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How Minimum Wage Laws Fly in the Face of the Irrefutable Law of Supply-And-Demand

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A few weeks ago, I posted an article entitled Eleven Facts About the Minimum Wage Barack Obama Forgot to Mention, which I found on a website called The Federalist, and which was written by a man named Sean Davis, about whom I know next to nothing.

I liked his article, however, and I was surprised at some of the responses I got from readers who are also customers at my work.

The whole idea of a minimum wage is dangerously flawed, and here’s the essence of why:

There’s really no question that the only thing which can ultimately raise wages for workers is improvements in technology, which in turn increase productivity, which in turn increases capital.

As the great Austrian economist Ludwig von Mises explained it:

The technological improvement in the production of A makes it possible to realize certain projects which could not be executed before because the workers required were employed for the production of A for which consumers’ demand was more urgent. The reduction of the number of workers in the A industry is caused by the increased demand of these other branches to which the opportunity to expand is offered. Incidentally, this insight explodes all talk about “technological unemployment.”

Tools and machinery are primarily not labor-saving devices, but means to increase output per unit of input. They appear as laborsaving devices if looked upon exclusively from the point of view of the individual branch of business concerned. Seen from the point of view of the consumers and the whole of society, they appear as instruments that raise the productivity of human effort. They increase supply and make it possible to consume more material goods and to enjoy more leisure. Which goods will be consumed in greater quantity and to what extent people will prefer to enjoy more leisure depends on people’s value judgments.

All that minimum wage rates can accomplish with regard to the employment of machinery is to shift additional investment from one branch into another. Let us assume that in an economically backward country, Ruritania, the stevedores’ union succeeds in forcing the entrepreneurs to pay wage rates which are comparatively much higher than those paid in the rest of the country’s industries. Then it may result that the most profitable employment for additional capital is to utilize mechanical devices in the loading and unloading of ships. But the capital thus employed is withheld from other branches of Ruritania’s business in which, in the absence of the union’s policy, it would have been employed in a more profitable way. The effect of the high wages of the stevedores is not an increase, but a drop in Ruritania’s total production.

Real wage rates can rise only to the extent that, other things being equal, capital becomes more plentiful. If the government or the unions succeed in enforcing wage rates which are higher than those the unhampered labor market would have determined, the supply of labor exceeds the demand for labor. Institutional unemployment emerges (Ludwig von Mises, Human Action, Chapter 30).

(If you don’t want to read all that, just read the last paragraph.)

A few days ago, more than 500 economists, three Nobel laureates among them (Vernon Smith, Eugene Fama and Ed Prescott) signed this letter arguing that “artificially raising the minimum wage to $10.10 per hour through a government mandate would have adverse effects on the employment opportunities for unskilled and low-skilled workers. The tragedy of this well-intentioned, but misguided legislation is that it would harm and disadvantage the very workers it is intended to help.”

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In voicing their collective objection to a government price control for entry-level workers, the 500+ economists asserted the Law of Demand and the Law of Supply, two fundamental and time-tested components of basic economy price theory, summarized graphically above. Following a 40% increase in the federal minimum wage from $7.25 to $10.10 per hour, we would expect two incontrovertible effects: a) the number of unskilled, low-skilled and entry-level workers hired by employers would decrease (a movement upward to the left from $7.25 per hour along the blue demand curve above), and b) the number of unskilled and low-skilled workers looking for entry-level jobs would increase (a movement upward to the right from $7.25 per hour) along the green supply curve above). In combination, those two perfectly predictable and unavoidable effects inevitably leads to an “excess supply of unskilled workers” in the graph above, which is just another term for “more unemployed unskilled workers,” and a higher jobless rate for those workers.

Bottom Line: No amount of wishful thinking or well-intentioned legislation will change the unavoidable outcome of reduced employment opportunities for entry-level workers in America illustrated graphically above. The 500+ economists who have signed the letter are in general agreement that economic reality and the laws of supply and demand are not optional, despite the arrogant attempts of economically-challenged politicians and progressives to circumvent or disregard the most basic economic theory, economic laws and economic logic.

(Link)





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Lemonade Stands: Instead Of Teaching A Kid About Running A Business, She Got A Lesson In Government Regulation [UPDATED]

The following is, on a micro level, a perfect compendiation of free-trade versus government regulation, all in the name of the so-called common good.

It was written by a bureaucrat (no less) fellow free-marketeer named Nicolas Martin, who’s the executive director of the Consumer Health Education Council in Indianapolis — and whom I incorrectly branded a bureaucrat until he gently corrected me — and it provides us with an excellent illustration of the axiom that once allowed in, bureaucracy becomes unstoppable.

From the May 1, 2011, Los Angeles Times:

My 8-year-old recently got the lemonade stand itch. So we started laying plans to enrich her college fund by enticing passers-by with white chocolate-pistachio cookies and juice from organic lemons. Fortunately, our property backs onto one of the busiest paved urban trails in America, bustling on weekends with cyclists, rollerbladers and pedestrians. Visions of dollars danced in our heads.

Googling for the perfect lemonade recipe, we soon found a site promoting a May 1 “national” event called Lemonade Day. This event, organizers say, is an “initiative designed to teach kids how to start, own and operate their own business — a lemonade stand.” What better day to begin building our lemonade empire?

