Tariffs in 2 lessons

THERE IS ONE SINGLE lesson in economics everyone needs to learn, says Henry Hazlitt — the one lesson that might allow them to best understand the field and avoid the errors of bad economists. It is this, below:

Today is already the tomorrow which the bad economist yesterday urged us to ignore. The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed.
    From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

Take that fully on board and you'll already know more than most bad economists — and certainly more than any of the alleged economists kissing Trump's ring. [For the whole lesson, you can download and read pages 3 to 7 of Hazlitt's seminal book Economics in One Lesson. It's that simple.]

HAZLITT NATURALLY APPLIES THAT lesson over several policy areas. Including tariffs. An excerpt:

And this brings us to the real effect of a[n American] tariff wall. It is not merely that all its visible gains are offset by less obvious but no less real losses. It results, in fact, in a net loss to the country. For contrary to centuries of interested propaganda and disinterested confusion, the tariff reduces the American level of wages. Let us observe more clearly how it does this. We have seen that the added amount which consumers pay for a tariff-protected article leaves them just that much less with which to buy all other articles.
    There is here no net gain to industry as a whole. But as a result of the artificial barrier erected against foreign goods, American labour, capital and land are deflected from what they can do more efficiently to what they do less efficiently. Therefore, as a result of the tariff wall, the average productivity of American labor and capital is reduced. If we look at it now from the consumer’s point of view, we find that he can buy less with his money. Because he has to pay more for sweaters and other protected goods, he can buy less of everything else. The general purchasing power of his income has therefore been reduced. Whether the net effect of the tariff is to lower money wages or to raise money prices will depend upon the monetary policies that are followed. But what is clear is that the tariff—though it may increase wages above what they would have been in the protected industries—must on net balance, when all occupations are considered, reduce real wages.
    Only minds corrupted by generations of misleading propaganda [and presidential baloney] can regard this conclusion as paradoxical. What other result could we expect from a policy of deliberately using our resources of capital and manpower in less efficient ways than we know how to use them? What other result could we expect from deliberately erecting artificial obstacles to trade and transportation?

You can read the whole lesson on tariffs here: 'Who’s “Protected” by Tariffs?'

""The whole gospel of Karl Marx can be summed up in a single sentence ... "

"The whole gospel of Karl Marx can be summed up in a single sentence: Hate the man who is better off than you are. 

    "Never under any circumstances admit that his success may be due to his own efforts, to the productive contribution he has made to the whole community. 

    "Always attribute his success to the exploitation, the cheating, the more or less open robbery of others. 

    "Never under any circumstances admit that your own failure may be owing to your own weakness, or that the failure of anyone else may be due to his own defects — his laziness, incompetence, improvidence or stupidity. 

    "Never believe in the honesty or disinterestedness of anyone who disagrees with you. 

    "This basic hatred is the heart of Marxism. This is its animating force. You can throw away the dialectical materialism, the Hegelian framework, the technical jargon, the 'scientific' analysis, and millions of pretentious words, and you still have the core: The implacable hatred and envy that are the raison d’etre for all the rest."

~ Henry Hazlitt, from his 1966 article 'Marxism in One Minute' [PDF, page 9]

 

With a new government here just beginning its work, its worth reminding ourselves that the work that truly matters in government is the protection and expansion of individual liberty. Gary Galles reminds us in this guest post that at at time when far more resources are forcibly taken from some, for whatever and whoever the government decides, the insights  on liberty of Henry Hazlitt are more important than ever.

Henry Hazlitt on Liberty: 21 Choice Quotes

by Gary Galles

November 28 marked the 1894 birth of one of American history’s most prolific public intellectuals—Henry Hazlitt (1894-1993). According to Lew Rockwell, he “was familiar with the work of every important thinker in nearly every field,” and he “wrote in every important public forum of his day.” His published work as a journalist, literary critic, philosopher, and economist ran to roughly 10 million words before his death in 1993, including perhaps the most popular economics book ever written: Economics in One Lesson.

In that vast output, perhaps Hazlitt’s most important contribution was his consistent defense of the central importance of liberty in daily life, even though it lost him more than one job. At a time when real commitment to liberty is scarce, we should all pay heed to his wisdom.

Here are twenty-one of his most essential quotes:

“True adherents of liberty ... [believe] in limited government, in the maximisation of liberty for the individual and the minimisation of the coercion to the lowest point compatible with law and order ... we believe in free trade, free markets, free enterprise, private property.”

“Liberty is the essential basis, the sine qua non, of morality. Morality can only exist in a free society, it can exist [only] to the extent freedom exists.”

“‘Freedom to’” is a guarantee that no one, including the government, will be allowed to interfere with one’s freedom.”

“The future of human liberty ... means the future of civilisation.”

“The State, of course, is absolutely indispensable to the preservation of law and order, and the promotion of peace and social cooperation. What is unnecessary and evil, what abridges the liberty and therefore the true welfare of the individual, is the State that has usurped excessive powers and grown beyond its legitimate function.”

“The superior freedom of the capitalist system, its superior justice, and its superior productivity are not three superiorities, but one. The justice follows from the freedom and the productivity follows from the freedom and the justice.”

“Government can’t give anything without depriving us of something else.”

“When your money is taken by a thief, you get nothing in return. When your money is taken through taxes to support needless bureaucrats, precisely the same situation exists.”

“Only if the modern state can be held within a strictly limited agenda...can it be prevented from regimenting, conquering, and ultimately devouring the society which gave it birth.”

“Liberty is so precious an end in itself that Lord Acton was moved to declare that it is ‘not a means to a higher political end. It is itself the highest political end.’ Yet though liberty is beyond doubt an end in itself, it is also of the highest value … as a means to most of our other ends. We can pursue not only our economic but our intellectual and spiritual goals only if we are free to do so.”

"Government planning always involves compulsion."

“Many of today’s writers who are most eloquent in their arguments for liberty in fact preach philosophies that would destroy it.”

“In a thousand fields the welfarists, statists, socialists, and inverventionists are daily driving for more restrictions on individual liberty.”

“The solution to our problems is not more paternalism, laws, decrees, or controls, but the restoration of liberty and free enterprise.”

