The Real Culprit

Capitalism has failed! This is the constant message that people have been hearing since the 2008 economic crisis. Politicians, economists, and mainstream media agree that free market capitalism is the culprit that caused such economic mess. Greed and excessive risk taking claimed to be inherent in the market are to blame. 

"The crisis was the fault of libertarianism," an editor of a popular website actually believed this claiming that "'unregulated markets'" (p. 4) caused the problem. And since this is the case, that editor thinks that the 2008 crisis marked "the end of libertarianism" (ibid.).

Since capitalism and libertarianism were considered responsible for the 2008 economic trouble, any free market solution to the crisis was automatically dismissed and persisting to do so would be considered insane. The proposed remedy was greater government intervention in the forms of increasing the money supply, more debt, and bigger spending. 

The problem with the above conclusion is that the real culprit escaped public attention and shifted the limelight into the market. And since the diagnosis of the crisis was mistaken, the proposed solution, instead of addressing the problem, would aggravate it even more. 

For Thomas Woods, the reason people were misled was because almost nobody asked the right question. "Where did all the excess risk, leverage, and debt, not to mention the housing bubble itself come from?" (p. 2). Once this question was asked, the direction would be pointing not towards the market, but to government intervention in the market. And "the greatest single government intervention in the economy" (ibid.) is through the Federal Reserve System, which is the real culprit. This is the institution responsible for the "inflationary monetary policy," (p. 3) which causes the business cycle and for setting "artificially low interest rates of 1 percent" that placed "world's economies on unsustainable paths. . . ." (ibid.).

Thomas Woods anticipated in 2009 that "There is nothing the government or the Federal Reserve can do to improve the situation, and a great deal they can do to prolong it" (p. 7). For Woods, the crisis will never be solved unless people would understand how the world entered into this mess in the first place. 

In Meltdown, Woods explains in layman's term "where the economy is and what should be done next" (ibid.). There is nothing new in his message. His ideas are old, but they are ignored. 

Woods' ideas are common among the economists of the Austrian School. Hundreds of economists from this school have seen the crisis coming several years before it happened. Unlike the mainstream economists who subscribe to diverse versions of Keynesianism, very few of them have seen the crisis in advance. Woods mentioned that only about 10 or 12 among 15,000 professional economists in the US have seen the crisis coming. 

Guide Questions:

1. Who were to blame for the 2008 crisis according to politicians, economists, and mainstream media?

2. What was their proposed solution? Explain further. 

3. What was the problem with the dominant story about the 2008 crisis? What would be its future consequences if it is not corrected?

4. For the Austrian School and Thomas Woods, which institution is responsible for the 2008 global economic crisis? 

5. Explain the role of the Federal Reserve System in causing the crisis.

6. Why do you think most mainstream economists failed to see the coming of the 2008 crisis?

Source: Wood, T. E. Jr. (2009). Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. Washington, DC: Regnery Publishing, Inc. 

The Capitalists, the State, and Justice

Hans-Hermann Hoppe clarifies in the The Ethics of Entrepreneurship and Property the role of both the capitalists and the State in relation to justice. In Hoppe's article, we can see four basic facts:

Fact # 1 - A capitalist's profit and loss are indication of the extent of his contribution to social welfare. 

Notice how Hoppe describes the capitalist's contribution to society: 

"What can be unambiguously stated about a capitalist’s profit or loss is this: His profit or loss are the quantitative expression of the size of his contribution to the well-being of his fellow men, . . . . The capitalist’s profit indicates that he has successfully transformed socially less highly valued and appraised means of action into socially more highly valued and appraised ones and thus increased and enhanced social welfare. Mutatis mutandis, the capitalist’s loss indicates that he has used some more valuable inputs for the production of a less valuable output and so wasted scarce physical means and impoverished society."

"Money profits are not just good for the capitalist, then, they are also good for his fellow men. The higher a capitalist’s profit, the greater has been his contribution to social welfare. Likewise, money losses are bad not only for the capitalist, but they are bad also for his fellow men, whose welfare has been impaired by his error."

Fact # 2 - A capitalist's actions and profits are considered just if there is "mutual beneficial exchange," "mutually agreeable terms," and respect for the property of others. Violating these conditions would make the actions and profits of a capitalist unjust. 

Again, observe how Hoppe explains this situation:

'The capitalist’s actions and profits are just, if he has originally appropriated or produced his production factors or has acquired them – either bought or rented them – in a mutually beneficial exchange from a previous owner, if all his employees are hired freely at mutually agreeable terms, and if he does not physically damage the property of others in the production process. Otherwise, if some or all of the capitalist’s production factors are neither appropriated or produced by him, nor bought or rented by him from a previous owner (but derived instead from the expropriation of another person’s previous property), if he employs non-consensual, “forced” labor in his production, or if he causes physical damage to others’ property during production, his actions and resulting profits are unjust."

Fact # 3 - The State makes the social justice question elusive and complicated. 

At this point, Hoppe identifies two implications from the very nature of the State itself. 

"Complications in this fundamentally clear ethical landscape arise only from the presence of a State. . . . Logically, the institution of a state has a twofold implication. First, with a state in existence all private property becomes essentially fiat property, i.e., property granted by the state and, by the same token, also property to be taken away by it via legislation or taxation. Ultimately, all private property becomes state property. Second, none of the state’s “own” land and property – misleadingly called public property – and none of its money income is derived from original appropriation, production, or voluntary exchange. Rather, all of the state’s property and income is the result of prior expropriations of owners of private property."

