Economic-Policy Thoughts for Today and Tomorrow

 

Government should protect and de[1]fend against domestic and foreign aggression the lives and property of the persons under its jurisdiction settle disputes that arise, and leave the people otherwise free to pursue their various goals and ends in life. Ideally, the government should be a sort of caretaker, not of the people themselves, but of the conditions which will allow individuals, producers, traders, workers, entrepreneurs, savers, and consumers to pursue their own goals in peace.

He analyzes the failures of socialism and the welfare state and shows what consumers and work[1]ers can accomplish when they are free under capitalism to determine their own destinies. When government protects the rights of individuals to do as they wish, so long as they do not infringe on the equal freedom of others to do the same, they will do what comes naturally—work, cooperate, and trade with one another.

So we see that the best economic policy is to limit government to creating the conditions which permit individuals to pursue their own goals and live at peace with their neighbors. The government's obligation is simply to protect life and property and to allow people to enjoy the freedom and opportunity to cooperate and trade with one another.

 

CAPITALISM

The attacks against capitalism—especially with respect to the higher wage rates—start from the false assumption that wages are ultimately paid by people who are different from those who are employed in the factories.

The capitalist system was termed "capitalism" not by a friend of the system, but by an individual who considered it to be the worst of all historical systems, the greatest evil that had ever befallen mankind. That the man was Karl Marx.

In economic policies, there are no miracles. It was the application of the principles of the free market economy, of the methods of capitalism, even though they were not applied completely in all respects. Every country can experience the same "miracle" of economic recovery, although I must insist that economic recovery does not come from a miracle; it comes from the adoption of—and is the result of—sound economic policies.

 

SOCIALISM

In using the term freedom as applied to human be[1]ings, we think only of freedom within society. Yet, today, social freedoms are considered by many people to be independent of one another. Those who call themselves "liberals" today are asking for policies that are precisely the opposite of those policies which the liberals of the nineteenth century advocated in their liberal programs.

Freedom means something only within the framework of society. Freedom in society means that a man depends as much upon other people as other people depend upon him.

The fact is that, under the capitalistic system, the ultimate bosses are the consumers. The sovereign is not the state, it is the people. And the proof that they are the sovereign is borne out by the fact that they have the right to be foolish. This is the privilege of the sovereign. He has the right to make mistakes, no one can prevent him from making them, but of course, he has to pay for his mistakes.

 

INTERVENTIONISM

The government ought to do all the things for which it is needed and for which it was established. The government ought to protect the individuals within the country against the violent and fraudulent attacks of gangsters, and it should defend the country against foreign enemies. ‘Interventionism means that the government wants to do more. It wants to interfere with market phenomena

 

INFLATION

When people talk of a "price level," they have in mind the image of a level of a liquid that goes up or down according to the increase or decrease in its quantity, but which, like a liquid in a tank, always rises evenly. But with prices, there is no such thing as a "level." Prices do not change to the same extent at the same time. There are always prices that are changing more rapidly, rising or falling more rapidly than other prices. There is a reason for this.

The government may think that inflation—as a method of raising funds—is better than taxation, which is always unpopular and difficult. In many rich and great nations, legislators have often discussed, for months and months, the various forms of new taxes that were necessary because the parliament had decided to increase expenditures. Having discussed various methods of getting the money by taxation, they finally de[1]cided that perhaps it was better to do it by inflation.

We must remember that, in the long run, we may all be dead and certainly will be dead. But we should ar[1]range our earthly affairs, for the short run in which we have to live, in the best possible way. And one of the measures necessary for this purpose is to abandon infla[1]tionary policies.

FOREIGN INVESTMENT

A businessman cannot pay a worker more than the amount added by the work of this employee to the value of the product. He cannot pay him more than the customers are prepared to pay for the additional work of this individual worker. If he pays him more, he will not recover his expenditures from the customers. He incurs losses and, as I have pointed out again and again, and as everybody knows, a businessman who suffers losses must change his methods of business, or go bankrupt.

