Consumerism, Interventionism, and the Money Supply

Living in an anti-capitalistic era, it is common to hear even religious leaders who speak Marxist language. But of course they do it in a creative way for they don't want to be branded as leftists. In the US, they have left-wing religious leaders like Ronald Sider, Jim Wallis, and Jeremiah Wright. These men have many duplicates here in the Philippines. Even without understanding the basic principles of economics, these local counterparts are so vocal in their hostility and opposition against the free market. In fact, this first week of November, they will hold a seminar to attack consumerism, which in their mind is an offshoot of capitalism. 

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Instead of being grateful for the development they see around them like the construction of big malls and the privilege of enjoying to dine in an eat all you can restaurant, they see going to malls as an escapade and consumption as materialism. Though they accept that capitalism has improved the material well-being of mankind, they complain that the minds of men were diverted from superior pursuits in life to inferior ones. They say that both consumerism and materialism tend to give attention only on the needs of the body, and neglect the needs of the soul and of the mind. And so people are deceived by the lure of consumerism. They echo the voice of Bernard Baruch: "The main purpose of the market is to make fools of as many men as possible."

David M. Walker, the US Comptroller General from 1998 to 2008 has something to say about "consumerism", or to be exact about the need to overcome the "consumption mind set." He said: 

"The individual must get over the CONSUMPTION MIND SET. The consequences are important and it is important that we reevaluate our values. That long standing tradition of children living better than their parents is in serious danger. We will have to reform all of our health care systems, our tax policy and social security. Over time we must restructure cutting spending, entitlements and enhancing revenues."

However, when David M. Walker said these words, he has basis. He is aware about the gross national debt and the unfunded liabilities of the US. He did not say those words in abstract or simply pointing the blame to the market. 

Blaming the market for consumerism is not based on economic analysis. It is more of a political propaganda to promote a statist ideology. 

Dictionary.com defines consumerism in three ways: 

1. "a modern movement for the protection of the consumer against useless, inferior, or dangerous products, misleading advertising, unfair pricing, etc."

2. "the concept that an ever-expanding consumption of goods is advantageous to the economy."

3. "the fact or practice of an increasing consumption of goods."

In this article, I am using the term with its 2nd and 3rd definitions.

If consumerism is not the fault of the market, then whose fault is it? I think at this point the article written by Steven Horwitz at Foundation of Economic Education will help us. He said that it is erroneous to equate consumerism with capitalism simply because for economists consumption does not drive economic growth and prosperity, but production. For him, Keynesian economic policies are the primary roots of consumerism. Keynesianism manipulates "the elements of total income (consumption, investment, and government spending)" and they "became the focus of macroeconomic policy and economic development." And so his challenge for the Marxist critics of capitalism is that in their attack against consumerism, they should focus instead their attention on Keynesian interventionism.

Another economist confirms this observation. He provides a brief explanation how the increase in money supply affects consumption: 

"So here we see why an increase in the money supply leads to LOWER INTEREST RATES. With greater excess reserves, banks must lower the rate they charge each other . . . . in order to attract new borrowers and get their idle reserves out there earning interest for the bank." 

"LOWER INTEREST RATES create an incentive for firms TO INVEST IN NEW CAPITAL since now more investment projects have an expected rate of return equal to or greater than the new lower interest rate. Additionally, the LOWER RATES ON SAVINGS DISCOURAGES SAVINGS by households and thereby INCREASES THE LEVEL OF HOUSEHOLD CONSUMPTION. Households find it cheaper to borrow money to purchase durable goods like CARS and it also becomes cheaper to buy NEW HOMES or undertake costly HOME IMPROVEMENTS. So we begin to see INVESTMENT and CONSUMPTION rise across the economy as the increase in the money supply reduces borrowing costs and decreases the incentive to save. Aggregate demand has started to rise."

"Increasing the money supply . . . . leads to INCREASED CONSUMPTION, INVESTMENT, and NET EXPORTS, and therefore aggregate demand in the economy. The RISING DEMAND among DOMESTIC CONSUMERS, FOREIGN CONSUMERS, AND DOMESTIC PRODUCERS for the nation’s output puts UPWARD PRESSURE ON PRICES as the nation’s producers find it hard to keep up with the rising demand. Once consumers START TO SEE PRICES RISING, inflationary expectations will further increase the incentive TO BUY MORE NOW AND SAVE LESS, leading to even MORE HOUSEHOLD CONSUMPTION."