"The state, then, contrary to its own self-serving pronouncements, is not the originator or guarantor of private property. Rather, it is the conqueror of private property. Nor is the state the originator or guarantor of justice. To the contrary, it is the destroyer of justice and the embodiment of injustice."

Fact # 4 - The capitalist's response to an unjust and Statist society can be considered just or unjust depending on his participation in the expropriatory acts of the State, in the regulation and redistribution of private property of other capitalists. 

Under a Statist environment, a capitalist is torn between two responses, to be "a champion of justice" by legitimately depending his property against the State's expropriation or to be "a promoter of injustice" by participating in the expropriation of the property of those he considers as competitors. 

See how Hoppe elaborates these two responses:

1. A capitalist as "a champion of justice" by defending his property:

"The capitalist is ethically entitled to use all means at his disposal to defend himself against any attack on and expropriation of his property by the state, exactly as he is entitled to do against any common criminal."

"More specifically: For the capitalist (or anyone) in the defense and for the sake of his property, it may not be prudent or even dangerous to do so, but it is certainly just for him to avoid or evade any and all restrictions imposed on his property by the state as best he can. Thus, it is just for the capitalist to deceive and lie to state agents about his properties and income. It is just for him, to evade tax-payments on his property and income, and to ignore or circumvent all legislative or regulatory restrictions imposed on the uses he may make of his factors of production (land, labor, and capital). Correspondingly, a capitalist also acts justly, if he bribes or otherwise lobbies state agents to help him ignore, remove or evade the taxes and regulations imposed on him. He acts justly and above that becomes a promoter of justice, if he uses his means to lobby or bribe state agents to reduce taxes and property regulations generally, not only for him. And he acts justly and becomes indeed a champion of justice, if he actively lobbies to outlaw, as unjust, any and all expropriation, and hence all property and income taxes and all legislative restrictions on the use of property (beyond the requirement of not causing physical damage to others’ property during production)."

2. A capitalist as promoter of injustice:

"On the other hand, and again exactly as in the case of any common criminal, the capitalist’s defensive actions are unjust, if they involve an attack on the property of any third party, i.e., as soon as the capitalist uses his means to play a participatory role in the state’s expropriations."

". . . . a capitalist acts unjustly and becomes a promoter of injustice, if and to the extent he employs his means for the purpose of maintaining or further increasing any current level of confiscation or legislative expropriation of others’ property or income by the state."

"Thus, for instance, the purchase of state-government bonds and the monetary profit derived from it is unjust, because such purchase represents a lobbying effort on behalf of the continuation of the state and of on-going injustice, as interest payments and final repayment of the bond require future taxes. Likewise and more importantly, any means expended by a capitalist on lobbying efforts to maintain or increase the current level of taxes – and hence of state-income and spending – or of regulatory property restrictions, are unjust, and any profits derived from such efforts are corrupted."

"Confronted with an unjust institution, the temptation for a capitalist to act unjustly as well is systematically increased. If he becomes an accomplice in the state’s business of taxing, redistributing and legislating, new profit opportunities open up. Corruption becomes attractive, because it can offer great financial rewards."

"By expending money and other means on political parties, politicians, or other state agents, a capitalist may lobby the state to subsidize his losing enterprise, or to rescue it from insolvency or bankruptcy – and so enrich or save himself at the expense of others. Through lobbying activities and expenses, a capitalist may be granted a legal privilege or monopoly concerning the production, the sale, or the purchase of certain products or services – and so gain monopoly profits at the expense of other money-profit seeking capitalists. Or he may get the state to pass legislation that raises his competitors’ production costs relative to his own – and so grants him a competitive advantage at others’ expense."

"Yet however tempting, all such lobbying activities and resulting profits are unjust. They all involve that a capitalist pays state agents for the expropriation of other, third parties, in the expectation of higher personal profit. The capitalist does not employ his means of production exclusively for the production of goods, to be sold to voluntarily paying consumers. Rather, the capitalist employs a portion of his means for the production of bads: the involuntary expropriation of others. And accordingly, the profit earned from his enterprise, whatever it may be, is no longer a correct measure of the size of his contribution to social welfare. His profits are corrupted and morally tainted. Some third parties would have a just claim against his enterprise and his profit – a claim that may not be enforceable against the state, but that would be a just claim nonetheless."

Note: 

To distinguish between the justice and injustice of the acts of capitalists, it's good to read this transcript, while listening to this audio. By doing this, comprehension and memory retention are higher I think.

Source: The Ethics of Entrepreneurship and Property by Hans-Hermann Hoppe

An Inquiry from a facebook friend

Photo Credit

A facebook friend posted on my wall an inquiry related to an article criticizing Hacienda Luisita, the Cojuangcos, and capitalism. The writer appeals to the Bible as his basis, particularly the story of Naboth's vineyard and a passage from James. And after presenting his argument with a mixture of his own style of biblical interpretation, a piece of Philippine history, and a superficial knowledge of economics, he made this conclusion: 

As I said earlier that capitalism has already defined, institutionalized and operationalized on how to kill, steal and destroy people's lives not only of Filipinos but world-wide and what we want to see is how the believers will also provide alternative by defining, institutionalizing and operationalizing the statement of Jesus that He came to give life full of abundance here on earth (Jn 10:10).

