"This is the engine that's lifting humanity out. The entrepreneurs are the drivers of that engine."

"Capitalism created the possibility of the win-win-win. It used to be a zero sum game where somebody won, somebody else lost.  

"It was never a zero-sum game in my mind. You’re always trading with your customers and your employees and your suppliers for mutual benefit, mutual gain. That’s the miracle of capitalism. That’s why humanity has been lifted out of the dirt in the last 250 years. The Industrial Revolution led humanity out of this trap that we were in, which really was a zero-sum game. ...

"The biggest mistake people make, intellectuals in particular, they still think we're in a zero sum world. They're obsessed with some billionaires because Bernie Sanders thinks that Jeff Bezos and Elon Musk somehow stole the money from the people. 

"They don't understand that it's this prosperity machine that's creating more, not just for those billionaires, but for everything that they're touching. They're creating value for their customers, they're creating value for their employees. Their suppliers are flourishing, their investors are seeing their capital go up. It can be reinvested and compound. 

"All philanthropy ultimately comes from business. That's where the profits are. Where do all the taxes come from? It ultimately comes from business as well. 

"This is the engine that's lifting humanity out. The entrepreneurs are the drivers of that engine. Somebody like Elon Musk, he gets a very, very, very tiny sliver of the value that he creates for the whole world."

~ Whole Foods founder John Mackey on the Win-Win Mentality That Lifted Humanity Out of the Dirt [hat tip David Senra]

'Nature-al’ Entrepreneurship: Being Green Without the State | Timothy Terrell

If you want to go green, you should do so without the state’s coercion, says Timothy Terrell at the Mises Institute conference in Oklahoma just last week. In this guest post, based in a lightly edited transcript of the talk, he explains how entrepreneurs and property rights can protect forests, wildlife, and open spaces better than bureaucracies, using real-world examples of “enviropreneurs”....

'Nature-al’ Entrepreneurship: Being Green Without the State

by Timothy Terrell

I subtitled my talk being green without the state, but I'm not trying to put some sort of free-market twist on a lecture about how you need to use an electric lawn mower or recycle or something like that. I'm in fact going to try to avoid pushing my preferences about uses of the environment altogether. That's not really my point here. 

People have different ideas about what is good and about what is useful. And I like the many useful things that we can make with the resources we extract from the environment. 

Many people like me also enjoy wilderness land and views of wildlife. I like forests and rivers. I like knowing that some species of antalope or rhinoceros are still with us, even if I'm not actually going out and looking at it myself. 

What I want to do is show that entrepreneurship is compatible with those goals. 

Entrepreneurship and the environment

An entrepreneur is a person who anticipates a future consumer demand and tries to adjust the factors of production to accomplish that, for the consumer, in search of a profit. For many people, this seems just diametrically opposed to the idea of solving problems related to the use of the environment. I'm going to suggest it's not only not incompatible, that it's essential that we think of things this way. 

We tend to think of entrepreneurship as being separate from the natural world, or at least just making goods that require extracting some substances from the world and then manipulating them into some product. What I'd like to do here is make the case that entrepreneurs can do this with nature as well, creating goods in a sense that have nature in its natural state, or at least something close to it. 

Environmental resources have value that is determined by the goals of the customers. The entrepreneur must satisfy those customers to earn a profit. So we say that environmental value is imputed -- that is to say that the value of the resource in the environment is derived from the value of the product that's made from that resource. 

An environmentalist of the anti-capitalistic type however, which is a very common type, might protest. Um, wouldn't we say that elements of the environment have some sort of value apart from whether they can be turned into a toaster or turned into a fur coat? And uh, you know, they might say, well, do we have to make everything uh into some kind of raw material for a factory? And I would say, well, certainly not. We have to think more broadly about what customers really want. 

Entrepreneurs respond not only to people who want goods that are manufactured out of the environment. They respond to people who value the natural world as more than just a source of calories, minerals, or fibre. 

Many people want goods and services that are the products of factories. We all do that to some extent, but we also value goods and services that are best provided by an environment in its natural state. So, people want the same kinds of things I want when I head out to the wilderness, as I like to do and don't get to do as much as I'd like. 

Maybe some people just want the knowledge that there is a place where land and wildlife exist without human contact. Even if that means we're not necessarily going to go and visit that place. Many of us just like knowing that there is such a place and providing those things is not outside the realm of entrepreneurship. 

Value? Whose value?

But I think we need to clear up something first. Some environmentalists want to separate the idea of value from a valuer. And I think that's a that's a serious problem. 

"Economic theory has identified four sources of economic progress"

In January Javier Milei explained to a room of Davos delegates to the WEF forum how the world works, and how economic progress and prosperity happens. This is an excerpt. [Milei's speech was originally in Spanish, and the English version at the WEF website has been transcribed by AI. I have edited slightly it for smoothness and clarity. Emphases mine]

As early as 380 BC, Xenophon pointed out that economics is a form of knowledge that enables men to increase their wealth while arguing that private property is the most beneficial vehicle for the life of individuals.

Xenophon ... [first] highlight[ed] the benefit of private property by stating that the owner's eye fattens his cattle. [Or as the English saying has it: "It's the master's eye that makes the mill go"]... Xenophon then delves into the dynamic realm, noting that efficiency also entails increasing wealth: that is, increasing the available quantity of goods through entrepreneurial creativity, namely through trade, innovation, and recognising opportunity. ...

"[T]he institution of private property deserves a separate chapter. By focussing on it, the Austrian School of Economics from Mises, Hayek, Rothbard, Kirzner and Hoppe to Huerta de Soto has demonstrated the impossibility of socialism, thereby dismantling the illusory idea of John Stuart Mill that postulated independence between production and distribution; a form of academic deafness that led to socialism, and cost the world the lives of 150 million human beings -- while those who managed to survive the terror, did so in absurd poverty.

In line with [those writers'] previous remarks, and consistent with Xenophon's second [point], economic theory has identified four sources of economic progress.

First, there's the division of labour, which was illustrated by Adam Smith through the pin factory example. At its core, this is a mechanism that generates productivity gains, manifested as increasing returns. Although its limit is determined by market size, the size of the market is positively affected by this process. However, it is also worth noting that this virtuous process is not infinite and that its ultimate limit lies in the endowment of initial resources.

Second, there is the accumulation of capital, both physical and human. With regard to physical capital, the interaction between saving and investment is crucial, highlighting the fundamental role of capital markets and of the financial system in carrying out such intermediation. On the human capital side, the focus should not be limited to education alone, but should also include the development of cognitive capacities from birth, as well as nutrition and health, basic elements for gaining access to education and the labour market.

Third, there is technological progress, which consists in being able to produce a greater quantity of goods with the same amount of resources, or to produce the same output using a smaller quantity of inputs.

Finally, there is entrepreneurial spirit, or rather the entrepreneurial function, which, according to Professor Huerta De Soto constitutes the main driver of the economic growth process. Because, although the three factors mentioned are important, without entrepreneurs, there can be no production, and living standards would be extremely precarious.

In fact, the entrepreneurial function is not so much focused on short-term efficiency, but rather on increasing the quality of goods and services, which, in turn, leads to higher standards of living. On this basis, what truly matters is to expand the frontier of production possibilities to the maximum extent possible.

Thus, dynamic efficiency can be understood as an economy's capacity to foster entrepreneurial creativity and coordination.

In turn, the criterion of dynamic efficiency is inseparably linked to the concept of the entrepreneurial function, which is that typically human capacity to perceive profit opportunities that arise in the environment and to act accordingly to take advantage of them. This makes the task of discovering and creating new ends and means fundamental, driving spontaneous coordination to resolve market imbalances.

