Tag: Capitalism

By Richard Ebeling

Originally published on April 19, 2022 for The Future of Freedom Foundation

Eighty years ago, in the midst of the Second World War, Austrian-born economist Joseph A. Schumpeter published one of his most famous books, Capitalism, Socialism, and Democracy (1942). A central question that he asked and tried to answer was, “Can Capitalism Survive?” His basic conclusion was, “No, I do not think it can” (p. 61). He was (forlornly) confident that a workable socialism would replace the market-based society. Now, eight decades after he drew this conclusion, what can we say about the future of capitalism, or, perhaps, better phrased, the free-market, liberal economic system?

Joseph Alois Schumpeter was born on February 8, 1883, in the old Austro-Hungarian Empire, in an area that is now a part of the Czech Republic. He attended the University of Vienna in the years before the First World War and was a classmate of another famous Austrian economist, Ludwig von Mises, in the graduate seminar of one of the early leaders of the Austrian School of Economics, Eugen von Böhm-Bawerk. During 1919, he briefly served as minister of finance in the postwar government of the new Republic of Austria. He took up a position at the University of Bonn in Germany in 1925 and moved to Harvard University in 1932, where he taught until his death on January 8, 1950, at the age of 66.

Entrepreneurial innovation and the process of creative destruction

Schumpeter made a mark for himself when he was 28 years old with the publication of his book The Theory of Economic Development (1911). He defined “the entrepreneur” as the central and dynamic figure of the market process who introduces transformative innovations that radically change the forms and directions of economic activity. The entrepreneur does so by bringing to market new or significantly improved products, or by better and less expensive ways of undertaking manufacturing, or by opening previously unavailable markets for resources or finished goods. The entrepreneur is the “disrupter” for positive economic change.

In Capitalism, Socialism, and Democracy, Schumpeter restated this argument, referring to the entrepreneur as the initiator of a process of creative destruction:

This process of Creative Destruction is the essential fact about capitalism…. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates…. Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary (pp. 82–83).

He also pointed out that the standard economics textbook models of “perfect competition” and “monopoly” were not only misplaced but essentially useless for understanding, evaluating, and judging the workings and significance of the market economy. These models assume a world without time or space and without changes in knowledge and expectations. They were “static” and artificially “mechanical” in that they did not leave any room for the types of innovative entrepreneurial changes that represent the working of “real-world” capitalism.

The dynamic, competitive market economy needed to be judged not by frozen moments in time but rather as a creative and innovative process through time, the full context of which can be best appreciated only when looked at over years and even decades. When this wider and more relevant perspective is taken, virtually all of the negative assessments and criticisms of the capitalist system fall to the ground, Schumpeter declared.

Economic and cultural achievements of capitalism

Looking over the nearly century and a half from the start of the nineteenth century to his own time in 1942 when his book appeared, Schumpeter pointed to the dramatic increase in the output of goods and services, including new and better goods that were not available to even the wealthiest of kings and princes in, say, 1790 or 1810. This outpouring of material largess had raised the standards of living of a much larger population, with the main beneficiaries being the lower and now growing middle classes of modern Western society and increasingly around the world.

In doing this, capitalism was also serving as a great “leveler” that was raising the economic well-being of all, while also narrowing the differences in the quality of life between “the rich” and the rest. The luxuries of the few a mere handful of years ago rapidly became the taken-for-granted essentials of everyday life for all through ever-improving mass production.

The “culture of capitalism,” Schumpeter said, also had eliminated political privileges and favoritism and had increasingly fostered equality before the law for all, including women and religious and ethnic minorities. Capitalism replaced primitive tribal and social collectivism with an ethic and a politics of individualism that established the ideal of individual rights, private property, and human association based on freedom of contract.

A year earlier, in March 1941, Schumpeter delivered a series of lectures at the Lowell Institute in Boston, Massachusetts, in which he concisely summarized the political and social successes of competitive capitalism during the period of what he considered its heyday, between 1870 and 1914:

The freedom of the individual to say, think, and do what he pleased was also within very wide limits, generally accepted. This freedom included freedom of economic action: private property and inheritance, free initiative and conduct were essential elements of that civilization. What they characteristically called government interference was held to be justified only within narrow limits. The state had to provide a minimum of framework for the lives of individuals and this framework it had to provide with a minimum of expenditure. The ideal of the cheap state had its natural complement in the postulate that taxation should be kept within such limits that business and private life should develop in much the same way as they would have done if there had been no taxation at all….

Free movement of commodities, restricted if at all only by custom tariffs; freedom, unquestioned in principle, of migration of people and of capital; all facilitated by unrestricted gold currencies and protected by a growing body of international law that on principle disapproved of force or compulsion of any kind and favored peaceful settlement of international conflicts.

He added that the liberal and competitive capitalist social ideal, therefore, was one of international peace and against war and conquest: “That civilization … was not favorable to cults of national glory, victory, and so on…. It counted the cost of war and did not back the glory as an asset.”

Will capitalism destroy itself?

And, yet, in spite of this wondrous world of expanding human freedom, individual rights, open competitive opportunity, rising standards of living, and growing equality before the law, Schumpeter was persuaded that “capitalism” was doomed. Schumpeter was often fond of paradoxes and ironies. In this instance, he was convinced that the very successes of capitalism had created the economic forces and social factors that would bring about its demise.

Schumpeter was fascinated by Karl Marx and devoted the first 60 pages of Capitalism, Socialism, and Democracy to an analysis of Marx as economist, sociologist, and prophesier of the future. He considered Marx to be wrong on many, if not most, things. But as a forecaster of the future, Schumpeter considered Marx to be right, but for the wrong reasons. Capitalism would pass away and be replaced by some type of socialism, but not due
to growing immiseration of “the masses” or an exaggerated concentration of wealth in fewer and fewer hands.

As he saw it, the mass of the population became wealthier and more materially comfortable through the competitive engine of capitalist innovation and large-scale production. But the mass production methods with which large-scale output was made possible meant that entrepreneurially owned business was being replaced by the more bureaucratically managed corporate enterprise that undermined the spirit and drive and existence of the individual innovative enterpriser.

This would undermine the individualist culture of capitalism. The faceless private corporate managers easily could be transformed into the managers of state enterprises as governments took more responsibility for and direction of the clamored-for “social needs” of mass society. The bourgeois spirit of self-made men would disappear in the corporate environment, and with it those who would desire and be determined to preserve the private property order of a market economy.

The anti-capitalism of the intellectuals

But more important, in Schumpeter’s view, was the rise of a modern intellectual class, the second-hand dealers in ideas who were disconnected from and alien to the capitalist system, the very productivity of which made it possible for a sizable segment of the society to be freed from the direct world of commerce and work. Mass production made it possible for the wide and relatively inexpensive sharing and expressing of ideas through the written word. This, in turn, created an income-earning niche for those who specialize in the dissemination of ideas. Said Schumpeter:

We find intellectuals in thoroughly pre-capitalist conditions…. But they were few in number; they were clergymen, mostly monks, and their written performance was accessible to only an infinitesimal part of the population…. But if the monastery gave birth to the intellectual of the medieval world, it was capitalism that let him loose and presented him with the printing press….

The man who has gone through college or university easily becomes psychically unemployable in manual occupations without necessarily acquiring employability in, say, professional work…. They swell the host of intellectuals in the strict sense of the term whose numbers increase disproportionately. They enter it in a thoroughly discontented frame of mind. Discontent breeds resentment.

And it often rationalizes itself into the social criticism which … is the intellectual spectator’s typical attitude toward men, classes and institutions…. The role of the intellectual group consists primarily in stimulating, energizing, verbalizing, and organizing this material [of anti-capitalist sentiments and resentments]…. The intellectual group cannot help nibbling  … at the foundations of capitalist society … because it lives on criticism and its whole position depends on criticism that stings … [and] this hostility increases, instead of diminishing, with every achievement of capitalist evolution….

Intellectuals rarely enter professional politics and still more rarely conquer responsible office. But they staff political bureaus, write party pamphlets and speeches, act as secretaries and advisers, make the individual politician’s newspaper reputation which, though it is not everything, few men can afford to neglect. In doing these things they to some extent impress their mentality on almost everything that is being done (pp. 151–154).

Schumpeter’s cynical pessimism — which he considered dispassionate, objective observation — led him to a famous passage in Capitalism, Socialism, and Democracy in which he concluded that, “Capitalism stands its trial before judges who have the sentence of death in their pockets. They are going to pass it, whatever the defense they may hear; the only thing a successful defense can possibly produce is a change in the indictment” (p. 144).

The case for capitalism and the short-run view of the citizenry

But what of the material betterment and social gains that a relatively free, competitive capitalism has provided to the wide and general citizenry? Surely, the general public, the beneficiaries of the largess made possible by the market economy, would see through the negative and critical rhetoric of the intellectuals and others who dislike a market society.

Alas, no, Schumpeter said. The very fact that a knowledge of economics and a perspective that takes the “longer-run” into serious consideration is needed for people to fully appreciate the benefits and, indeed, the goodness of the capitalist system, means that the case for capitalism is at a serious disadvantage. Said Schumpeter:

The case for capitalism … could never be made simple. People at large would have to be possessed of an insight and a power of analysis which is altogether beyond them. Why, practically every nonsense that has ever been said about capitalism has been championed by some professed economist.

But even if this is disregarded, rational recognition of the economic performance of capitalism and of the hopes it holds out for the future would require an almost impossible moral feat by the have-not. That performance stands out only if we take a long-run view; any pro-capitalist argument must rest on long-run consideration….

In order to identify himself with the capitalist system, the unemployed of today would have to completely forget his personal fate and the politician of today his personal ambition…. For the masses, it is the short-run view that counts. Like Louis XV, they feel après nous, le déluge [after us, the flood]…. Secular improvement that is taken for granted and coupled with individual insecurity that is acutely resented is of course the best recipe for breeding social unrest (pp. 144–145).

Schumpeter’s gloom did not mean defeatism

It had been well known since before the First World War that Schumpeter had no sympathies for socialism as either a political or economic system — very much to the contrary. Indeed, when friends of his had asked him in 1919 why he had agreed to participate with a government commission appointed to work out the “socialization” of German industry, Schumpeter was reported to have replied, “If someone is determined to commit suicide, then a physician at least should be present.”