Here is the whole piece: 

FROM IDEA TO REALITY

Transforming and translating love and cooperation into institutional policies and social system.

WHAT laws and policies to be legislated that will concretize love and cooperation?

WHAT actions and practices to be done that will demonstrate love and cooperation?

Theologians, philosophers and intellectuals have been giving us bulky of ideas but what we are looking for is the operationalization and realization of those ideas- the transformation from idea (spirit) into reality (matter).

Jesus said that the devil came to kill, steal and destroy people's lives (Jn 10:10). Was Jesus speaking of a literal devil, going around and doing all these mass destruction against humanity?

To take away our mystical belief of a devil that is responsible in stealing and destroying people's life, we will provide some concrete examples that will reveal the real devil in the system. Let us use the Biblical account as our example:

Naboth's Vineyard

Omri came to power 125 years after David's accession, and his line came to an end just 50 years later with the execution of his daughter, Athaliah, who was queen in Jerusalem. But the "LAWS" which Omri introduced and which his son Ahab and daughter-in-law Jezebel enforced continued to contradict with the law of the Lord until finally the law of the Lord was almost forgotten and Israel was wiped out as a nation. Micah, the eighth century prophet, speaking shortly before the fall of Samaria, when the Southern Kingdom, Judah, was also deeply dyed with the land lust of the Phoenicians, said, (Mic. 6.16) "For the statutes of Omri are kept, and all the works of the house of Ahab, and ye walk in their counsels; that I should make thee a desolation..." This is elaborated in 2.2; "They covet fields and take them by violence: and houses and take them away: so they oppress a man and his house, even a man and his heritage." This describes Ahab. The episode of Naboth's Vineyard is the central fact given for Ahab's reign, and the specific reason given by the prophet (I Kg 21.19) for the destruction of the entire dynasty of Omri. It involves Ahab's greed for land and Jezebel's application of Phoenician (Baalistic) law to Israel. Ahab wanted to buy or exchange Naboth's vineyard, but Naboth pointed out that, under the law of the Lord he was forbidden to alienate the heritage of his clan. Ahab, still an Israelite at heart and half a believer in the Lord, hesitated to act. Under the Phoenician system, however, this was a ridiculous position and, moreover, Naboth's refusal to accede to the King's reasonable request (under the Baal system) was lése majesté. Jezebel said to Ahab: "Aren't you the king of Israel? I will get it for you myself," and proceeded to have Naboth condemned in a public trial for blasphemy against God and the king. Certainly, it was blasphemy against Baal to assert rights or duties given by the Lord (Yahweh), and it was blasphemy against the king to assert that he was not free to enforce the Phoenician system which treats land as a commodity and not as a heritage.

Navoth's vineyard and hacienda Luisita

Hacienda Luisita: A land that is rightfully to the Filipino farmers

"Landlords’ right has its origin in robbery. The landlords, like all other men, love to reap where they never sowed, and demand a rent even for the natural produce of the earth" (Adam Smith, op. cit., Vol. I, p. 44.)

This is Hacienda Luisita’s history

Before we were colonized by Spain, lands in our country were owned by the Filipno people and in fact, there was no law that gave right to anyone to privately own the land. There was also no law that allow the selling of land. The land was communally owned by all Filipinos but when the colonizer came, they took the land by force and put it under their own control and name. One concrete example is the Hacienda Luisita. Tabacalera Spanish company wanted to sell the Azucarera in Tarlac due to Hukbalahap rebellion. One of the motivating reasons why there was rebellion is the issue of landgrabbing. The 200 revolts launched by Filiponos during Spaniah occupation were all connected to the issue of land. The powerful Lopez family wanted to buy it but Ramon Magsaysay offered the sale of Azucarera to Cory’s father alone. The Philippine government agreed to loan Aquino-Cojuangco the dollars to purchase Azucarera, but with 2 important conditions. Here is the first condition; along with the Azucarera sugar mill, Cojuangco’s must also purchase the surrounding farmlands known as Hacienda Luisita. The second condition is after 10 years, the 6,400 Hacienda Luisita must be distributed to its small farmers. Hacienda Luisita is just one of the Cojuangco’s wealth.

In 1968, ten years after purchasing Hacienda Luisita, no land was made available to any tenant, farmer or sugar planter. Hacienda Luisita workers formed a union asking for land distribution and still no land was distributed. In 1980, after eleven years of follow-ups by the Marcos government, still no land was distributed. The Marcos government filed case versus Aquino-Cojuangcos but Cory junked the case when she became the president.

In January 1987, the Mendiola Massacre happened. Cory’s government forces opened fire. 13 farmers were dead and there were 39 gunfire injuries. Another was in February 1987 in Lupao. Cory’s government forces killed 17 farmers. What happened to Hacienda Luisita during Cory’s term? Cory’s new land reform exempted Hacienda Luisita from being distributed. The Cojuangcos have often garnered criticism for their ownership of the estate. It was oligarchy at its finest.

Why must Hacienda Luisita be distributed to its small farmers? In the first place, it is stated in the treaty that the Aquino-Cojuangco must give it up. Second, they deserve a piece of the land they have been working for a long time already. Some of the farmers and their families were born, raised and died on the same land. Almost every family member of each farmer also works for Hacienda Luisita. Third, many farmers had already sacrificed their lives fighting for a land strained against them. They are not asking for every edge of the land but just a piece of it just so they can have at least their own property they can rely on without being scared of what future may bring. They deserve it. On the small farmer’s point of view, Hacienda Luisita is not just a land, thus a way and source of life.