After shopping for her raw materials, I gave my kid a bedtime primer about starting a business. How much profit do you make after expenses? How should you promote your business? Give the customer a great product. She soaked it up and went to sleep all inspiration and smiles. Then I got to thinking about something I hadn’t discussed with her: government regulations.

The next morning I began a three-day phone trek through the maze of government agencies that regulate businesses and food sales, and I watched my child’s All-American plan crumble like fresh-baked cookies.

My first call was to the parks department, which maintains the trail. That agency is a sponsor of the local Lemonade Day, but, alas, does not permit lemonade stands on its properties any other day of the year. It especially doesn’t allow them alongside the trail. Why? They would be “dangerous”; accidents would happen. Do they expect any accidents on Lemonade Day, I asked? “No, we are confident nothing bad will happen that day.” Poof! Our best option for a profitable lemonade stand was gone.

My next calls were to the health department, where I eventually found an official who cheerfully told me that, except on Lemonade Day, no child can legally operate a lemonade stand in our city. Nowhere. No time. As far as she is concerned, Lemonade Day itself is just food poisoning waiting to happen.

A practical woman as well as a killjoy, she said that near her home, she wouldn’t prevent a kid from operating a stand: “The neighbors would hate me.” But if her department got a complaint about a kid in another neighborhood, the enforcement team would be dispatched. The kid would be instructed to shut down his stand. If he refused to obey, the police would be called to cite the child for violating the health code, which applies to children no less than to adults.

Most likely, no official would brave public ridicule for lowering the boom on a kid with a lemonade stand. But a parent might be a less controversial target for enforcement penalties, which could include fines and even jail time.

Don’t scoff. From time to time, zealous officials do force kids to shut down their lemonade stands. Even Girl Scouts have gotten into trouble for selling cookies in front of homes and businesses.

What the Lemonade Day organizers should teach the children, said the health official, is about the importance of learning and obeying the government regulations that prohibit lemonade stands.

If we had made it past the health and parks departments, my kid would have been stymied by zoning laws that prohibit lemonade stands in residential neighborhoods. Overcoming that barrier, we would have hung our heads at the daunting costs of business and vending licenses, not to mention taxes.

Lemonade Day is promoted as a way to “inspire a budding entrepreneur!” But it is actually a dispiriting lesson about how hard it now is to become an entrepreneur, whether you’re an adult or a child. It is about how even the most harmless enterprise, the humble lemonade stand, has been sacrificed on the altar of government regulation.

Learning to be an entrepreneur “starts with a lemonade stand,” say the organizers of Lemonade Day. But they don’t want to talk about the regulations that make it impossible for my kid to become a lemonade stand entrepreneur. They tell me it is “silly” and “beside the point” to focus on the regulations. I am told that Lemonade Day is about kids learning to “give back to their communities,” “do better in school” and “open bank accounts.” It is not about something so self-serving as making a profit by selling a good product. That is the old American way, but the new way is living with rules that banish the lemonade stand to one government-approved day a year.

What are my kid and I going to do on Lemonade Day? We are going to set up a stand in one of the permitted locations — in a park or at one of the approved sponsors — with hundreds of other kids doing the same thing. But our “secret ingredient” is that we will hand out leaflets explaining why operating a lemonade stand makes my kid and yours not just a hopeful entrepreneur, but an actual lawbreaker.

Next year they should rename it Regulation Day.

(Link)

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Say What?

Government is not reason, it is not eloquence — it is force.

Said George Washington.

The state is the coldest of all cold monsters that bites with stolen teeth.

Said Nietzsche.

Government is solely an instrument or mechanism of appropriation, prohibition, compulsion, and extinction; in the nature of things it can be nothing else, and can operate to no other end…. Seen in this light, government is so horrific — and its actual operations in the past have been so horrible at times — that there is some excuse for a failure to realize its necessity.

Said Isabel Paterson.

Take care, you who call yourself my judge. Take care what you do. For the truth is that I have my mission from God, and you put yourself in great danger.

Said Joan of Arc (aged 17) to her chief Inquisitor.

They rowed her in across the rolling foam —
The cruel, crawling foam — to her grave beside the sea.

Wrote the English author Charles Kingsley (1819 – 1875) — in response to which the pedantic John Ruskin said:

The foam is not cruel, neither does it crawl.

Unquote.

We talk about our assholes, and we talk about our cocks, and we talk about who we fucked last night, or who we’re going to fuck tomorrow, or when we got drunk, or when we stuck a broom in our ass in the Hotel Ambassador in Prague — anybody tell one’s friends about that.

Said “poet” Allen Ginsberg, in an anthologized interview.

A writer of something occasionally like English — and a man of something occasionally like genius.

Said Swinburne of Walt Whitman.

A man standing up to his neck in a cesspool — and adding to its contents.

Said Thomas Carlyle of Swinburne.

Quoting Noam Chomsky, in Language and Politics (p. 293):

I’ve never considered myself a ‘Marxist,’ and in fact regard such notions as ‘Marxist’ as belonging more to the domain of organized religion than of rational analysis.

Then, quoting Noam Chomsky on p. 113 of the exact same book:

In my opinion, a Marxist-anarchist perspective [on politics] is justified quite apart from anything that may happen in linguistics.