Moreover, this definition of dynamic efficiency proposed by Huerta de Soto coherently and appropriately combines Schumpeter’s idea of creative destruction with North's concept of adaptive efficiency.

Naturally, given the role of the entrepreneurial function, the institutions under which it develops are of vital importance. In this regard, both Douglass North and Jesús Huerta de Soto consider one of the key functions of institutions to be that of reducing uncertainty.

So, while North presents them as a set of humanly devised constraints that structure social interaction in a repetitive manner, Huerta de Soto considers that these institutions, conceived by human beings, emerge spontaneously from a process of social interaction without being designed by any single individual, and that they reduce uncertainty in the market process.

As Roy Cordato points out, the appropriate institutional framework is one that favours entrepreneurial discovery and coordination. Accordingly, within this framework, economic policy should aim to identify and remove all artificial barriers that hinder the entrepreneurial process and voluntary exchanges.

Given the decisive influence of institutions on economic progress, this directs our attention to the importance of ethics, as societies that adhere to stronger moral values and ethical principles in support of institutions will be dynamically more efficient and will therefore enjoy greater prosperity.

Accordingly, the fundamental ethical problem is a search for the best way to foster entrepreneurial coordination and creation.

Therefore, in the field of social ethics, we conclude that conceiving human beings as creative and coordinating actors entails accepting axiomatically the principle that every human being has the right to appropriate the results of their entrepreneurial creativity.

So the private appropriation of the fruits of what entrepreneurs create and discover is a principle of natural law because if an author were unable to appropriate what they create or discover, their capacity to detect profit opportunities would be blocked, and the incentive to carry out their actions would disappear. Ultimately, the ethical principle just stated is the fundamental ethical foundation of the entire market economy.

So, what we've just demonstrated is that free enterprise capitalism is not only just but also efficient and also that it is the one that maximises growth.

[Full speech here]

RELATED: Here's Per Bylund at the latest Ludwig Von Mises conference explaining that it's entrepreneurs, not politicians, who change the world for the better.

"It’s training to be an entrepreneur, and an employer—not an employee."

Q: Governments and central banks have inflated asset prices for decades—making housing, education, and healthcare unaffordable for many.

Is the 'system' designed to turn Millennials and Gen Z into lifelong renters and debt-serfs? Is there a way out?

Doug Casey: It’s a natural consequence of Statism.

First of all, taxes are high and have been increasing for decades. After taxes, you have less money left over to save. And if you do try to save, inflation eats away at the dollars that you put in banks or investments. Worse than that, welfare and government benefits make saving feel unnecessary for many people. They feel they don’t need as much because the cradle-to-grave welfare state will cover them. There’s a reason why Klaus Schwab famously said, 'You’ll own nothing and be happy.'

A lot of people believe it. This feeling is abetted by schooling, where everyone is inculcated with this collectivist meme. On top of that, the rich are viewed as parasites. And who wants to be a parasite?

This is all caused by State intervention in the economy. Schools almost always teach students that the State is their friend. It’s not; it’s their enemy. ....

Q: We’re seeing a collision between AI/automation and a credential-heavy job market. Which parts of today’s white-collar economy do you think are most fragile?

Doug Casey: .... The bright side is that while AI and robotics will destroy huge numbers of jobs—starting now—they’ll also level the playing field. A person of less than average intelligence can have AI do things for him that he might otherwise be unable to do. A further benefit is that the world doesn’t need paper pushers and cubicle dwellers who are sitting around doing marginally productive labor. Very much like the world no longer needed people working like drones in textile mills 200 years ago, at the start of the Industrial Revolution.

While AI is going to create some major problems in the short run, it’s going to be a very good thing after those bumps in the road. Just like the Industrial Revolution itself created problems while vastly improving the world. ....

Q: What should a 25-year-old do to build real, durable earning power in the next 5–10 years?

Doug Casey: Ayn Rand answered that question in a speech I heard 40 years ago. When asked, she said: 'The best way to help the poor is not to be one of them.'

I confronted this problem with my friend Matt Smith when we wrote 'The Preparation.' The book explains why young people should avoid college. In fact, it urges them to treat college like the poison that it now is, showing how college has become a serious detriment in almost every way. More importantly, we describe what young men should do instead during the four years between 18 and 22, a time which is critically important, but generally wasted.

We demonstrate—exactly—how a young man can qualify himself with the equivalent of a BA, a BS, and elements of an MBA. That’s in addition to learning practical things in a hands-on way. We divide the four years into 16 quarters. The student will learn everything from flying a plane to sailing a boat around Cape Horn to operating heavy equipment. He’ll qualify in welding and metalwork in Canada. Cooking at a professional level in Italy. He’ll be farming in one quarter and building a house in the next. He’ll learn martial arts skills in Thailand, as well as shooting and scuba. You get the idea. It’s a productive and busy four years.

The critical thing, since we don’t know how the world is going to evolve because of AI, is to become a Renaissance man, enabling students to do anything and go anywhere. To avoid trying to climb a greasy corporate ladder, but build a web where you can reach out in any direction. That’s necessary in the world of AI. It’s training to be an entrepreneur, and an employer—not an employee."

~ from an interview with investor 'Doug Casey on Why Millennials and Gen Z are Trapped by Debt, Inflation, and Broken Promises

It's (still) all about the entrepreneur

"The 'AI will code for us' idea always skips over the 90% of the job that isn't coding.

"The real work is translating a vague business need into a precise, testable system. It's architecting something that won't fall over in 6 months. It's debugging a problem that only appears under a specific, bizarre set of conditions.

"Even with a perfect code generator, you still need someone who understands the problem deeply enough to tell it what to build. That part isn't getting automated."

~ Selim Erünkut commenting on the alleged obsolescence of coding [Emphasis mine.]

"The pandemic pulled back the curtain for a moment. When everyone worked from home, it became obvious who was actually doing things and who was just... there."

"Last week, I had coffee with someone who works at a big consulting firm. She spent twenty minutes explaining her role to me. Not because it was complex, but because she was trying to convince herself it existed. 'I facilitate stakeholder alignment across cross-functional workstreams,' she said. Then laughed. 'I genuinely don’t know what that means anymore.'

"She’s not alone. I keep meeting people who describe their jobs using words they’d never use in normal conversation. They attend meetings about meetings. They create PowerPoints that no one reads, which get shared in emails no one opens, which generate tasks that don’t need doing.

"The strangest part: everyone knows. When you get people alone, after work, maybe after they’ve had time to decompress, they’ll admit it. Their job is basically elaborate performance art. They’re professional email forwards. They’re human middleware between systems that could probably talk directly to each other. ...

"The pandemic pulled back the curtain for a moment. When everyone worked from home, it became obvious who was actually doing things and who was just... there. Some people’s entire roles evaporated when they couldn’t physically attend meetings. Others discovered they could do their 'full-time' job in about three hours a day.

"Now we’re back in offices, and everyone’s pretending again. But something’s shifted. The pretense feels different. More conscious. More exhausting.

"The economist David Graeber called these 'bullshit jobs'—roles that even the people doing them suspect are pointless. But I think it’s evolved beyond that. We’ve built entire ecosystems of mutual nonsense. ...

"What’s emerging [however] isn’t the collapse of corporate work—it’s something more interesting. People are building parallel systems of actual value while maintaining their corporate personae. ...

"They’re not quitting. They’re using the corporate infrastructure—the steady salary, the laptop, the stability—as a platform for building something real. The corporate role hasn’t died; it’s become a funding mechanism for actual work.

