Big thanks to Jake Honsvick for leading our last Junto presentation.
This week Colter Angell will be leading a discussion a work by Ludwig Von Mises entitled "Middle of the Road Policy Leads to Socialism" and can be found http://mises.org/daily/2370 there. There are a few different links to all of the parts but it is really quite brief.
Feel free to use the comments function on this blog as a type of forum to prepare for Thursday's presentation.
I'm posting this here so Ryan is sure to see my answers and so we can continue the discussion.
ReplyDeleteRyan asked me about what the difference in Legal structure free markets had versus free enterprise.
Here is my response:
Ryan I'm probably not smart enough to answer that question but I'll give it a shot.
Free Markets I would assume are based upon a quasi democratic/narcissistic/socialist society where most personal and institutional concerns for others are set aside through the interventions of the state safety net system. These ideas permeating our educational system have spawned the types of citizens that thinks that big business is best for America and thus they give special benefit to those with large amounts of capital. They see money as a right of passage and then reward it, thinking that if they can help plan the business dynamic at a city or county (through helping to provide cheeper consumer goods et al) level they some how through this planning will help the general economy. It is the manifestation of macro economics at the local level, that we have municipalities that continue to push the idea of free enterprise and the rule of law into oblivion.
Free Enterprise however is based upon republican ideals and the rule of law, which states that no one gets a better deal because they bring more to the table--as far as perceived benefits to the community. The irony here is that from the standpoint of the free market, the ones you think they would want give a leg up to would be those under capitalized businesses, but it is the opposite who get all the perks and privileges.
Free enterprise promotes the freedom to buy, try, and fail without the interference of the government, free markets restrict freedom to buy, try, and bail out their buddies that they gave all the perks to to begin with when they fall on their faces.
An anecdote from my own life may illustrate.
I've been in business for the past decade. When I started I went to the planning and zoning commission to ask permission to operate my business on my own property--which request was denied.
I ended up purchasing 7 acres in another county and had to install much infrastructure to be able to operate. I was able to do his because I had saved money and had collateral sufficient to borrow money--capital. Because of this I was able to navigate planning and zoning obstacles--fees,permits ,et al-- and begin business.
In the end-- partly because of Marco economics-- we over invested in infrastructure, and under corrected our shift in the new economic reality, and as a result are insolvent.
However we are at the top of our game and would have been in fine condition if the market would have remained strong.
With the events above, I now find myself severely under capitalized--not an enviable position to be in in capitalist system. I was able to borrow some private funds to by back much of the tooling I need to move forward, but now face the grim reality of dealing with all of the regulatory issues of being in business without the capital to deal with it.
I have moved my business to my home out if desperation but am sure that it won't be long before I will come face to face with the government telling me I can't be here, and that I must move to an area designated for this type of activity. This time however I know a few things about liberty and won't easily roll over. But in the end the capitalist system will likely have it's way with me and I will be forced to either conform or go work at Walmart because of my lack of capital. Life, liberty, and property, yeah right....go freedom.
Ryan,
Thanks for you thought provoking questions, I appreciate it as well as I'm sure your students do.
I really liked what you said Dan about how difficult it was for you to get your business started. Seems like the difficulties you had, especially here in Rexburg of all places, are telling of many of the economic issues that we face today. One can easily see the maldistribution of resources from productive uses to that of the unproductive uses of regulation, in essence stopping those with an entrepreneurial drive of producing desired goods and services. It really is a double whammy. We get hit by the diversion of capital for productive private sector investment through our tax dollars going to regulator's salaries and we get hit again by you/entrepreneurs not being able to do business and actually make something. Maybe another step further would be the disruption in prices due to the lack of capital being most efficiently regulated by the profit/loss accounting system provided by entrepreneurs and free markets.
ReplyDeleteThe only thing I'd take issue with is that I would use Free Market and Free Enterprise synonymously as each is an adjoining piece to the other. A free market is one where there are many producers and consumers with little to no barriers to entry (the only barrier to entry would be the capital required to get your business going, with the given that there is no government regulation). And one cannot engage in a free enterprise unless there is a free market in which to do business.
In this important game of semantics I would identify capitalism as being in the same genera as corporatism. Or in other words, companies with political clout getting special favors from the compulsive and coercive power of government to restrict the competitiveness of rivals. It seems that most of the economists/philosophers that I respect use free enterprise and free markets synonymously as you cannot have one without the other. In production, big companies with may competitors is best. Walmart is a great example. But what is bad is when big companies go to government to knock off competitors under the many guises of consumer protection and fairness.
Great post Dan.
I'm going to be reading through the Mises article tomorrow and will post some good discussion questions! I encourage everyone to do the same!