But a few decades later, capital investment abroad began to play a most important role in world affairs. Foreign investment meant that British capitalists invested British capital in other parts of the world. They first invested it in those European countries which, from the point of view of Great Britain, were short of capital and backward in their development. It is a well-known fact that the railroads of most European countries, and also of the United States, were built with the aid of the British capital. You know that the same happened in this country, in Argentina.

 

POLITICS AND IDEAS

Political speeches, editorials in newspapers, pam[1]phlets, and books were written in order to persuade. There was little reason to believe that one could not convince the majority that one's own position was absolutely correct if one's ideas were sound. It was from this point of view that the constitutional rules were written in the legislative bodies of the early nineteenth century. These political changes, brought about by interventionism, have considerably weakened the power of nations and of representatives to resist the aspirations of dictators and the operations of tyrants. The legislative representatives whose only concern is to satisfy the voters who want, for instance, a high price for sugar, milk, and butter, and a low price for wheat (subsidized by the government) can represent the people only in a very weak way; they can never represent all their constituents

Dictatorship, of course, is no solution to the problems of economics, just as it is not the answer to the problems of freedom. A dictator may start out by making promises of every sort but, being a dictator, he will not keep his promises. He will, instead, suppress free speech immedi[1]ately, so that the newspapers and the legislative speechmakers will not be able to point out—days, months or years afterward—that he said something different on the first day of his dictatorship than he did later on.

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 fight all that we dislike in public life. 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. Ideas and only ideas can light the darkness. 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.

Anti-Capitalistic Mentality

The majority of people are unaware of the economic condition before the appearance of the free market. To believe intellectuals that life before the Industrial Revolution was happy and prosperous, and that capitalism brought nothing but misery is proof that most people these days do not know the past.

"The Anti-Capitalistic Mentality" is to analyze the roots and results of ideas that hate the free enterprise.

The way to achieve prosperity is open in a capitalist society. It is acquired by those who satisfy the masses by providing products that are either cheaper or better. It is in this context that we must understand the concept of "consumer sovereignty."

In other words, those who serve the majority will receive greater income or greater profit than those who satisfy the wants of the minority.

 

Mises himself gave us a hint about what's wrong in our time. He said that the desire for the advancement of economic well-being is normal and appropriate.

The closeness of similarity between most nations' societies to aristocrat society is an outcome of anti-capitalistic mentality. Most states and political parties, which include both conservative and "progressive" foes of capitalism are determined to destroy this economic system.

 

Psychological Roots for the Denigration of Capitalism

1. Search for Scapegoat

Reading this economic insight shows that if anyone wants bigger income or profit, he must place himself in the industry that has big demand and he must equip himself with the necessary skills required by the market. If he is not willing to do this, he cannot blame anyone for his meager income.

The free market is such a society. Those who fail resent the achievements of those who succeed. A fool releases his indignation by verbally maligning the achievers. . In such a system, it is not enough to be brilliant, efficient, and industrious to be successful. Honesty and decency are punished.

2. Cover-up for Hatred

The vilification of capitalism is coming from intellectuals' hatred and envy of the success of their colleagues. Mises explained the nature of this hatred. Unlike ordinary men who do not have the opportunity to associate with those who succeed in life, the intellectuals know personally and encounter daily their colleagues who went ahead of them. "To understand the intellectual's abhorrence of capitalism one must realize that in his mind this system is incarnated in a definite number of compeers whose success he resents and whom he makes responsible for the frustration of his own far-flung ambitions.

 

3.      Socialites' Isolation

). Mises identified the members of this gathering as the "statesmen and parliamentary leaders, the heads of the various departments of the civil service, publishers and editors of the main newspapers and magazines, prominent writers, scientists, artists, actors, musicians, engineers, lawyers and physicians" and "together with outstanding businessmen," "scions of aristocratic and patrician families".

4.      Conceit and Resentment of White-Collar Workers

it refers to the experience of white-collar workers. Mises described it as resentment, but I see it as more of conceit. Mises explained that a white-collar worker has "two special afflictions peculiar to his own category" (p. 21). The white-collar worker due to apparent similarity, tends to equate his task with his boss', and considers his "intellectual" assignment is higher than the manual workers of the firm. He cannot understand and it makes him angry to see that the manual workers receive more respect and a higher salary.