"One person I spoke to called it 'corporate entrepreneurship'—not in the LinkedIn way where you’re an 'intrapreneur' innovating within your company, but in the sense that you’re using your corporate presence to subsidise your real work."

~ 'Alex' from his post 'The Pandemic of Fake Jobs'

Montessori for entrepreneurs

Hmmm. Interesting. The international head of Association Montessori Internationale (AMI) is considering developing "a fully-fledged Montessori course for business Montessori." I'd rephrase that to simply: Montessori for entrepreneurs.

Lynn Lawrence, based in Amsterdam, thinks they may have too much on the boil already, but discussions around the idea have already led "to some interesting background reading and some insights into the way Montessori principles have already found their way into the business world." For example:

• Ambiga Dhiraj, the head of talent management at Mu Sigma, a decision science and analytics service firm, wrote for the Harvard Business Review on their business modelling its employee development on Montessori schools.  ... He suggested that “an emphasis on independence, freedom within limits, and respect for a child’s natural psychological development” were basic tenets from the Montessori classroom equally applicable to the workforce. ... The ultimate payoff for the business was that it translated into better service for clients and “keeping the right people for the right reasons”. The latter is a particular advantage in a world where the best talent can be hard to find and even harder to keep.
• Justin Wasserman, a Managing Director with Kotter International, (the strategy execution firm founded by world renowned Harvard Business School professor, Dr. John Kotter) considered the “corporate kindergarten” and “how a Montessori mindset can transform your business”.  He reflected on the uniqueness of Montessori classrooms, the benefits of mixed-ages, self-directed learning, children gravitating to what interests them and teachers as “coaches and facilitators rather than puppet-masters or dictators.” ... Wasserman noted that most in corporate America grew up “confined by the rigid structures of our conventional education system” and tend to wait for directives on high to determine their actions.  He contrasts that with Montessori children full of new ideas, confident that failure is acceptable and that mistakes are best seen as learning opportunities.  He argues that businesses need to create a “corporate kindergarten culture where Montessori mindsets are cultivated and rewarded.”

In his comments about the “conventional education system,” Lawrence notes that this makes "very much the same case as Angeline Lillard in her marvellous and fiercely argued piece “Why the time is right for an education revolution.” She concludes: 

Bringing the principles of Montessori education into the workplace is one way of building a new and more productive approach to business but it seems to me that it would be so much better for society if the work began in school.  The thought of a continuum where Montessori is embedded in every part of an individual’s education from pre-school, throughout their career and into the support they receive as elders is an attractive proposition. ...

Commentators as diverse as Joe Rogan and Ezra Klein question the ability of existing mainstream education to satisfy the needs of a modern, knowledge economy.  The gap is seen in research from the UK suggesting that hiring managers rank problem-solving (63%), communications (63%) and creativity (53%) as three highly sought after skills.  In the US similar research suggests employers are looking for practical problem solving, team working, and global mindset but that new graduates do not feel they have received these skills in their education. ...

Montessori education can undoubtedly provide the grounding that will help people excel in their careers and make significant contributions to business success.  This was an underlying theme of the BBC article, “Montessori. The world’s most influential school?” and has been amplified by FasterCapital, a global venture builder and online incubator for innovative start-ups.  It is also central to Andrew McAfee’s book The Geek Way: The Radical Mindset that Drives Extraordinary Resultswhich he discusses in the Harvard Business Review. ...

There are powerful lessons for leaders in the way that Montessori principles can develop teams that are both happy and high performing.  Generational changes have increasingly meant that command and control structures considered the height of good management in past decades are being soundly rejected by younger people.  Self-managing and self-motivated groups that embrace diversity, aspiration and novelty are part of a Montessori culture.

Our advocacy is always for education and leadership that enables every human to create themselves and become fulfilled, which does not necessarily mean they will choose to work in an organisation or pursue a career.  However, we also believe that workplaces which introduce Montessori ideals that nurture and cherish the potential of each and every individual will excel.   

It wasn't a “Gilded Age” of "Robber Barons." It was The Inventive Period

The so-called “Gilded Age” of "Robber Barons" should be better named, says Andrew Bernstein in this guest post. It should be known as the Inventive Period of Capitalism.

The Inventive Period

by Andrew Bernstein

A recent issue of American Heritage magazine, devoted to analysing important cultural issues in U.S. history, contains an article that provides ample clues to the true nature of late nineteenth-century America. The piece, “People of Progress,” features the greatest innovators of the twentieth century, and takes as its point of departure Christian Schussele’s famed 1862 painting, “Men of Progress,” a depiction of 19 great American inventors and creative thinkers of the first half of the nineteenth century.

Schussele’s painting portrays such men as Cyrus McCormick (1809-1884), the inventor and manufacturer of the reaping machine and other agricultural equipment; Charles Goodyear (1800-1860), who created the vulcanization process that made rubber useful; Samuel Colt (1814-1862), the gun inventor and manufacturer; Peter Cooper (1791-1883), the builder of the first American steam locomotive; Samuel Morse (1791-1872), the innovative thinker responsible for both the electric telegraph and the Morse Code; William Morton (1819-1868), the dentist who co-discovered ether’s use as an anesthetic; and Elias Howe (1819-1867), inventor of the sewing machine. These, as well as 12 other equally accomplished thinkers and inventors, form the subject of Schussele’s masterpiece.

The administrators of the Cooper Union for the Advancement of Science and Art (founded by industrialist and inventor Peter Cooper in 18591) recently commissioned one of its leading graduates, the artist Edward Sorel, to paint a sequel to Schussele’s work—a portrait of 20 innovative Americans who changed the world in the twentieth century. Sorel, with assistance from the editors of American Heritage and American Heritage of Invention & Technology, chose the subjects. And not surprisingly, some of the geniuses depicted started their brilliant careers in the second half of the nineteenth century.

Anti-capitalist historians regularly refer to this late-nineteenth-century era as “the Gilded Age” and deride its great industrialists as “Robber Barons.” They claim that its extensive industrial development was achieved by means essentially tawdry and unprincipled. They are profoundly mistaken and have failed to identify the essence of the era. It must be known as the Inventive Period.

In Schussele’s painting, Benjamin Franklin looks down on those assembled as both inspiration and presiding genius. Sorel grants this honor to Thomas Edison. Edison (1847-1931) is the exemplar of his age. He is widely known as the inventor of the electrical lighting system, the phonograph, the electric generator, and the motion-picture projector. He also later coordinated movies with phonographic sound to create the world’s first multi-media presentation. But Edison is by no means alone in exemplifying the scientific/technological genius of the period. Sorel’s portrait projects numerous other great minds.

Among them are George Washington Carver (1864-1943), the brilliant black American botanist and agronomist, who developed a new type of cotton, Carver’s Hybrid. Born a slave, he is most famous for developing sweet potatoes and peanuts as leading crops, but he also invented hundreds of plant-based products, taught methods of soil improvement and, by means of his discoveries, induced southern farmers to grow crops other than cotton. Also included is Charles Steinmetz (1865-1923), the German immigrant who went to work for General Electric as its first director of research and development and in the 1890s pioneered the understanding of electrical transmission.

