomenon may occur when competition increases between geographic areas over a particular sector of trade and production." 

In this definition, Wikipedia is more specific than the Financial Times in identifying the kind of situation where this race is taking place. Wikipedia is clear in describing this race as a "a socio-economic phenomenon" and adds four more ideas to competition, lower wages and "worse working conditions". These are "deregulation", "fewer environmental protections", "globalization", and "free trade". Again, this definition fails to explain the root cause of lower wages and worse working conditions. 

The above definitions are consistent with the dominant intellectual framework in our time, which is anti-free market at its core. In the case of our text, the kind of race Mises was describing was related to the reduction of "the gold-content of the currency unit." We do not have this kind of race in our time for currency these days are no longer connected to gold. What nations are doing now is they are competing with each other in devaluing their own currencies. And since nothing backs up these currencies except the governments themselves, our race at present is far worse than Mises' time. 

Mises saw that during his time the act of nations to race with each other in reducing the gold-content of currency was economically disastrous. Today, since all currencies are no longer connected to gold, would it not be logical to say that the continuation of the existing monetary system is more economically disastrous? 

Nations pursued the above race to attain transitory advantages. They include boosting the export industry, restricting import of foreign goods, easing the financial burden of local companies with big debts, preventing the fall of wages, and maintaining the prices of goods and services. For Ludwig von Mises, this pursuit is based on self-deception for in reality by doing this, nations are engaged in "commercial war," which is economically disastrous to their citizens.

Fiat Currency and Politics

"At the very moment when the manipulation of purchasing power is declared to be a legitimate concern of currency policy, the question of the level at which this purchasing power is to be fixed will attain the highest political significance. Under the gold standard, the determination of the value of money is dependent upon the profitability of gold production. To some, this may appear a disadvantage; and it is certain that it introduces an incalculable factor into economic activity. Nevertheless, it does not lay the prices of commodities open to violent and sudden changes from the monetary side. The biggest variations in the value of money that we have experienced during the last century have not originated in the circumstances of gold production, but in the policies of governments and banks of issue. Dependence of the value of money on the production of gold does at least mean its independence of the politics of the hour. The dissociation of the currencies from a definitive and unchangeable gold parity has made the value of money a plaything of politics." - (Source: Ludwig von Mises, The Theory of Money and Credit, 1953, pp. 17-18) 

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Not many people today are aware that the existing monetary system called the "managed fiat currency standard" is actually not a result of the decision of the market, but of the political class. That's why it's difficult to understand intellectuals who blame the market for the present economic chaos. This only shows that mainstream education has been successful in its goal of mind control. 

As we've seen already in previous post, government's use of inconvertible notes leads to currency devaluation. In reality, this political act is a manipulation of the purchasing power of the consumers. It is not the fault of the market that prices of goods and services are increasing unnaturally. Politics play a big role in it.

Prior to 1971, though the value of US dollar in relation to gold had already declined dramatically, at least, some measure of limitation on politics was still maintained. After President Nixon disconnected the US dollar from gold, the political control of money has been completed. The present turmoil both in the larger economy, the stocks and the financial markets are just inevitable consequences after more than four decades of ignoring sound money. 

Ludwig von Mises was emphatic that what endangers the value of nations' currencies are "the policies of government and banks of issue." In order to discontinue this subtle erosion of the value of money, the way is to return to the gold standard. This will stop the "value of money a plaything of politics". Only under the gold standard that the manipulation of the purchasing power of consumers by politicians can be terminated. Understanding therefore this "old monetary system" is the way to arrest the monetary devaluation that is continually destroying the people's purchasing power. This will liberate money from political control. 

Short-term Benefits of Currency Depreciation

"In Central Europe, the first country to follow Great Britain's example was the Republic of Czecho-Slovakia. In the years immediately after the War, Czecho-Slovakia, for reasons of prestige, had heedlessly followed a policy which aimed at raising the value of the krone, and she did not come to a halt until she was forced to recognize that increasing the value of her currency meant hindering the exportation of her products, facilitating the importation of foreign products, and seriously imperilling the solvency of all those enterprises that had procured a more or less considerable portion of their working capital by way of bank credit. During the first few weeks of the present year, however, the gold-parity of the krone was reduced in order to lighten the burden of the debtor enterprises, and in order to prevent a fall of wages and prices and so to encourage exportation and restrict importation. Today, in every country in the world, no question is so eagerly debated as that of whether the purchasing power of the monetary unit shall be maintained or reduced." - Source: The Theory of Money and Credit, pp. 16-17

The passage is about the short-term benefits of currency depreciation. All in all, Ludwig von Mises identified five immediate benefits so far: 

1. Assisting export industry

2. Restricting import of foreign goods

3. Easing the financial burden of local companies with big debts

4. Preventing the fall of wages, and 

5. Maintaining the prices of goods and services. 

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During his time, Mises mentioned Czecho-Slovakia as the country which adopted this policy of currency depreciation after the example of Great Britain. Previously, Czecho-Slovakia practiced the stronger currency policy. But after witnessing the impact of a strong krone on both export and import, the government decided to change its direction.

Moreover, strong krone that time would also mean putting the domestic companies, which depend on bank credit for their working capital on a serious financial risk. And so krone was depreciated in order to reduce the financial burden of these local companies.

Reading this section, I realized that during Mises' time, currency depreciation was a hot issue in every country. Today, yes, it's becoming hotter in countries that are aware about what's going on in global economy. How about in the Philippines? Is this the kind of issue that is now being publicly debated? Why not? Are we not part of the global economy? Or do our policy makers think that our economy is too strong and protected from currency depreciation? In fact, not many Filipinos are aware that we are following the same path as the United States in terms of monetary depreciation. 