“Capitalism will continue to eliminate mass poverty in more and more places and to an increasingly marked extent if it is merely permitted to do so.”

“The ‘private sector’ of the economy is, in fact, the voluntary sector...the ‘public sector’ is, in fact, the coercive sector.”

“Capitalism, the system of private property and free markets, is not only a system of freedom and of natural justice—which tends…to distribute rewards in accordance with production—but it is a great co-operative and creative system that has produced…affluence that our ancestors did not dare dream of.”

“The crying need today is not for more laws, but for fewer. If the friends of liberty and law could have only one slogan it should be: Stop the remedies!”

“Our intelligentsia …. misprize economic liberty because … they lack the knowledge or understanding to recognise that when economic liberties are abridged or destroyed, all other liberties are abridged or destroyed with them.”

“Liberty is a whole, and to deny economic liberty is finally to destroy all liberty.”

“When Alexander the Great visited the philosopher Diogenes and asked whether he could do anything for him, Diogenes is said to have replied: ‘Yes, stand a little less between me and the sun.’ It is what every citizen is entitled to ask of his government.”

Henry Hazlitt recognised liberty as the only moral system and economic liberty, or capitalism, as the only means of organizing society that can benefit all. And he defended that position powerfully against many attacks. As Ludwig von Mises described him, “in this age of great struggle in favor of freedom and the social system in which men can live as free men, you…are the economic conscience of our country.”

During his life, Hazlitt saw America taking the opposite course, prompting him to conclude that “So far as the politicians are concerned, the lesson … does not seem to have been learned anywhere.”

Now, with far more resources forcibly taken from some for whatever and whoever the government decides, his insights are more important than ever.

* * * * 

Gary M. Galles is a Professor of Economics at Pepperdine University and a member of the Foundation for Economic Education faculty network.
In addition to his most recent book, Pathways to Policy Failures (2020), his books include Lines of Liberty (2016), Faulty Premises, Faulty Policies (2014), and Apostle of Peace (2013).

"...when economic liberties are abridged or destroyed all other liberties are abridged or destroyed with them."

"Many of today's writers who are most eloquent in their arguments for liberty in fact preach philosophies that would destroy it. It seems to be typical of the books of our intelligentsia to praise one kind of liberty incessantly while disparaging or ridiculing another kind... [T]he liberty that they so foolishly denounce is economic liberty.…[T]hey seem to attach scant value to economic liberty because they think of it not as applying to themselves but to businessmen. Such a judgment may be uncharitable; but it is certainly fair to say that they misprize economic liberty because, in spite of their brilliance in some directions, they lack the knowledge or understanding to recognise that when economic liberties are abridged or destroyed all other liberties are abridged or destroyed with them. 'Power over a man's subsistence,' as Alexander Hamilton reminded us, 'is power over his will.' And if we wish a more modern authority, we can quote no less a one than Leon Trotsky, the colleague of Lenin, who in 1937, in a moment of candour, pointed out clearly that, 'In a country where the sole employer is the State, opposition means death by slow starvation: The old principle: who does not work shall not eat, has been replaced by a new one: who does not obey shall not eat'.”
          ~ Henry Hazlitt, from his 'Introduction' to the 1958 Free Man's Library

25+ of the Greatest Quotes on Economics and Capitalism (That You've Probably Never Heard)

There are a handful of economics books everyone should read, explains John Miltimore in this guest post. I have a different list myself, but he delivers 25+ quotes here that will get anyone started -- even you! -- timeless insights from some of the greatest thinkers in economic history.

25+ of the Greatest Quotes on Economics and Capitalism (That You've Probably Never Heard)

by John Miltimore

There are a handful of economics books everyone should read.

Economics in One Lesson and Free to Choose, the classic works written by Henry Hazlitt and Milton Friedman, respectively, are on that list. A personal favourite is Thomas Sowell’s Basic Economics, a book that kindled my own interest in economics many years ago.

From The Wealth of Nations (1776) to Freakonomics (2005), there are many and more works in between that people would argue are must-read economics texts, including Ludwig von Mises’ Human Action.

Though I’d encourage people to read in full all the best economics books, it’s unlikely most will find the time. Fortunately, with David L. Bahnsen’s forthcoming book There's No Free Lunch: 250 Economic Truths, they don’t necessarily have to.

In his latest work, Bahnsen has collected centuries worth of economic wisdom into a single text to show precisely what the title implies: there are no free lunches.

The notion that free lunches don’t exist—TNSTAAFL, an idea popularised by the Nobel Prize-winner Friedman* who used it as the title of a 1975 book—is both obvious and self-evident. Yet following a year that saw the Federal Reserve “flood the system with money” to fund an unprecedented government expansion—which included simply sending $1,400 checks to individuals—it’s a lesson that has never been more important.

Bahnsen’s book, scheduled for release on November 9, helps readers understand why there is no such thing as a “free lunch”—and much more. Exploring topics ranging from self-interest, free trade, incentives, credit and sound money, private property, and socialism (and many more), Bahnsen curates some of the most profound economic insights in history, adding his own reflections along the way.

While some of the reflections will be familiar to readers, many of them will not be—even for seasoned readers of economics. Here is just a small sampling of the insights you’ll find...

“The farmer and manufacturer can no more live without profit than the labourer without wages.” - David Ricardo

“The most basic question is not what is best, but who shall decide what is best.” - Thomas Sowell

“Nothing is more deadly to achievement than the belief that effort will not be rewarded, that the world is a bleak and discriminatory place in which only the predatory and the specially preferred can get ahead.” - George Gilder

“I prefer true but imperfect knowledge, even if it leaves much undetermined and unpredictable, to a pretense of exact knowledge that is likely to be false.” - F.A. Hayek

“Prices are important not because money is considered paramount but because prices are a fast and effective conveyor of information through a vast society in which fragmented knowledge must be coordinated.” - Thomas Sowell

“What one person disdains or values lightly is appreciated by another, and what one person abandons is often picked up by another.” - Carl Menger

“Demand and supply are the opposite extremes of the beam, whence depend the scales of dearness and cheapness; the price is the point of equilibrium, where the momentum of the one ceases, and that of the other begins.” - Jean-Baptiste Say