Neglected Geniuses

Since Schussele’s portrait concentrates on the early nineteenth century and Sorel’s on the twentieth, there are many great late-nineteenth-century thinkers who are included in neither painting. Here we can cite merely a few. One is George Eastman (1854-1932), who in 1884 patented the first film in roll form to prove practical. In 1888 he revolutionized photography by perfecting his Kodak camera, and in 1892 established the Eastman-Kodak Company, one of the first to mass-produce standardized photographic equipment. Another is Cyrus W. Field (1819-1892), an entrepreneur whose interest in transoceanic telegraphy led to the completion in 1866 of the transatlantic cable. Field later was instrumental in laying the cable that linked the United States to Australia and Asia by way of Hawaii.

The advances in architecture wrought by William Le Baron Jenney (1832-1907) and Louis Sullivan (1856-1924) must not be overlooked. Jenney, an engineer in the Union Army during the Civil War, settled in Chicago and opened an architectural office. He pioneered the use of iron-frame construction for large buildings, which he first employed in the Home Insurance Company Building in 1885. His revolutionary method of curtain-wall construction is still used today and earned him the title of “father of the skyscraper.” Sullivan apprenticed with Jenney early in his career. Later, it was his designs for steel-frame buildings that resulted in the establishment of the skyscraper as a distinctively American type of building.

George Westinghouse (1846-1914) introduced numerous inventions in various fields, but concentrated on the railroad industry. Before the age of 20, he created the “railroad frog,” an invention that permitted trains to switch tracks. His most famous advance was the air brake, invented around 1866, which became a standard feature on all trains. Westinghouse developed hundreds of innovations, acquired more than 400 patents and, together with the Croatian immigrant Nikola Tesla (1856-1943), pioneered the use of alternating current (AC) power in the United States. Tesla invented the AC induction generator in the 1880s, the first practical motor powered by alternating current. He sold the patent to Westinghouse, who put it to commercial use in the Niagara Falls power project. Westinghouse and Tesla demonstrated that alternating current was able to generate electrical power over great distances more economically than the direct current favoured by Edison.

John Roebling (1806-1869), a German immigrant, pioneered the construction of suspension bridges in the United States in the second half of the nineteenth century. He demonstrated the practicality of using steel cables in bridge construction—and today, early in the 21st century, several of his bridges still stand, including the famed Brooklyn Bridge in New York, constructed in the 1870s. Another great creator, largely forgotten today, is the U.S. Army surgeon and bacteriologist Walter Reed (1851-1902). In the 1890s, Reed’s investigations contributed greatly to the understanding of typhoid fever, leading to the control and prevention of epidemics of the disease. In 1900 Reed demonstrated that the yellow-fever virus was transmitted by the bite of the mosquito Aedes aegypti. By exterminating the mosquitoes, the disease was virtually wiped out.

A great thinker from the Inventive Period who is widely remembered is the Scottish immigrant, Alexander Graham Bell (1847-1922). In 1874, his work on the multiple telegraph gave him the idea for the telephone. Experiments with his research assistant, Thomas Watson, proved successful on March 10, 1876. Later that year, Bell demonstrated the telephone at the Centennial Exposition in Philadelphia, an event leading to the organization of the Bell Telephone Company in 1877. Bell’s other inventions include the audiometer, a device for measuring hearing acuity and, later in life, the aileron and other aeronautical advances.

Space does not permit even the mention of all the inventors, entrepreneurs, and groundbreaking industrialists who flourished during the period. The achievements of Frank Julian Sprague (1857-1934), for example, are no longer remembered. Sprague, a brilliant electrical engineer who graduated from Annapolis and worked for Edison, electrified Richmond’s trolley system in 1888. He demonstrated that electricity was cheap, and that it could be used on both surface and elevated cars. In 1890 about 15 percent of America’s urban transit mileage was electrified; by 1902, 97 percent.

On the eve of the twentieth century America’s technological advances were only beginning. On the morning of June 4, 1896, Henry Ford (1863-1947) battered down the brick wall of his rented garage with an ax and drove out his first car. Others, of course, had already built and run cars, but Ford began the Ford Motor Company in 1903 and made the automobile a commercial reality. Soon millions of Americans were driving cars. That same year, Wilbur (1867-1912) and Orville (1871-1948) Wright, two bicycle mechanics from Dayton, Ohio, who were self-educated regarding the principles of aeronautical engineering, accomplished the first controlled, powered flight of a heavier-than-air vehicle at Kitty Hawk, North Carolina. Throughout the 1890s, the Wrights had been studying aeronautics and experimenting with flying devices. Both the automotive and aviation ages dawned in early twentieth-century America as a direct outgrowth of the achievements of the late nineteenth. (Ford and the Wright brothers are included in Sorel’s painting.)

The Underlying Factor

What underlying factor was responsible for this unprecedented outpouring of innovations, inventions, advances, and new products? The answer should be obvious, but unfortunately, to many historians it is not. It was the political and economic freedom of the capitalist system that enabled these inventor-entrepreneurs to flourish.

The late nineteenth century (until the proliferation of trust-busting and government controls in the early twentieth century) was the freest period of American history. The leading economists, professors, legal theorists, and judges upheld the principles of individual rights, limited government, economic freedom, and profit-making. Economists such as Amasa Walker, Arthur Latham Perry, and Francis Bowen wrote the leading economics textbooks of the day. Their works—Science of Wealth, Elements of Political Economy, and American Political Economy, respectively—championed the ability of the free market to create wealth and upward economic mobility.2 William Graham Sumner (1840-1910), the leading American social scientist of the late nineteenth century, wrote of “The Forgotten Man,” the honest labourer who supported himself by productive work. The principle of the Forgotten Man is that he needs the liberty of the American system if he is to flourish. He is the one always victimised by the socialists’ schemes to redistribute the income earned by private individuals.3

The law writers and legal philosophers of the day shared the same commitment to limited government. The most prominent, Thomas Cooley and Christopher Tiedeman, wrote their major works in the second half of the nineteenth century. The upshot of both Cooley’s A Treatise on the Constitutional Limitations Which Rest Upon the Legislative Powers of the American Union (1868) and Tiedeman’s A Treatise on the Limitations of the Police Powers of the States(1886) was the defense of property rights.4

In practice, most American judges of the period agreed with the individualistic principles of the country’s leading legal philosophers. After the Civil War, American courts generally presumed to be unconstitutional any laws restricting property rights and the rights of both businessmen and workers to set the terms of labor that they deemed best. As one example, the New York State Court of Appeals in 1885 struck down legislation seeking to limit the hours of industrial employment, ruling that such a law violated the rights of both worker and employer to engage in a voluntary transaction.

Additionally, the American courts of the late nineteenth century repeatedly placed severe limitations on the government’s power to tax and to subsidize business ventures. The courts generally gave strong support to the capitalist principle that productive enterprise was to be privately funded, owned, and operated. One representative ruling by a Missouri court in 1898 found against governmental paternalism, whether state or federal, and proclaimed that individuals know best how to conduct their own business and personal affairs.5

In this era, the U.S. Supreme Court gradually came to be the great defender of an individual’s right to property, freedom of contract, and economic liberty. For example, Stephen J. Field (brother of Cyrus Field), for many years a distinguished Justice of the high court, issued pro-freedom dissenting opinions in such famous disputes as the Slaughter-House cases (1873) and Munn v. Illinois (1877), holding that the government could prevent neither employers nor workers from entering fields of their own choosing or violate the right of individuals to the full use and disposal of their property. The majority opinion at this time was that the Fourteenth Amendment protected the rights of the recently freed slaves only and that there was nothing in it to prevent the states from interfering in business activities. But by the mid-1880s, after the San Mateo case (1882) and the Santa Clara case (1886), Justice Field prevailed. Chief Justice Morrison Remick Waite, in an oral statement, spoke for a unanimous bench in 1886, proclaiming that all the justices “understood and accepted the fact that corporations were persons within the equal protection clause of the Fourteenth Amendment.” The right of individuals to work and to use their own labor and property as they saw fit now came under the legal protection of the Supreme Court.6