And on p. 153 of this self-same book:

I wouldn’t abandon Marxism.

Unquote.

In his ideological fanaticism [Noam Chomsky] constantly shifts his arguments and bends references, quotations and facts, while declaring his ‘commitment to find the truth.’

Said Leopold Labedz.

Everything vital in the world comes from neurotics. They alone have founded religions and composed our masterpieces.

Said Proust.

God, if there is one, please save my soul, if I have one.

Prayed Voltaire.

Human life is an unceasing sequence of single actions.

Said Ludwig von Mises.

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The Apotheosis Of Ron Paul [Updated]

Concerning Ron Paul, Cory Massimino and friends are coming under some fire for a fine article, which recalls a newspaper piece the Fort Collins Weekly published back in 2008.

Here’s an excerpt from Cory’s article:

Hans Herman-Hoppe, distinguished fellow of the Mises Institute, wrote just last year that, “it is societies dominated by white heterosexual males, and in particular by the most successful among them, which have produced and accumulated the greatest amount of capital goods and achieved the highest average living standards.” Hoppe has also advocated violence against homosexuals and other people who live lifestyles he doesn’t approve of, “There can be no tolerance toward those habitually promoting lifestyles incompatible with this goal. They-the advocates of alternative, non-family-centered lifestyles such as, for instance, individual hedonism, parasitism, nature-environment worship, homosexuality, or communism-will have to be physically removed from society, too, if one is to maintain a libertarian order.” The racist and homophobic themes in these passages speak for themselves.

(Link)

Here’s the Fort Collins Weekly article:

Among so-called libertarians, Congressman Ron Paul has taken on brobdingnagian proportions of late, despite the fact that he doesn’t actually believe in liberty.

The confusion comes, I think, from his nominal advocacy of free markets, the Austrian School of Economics in particular, of which I myself am a proponent. But as we’ve seen, economics is not the proper foundation of any government, because private property – which is the crux of the free market – is not primarily rooted in economics but ethics:

Property (including money) is only an extension of person; thus, the right to property rests upon the more fundamental right to life.

Do you think that Paul supports individual freedom, unrestricted by law? He does not. Quoting his own words:

I also support overriding the Supreme Court case that overturned state laws prohibiting flag burning. Under the Constitutional principle of federalism, questions such as whether or not Texas should prohibit flag burning are strictly up to the people of Texas, not the United States Supreme Court. Thus, if this amendment simply restored the state’s authority to ban flag burning, I would enthusiastically support it.

Goodbye, free speech — if, that is, your state votes it down.

You see, on Planet Paul, big government is fine, provided that government operates at the state or local level, not federal.

In fact, Ron Paul only believes in freedom unrestricted by federal law. When it comes to state and local governments, he fully endorses those governments’ “right” to restrict any number of your freedoms.

It comes as no surprise to learn, therefore, that on a host of other issues, such as the banning of raw milk, marijuana, abortion, same-sex relations, and so on, Paul explicitly advocates majority rule at the state level.

Properly classified, Ron Paul is what’s called an anti-federalist.

He is more specifically an anti-federalist neo-confederate masquerading as a defender of a Constitution he doesn’t fully understand. To wit:

“The notion of a rigid separation between church and state,” says Paul, “has no basis in either the text of the Constitution or the writing of our Founding Fathers.”

From this provably false assertion, he arrives at a remarkable conclusion:

“Far from mandating strict secularism in schools, [the First Amendment] instead bars the federal government from prohibiting the Pledge of Allegiance, school prayer, or any other religious expression. The politicians and judges pushing the removal of religion from public life are violating the First Amendment, not upholding it.”

What this translates to where Ron Paul comes from is that the First Amendment was intended to sanction (rather than prohibit) state governments who wish to impose religion upon the people.

Accordingly, Paul rejects the Jeffersonian wall of separation between church and state, and you can read it in his own words on this website.

It’s important to note here a far-too-often forgotten fact: namely, the principle behind individual rights – and, indeed, the whole reason that the United States is not a democracy but a Constitutional Republic – is that the rights of every individual, including the rights of gay people, are inalienable and never subject to vote, not at the federal level, not at the state level, and not at the local level, much as Congressman Paul wishes they were.

A religious man, Ron Paul naturally rejects evolution in favor of creationism.

He believes also that the Ten Commandments should be posted in public institutions and that the word “God” should be included in the Pledge of Allegiance.

On the issue of abortion, he’s to the right of such notable figures as Pat Robertson. He thus seeks to repeal Roe v. Wade, and he supports legislation to eliminate any legal distinction between a zygote and a fully-formed human being.

On Planet Paul, abortion is tantamount to murder; yet despite this, neither “murder” (of this sort) nor “fetal rights” (so-called) fall within the jurisdiction of the federal government. “Murder” and “the rights of the unborn” devolve to the states, so that the state can then exercise its own brand of tyranny, via public vote. This is known as majority rule, which is also known as democracy, which is also known as tyranny of the masses, which is why our Constitutional framers distrusted democracy, as well they should have. And Ron Paul knows this.

