The Welfare State vs. The Family

Today, the welfare state provides a great number of services that in former times have been provided by families (and which would, we may assume, still be provided to a large extent by families if the welfare state ceased to exist). Education of the young, care for the elderly and the sick, assistance in times of emergencies—all of these services are today effectively “outsourced” to the state. The families have been degraded into small production units that share utility bills, cars, refrigerators, and of course the tax bill. The tax-financed welfare state then provides them with education and care.

How true! This and more in the very well written and informative book, The Ethics of Money Production. My favorite: The families have been degraded into small production units that share utility bills, cars, refrigerators, and of course the tax bill.

Labour is not wealth

 If men lived in diving-bells under water, and had to provide themselves with air by means of a pump, this would be a great source of employment. To throw obstacles in the way of such employment, as long as men were left in this condition, would be to inflict upon them a frightful injury. But if the Labor ceases because the necessity for its exertion no longer exists, because men are placed in a medium where air is introduced into their lungs without effort, then the loss of that Labor is not to be regretted, except in the eyes of men who obstinately persist in appreciating in Labor nothing but Labor in the abstract.

This is a simple point from Bastiat (Domination by Labor, from The Bastiat Collection, pp. 427-428). At the same time, it is both neglected and understated, even rejected.

We can keep it simple: Labour is not wealth. Wealth is stuff and services, bought with the fruits of labour. The less labour we need to finance the stuff and services we want or need, the better. Should all our needs fall from the sky and render labour unnecessary, we would become better off.

The Welfare State

Here are two short quotes from an excellent book, The Ethics of Money Production:

Today, the welfare state provides a great number of services that in former times have been provided by families (and which would, we may assume, still be provided to a large extent by families if the welfare state ceased to exist). Education of the young, care for the elderly and the sick, assistance in times of emergencies—all of these services are today effectively “outsourced” to the state. The families have been degraded into small production units that share utility bills, cars, refrigerators, and of course the tax bill. The tax-financed welfare state then provides them with education and care. (p. 189)

It is precisely because the welfare state is an inefficient economic arrangement that it must rely on taxes. If it had to compete with families on equal terms, it could not stay in business for any length of time. It has driven the family and private charities out of the “welfare market” because people are forced to pay for it anyway. They are forced to pay taxes, and they cannot prevent the government from floating ever-new loans, which absorb the capital that otherwise would be used for the production of different goods and services. (p. 190)

The book takes the reader through a wide range of subjects in economics and political philosophy, which is good. However, this does leave the reader asking many questions not covered by the book, since answering all of these would probably expand the book to a huge size. So I hope the author continues to write on e.g. ethics, and elaborate further on his many insights.

Keynesian economics = socialism?

The so-called Keynesian economics are probably what we could call "mainstream" economics today. At some point this will have to change, since Keynesian economics are the economics of destruction. But how did they become so popular? Henry Hazlitt had a theory (on page 287 in his Failure of the 'New Economics'):

It is more instructive to inquire why Keynes put forward this extremely complicated and implausible theory. And here we may have to answer that, siding as he did with the immemorial  labor-union insistence that employment is not caused by excessive wage-rates, he had to come up with some theory as to what does cause it. And as he couldn't blame the labor-union leaders, what more natural (and politically convenient) than to blame the moneylenders, the creditors, the rich? Like Marxism, this is a class theory of the business cycle, a class theory of unemployment. As in Marxism, the capitalists become the scapegoats, with the sole difference that the chief villains are the moneylenders rather than the employers.
And that, I suspect, rather than any new discoveries of technical analysis, is the real secret of the tremendous vogue of the General Theory. It is the twentieth century's Das Kapital.

I find this very plausible. The Keynesian "system" is socialism in disguise, and socialists like disguises.

Government is an antisocial institution

There is no longer a general public opinion that regards government as an antisocial institution based on coercion and unjust property acquisitions, to be opposed and ridiculed everywhere and at all times on principled grounds. No longer is it generally regarded as morally despicable to propagate or, even worse, to actively participate in the enforcement of acts of expropriation, and no longer is it the general opinion that one would not have any private dealings whatsoever with people who engaged in such activities. ...