Religion and Capitalism

Religious leaders of the period characteristically upheld the virtues of work, frugality, sobriety, and wealth earned through honest effort. The weekly religious periodical The Independent, edited for a while by the noted Congregationalist minister Henry Ward Beecher (1813-1887), defended the free market as the means by which both capitalists and workers would achieve material gain. For almost four decades Beecher preached from his influential Brooklyn pulpit the ability of hard-working individuals to rise economically in the capitalist system.7

The intellectual, cultural and political climate of the country upheld freedom, limited government, and property rights in this era. The economic results are not surprising. The most innovative and creative minds were free to develop new products and methods, to start their own companies, to bring their innovations to the marketplace, to convince consumers that the new products were superior to the old and, in time, to earn fortunes. There were few government bureaucrats and regulators to prohibit their activities, restrict their output, dictate working conditions, or limit their market share. “The first condition of this proliferation was that the innovations did not require the assent of governmental . . . authorities.”8

Most of the innovators of the Inventive Period were entrepreneurs who sought and made wealth by virtue of their creative work. Edison retired with a net worth of $12 million, an enormous sum in those days. His inventions were profit-driven. “Edison’s Menlo Park laboratory was conceived to bring scientific knowledge to bear on industrial innovation . . . . Its inventions were goals chosen with a careful eye to their marketability.”9

Such instances were numerous during the Inventive Period. Eastman, Westinghouse (Westinghouse Electric Company), and Ford are all examples of innovator-entrepreneurs who developed their new products into profitable business ventures. Willis Carrier (1876-1950) invented the air conditioner in 1902, held more than 80 patents by the 1940s, and founded the manufacturing firm that bears his name. (He also made Sorel’s painting.) Bell’s most famous invention led, of course, to the founding of the Bell Telephone Company. Roebling made a fortune from his wire-manufacturing company, as did McCormick from his firm’s producing the reaping machine and other farm equipment. Colt was an entrepreneur who opened his own plant, Colt Patent Arms, in 1855. He pioneered advanced manufacturing methods such as the production line and the use of interchangeable parts, making his company the largest private armory in the world. Isaac Merritt Singer (1811-1875) wanted a commercially practical sewing machine and brought together several related patents to create his immensely popular product. By 1860, he was the largest manufacturer of sewing machines in the world. A business innovator, Singer began such practices as installment buying, advertising campaigns, and service with sales.

Because of the climate of political and economic freedom during the Inventive Period, America’s entrepreneurs were able to revolutionise the fields of heavy industry on which general prosperity depended. Between 1860 and 1900, American output of bituminous coal increased by 2,260 percent, crude petroleum by 9,060 percent, steel by 10,190 percent, and other industries increased by similar amounts.10 Industrialists such as Andrew Carnegie (1835-1919) and John D. Rockefeller (1839-1937) built Carnegie Steel and Standard Oil into enormously productive concerns that flooded the country with steel and oil products. In the 1880s and 1890s, the great railroad man James J. Hill (1838-1916) constructed the Great Northern Railroad with only private funds to the immense betterment of people in the northern plains and northwest states. It goes without saying that Carnegie, Rockefeller, and Hill earned great wealth.

The lesson of the Inventive Period can be applied today. Political and economic freedom will lead to widespread innovation. This principle can already be seen in the computer industry, in which the relative absence of government regulation has enabled such innovators as Steve Jobs, Stephen Wozniak, Bill Gates, Paul Allen, Michael Dell, Larry Page, Sergey Brin and others to create an information revolution, and to earn fortunes in the process.

To defend freedom against the distortions of the anti-capitalist historians it is important to reject the inaccurate and opprobrious title of “the Gilded Age” for the late nineteenth century. We must recognise and celebrate the true nature of the era.

It was the Inventive Period.

Notes

See www.cooper.edu/engineering/chemechem/general/cooper.html.
Louis M. Hacker, The World of Andrew Carnegie, 1865-1901 (New York: J.B. Lippincott, 1968), pp. 68-73.
Ibid., pp. 81-85.
Ibid., pp. 86-92.
Ibid., pp. 95-96.
Ibid., pp. 98-107.
Ibid., pp. 74-80.
Nathan Rosenberg and L.E. Birdzell, How the West Grew Rich (New York: Basic Books, 1986), p. 265.
Ibid., p. 250.
Hacker, p. xxxi

* * * * 

Andrew Bernstein holds a Ph.D. in Philosophy from the City University of New York. He lectures all over the world. His books include The Capitalist Manifesto, American Racism: Its Decline, Its Baleful Resurgence, and Our Looming Race War, Heroes, Legends, Champions: Why Heroism Matters, and his newly-released (and highly recommended) collection of essays Aristotle Versus Religion.

This post previously appeared at the Foundation for Economic Education.

Entrepreneurs vs 'maximising man'

"[Mainstream] economic analysis of economic behaviour relies heavily on decisions made by [so called] rational units customarily assumed to be seeking ... profit maximisation and utility maximisation. ...
    "[And yet] the mark of success and viability is not maximum profits, but realised positive profits. It does not matter through what process of reasoning or motivation such success was achieved. The fact of its accomplishment is sufficient. This is the criterion by which the economic system selects survivors: those who realise positive profits are the survivors; those who suffer losses disappear.
    "The pertinent requirement—positive profits through relative efficiency—is weaker than 'maximised profits,' with which, unfortunately, it has been confused. Positive profits accrue to those who are better than their actual competitors, even if the participants are ignorant, intelligent, skilful, etc. The crucial element is one's aggregate position relative to actual competitors, not some hypothetically perfect competitors. As in a race, the award goes to the relatively fastest, even if all the competitors loaf. Even in a world of stupid men there would still be profits. 

    "Also, the greater the uncertainties of the world, the greater is the possibility that profits would go to venturesome and lucky rather than to logical, careful, fact-gathering individuals."

~ Armen Alchian, from his 1959 article 'Uncertainty, evolution, and economic theory'

“The idea that government deserves credit for all of the benefits produced by freedom," says Don Boudreaux in this guest post, "is a special case of the pernicious deification of government. Such claims are preposterous. They are on a moral and intellectual par with my claim that I deserve credit for not killing pedestrians with my car.”

The Ungrateful Pedestrian, or When Do Politicians Deserve Our Praise?

by Donald J. Boudreaux

Yesterday evening I drove to a nearby restaurant. On my way I passed several strolling pedestrians. I did not kill a single one!

Please note that I possessed near absolute ability to do so. A quick and easy flick of my wrist on the steering wheel at almost any time on my drive would have meant certain death for numerous pedestrians. But I refrained from running them over.

The above account is all true.

Suppose now that you were one of these pedestrians and I solicit from you expressions of gratitude for my not running you over. How would you react? Not only would you be indignant at my solicitation, you’d think me to be demented. And properly so. I would be insanely brazen to seek your gratitude for my not bulldozing you with my car.

And yet politicians routinely seek—and receive—praise for actions that differ in no fundamental way from the actions of drivers who avoid running down innocent pedestrians.

We are assailed with monotonous regularity with news reports and campaign ads boasting of how this minister or that politician “created” so-many-thousand new jobs, or is responsible for whatever amount of economic growth has occurred during his or her term of office. Such claims are preposterous. They are on a moral and intellectual par with my claim that I deserve credit for not killing pedestrians with my car.