"Consumption is the final, not the efficient, cause of production. The efficient cause is savings, which can be said to represent the opposite of consumption: they represent unconsumed goods. Consumption is the end of production, and a dead end, as far as the productive process is concerned." - Ayn Rand

“The disdain of profit is due to ignorance, and to an attitude that we may if we wish admire in the ascetic who has chosen to be content with a small share of the riches of this world, but which, when actualised in the form of restrictions on profits of others, is selfish to the extent that it imposes asceticism, and indeed deprivations of all sorts, on others.” - F.A. Hayek

“All people, however fanatical they may be in their zeal to disparage and to fight capitalism, implicitly pay homage to it by passionately clamouring for the products it turns out.” - Ludwig Von Mises

“Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone.” - Frédéric Bastiat

“Everything we get, outside of the free gifts of nature, must in some way be paid for. The world is full of so-called economists who in turn are full of schemes for getting something for nothing.” - Henry Hazlitt

"Whoever claims that economic competition represents "survival of the fittest" in the sense of the law of the jungle, provides the clearest possible evidence of his lack of knowledge of economics. The truth is that economic competition is the very opposite of competition in the animal kingdom. It is not a competition in the grabbing off of scarce nature-given supplies, as it is in the animal kingdom. Rather, it is a competition in the positive creation of new and additional wealth." - George Reisman

“The principle that the end justifies the means is in individualist ethics regarded as the denial of all morals. In collectivist ethics it becomes necessarily the supreme rule.” - F.A. Hayek

“Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilised, you have to do it through the means of private property.” - Milton Friedman

“All trades, arts, and handiworks have gained by division of labour, namely, when, instead of one man doing everything, each confines himself to a certain kind of work distinct from others in the treatment it requires, so as to be able to perform it with greater facility and in the greatest perfection. Where the different kinds of work are not distinguished and divided, where everyone is a jack-of-all-trades, there manufactures remain still in the greatest barbarism.” - Immanuel Kant

“It is not true that Congress spends money like a drunken sailor. Drunken sailors spend their own money. Congress spends our money.” - Art Laffer

“The message from history is so blatantly obvious—that free trade causes mutual prosperity while protectionism causes poverty—that it seems incredible that anybody ever thinks otherwise. There is not a single example of a country opening its borders to trade and ending up poorer.” - Matt Ridley

“Love locally, trade globally.” - Russ Roberts

"Industry is limited by capital... Capital ... is the result of saving ... Capital ... although saved, and the result of saving, is nevertheless consumed. What supports and employs productive labour, is the capital expended in setting it to work, and not the demand of purchasers for the produce of the labour when completed. Demand for commodities is not demand for labour.” - John Stuart Mill

"The production of commodities creates, and is the one and universal cause which creates a market for the commodities produced.
   "When goods are carried to market what is wanted is somebody to buy. But to buy, one must have wherewithal to pay. It is obviously therefore the collective means of payment which exist in the whole nation that constitute the entire market of the nation. But wherein consist the collective means of payment of the whole nation? Do they not consist in its annual produce, in the annual revenue of the general mass of its inhabitants? ...
    "Whatever be the additional quantity of goods therefore which is at any time created in any country, an additional power of purchasing, exactly equivalent, is at the same instant created..." - James Mill

“The great danger to the consumer is the monopoly— whether private or governmental. His most effective protection is free competition at home and free trade throughout the world. The consumer is protected from being exploited by one seller by the existence of another seller from whom he can buy and who is eager to sell to him.” - Milton Friedman

"Every individual... neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention....
    "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages." - Adam Smith

“People who lack the capacity to earn a decent living need to be helped, but they will not be helped by minimum-wage laws, trade-union wage pressures or other devices which seek to compel employers to pay them more than their [labour] is worth. The more likely outcome of such regulations is that the intended beneficiaries are not employed at all.” - James Tobin

“Nothing should be more obvious than that the business organism cannot function according to design when its most important ‘parameters of action’—wages, prices, interest—are transferred to the political sphere and there dealt with according to the requirements of the political game or, which sometimes is more serious still, according to the ideas of some planners.” - Joseph A. Schumpeter

"To widen the market and to narrow the competition, is always the interest of the dealers…The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it." - Adam Smith

“Failure is part of the natural cycle of business. Companies are born, companies die, capitalism moves forward.” - Thomas Sowell

“The way to maximise production is to maximise the incentives to production. And the way to do that, as the modern world has discovered, is through the system known as capitalism—the system of private property, free markets, and free enterprise.” - Henry Hazlitt

“A people averse to the institution of private property is without the first elements of freedom.” - Lord Acton

“Once the principle is admitted that it is the duty of the government to protect the individual against his own foolishness, no serious objections can be advanced against further encroachments.” - Ludwig Von Mises

"Today, in the Twenty-First Century, an age of jet aircraft, personal computers, wireless telecommunications, laser surgery, and incipient space travel, the mentality with which many presumably educated, intelligent people approach matters of economics and business is, however astonishing it may seem, still that of the Dark Ages" - George Reisman

“It is no crime to be ignorant of economics, which is, after all, a specialised discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.” - Murray Rothbard

"The moral code which is implicit in capitalism had never been formulated explicitly. The basic premise of that code is that man—every man—is an end in himself, not the means to the end of others, that man must exist for his own sake, neither sacrificing himself to others nor sacrificing others to himself, and that men must deal with one another as traders, by voluntary choice to mutual benefit. This, in essence, is the moral premise on which the United States of America was based: the principle of man’s right to his own life, to his own liberty, to the pursuit of his own happiness." - Ayn Rand

____________________________________________

++ Jonathan Miltimore is the Managing Editor of FEE.org. His writing/reporting has been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, and the Star Tribune.
Bylines: Newsweek, The Washington Times, MSN.com, The Washington Examiner, The Daily Caller, The Federalist, the Epoch Times. A version of this post first appeared at FEE.Org.

* To be fair, it was Robert Heinlein who popularised the expression in his 1966 novel The Moon is a Harsh Mistress. Friedman took the popularity and ran with it.