Congressman Paul correctly votes against all spending bills – that is, until it comes to his own district, for which he’s won earmarks in the federal budget, to the tune of hundreds of millions. The above process, incidentally, is nowhere to be found in the Constitution, and yet Congressman Paul says he’s “never voted for anything not specifically authorized by the Constitution.” How, then, does he justify this?

“By getting the money into the budget but then voting against the budget on the floor of the House,” says Paul critic, libertarian Stephen Greene.

And who can forget the notorious Paul newsletter, which shocked so many, myself included, and which, it turns out, he didn’t write but did endorse for thirty years. (A more thorough explication of that bigoted bile can be viewed here.)

If you’re unfamiliar with this newsletter, please don’t despair: you’ve read it many times before from neo-Marxists like Noam Chomsky, Gore Vidal, Howard Zinn, Norman Mailer, and an army of others: the standard anti-Semitic, anti-Zionist, blame-America-first rhetoric.

The New Republic said this about it:

What [the newsletters] reveal are decades worth of obsession with conspiracies, sympathy for the right-wing militia movement, and deeply held bigotry against blacks, Jews, and gays. In short, they suggest that Ron Paul is not the plain-speaking antiwar activist his supporters believe they are backing – but rather a member in good standing of some of the oldest and ugliest traditions in American politics.

True.

In the arena of foreign policy, one of Paul’s main gurus is a fellow named Robert Pape, who wrote a book called Dying to Win, which, in the last few years, has become Paul’s foreign policy Bible.

The premise of the book is that American occupation is what compels these otherwise gentle Islamofascists into their suicide missions. Marc Sageman, however, author of the more authoritative Understanding Terror Networks, says this about it:

“In terms of al Qaeda, [Robert Pape] is dead wrong.”

Osama bin Laden, incidentally, says the same thing as Marc Sageman. Still, Paul would have us believe Ron Paul and Robert Pape instead.

It’s this and a number of other hot topics (such as the peculiar about-face on immigration) that has made many erstwhile supporters distance themselves from Paul. To many, he’s become just another garden-variety, religious, conspiratorial “survivalist.”

Quoting libertarian lawyer Kip Esquire:

If you want to declare openly and loudly that you are a radical majoritarian anti-federalist, and that you support Ron Paul because he shares your worldview, then good for you. If you want to shrug and conclude that a radical majoritarian anti-federalist is better than the other candidates, that could be rational as well. But don’t dare proclaim that Paul is a libertarian or that his views reflect a commitment to individual liberty, regarding the war on drugs or anything else.

It’s crucial to remember here that the founders of this country didn’t create federalism so that the states could thus be empowered. On the contrary, along with the system of checks-and-balances, federalism was created to further protect individuals from government, at any and every level, including state.

Freedom is fundamentally the absence of coercion. It matters not at which level the coercion originates. Your right to life, liberty, and property are inalienable – which means: your rights literally cannot be transferred or made alien. Paul, however, doesn’t recognize the inalienability of rights but endorses overriding a great many of them, via majority rule, provided it occurs at the state or local levels.

Finally, if you’re still in doubt about Ron Paul, just look at whom he endorsed for the 2008 presidency.
That’s right: candidate Chuck Baldwin, of the Constitution Party, whose party Preamble reads, in part:

The Constitution Party gratefully acknowledges the blessing of our Lord and Savior Jesus Christ as Creator, Preserver and Ruler of the Universe and of these United States. We hereby appeal to Him for mercy, aid, comfort, guidance and the protection of His Providence as we work to restore and preserve these United States.

This great nation was founded, not by religionists, but by Christians; not on religions but on the Gospel of Jesus Christ. For this very reason peoples of other faiths have been and are afforded asylum, prosperity, and freedom of worship here.

The goal of the Constitution Party is to restore American jurisprudence to its Biblical foundations …

(Source)

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What’s the Difference Between Communism, Socialism, Progressivism, & Welfare Statism

Communism is a species of the genus socialism. It is one of the many variations on the theme.

Communism explicitly calls for the violent overthrow of government. In theory, it is an anarchist ideology which believes that the state will one day magically “wither away,” as Karl Marx famously phrased it, though only after an unspecified period of GIGANTIC bureaucratic control. Of course, in the long and blood-soaked history of communism, the state has never withered away, and never will. Why? Once entrenched, bureaucracy is impossible to retrogress away from.

Democratic socialism, on the other hand, doesn’t advocate the violent overthrow of government but intends to use force peacefully. By definition, by its very nature, socialism must resort to force because it must expropriate people’s money and other property in order to redistribute it. That is the distinguishing characteristic of any and all forms of socialism: government control of property and the means of production (which is one of the reasons “corporatism” — i.e. crony capitalism — is another variation on socialism).

One must never forget: socialism is by definition an ideology of force.

Not all liberals are, strictly speaking, socialists — in large part because most of them don’t even really know what “socialism” means, and it is for this reason also that many liberals, and, for that matter, many conservatives, are socialists and do not even know it.

Welfare statism is not exactly the same thing as democratic socialism.

Welfare statism wants all the wealth and advantages that laissez-faire and private property creates, but at the same time, it wants to undermine the very things that makes all that wealth possible. Welfare statism takes for granted the advantages of laissez-faire — it wants to hold power over the producers of wealth — yet it wants those same wealth-producers to keep producing it for them. It is a short-sighted ideology the prevalence of which dominates academia from sea to shining sea.