Furthermore, when he wrote a new preface for a second edition of Capitalism, Socialism, and Democracy in 1946, he pointed out that he did not mean to create an impression of “defeatism” concerning the demise of capitalism and a triumph of socialism. He said:

Facts in themselves and inferences from them can never be defeatist or the opposite whatever that might be. The report that a given ship is sinking is not defeatist. Only the spirit in which this report is received can be defeatist. The crew can sit down and drink. But it can also rush to the pumps. If the men merely deny the report though it be carefully substantiated, then they are escapists…. What normal man will refuse to defend his life merely because he is quite convinced that sooner or later he will have to die anyhow?… Frank presentation of ominous facts was never more necessary than it is today because we seem to have developed escapism into a system of thought (p. xi).

For 50 of the 80 years that have followed the publication of Capitalism, Socialism, and Democracy in 1942, the Cold War and the realities of socialism-in-practice in such countries as the Soviet Union and Communist China made it a burning issue whether existing Soviet-style socialism might triumph over American-style “capitalism.” While Schumpeter also had argued that a form of “democratic” socialism with economic planning was conceivable, his implicit assumption was that some form of centralized and dictatorial political power would accompany postwar instances of socialism-in-practice. Thus, the future looked grim for anyone who was not a socialist and looked at the world through Schumpeterian eyes.

The “future” was not as dim as Schumpeter feared

However, with the market-oriented reforms that were being introduced in China in the years after Chairman Mao’s death in 1976 and with the disappearance of the Soviet Union in 1991, Schumpeter’s projections seemed to have been put to rest. Socialist central planning had been discredited, and the dangers from socialist dictatorship were plain to almost everyone. “Capitalism’s” vibrancy in creating material wealth, raising standards of living and ending poverty, and generating amazing entrepreneurial innovations seemed very much alive at the very time when the Soviet Union disappeared from the political map of the world.

So, what might we still say about Joseph Schumpeter’s projections, now, eight decades after Capitalism, Socialism, and Democracy? Schumpeter said in the book that if socialism could be fended off for another half-century from the 1940s, it would continue to produce the same wondrous economic betterment that it had created in the past. He warned however, that even if out-and-out socialism did not replace the market society, the capitalist system would be weakened and eaten away at by interventionist regulation and incentive-weakening taxation.

Fortunately, even in the face of the regulatory and redistributive state, the market economy has still possessed enough competitive openness and profit-earning opportunity that continuing prosperity has been a reality during these decades. Even most recently, in the face of government lockdowns and shutdowns as the political, paternalistic response to the coronavirus
crisis, and a growing mountain of government debt due to trillions-of-dollars of annual deficits, the remaining degrees and forms of market competition and openness have resulted in restored and improving economic circumstances for many in the society. But enough regulatory and fiscal burdens can and will, no doubt, still “kill the (market) goose that lays the golden eggs.”

The intellectuals and the new indictment of capitalism

So, can and will “capitalism” survive? This gets us to the other factor in Schumpeter’s story, that being the role and influence of the intellectuals — the molders and shapers of ideas and public opinion. The socialist and political paternalist ideas, unfortunately, were not defeated with the fall of Soviet socialism. Instead, the “progressive” intellectuals in the United States and other countries merely retreated back to the halls of academia and similar places to lick their ideological wounds and reformulate their indictment of “capitalism.”

The public appeal of Marxist-style “class warfare” may have lost its edge. But the collectivist ideologues have rebranded their political message by accusing “capitalism” of destroying the planet through global warming and by creating and perpetuating a “systemic racism” of “white privilege” and “oppression of all people of color.”

Schumpeter had feared for the decay and destruction of the “culture of capitalism.” That is, both the market-based institutions of private property and free exchange, and the beliefs and attitudes without which capitalist “civilization,” as he put it, could not survive. The foundation of this culture was based on an individualism of personal choice and freedom of opportunity both inside and outside the marketplace, and a respect for and protection of an equal and impartial rule of law. This included freedom of thought and speech and tolerance for differences of opinion and values.

This is the very cultural foundation that socialist and “progressive” intellectuals have been “nibbling” away at for decades. And the latest variation not only continues the nibbling away but openly and frontally challenges the premises upon which the United States was founded by insisting that the ideas expressed in the Declaration of Independence are a sham and a lie, a mere “cover” for the inherent and inescapable racism on which the country, they say, has been built.

“Woke culture” is the explicit and aggressive new counter-revolution out to destroy the remnants of the classical-liberal and free-market understanding of “capitalism” that still exists in American society. We see it in the institutions of higher learning, in the mass media, and in a growing part of corporate America. The latter is due to corporate executives also being victims of the same ideological and educational currents and propaganda as the rest of us, or on the basis of trying to ride a new political wave to maintain or increase profit margins by minimizing reasons to be attacked and condemned by the identity politics warriors.

Do not be “defeatist” in the face of the new collectivisms 

So, what is to be done? We need to take Schumpeter’s declaration seriously. If the capitalist “ship” seems to be “sinking” due to this latest anti-capitalist attack, we must not allow ourselves to be fatalistic and defeatist, sitting back and wringing our hands that there is nothing to be done. Instead, as Schumpeter said, we should appreciate the situation and “rush to the pumps” to shore up the case for capitalism and the classical liberal–based free society in general.

The last 100 years have seen more than one instance in which it seemed that the ideas and institutions of the free-market society were heading for inescapable defeat, but each time the collectivist forces have failed to achieve their full objectives. True enough, they have regrouped and reorganized their next ideological and political assault on the remaining elements of a free society. But their failure to gain full victory has been due to the resistance of the surviving ideas of market liberalism that have endured.

Our task is to do all in our power and ability to revive an understanding of and inspire a desire to preserve, restore, and extend the ideal and practice of the truly free society. But it will take a growing number of us to see the importance of the non-fatalistic willingness to “man the pumps” so the capitalist ship can not only stay afloat but also be philosophically and ideologically rebuilt even more firmly than it ever was before.

By Richard Ebeling

Originally published on March 15, 2022 for The Future of Freedom Foundation

The political paternalists and the social engineers are giddy with hope and anticipation. They are confident that their day has, once again, arrived. The era of even bigger government has returned, and any remaining free-market system is simply out of date. They are full of promises and plans to set the world right, as long as they and the right politicians are in charge.

To bring all this about, there is need for “A New Global Economic Consensus,” or so we are told by Mariana Mazzucato, in an essay on the website of Project Syndicate in late 2021. Dr. Mazzucato holds a professorship at University College, London, in the United Kingdom, and is the founding director of the Institute for Innovation and Public Purpose. She is also the Chair of the World Health Organization’s Council on the Economics of Health for All, along with being on the United Nations High-Level Advisory Board on Economic and Social Affairs. In other words, she is a “player” on the political paternalist scene.

In the face of the coronavirus crisis and the global warming threat, Dr. Mazzucato insists that the previous global consensus among the leading Western governments that, all things considered, freer markets, fiscal restraint, and limited government intervention were the best policies to ensure greater freedom and wide prosperity for all has been shown to be irrelevant and detrimental to the well-being of humanity.

A new consensus on government planning

There needs to be a new consensus agreed to by the governments of the world for “a radically different relationship between the public and the private sectors to create a sustainable, equitable, and resilient economy.” “Neoliberalism,” with its assertion that free enterprise should be left alone from the regulating and redistributing hand of government, has only resulted in growing inequalities and political and economic “subordination” of the poorer and less developed countries to the major industrial Western nations, says Dr. Mazzucato.

It needs to be pointed out that the term “neoliberalism” is the catchall phrase that these new political paternalists use to cover any and all economic policies of which they disapprove. Such policies are by definition, “free market injustice,” even if the actual polices condemned are really various forms of government intervention that have not turned out the way they wanted. The new political paternalism means “never having to say you’re sorry” for the consequences of your own policies or those of your interventionist predecessors.

These paternalists insist that in the face of, first, the financial crisis of 2008–2009, and now, the pandemic of 2020–2021, neoliberal capitalism has only created “unprecedented risk, uncertainty, turmoil, and climate breakdown.” The governments of the world must agree to “a new international social contract.” What is needed, Dr. Mazzucato tells us, is a “revitalizing [of] the state’s role [to] allow us to pursue societal goals, build international solidarity, and reform of global governance in the interest of the common good.” This includes “making the kinds of markets we need to nurture a green economy.”

Measurements of economic betterment such as the Gross Domestic Product (GDP) or financial success of private enterprises are no longer the acceptable benchmarks for this new global economy. Instead, there has to be a focus on “ambitious common goals” to assure “humanity’s survival on this planet.” For this, “The state would coordinate mission-oriented public-private partnerships aimed at creating a resilient, sustainable, and equitable economy.”

A seven-pillar planning program

So, specifically, what does this all mean? In the summer of 2021, Dr. Mazzucato served as a member of a group of international “experts” who prepared a report for the G-7 governments (Canada, France, Germany, Italy, Japan, the U.K., and the United States) on “Global Economic Resilience: Building Forward Better” (October 2021). Its purpose was to offer the policy plans to remake the world economy according to the proposed premises of this new political global consensus. It is nothing less than an agenda for national and international government central planning. There would be little left in the world not controlled and commanded by political authorities and their “expert” advisors — those like Marianna Mazzucato.

Offered is a Seven-Pillar planning agenda: Global Health; Climate and the Environment; Digital Governance; the Global Trading System; Investment-Focused Recovery; Labor Standards and Participation; and Supply-Chain and Critical Markets Fragilities.

Reading the subsection on the coronavirus crisis, you would never think that a good part of the response to problems during the last two years had very much to do with the governments to which Dr. Mazzucato and her report colleagues wish to assign even more decision-making authority and power. Regulatory delays in preventing the private sector from better developing and providing short-run medical supply substitutes; the confusions and inconsistencies in approving, denying, and then approving the availabilities of vaccines; the ordering and misplacing of large quantities of vaccines (including in Dr. Mazzucato’s home country of Italy); the closing down of medical facilities to both necessary and important elective surgeries for non-COVID patients; and many other such missteps. None of this has anything to do with the governments who are to be empowered with even more authority.

Government-made supply-chain failures 

When the report turns to the global trading and supply-chain problems during the last two years, nary a word is said about the most important policy that brought so much of the world economy to a disruptive standstill: the government lockdowns and shutdowns that commanded factories to stop producing and employees to not work; that prohibited people from leaving their homes for weeks and months on end other than for government-approved limited shopping for food and pharmaceuticals; and the closing down of air and road travel and oceanic shipping.