The politician who actively supports a continuation of the ongoing system of non-contractual property taxation and regulation or who even demands its expansion is treated everywhere with respect, rather than contempt. The intellectual who justifies taxation and regulation receives recognition as a deep and profound thinker in the public eye, instead of being exposed as an intellectual fraud. The IRS agent is regarded as a man doing a job just as legitimate as yours and mine, and not as an outcast that no one wishes to have as a relative, friend, or neighbor.

... says Hans-Hermann Hoppe in his The Economics and Ethics of Private Property: Studies in Political Economy and Philosophy (pp. 63-64). The "State problem" is a problem of attitude towards the State. The State cannot rule over the people unless people support its rule or consider it "inevitable" (which it's not). So if we want to reign in the State, we need to hate the State. So please do that.

Capitalism ends in the Garden of Eden

Thus, the only viable path toward economic growth is through savings and investment, governed as they are by time preference. Ultimately there is no way toward prosperity except through an increase in the per capita quota of invested capital. This is the only way to increase the marginal productivity of labor and only if this is done can future income rise in turn. With real incomes rising, the effective rate of time preference falls (without, however, ever reaching zero or even becoming negative), adding still further increased doses of investment, and setting in motion an upward spiraling process of economic development.

There is no reason to suppose that this process should come to a halt short of reaching the Garden of Eden where all scarcity has disappeared—unless people deliberately choose otherwise and begin to value additional leisure more highly than any further increase in real incomes. Nor is there any reason to suppose that the process of capitalist development would be anything but smooth and that the economy would flexibly adjust not only to all monetary changes but to all changes in the social rate of time preference as well. Of course, so long as the future is uncertain, there will be entrepreneurial errors, losses, and bankruptcies. But no systematic reason exists why this should cause more than temporary disruptions, or why these disruptions should exceed, or drastically fluctuate around, a “natural rate” of business failures.

...says Hans-Hermann Hoppe in The Economics and Ethics of Private Property: Studies in Political Economy and Philosophy (p. 152). Notice especially the following words: "There is no reason to suppose that this process should come to a halt short of reaching the Garden of Eden where all scarcity has disappeared—unless people deliberately choose otherwise and begin to value additional leisure more highly than any further increase in real incomes."

And indeed, many rulers and socialists choose to completely ignore the results of economic analysis of government intervention. They choose power and their own special kind of "justice", rather than increased prosperity and elimination of scarcity.

No "unintended" consequences can be identified. The results of some planned interventionism are known beforehand.

Aid or capitalism?

No one contests that what makes hundreds of mil­lions in Asia and Africa destitute is that they cling to primitive methods of production and miss the benefits which the employ­ment of better tools and up-to-date technological designs could be­stow upon them. But there is only one means to relieve their distress—namely, the full adoption of laissez-faire capitalism.

... says Ludwig von Mises in The Anti-Capitalist Mentality (section 4). And how true! Since he wrote this (in 1956), Asia has increasingly coupled itself to the world market, and poverty is there on the run. Africa, however, still more or less clings to socialism, and remains poor despite massive foreign aid and relief. The problems of socialism (poverty, death) can only be relieved by the abolition of socialism.

Time to abolish the State?

The last few centuries were times when men tried to place constitutional and other limits on the State, only to find that such limits, as with all other attempts, have failed. Of all the numerous forms that governments have taken over the centuries, of all the concepts and institutions that have been tried, none has succeeded in keeping the State in check. The problem of the State is evidently as far from solution as ever. Perhaps new paths of inquiry must be explored, if the successful, final solution of the State question is ever to be attained.

... says Rothbard in Anatomy of the State. And he is right. Men have tried to reign in the State with all sorts of methods, but have proven unsuccessful. Perhaps it is time to consider abolishing it altogether? Or just embrace socialism. Many seem to have taken that path.

Worst crisis ever?

The 1920s bust was actually worse than the 2000 dot-com bust. In 1920 unemployment jumped from 4 percent to nearly 12 percent and GNP declined 17 percent; however

1. there was no fiscal stimulus,
2. the budget was cut nearly in half and the national debt was cut by one-third,
3. tax rates were significantly decreased for all groups, and
4. the Federal Reserve did next to nothing.