The welfare state, which is what we live in today and have for some time, is the result of what Ludwig von Mises called the “hampered or mixed market economy.” It is not identical to socialism proper, primarily because it is not explicit enough, but it too is a variation on the same theme.

Remember clear back in 2013, when many mainstream dems were citing Venezuela as a model to emulate — “an economic miracle,” as David Sirota called it, created by Hugo Chavez’s “full-throated advocacy of socialism.”

(A number of the left-wing geniuses in this country meanwhile took private jets down to Venezuela to pay their respects to the man himself.)

Have you, incidentally, ever seen the inside of a Venezuelan supermarket?

Let us not (ever) forget either that time Bernie Sanders — who owns three mansions — was lecturing us that “the American dream is more apt to be realized in Venezuela…. Who’s the banana republic now?”

He asked this ostensibly in all seriousness.

In response to which, Robert Tracinski wrote:

We’re seeing the answer to that. Today, Venezuelans are starving and the remainders of the Chavez regime are sending gangs of armed thugs into the streets to attack anyone who protests. And all of the people who praised the Venezuelan regime as a paragon of socialism? They suddenly don’t want to talk about it….

The bodies keep piling up, but the ideology that produced those bodies always gets a free pass. You know what this is? It’s the equivalent of Holocaust denial for the Left.

There has long been a ritual, which I sincerely hope will continue, in which young people are required to immerse themselves in the horrors of the Holocaust. But our culture never did that for the horrors of socialism, which is how you get a majority of young people having a positive view of socialism.

What have they missed that they can believe that? Here’s what they’ve missed: the artificial famine in Ukraine, the Soviet Gulags, the forced deportation of Lithuanians, the persecution of Christians, China’s Great Leap Forward and Cultural Revolution, the killing fields of Cambodia, North Korea’s horrific prison camps and famines, the systematic impoverishment of Cuba, and now Venezuela’s collapse into starvation and mass-murder. All of this should be absolutely required background knowledge for any educated person.

I didn’t provide links for the second half of those examples. If you don’t know them, your assignment is to go look them up, because you’re precisely the sort of person who needs to learn about them.

Now when I cite all of this history, there’s always someone who insists that it isn’t fair to pin all of these crimes on “socialism” because those examples weren’t really socialism. The only “real” socialism is the warm, fuzzy welfare-statism of a handful of innucuous Western European countries. This is a pretty obvious version of the No True Scotsman fallacy, and a good way of disavowing responsibility for the disastrous results of a system you praised just a few years earlier.

The real question is this:

When will left-wingers and right-wingers alike realize that the principle underpinning this entire godforsaken political ideology — i.e. the belief that it’s okay to force people to live for one another — is as dangerous and as dogmatic as any religion … and for the exact same reasons: they’re both predicated upon a policy of pure, unadulterated blind belief.





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Middle-of-the-Road Policy Leads to Socialism

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.

Please read the rest of this brief but edifying essay here.

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How Capitalism Enriches The Poor And The Working Class

When portable radios first appeared in American stores, the average American worker had to labor 13 hours to buy one; today he or she toils for about 1 hour.

In the 1920s it took 79 hours of work to buy a nice men’s suit; today it takes less than half that.

At the beginning of the twentieth century the average American family spent three-quarters of its income on food, clothing, and shelter; today it spends about one-third on those items, and spends and even greater proportion on taxes (source).

That principle is the exact principle whereby capitalism enriches any and every society that implements it.

The insidious myth that capitalism “exploits the workers” while a few capitalist pigs get rich at the workers’ expense is a canard that’s been bunked a billion times.

But there’s even more:

Electric light was first deployed along Pearl Street in downtown Manhattan in 1882, powered by America’s first commercial electric grid. Electric lighting initially cost much more than gas lighting (the dominant form of lighting at the time) and was available only to multi-millionaire JP Morgan and a handful of businesses in New York’s financial district. By 1932, however, the price of electricity had fallen to one-third its former level, and 70 percent of Americans had electricity. Within fifty years of Edison introducing the electric grid, gas light was all but forgotten, and electricity emerged as the power source for the masses. Electricity not only provided clean, odorless, and safe lighting compared to its predecessor; it also powered refrigerators, fans, heaters, irons, and ovens, and it quickly became the dominant source of motive power in factories (source).

Capitalism lowers the cost of every new technology. It does so by taking products — cars, cotton, electricity, phones, computers, it doesn’t matter — and through constant innovation and the ingenuity that free markets foster, mass producing these items, which lowers and lowers the costs. That is why in this country even those below the poverty level own televisions, phones, microwaves, toasters, and so on. That is why no one starves to death in the United States.

The locus of wealth is production and free exchange. The locus of production and free exchange is private property. And that is why private property is the most important ingredient to capitalism.

Consider that government cannot redistribute or spend a single penny without first either taxing, borrowing, or printing, all three of which deplete real wealth. In this way, government intervention, in any of its multifarious forms, is by definition self-defeating: It can only end in wealth destruction. It’s also why labor unions cannot, over the long run, increase real wages and living standards, and only advances in technology can.