Those familiar with the “Austrian” theory of capital and investment understand that not only does all production take time, whether it be days, weeks, months, and sometimes years but that production processes entail interconnected and interdependent stages of production that often crisscross counties and continents. There must be a constant and continuous flow of inputs passing through these stages of production in timely and coordinated fashions for that vast array of finished goods and services that we daily take for granted to be there for our consumer purchases, day-after-day, with few if any glitches along the way.

Break or block these intricate and time-taking structures of production, and discontinuities and delays are inevitable and inescapable between the respective production stages that connect when production begins and final goods are ready for sale. In addition, the patterns of relative prices and wages that ensure intertemporal and spatial coordination among all the competing and complementary sectors of the global economy are, likewise, distorted and misbalanced by government price controls and restrictions; this delays the needed rebalancing of what is to be produced, when, and with what combinations of inputs (including labor) in the appropriate places and steps in the global production processes.

Political controls versus markets and prices

What does the report propose in place of freer markets and competitive pricing for inputs and outputs? Nothing less than comprehensive government pre-planning for the next pandemic or financial crises. International government agreements will determine the manufacture and distribution of vaccines and antibiotics; stockpiles and political allocations for global vaccine “equity” will replace markets, prices, and competition for redirecting scarce supplies or entrepreneurial innovation and incentivizing what is to be done, by whom, or where.

How will these decisions be made if markets do not determine and guide the process? There is only one answer, of course, for an “expert” like Mariana Mazzucato: politics. The report talks about equity, social fairness, and inclusiveness. But what do these words mean in the real world of political horse-trading other than the pressure and power of politicians, overseeing bureaucrats, and the influence of special interest voting groups and ideologues playing the manipulation game to get what they want? Here is a recipe for even more economic irrationality and political corruption, if there ever was one.

The real agenda

This gets to the real ideological bull in the “Economic Resilience” China shop. Guiding the thinking and proposals in all of the report is the hysteria over and the presumption that climate change is so threatening to humankind that all power must be turned over to the governments of the world to plan the destiny of the planet.

The report says that according to the Organization for Economic Cooperation and Development (OECD), for global temperatures to stay within a 2-degree rise in the decades ahead, the expenditure by the countries of the world of “USD76.9 trillion [in green] investment per year in transport, water, sanitation, energy supply and use is needed every year until 2030.”

It is estimated that global GDP in 2020 came to $84.5 trillion, with projections suggesting that global GDP may be $122.4 trillion by 2026. This means that the entire world would have to get by with just a few trillion dollars of production and consumption not related to “saving the planet.” Who will decide, and how, whose standards of living are to be drastically curtailed to “retool” and redesign everything, everywhere, around the world for years to come?

To “decarbonize” the world, regulations and restrictions will have to dictate and direct everything done by industry and manufacturing. Governments are expected to pick winners and crowd out losers in terms of determining what investments are to be subsidized, supported, or penalized. “The world’s trade and investment will require clear regulatory standards and substantial governmental assistance and coordination,” the report says.

Concerning financing, governments must spend the necessary monies through “guaranteed public purchases and regulatory standards” for chosen solar and wind technologies, as well as other alternative energy sources. Price controls on carbon use and emissions will be designed to crowd out fossil fuels as “renewables” replace them.

Controlling everything and everyone

This “greening” of the world economy will be combined “with a broader social and environmental justice agenda to ensure good jobs and adequate social welfare.” Furthermore, “To meet their climate ambitions, governments will have to take a leading role phasing out and standing up whole industries, an unprecedented remaking of economies that must take place on a global basis. For this to be successful, changes to the way we produce, work, and trade should be undertaken.”

From technological choices, to bailing out industries and enterprises, to transportation restructuring, to facilitating educational paths considered most conducive to the new green world to come, to redesigning entire cities and how people live, there will be virtually nothing outside of or free from the social engineering hand of governments and the “global green deal” central planners.

A wrong balance, the report says, has too long been in place that has focused too much on “fiscal discipline” imposed on governments that has “crowded out public investment.” Government spending should be used to get private companies to invest in and produce with the methods of production that result in those final products the political paternalists and social engineers consider best for all.

As part of this, any short-run attention to budget deficit reduction must be ended.  In her Project Syndicate article, in summarizing these themes, Dr. Mazzucato said that government “public spending must be channeled through new contractual and institutional mechanisms that measure and incentivize the creation of long-term public value rather than short-term private profit.” More government borrowing and increases in the money supply continue to be the order of the day to pay for the coming brave new green world.

Imposing labor unions

This refocusing away from market pricing and free-enterprise profitability is also reflected in the report’s proposals for labor standards and participation. Labor unionization should be fostered and supported, with no mention of whether those expected to join labor unions and pay mandatory dues to the union leaders want union membership or representation. The political paternalists say unions are “good” for the ordinary working person, so it must be true. Therefore, they are expected or likely even forced into a labor union. End of story.

How will this affect the efficiency and market competitiveness of the businesses upon whom unionization is to be forced? The authors of the “Plan” simply say, “the means [unionization for social justice] must be consistent with our collective values even if they do not produce the lowest cost solution from a financial perspective.”

In other words, this is the abolition of market-based pricing of labor, or any concern with whether people are employed where and how they may contribute their highest value-added services in terms of producing what it is that consumers want and are willing to pay for. Wage and work conditions in the new green economy world will be a matter of what is worked out between union leaders and those making political decisions in government.

More government control over the Internet

Finally, concerning “digital governance,” the authors mask their ideas in concerns about cyber security and Internet terrorism and blackmail. But it all adds up to a politicization of social media and the worldwide web, in general. Referring to “monopolistic behavior” by digital corporations, they have no hesitancy in turning control over the size, service, and content oversight to the largest and most threatening monopoly in any society — the government and its coercive powers.

But that’s because the report’s authors likely presume that the “expert” regulators and overseers either will be themselves or people just like them. Surely, the paternalist has a confident and clear conscience that she or someone else with her views and values will always do the right thing for the good of all. So, what is to be feared in giving her or her ideological partners control over the modern means by which humanity increasingly communicates with each other about almost everything?

Oh, and by the way, another reason the digital world must be placed under the controlling wing of government is that “mining crypto-assets is associated with life threatening levels of pollution” and increasing inequality. To save the planet, governments just have to stop any development of alternative means of payment and exchange outside of their own monopoly paper monies. Stopping the evolution of potential competing monies is, by implication, “for the children” and their future well-being on the planet. What can trump that?

Imposing green planning

The report ends with a summarizing of how much the world and everyone in it needs an agenda like the one they’ve outlined. Without the leading and guiding hand of government and advisors like the authors, the world is doomed. The closing page has a photograph of a wide, blue sky with a formation of military aircraft cutting through the air, with the white smoke streams following in the aircrafts’ wake.

In an era of “progressive” paternalists who normally ridicule imageries of militarism and war power, what a subliminal message is offered that standing behind the government’s determination to socially engineer the remaking of a green new world is the brute force of politics to impose it on everyone, everywhere.

It is not surprising that Marianna Mazzucato is one of the co-authors of this report on Global Economic Resilience. She has long been a proselytizer for what she has called “mission-making,” that is, governments constructing society-wide plans that contain targeted “missions” to which and for which large segments of the population must be expected in their corner of the world to conform, so as to assure the mission’s success. She grandiosely speaks of “social values” that should take precedence over the mere and far less important, self-interested values of the individual members of the global community.

The collective good, you see, comes before the good of any one or any number of individuals. But what is the collective good? Who defines it, and who knows what its shape and content is or should be? Seemingly, some are given these insights and understandings that other mortals do not. Dr. Mazzucato bandies about these and other terms as if no confusion or cloudiness exists in their use. I stopped counting the number of times in this report on Global Economic Resilience that there appeared the words, “solidarity,” or “inclusion,” or “equity,” or “social fairness” or “social value,” or “planet saving” goals and purposes.

It is as if the mere repetition of them, over and over again, magically gives meaning and substance to them, like in some primitive religious chant. In fact, they are just the rhetorical ritualism of the modern political paternalists and social engineers who basically believe they know what is right and good for everyone.

Repeating these words does not and cannot hide the fact that they are empty terms that offer nothing other than a linguistic cover for those like Dr. Mazzucato who want to be the political and social dictators of the world. They are on, as she calls it, a “mission” from which no dissent should be offered, because how can anyone disagree with, well, the “good” and the “right” that somehow she and those like her just know to be the case?

Loss of freedom 

We have seen this political and ideological euphoria before in the early stages of the various collectivist systems of the last century. Soviet five-year plans, Nazi four-year plans, fascist corporativist “totalitarian” plans. Now the Green New Deal paternalist plans to save the planet.

Lost in all this new utopian euphoria is the simple but essential truth and reality that those who dream these planning dreams lack the knowledge, wisdom, and ability to better guide and direct the affairs of billions of people than each of those multitudes of individual human beings themselves. What they lack, including Dr. Mazzucato, is any humility or hesitancy about their coercing paternalism.

In 1960, Austrian economist Friedrich A. Hayek, while participating in a conference on Man’s Contracting World in an Expanding Universe, emphasized:

The problem of social order is predominately a problem of how we can best cope with our constitutional ignorance of most of the facts that guide human action. It is a problem created by the fact that those who determine the social order and who guide policy can know only an infinitesimal fraction of the total human knowledge that should be used.

The chief task of an effective social order is thus to assure the utilization of knowledge that can exist only in dispersed form among millions or billions of individuals. Now, the main point I want to submit to you is that freedom is the most successful method man has found to cope with that constitutional ignorance of all individuals, and to achieve the maximum utilization of knowledge. Coercion is bad precisely because it prevents the individual from making the fullest use of his knowledge and capacities, which are always unique in some respects.

The dilemma, Hayek went on to explain, is that when government intervention, control, and planning are evaluated and judged on a pragmatic case-by-case basis, the rationale for the particular intervention, control, or plan will seem clear cut in terms of a specific goal, target, or outcome that can possibly be achieved with the use of political paternalism on such a pragmatic basis. On the other hand, what is lost or given up is some imaginary alternative and uncertain “might-have-been” if government had left things to the purposes and decisions of multitudes of separate individuals in their respective corners of society.

Or as Hayek expressed it:

The reasons offered for the restriction of liberty are always the achievement of some concrete and particular aim, whereas the losses that result from the restriction of liberty are almost by definition the unknown things which might have happened had things been left free…. Therefore, in a policy that believes it can balance in every particular instance between liberty and control, liberty is bound to lose out.