 

5.      Disgruntled Relatives of Capitalist Families

Another interesting psychological root for the vilification of capitalism can be traced from disgruntled relatives of capitalist families. Mises described them as "cousins" referring to the "brothers, cousins, nephews of the bosses, more often their sisters, widowed sisters-in-law, female cousins, nieces and so on" (p. 27). These relatives financially support various types of projects that promote anti-capitalistic mentality.

 

6.      Entertainers' Expectation of Deliverance from Public Capriciousness

The final psychological root comes from the entertainment industry. As we all know, many entertainers live an affluent lifestyle, and so it is difficult to accept that "Hollywood and Broadway, the world-famous centers of the entertainment industry, are hotbeds of communism".

To understand this phenomenon, one must first start with a comparison between the products offered by manufacturers and the entertainers. In the case of manufacturers, they sell tangible goods, which provide a measure of stability that the entertainment industry does not have. In the case of entertainers, they are primarily dependent on the wishes and capriciousness of the public. People are bored, and that is why they "buy" the entertainers' "products." But people are very difficult to please for they crave for something "new," "unexpected," and "surprising".

 

Mises accepts the very nature of the public and no relief can be found to cure the uneasiness of stage performers. However, in their search for a remedy, some of them think that communism will give them deliverance.

 

A Social Philosophy - Two Kinds of Progressives

1.      The Unfortunate State of Economic Ignorance

The reason for this unfortunate state is not only due to the inherent difficulty of the subject that requires unusual and demanding intellectual exertion, but also due to general impressions that the study of the subject is considered "strange," "repulsive," "nonsensical," and often "viewed with suspicion".

2.      Material Productive Forces' Continuous Evolution

Corollary to the failure to account for the real cause of economic progress, our common man improperly ascribed all economic development to "natural sciences and technology" (p. 36) and he saw them as "self-acting" toward continuous development regardless of "political and economic organization of society".

3.      Three Progressive Classes

Let us see the role of these progressives in economic well-being. For Mises', the increase in productivity is not due to labor per se but the use of better tools and machines, which is made possible through "the accumulation and investment of more capital" through saving. In fact, "Every step forward on the way toward prosperity is the effect of saving". Entrepreneurs "employ the capital goods made available by the savers for the most economical satisfaction of the most urgent among the not yet satisfied wants of the consumers". Saving and the accumulation of capital when they surpass population growth have two advantageous results, an increase of marginal productivity of labor and a reduction in the price of goods. It is exactly the availability of the supply of capital that distinguishes "progressive" (which the mainstream describes as developed countries) from backward countries.

4.      Misrepresentation of Capitalism

Our common man thinks that the wealth of the wealthy is the primary cause of poverty. He failed to see that the mark of big business is mass production aimed towards mass consumption, in which the workers are the main consumers. He could not understand that "the entrepreneurs, the capitalists, and the technologists prosper as far as they succeed in best supplying the consumers".

 

The Progressives. "Unorthodox dogmatism" is Mises' summary description of the taboos of progressivism. He described it as "self-contradictory and confused mixture of various doctrines incompatible with one another". Concerning sources of dogmas, it is eclectic "at its worst, a garbled collection of surmises borrowed from fallacies and misconceptions long since exploded. It includes scraps from many socialist authors, both 'utopian' and 'scientific Marxian,' from the German Historical School, the Fabians, the American Institutionalists, the French Syndicalists, the Technocrats. It repeats errors of Godwin, Carlyle, Ruskin, Bismarck, Sorel, Veblen and a host of less well-known men"

The progressives' basic accusation "against capitalism is that the recurrence of crisis and depressions and mass unemployment is its inherent features". Exposing these economic problems as products of government intervention silence the progressives, and since they cannot give a credible response to "economists, they try to conceal them from the people and especially also from the intellectuals and the university students. Any mentioning of these heresies is strictly forbidden. Their authors are called names, and the students are dissuaded from reading their 'crazy stuff' ".