“Historically, real wages (wages adjusted for the effects of inflation) rose at about 2 percent per year before the advent of unions, and at a similar rate afterward” (Morgan Reynolds, Power and Privilege: Labor Unions in America, 1984).

Says Dr. Dilorezo:

If labor unions were responsible for the historical rise in wages, then the solution to world poverty would be self-evident: unionize all the poorest nations on earth. [And yet] private-sector unions reached their peak in terms of membership in the 1950s, when they accounted for about a third of the workforce. Today, they represent barely 10 percent of the private-sector workforce. All during this time of declining union memberships, influence, and power, wages and living standards have risen substantially. All of the ‘declining industries’ in America from the 1970s on tended to be the highly unionized ones, whereas the growing industries, especially in the high-technology fields, are almost exclusively nonunion. At best, unions can improve the standards of living of some of their members, but only at the expense of other, nonunion workers, consumers, and others. When unions use their power to go on strike, or threaten to strike, and succeed in increasing their members’ wages above what they could earn on the free market, they inevitably cause some union members to lose their jobs.

The reason? When wages rise, it makes labor more costly; therefore, to keep turning a profit, employers simply cannot employ as many workers.

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Rose Wilder Lane And The Discovery Of Freedom

In 1943, a lady by the name of Rose Wilder Lane published a book called The Discovery of Freedom. It’s an absolutely original work of non-fiction, a salvo to human energy and the creative mind unshackled, and it influenced classic liberals beyond number — and yet it has largely gone unacknowledged.

From a good review I just re-read:

“Rose Wilder Lane sought to highlight the difference it made in America that the individual was permitted freedom from government authority. The Americans broke from the idea that dominated all over human history that they must depend on some overarching authority in government to grant them well being, and thus when good happens, we owe ever more to the powers that be.”

Quoting a Canadian writer named Jeff Walker:

Dozens of motifs and expressions to be found later in [libertarian and classic liberal writers] are sprinkled all throughout The Discovery of Freedom. Some of her favorite words and phrases, like “sunlit,” “standard of value,” “life on this earth,” “stagnation,” “non-contradiction,” “static universe,” and countless others dot Discovery’s landscape. The same goes for themes that [classic liberals got] from Wilder, completely unacknowledged, such as: the counterproductivity of government planning; the case for limited government; the factual nature of morality; that contradictions cannot exist in reality; that words have an exact meaning; that human rights cannot exist without property rights.

Rose Wilder Lane was also unveiled in the 1990s as the true author of the Little House on the Prairie series, normally attributed to her mother Laura Ingalls Wilder. But it is for her credo Give Me Liberty and especially The Discovery of Freedom that Rose Wilder Lane must not be forgotten. She was a fearless and exceptional woman who took on politicians, journalists, economists (like the great Ludwig von Mises, with whom she profoundly disagreed on the subject of Democracy), heads of state, and more.

Rose Lane Wilder, RIP:

1886 – 1968

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Natural Resource and Goods Theory

Carl Menger, Founder of the Austrian School of Economics

The two essential claims of the environmentalists, which I take for granted are already well known to everyone, are (1) that continued economic progress is impossible, because of the impending exhaustion of natural resources (it is from this notion that the slogan “reduce, reuse, recycle” comes), and (2) that continued economic progress, indeed, much of the economic progress that we have had up to now, is destructive of the environment and is therefore dangerous.

The essential policy prescription of the environmentalists is the prohibition of self-interested individual action insofar as the byproduct of such action when performed on a mass basis is alleged damage to the environment. The leading concrete example of this policy prescription is the attempt now underway to force individuals to give up such things as their automobiles and air conditioners on the grounds that the byproduct of hundreds of millions or billions of people operating such devices is to cause global warming. And this same example, of course, is presently the leading example of the alleged dangers of economic progress (source).

In his groundbreaking Principles of Economics, Carl Menger (1840-1921), the founder of the Austrian School of Economics, developed what he came to call the Theory of Goods.

This theory has direct and immediate relevance regarding, for example, global warming, ozone depletion, resource scarcity, and so on. Indeed, its relevance cannot be overstated.

Menger’s Goods Theory begins by pointing out that there is a crucial distinction between objects in and of themselves and “goods” proper.

The object alone — for example, any resource before it actually becomes a resource — does not possess value intrinsically. Rather, it is in relation to human use that the thing becomes valuable. It is precisely this, then, that makes it a good.

Or put another way: a thing becomes a good when it is able to satisfy some human need or want.

Menger lists the following four criteria that need to be simultaneously met to reach what he calls the “goods-character.”

* A human need.

* Such properties as render the thing capable of being brought into a causal connection with the satisfaction of this need.

* Human knowledge of this causal connection.

* Command of the thing sufficient to direct it to the satisfaction of the need (Principles of Economics, page 52).

It is important to note that these last two things are man-made.

It is equally important to realize that the last one is for the most part achieved by means of labor and the capital that that labor produces.

This implies – to quote Dr. Reisman – that the resources provided by nature, such as iron, aluminum, coal, petroleum and so on, are by no means automatically goods. Their goods-character must be created by man, by discovering knowledge of their respective properties that enable them to satisfy human needs and then by establishing command over them sufficient to direct them to the satisfaction of human needs.