Economics Was Invented to Refute Trump's Tariff Arguments

Adam Smith didn't write 'Wealth of Nations' to refute “godless socialists.” He wrote it to demolish the idiocy displayed by a 21st-century Republican president and his advisers. Because, says Tom Mullen in this guest post, we've known since Adam Smith's demolition that tariffs are a shitty destructive idea.

When Adam Smith wrote Wealth of Nations, it wasn’t to refute the “godless socialists” that 21st-century Republican voters believe are taking over the world. It was to refute the kinds of protectionist ideas championed by conservatives like Edmund Burke and Alexander Hamilton in Smith’s day, Abraham Lincoln eighty years later, and Trump today.

Cobden had protectionist ideas dumped in 1846 and, inspired, French writer Frederic Bastiat remade Cobden and Smith’s case in 1848. Henry Hazlitt did so again in 1946. Still, these economic fallacies persist because they offer the victims of other bad economic policies villains they can blame for largely self-inflicted wounds.

The Broken Window Fallacy

Every time a Trump supporter sees “Made in China” on a pair of sneakers, he throws up his hands and says, “Do you see that? They’re stealing our manufacturing jobs.” He then repeats a version of Bastiat’s broken window fallacy. It goes something like this:

 China puts tariffs on our products so our exports can’t compete in its markets. But we don’t put tariffs on China’s exports, making their sneakers cheaper than we can make them here. American sneaker manufacturing jobs go to China, but no Chinese manufacturing jobs come to the United States.

Not only do millions of Americans lose their jobs, say the protectionists, but all of the money they would have spent domestically is instead spent in China. This causes other American businesses to fail, cut production, or not expand as much as they otherwise would. The unemployed American factory worker doesn’t eat out at the local restaurant. The restaurant needs fewer wait staff and cooks, who in turn don’t have money to spend on new clothing, etc.

As Bastiat would say, this is “what is seen.” But their argument ignores what is unseen.

What is unseen is the money American consumers no longer have when the tariffs are put in place. For example, the tariff may result in them paying $200 for the same pair of sneakers they previously paid $100 for. That means they no longer have $100 they previously had after buying the sneakers, which they could spend on other products. Whatever jobs they were supporting with that $100 are now lost.

The Jobs

To this, the protectionist might say, “But the $100 savings on a pair of sneakers doesn’t replace the entire $50,000-per-year sneaker manufacturing job that has been lost.” This is just more of the same fallacy.

First, the entire $50,000 is not lost. All other things being equal, the unemployed sneaker factory employee goes to another job. The job may pay less, but that is only because the higher salary earned making sneakers when the tariff was in place was not the true market price for that job. It was artificially inflated by government intervention.

Regardless, what is lost is only the difference between the employee’s previous salary and his new one.

Second, one must compare the number of sneaker manufacturing jobs lost to the number of consumers of sneakers. While all of apparel manufacturing never employed more than about a million people in the U.S., sneaker consumers alone number in the tens or hundreds of millions.

When the ledger is balanced, Americans, in general, are far better off without the tariff on sneakers. They now have $100 for every pair consumed to improve their own quality of life and to create millions of jobs which wouldn’t exist if they didn’t have that extra $100 to spend.

The same goes for all manufacturing jobs “lost” to China and other countries. The lower prices Americans pay for automobiles, clothing, Apple iPhones, and Bobcats allow them to patronise those American industries which do operate more efficiently than their overseas competitors. That’s called “comparative advantage,” something else free market advocates since Adam Smith have been educating people about.

Tariffs Are Just Taxes

The principle applies equally to production as to consumption. The steel and aluminium tariffs proposed this week purport to create jobs in the domestic steel and aluminium industries. But what about the domestic manufacturers who currently buy steel and aluminium from less-expensive foreign exporters? They now must raise their prices to cover their increased costs, making them less competitive in foreign markets and their consumers poorer by the amount of the price increases of their products after the tariff is levied -- and in being so much the poorer they can spend so much the less on other goods and services, making the suppliers of all things (even red golfing caps) so much less well off.

The short-term gain of the very few who are seen is at the expense of the long-term gain of everyone. (And few, down the track, will even remember why they are now poorer.)

Conservatives like to point out that American taxpayers “don’t owe other people houses.” I completely agree, but that sword cuts both ways. Neither do American taxpayers owe manufacturing workers a higher-paying job. And in the end, that’s all tariffs do: make American taxpayers subsidise artificially higher wages.

President Trump says he is only levying the tariffs because other governments don’t treat American exporters fairly. “But those other countries aren’t lowering their tariffs! We need ‘fair trade!’”  he whines. Virtually every mercantilist who ever lived made the same excuse, and it doesn’t make any more sense now than it did then. Even if another country continues to levy tariffs on its imports, Americans are still better off paying $100 for a given pair of sneakers than paying $200 for them, for all the same reasons.

But what if the other country enters a “free trade deal,” then subsidises its manufacturers to give them an unfair advantage over our own? Bastiat eviscerated this fallacy 170 years ago with his “Petition of the Candlemakers.” Unless you’re in favour of a tariff on sunlight entering your country to protect local manufacturers of LED light bulbs, neither can you be in favour of responding with tariffs to (say) subsidised foreign cars when those vehicles hit your shores.

No matter what spurious arguments special interests make in favour of tariffs, they are, at the end of the day, just another tax. No matter what foreign governments may be doing to “protect” manufacturers in their own countries, it never helps us to respond by placing more taxes on ourselves.

Economics Applies to Everyone

And don’t forget that all the unseen, negative consequences of tariffs apply equally to foreigners. If they are taxing imports on automobiles too, then their citizens also have less money to spend on other products. Their businesses that use imported materials must also raise their own prices and become less competitive. Any advantage they appear to gain in one sector, they lose in another, with the same overall net loss as we experience. Thus, the ability of foreign governments to protect their industries has a natural limit.

None of this is news. Adam Smith pointed it all out 242 years ago. And it's worked out just the way he explained it every time and everywhere it's been tried.

In March 2002, for example,

President George W. Bush imposed a 30% tariff on Chinese steel. The results were chaotic. In a report put out by Consuming Industries Trade Action Coalition in February of that year, the coalition found the tariffs against China boosted the overall prices of steel and cost the U.S. 200,000 jobs in businesses that buy steel, representing $4 billion in lost wages.