As a consequence, by 1922 unemployment was down to just under 7 percent and declined to 2.4 percent in 1923. (#)

There you have it. How does a politician fix a crisis? Answer: Do nothing (except cut the government budget and lower taxes).

Keynesianism is fascism

Keynesianism, according to Keynes, is fascism. Says Keynes:

The theory of aggregate production that is the goal of the following book can be much more easily applied to the conditions of a totalitarian state than the theory of the production and distribution of a given output turned out under the conditions of free competition and of a considerable degree of laissez-faire.

(quoted from Hazlitt, The Failure of the “New Economics”, p. 277) (I found this quotation in Hoppe, The Economics and Ethics of Private Property, p. 167) See also: Keynesianism Loves the Total State. And why is this important to remember and consider? Because many of the neo-keynesianists call themselves free market supporters and refuse to accept the socialist-stamp. Well, maybe they should reject the Marxist-socialist stamp, because they are fascist-socialists.

Centralisation of credit in the hands of the state

Who proposed the following "method" to obtain a certain result or the objective that "we shall have an association, in which the free development of each is the condition for the free development of all":

Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.

Was it Keynes? Was it some visionary in the Middle-Ages who saw this as a method to clean up the "chaos" of free money and provide "price stability" where none was before? No. It was Karl Marx in his 1848 Communist Manifesto (chapter 2). And rightly so, since government monopoly on money issue is probably the most effective method for State control of everything else.

Human rights ARE property rights

For not only are property rights also human rights, but in the most profound sense there are no rights but property rights. The only human rights, in short, are property rights.

...says Rothbard in Power and Market (chapter 6). I urge everyone to read the full context of this citation. It is enlightening.

If we consider the problem in terms of property rights instead of the vague and woolly human right of free speech, we see that there is no conflict and no neces­sity of limiting or abridging rights in any way. The rights of the individual are still eternal and absolute; but they are property rights.

...says Rothbard on the same issue in another essay. And I say: How true!

Size of firm

For every capital good, there must be a definite market in which firms buy and sell that good. It is obvious that this economic law sets a definite maximum to the relative size of any particular firm on the free market. Because of this law, firms cannot merge or cartelize for complete vertical integra­tion of stages or products. Because of this law, there can never be One Big Cartel over the whole economy or mergers until One Big Firm owns all the productive assets in the economy.

... says Rothbard in Man, Economy and State (chapter 9).

Many people wonder how "small" companies can compete in price/quality with the big ones. Do the big ones not have a much larger turn-around, which enables them to buy in bulk and save on prices? Do they not have specialized purchasing departments that can optimize stock and bring down prizes?

Sure they do, but this does simply not tell the whole story. Large companies are often integrated units which "buy and sell" to "themselves". This injects calculation chaos into their structure. Badly managed departments are subsidized by the good ones, but no-one pays attention to this. They "sell" or "buy" from themselves on prices that do not reflect customer preferences. Their "internal market" can be coupled away from the final consumer price.

Small companies, with a focused area of operation, can in many cases out-compete in price and quality.

The free market vs. politics

The free market always maximizes ex ante social utility as well. In political action, on the contrary, there is no such mechanism; indeed, the political process inherently tends to delay and thwart the realization of any expected gains.

... says Rothbard in Power and Market (chapter 2). This is why the libertarian is more interested in advocating the free market, than he is in advocating any particular political system (such as democracy). It is through increased economic freedom that people become better off, not through any one type of political system or another.

Gold standard come-back?

The way to prevent a de­pression, then, is simple: avoid starting a boom. And to avoid starting a boom all that is necessary is to pursue a truly free-mar­ket policy in money, i.e., a policy of 100-percent specie reserves for banks and governments.

... says Rothbard in Man, Economy and State (chapter 12). And is time ripe for a gold standard resurrection? Many believe so, including Steve Forbes (of Forbes magazine), but not because of a political census suddenly appearing for the gold standard, but because of an economic crises and hyperinflation. Peter Schiff - the man who predicted the bust of 2008 for the right reasons, has also pointed to signs of at least a mini-gold standard appearing here and there (calling it "the institutional gold rush"). Peter Schiff says:

We may be on the cusp of a smart-money gold rush. If so, it could drive gold to a record in real terms, even before retail investors join in.