But what is the downside of distributing Hacienda Luisita?

First, it would be unfair for the Aquino-Cojuangcos because the land is legally theirs through the power of papers. They bought it for every centavo worth of the land.

Second, it is also unfair that Supreme Court withdraw the capacity of the Aquino-Cojuangcos to resist Hacienda Luisita on being taken away from them. Their right to property is neglected.

Now what is the downside of distributing it to the farmers?

First, they could sold it right away after receiving it, thus, wasting the main reason itself of gaining the land.

Second, they could just stop working because of the fact that they already own that piece of land.

All in all, it is still in favor to the farmers. With all that, I believe the farmers rightfully deserve Hacienda Luisita. It is with the sad truth that some of the farmers have already sacrificed to fight for the land they had worked in for so long. The fact that there was an agreement that Hacienda Luisita must be distributed 10 years after its purchase is an enough reason. Adding to that, farmers have worked for so long, they have earned the Aquino-Coujuangco millions of money and yet not even a piece of land was given is really unfair. Finally, justice will be given to those who deserve it. Another good news, the President called on the Department of Agrarian Reform (DAR) to make sure that the law requiring just compensation for land owners be obeyed. The hectares of land each of the farmers will get and how much the Cojuangcos will be paid are not yet known today but it will be surely compensated properly.

The shipment of gold commandeered by Gen. Juan Luna and the wealth of family Cojuanco

There was an earlier account recounted by historian Carlos Quirino in an unpublished book commissioned by Danding Cojuangco, about a shipment of gold vessels commandeered by General Antonio Luna from churches in Pampanga, collected for him by Tiburcio Hilario, Pampanga governor, brought to Paniqui and entrusted to Ysidra Cojuanco for safekeeping before Luna left for Cabanatuan to meet Aguinaldo, only to be assassinated there.

The gold was brought by Luna from both the Ilocos (through Saulo) and Central Luzon (through Hilario) to Ysidra Cojuanco. With the First Republic on the run and the Americans inquiring about the gold, Ysidra dumped the gold into a well, retrieved it later and used it to build the Cojuangco fortune.

1987 Constitution, Article 11, section 15, which stipulates: “The right of the State to recover properties unlawfully acquired by public officials or employees, from them or from their nominees or transferees, shall not be barred by prescriptions, laches or estoppel."

Ysidra admitted that Luna was indeed her very close friend, and that Luna left her valuables, not once but regularly on many occasions. When asked how much value was involved, Encarnacion replied that while she is not sure of the exact value, it was certainly in huge quantities since several huge caskets were involved.

Manapat asked her if she knew that there were more than one shipment. She emphatically said yes, the shipments were a regular thing. Not only was Encarnacion a friend and confidant of Dońa Ysidra, she is also the daughter of Eulalio Saulo who confirmed to her the story as one of the military escorts of the gold shipment to Ysidra. This is the first direct evidence of a Cojuangco (and Ysidra at that) admitting what many Luna contemporaries long alleged, that the source of the Cojuangco fortune was the gold commandeered by Luna and regularly turned over to Ysidra.

The combined assets controlled by the Cojuangcos total about P200 billion. To recover such wealth under Article 11, section 15 of the 1987 Constitution, one must go to court, and pay a filing fee of half a percent of the amount to be recovered, or P1 billion unrefundable win or lose. Who has that kind of money to risk? Ric Manapat suggests that the three wealthy branches be sued for P1 each. Once the case is won, then the rest of the P200 billion may be sued for. Or alternatively, Manapat suggests that the PCGG pursue the matter with funds appropriated by Congress, the funds merely transferred from one government pocket to another.

Have we seen the mystical devil stealing the land rightfully belonged to Naboth or we have seen the hand of a person in political power [king] and the laws [system] he made resulting to the take-over of land not rightfully belonging to him? The devil being referred at john 10:10 who is stealing and destroying people's life can be seen in the exploitative and oppresive laws [system].

In the writing of James, he wanted to bring to the realization of believers "social realities. James made a cateigorical statement: "Is it not the rich who are exploiting the poor" [Js.2:6]. James could have not said that if he was not able to see real exploitation. What was the basis of James in making a conclusion that the rich were the ones exploiting the poor people? James saw how the rich people are not paying just wages to their workers and how the rich live in luxury at the expense of their worker's labor (james 5:1-6).

The current world system which is capitalism in the stage of globalization has been following this line through exploitative policies like deregulation, privatization and liberalization.

To explain further the essence of these three elements:

First, the privatization it is the policy wherein the Government Own and Controlled Corporations (GOCC's) where privatized by selling it to the private sector.

Second, the deregulation, meaning the government has to cut its control over the industry for basic commodities, e.g., oil, water, electricity.

Lastly, liberalization, is the policy by which all laws regarding import products were amended or abolished, for example tariff and quota.

Privatization is the process where all government own corporations are privatized, and maintained by the private sector. We cannot denied that when a business is in the hands of private institution it is oriented for profit. These GOCC's are basically State's inherent corporations because their services are for the public consumption like the electricity, water, transportation, telecommunications, and the like. They are essentials for the well being of the State.