That's just one of many examples. Fact is, tariffs are never beneficial to the economy. And they are least beneficial of all when an asset bubble is just about to pop. During the 1920s for example, the Federal Reserve augmented a natural economic boom with an inflationary monetary policy, turning the boom into a market bubble. When the Fed finally began to tighten and the market crashed, a recession followed -- to which Republican President Herbert Hoover responded by signing into law the Smoot-Hawley tariffs. This immediately made an already-bad situation worse. Not only did he further impoverish Americans, his action helped set off an international tariff war that helped export the Depression worldwide -- a depression that only ended when WWII ended and taxes and government spending were cut dramatically.

We’ve seen this movie before. The original wasn’t very good, and remakes are usually worse. Hopefully, Americans are finally getting wise. A FEE article on the Smoot-Hawley tariff is trending on Google. Let’s hope Cobden, Bastiat and Hazlitt start trending next.

_________________________________________________________________________________

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? and A Return to Common  Sense: Reawakening Liberty in the Inhabitants of America. For more information and more of Tom's writing, visit www.tommullen.net.
A version of this article previously appeared at FEE.

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Quote of the Day: “When the govt makes loans or subsidies…”

“When the government makes loans or subsidies to business, what it does is to tax successful private business in order to support unsuccessful private business.”
~  Henry Hazlitt

Quote of the Day: On automation & A.I.

Author Henry Hazlitt makes an interesting differentiation between types of automation that is entirely pertinent to what some are calling “the Fourth Industrial Revolution,’ i.e., the predicted revolution in robotics artificial intelligence, the differentiation being:

1. Automation of a task previously done manually ("labour saving")

2. Automation of a task inherently impossible to humans ("possible-making")

3. Automation of a task via usage of superior materials ("quality improving")

4. Automation of tasks via breaking into contexts formerly unknown or inaccessible ("integrating") 

(NB: The expansion and the terms in brackets were chosen by online commentator Felix Mueller.)

Hazlitt’s original quote is here:

"Not all inventions and discoveries, of course, are “labour-saving” machines. Some of them, like precision instruments, like nylon, lucite, plywood, and plastics of all kinds, simply improve the quality of products. Others, like the telephone or the airplane, perform operations that direct human labour could not perform at all. Still others bring into existence objects and services, such as X-rays, radios, and synthetic rubber, that would otherwise not even exist."

Quote of the Day: Summing up Marxism

 

“The whole gospel of Karl Marx can be summed up in a single sentence: Hate the man who is better off than you are. Never under any circumstances admit that his success may be due to his own efforts, to the productive contribution he has made to the whole community. Always attribute his success to the exploitation, the cheating, the more or less open robbery of others. Never under any circumstances admit that your own failure may be owing to your own weakness, or that the failure of anyone else may be due to his own defects - his laziness, incompetence, improvidence, or stupidity.”

― Henry Hazlitt

Quotes of the Day: Rand on Mises and elsewhere [update 3]

 

I’ll say in advance that this post is not for everyone.

Who is it for? Mainly for readers of Rand and/or of Austrian economics who either wonder what the former thought about the latter, or who have been seriously misinformed about the substance of ‘Austrianism’ itself.

Readers of Ayn Rand who know Austrian economics only by glissandi on the interwebs performed by otherwise ill-educated Rand readers & writers (yes, they exist), or written by Rand herself in her Marginalia (opinions written in public not intended to be made public outside their context), may come away with many wrong ideas about the economics, and a notion that Rand didn’t rate what she’d read.

That last couldn’t be further from the truth, and the former less deserved. I’ve written and linked to many posts here over the years indicating why that might be so (perhaps because the founder of Austrian economics “Carl Menger was Aristotelian and had a lot in common with Rand”) For what it’s worth, neither Rand nor Peikoff held a negative view either of Austrian economics’ value nor of the value of Von Mises’s work – except where it divorced value from economics. Not only did they study his work, as seen in the books and magazines by Von Mises and his colleagues that they devoured, they rated it highly and recommended it widely.

It’s true that she thoroughly criticises Mises’s masterwork Human Action in her Marginalia, which (though now published) were never intended by her for public consumption. But note that her criticisms, written in the margins of the books as she read through, are largely of the earlier chapters of 'Human Action'-- of his epistemology, and NOT of the economics. Rand thought extremely highly of Mises's work on economics and business cycle theory, elements of which you can see in her own work.

And when one of her circle proposed taking Mises to task publicly for such things as she criticised in the marginalia, she reportedly advised, "Oh, leave him alone. He's done enough." And so he had. And so she admired.

Rand attended Mises’s seminars in New York, at which she really began her ‘formal’ education in economics. “She acknowledged him,” said Roy Childs later, “as one of the greatest minds of our time, even while disagreeing with his philosophic base, and as having made a tremendous contribution to liberty.”

And the admiration was reciprocated. Henry Hazlitt relates that he was walking with Rand one day, and told her that Mises had declared, "Ayn Rand is one of the greatest men in history." "Did he say men?" asked Rand. "Yes," Hazlitt responded. At which point Rand clapped her hands in glee.

His opinion mattered to her. And it mattered to her very much that others read and understood his work,

As late as the fifties, [explains B. Branden] Von Mises was relatively unknown in the United States - his books not published here before 1944 - until, beginning in the late fifties and continuing for more than ten years, [after being introduced to his work by people like Henry Hazlitt, Leonard Read and George Reisman¹] Ayn began a concerted campaign to have his work read and appreciated: she published reviews, she cited him in articles and in public speeches, she attended some of his seminars at New York University, she recommended him to admirers of her philosophy. A number of economists have said that it was largely as a result of Ayn's efforts that the work of Von Mises began to reach its potential audience.

So for easy reference, I’ve added below a series of excerpts indicating mentions of Von Mises and other Austrians in Rand’s and Peikoff’s books. It only includes direct references, not for example articles like ‘Egalitarianism and Inflation,’ in which AustroClassical capital theory is all but explicit. Few are even remotely negative, and those that seem so (like Rand’s reply to William Hutt) simply clarify where she places economics in her philosophic hierarchy, and her view of on the danger of value-free economics (on which George Reisman, student of both Rand and Mises, once commented, “given the role of wealth in human life … it is incumbent upon economics to justify itself by providing philosophical validation for the production of wealth being a central, continuing concern of human existence.” In other words, a value.

