In so doing, Barack Obama also discloses for us again his arrant economic-political illiteracy.
Straight from the horse’s mouth — and it doesn’t get any plainer than this:
One would be wise to note here that there’s never in world history been a system of total unregulated laissez-faire capitalism, but the societies that have come the closest have prospered the most.
In fact, there’s an indisputable correlation between freedom and flourishing, which is why Hong Kong, a barren rock in the middle of the ocean, with virtually no resources at all, grew to such astronomical proportions in so short a time during the 20th century, and it’s also why America became the greatest civilization in all of human history in less than 200 years.
Economics deals with society’s fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen (Ludwig von Mises, Human Action).
The following address was delivered before the University Club of New York, April 18, 1950, by Doctor Ludwig von Mises:
How Middle-of-the-Road Policy Leads to Socialism
The fundamental dogma of all brands of socialism and communism is that the market economy or capitalism is a system that hurts the vital interests of the immense majority of people for the sole benefit of a small minority of rugged individualists. It condemns the masses to progressing impoverishment. It brings about misery, slavery, oppression, degradation and exploitation of the working men, while it enriches a class of idle and useless parasites.
This doctrine was not the work of Karl Marx. It had been developed long before Marx entered the scene. Its most successful propagators were not the Marxian authors, but such men as Carlyle and Ruskin, the British Fabians, the German professors and the American Institutionalists. And it is a very significant fact that the correctness of this dogma was contested only by a few economists who were very soon silenced and barred from access to the universities, the press, the leadership of political parties and, first of all, public office. Public opinion by and large accepted the condemnation of capitalism without any reservation.
1. Socialism
But, of course, the practical political conclusions which people drew from this dogma were not uniform. One group declared that there is but one way to wipe out these evils, namely to abolish capitalism entirely. They advocate the substitution of public control of the means of production for private control. They aim at the establishment of what is called socialism, communism, planning, or state capitalism. All these terms signify the same thing. No longer should the consumers, by their buying and abstention from buying, determine what should be produced, in what quantity and of what quality. Henceforth a central authority alone should direct all production activities.
2. Interventionism, Allegedly a Middle-of-the-Road Policy
A second group seems to be less radical. They reject socialism no less than capitalism. They recommend a third system, which, as they say, is as far from capitalism as it is from socialism, which as a third system of society’s economic organization, stands midway between the two other systems, and while retaining the advantages of both, avoids the disadvantages inherent in each. This third system is known as the system of interventionism. In the terminology of American politics it is often referred to as the middle-of-the-road policy. What makes this third system popular with many people is the particular way they choose to look upon the problems involved. As they see it, two classes, the capitalists and entrepreneurs on the one hand and the wage earners on the other hand, are arguing about the distribution of the yield of capital and entrepreneurial activities. Both parties are claiming the whole cake for themselves. Now, suggest these mediators, let us make peace by splitting the disputed value equally between the two classes. The State as an impartial arbiter should interfere, and should curb the greed of the capitalists and assign a part of the profits to the working classes. Thus it will be possible to dethrone the moloch capitalism without enthroning the moloch of totalitarian socialism.
Yet this mode of judging the issue is entirely fallacious. The antagonism between capitalism and socialism is not a dispute about the distribution of booty. It is a controversy about which two schemes for society’s economic organization, capitalism or socialism, is conducive to the better attainment of those ends which all people consider as the ultimate aim of activities commonly called economic, viz., the best possible supply of useful commodities and services. Capitalism wants to attain these ends by private enterprise and initiative, subject to the supremacy of the public’s buying and abstention from buying on the market. The socialists want to substitute the unique plan of a central authority for the plans of the various individuals. They want to put in place of what Marx called the “anarchy of production” the exclusive monopoly of the government. The antagonism does not refer to the mode of distributing a fixed amount of amenities. It refers to the mode of producing all those goods which people want to enjoy.
The conflict of the two principles is irreconcilable and does not allow for any compromise. Control is indivisible. Either the consumers’ demand as manifested on the market decides for what purposes and how the factors of production should be employed, or the government takes care of these matters. There is nothing that could mitigate the opposition between these two contradictory principles. They preclude each other. Interventionism is not a golden mean between capitalism and socialism. It is the design of a third system of society’s economic organization and must be appreciated as such.
3. How Interventionism Works
It is not the task of today’s discussion to raise any questions about the merits either of capitalism or of socialism. I am dealing today with interventionism alone. And I do not intend to enter into an arbitrary evaluation of interventionism from any preconceived point of view. My only concern is to show how interventionism works and whether or not it can be considered as a pattern of a permanent system for society’s economic organization.