Following one pragmatically decided interventionist decision after another can only lead, cumulatively, to the chipping away and the loss of liberty in society as a whole:

If nobody can hope to master more than a small fraction of the knowledge we know that society utilizes, the chief need is increasingly an impersonal mechanism for the coordination of individual actions. The order at which we aim must therefore rest not on specific commands, but on the spontaneous adjustment of the separate individuals to each other.

That is, a free-market economy guided by a competitive price system.

Such a rejection of a free-market order accompanied by a blind confidence in the possibilities of political paternalism have been seen already in the 20th century experiments in communism, fascism, and Nazism. Just give “us” the governmental decision-making power and “we” will set all things right in terms of some vision of a bright and beautiful future. One may only hope that the human cost and brutality of this latest variation on the central planning theme comes nowhere near its predecessors.

We can only hope that mass murder and brutal tyranny is somehow avoided this time around. But with the resulting subordination of individual freedom, market competition, and the price system to a Global Green Plan, this new green world will lack the essential ingredients for determining whether or not what is produced is really wanted by the consuming members of society, or whether the scarce resources of the society are in any manner bring allocated and utilized in a way reflecting the actual opportunity costs of their use in serving preferred consumer ends.

What we may see imposed are arbitrary and economically irrational government designs over the various private means at our individual disposal, with neither our input nor voluntary consent. The political paternalists and social engineers are giddy with dreams of even greater power than they already possess. The rest of us may have to bear the burdens for their command-and-control dreams to come true.

By Richard Ebeling

Originally published for The Future of Freedom Foundation in November 2017

Numerous misunderstanding and mythologies surround the meaning of capitalism and competition, but few match the confusions over the meaning and relevance of “monopoly” in the workings of the market economy. When looked at dispassionately, factually, and historically, monopoly has almost always represented a problem in society only when created, protected or imposed by government intervention.

Critics of capitalism have proposed to nationalize “monopolistic” industries, to break them up into smaller “competitive” firms, or to regulate their pricing policies and influence the output they produce. A noticeable amount of the criticism of the existence of or supposed “threats” from monopoly is connected with the particular and peculiar way economists have come to think about “competition” and “monopoly,” especially as found in the textbook presentations that practically every student learns who takes an economics class.

The Fantasy World of “Perfect Competition”

The student in told that the benchmark of market analysis is the theory of “perfect competition,” a conception in which there are so many competitors on the supply-side of the market that each is too small to influence the prevailing market price for the good they are offering to buyers. Each seller, therefore, takes the market price as “given” and to which they respond in terms of the most optimal output to produce and offer on the market, given their (marginal) costs of manufacturing.

In addition, it is presumed that each of the sellers in their specific markets offers a product that in terms of their qualities, features and characteristics is exactly like the ones being offered by their competitors in that same market. In other words, in the world of “perfect competition” there is no competitive product differentiation in the sense of the individual seller trying to devise new, better and improved versions of his product to get an edge on his rivals in the market in which he operates.

It is assumed that entry and exit from any market is effortless and costless, so any discovered profits to be earned or losses to be avoided due to, say, a change in market demand, is appropriately adjusted to virtually instantaneously, so those profits or losses are eliminated in seemingly non-existent time.

And what assures all of the above is the additional assumption that all buyers and all sellers in each and every market have a “perfect” or “sufficient” knowledge of all relevant circumstances and conditions that no errors or mistakes can or will be made by buyers paying too much or sellers accepting to little for what they are, respectively, demanding and supplying.

The Logical Absurdity of Perfect Knowledge in Perfect Competition

University of Chicago economist, Frank H. Knight, formalized this, now, textbook conception of “perfection competition” in Risk, Uncertainty, and Profit (1921). But five years earlier, in 1916, Knight emphasized the fictitious and logical absurdities in:

“ . . . the impossible conditions of ideally perfect competition, where time and space were annihilated and universal omniscience prevailed . . .

“ It is the fact of omniscience [perfect knowledge], however, which is the prerequisite to perfect competition, and if this were realized in any other manner, no amount or kind of change would disturb the operation of ideal economic law [the optimal equilibrium of the ‘perfect competition’ market].”

Once it is postulated that individuals in the marketplace possess “perfect knowledge,” then it is assured that the market will always be in a state of perfect long-run equilibrium, because no other state of affairs can exist.

Nothing can ever be in the wrong place at the wrong time, and no good or service can ever be priced at the wrong price. Total “costs” always and everywhere equal total revenue. Profits can never be earned, and losses can never be suffered.

Since each individual wishes to “maximize” their subjective satisfaction (“utility”) or their profit, then having a perfect knowledge of all current and future circumstances and conditions, each can act in no other way than the “objectively” most “optimal,” one, because to act otherwise would be to act contrary to the purpose of maximizing utility or profit.

The absurdity of the perfect knowledge assumption in the theory of perfect competition was, especially highlighted by the Austrian economist, Oskar Morgenstern in his 1935 article, “Perfect Foresight and Economic Equilibrium”:

“Full foresight . . . must mean a foresight up to the end of the world . . .

“In consequence of the interdependence of all economic processes and given conditions on one another, and this with all other facts, no instance could be given of a sector, however small, of the event, the foresight of which would not mean, at the same time, the foresight of all the rest . . .

“The individual exercising foresight must thus not only know exactly the influence of his own transactions on prices but the influence of every other individual, and of his own future behavior on that of others, especially of those relevant for him personally . . .

“The individuals would have to have a complete insight into theoretical economics, for how else would they be able to foresee action at a distance?

And as Austrian economist, Friedrich A. Hayek, explained in his famous articles, “The Use of Knowledge in Society “ (945) and “The Meaning of Competition” (1946), such a theory assumes away all the reality of what we normally think of as competition: an active rivalry among sellers each of whom has limited and imperfect knowledge, and is attempting to discover ways and means to make new, better and less expensive goods to offer to the consuming public, precisely as the method by which profits may be made and losses avoided. It is this active and dynamic real competitive market process operating with prices not already in equilibrium that tends to move markets into a coordinated balance between supply and demand, and in which, over time, profits may be competed away and losses eliminated.

The notion of “perfect competition” assumes the already existence of the hypothetical “perfect” market equilibrium that it is the task of real world dynamic competition to bring about. Actual market conditions are then evaluated and judged by a standard or benchmark, Hayek said, that almost by necessity condemns any real competitive situation at most moments in time as being “anti-competitive” and therefore potentially “monopolistic.”

The Textbook Portrayal of Monopoly

But what makes a market supplier’s actions “monopolistic” in the theoretical world of “perfect competition”? In essence, that he is able to influence the market price at which he sells his product, and make his product different from that offered by any other seller in a given market. In the textbook expositions, the “monopoly seller” is able to select that higher price and lower quantity combination that maximizes his profit, but which does not reflect the lower price and total larger quantity that would be offered on the market if there were a multitude of sellers rather than only one.

The textbooks portray the monopolist’s situation and his ability to pick and choose the price-quantity combination of his choice in a supply and demand diagram. However, this monopoly situation as shown in the textbook diagram has neither
a past nor a future. It is the “frozen picture” of a market situation that is “out of time.”  The diagram, by itself, does not answer the following questions:

What market or other forces in the “past” brought about this current situation? Given this situation at a moment in time, are there any market forces at work looking to “tomorrow” that would change the circumstances from its present “monopolistic” state? Are there any non-market, that is, any government, barriers or prohibitions that would prevent such a change over time?

In other words, the monopoly situation pictured in the diagram is presented without a context to reasonably analyze and interpret what conclusions might be made in terms of whether the “social” significance of this monopoly situation suggests the need for an economic policy to “correct” some “problem” with it.

Or whether, instead, when looked at and analyzed from a perspective of a market process in time and through time, there may be no “monopoly problem” at all, but just one of the “transition” stages through which markets are passing all the time.

Reasons Why There May be a “Single Seller” in a Market

The word “monopoly” originates from the ancient Greek: “mono,” meaning single, and “poly,” meaning seller.  But there are a variety of reasons why there may be only one seller in a market at or over a given period of time. First of all, it may be because an entrepreneur has creatively developed a new or significantly different product, and as a result he is the first and only supplier of this good on the market. After all, every new idea must begin in some individual’s mind, and that person’s willingness to undertake the entrepreneurial task of bringing it to market.

To the extent that he has correctly anticipated future consumer demand for this new or different product, the very profits that he may earn will attract the competitors who will enter his market and, over time, compete away the profits he as been earning by their devising ways to make similar versions of his new idea with more attractive features and offered at lower prices than the “monopolist” initially was charging.

If, on the other hand, this single seller has misjudged future market demand for his product and suffers losses, it would not be socially desirable for rivals to enter his market and waste more time and resources producing a loss-making product – unless, of course, if they see a way to make profitable that which the initial “monopolist” could not.

Second, there may be a single seller in a market because the consumer demand is too limited to make it profitable for more than one seller to operate in that market. Imagine the small, rural town with one general store. The owner may be making a profitable go of it, but if a rival entered the area and opened a competing general store, the sales and revenues now divided between the two of them may not be enough to cover their respective costs of operations; the end result being that both face losses. The market is too limited to sustain more than one seller.

Third, there may be a single seller in a market due to their ownership or control of a vital resources or raw material without which a product cannot be successfully produced and marketed.  This was a hypothetical possibility pointed out by Austrian economists, Ludwig von Mises and Israel M. Kirzner.

The Dynamic Workings of Free Market Competition

However, if we allow time to pass, that is, if we look beyond the situation at a moment in time, we can see countervailing market forces that likely will be set in motion if there are potential profits to be made from selling this resource-specific product.

First, this situation would create incentives to prospect for and extract any possible alternative supplies of this resource or raw material outside the control of the “monopolist,” so competitors could enter his market at some point in the future.

Second, and more immediately as well as over time, if this is a profitable product, there would be incentives for competitors to market substitutes to his product out of alternative types of resources or raw materials outside of the monopolist’s control, and offer their substitute products at lower prices than the monopolist’s price. Thus, over time, competitive market forces would either eliminate or weaken even a “monopoly” position of this type.

The Austrian-born economist, Joseph A. Schumpeter, argued that the essence of the dynamic market economy is the innovative entrepreneurs who introduces the new, better, and improved products as well as new methods of production. To understand what Schumpeter called the competitive process of “creative destruction,” it is necessary to look beyond any seemingly “monopoly” situation at a moment in time, and take the longer historical perspective of the market as a dynamic process through time.