No politician creates jobs or prosperity. Jobs and prosperity are created by entrepreneurs and business firms whenever the economy is sufficiently free of government meddling. For government to avoid meddling—that is, for government to keep taxes low and to steer clear of regulating voluntary exchange—is indeed desirable. But to avoid interfering with voluntary exchange is not at all actually to create whatever jobs and prosperity emerge from voluntary exchange. To insist otherwise would be no different from my insisting that I, as a driver who did not run over Ms. Jones as she walked back from the supermarket, am responsible for the tasty dinner she cooked that evening for her family.

If a car is careening out of control onto a pedestrian walkway, anyone who leaps into the car to stop it is a genuine hero. This person does deserve applause and gratitude (while, incidentally, the persons who either intentionally or carelessly caused the car to be out of control deserve condemnation and, perhaps, jail time). But even this hero does not take credit for all that is created and produced by those who would have otherwise been killed.

Whenever that rarest of creatures—an honourable elected official—actually manages to loosen some part of government’s grip on us, that person does merit bona fide acclaim. Even he, however, doesn’t deserve credit for whatever economic growth and cultural flourishing follow. Such credit properly belongs to the countless people who create, innovate, take risks, save, and work hard to produce what consumers want.

The idea that government deserves credit for all of the benefits produced by freedom is a special case of the pernicious deification of government. When deified, government is mistakenly seen as responsible for all that happens in society.

A distressingly large number of writers contend that what looks like government’s refusal to intervene is really just a different form of government intervention. I offer here only two examples. One is left-wing economist Warren Samuels who, in a 1995 issue of Critical Review, wrote that deregulation is simply government regulation carried out by enforcing private property rights rather than by enforcing bureaucratic edicts. When the economy is deregulated, what Samuels sees is that “[o]ne system or structure of (nominally private) coercive power is substituted for another by the very institution, government, which helped establish and/or reinforce the first one.” According to Samuels, only the unsophisticated believe that when government deregulates it thereby reduces its sway over the economy.

This view isn’t confined to left-wingers. Louis Hacker, in an otherwise fine essay appearing in F. A. Hayek’s edited volume Capitalism and the Historians, insists that “the idea of laissez faire is a fiction. For the state, by negative action—that is, by refusing to adopt certain policies—can affect economic events just as significantly as when intervention occurs.” Well, yes–in the same way that I, by not running my car over pedestrians, can affect events just as significantly as if I do kill pedestrians.

Only in the most base materialist sense are Samuels and Hacker correct: insofar as government possesses power to restrict commerce and suffocate industry with its regulations, any self-restraint by government in its zeal to regulate can be said to “affect economic events.” But such sophistry sneakily erects as the benchmark for evaluating government activity the maximum possible destruction that government could possibly inflict. If the actual amount of destruction caused by government falls short of what government could have caused, then government is credited with producing all that it refrained from destroying. Using such a benchmark is lunacy.

The Soviet military could have annihilated the United States population with an atomic attack at almost any time during the cold war. Should we then credit the Soviet military for our current prosperity and our very lives? Does it really make sense to speak of the Soviet military as having “affected economic events” by not launching a nuclear strike against America? If so, then why not also credit the decision by the British military not to launch a nuclear attack against us as a cause of our prosperity?

Refraining from interfering in other people’s affairs is simply the right thing for everyone, including government, to do. 

Until someone convinces me that I deserve a ticker-tape parade every time that I don’t run down a pedestrian with my car, I will find intolerable the misbegotten gratitude and applause that politicians receive for not destroying even more of our liberties and wealth than they currently ravage.

* * * * 

Donald J. Boudreaux is a senior fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University, a Mercatus Center Board Member, and a professor of economics and former economics-department chair at George Mason University.

This article first appeared at the Foundation for Economic Education.

Socialists once argued that socialism was superior to capitalism because it would deliver a higher standard of living and more consumer goods. When it became abundantly clear that this was bollocks, the socialists shifted their arguments and began to claim that socialism—while perhaps economically inferior—was superior morally and philosophically. And thus was born the post-modern denial of that outrageous success in human progress, and environmentalists' objection to it. 

Stephen Hicks writes about this in his 2004 book Explaining Postmodernism. Ludwig Von Mises was on to this a half-century before when he penned his short book The Anti-Capitalist Mentality, explaining why the intellectuals of his day so loathed the free market.... 

The Noneconomic Objections to Capitalism

by Ludwig Von Mises

1. The Argument of Happiness

Critics level two charges against capitalism: First, they say, that the possession of a motor car, a television set, and a refrigerator does not make a man happy. Secondly, they complain that there are still people who own none of these gadgets. Both propositions are correct, but neither casts blame upon the capitalistic system of social cooperation.

People do not toil and trouble in order to attain perfect happiness, but in order to remove as much as possible some felt uneasiness and thus to become happier than they were before. A man who buys a television set thereby gives evidence to the effect that he thinks that the possession of this contrivance will increase his well-being and make him more content than he was without it. If it were otherwise, he would not have bought it. The task of the doctor is not to make the patient happy, but to remove his pain and to put him in better shape for the pursuit of the main concern of every living being, the fight against all factors pernicious to his life and ease.

It may be true that there are among Buddhist mendicants, living on alms in dirt and penury, some who feel perfectly happy and do not envy any nabob. However, it is a fact that for the immense majority of people such a life would appear unbearable. To them the impulse toward ceaselessly aiming at the improvement of the external conditions of existence is inwrought. ... One of the most remarkable achievements of capitalism is the drop in infant mortality. Who wants to deny that this phenomenon has at least removed one of the causes of many people’s unhappiness?

No less absurd is the second reproach thrown upon capitalism — namely, that technological and therapeutical innovations do not benefit all people. Changes in human conditions are brought about by the pioneering of the cleverest and most energetic men. They take the lead and the rest of mankind follows them little by little. The innovation is first a luxury of only a few people, until by degrees it comes into the reach of the many. 

It is not a sensible objection to the use of shoes or of forks that they spread only slowly and that even today millions do without them. The dainty ladies and gentlemen who first began to use soap were the harbingers of the big-scale production of soap for the common man. If those who have today the means to buy a television set were to abstain from the purchase because some people cannot afford it, they would not further, but hinder, the popularisation of this contrivance. 

The inherent tendency of capitalism is towards shortening the interval between the appearance of a new improvement and the moment its use becomes general.

2. The Argument of Materialism

Again there are grumblers who blame capitalism for what they call its mean materialism. They cannot help admitting that capitalism has the tendency to improve the material conditions of mankind. But, they say, it has diverted men from the higher and nobler pursuits. It feeds the bodies, but it starves the souls and the minds. It has brought about a decay of the arts. Gone are the days of the great poets, painters, sculptors and architects. Our age produces merely trash. ...

'Fallingwater,' Frank Lloyd Wright, 1936

Among those who make pretense to the appellation of educated men there is much hypocrisy. They put on an air of connoisseurship and feign enthusiasm for the art of the past and artists passed away long ago. They show no similar sympathy for the contemporary artist who still fights for recognition. Dissembled adoration for the Old Masters is with them a means to disparage and ridicule the new ones who deviate from traditional canons and create their own.

John Ruskin will be remembered — together with Carlyle, the Webbs, Bernard Shaw and some others — as one of the gravediggers of British freedom, civilisation, and prosperity. A wretched character in his private no less than in his public life, he glorified war and bloodshed and fanatically slandered the teachings of political economy which he did not understand. 