The interventionists emphasize that they plan to retain private ownership of the means of production, entrepreneurship and market exchange. But, they go on to say, it is peremptory to prevent these capitalist institutions from spreading havoc and unfairly exploiting the majority of people. It is the duty of government to restrain, by orders and prohibitions, the greed of the propertied classes lest their acquisitiveness harm the poorer classes. Unhampered or laissez-faire capitalism is an evil. But in order to eliminate its evils, there is no need to abolish capitalism entirely. It is possible to improve the capitalist system by government interference with the actions of the capitalists and entrepreneurs. Such government regulation and regimentation of business is the only method to keep off totalitarian socialism and to salvage those features of capitalism which are worth preserving.
On the ground of this philosophy, the interventionists advocate a galaxy of various measures. Let us pick out one of them, the very popular scheme of price control.
4. How Price Control Leads to Socialism
The government believes that the price of a definite commodity, e.g., milk, is too high. It wants to make it possible for the poor to give their children more milk. Thus it resorts to a price ceiling and fixes the price of milk at a lower rate than that prevailing on the free market. The result is that the marginal producers of milk, those producing at the highest cost, now incur losses. As no individual farmer or businessman can go on producing at a loss, these marginal producers stop producing and selling milk on the market. They will use their cows and their skill for other more profitable purposes. They will, for example, produce butter, cheese or meat. There will be less milk available for the consumers, not more.
This, or course, is contrary to the intentions of the government. It wanted to make it easier for some people to buy more milk. But, as an outcome of its interference, the supply available drops. The measure proves abortive from the very point of view of the government and the groups it was eager to favor. It brings about a state of affairs, which again, from the point of view of the government, is even less desirable than the previous state of affairs which it was designed to improve.
Now, the government is faced with an alternative. It can abrogate its decree and refrain from any further endeavors to control the price of milk. But if it insists upon its intention to
keep the price of milk below the rate the unhampered market would have determined and wants nonetheless to avoid a drop in the supply of milk, it must try to eliminate the causes
that render the marginal producers’ business unremunerative.
It must add to the first decree concerning only the price of milk a second decree fixing the prices of the factors of production necessary for the production of milk at such a low rate that the marginal producers of milk will no longer suffer losses and will therefore abstain from restricting output. But then the same story repeats itself on a remoter plane. The
supply of the factors of production required for the production of milk drops, and again the government is back where it started. If it does not want to admit defeat and to abstain from any meddling with prices, it must push further and fix the prices of those factors of production which are needed for the production of the factors necessary for the production of milk. Thus the government is forced to go further and further, fixing step by step the prices of all consumers’ goods and of all factors of production, both human, i.e., labor, and material, and to order every entrepreneur and every worker to continue work at these
prices and wages.
No branch of industry can be omitted from this all-round fixing of prices and wages and from this obligation to produce those quantities which the government wants to see produced. If some branches were to be left free out of regard for the fact that they produce only goods qualified as non-vital or even as luxuries, capital and labor would tend to flow into them and the result would be a drop in the supply of those goods, the prices of which government has fixed precisely because it considers them as indispensable for the satisfaction of the needs of the masses. But when this state of all-round control of business is attained, there can no longer be any question of a market economy. No longer do the citizens by their buying and abstention from buying determine what should be produced and how.
The power to decide these matters has devolved upon the government. This is no longer capitalism; it is all-round planning by the government, it is socialism.
In 1958, Leonard E. Read asked himself that very question — and wrote an elegant explication:
I, Pencil, simple though I appear to be, have a profound lesson to teach. And I can teach this lesson better than can an automobile or an airplane or a mechanical dishwasher because—well, because I am seemingly so simple.
In his piece we’re taken step-by-step through the entire process of how a single pencil is produced.
First, there are the many materials required to make a single pencil, among them: wood, rubber, paint, lacquer, graphite, metal, zinc, wax, and many other things.
We are then shown how these materials are really only the beginning of the process, for a whole industry is in turn required to produce each of those materials.
There is, for example, the lumber industry needed to produce the wood; the mining industry to mine and mill and smelt the zinc and lead and metal; the rubber industry, of course, and the paint and graphite, and so on.
Then, within each of these industries, there are numerous sub-divisions, such as chemical industries, which make up the groundwork for paint and lacquer, and the engineering companies to supply all the tools, and the shipping and transportation companies, and even the lighthouse workers to guide the ships safely into port.
Of course there is also the singular fact that our solitary pencil could neither be manufactured nor produced without all the various other forms of transportation required to get the products from place to place, and of course this transportation requires its own set of industries (not just oil), and on and on, all of which industries — and please take a moment to process this — are, in turn, no less involved than the manufacturing of the wood or graphite or rubber.
So that when everything is said and done, the making of one pencil requires thousands and thousands of people, most of whom have specialized knowledge and specialized jobs, in thousands of different industries.
Furthermore, these people come from all over the world. No centralized planning committee or commune imaginable, even with an army of super-geniuses, could organize the countless factors that go into the making of that one small pencil.
And yet in this country, as in all developed countries, pencils are so cheap and abundant that nobody thinks twice about them.
How is this so?