Textbook conceptions of “perfect competition” and “monopoly” are of little relevance or help, therefore, for understanding how markets actually work. As Schumpeter explained it in Capitalism, Socialism and Democracy (1942):

“In dealing with capitalism we are dealing with an evolutionary process . . . that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.

“The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.

“In capitalist reality as distinguished from its textbook picture . . . The kind of competition which counts . . . [is] the competition from the new commodity, the new technology, the new source of supply, the new type of organization . . . The competition that commands a decisive cost or quality advantage . . .

“It is hardly necessary to point out that competition of the kind we now have in mind acts not only when in being but also when it is merely an ever-present threat. It disciplines before it attacks. The businessman feels himself to be in a competitive situation even if he is alone in his field.”

Market Competition Best Understood as a Process Through Time

The market economy, to the extent that it has as a noticeable degree of competitive freedom, is an arena of change, transformation, and creativity. But looking at the textbook diagram of a supposed monopoly situation easily misses all this, by ignoring what preceded it or what may follow it.

Suppose you are shown a single frame of a motion picture, one that contains the image of a person hanging in midair just off the edge of a cliff. What conclusions are we to draw from this image? It all depends upon what preceded that frame, and what follows it. Suppose that the person was cornered by an attacker who has thrown this unfortunate fellow off the cliff with the intention of killing him on the rocks far below. But what if he saw his attacker coming, and this person chose to jump off the cliff to escape this aggressor, hoping to survive the fall by successfully landing in a river below and swimming to safety.

We do not know how to evaluate and judge the situation captured on that single frame taken out of the motion picture. It all depends. And in the same way, we do not know how to evaluate a market situation of a single seller in the market unless we know the market processes before and after that diagram-depicted moment in time.

To show the relevance of taking this longer view of competitive and monopoly situations than merely the frozen moment in time of the economics textbook diagrams, we may draw upon an interesting article published on October 20, 2017 by economist, Mark Perry, on the website of the American Enterprise Institute. He compares the lists of Fortune 500 firms in 1955 with those six decades later in 2017.

Only 59 enterprises were on the list in both these years, or less than 15 percent. Many of the companies on the 1955 Fortune 500 list were not only not on the 2017 list, but they no longer existed. Many of the companies on the list both of those years held different relative positions, with some higher and others lower in 2017 than in 1955. And a good number of companies on the 2017 list had not even existed sixty years earlier and therefore could not be on the 1955 list.

Government Intervention as the Cause of Monopoly Problems

What, then, may be the cause behind a single seller situation, a “monopoly,” that may be considered as “anti-competitive” and “socially harmful”? This requires us to appreciate the role of the state in creating and perpetuating such a situation.

There may be a single seller in a market (or a small number of sellers) because of a legal privilege given by the government to be the only producer and/or seller of a good or service within a part or the whole of the geographical area over which the government has political authority. This is one of the oldest meanings or definitions of monopoly frequently used by economists since Adam Smith published The Wealth of Nations (1776).

In this case, the privileged monopolist may be in the position to limit supply and raise his price to generate higher profits because he is protected and sheltered from any direct market competition, since the government has made it illegal for all others to compete in this market. This is the one case in which the “frozen picture” of the textbook monopoly diagram is most appropriate because market competition cannot change the “picture.” The government prevents any market process from working over time from generating the competition that would likely emerge in a more open market.

However, it would be expected that potential competitors might still try to develop and offer various substitutes for the government-protected monopoly product; to the extent they could do so without breaking the law. Also, it might still occur that illegal, “black markets,” might emerge if profits were sufficiently high to make it attractive to run the risk of being caught and imprisoned by the government.

In modern American history, it was the government that legally provided a monopoly position to AT&T in the provision of telephone services around the United States through most of the twentieth century. It was government regulation that limited market entry and controlled pricing and routes to a handful of passenger airline carriers from the mid-1930s to the end of the 1970s. It was government control of the airwaves that restricted radio and television broadcasting to a limited number of companies, again, until the late 1970s.

But once these government-created and protect monopoly or near-monopoly situations were abolished through legislative repeal, the markets for communication, travel, and information and entertainment exploded into the vibrant and diverse array of far more competitive providers and suppliers and offerings that we now happily take for granted, than under the system of government privilege and restriction.

Taking the market process long-view, the appearance of single sellers and seemingly “monopoly” or near-monopoly situations is easily shown to be limited moments in the wider horizon of dynamic and creative competition over and through time. As long as government secures and protects private property rights, enforces all contracts entered into voluntarily and through mutual agreement, and assures law and order under an impartial rule of law, “monopoly” as an economic or social problem is virtually non-existent. But introduce government intervention into the market system, and monopoly invariably becomes a social harm and an economic problem.

By Richard Ebeling

The text is based on a talk given at the James Island Exchange Club in the Charleston, South Carolina area, February 9, 2015 and was then published on The Future of Freedom Foundation.

In American culture there is one persistent villain portrayed as the enemy of humanity, the perpetrator of deception, and the agent for social corruption and human harm: the businessman.

Whether in news commentaries or on the movie screen, the businessman is presented as a heartless, greedy manipulator so concerned with squeezing the last possible dollar out of anything he does, that he is willing to destroy the planet, kill his competitors, poison little children, and sell his own mother “down the river” if it will serve his material and financial purposes.

The only thing that saves us from the end of the world at the hands of these criminal private enterprisers is either some righteous individual who refuses to “take it any more” or the virtuous hand of a government agent dedicated to protecting mankind from those who, clearly, care nothing for the common good of humanity.

Critics of Capitalism Want to Abolish or Regulate It

This imagery of the businessman’s way of gaining profits has been extended by many intellectuals, academics, and public policy pundits into a general criticism and, indeed, condemnation of capitalism.

What can be praiseworthy, ethical or just in a social and economic system that fosters people to focus only on their self-centered personal interest in the pursuit of material gain with little or no thought to the betterment and improvement of mankind?

The conclusion that many of these critics have reached over the years and decades is that the entire capitalist system must be done away with and replaced with an alternative social and economic system such as socialism; or, at a minimum, business enterprise has to be placed under the detailed supervision and regulatory hand of government bureaucrats presumed to be concerned with and devoted to the general welfare of the country as a whole instead of individual private interest.

I beg to differ from this interpretation of businessmen and the free enterprise system in general. Instead, I would argue that a truly free enterprise, competitive capitalism is the most moral and humanely beneficial way for people to live together that has ever been stumbled upon by mankind.

Capitalism’s Premise: Individual Rights and Liberty

There are basically two way human beings can interact and associate with each other: through the threat or use of force or by mutual agreement and voluntary consent.

When have you ever walked into a shoe store looked around and, maybe, tried on a pair of shoes, but when you decided to leave without buying anything a gruff and intimidating character with a club or a gun said, “The boss says you ain’t leaving without buying something”? I doubt it any of us have had any such experience.

Why? Because the philosophical and moral premise underlying transactions in the marketplace is that each participant has the right to say, “Yes” or “No” to an offer and an exchange.

Why does every person have this implied right to “Yes” or “No” without attempted physical intimidation or use of force to make him act against his will? This is due to the fact that the foundational American principle is that every one of us has an inviolable individual right to their life, liberty, and honestly acquired property.

Virtually every other philosophical and political system throughout human history has been based on some version of the opposite. That is, that you do not own yourself; your life and property are at the disposal of the primitive tribe or the medieval king, or the social, national, or racial group or “democratic” community to which you’ve been designated as belonging.

That is the premise of all forms of political and economic collectivism. You work for the group, you obey the group, and you live and die for the group. The political authority claiming to speak and act for the group presumes to have the right to compel your acquiescence and obedience to the asserted needs and desires of that collective group.

Only liberal, free market capitalism as it developed in parts of the Western world, and especially in the United States, broke free of this age-old collectivist conception of the relationship between the individual and others in society.

The modern ideas of individual liberty and free enterprise that began to develop and be argued for about 350 years ago transformed the way men lived and earned a living, and the ethical premises underlying human association in society.

A new morality emerged under which human relationships became based on mutual consent and voluntary agreement. Men could attempt to persuade each other to associate and trade, but they could not be compelled and plundered so one person could get what he wanted from another without their consent.

For Americans, it is heralded as the fundamental principle under which our country was based: It is held to be a self-evident truth that all men are created equal and endowed with certain unalienable rights among which are their individual rights to life, liberty and the pursuit of happiness.

Capitalism Fosters Honesty and Good Manners

As a consequence of this principle of liberty, in the marketplace of the free society individuals learn and practice the etiquette and manners of respect, politeness, honesty and tolerance. This naturally follows from the fact that if violence is ethically and legally abolished, or at least minimized, in all human relationships, then the only way any of us can get others to do things we would like them to do for us is through reason, argument, and persuasion.

The reason why the shoe salesman is motivated to act with courtesy and deference toward us when we are in his store is precisely because he cannot force on us to buy a pair of the shoes he wants to sell. We can walk down the mall corridor and buy those shoes from another seller interested in winning our business, or we can just go home without buying anything that day.

The clichés of “serve with a smile,” or “the customer is always right,” in fact are inescapable resulting manifestations of the voluntarist principle at the basis of all market transactions.

No businessman is likely to keep his market share or even stay in business in the long run if he earns a reputation for rudeness, deception and dishonesty in his dealings with either other businesses or his consumer customers.

The famous Scottish economist of the 18^th century, Adam Smith, long ago explained that the motivation for respectful, polite, honest and deferential behavior on the part of any businessman is his own self-interest. If he does not, he may not long remain in business, as every private enterpriser knows who had learned to appreciate the importance of gaining and maintaining his brand-name and personal reputation in the eyes of all those with whom he has dealings.

Such polite, courteous, honest and deferential behavior may start out as the self-interested conscious and intentional attempt to merely succeed in the market pursuit of profits, when voluntary and free market dealings and transactions become the common and everyday way in which people associate.

But, over time, such rules of “good behavior” become habituated, a part of the routine of regular day-in and day-out interactions, until, finally, they are transformed into the customs and traditions expected in any and all human encounters, whether in the marketplace or not.

Thus, the practice of self-interested good manners and respectful tolerance fostered first in commercial buying and selling become embedded and reinforced as the general societal rules and ways of civilized and “polite society.” And, thus, capitalist conduct makes its contribution to a more cultured and humane civilization.