For example, iron, which has been present in the earth since the formation of the planet and throughout the entire presence of man on earth, did not become a good until well after the Stone Age had ended. Petroleum, which has been present in the ground for millions of years, did not become a good until the middle of the nineteenth century, when uses for it were discovered. Aluminum, radium, and uranium also became goods only within the last century or century and a half.

The upshot of all this is that nature — or, if you prefer, the environment — is not some relatively limited pool of resources that man merely plucks, exploits, depletes, and then moves on from. On the contrary, as Menger makes incontrovertibly clear, mother nature gives us only the barest material — “the physical properties of the deposits in mines and wells” — but she does not provide the goods-character. We provide that.

“Indeed, there was a time when none of them were goods” (Ibid).

Nature, contrary to what the environmental philosophy would have you believe, does not possess intrinsic value.

That — and nothing else — is the fundamental argument against all of environmentalism.

The earth is a plenum: it’s a solid sphere packed full of chemicals. Those chemical elements are indestructible. They can change properties and forms, but they cannot cease to exist.

That mass of teeming chemicals are all potential resources.

As humans evolve — as we make new discoveries and develop newer and ever newer technologies — we find new resources; we find things we cannot conceive of even months before. We find new uses for things that were once useless, like oil, which is barely 100 years old as a resource (a “goods character”); and we find new ways of using old. We move on from whale oil and wood, to kerosene, to coal, to hydro, to nuclear….

Most of what people think they know about energy is so very wrong that their convictions, heartfelt though they may be, lie beyond logical contradiction or refutation….What most of us think about energy supply is wrong. Energy supplies are unlimited; it is energetic order that’s scarce, and the order in energy that’s expensive….Supplies do not ultimately depend on the addition of reserves, the development of new fuels, or the husbanding of known resources. Energy begets more energy; tomorrow’s supply is determined by today’s consumption. The more energy we seize and use, the more adept we become at finding and seizing still more. What most of us think about energy demand is even more wrong. Our main use of energy isn’t lighting, locomotion, or cooling; what we use energy for, mainly, is to extract, refine, process, and purify energy itself. And the more efficient we become at refining energy in this way, the more we want to use the final product. Thus, more efficient engines, motors, lights, and cars lead to more energy consumption, not less (Peter Huber and Mark Mills, The Bottomless Well).

The earth, far from being “raped and nearly depleted,” has barely been touched.

This mass hysteria regarding CO2 and chlorofluorocarbons and so on is a waste of time and energy.

Human freedom breeds human progress. And progress by definition is not static. The economist Joseph Schumpeter called it creative destruction.

Today’s consumption determines tomorrow’s technology. The more we use, the more we innovate — provided, that is, we are left free to innovate.

Politically and economically free.

The profit motive, as its very name implies, motivates and incentives; for humans have a limitless desire to better their lives.

Wealth not only builds progress; wealth is progress.

If there is a demand for something to replace, for instance, freon, the untrammeled freedom to innovate will meet that demand by far the fastest.

Thus, if it is the environment you’re concerned about, then it is pure, unadulterated laissez-faire capitalism you should be fighting for tooth and nail. It is this, and not centralized power, or the establishment of worldwide central-planning committees to regulate CFCs and CO2 — this is what brings cleaner environments.

To think anything less is to commit a grave logical fallacy.

Real, positive knowledge of the profit motive and the price system, of saving and capital accumulation, of money, economic competition, and economic inequality, and of the harmony of interests among men that results from the joint operation of these leading features of capitalism — all this knowledge is almost entirely lacking on the part of the great majority of today’s intellectuals. To obtain such knowledge, it would be necessary for them to read and study von Mises, who is far and away the most important source of such knowledge. But they have not done this.

Ignorance of the ideas of von Mises — the willful evasion of his ideas — has enabled the last three generations of intellectuals to go on with the delusion that capitalism is an “anarchy of production,” a system of rampant evil, utter madness, and continuous strife and conflict, while socialism is a system of rational planning and order, of morality and justice, and the ultimate universal harmony of all mankind. For perhaps a century and a half, the intellectuals have seen socialism as the system of reason and science and as the ultimate goal of all social progress. On the basis of all that they believe, and think that they know, the great majority of intellectuals even now cannot help but believe that socialism should succeed and capitalism fail (George Reisman, “Environmentalism Refuted”).

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Socialism, Nazism, and Environmentalism

The National Socialist German Workers’ Party was founded in 1919 and abolished in 1945. It came into full power under Adolph Hitler in 1933, and proceeded at that time to slaughter a spectacular number of people in a relatively short span of years.

Socialists today are of course universally agreed that Nazism was many things, but socialistic was not one of them.

Indeed, socialists are most emphatic that you understand this point — and for a very good reason: Nazism exposes socialism for what it actually is: a horrific philosophy in which humans are slaves to a ruling elite.

In fact Nazism was pure socialism.

As we’ve pointed out many times before — and can never point out enough — socialism is fundamentally defined by the abolition of private property.