He was a bigoted detractor of the market economy and a romantic eulogist of the guilds. He paid homage to the arts of earlier centuries. But when he faced the work of a great living artist, Whistler, he dispraised it in such foul and objurgatory language that he was sued for libel and found guilty by the jury. It was the writings of Ruskin that popularised the prejudice that capitalism, apart from being a bad economic system, has substituted ugliness for beauty, pettiness for grandeur, trash for art.

'Nocturne in Black and Gold: TheFalling
Rocket,' James McNeil Whistler, 1875

As people widely disagree in the appreciation of artistic achievements, it is not possible to explode the talk about the artistic inferiority of the age of capitalism in the same apodictic way in which one may refute errors in logical reasoning or in the establishment of facts of experience. Yet no sane man would be insolent enough as to belittle the grandeur of the artistic exploits of the age of capitalism.

The preeminent art of this age of “mean materialism and money-making” was music. Wagner and Verdi, Berlioz and Bizet, Brahms and Bruckner, Hugo Wolf and Mahler, Puccini and Richard Strauss, what an illustrious cavalcade! What an era in which such masters as Schumann and Donizetti were overshadowed by still superior genius!

Then there were the great novels of Balzac, Flaubert, Maupassant, Jens Jacobsen, Proust, and the poems of Victor Hugo, Walt Whitman, Rilke, Yeats. How poor our lives would be if we had to miss the work of these giants and of many other no less sublime authors.

Let us not forget the French painters and sculptors who taught us new ways of looking at the world and enjoying light and color.

Nobody ever contested that this age has encouraged all branches of scientific activities. But, say the grumblers, this was mainly the work of specialists while “synthesis” was lacking. One can hardly misconstrue in a more absurd way the teachings of modern mathematics, physics, and biology. And what about the books of philosophers like Croce, Bergson, Husserl, and Whitehead?

Each epoch has its own character in its artistic exploits. Imitation of masterworks of the past is not art; it is routine. What gives value to a work is those features in which it differs from other works. This is what is called the style of a period.

In one respect the eulogists of the past seem to be justified. The last generations did not bequeath to the future such monuments as the pyramids, the Greek temples, the Gothic cathedrals and the churches and palaces of the Renaissance and the Baroque. In the last hundred years many churches and even cathedrals were built and many more government palaces, schools and libraries. But they do not show any original conception; they reflect old styles or hybridise diverse old styles. Only in apartment houses, office buildings, and private homes have we seen something develop that may be qualified as an architectural style of our age. Although it would be mere pedantry not to appreciate the peculiar grandeur of such sights as the New York skyline, it can be admitted that modern architecture has not attained the distinction of that of past centuries.

The reasons are various. As far as religious buildings are concerned, the accentuated conservatism of the churches shuns any innovation. With the passing of dynasties and aristocracies, the impulse to construct new palaces disappeared. The wealth of entrepreneurs and capitalists is, whatever the anticapitalistic demagogues may fable, so much inferior to that of kings and princes that they cannot indulge in such luxurious construction. No one is today rich enough to plan such palaces as that of Versailles or the Escorial. The orders for the construction of government buildings do no longer emanate from despots who were free, in defiance of public opinion, to choose a master whom they themselves held in esteem and to sponsor a project that scandalised the dull majority. Committees and councils are not likely to adopt the ideas of bold pioneers. They prefer to range themselves on the safe side.

Side table by Eileen Gray, chair by Marcel Breuer

There has never been an era in which the many were prepared to do justice to contemporary art. Reverence to the great authors and artists has always been limited to small groups. What characterises capitalism is not the bad taste of the crowds, but the fact that these crowds, made prosperous by capitalism, became “consumers” of literature — of course, of trashy literature. The book market is flooded by a downpour of trivial fiction for the semi-barbarians. But this does not prevent great authors from creating imperishable works.

The critics shed tears on the alleged decay of the industrial arts. They contrast, e.g., old furniture as preserved in the castles of European aristocratic families and in the collections of the museums with the cheap things turned out by big-scale production. They fail to see that these collectors’ items were made exclusively for the well-to-do. The carved chests and the intarsia tables could not be found in the miserable huts of the poorer strata. 

Those caviling about the inexpensive furniture of the American wage earner should ... [realise that w]hen modern industry began to provide the masses with the paraphernalia of a better life, their main concern was to produce as cheaply as possible without any regard to aesthetic values. Later, when the progress of capitalism had raised the masses’ standard of living, they turned step by step to the fabrication of things which do not lack refinement and beauty. Only romantic prepossession can induce an observer to ignore the fact that more and more citizens of the capitalistic countries live in an environment which cannot be simply dismissed as ugly.

3. The Argument of Injustice

The most passionate detractors of capitalism are those who reject it on account of its alleged injustice.

It is a gratuitous pastime to depict what ought to be and is not because it is contrary to inflexible laws of the real universe. Such reveries may be considered as innocuous as long as they remain daydreams. But when their authors begin to ignore the difference between fantasy and reality, they become the most serious obstacle to human endeavours to improve the external conditions of life and well-being.

The worst of all these delusions is the idea that “nature” has bestowed upon every man certain rights. According to this doctrine nature is openhanded toward every child born. There is plenty of everything for everybody, they say. Consequently, everyone has a fair inalienable claim against all his fellowmen and against society that he should get the full portion which nature has already allotted to him. The eternal laws of natural and divine justice require that nobody should appropriate to himself what by rights belongs to other people. The poor are needy therefore only because unjust people have deprived them of their birthright. It is the task of the church and the secular authorities to prevent such spoliation and to make all people prosperous.

Every word of this doctrine is false. Nature is not bountiful but stingy. It has restricted the supply of all things indispensable for the preservation of human life. It has populated the world with animals and plants to whom the impulse to destroy human life and welfare is inwrought. It displays powers and elements whose operation is damaging to human life and to human endeavours to preserve it. Man’s survival and well-being are an achievement of the skill with which he has utilised the main instrument with which nature has equipped him — reason.

Men, cooperating under the system of the division of labour, have created all the wealth which the daydreamers consider as a free gift of nature. With regard to the “distribution” of this wealth, it is nonsensical to refer to an allegedly divine or natural principle of justice. What matters is not the allocation of portions out of a fund presented to man by nature. The problem is rather to further those social institutions which enable people to continue and to enlarge the production of all those things which they need.

The World Council of Churches, an ecumenical organisation of Protestant Churches, declared in 1948: “Justice demands that the inhabitants of Asia and Africa, for instance, should have the benefits of more machine production.” This makes sense only if one implies that the Lord presented mankind with a definite quantity of machines and expected that these contrivances will be distributed equally among the various nations. Yet the capitalistic countries were bad enough to take possession of much more of this stock than “justice” would have assigned to them and thus to deprive the inhabitants of Asia and Africa of their fair portion. What a shame!

The truth is that the accumulation of capital and its investment in machines, the source of the comparatively greater wealth of the Western peoples, are due exclusively to laissez-faire capitalism which the same document of the churches passionately misrepresents and rejects on moral grounds. 

It is not the fault of the capitalists that the poorer countries did not adopt those ideologies and policies which would have made the evolution of autochthonous capitalism possible. 

Neither is it the fault of the capitalists that the policies of these nations thwarted the attempts of foreign investors to give them “the benefits of more machine production.” No one contests that what makes hundreds of millions in these nations destitute is that they cling to primitive methods of production and miss the benefits which the employment of better tools and up-to-date technological designs could bestow upon them. But there is only one means to relieve their distress — namely, the full adoption of laissez-faire capitalism. What they need is private enterprise and the accumulation of new capital, capitalists, and entrepreneurs. It is nonsensical to blame capitalism and the capitalistic nations of the West for the plight the backward peoples have brought upon themselves. The remedy indicated is not “justice” but the substitution of sound, i.e., laissez-faire, policies for unsound policies.