So this is not to say that there are not things about which to disagree in Austrian economics, but as Reisman observed looking back at his own economic education, “I do not recall a single paragraph of Von Mises that did not serve as an inspiration to my own thinking, even in the cases (which were relatively few) in which I ultimately came to disagree with him”  -- and he concludes his own book by recommending again the reading and dissemination of Rand and Von Mises’s books, “the further spread of the ideas of these two historic figures [being, he says] the only possible basis for the further growth and ultimate success of the pro-capitalist cause.”

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Austrian References in Ayn Rand’s books, letters & journals (specific reference in bold)

From ‘The Ayn Rand Letter’ …

If student minorities have succeeded in demanding that they be given courses on such subjects as Zen Buddhism, guerrilla warfare, Swahili, and astrology, then an intellectual student minority can succeed in demanding courses on, for instance, Aristotle in philosophy, von Mises in economics, Montessori in education, Hugo in literature. At the very least, such courses would save the students' mind; potentially, they would save the culture.
- ‘The Ayn Rand Letter,’ Vol. 1, No. 19 June 19, 1972, "Fairness Doctrine" For Education--Part II”

From Capitalism: The Unknown Ideal …

The financial mechanism of an economy is the sensitive centre, the living heart, of business activity. In no other area can government intervention produce quite such disastrous consequences. For a general discussion of the business cycle and its relation to government manipulation of the money supply, see Ludwig von Mises, Human Action. … ²

The productive value of physical labour as such is low. If the worker of today produces more than the worker of fifty years ago, it is not because the former exerts more physical effort; quite the contrary: the physical effort required of him is far less. The productive value of his effort has been multiplied many times by the tools and machines with which he works; they are crucial in determining the economic worth of his services. To illustrate this principle: consider what would be a man’s economic reward, on a desert island, for pushing his finger the distance of half an inch; then consider the wages paid, for pushing a button, to an elevator operator in New York City. It is not muscles that make the difference. As Ludwig von Mises observes [in http://mises.org/library/capital-supply-and-american-prosperity ]: American wages are higher than wages in other countries because the capital invested per head of the worker is greater and the plants are thereby in the position to use the most efficient tools and machines. What is called the American way of life is the result of the fact that the United States has put fewer obstacles in the way of saving and capital accumulation than other nations. The economic backwardness of such countries as India consists precisely in the fact that their policies hinder both the accumulation of capital and the investment of foreign capital. As the capital required is lacking, the Indian enterprises are prevented from employing sufficient quantities of modern equipment, are therefore producing much less per man hour and can only afford to pay wage rates which, compared with American wage rates, appear as shockingly low’. … ² 

For excellent, more detailed discussions of these issues, see Ludwig von Mises, Planning for Freedom, especially the chapter entitled “Wages, Unemployment and Inflation,” and Henry Hazlitt, Economics in One Lesson (New York: Harper and Brothers, 1946), especially the chapters entitled “Minimum Wage Laws” and “Do Unions Really Raise Wages?” … ²

It is significant how many heirs of great industrial fortunes, the second- and third-generation millionaires, are welfare statists, clamouring for more and more controls. The target and victims of these controls are the men of ability who, in a free economy, would displace these heirs; the men with whom the heirs would be unable to compete. As Ludwig von Mises writes in Human Action: Today taxes often absorb the greater part of the newcomer’s ‘excessive’ profits. He cannot accumulate capital; he cannot expand his own business; he will never become big business and a match for the vested interests. The old firms do not need to fear his competition; they are sheltered by the tax collector. They may with impunity indulge in routine. . . . It is true, the income tax prevents them, too, from accumulating new capital. But what is more important for them is that it prevents the dangerous newcomer from accumulating any capital. They are virtually privileged by the tax system. In this sense progressive taxation checks economic progress and makes for rigidity. . . . The interventionists complain that big business is getting rigid and bureaucratic and that it is no longer possible for competent newcomers to challenge the vested interests of the old rich families. However, as far as their complaints are justified, they complain about things which are merely the result of their own policies. … ²

How did children thrive before the Industrial Revolution? In 1697, John Locke wrote a report for the Board of Trade on the problem of poverty and poor-relief. Locke estimated that a labouring man and his wife in good health could support no more than two children, and he recommended that all children over three years of age should be taught to earn their living at working schools for spinning and knitting, where they would be given food. ‘What they can have at home, from their parents,’ wrote Locke, ‘is seldom more than bread and water, and that very scantily too.’ Professor Ludwig von Mises reminds us: The factory owners did not have the power to compel anybody to take a factory job. They could only hire people who were ready to work for the wages offered to them. Low as these wage rates were, they were nonetheless much more than these paupers could earn in any other field open to them. It is a distortion of facts to say that the factories carried off the housewives from the nurseries and the kitchen and the children from their play. These women had nothing to cook with and to feed their children. These children were destitute and starving. Their only refuge was the factory. It saved them, in the strict sense of the term, from death by starvation. … ³

The result of legislative intervention was that these dismissed children, who needed to work in order to survive, were forced to seek jobs in smaller, older, and more out-of-the-way factories, where the conditions of employment, sanitation, and safety were markedly inferior. Those who could not find new jobs were reduced to the status of their counterparts a hundred years before, that is, to irregular agricultural labour, or worse—in the words of Professor von Mises—to ‘infest the country as vagabonds, beggars, tramps, robbers and prostitutes.’ Child labour was not ended by legislative fiat; child labour ended when it became economically unnecessary for children to earn wages in order to survive… ³

The proper answer to the critics of the Industrial Revolution is given by Professor T. S. Ashton [from a book edited by F.A. Hayek]: There are today on the plains of India and China men and women, plague-ridden and hungry, living lives little better, to outward appearance, than those of the cattle that toil with them by day and share their places of sleep by night. Such Asiatic standards, and such un-mechanized horrors, are the lot of those who increase their numbers without passing through an industrial revolution.42 Let me add that the Industrial Revolution and its consequent prosperity were the achievement of capitalism and cannot be achieved under any other politico-economic system.… ³