This trend of Globalization which is a stage of capitalism threaten this State's natural order. This trend, as push by the G7, paving these economic superpowers to access to the basic industries of a subject country. The truth is members of G7 has all the available resources, for the intervention of certain economy of a subject state. Take for example the Philippines, as said it is the largest producer of geothermal energy in the world, yet one of the highest rate of electricity in the world. This is true because the Philippines' electric industry is on the hands of private company. This is also true to other basic industry.

Second element that is deregulation. To deregulate meaning the government has no legislative intervention over the certain corporation which main industry is for public consumption, as long as the company submitted reason of the their actions.

Best example of this is the Philippine Oil Deregulation Law or Republic Act (R.A.) 8479. Before, oil price is under controlled of the government by means of its quasi-agency, Oil Price Stability Fund (OPSF). This quasi-agency hold the price of oil. Logically the fair market value. It is possible because when the price of oil in the world market is low the OPSF remain its price to the local market as it was brought high, the remaining stocks were sold higher than the world market. The government gained huge profit from this scheme. And when the price of oil in the world market go up the government reimburse it from the profit they gained when it was low. So it's a circle as long as the price of oil is stable and affordable.

But when this G7 introduced the policy of globalization, underdeveloped and developing countries no way to run but suck it, bypassing the negative effects. When the R.A. 8479 and the OPSF were abolished, its pave the private companies to raise the price of oil to their discretion. Today the policy of oil price hike in the local market is determined by the movement of world market, which is obviously under controlled by the G7 and the greedy oil exporting countries. Now it is unstable and skyrocketing.

Lastly, the liberalization meaning to liberalize. This process is done by means of amending or worst abolish the laws regarding restriction or limitation of import products, for example the tariff and quota. When a certain economy is liberalized, product of developed countries basically can enter to the developing and least develop nation. It's obvious that these products are surplus from their market, simply outsource the surplus.

As I said earlier that capitalism has already defined, institutionalized and operationalized on how to kill, steal and destroy people's lives not only of Filipinos but world-wide and what we want to see is how the believers will also provide alternative by defining, institutionalizing and operationalizing the statement of Jesus that He came to give life full of abundance here on earth (Jn 10:10).

The challenge is, what policies, laws and system that will bring about life full of abundance for all humanity?

The alternative to private property (capitalism) is to make the means of production public (lands, factories, industries).

And here is my reply:

1. "WHAT laws and policies to be legislated that will concretize love and cooperation?"

- Let law depart from such goals, and focus on its primary task, to serve justice. Its attempt to include love and cooperation among its ends has already brought enough mischief upon mankind. Doing so, the law's purpose has been diverted from its original intent and has run a course against its nature, and thereby became an instrument of coercion, violence, legal murder, and legal plunder.

2. "But the 'LAWS' which Omri introduced and which his son Ahab and daughter-in-law Jezebel enforced continued to contradict with the law of the Lord until finally the law of the Lord was almost forgotten and Israel was wiped out as a nation."

- The comparison of this story into our time is partly true! Human laws should be based on divine law, but due to the reign of humanism that shapes the mind of the intellectuals in various fields of learning including the legal profession, human laws now contain a mixture of just and unjust laws, which predominance depends on the ruling political party of the day. 

3. "Naboth's vineyard and hacienda Luisita."

The story of Naboth's vineyard is clear. Comparing it to the case of Hacienda Luisita requires extreme caution particularly if we do not have access to an accurate and reliable source of information about the latter. The quote from Adam Smith requires a context for it to be properly understood. Taking the story at face value, if it is really true that there was an agreement that hacienda Luisita must be distributed, then let that agreement be implemented.

4. Concerning gold and General Luna, I heard that story several times. What I worry about the idea of "wealth recovery" is that it will make the State even more powerful. The question is wealth recovery for whom and for what purpose? So that the politicians and bureaucrats would have the resources to waste and steal, and to finance its programs?

5. "The devil being referred at john 10:10 who is stealing and destroying people's life can be seen in the exploitative and oppressive laws [system]."

I agree, and that is why to push back the civil government to its proper role, limiting its size and its fund is a worthy goal for those who want to advance liberty. 

6. "In the writing of James, he wanted to bring to the realization of believers "social realities. James made a categorical statement: 'Is it not the rich who are exploiting the poor' [Js.2:6]. James could have not said that if he was not able to see real exploitation. What was the basis of James in making a conclusion that the rich were the ones exploiting the poor people? James saw how the rich people are not paying just wages to their workers and how the rich live in luxury at the expense of their worker's labor (James 5:1-6)."

This passage in James talks about rich who exploits the poor. It is silent about just rich. So to apply the passage indiscriminately to all rich people is misleading. 

7. "As I said earlier that capitalism has already defined, institutionalized and operationalized on how to kill, steal and destroy people's lives not only of Filipinos but world-wide and what we want to see is how the believers will also provide alternative by defining, institutionalizing and operationalizing the statement of Jesus that He came to give life full of abundance here on earth (Jn 10:10)."