It was not vain disquisitions about a vague concept of justice that raised the standard of living of the common man in the capitalistic countries to its present height, but the activities of men dubbed as “rugged individualists” and “exploiters.” The poverty of the backward nations is due to the fact that their policies of expropriation, discriminatory taxation, and foreign exchange control prevent the investment of foreign capital while their domestic policies preclude the accumulation of indigenous capital.

All those rejecting capitalism on moral grounds as an unfair system are deluded by their failure to comprehend what capital is, how it comes into existence, and how it is maintained — and what the benefits are which are derived from its employment in production processes.

The only source of the generation of additional capital goods is saving. If all the goods produced are consumed, no new capital comes into being. But if consumption lags behind production and the surplus of goods newly produced over goods consumed is utilised in further production processes, these processes are henceforth carried out by the aid of more capital goods. 

All the capital goods are intermediary goods, stages on the road that leads from the first employment of the original factors of production, i.e., natural resources and human labour, to the final turning out of goods ready for consumption. They all are perishable. They are, sooner or later, worn out in the processes of production. If all the products are consumed without replacement of the capital goods which have been used up in their production, capital is consumed. If this happens, further production will be aided only by a smaller amount of capital goods and will therefore render a smaller output per unit of the natural resources and labor employed. To prevent this sort of dissaving and disinvestment, one must dedicate a part of the productive effort to capital maintenance, to the replacement of the capital goods absorbed in the production of usable goods.

Capital is not a free gift of God or of nature. It is the outcome of a provident restriction of consumption on the part of man. It is created and increased by saving and maintained by the abstention from dissaving.

Neither have capital or capital goods in themselves the power to raise the productivity of natural resources and of human labor. Only if the fruits of saving are wisely employed or invested, do they increase the output per unit of the input of natural resources and of labor. If this is not the case, they are dissipated or wasted.

The accumulation of new capital, the maintenance of previously accumulated capital and the utilisation of capital for raising the productivity of human effort are the fruits of purposive human action. They are the outcome of the conduct of thrifty people who save and abstain from dissaving, viz., the capitalists who earn interest; and of people who succeed in utilizing the capital available for the best possible satisfaction of the needs of the consumers, viz., the entrepreneurs who earn profit.

Neither capital (or capital goods) nor the conduct of the capitalists and entrepreneurs in dealing with capital could improve the standard of living for the rest of the people, if these noncapitalists and nonentrepreneurs did not react in a certain way. If the wage earners were to behave in the way which the spurious “iron law of wages” describes and would know of no use for their earnings other than to feed and to procreate more offspring, the increase in capital accumulated would keep pace with the increase in population figures. All the benefits derived from the accumulation of additional capital would be absorbed by multiplying the number of people. However, men do not respond to an improvement in the external conditions of their lives in the way in which rodents and germs do. They know also of other satisfactions than feeding and proliferation. Consequently, in the countries of capitalistic civilisation, the increase of capital accumulated outruns the increase in population figures. To the extent that this happens, the marginal productivity of labour is increased as against the marginal productivity of the material factors of production. There emerges a tendency toward higher wage rates. The proportion of the total output of production that goes to the wage earners is enhanced as against that which goes as interest to the capitalists and as rent to the land owners. 

To speak of the productivity of labour makes sense only if one refers to the marginal productivity of labour, i.e., to the deduction in net output to be caused by the elimination of one worker. Then it refers to a definite economic quantity, to a determinate amount of goods or its equivalent in money. The concept of a general productivity of labour as resorted to in popular talk about an allegedly natural right of the workers to claim the total increase in productivity is empty and indefinable. It is based on the illusion that it is possible to determine the shares that each of the various complementary factors of production has physically contributed to the turning out of the product. If one cuts a sheet of paper with scissors, it is impossible to ascertain quotas of the outcome to the scissors (or to each of the two blades) and to the man who handled them. To manufacture a car one needs various machines and tools, various raw materials, the labour of various manual workers and, first of all, the plan of a designer. But nobody can decide what quota of the finished car is to be physically ascribed to each of the various factors the cooperation of which was required for the production of the car.

For the sake of argument, we may for a moment set aside all the considerations which show the fallacies of the popular treatment of the problem and ask: Which of the two factors, labour or capital, caused the increase in productivity? But precisely if we put the question in this way, the answer must be: capital. What renders the total output in the present-day United States higher (per head of manpower employed) than output in earlier ages or in economically backward countries is the fact that the contemporary American worker is aided by more and better tools. If capital equipment (per head of the worker) were not more abundant than it was three hundred years ago, say, then output (per head of the worker) would not be higher. What is required to raise, in the absence of an increase in the number of workers employed, the total amount of America’s industrial output is the investment of additional capital that can only be accumulated by new saving. It is those saving and investing to whom credit is to be given for the multiplication of the productivity of the total labour force.

What raises wage rates and allots to the wage earners an ever increasing portion out of the output which has been enhanced by additional capital accumulation is the fact that the rate of capital accumulation exceeds the rate of increase in population. The official doctrine passes over this fact in silence or even denies it emphatically. But the policies of bureaucrats and labour unions clearly show that their leaders are fully aware of the correctness of the theory which they publicly smear as silly bourgeois apologetics. They are eager to restrict the number of job seekers in the whole country by occupational licensing and anti-immigration laws, and in each segment of the labour market by preventing the influx of newcomers.

That the increase in wage rates does not depend on the individual worker’s “productivity,” but on the marginal productivity of labour, is clearly demonstrated by the fact that wage rates are moving upward also for performances in which the “productivity” of the individual has not changed at all. There are many such jobs. A barber shaves a customer today precisely in the same manner his predecessors used to shave people two hundred years ago. A butler waits at the table of the British prime minister in the same way in which once butlers served Pitt and Palmerston. In agriculture some kinds of work are still performed with the same tools in the same way in which they were performed centuries ago. Yet the wage rates earned by all such workers are today much higher than they were in the past. They are higher because they are determined by the marginal productivity of labour. The employer of a butler withholds this man from employment in a factory and must therefore pay the equivalent of the increase in output which the additional employment of one man in a factory would bring about. It is not any merit on the part of the butler that causes this rise in his wages, but the fact that the increase in capital invested surpasses the increase in the number of hands.

All pseudo-economic doctrines which depreciate the role of saving and capital accumulation are absurd. What constitutes the greater wealth of a capitalistic society as against the smaller wealth of a noncapitalistic society is the fact that the available supply of capital goods is greater in the former than in the latter. 

What has improved the wage earners’ standard of living is the fact that the capital equipment per head of the men eager to earn wages has increased. It is a consequence of this fact that an ever increasing portion of the total amount of usable goods produced goes to the wage earners. None of the passionate tirades of Marx, Keynes and a host of less well known authors could show a weak point in the statement that there is only one means to raise wage rates permanently and for the benefit of all those eager to earn wages — namely, to accelerate the increase in capital available as against population. If this be “unjust,” then the blame rests with nature and not with man.

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Ludwig von Mises (1881-1973) was the acknowledged leader of the Austrian School of economic thought, a prodigious originator in economic theory, and a prolific author. Mises' writings and lectures encompassed economic theory, history, epistemology, government, and political philosophy. (Some cogent quotes here from the great man.)

This post previously appeared at the Mises Blog.