CUI - Recommended Bibliography

Books by Ludwig Von Mises

• The Anti-Capitalistic Mentality
• Bureaucracy
• Human Action: A Treatise on Economics
• Omnipotent Government
• Planned Chaos
• Planning for Freedom
• Socialism: An Economic and Sociological Analysis
• The Theory of Money and Credit

Books by Henry Hazlitt

• The Critics of Keynesian Economics (edited by Hazlitt)
• Economics in One Lesson
• The Failure of the "New Economics": An Analysis of the Keynesian Fallacies
• What You Should Know About Inflation

Books and articles by other Austrian authors

• Ballve, Faustino, Essentials of Economics
• Bohm-Bawerk, Eugen von, ‘The Exploitation Theory’

From The Journals of Ayn Rand

From Part 3 - Transition Between Novels: s. 8 – ‘The Moral Basis Of Individualism’

…Granted that collectivism and statism are brought about by minorities—as [Ludwig] von Mises proves. What can the minority of prime-movers do about it? Are the collectivists' methods open and proper to prime-movers?  Won't the majority always follow the collectivists if given a clear choice? (No, I think.) Isn't it actually true that even among collectivists and statists it is always a prime-mover off the track who does the real damage?—so that the world is destroyed by the Wynands, not the Tooheys? (I think so.) [Here AR is grasping an idea essential to Atlas Shrugged: that evil is impotent it has no power except that which the good grants it.] But if so—can it ever be stopped? What can stop prime-movers from going off the track for one reason or another? I suppose the answer is: Nothing. There is no automatic fool-proof and error-proof [way]. If there were, there would be no free will. Nothing can ever replace man's necessity to make a free, conscious choice—the necessity of an effort of reason. All we can do is indicate the right way, the proper principles—and then fight, fight, and fight for them. …

That a man knows the right idea is not enough. He must still act upon it. There are, then, two acts of the free will: the will to know the truth and then the will to act upon it. The first does not lead automatically to the second…

From The Letters of Ayn Rand

From The Fountainhead and Atlas Shrugged Years (1945-1959)

To Leonard Read
February 28, 1946

…That is why I do not believe that an economic education alone is of any value. That is also why you will find it difficult to arouse people's interest in the subject. I believe you are conscious of this difficulty; your prospectus shows anxiety on the scope of "creating a greater desire for economic understanding." You will not be able to create it.
    The great mistake here is in assuming that economics is a science which can be isolated from moral, philosophical and political principles, and considered as a subject in itself, without relation to them. It can't be done.
    The best example of that is Von Mises' Omnipotent Government. That is precisely what he attempted to do, in a very objective, conscientious, scholarly way. And he failed dismally, even though his economic facts and conclusions were for the most part unimpeachable. He failed to present a convincing case because at the crucial points, where his economics came to touch upon moral issues (as all economics must), he went into thin air, into contradictions, into nonsense. He did prove, all right, that collectivist economics don't work. And he failed to convert a single collectivist.

Dear Rose Wilder Lane
1946

…Now to your second question: "Do those almost with us do more harm than 100% enemies?" I don't think this can be answered with a flat "yes" or "no," because the "almost" is such a wide term and can cover so many different attitudes. I think each particular case has to be judged on his own performance, but there is one general rule to observe: those who are with us, but merely do not go far enough, yet do not serve the opposite cause in any way, are the ones who do us some good and who are worth educating. Those who agree with us in some respects, yet preach contradictory ideas at the same time, are definitely more harmful than the 100% enemies. The standard of judgment here has to be the man's attitude toward basic principles. If he shares our basic principles, but goes off on lesser details in the application of these principles, he is worth educating and having as an ally. If his "almost" consists of sharing some of the basic principles of collectivism, then we ought to run from him faster than from an out-and-out Communist.
   As an example of the kind of "almost" I would tolerate, I'd name Ludwig von Mises. His book, Omnipotent Government, had some bad flaws, in that he attempted to divorce economics from morality, which is impossible; but with the exception of his last chapter, which simply didn't make sense, his book was good, and did not betray our cause. The flaws in his argument merely weakened his own effectiveness, but did not help the other side.

Dear Rose Wilder Lane
1946

…You asked my opinion of your review of Hazlitt's Economics in One Lesson. Your review is excellent, and I agree with all of it (except one small point). I think you have been eminently fair in giving him credit for the virtues of his book—and there are many. But you picked quite properly on its basic weakness. I think this is another case such as that of Ludwig von Mises. Hazlitt tried to divorce economics from ethics. He presented a strictly economic argument, telling how things work out, and carefully omitting to state why the way they work out is proper—that is, what principles should properly guide men's actions in the economic field. He did not say that we should sacrifice minority groups for the sake of the whole, but that was certainly the implication of his book, which is certainly a collectivist implication.
    This is an example of why I maintain that no book on economics can have real value or importance if economics are divorced from morality. When one attempts to do it, one merely spreads the implications and premises of the collectivist morality and defeats one's case for the more thoughtful readers.
    I wish you had blasted one particular passage in the book, which made me more angry than all the other flaws, and really spoiled the book for me. That was the passage where Hazlitt states that a virtuous, responsible man of wealth should donate to charity and should refrain from buying luxuries, because these take productive resources away from the manufacture of necessities for the poor (p. 192). That was really a crucial betrayal of our case. It is not true as economics, and it is wrong as morality. It is pure, explicit collectivism.

To Henry Hazlitt, February 26, 1951
Dear Harry:

I do envy you for the fact that your novel [The Great Idea, later retitled Time Will Run Back] is finished and is about to come out. Archie Ogden was here and told me a little about it. It sounded extremely interesting, and I am looking forward to reading it. All my best wishes to you for the success you deserve.
    I have not been able to read every issue of ‘The Freeman’ from cover to cover as I would have liked to, but I have followed your political editorials "The Fortnight." I have no criticism to offer in that respect, only my best compliments and my wish that you keep it up.
    Of the articles which I liked very much, I'll mention "Council for the Minority" by Robert Morris, "Lord Keynes and Say's Law" by Ludwig von Mises, "For President: Mickey Cohen" by Morrie Ryskind, "Plan for Counter-action' by Rodney Gilbert—particularly this last….