 

Three Fundamental Errors

Instead of giving a detailed analysis of the mentioned "moderate" stance, Mises just focused on giving an overview of the three fundamental errors inherent in it.

 

1. The first mistake is related to the erroneous diagnosis of the nature of the ideological problem. "The great ideological conflict of our age," says Mises is neither about the distribution of business profit nor class warfare. Instead, it is about the struggle "concerning the choice of the most adequate system of society's economic organization". Mises explains the nature of this struggle:

2. The second error is the failure to see the similarity of the economic system of both socialism and communism. Yes, it is true that under socialism, the "anti-communist bourgeois" are not assassinated and that the secret documents of a nation are not submitted to a "superior" socialist nation. In this instance, socialism is more moderate than communism. But besides this, there is no difference between the two especially when it comes "to the ultimate goal of political action;" both socialism and communism are aiming for "public control of all the means of production".

 

3. The third error is the naive belief about the possibility of a third economic system resulting from a combination of both socialism and capitalism. Affirming this possibility springs from ignorance to understand the real nature of both socialism and capitalism. They "are two distinct patterns of social organization” for socialism is based on public control of the means of production, whereas capitalism can only exist if "private control of the means of production" is protected. There cannot be a reconciliation between these two. Economists call this form of the economic system "interventionism" and for Marx and Engels, when they "advocated definite interventionist measures, they did not mean to recommend a compromise between socialism and capitalism". Mises perceives them as stepping stones on the way to "the establishment of full communism". Therefore, "the social and economic philosophy of the progressives is a plea for socialism and communism". "Mixed economy" or "a middle-of-the-road solution" does not exist. Expecting it to be so is to believe in the illusion.

 

Capitalism, with its promise of material well-being, cannot make people happy. Mises' first objection deals with this subject of happiness, and he puts it in a way similar to this: Possession of the latest gadgets does not make people happy, and besides, there are lots of people who do not have those gadgets.

Capitalism promotes social injustice, and therefore must be discarded and replaced.

The primary trouble with the above idea of justice is that it ignores scarcity, which is a fundamental economic reality. And not only that, apart from man's use of reason, there is no way for him to protect himself from the threat to human life displays by the operation inherent in nature. The truth is, the expansion of wealth is not natural. It is an outcome of the division of labor, which is a product of human reason.

Concerning the Nature of Capital. In dealing with this topic, Mises explained the basic ideas surrounding the subject of capital and the relationship between capital and population growth.

"Capital is not a free gift of God or of nature. It is the outcome of a provident restriction of consumption on the part of man. It is created and increased by saving and maintained by the abstention from dissaving".

          "What is required to raise, in the absence of an increase in the number of workers employed, the total amount of. . . industrial output is the investment of additional capital that can only be accumulated by new savings. It is those saving and investing to whom credit is to be given for the multiplication of the productivity of the total labor force".

 

 

BEREAUCRACY

        People in government prefer to be called "civil servant." Progressives argue that bureaucracy is a system inherent in capitalism, which is inescapable in the inevitable process of its own disappearance. It is therefore mistaken to blame the system if the bureaucrats are no longer acting as civil servants "but irresponsible and arbitrary masters and tyrants". The culprit is the new political system, "which restricts the individual's freedom to manage his own affairs and assigns· more and more tasks to the government" (ibid.). And besides, the political system considers the anti-business policy of bureaucracy as commendable, and any businessman who resists it is considered a public enemy.

Corporate Bureaucracy 

Under this section, we will see how the "progressives" divert the attention of the people to big business by attacking its bureaucratic system. In it we find the nature of the accusation in general, the absence of "creative leadership" as the chief accusation, and the subtle way the government used the income tax to stifle creativity among entrepreneurs.

• The Nature of Accusation
• Creative Leadership
• Income Tax

Government Omnipotence 

The next section shows how the advocates of government omnipotence utilized the bureaucratic system to advance the power of the state. Mises started his argument by narrating first that "The history of government bureaucratism is very old," and "It characterizes the governments of ancient Egypt and imperial China". In fact, the rise of modern government bureaucratism out of the ruins of feudalism was simply an attempt on the part of the state to substitute "the supremacy of a multitude of petty princes and counts" with bureaucratic management. 