If there is any recommendation I could give to the writer, kindly digest Ludwig von Mises "Socialism: An Economic and Socioligical Analysis", and after digesting it return to his article and assess it. In Part 2 Section 1 Chapter 3 of the book, Mises identified at least 5 forms of socialism, and that excludes other pseudo-socialist systems. Reading the above piece, I came up with a conclusion that the writer does not understand the real nature of socialism, the alternative system that he is proposing. He thinks that the existing economic system is capitalism. This is the natural outcome of being schooled in mainstream education. The man is a victim of statist propaganda, and we understand that. Among the 5 forms of socialist system, the reigning economic system in our time is "planned economy" also known as "State Capitalism", that is the Statist version of capitalism, which in reality is no capitalism at all. Socialists do this in their vain search for an answer to their insoluble problem about economic calculation. Socialism has already been debunked by Mises since the writing of the book and most socialists now do not possess the same courage displayed by Robert Heilbroner, a socialist intellectual who humbly admitted their defeat. Expect that many uninformed socialists will try various proposals to save socialism. For those of us who value liberty, let us heed the warning of Ludwig von Mises:

"In the last few years, a new word has been found for that which was covered by the expression "planned economy': State Capitalism, and no doubt in the future many proposals for the salvaging of Socialism will be brought forward. We shall learn many new names for the same old thing. But the thing, not its names, is what matters, and all schemes of this sort will not alter the nature of Socialism" (p. 258).

Activist Artists

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

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

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

- Sam Gindin, Art in the Age of Fatalism 

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

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

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

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

Critique

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

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

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

Evangelii Gaudium, Free Market, and Interventionism

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

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

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

These are the series of questions:

I am not an economist but at least partly involved in this intricate life of the market as having inculcate and willingly embraced the market's cultural ideology of consumerism - i consume therefore i am. but i have some qualms on seeming dearth of options and left us totally between an economy mediated by corrupt government and complex bureaucracy and of the one which is totally free from state intervention. Could you confidently say that once the market able to create totally an extraterritorial space where in they would run the whole system on their own free from the restriction of nation-state, they would take care of the situation of the poor? - there would equity on distribution of goods and profits better that what the state has given as part of its mediation work?l Could you confidently say that deregulated industries now in the Philippines such as the 3 giant gas conglomerate, Meralco, the two water distributors, among others are actually heading now into a more humane and fair costing of services they offered now that the government's hands are tied to monitor their pricing? Could we as part of this transnational system of market go directly their offices and peek on their books to see the whole transaction even without the state authority backing us up? Are we really partners in this market system...or we are partners as mere consumers of the transnational corporation who just want to maximize their income by pushing aside their partner in crime - the government?

And this is my response: 

I am also not an economist. I simply realized that to study the subject is part of my civic duty as a citizen. Concerning the questions that were raised, I just want to limit myself in four of them - existence of the market 100% free from state interventionism, poor's welfare, basic nature of the state, and deregulation. 

I acknowledge that the free market has its own defects, but I think it is far better to bear with them than the one we have right now. Historically, the closest example of a free market I have in mind is the economic system during the later part of 18th up to the middle of 19th century. Unfortunately, after that period, the history of economics saw a comeback of mercantilism under the banner of neo-mercantilism. Austrian economists describe this economic system in diverse names such as corporatism, crony capitalism, and interventionism, which is wrongly described by mainstream as capitalism. I think that's why some free market thinkers are considering of dropping the name and using "free market" instead because "capitalism" is loaded with negative meanings. As for me, I think, interventionism is more appropriate to describe the current system. 

At present, we also have few examples of free market. Though I don't share the vision of a stateless society by Anarcho-capitalism, I think that's their primary goal. Seasteading and the free state project like the one in New Hampshire are the concrete examples of this. 

Concerning poor's welfare, I think we need to distinguish between the state's legal action and the moral and personal decision on the part of individuals. Henry Hazlitt in his book, "Man vs. The Welfare State" has clearly demonstrated that instead of alleviating the condition of the poor, the inevitable outcomes of government's interference are actually leading to an economic trap and disaster. Some of these outcomes are "increase in government spending, increase in taxes, chronic deficits, chronic inflation, constant loss in the buying power of the people's earnings and savings, expansion of governmental power in the details of everybody's business and everybody's life, and concentration of power in fewer hands" (pp.1-2) that will finally end in dictatorship. In short, these are the results we are witnessing right now that cause poverty to increase all the more. And besides, the essence of "free market is all about freedom, responsibility, and equality before the law, not equality of condition. So citizens have the freedom to be industrious or be lazy, freedom to be responsible or irresponsible. So equality of condition is not guaranteed under the free market. Otherwise, people will become lazy and demand that their condition be near or at par as the most hard working people in society" (Nonoy Oplas). And that is exactly why state welfare program fails for it penalizes the industrious and encourages government dependence and laziness. 

Turning to the basic nature or functions of the State, Austrian economists and libertarians are divided. Even among those who advocate for limited government, there is disagreement. Some would consider that the government has only two indispensable functions: to protect the people from foreign aggression and to safeguard the people from criminal elements in the society. Others would include additional functions such as provision of public utility, health care, basic education, construction and maintenance of streets and roads, and provision of a trustworthy monetary system. But even in these additional functions, the precise limits are still under question. Concerning economic affairs, the proper role of the government is confined in making sure that the market functions freely, which is the exact opposite of what the government is doing. I think I have to repeat here what Dr. John V. C. Nye said in his lecture in 2011 about the primary problem of the country: 

"Philippines' major problems have less to do with macroeconomic or fiscal stability but with a badly distorted micro-economic price situation, poor and unreliable property rights and contracting, a stiflingly legalistic bureaucracy, a slew of policies and institutional constraints that are anti-investment and anti-competitive, and a political economy that favors the worst mix of populism, elite rent-seeking, and high-minded but unproductive nationalism."