Dan,
ReplyDeleteTypically when people talk about free market they are talking about what you call free enterprise. For instance, read Ezra Taft Benson's chapter, "The Case for the Free Market" in his book This Nation Shall Endure.
I do not like the word capitalism because it means different things to different people and with many it has negative connotations. If we mean corporatism, I think we should say corporatism, so as to be clear.
The key institution that creates a free market economy or a free enterprise system is the right to private property. For this reason some scholars have suggested that we drop all of these names and simply call the free market or free enterprise system the "private property order." The way you create a true free market economy is through a legal structure that embodies what was articulated in the second paragraph of The Declaration of Independence. When we have rule of law and inalienable rights of life, liberty, and property protected, we have a free market or free enterprise system.
All of the regulation and manipulation of macroeconomic market that you reference, are no doubt infringements upon private property. Thus they infringe upon liberty and are departures from the private property order--the free market economy.
Dan, I do pray that God's blessing will be with you. As a nation we have departed from the fundamentals and thus even the righteous will suffer some. No doubt the shaking of the kingdom of the devil will ultimately be redemptive.
RJ
Study and Discussion Questions on "Middle of the Road Policy Leads to Socialism" by Mises
ReplyDeleteMises thesis seems to be this: Any and all government intervention in the market leads to unintended consequences. Rather than repealing the offending policy, the government tries to fix the problems with more government intervention, which leads to more unintended consequences, which it tries to fix with yet more government regulation. Ultimately socialism results. Is this true?
Are there some government interventions in the market place that are stable, that do not have unintended consequences, but that actually make the market work better?
Mises speaks of the “supremacy of the public’s buying and abstaining from buying.” How is that the ultimate power within a true free market economy over what is produced, how much, and what quality rests with the general public?
As the government intervenes in a democratic country, does the power over the market become more democratic? How does the distribution of power change as an economy goes from pure free market to middle-of-the-road to socialism?
“What can prevent the coming of totalitarian socialism is only a thorough change in ideologies. What we need is neither anti-socialism nor anti-communism but an open positive endorsement of that system to which we owe all the wealth that distinguishes our age from the comparatively straitened conditions of ages gone by.” This is the last paragraph of the essay. How is this an implication of the theory of interventionism? Would it be more effective for Glenn Beck to speak less of the dangers of socialism and more of the virtues of a free market economy?
“The recurrence of periods of depression and mass unemployment has discredited capitalism in the opinion of injudicious people. Yet these events are not the outcome of the operation of the free market. They are on the contrary the results of well-intentioned but ill-advised government interference with the market.”Ezra Taft Benson claimed that John M. Keynes was a Fabian Socialist. Keynes argued that by intervening in the markets he was actually saving capitalism. If Mises’s theory of interventionalism is correct, the fruits of Keynes would be socialism whether he was a Fabian or had intentions of saving capitalism. Has the results of Keynesian intervention in the market been more socialism?
“It is noteworthy to remember that British socialism was not an achievement of Mr. Attlee’s Labor Government, but of the war cabinet of Mr. Wintson Churchill.” When Churchill and Attlee were campaigning after WWII Churchill was quoting Hayek on the campaign trail, warning that socialism leads to totalitarianism. Attlee was arguing that “planning won the war, and now planning can win the peace.” Ironically, the planning had been implemented by Churchill. In the United States substantial planning was implemented during both world wars. Why is it that planning is more likely to be implemented during war than during peace time? Does the wartime government intervention generally lead to more peace time intervention?
Discussion Questions/Ideas
ReplyDeleteIt seems that anyone who has taken a principles level Microeconomics class can identify the negative consequences of implementing a price ceiling/floor and why achieving market equilibrium is the most desired outcome. Mises points out that it is precisely these types of government interventions in the market that go against a natural equilibrium that will lead us gradually toward socialism from a free market economy (Milk analogy).
Where does the root issue lay with our liberal friends with regards to policy? Do we disagree on whether those who live in undesirable circumstances should be there? Or is it that we disagree on what is the cause behind the undesirable circumstances in the first place?
“The philosophy underlying the system of progressive taxation is that the income and the wealth of the well-to-do classes can be freely tapped. What the advocates of these tax rates fail to realize is that the greater part of the incomes taxed away would not have been consumed but saved and invested. In fact, this fiscal policy does not only prevent the further accumulation of new capital. It brings about capital decumulation. This is certainly today the state of affairs in Great Britain”
A. Why would a progressive income tax be needed in the first place? After identifying the cause for needing a progressive income tax, how does this play into Mises’ idea of a policy that eventually leads to socialism? What are some historical examples of very oppressive income taxes and what were the political/societal circumstances surrounding these times? Were we heading towards more individual liberty or socialism?
B. Why does a progressive income tax cause for capital decumulation?