Capitalism Creates a Spirit of Humility, Not Political Arrogance

Finally, I would suggest that free market capitalism also inculcates a spirit and attitude of humility. In the open and competitive marketplace, anyone who has an idea or a dream is free, in principle, to try to bring it into reality. No private person or political power has the right or authority to prevent him from entering the field of enterprise and trade to discover if his idea or dream can profitability be brought to fruition.

The capitalist “rule of the game” is that anyone is at liberty to enter the arena of enterprise if he has the will, determination and drive to attempt to make that new product, that better product, that less expensive product. This implicitly takes for granted as an underlying assumption that no one, not any of us, has the knowledge, wisdom and ability to know beforehand whose ideas and efforts can turn out to be a success rather than a failure.

The Austrian economist and Nobel Prize-winner, F. A. Hayek, once referred to competition as a “discovery procedure.” If we knew ahead of time who in a marathon, for example, would come in first, second, third and so forth, as well as the actual relative times of the runners, what would be the purpose of running the foot race?

Even when we have the track record of previous marathons, and think we know something about the relative strengths and weaknesses of the competitors looking ahead to a future race, the fact is we do not know how the race will actually play out, until the runners finish the course.

The humility of the marketplace, no matter how strongly confident the individual businessmen may be in their own ideas and abilities, is that no one – neither an private individual nor even the most well-informed government bureaucrat – has sufficient knowledge and forethought to successfully “pick winners” and “avoid losers” for the good of society as a whole.

This can only be found out through the competitive rivalry of the private enterprisers who are each trying to make the product or supply the service that will gain the business of customers, as found out from whose products or services the buying public actually decide are the ones that best fulfill their existing or discovered needs, desires and wants.

Capitalism’s Moral and Virtuous Watchwords

The watchwords of capitalist free market morality, therefore, are liberty, honesty and humility. The freedom of each individual to live and choose for himself; the ethics of fair dealing – that is, human relationships on the basis of force and fraud are banned in all their forms; and the modesty to admit and accept that none of us is wise enough to arrogantly claim the right to plan and coercively direct others in society.

Not only would it be morally wrong to presume to tell others how best to live by reducing them to the status of commanded followers of our own ideas and desires, it would limit what all mankind can accomplish to what the government central planner or regulator can imagine and know within the limits of his own mind’s possibilities for understanding all that there is to know.

How much better, both for the individual and all the rest of us, to leave everyone at liberty to think, imagine, and act as they consider most profitably best for themselves, so all in society can, also, benefit from what a human mind can creatively conceive that others may not.

We live at a time in which real-world capitalism is hampered and stymied in almost every direction by the heavy hand of government regulation, control, restriction, prohibition and taxation. It is politically managed and manipulated capitalism, and very far, therefore, from the truly free market capitalism that I have outlined in terms of its moral premises and social virtues.

It is certainly not the twisted conception of “capitalism” that is presented in the media and the movies. Real free market capitalism, by recognizing and respecting the right of the individual to his own life and liberty and honestly acquired property, is that economic system that offers humanity the most moral system of human association imaginable by and for man.

Free market capitalism is the ethical highroad to human dignity and mutual prosperity – if only we are willing to fully establish and consistently practice it.

By Richard Ebeling

The Spanish philosopher, George Santayana (1863-1952) is usually credited with the phrase, “Those who cannot remember the past are condemned to repeat it.” Nowhere is this truer than with the renewed idea and demand for the establishment of a socialist economic system.

A noticeable number of intellectuals inside and outside the ivy tower of academia, as well as a vocal segment of those on the “progressive” side of American politics are insisting on the desirability and necessity for ending the “neo-liberal” capitalist system and replacing it with a “democratic” socialism dedicated to “social justice,” “identity politics,” and relatively comprehensive centralized planning of economic and social affairs.

Listening to and reading the arguments of these proponents of the “new” socialism, you would think that nothing had happened over the last one hundred years that in any way, shape, or form had anything to do with the case for and likely consequences from introducing socialism into 21^st century society.

In their minds, what have been considered to be “socialist” regimes in the 20^th century were either “false” forms of socialism not representing what a “real” socialism could and would look like; or they were socialisms that went wrong because the “wrong people” were in political power in socialist countries around the world; or the full possibilities and potentials of those socialist experiments were undermined and weakened due to American imperialist interference trying to make them “fail;” or the “new” socialists just try to ignore the history of socialism over the last one hundred years, sending it all down an Orwellian “memory hole.”

Early Anti-Socialists Warned of Tyranny and Plunder

Their naïve optimism and confidence might have been understandable and even excusable before the First World War. Before then, socialism was still primarily a political ideal and dream of those wanting to make over society so mankind could have a beautiful and more just and prosperous future. But even then, in the 19^th century, critics of the socialist promise warned in often amazingly prescient ways, given all that has happened over the last one hundred years, what socialism-in-practice would really mean.

Those earlier critics of socialism warned that a triumphant socialism would mean a terrible tyranny. Socialism would mean comprehensive government ownership and control over all the means of production. Such total control by those in political power and directing the central planning of all economic activities in the society would hold the destiny of everyone in their hands.

A socialist government would determine where and how you lived, the type of work and employment opportunities you had, the education that you and your children would be allowed, the types and quantities of goods to which you would have access, as well as the political, cultural and philosophical ideas you would be permitted to read and learn about and discuss.

Nothing would be outside of the restricting reach of the socialist state of the future. Each person would be nothing more than a cog in the collectivist machine, commanded, controlled and, when necessary, coerced to serve and be sacrificed for the wider and more important socialist good.

In spite of all the rhetoric and promise of the “liberation” of man under the socialism-to-come, the actual individual human being would be lost in the collective mass of “the people” as a whole, for which all that the socialist state implemented was the rationale and justification.

The critics of socialism also warned that “human nature” was not a moldable putty to be remade into a new “altruistic man” unconcerned with personal self-interest once common ownership had replaced private ownership over the means of production; and once a new generation had arisen that was sufficiently “re-educated” by the state to have been freed from “bourgeois” thinking, attitudes, and proclivities of focusing on the self rather than the group.

All that would have changed was the institutional setting within which human nature manifested and played itself out. Such extensive and monopolized economic power, as would exist under socialism, would merely mean the motives and incentives would be shifted to gaining political control over the state to use its power to benefit oneself and others important to oneself, at the expense of everyone else. (See my article, “John Stuart Mill and the Dangers of Unrestrained Government”.)

Early Criticisms of Economic Planning

Finally, a number of these critics of socialism pointed out the inherent unworkability of a socialist central planning system once private property, competition, and market-based prices had been abolished through the nationalization of the means of production by the government. How would producers know what to produce if competitive supply and demand did not generate the market prices to tell producers what it was that consumers wanted and the relative value they placed on those goods? Indeed, how could supply and demand be brought into coordinated balance if market-based and changing prices did not constantly and continuously adjust the two sides of the market?

How would competent directors of production be selected with the end of private enterprise, absent entrepreneurs to direct those enterprises who had proven their worth through winning profits and avoiding losses? How would labor be efficiently and effectively directed in their employments for assisting in the manufacture of the goods that consumers wanted, if in the name of “social justice” wages were determined by the socialist redistributors of income rather than by market-guiding wage incentives?

Every one of these worries and warnings turned out to be true in every instance in which fairly comprehensive socialist central planning was imposed and implemented anywhere and everywhere around the world over the last one hundred years. To enumerate them would be too gratuitous for anyone who possesses even a limited knowledge of the reality of socialism-in-practice. (See my articles, “Paul Leroy-Beaulieu: A Warning Voice About the Socialist Tragedy to Come”, “Socialism: Marking a Century of Death and Destruction” and “The Human Cost of Socialism in Power”.)

World War I Ushers in Government Central Planning

Virtually all of these earlier criticisms of socialism were ignored and went unanswered. For the most part, the socialists of that time set them aside as the misplaced rationalizations for those trying to defend the unjust, immoral, and exploitative capitalist system. They were rearguard attempts to hold off “the future” by confusing “the workers” concerning the truth of the terrible system under which they lived. There was a “right side of history,” and it was the socialist society-to-come.(See my articles, “Karl Marx and a Presumption of a ‘Right Side’ to History,” Part I and Part II”.)

But with the First World War and its immediate aftermath, socialism was no longer a dream, a promise of the future ahead of mankind. The future had arrived. During the conflict, the belligerent governments on all sides had introduced systems of government planning to one degree or another in the name of marshaling the resources of the nation in the service of “winning the war.”  Then in the midst of the war, in November 1917, Lenin and his Bolshevik Party overthrew the Russian provisional government that had replaced the monarchy when the Czar abdicated in February 1917.

The declared goal was the overthrow of “capitalism” and the instituting of a socialist economy. Lenin’s government soon implemented what he called “war communism,” an immediate leap into full socialism as the means to harness and direct those parts of Russia under its control in the civil war that broke out in 1918 between the Bolshevik regime and the anti-communist “White Armies.”  Then in 1919, short-lived Soviet regimes came to power in Bavaria and Hungary. The Democratic Socialists running the postwar German government in Berlin organized a “socialization commission” to study and plan the replacing of German private enterprise with a socialist economic system.

Ludwig von Mises Challenges the Workability of Socialism

In the face of all of this, in 1920, the Austrian economist, Ludwig von Mises (1881-1973), published an article offering a devastating critique of “Economic Calculation in the Socialist Commonwealth”. It was expanded into a full and detailed treatise challenging all facets and forms of collectivism two years later in a book that in its English translation has the title, Socialism: An Economic and Sociological Analysis (1922; revised eds., 1932, 1951).

Thus, the year 2020 marks the one-hundredth anniversary of Ludwig von Mises’s demonstration of the inherent and inescapable unworkability of a socialist central planning system. Though spiced in a few places with biting and satirical rhetoric about the socialist vision of the world, Mises’s 1920 article and the book that followed are serious and methodical analyses of the institutional nature of a socialist economic system, and the limits and barriers it places in the way of rational and efficient decision-making of the scarce resources of society for satisfying consumer wants in a social setting without private property, markets, and prices.

Mises wished not to question the benevolent sincerity of those wanting to establish a system of central planning. The core of his argument makes no presumptions or accusations that those in charge of the socialist society will be malevolent tyrants, or abusers of their political power to benefit themselves. In addition, he makes no assumption that come the socialist society, individuals will be any less industrious and motivated to be as productive as they currently are found to be in private enterprise, market-oriented societies.