Finally, about deregulation. Personally, I consider deregulation a "joke" or perhaps a "myth" and a "doublespeak". If there is real deregulation, why are there only three "giant gas conglomerate"? And concerning power and water, are they under operation of the free market or are they under crony companies? (Paul C. How)

At this point, we need to distinguish between two kinds of monopolies. Under the free market, monopolies also exist, but they are not capable to exploit the consumers. This is because under free market, a monopolist is always facing the threat of potential competitors if he charges prices that are too high or provides poor service. Competitors have incentives to enter into the monopolized industries and take market share from the monopolist by offering lower prices or better service. 

The scenario changes under government-created monopolies. When government interferes by erecting barriers through legislation, it blocks competition and restricts consumers' choice. I think the words of Adams Summers concerning deregulation also applies in Philippine economy: 

"Politicians and regulators forced a sham of a 'deregulation' scheme, and then blamed the free market when it inevitably failed! The problem was not too much free-market competition; it was too much regulation (despite the 'deregulation doublespeak)." 

I would like to conclude this response with the analysis of Mont Pelerin Society about the biggest threats that the world is facing right now. For MPS, the biggest threats to both personal and economic liberty are the expansion of government's power, welfare state, trade unions, business monopoly, and inflation. All of these are interrelated and government intervention is the common thread among them.

Related Articles:


Pope Francis’ Tragic Vision of Capitalism


Pope Francis is No Economist

Mises on Monopoly

In my brief encounter with the Austrian school, I commonly observe that the charge of monopoly against capitalism is immediately dismissed as a product of interventionism. The problem is most people I know are unaware about the existence of interventionism. The only system they know that is guilty of monopoly is capitalism. 

So I decided to study monopoly on my own to gain familiarity about the subject. I was able to find at least five sources from the web. These five sources include Ludwig von Mises' "Monopoly and Its Effects" taken from his book "Socialism: An Economic and Sociological Analysis", Hans F. Sennholz' "The Phantom Called 'Monopoly' ", Damien Manier's "Monopoly and Competition: Government Intervention and Its Effects on the Free Market", Sudha R. Shenoy's "The Source of Monopoly" and D. T. Armentano's "A Critique of Neoclassical and Austrian Monopoly Theory". 

Synthesizing these five sources would take longer time and so I decided to take one source at a time. At this point, I will go for Mises first.

In dealing with Mises' material, I rearrange the order of content according to the sequence I have in mind. I observe that for him, monopoly has two kinds. He also argues that among the fields in the study of economics, misunderstanding monopoly theory is widespread.

What is Monopoly?

It is popularly believed that a monopolist can do whatever he likes in fixing the price of a specific commodity. For Mises, this idea is false for it assumes that the monopolist is not subject under the law of the market. 

Others also believe that monopoly is good for it eliminates the waste of resources due to unnecessary competition. And since a monopolist could also maximize the division of labor, it is believed that this would result into cheaper production and commodity. 

Monopoly Under Capitalism

To understand monopoly, one must investigate first the condition that made monopoly price possible in the first place. The same law applies in determining both the monopoly price and the competetive price. The fact is, the monopolist cannot set the price that he wants simply because this will influence the market and the attitude of the consumers. Consumers respond to this, which affects the demand of the commodity. It will either increase or reduce depending on the price and the monopolist cannot escape this economic reality as any other producer and seller. 

Unlike other Austrian economists, Mises thinks that monopoly under capitalism is a reality that is difficult to deny. However, he qualifies this type of monopoly as limited to "specific primary production". In particular, he refers to mining. He accepts that monopoly can exist in this field even without government intervention. Other industries like oil, mercury, zinc and nickel, Mises thinks that monopoly can occasionally happen if the owners of these enterprises form an alliance. 

However, there are at least setbacks to this type of monopoly. One, when the income of mine owner increases, "production and consumption of their product fall" (p.392). And then, "A quantity of capital and labour which would otherwise have been active in this branch of production is diverted to other fields" (ibid.). Another setback is that the increase of income in a branch of world economy under monopoly would correspond to the decline of income in the remaining branches. 

This type of monopoly is normal under capitalism and still tolerable. What people usually blame as the monopoly inherent in capitalism is actually the result of government intervention. 

Monopoly Under Interventionism

Only through government interference that a monopolist is protected from both competition and the existence of substitute commodities. This type of monopoly is a common economic phenomenon among countries where socialistic policies protect the monopolist through the power of the State. 

Mises describes the impact of government intervention where the monopolist could derive "maximum net profit" from a higher price of a specific commodity even though the quantity of sales would be reduced. So such interference would result to a higher market price or monopoly price, greater profit, lower number of sold items and smaller consumption. But in order to do this, the monopolist must resort either to the withdrawal or the destruction of the surplus products in order to avoid the impact of the excess quantity on market prices. And so monopoly under interventionism leads to the reduction of wealth and people's welfare. This is the kind of monopoly attacked in these days. This could never happen under the free market

This type of monopoly enjoys special legal privileges such as tariffs and patents. Most cartels and trusts would never have existed in the first place "had not the governments created the necessary conditions by protectionist measures" (p. 390). Mises further states, "Manufacturing and commercial monopolies owe their origin not to a tendency immanent in capitalist economy but to governmental interventionist policy directed against free trade and laissez-faire" (pp. 390-391). 