Now you know.

The boom and the bust

[T]he boom begins to peter out from an injection of credit expansion, the banks inject a further dose. In short, the only way to avert the onset of the depression-adjustment process is to continue inflating money and credit. For only continual doses of new money on the credit market will keep the boom going and the new stages profit­able. Furthermore, only ever increasing doses can step up the boom, can lower interest rates further, and expand the produc­tion structure, for as the prices rise, more and more money will be needed to perform the same amount of work. Once the credit expansion stops, the market ratios are re-established, and the seem­ingly glorious new investments turn out to be malinvestments, built on a foundation of sand.

... says Rothbard in Man, Economy and State (chapter 12). Here, the key phrase is "ever increasing" doses of credit expansion. We see this in the USA today, with two doses of the so-called "quantitative easing" already out there, with perhaps the third on the way.

Bank credit expansion and capital investment

Clearly, bank credit expansion cannot increase capital investment by one iota. Investment can still come only from savings.

... says Rothbard in Man, Economy and State (chapter 12). Also, and furthermore,

The dis­tortion caused by credit expansion deceives businessmen into be­lieving that more savings are available and causes them to malinvest—to invest in projects that will turn out to be unprofitable when consumers have a chance to reassert their true preferences. This reassertion takes place fairly quickly—as soon as owners of factors receive their increased incomes and spend them.

This important truth is deliberately ignored by today's "mainstream" economists, who wish to maintain their great influence in the political sphere. But I hope time is now ripe for a new way of thinking. The endless manipulation of politicians and central bankers with our medium of exchange, money, must end. Keynes, Krugman and other preachers of modern economic "science" must be thrown into the dustbin of economic history.

Interference leads to decreased utility

In sum, the free market always benefits every participant, and it maximizes social utility ex ante; it also tends to do so ex post, for it contains an efficient mechanism for speedily converting anticipations into realizations. With intervention, one group gains directly at the expense of another, and therefore social utility is not maximized or even increased; there is no mechanism for speedy translation of anticipation into fruition, but indeed the opposite[.]

... says Rothbard in Man, Economy and State (chapter 12). This is a very important thing to understand. Interference with the free market can only decrease utility, both expected utility of actions, and realized utility.

Welfare economics

Since all State actions rest on the fundamental binary intervention of taxation, it follows that no State action can increase social utility, i.e., can increase the utility of all affected individuals.

... says Rothbard in Man, Economy and State (chapter 12), defining "binary intervention" as an intervention where

the intervener may compel an exchange between the individual subject and himself or coerce a “gift” from the subject

and which is

exempli­fied in taxation, conscription, and compulsory jury service. Slavery is another example of binary, coerced exchange between master and slave.

For a more detailed analysis, Rothbard refers to his own Toward a Reconstruction of Utility and Welfare Economics, which I call a must-read for all those interested in the philosophy of State coercion. It ends with the following lines:

Economics by itself and standing alone cannot establish an ethical system, and we must grant this regardless of what philosophy of ethics we hold. The fact that the free market maximizes social utility, or that State action cannot be considered voluntary, or that the laissez-faire economists were better welfare analysts than they are given credit for, in itself implies no plea for laissez-faire or for any other social system. What welfare economics does is to present these conclusions to the framer of ethical judgments as part of the data for his ethical system. To the person who scorns social utility or admires coercion, our analysis might furnish powerful arguments for a policy of thoroughgoing Statism.

Indeed!

The visible hand

The fact that each man, in pursuing his own self-interest, fur­thers the interest of everyone else, is a conclusion of economic analysis, not an assumption on which the analysis is grounded.

... says Rothbard in Man, Economy and State (chapter 12). Many people think that the reverse is true, that economics assume that the interest of "everyone else" should be furthered by allowing economic freedom. It is the other way around. We should allow economic freedom on its own merits - a study of economics shows that this will also lead to the greatest possible prosperity for everyone. Adam Smith's "invisible hand" is not a prerequisite for a free market, but created by it. This is worth remembering.