Instead, he asked, when socialism will have nationalized the means of production and placed it in the hands of those directing the central planning of the society; when, as a result, markets and competition for the purchase and sale of the factors of production will no longer exist; and when, as a consequence, there will be no existing price system for the factors of production, how will the central planners know the most highly valued and cost-efficient uses and allocations of the land, labor and capital under their command and control?

Retail Prices Might Exist and Function under Socialism

His answer, in a nutshell: They will not know. It could be imagined that prices might still exist for consumer goods, instead of a strict allocational rationing by the state. The central planners will have decided how much of the various consumer items to produce in a given period and offer them for sale in the “people’s” retail stores at prices set by the government. Existing inventories might be bought up more quickly than the central planners had anticipated, or unwanted inventories might accumulate on the shelves because they were not the quantities or types of goods the citizens of the socialist society wanted to buy.

This would indicate the need for the central planning agency to raise retail prices to slow down the rate of purchase to prevent wanted goods from disappearing from the state retail stores too quickly until the next shipments arrived, and the need to lower other retail prices to clear out the unwanted inventory of those goods in lesser demand.

This would also indicate, Mises said, the need for the central planners to increase the output and availability of the former goods and reduce the planned production of the latter goods.

No Prices for Production Goods Means No Economic Calculation

But the real question was, in Mises’s view, how would the central planners decide how best to produce the various goods with the means of production at their disposal? “Land, labor, and capital” are made up of physically distinct, and technically varying possibilities for allocation and use. This is not merely in the general sense that some physical means of production might be usable for, say, making hats, but not for making cough syrup. But that there exists wide and intricate ranges of possible complementarity and substitutability in terms of what combinations of these physical means of production might be used to make any number of different and competing finished goods in varying amounts that consumers want.

How could their respective values be expressed for determining what relative quantities might be their highest-valued production use in one direction versus some other at the margin of decision-making?  In the market economy this is made possible because rival private enterprisers compete for their purchase, hire, or rent in markets in which they are bought and sold; in addition all of these heterogeneous and physically different means of production are reduced to a valuational common denominator in terms of the money prices at which there are bids and offers for those factors of production on the supply-side of the market.

This enables the private enterprisers to estimate and appraise whether particular lines of production would generate profits or create losses. If they seem possibly profit-making, the money prices for those factors of production enable a working judgment about which combinations of them might provide the least-cost expenditures on the supply-side to bring the good in question to market.

The problem that the socialist planners will face is that they will have done away with all the institutional prerequisites for this type of rational economic calculation with the abolition of private ownership of the means of production, and therefore an end to markets and prices for their purchase, hire, or rent.

Existing Socialist Societies Did Not Imply Economic Rationality

In several places in his 1920 article and in his later book on socialism, Mises made the stark statement that this meant that socialism was “impossible” as an economic system. Many critics later ridiculed this “extreme” statement of his as patently incorrect. Was there not the Soviet Union and, after the Second World War, many other socialist societies that “existed” with systems of central planning that were producing, allocating and distributing goods and services? These planned economies had not “disintegrated” away into the “planned chaos” about which Mises had many times warned.

In retrospect, it is clear that Mises’s choice of words in the “excitement” of coming to his conclusions about a socialist economy was not perfectly chosen, and he, in fact, in several places found it necessary to clarify what he had meant in speaking about the “impossibility” of socialism.

First, he said that he was not suggesting that a centrally planned society could not exist. It could, and, obviously, did in the face of the Soviet experiment with central planning. The question was not whether a central planning agency could or could not allocate the factors of production under their control and command into various uses according to “the plan” designed and implemented.

The issue was whether the planning agency had the institutional ability to do so with the same rationality and cost-efficiency, in value terms, as a functioning competitive market economy. Would the scarce means of production be allocated and utilized in a manner of getting the most out of those means as was possible, not in technical terms, but in terms of their distribution among alternative productions that reflected their most highly valued allocation, expressed in the demands of the consuming public?

In a fully and comprehensive socialist society the answer had to be “No.” With no private property in the means of production, there is nothing (legally) to buy and sell. With no buying and selling, there are no potential gains from trade. With no potential gains from trade, there are no bids and offers, and no “haggling” of the marketplace. Without bids and offers, there are no agreed-upon terms of trade. Without established terms of trade, there are no prices.

Without market-generated prices, there is no way to know what individuals who otherwise could compete for the use of those factors of production in a market economy really think them to be worth as stepping stones to (hopefully) earning profits by producing what consumers want, and better than one’s closest rivals who are also competing for consumer business in the same or other markets.

Socialism is “impossible,” in the sense Mises was arguing, in that it was institutionally unable to create incentives and opportunities for rational decision-making concerning the use of society’s scarce means in service of the consumers’ ends in any way approaching the efficiency and effectiveness of competitive capitalism.

The socialist ship would be like a sailing vessel on a cloud-covered night, out of sight of land, without a working sextant or a functioning rudder to enable workable economic calculation. The socialist ship could be moving about, but had it selected the best means for moving the ship through the water, and was it getting to where it wanted to go in the least time with the smallest expense of resource use to get there? The central planning “captains” of the socialist ship would have no way of knowing.

The Soviet Economy was a Socialist Island in a Sea of Capitalism

In addition, Mises made the point many times over the years that the Soviet “experiment” was not occurring in a hermetically sealed economic environment, having to operate totally on its own in trying to decide what and how to produce. The Soviet “island” of socialism existed in an ocean of surrounding market-based societies. As a consequence, the Soviet central planners were able to make more rational decisions than otherwise would have been the case because they would use what, today, is referred to as the “shadow prices” of “neighboring” market economies.

Though the circumstances prevailing in those market economies did not have any one-to-one parallel with the conditions in, say, the Soviet Union, they did offer guides and indicators for the Soviet planners directing their methods for more rationally applying and using the means at their disposal for the ends they had decided upon.

This was no different, Mises explained, than those instances of “municipal socialism” that existed even before the First World War, in which towns and cities “socialized” various municipal services such as waterworks, gas and electric supplies, or bus and trolley rides within their local jurisdictions. Prices in the wider market in which these “socialist” services were provided for “free” or at a government-determined price could still sort out whether they were using the resources they controlled for the supplying of these goods and services in cost-efficient ways, because many of the inputs used were still bought and sold, and had prices usable for purposes of economic calculation.

“Market Socialism” Offered as a Reply to Mises

In the 1930s, a number of socialists tipped their hats to Mises for having emphasized and reminded the advocates of central planning that every economic system, whether capitalist or socialist, has to have an institutional mechanism for making rational cost decisions in determining how best to use the means of production to effectively fulfill the chosen ends. Prices were essential for making this possible, and to be expressed in a monetary common denominator.

Indeed, one of the most famous of these socialists, the Polish economist, Oskar Lange (1904-1965), even sarcastically proposed that in the socialist society of the future a statue of Ludwig von Mises should stand at the entrance to the central planning agency for reminding every good socialist how important prices were to successfully fulfill the socialist goals.

The “answer” Lange and others gave to Mises’s challenge was to propose versions of “market socialism.” The central planning agency would initially set prices for the various factors of production. The factory managers of the socialist enterprises would be told to act “as if” they were attempting to minimize costs and maximize profits. In other words, they were to “play” at being private enterprisers, “buying” the factors of production at the prices set by the planning agency, though they were working for and being paid by the state. And any profits earned primarily would be passed on to the central government.

If it was discovered that at the prices set by the central planning agency, there was experienced surpluses or shortages in the supplies of the factors of production, the central planners would change those prices up or down to move them into the direction of equilibrium, “just like private markets do,” it was claimed.

The central planning authority would retain ultimate decision-making authority, however, concerning the allocation of capital; otherwise, the managers of the socialist state enterprises might attempt to expand or contract their physical capacities to produce output in directions inconsistent with the “socially desirable” goals and “needs” of the people, as determined by the higher central planning decision-makers.

Mises Had Already Anticipated and Answered the Market Socialists

Lange and other socialists made their cases for “market socialism” as if they had found an undiscussed weakness in Mises’s original arguments against central planning. The truth is that already in the 1920 article, and certainly in the more detailed analysis in his book on socialism, Mises had anticipated much in the market socialist argument, and had already responded to it.

Mises pointed out that the real problems of market prices and economic calculation arose from the fact that we live in a changing world. If the world was in a stationary equilibrium in which what happened yesterday will happen exactly the same today, and tomorrow, in turn, will be just like the day before, the prevailing prices could be used as an indicator of what and how things should be done with the means of production.

It’s when yesterday’s prices no longer reflect real supply and demand conditions as they exist today that the problems of economic calculation rise to the foreground. First, any price adjustments introduced by the central planners will lag behind the changes occurring in the market; they will not be modified as quickly and responsively as when the price-adjustment decision-making is done by the interested and relevant private enterprisers in their respective corners of the market as they experience and discover the changed circumstances to which prices and production plans must adapt.

Second, markets and decision-making cannot be “played at.” The private enterpriser is risking his own capital (or the capital that he has borrowed from others, which he is under the obligation to pay back with interest). The state enterprise manager is not risking his own economic well-being and financial circumstance in the same manner as a private sector counterpart. There are no losses to be avoided or profits to be made by the state enterprise manager in the same way as with the private businessman and entrepreneur.

And, third, market entrepreneurs and investors are guiding and directing the capital they own and use, based on their estimates concerning where market profitability indicates labor, resources, and capital equipment should be redirected in those changing circumstances over time. Under “market socialism,” Lange and others were very clear that decision-making concerning the allocation of capital could not and would not be determined by the state enterprise managers.

The state enterprise managers’ horizons went no further than the affairs of the particular firms over which they, respectively, had oversight. The central planner’s perspective was the “socially necessary” capital uses and investment looking at the socialist society as a whole. Thus, the direction of the economy was assigned to the central planning agency, and neither to private entrepreneurs guiding capital investment according to market-based prices and profitability (because they were gone) nor by the state employees in charge of the government-enterprises.

This meant that the ultimate use of capital in the socialist society was outside of any economic calculation. And, thus, it was “arbitrary,” based on the judgments of what the planners and the political leaders “above” them decided was the socially “really needed.” The allocation and use of capital are outside of supply and demand, and hence outside of rational decision-making.