Based on the above quotations, since from an economic point of view, consumerism is an inevitable response of both the producers and consumers resulting from the increase in money supply, it is therefore fallacious to blame the free market for consumerism. Instead, blame those who are responsible for the increase of the money supply.

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

Interventionism and Neo-Malthusian Solution to Overpopulation

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

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

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

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

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

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

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

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Here are the two quotes from chapter 2: 

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

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

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

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.

Interventionism

Mises' first lecture in Argentina in 1959 is about capitalism. In it, he exposed not a few erroneous ideas people had about capitalism. I skipped the second lecture, which is about socialism and went straight to the third lecture where Mises explained what interventionism is all about. 

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

Consumer sovereignty is the distinguishing mark in capitalism. So interventionism despite of its claim to preserve the fruits of capitalism, is actually working to destroy it. This is because interventionism is the other face of socialism (That's why when I was asked to define socialism, I simply replied that it is an economic system that gradually and persistently eroding the purchasing power of the consumers. I am simply following Mises in this conception. By socialism, I am not referring to the Marxian-Russian type, but to German type, which is prevalent these days.).

In this third lecture, we will see the real nature of this other form of socialism. And in order to do that, I would like to divide this article into five sections:

• Proper role of the government

• Mixed Economy

• Price Control

• Rent Control

• Cartels

Proper Role of the Government

Interventionism is connected to the discussion about the proper role of the government. There are at least three views about the role of the government in relation to the free market. One is the idea that it is justified for the government to go beyond its proper function to protect its people. Another idea known as anarchism advocates the total abolition of government. And the third is the idea that the government has limited function.

In Mises' lecture, there's no hint related to the present debate within the libertarian camp between anarchism and minarchism. As I know Murray Rothbard is an advocate of anarchism or total absence of state government while Ludwig von Mises supports minarchism or limited government. 

In "How and How Not to Desocialize" posted last June 24 in mises.org, Rothbard speaks about an "act of self-immolation" on the part of the state for it to completely vanished from the scene. In Mises case, his idea of limited government is contrary to the popular saying, "That government is best, which governs least." For him, limited government means that a government ought to perform the very purpose for its establishment. And this includes protection of citizens both from domestic and foreign threats. 

Mixed Economy

Even though Mises does not believe in the existence of third economic system, for him the problem of interventionism should not be confused with the existence of the so-called "mixed economy". He understands mixed economy as an economic system where both private and public ownerships of corporations are allowed. 

Price Control

In order to clarify the distinction between mixed economy and interventionism, Mises gave three examples - price control, rent control and cartels. Under this section, we will see two historical examples of the failure of price control, an analysis of reasons for such failure, its extension to other products, and its end result.

1. Historical Examples

Examples of price control in the past tell us about the response of the government once prices started to increase as a result of inflating the money supply. Mises gave two examples: the Roman Emperor Diocletian and French Revolution.

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

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

2. The Reasons for Failure

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

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

3. Extension to Other Products

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

4. End Result

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

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

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

Rent Control

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

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

Cartels

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

Conclusion

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

A personal remark before I end. I agree that the key to limit the power of the government is through the citizen's power. However, students of liberty have a big role to fulfill in educating the people to know that power. 

Concerning Mises' statement related to the revival of an old idea, I find it contradictory. I have reservation when it comes to kings' possession of supernatural powers. And I do not understand what Mises exactly meant by that. But concerning his denial of a king as God's messenger, this is understandable for as far as I know, in his system of economic thought, metaphysical existence is denied. So the plain teaching in Romans 13 that "the one in authority" as God's servant has no place in his mind. 

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

The Government is Doing a Lot

Reading "Poverty level in Phl unchanged since ’06" does not make sense to me. One could easily dismiss my difficulty to the fact that I am not an economist. But I ask, who is the audience by the way of such a report? Is it the economists or the Filipinos as a whole? If it is the economists, it makes sense why the report is technical. But if the intended audience is the Filipinos, why not make the report comprehensible?