Conclusion

This study helps me a lot by clarifying the distinction between two types of monopoly. It is now clear to me that from Mises' point of view, monopoly under a capitalist economy is much smaller and tolerable whereas under interventionism, monopoly results into the reduction of wealth and deprivation of the consumers' welfare.

Reference: 

Socialism: An Economic and Sociological Analysis by Ludwig von Mises, New Haven: Yale University Press. 1951

The Collapse of Western Civilization

What caused the collapse of the Roman Empire during the 3rd century that is also threatening our civilization now? Is the collapse of Western civilization really inevitable as various thinkers and critics argue? Ludwig von Mises answered these questions in his 6th and last lecture on economic policy, "Politics and Ideas". This lecture was delivered in Argentina in 1958 and published as part of a book in 1979. 

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

In this article, I want to narrate my understanding of Mises' point of view as to how this process of internal corruption started. 

The Economic Root of Political Troubles

Mises began his lecture by citing the frustration of the hopes of 18th century Enlightenment. Thinkers during that time was characterized by strong optimism as to the dawn of the new age of freedom, prosperity, and progress. Such optimism was indeed followed by unprecedented economic improvement for the following two centuries. However, in the 20th century, a "warlike spirit" started to return alongside with humanity's disappointment with the constitutional system developed at the end of the 18th century. Most people did not see the connection between the change in economic policy and the growing political problems. 

Mises argued that you cannot separate the two. In fact, political turmoils that time were just natural consequences of replacing the previous economic policy with a new one. And it was exactly at this point, that interventionism started to appear. Mises stated that the so-called...

"...decay of freedom, of constitutional government and representative institutions, is the consequence of the radical change in economic and political ideas. The political events are the inevitable consequence of the change in economic policies" (p.94). 

Shift to Interventionism and Its Detrimental Results

The previous political ideas were characterized by concern for the nation's welfare as a whole. Even though, there were real party differences, they were considered normal and acceptable believing that opposing parties were only thinking for the good of the entire nation. But with the entrance of interventionism, everything has changed. 

A new entity has emerged out of interventionist climate. The classical meaning of political parties has been lost and replaced by special interest groups or "pressure groups" (p.96). 

Mises defined a pressure group as "a group of people who want to attain for themselves a special privilege at the expense of the rest of the nation" (ibid). Under interventionism, it is considered "the duty of the government to support, to subsidize, and to give privileges" (ibid.) to these groups. Special privileges may include "tariff on competing imports", "subsidy", or making of laws to prevent other groups "from competing with the members of the pressure group" (ibid.). 

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

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

Similarities and Differences

Mises acknowledged the similarities between the Roman Empire and the Western civilization. He described how interventionism and inflation destroyed the Roman Empire from within:

"The result, of course, was that the supply of foodstuffs in the cities declined. The people in the cities were forced to go back to the country and to return to agricultural life. The Romans never realized what was happening. They did not understand it. They had not developed the mental tools to interpret the problems of the division of labor and the consequences of inflation upon market prices. That this currency inflation, currency debasement, was bad, this they knew of course very well" (p.103). 

"Consequently, the emperors made laws against this movement. There were laws preventing the city dweller from moving to the country, but such laws were ineffective. As the people did not have anything to eat in the city, as they were starving, no law could keep them from leaving the city and going back into agriculture. The city dweller could no longer work in the processing industries of the cities as an artisan. And, with the loss of the markets in the cities, no one could buy anything there anymore" (ibid.). 

"Thus we see that, from the third century on, the cities of the Roman Empire were declining and that the division of labor became less intensive than it had been before" (ibid.).

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

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

The Need for Better Ideas 

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

Marxism must be replaced with free market ideas. It is not true that this ideology works for the good of the masses simply because none of its formulators came from the masses. All the intellectuals that developed anti-free market ideas including Marx himself came not from the proletariat, but from the bourgeois. For Mises, the free enterprise provides better ideas. See how he described such need: 

"Everything that happens in the social world in our time is the result of ideas. Good things and bad things. What is needed is to fight bad ideas...We must substitute better ideas for wrong ideas. We must refute the doctrines that promote union violence. We must oppose the confiscation of property, the control of prices, inflation, and all those evils from which we suffer" (p.105).

"These ideas must be brought to the public in such a way that they persuade people. We must convince them that these ideas are the right ideas and not the wrong ones. The great age of the nineteenth century, the great achievements of capitalism, were the result of the ideas of the classical economists, of Adam Smith and David Ricardo, of Bastiat and others" (ibid.).

"What we need is nothing else than to substitute better ideas for bad ideas. This, I hope and am confident, will be done by the rising generation. Our civilization is not doomed, as Spengler and Toynbee tell us. Our civilization will not be conquered by the spirit of Moscow. Our civilization will and must survive. And it will survive through better ideas than those which now govern most of the world today, and these better ideas will be developed by the rising generation" (ibid.).

Mises concluded his final lecture with a message of hope:

"I hope that in a few years the number of those who are supporting ideas for freedom in this country, and in other countries, will increase considerably. I myself have full confidence in the future of freedom, both political and economic" (ibid.). 

Source: Mises, Ludwig von. (1979). Economic Policy: Thoughts for Today and Tomorrow. Chicago: Regnery/Gateway, Inc.