It was for these and related reasons that Mises stated in 1931 that:

“Inasmuch as money prices of the means of production can be determined only in a social order in which they are privately owned, the proof of the impracticality of socialism necessarily follows . . .It alone will enable future historians to understand how it came about that the victory of the socialist movement did not lead to the creation of the socialist order of society.”

With the end of the Soviet Union and the other socialist regimes in Eastern Europe in the early 1990s, the general belief was that socialism and central planning had been shown to be failures: neither freedom nor prosperity had been forthcoming. Government planning had turned out to be a disaster of economic wastefulness, with little connection between supply and demand, and misallocations and misuses of the means of production, overlaid with perks and privileges through a hierarchy power and position within the socialist system.

The Green New Deal as a “War Strategy” Against Global Warming

But in spite of all this, and the debates over the workability of socialism during the last one hundred years, the central planning idea is returning with a vengeance. It is reflected in the proposal for a Green New Deal. The planet is threatened with destruction due to “climate change” caused by man through the use of fossil fuels to feed the insatiable human appetite for material wealth and betterment.

With unhesitating hysteria, it is warned that humankind has, maybe, a dozen or so years to stop and reverse the mounting effects of global warming before the seas rise enough to significantly flood coastal areas around the world. Rising temperatures will disrupt how and where we all live. The death of Planet Earth is upon us.

The world can no longer afford the leisure of market-based prices, production and profit-directed decision-making. So how should the problem of climate change and global warming be tackled? The Levy Economics Institute of Bard College has recently published a paper, “How to Pay for the Green New Deal,” by economists Yeva Nersisyan and L. Randall Wray, who offer what amounts to a central plan for America.

They insist that the threat of global warming must be viewed as a “moral equivalent of war,” that requires single-minded determination and willingness to do “whatever it takes” to defeat the fossil fuel “enemy” threatening an end to mankind. America must think of the Green New Deal as this generation’s version of pulling all together to defeat the Nazis in World War II.

Back then there was no in between; either the Nazis won, or “we” did. Either global warming wins and kills all life as we know it, or “we” win and “save the planet.” In their eyes, that is the apocalyptic catastrophe and categorical choice facing humanity. Marginal decision-making has no place, clearly, in “wartime.”

If this vision of mankind’s situation is correct, no price is too great to succeed, the authors insist. Failure means, well, “the end,” similar to a Nazi victory, which would have meant the end to freedom and global civilization. The decision set is “either/or,” that is, categorical and not incremental, according to them.

The Technologically Possible to Save the Planet; Costs Don’t Matter

So, what is to be done? The economy will have to be directed from “the center” of political decision-making and centrally planned. They do not use the phrase, “central planning,” but a rose by any other name . . .

What matters, they tell us, is technical feasibility, not the “cost” of what is to be done. Or as they quote another proponent of such policies, “Whatever is technologically possible is financially feasible.” What is needed is a tabulating of what the resource needs would be to implement the technical requirements of replacing fossil fuel-based production with renewable energy sources, plus the resources and manpower to do the necessary infrastructure retrofitting and transformations in ways of living and producing that would be consistent with making over all the consumption and production activities in any and all ways that would no longer worsen the environment.

They admit that there must be some way to add up the costs of utilizing the needed resources and manpower to do all this, and they say the easiest way are the monetary expenditures to bring those means of production to bear for the fight against global warming.

But what becomes the meaning and significance of these prices in the implementation of the Green New Deal? They admit that undertaking this task requires shifting control and use of a significantly larger fraction of Gross Domestic Production (GDP) over into governmental hands and decision-making. Even when it does not require a literal transfer in the form of direct control, government spending to bring about the needed reallocations of labor and resources and forms of production means that any market prices would reflect the central planner’s demands for more and more of those resource uses through dollar spending, and less on the value estimates of the consuming public through their private demands for goods and services.

The Green New Deal is Also About “Social Justice” Goals

Furthermore, the authors say that the Green New Deal is not only about saving the planet from destruction, but reducing income inequality, guaranteeing jobs for all, assuring a living minimum wage for everyone employed, and fulfilling the promise of government-provided “health care for all,” plus a grab bag of many other “good things.”

Increasingly, the relative structure of prices and wages would no longer reflect market-based and generated estimations of private-sector consumer demands and market-based appraisements of the opportunity costs of the factors of production in their alternative uses. Instead, replacing it would be government-created, manipulated, and imposed price relationships increasingly representing nothing real outside of the wishes of the Green central planners.

In this circumstance, how will the government planners know if they are cost-efficiently using the scarce resources of the society for the competing uses of renewable fuel production methods, versus health care-for-all expenditures, versus infrastructure retrofitting manufacturing, versus guaranteed jobs for everyone that create value-added greater than the expense of employing them in ways directed by the government, versus all the other rival activities the government will be expected to undertake, plus in comparison to what remains as private sector demands and resource uses in society?

In other words, all the marginal decisions and economic calculations do not go away even under a “moral equivalent to war” to defeat global warming.

The Green New Dealers Presume Bountiful Idle Resources

So how will the Green New Deal central planners know how and what to do with the equivalence of market-based price rationality? The answer is: the planners will not and cannot know. They can assign money prices to various goods, resources, and labor services. They can use prices still partly set by markets where government demands still openly compete with private sector demands. But, at the end of the day, the resulting price structure increasingly has nothing to do with any real and reasonable basis for knowing whether the economy is being managed “cost-efficiently.”

It is true that the authors make dollar value estimates concerning all the savings that the society will experience from, for instance, the asserted lower costs that will come from government-provided and managed health care compared to the declared far more costly private sector provision of medical treatment. The government will bring into use vast amounts of supposedly unemployed or underutilized labor supplies and wasted and idle resources just waiting for government to bring them into production.

The authors view the situation, to use the jargon of the economist, as one in which the American economy is operating far within its production possibility frontier of maximum feasible output, so large quantities of land, labor and capital are idle and wasting away and can be brought into use with no required trade-offs of giving up some of one thing to have a bit more of another.

Taxes, Price Controls, and Compulsory Savings to Fight Inflation

To save the planet the government would only have to raise taxes if the economy reached full employment and price inflation were to set in. Higher taxes would siphon off the inflationary excess demand. Furthermore, in the government’s policy toolkit would also be general wage and price controls to fight inflationary threats. But they admit that price controls can create shortages due to prices being fixed at levels not able to bring supply and demand into balance.

If full employment were to threaten to bring an end to their scarcity-free war against global warming, they have a preferred method of assuring that inflation-causing spending does not get out of hand, while seeing to it that all the needed resources are freed up to do all the Green New Deal work to be done.

Inspired by a method proposed by Keynes during the Second World War about how to pay for the war, they advocate the imposing of deferred consumption accounts for the working population. Rather than any full money wage increases under the pressure of government demand for resources and the resulting inflationary pressures on prices in general, part of workers’ incomes would be shifted into mandatory savings accounts that sometime in the future when, one presumes, the war against global warming will have been won, the accounts could be incrementally cashed out.

In the meantime, income earners would be compelled to participate in a form of “forced savings” that reduces the level of consumption and the standard of living of the general income-earning public as part of the price for victory over climate change. But here, again, the government ends up dictating people’s consumption-savings ratios, rather than income earners’ deciding on their own subjective (personal) time preferences concerning present and future consumption, and therefore willingness to save.

All of this intensifies the underlying economic unreality and irrationality of Green New Deal central planning. Done away with are the values, prices, and costs, that are only knowable when “the people,” themselves inform each other what it is they want, what they think it would be worth paying, and what might be the reasonable costs to bring about the supplies of the competing productions to satisfy the market-determined and reflected patterns of consumer demand.

But, until (tragically!) scarcity reemerges and forces on the Green Planners the necessity to choose and trade off among all the wonderful things they want to do, there is the miracle of bank credit creation to fund and finance anything and everything that the government needs to do to save the planet and give the country a more intensive and intrusive welfare state – and all at the same time – according to the authors.

Tragedy of the Commons, Self-Interest, and Handling the Rising Tides

If global warming represents the type of danger and threat reflected in the authors’ hysteria, it will be in the personal interests of people as consumers and as profit-oriented producers to discover ways to mitigate at the margin the full impact of such environmental change. Not every inch of coastline is really worth “saving” from a rising sea, if we keep in mind that there are trade-offs, and marginal costs and benefits that people would and will make if confronted with such a problem.

If coastal properties are increasingly threatened in the ways feared, insurance companies will incrementally nudge up home and property insurance policy premiums to differing degrees depending on where and the estimated degree of threat to insurable real property. Home and other property owners in these coastal areas would make the needed marginal decisions about the costs worth incurring to reduce the damage risk or to move away.

Part of the futility of implementing an “American” Green New Deal to do away with fossil fuels is that global warming by definition is a global problem. But it is an element of the tragedy of the atmospheric commons that other nations and their governments might formally or informally decide not to implement any comparable Green New Deals.

Cartels are, historically, highly unstable due to cheating among the participants unless the government comes in and uses its threat of coercive penalty to assure an abidance of the rules. Governments are notorious on cheating when it serves their interests in terms of intergovernmental agreements. And there is no super-government to dictate terms and conditions, and there will not be in any foreseeable future, whether or not that is considered to be a good or a bad thing.

It seems better, then, to treat any danger from global warming as if it was caused by purely “natural” forces in the planet’s own cycles of heating and cooling. Something, in other words, not man made that we can stop, but to which we can only adapt and adjust, to the best of our ability.

Fully Privatization, Not Green Planning, to Deal with Global Warming

To assure the greatest incentives and flexibility to do so, we should take to heart the lesson from Ludwig von Mises’s critique of socialist central planning. That is, it is necessary to privatize as many such common areas and spaces as is in any way possible. To “internalize” the externalities caused by man and nature, and thereby create the incentives and profitable opportunities for people to discover the methods and find the mutually beneficial trade-offs to minimize the individual and therefore cumulative social damages that such environmental change may bring with it.

Privatizing as many of these common areas as is possible means that we bring them into the arena of markets and prices. By doing so, we introduce the rationality of economic calculation into areas in which that had not been possible before or far less completely. And once we do, we know the market-based cost and value of something; we discover what it is worth to have and to hold, to preserve or improve, or to set it aside because it’s not worth it relative to the alternatives.

It may be a century, now, since Ludwig von Mises offered his famous critique on the “impossibility” of rational economic calculation under socialist central planning. But the renewed call for a new “democratic” socialism and a Green New Deal of government planning shows that his argument remains as relevant today as when he penned it a hundred years ago.