Profit Management

The best way to assess the bureaucratic system is by comparing it to profit management "within the framework of a capitalist society" (p. 18). Both "The essential features of capitalism" and the nature of the bureaucratic system are not widely known. The former has been misrepresented through "spurious legends" (ibid.). Capitalism has been discredited "as an 'economy of scarcity,' " whereas socialism has been praised as the economy of abundance. Mises refused to give a detailed analysis of these "fables" (p. 19). (He did that elsewhere). His primary concern in the book is to show "what the two systems in question are, how they work, and how they serve the needs of the people".

Theological Response

Four years after the publication of Bureaucracy, R. B. Kuiper of Westminster Theological Seminary published an essay in November 1948, The Word of God Versus the Totalitarian State. The essay has five sections: the function of government, the nature of man, the autonomy of spheres, the kingship of Christ, and the sovereignty of God. Since Mises explained in the Introduction that totalitarianism is the destiny of the bureaucratic system, I want to share what Kuiper has to say on the subject limiting my summary to the first two sections of his essay. 

Bureaucratic Management The foregoing section is about profit management. which is about bureaucratic management. Mises explains this subject under five sections: 

• Bureaucracy under despotic government 
• Bureaucracy within a democracy 
• The essential features of bureaucratic management 
• The crux of bureaucratic management, and 
• Bureaucratic personnel managemen

The Two Biggest Obstacles However, fulfilling the above duty is not easy. There are many obstacles to overcome, and two of them are intimidation by professionals who strongly advocate bureaucratization and socialization, and the settlement to compromise between capitalism and socialism, the third way.

• Intimidation by professionals. 
• Settling for the third way, government interventionism

In the Philippines, we have yet to see a public figure, whether a politician, a political and economic commentator or a journalist who advocates personal responsibility, economic liberty, and limited government. So far, the political and economic stance of most public figures we know are statist, socialist, nationalist, interventionist, and progressive. Filipino citizens do not have to wait for the emergence of a libertarian leader. 
 

HUMAN ACTION

 Liberalism is a political and social philosophy that promoted individual rights, civil liberties democracy, and free enterprise. Human action serves purposely behavior. When we talk about action, it is the will that put operation and transformed into an agency, goalkeepers, response in ego stimuli, and environmental conditions. The unconscious behavior of the bodily organs and cells is for the acting ego no less than the fact of the external world. Remember man can sometimes succeed through and by the use of the power of his will in overcoming sickness. Human response to the action is not simply to give preference. The man also shows preference in situations in which things and events are unavoidable or are believed to be so. To express wishes and hopes and to announce planned action may be forms of action in so far as they aim in themselves at the realization of a certain purpose. Action refers to the real matter. We may say that action is the manifestation of a man's will. Contentment or satisfaction is the state of a human being that doesn't and cannot result in any action. The acting person is eager to substitute a more satisfactory state of affairs for a less satisfactory. Human Action striving for happiness. The ultimate goal of human action is always the satisfaction of the acting man's desire.

Human action is one of the agencies that bring change. The action is the essence of his nature and existence. It is necessary always rational. Rational action must be pleonastic and must be rejected as such. And at the end of it is the satisfaction of some desires of the acting man. It may call irrational if its aims are at the expense of “material” and tangible advantages. Remember the opposite action is not irrational behavior, but a reactive response to stimuli on the part of the bodily organs and instincts that cannot be controlled by the person's volition. To the same stimulus, man can under certain conditions respond both by the reactive response and by action. We must simply establish the fact that to act, man must know the causal relationship between events, processes, or states of affairs.

Thinking and acting are the specific human features of a man. This human action which is inextricably linked with human thought is conditioned by logical necessity. The human mind can't conceive a mode of action whose categories would differ from the categories which determine our own actions.

Change can be conceived as the outcome either of the operation of mechanistic causality or of purposeful behavior; for the human mind, there is no third way available.

Daily experience proves not only that the sole suitable method for studying the conditions of our nonhuman environment is provided by the category of causality; it proves no less convincingly that our fellow men are acting beings as we ourselves are.