Private property, or private ownership, is, in the language of the law, Not only money and other tangible things of value, but also includes any intangible right considered as a source or element of income or wealth. The right and interest which a man has in lands and chattels to the exclusion of others. It is the right to enjoy and to dispose of certain things in the most absolute manner as he pleases, provided he makes no use of them prohibited by law. [Property] is a claim by a person or persons to exclusive utilization, consumption, or transfer of some category of goods. The right of property is the right to use and discard (Lectric Law Library).

It was by means of the Food Estate guild, the Estate of Trade and Industry guild, and the Labor Front guild that the Nazis were able to take control of every group of producer and consumer in Germany.

German socialism, so-called, assumed complete control of the means of production, while maintaining the facade of a market economy. The crucial point here, however, which one must never overlook, is the fact that prices and wages were all ‘fixed by the central authority.’ Thus, they were only ostensibly prices and wages — meaning: in actual fact, prices and wages were determined by order of the socialist German government, not the free-market. In this way, Nazism masqueraded as a system of free-enterprise, but in reality it was socialist up to its gills.

The difference between National Socialism (Nazism) and communistic socialism is purely a question of form: the Nazis, unlike the Marxists, did not advocate public or governmental ownership of the means of production. Nazism, rather, openly demanded that government oversee and regulate the nation’s economy. The issue of ‘legal’ ownership, explained Adolph Hitler, is secondary; what counts is the issue of control.

“Under Nazism, citizens retain the responsibilities of owning property, without freedom to act and without any of the advantages of ownership. Under Marxist socialism, government officials acquire all the advantages of ownership, without any of the responsibilities, since they do not hold title to the property, but merely the right to use it — at least until the next purge” (George ReismanCapitalism).

Both are variations on the same theme, and that theme is collectivism.

Collectivism is the political theory which believes that “the collective” has primacy over the individual.

“The collective” refers to “the society” “the group” “the gang” “the tribe” “the proletariat” “the superior race” “the environment” “the common good” “labor” and many other things as well. The specifics do not matter because the principles are the same.

What really matters is that the individual is subordinate to the named collective.

This system of de facto socialism, carried out under the outward guise and appearance of capitalism, in which the legal forms of private ownership are maintained, has been aptly characterized by Ludwig von Mises as socialism on the German pattern. The Germans under Ludendorf and Hindenburg in World War I, and later under Hitler, were the foremost practitioners of this type of socialism. (The more familiar variant of socialism, in which government openly nationalizes the means of production and establishes socialism de jure as well as de facto, von Mises calls socialism on the Russian or Bolshevik pattern.)

It cannot be emphasized too strongly that Nazi Germany was a socialist country and that the Nazis were right to call themselves National Socialists. This is something everyone should know; yet it appears to have been overlooked or ignored by practically all writers but von Mises and Hayek.

In Nazi Germany, the government controlled all prices and wages and determined what each firm was to produce, in what quantity, by what methods, and to whom it was to turn over its products. There was no fundamental difference between the Nazis and other socialists (ibid).

“Basically, National Socialism and Marxism are the same,” said Adolph Hitler.

“Profit is the source of all evils,” said Goebbles, whose hatred of laissez faire was stupendous.

“We believe that the scourge of pollution, depletion of resources and degradation of our natural environment is primarily the result of the reckless policies of profit-driven laissez-faire capitalism,” says a present-day environmental group called Socialist Action, who also add:

“We believe that under socialism – through a rational, democratically controlled planned economy – we will be able to make decisions that can stop and reverse the destruction of the environment.”

The following is from a present-day environmentalist named Roger Field:

“In fact, there are a number of environmentalisms in this country: wilderness preservation, animal rights and the like. But it is in the rich, class-based struggle to control the excesses of unrestrained industrialism where environmentalism and socialism can most easily be seen to meet.”

From Canada dot com:

“Saving the planet, like fighting wealth and privilege, is a moral proposition. It supersedes factual argument…. Environmentalism is neither religion [wrong!] nor science. It is a political mission, every bit as unquestioning as socialism in its heyday, and offering the same giddy promise to followers: The delicious prospect of being in the right, and better still, running things.”

“Each activity and each need of the individual will thereby be regulated by the party as the representative of the general good. There will be no license, no free space, in which the individual belongs to himself. This is socialism — not such trifles as the private possession of the means of production. Of what importance is that if I range men firmly within a discipline they cannot escape? Let them then own land or factories as much as they please. The decisive factor is that the State, through the party, is supreme over them, regardless whether they are owners or workers. All that, you see, is unessential. Our socialism goes far deeper,” said Adolph Hitler.

“Individual rights will have to take a back seat to the collective,” says Harvey Ruvin, of the International Council for Local Environmental Initiatives, in Dade County Florida.

From a book by the Sierra Club, entitled Call to Action, Handbook for Ecology, Peace and Justice: “The political and economic system that destroys the Earth is the same system that exploits workers” – i.e. laissez-faire capitalism.

The head of the 1992 Earth Summit asks in all seriousness: “Isn’t the only hope for the planet that the industrialized civilizations collapse? Isn’t it our responsibility to bring that about?”

“The state of mind, which subordinates the interests of the ego to the conservation of the community, is really the first premise for every truly human culture. This basic attitude from which such activity arises, we call — to distinguish it from egoism and selflessness — idealism. By this we understand only the individual’s capacity to make sacrifices for the community, for his fellow men.”

Said Adolph Hitler.