The answer is devilishly simple: private property and the freedom to trade that property.
The freedom to produce and trade and then reap the subsequent rewards are what bring these thousands and thousands of people, from these thousands of different industries the wide-world over, into peaceful and mutually beneficial cooperation with one another.
Think about that.
Think long and hard about it, I beseech you.
In fact, I insist you do.
Your entire understanding of human existence — whether you’re a billionaire, a bartender, or an artist, and whether you live in a cult, condo, or commune — depends upon it.
Your life depends upon it, I submit.
Think about some of the things you use in your day-to-day existence. Think about your private path of least resistance.
Think of your eyeglasses, which Galileo and Spinoza would have given their eyeteeth for.
Think of the exercise mat upon your floor. Think of the ab-roller for your core.
Think about the utensils you use to cook and clean your food, the cups you use to drink your potable water, and the faucets you use to turn that water off and on.
Think of the hoses and the sprinklers for your lawn.
Think of sponges and your soap.
Think of rope.
Think of your chocolate truffle and think of the package that it comes in.
Think of packaging again and again (and again).
Think of your clothing, no matter how fine or how shabby it may or may not be. Think of your underwear, down to the tag we do not see.
Think critically.
Think about your toothbrush and your toothpaste, and its tube. And the cap that goes on that tube.
Think of your lube.
Think about your medicine: aspirin, ibuprofin, Pepto, Lipator, antihistamines for the cough and wheeze.
Think of braces for your elbows and your knees.
Think of your transportation — bicycle, train, plane, bus, boat, automobile, jumbo jet, or even your walking shoes — and think of the sheer number of discrete parts that each of these things contain, and which you use.
Think of other technological breakthroughs.
Can you?
How about your jacket and its worn buttons, the lovely denim of faded blue, the toothpicks and the gum you chew?
Your bedding and your hygiene and your make-up.
Think of the alarm clock that every morning helps you wake up.
Think of your books and your paints and paintbrushes. Your chisel and hammer.
Your megahertz of memory if your a computer programmer.
Think of your keyboard and your mouse, your voice-recognition software.
Think of filters for your water and air.
Think about your entertainment: wine and wine bottles, dark beer. Think of all the brandy that you’ve consumed or stored.
Think of your playing cards or tarot cards or magic cards, your hoops, your chess-or-checker-board.
Think of packaging again. Think of the packages that all your things arrive in.
Think of your gardening equipment, or any other metal or wood or plastic or glass items you may use.
Think of your ball-peen hammer and your nails and your screws.
Think of your tape measures and pliers, your wrenches, your saws and your multicolored chalks.
To say nothing of your electricity — the lights, the cameras, the watches, the clocks.
Your computers and modems, MP3’s and stereos, word-processors and photo-editing software — and of course your phone, your phone, without which you’d be alone.
And televisions and lights (“More light!” said Goethe, then died) and musical instruments and medical equipment and rocket ships and edible water bottles…
Think of anything. Think of airplane models.
Look around you. Is your chair metal or wood? Does your desk or table have bolts and nails?
Notice details.
I insist, I positively insist.
Think of me as a kind of oculist.
Because I promise you — I absolutely promise — that the filthy, hardcore industry, which I believe in and love so much, the industry that went into producing, for instance, just one small component of your phone, or your bicycle, or the paperback book in your hand, or the shoes on your feet, or the glasses on your face, or the contact lenses in your eyes, or the ring in your navel, nose, or nipples, or the needles which tattooed your skin, that industry was amplified a thousandfold compared with one solitary pencil, no matter how cheap or how thin.
So please take one more look — and then look again.
Take one more look at the blue-black ink across your skin.
There’s a moral to this story and that moral is this:
Embrace technology.
Look suspiciously on the buzzword ecology.
Technology got us to this point. Only technology can get us beyond.
It is a magic wand.
There’s something profoundly paradoxical in the quest for less technology and a more simple way of life, while flying the world in jumbo jets. In fact, it’s about as paradoxical as it gets.
Celebrate, rather, human progress and specialization.
Celebrate the division of labor that technology creates, thereby freeing us all to pursue the things we most enjoy and at which we excel, since we are no longer each yoked to the task of day-to-day, week-to-week, month-to-month survival, but can trade freely and peacefully with those who have the things we need and want, in exchange for the things we ourselves have in turn worked to produce — being no longer condemned to a life of drudgery and tedium.
(Money is only a medium.)
Celebrate individualization.
Celebrate civilization.
Civilization is the progress toward independent, private lives, wherein we are no longer dominated by the group, gang, tribe, or community but live freely: free to associate with others as we please, or not.
This is the fundamental thing you’ve never been taught.
It’s the only thing that’s truly sustainable. It’s what you’ll never hear from any of the postmodernists, the intellectuals, the politicos, the hipsters, the academic phonies and imposters:
Celebrate human freedom and the independent mind that freedom fosters.