Currency depreciation is a serious monetary and economic issue that affects our standard of living. Politicians cannot see the long-term detrimental results of such monetary policy for they only focus on immediate results. I wish and pray that the deafening silence about this very important subject will soon be stopped. And that the Lord will raise political leaders that truly understand this topic and will bring it into public attention. 

Monetary Depreciation

How about the text below? How do you understand this passage? And why is its message relevant for our time? 

"But the motive for recent experiments in depreciation has been by no means fiscal. The gold content of the monetary unit has been reduced in order to maintain the domestic wage-level and price level, and in order to secure advantages for home industry against its competitors in international trade. . . . In this case, however, Great Britain began by abandoning the old gold content of the pound. Instead of preserving its gold-value by employing the customary and never-failing remedy of raising the bankrate, the government and parliament of the United Kingdom, with bank-rate at 4.5 per cent, preferred to stop the redemption of notes at the old legal parity and so to cause a considerable fall in the value of sterling. The object was to prevent a further fall of prices in England and above all, apparently, to avoid a situation in which reductions of wages would be necessary."

"The example of Great Britain was followed by other countries, notably by the United States. President Roosevelt reduced the gold content of the dollar because he wished to prevent a fall in wages and to restore the price-level of the prosperous period between 1926 and 1929."

(Source: The Theory of Money and Credit, p. 16) 

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In the above text, Ludwig von Mises continued his explanation about monetary depreciation as the unavoidable outcome of government's utility of inconvertible notes. Here, he indicates that the government's intention in depreciating the currency is not primarily fiscal, that is, not related to the increase of tax collection and to the increase of spending ability. The motive says Mises is threefold: to influence the level of workers' salary, to maintain the prices of goods and services, and to protect local industry from its foreign competitors. The last is the essence of protectionism and a favorite tool of an interventionist government. This shows that a country that practice this does not really have a free market economy. This reminds me of Hitler's style, the other face of socialism. 

Currency devaluation during Mises' time was done through the reduction of gold content in monetary unit. In our time, it's different since as far as I know, no existing currency is backed up by gold since 1971 when President Nixon disconnected the USD from this precious metal. However, the act of monetary depreciation remains. The external form of this depreciation is different, but the essence of the act stays the same. 

I think the text is relevant to our time for we are facing the same issue in today's monetary system. As England depreciated its sterling/pound in the past, the US has been depreciating the dollar for so long. I think we are touching the root of the existing crisis in global economy. Since money is the lifeblood of the economy, it is difficult to see the solution to the present problem economic as long as both governments and central banks of the world are committed to currency devaluation.

Government's Unlimited Source of Fund

"When governments do not feel strong enough to procure by taxation or borrowing the resources to meet what they regard as irreducible expenditure, or, alternatively, so to restrict their expenditure that they are able to make do with the revenue that they have, recourse on their part to the issue of inconvertible notes and a consequent fall in the value of money is something that has occurred more than once in European and American history" (The Theory of Money and Credit, p. 15).

I'm having difficulty "decoding" the meaning of this long sentence by Ludwig von Mises. What is he saying here?

The way I see it, Ludwig von Mises combined four ideas in one sentence: 

1. About government's hesitation between taxing the people and borrowing money or restricting its expenditures with the available funds provided by current taxes, 

2. That if a government is not satisfied between these two options, it will choose to fund its programs using "the issue of inconvertible notes," 

3. That resorting to such way of providing fund for its expenditures will result to currency devaluation, and 

4. That this kind of government action is not new, but has a root in European and American history.

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The most difficult part in the above sentence is to exactly find out the meaning of "inconvertible notes". I googled it, and what appears are links to the definition of "convertible notes". I googled it again and add Mises' name, and there we can see links to his book The Theory of Money and Credit, but still I cannot find the exact meaning of the term "inconvertible notes". And so I decided to just deduce its meaning from the definition of convertible notes. 

Reading the Financial Times, I see that "Convertible notes are often used by angel investors who wish to fund businesses. . ." These "notes are structured as loans at the time the investment is made." These notes are described as "convertible" because they can be "automatically converted to equity" later on. 

Now, let us return to the meaning of "the issue of inconvertible notes" that will be used by the government to fund its expenditures. Who will issue this inconvertible banks? The central bank? Why these notes are described as "inconvertible"? I do not know the exact answer. All I can do is guess. Perhaps unlike the convetible notes, these inconvertible notes cannot be converted into equity. But I assumed that they can be converted into cash. For if not, then how can a government provide a fund for its expenditures? 

To me, I understand inconvertible notes as a form of loan that will be used by the government for its programs, which will be financed by the people through taxes in the future. The quote also talks about three ways the government fund its expenditures:

1. Through direct taxation,

2. Through direct borrowing, and

3. Through the issue of inconvertibles notes, which to me is a form of indirect taxation and indirect debt.

Directly taxing the people and borrowing money are better ways to source out fund in a sense that it is obvious and the taxpayers can see their impact on their personal and family expenses. And because of this, each individual and family can adjust financially. This I think what makes inconvertible notes dangerous. I wonder how many citizens understand its nature. But Mises is clear that once the government used this credit instrument, the outcome is monetary depreciation. So inconvertible notes are also taxes, but done in an indirect way that make them invisible. I suspect that the use of these notes has a lot to say about monetary corruption and the ongoing crisis in global economy. Utilizing this tool, politicians can expropriate the people without the latter knowing how it is being done. Government has found people's pockets as an unlimited source of fund. 

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

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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 . . . 

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. 

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. Mises.org offers all these books to anyone for free.

Summaries of Chapters of Bureaucracy

Preface

Introduction First Draft

Revised Introduction 1

Revised Introduction 2

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6

Chapter 7 and Conclusion

Review of the Entire Book

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.