There are parts in the article that I understand. At least, I got the idea that since 2006, poverty level in the Philippines remains the same. In terms of percentage, Ted Torres identifies that almost 28% of Filipinos remain poor. On the other hand, the parts that are incomprehensible to me are those related to the meaning of poverty line, the meaning of family income, the meaning of the different percentages of poverty incidence in different provinces and the meaning of government programs. So I have a problem in understanding the details of the report. 

I want to know how NSCB (National Statistical Coordination Board) determines the poverty line. Is it fixed or subject to change? What causes the change in poverty line? 

The difference in family income that determines a poor family also puzzles me. Does it mean that if a family of five is earning P7,821 per month, such family is no longer below the poverty line? How can a family of five with such an income pay their house rental, electricity and water bill? How about the allowance of children going to school and the transportation fee of the person who works? It is really unthinkable that with such an income the family can already buy other goods aside from food. To my mind, only a magician can expand such income to meet the enumerated needs. 

To my non-economic mind, to complete NSCB's income distribution, I find that the poorest 20% earns 6% of total national income; the middle 60% earns 44% of total national income, and; the upper 20% earns 50 % of total national income. What's the significance of this report? 

The reporter also wrote that "an annual tracking of poverty incidence will now be done to allow the government to make the necessary tactical or short-term changes in its Philippine Development Plan 2011-2016." I wonder when was the government war against poverty started? Is this annual tracking of poverty incidence only done this time?

I still have many questions in mind concerning government program against poverty. What is the meaning of the following phrases and statements: 

• "...with the timely measures we are now implementing", 

• "...the government’s massive investment in human development and poverty reduction", 

• "...the problem of poverty requires a comprehensive, 'multi-pronged and multi-sectoral solution' involving many stakeholders", 

• “We are making use of the current effort..."

• “We need value-added activities for our farmers."

• "We also need to spur their access to markets,” 

I just finished reading the introduction of Mises' economic policy. Reading this report, I think Mises is right that interventionism is very much alive in the country. Of course, the term is not used to describe the existing economic policy, but the reality is there. It is captured in this statement: "the government is doing a lot."

The Best Economic Policy

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

The Six Lectures

After reading the book, I personally believe that Mises' lectures remain relevant for today's audience. Economic policy is sub-divided under six lectures. These are:

• Capitalism

• Socialism

• Interventionism

• Inflation

• Foreign Investment, and

• Policies and Ideas

Understanding the above topics, you will grasp what Mises meant by the best economic policy. In the Introduction, Bettina Bien Greaves gave the overview of such policy in contrast to interventionist policies. 

Interventionism

Interventionism is the most influential economic policy in our time. Bien Greaves describes the characteristics of an interventionist government as doing the following tasks:

• Regulating production

• Controlling prices of goods and services

• Fixing salaries of workers

• Interfering in business

• Intervening in imports and exports, and

• Providing welfare

The mentioned tasks above are indications that existing governments are going beyond their proper role. Bien Greaves claims that the proper role of the government should be confined in making it sure that the market environment is conducive to its free operation. The role of the government is limited in protecting the lives and properties of its citizens both from domestic and foreign aggression. If the government does exactly this, the people are genuinely empowered to take care of themselves. For Bien Greaves, this is the best economic policy. 

However, the limited role of the government is unpopular today. Statist, socialist, welfarist and interventionist dominate the political and economic landscape. They join their voices in unison making the idea of greater government power more popular. 

Personal Thoughts

Reading Bien Greaves' description of our era as interventionist, reminds me of not a few theologians who are passionate to keep their theological reflection atune with the times. Unfortunately, I suspect that just like me two years ago, most theologians I encounter both offline and online have zero idea about interventionism, which I consider the most important context in our age. Sooner or later we cannot afford to deny the existence of interventionism, for unless it is stopped, we will experience its force as it gradually erodes the freedom that we think we have. 

My intention in rewriting what I perceive to be the most relevant parts of the book is first of all to acquaint myself with Mises' basic thoughts (Other two books of Mises that I find helpful to achieve this goal are "Bureaucracy" and "Anti-Capitalist Mentality"). This will serve as my personal preparation in reading his larger books.