Dear John [Hospers]
(1960)

… You are right when you say that "It's true that money has to be spent over a long period in order to get more money in the end, but that this does not constitute any reason why the government should do it." I would like to offer further objections to their argument as you present it in your letter: not every long-term investment of money is necessarily and automatically profitable or self-liquidating; that depends on the investor's economic judgment; bad judgment leads to a total loss, to bankruptcy or "money poured down the drain." When, however, the investor is the government, then the results are necessarily disastrous for the economy, for the following reasons:
    A. There is no way, standard or criterion by which to judge the economic value and future of an investment, outside of the free-market mechanism of supply and demand (see Ludwig von Mises for the details of why economic calculation is impossible to a socialistic government).
    B. Assume in some specific case that the government has invested money in some long-term project which may actually have future economic value; the fact that it was a forced, premature investment which was not yet economically justified (that is: not yet profitable for private investors), which the economy could not yet afford, has disastrous repercussions on the whole economy and causes unpredictable, incalculably harmful consequences. The best example of that is the government-subsidized construction of the so-called first transcontinental railroad in the United States (the Union Pacific and the Central Pacific). A railroad, as such, is an economic value; but the premature construction of a railroad which private capital could not yet find profitable caused economic evils (the plight of the farmers, the Granger movement, etc.) which are still multiplying to this day.
    To illustrate my point in a simple manner: suppose that you are an industrialist and that you want to market an invention which will bring you a fortune in ten years; if your calculations are sound, that would be a good investment, and you would be justified in saving your money for it and in living modestly for ten years. But suppose you decide to market an invention which will bring you a fortune in a hundred years and for which the savings of your lifetime are not sufficient. Would that be a good investment? Would you become prosperous by spending your life on the level of semi-starvation and by draining the resources of all those who may lend you money? Would that be wise or economically sound? By what standard could you be certain—even if your entire generation died in misery, pouring all resources into your project—that the invention would still be needed or valuable to your children or grandchildren who, by that time, would be perishing for lack of shoes, clothes and adequate shelter?
    These are merely the economic or "practical" consequences of government "investment." The moral meaning and consequences are obvious: by what right does the government take the money of some individuals for the future benefit of other individuals? By what right does it [exact] privations on an individual, against his own choice and judgment, for the future benefit of himself or others, actual or hypothetical? That which is in fact beneficial to an economy (that is: to the individuals who comprise an economy) is done by men voluntarily (as the history of capitalism demonstrates); that which cannot be proved to be beneficial does not become so at the point of a gun…

To Martin Larson, a "humanist" writer
July 15, 1960

Dear Dr. Larson:

… As to your statement that "laissez-faire" capitalism is the cause of depressions—this is an issue of economic fact and is simply untrue. The cause of depressions is government interference into economics. For proof, I refer you to such books as Capitalism the Creator by Carl Snyder, Economics in One Lesson by Henry Hazlitt, How Can Europe Survive by Hans Sennholz, and the works of the great economist Ludwig von Mises…

To W. H. Hutt, economics professor at the University of Virginia
August 28, 1966
Dear Professor Hutt:

… No, the "Austrian approach" has not "helped to mould" my philosophy. It is one of the many approaches to capitalism which I oppose, though I do agree with many of its purely economic ideas…

Austrian references in Leonard Peikoff:

From Objectivism: The Philosophy of Ayn Rand,

Chapter 11—Capitalism

…There are flaws in classical economics, to be sure, and even in its best modern heir, the Austrian school as represented by Ludwig von Mises. But capitalism is not perishing from such flaws. It is perishing from the absence of a rational philosophy. This absence alone explains why the abundance of economic answers offered to our century by a better past has been ignored by the world and will go on being ignored.
    Economics is invaluable as a supplement to philosophy. Like a body without a mind, however, it is worthless and impossible apart from philosophy….

From The Ominous Parallels,

2 - The Totalitarian Universe

The initiators of German nationalism in the nineteenth century were not the Junkers, the military men, big business, or the middle classes. "All these groups," notes Ludwig von Mises,
    were at first strongly opposed to the aspirations of Pan-Germanism. But their resistance was vain because
    it lacked an ideological backing. There were no longer any liberal [individualistic] authors in Germany. Thus
    the nationalist writers and professors easily conquered. Very soon the youth came back from the
    universities and lower schools convinced Pan-Germans. (15)
On this issue, the leading teacher of the teachers of the youth was Hegel.

7 - United They Fell

Bismarck's conservative supporters at the time, including the professorate and the Lutheran Church, had accepted such programs enthusiastically, as a natural expression of Prussian paternalism, social-mindedness, and sense of duty. The base of Bismarck's approach was established by the so-called "socialists of the chair," a group of highly influential social-science professors at the German universities. The ideas of these men, notes von Mises, "were almost identical with those later held by the British Fabians and the American Institutionalists .... "
    … The Free Corps did not consist only of soldiers. "Next to the war veterans," writes one scholar, "students formed the largest group in the Free Corps. For the most part, they were young idealists" who despised "peace and money-grabbing." "Next to the racist officers," said the leader of Hitler's Storm Troopers, Ernst Ro m, recalling his Free Corps days, "it was primarily the aggressiveness and loyalty of the students that strengthened us."(32)
    Such were the men who, in a series of brutal armed confrontations (brutal on both sides), decisively crushed the Spartacist threat—thereby gaining, at the expense of the hand-wringing moderates, the prestige of national heroes. From this time on, the Communists were forced, despite their ideology, to try to gain power by electoral means. "The German nation," observes Ludwig von Mises, "obtained parliamentary government as a gift from the hands of deadly foes of freedom, who waited for an opportunity to take back their present."(33)

References to Chapter 12

… Von Mises describes the Nazi method of expropriating profits: "As all private consumption is strictly limited and controlled by the government, and as all unconsumed income must be invested, which means virtually lent to the government, high profits are nothing but a subtle method of taxation. The consumer has to pay high prices and business is nominally profitable. But the greater the profits are, the more the government funds are swelled. The government gets the money .... "(p. 226) Brady, op. cit., p. 292; quoting Hjalmar Schacht at the opening of the National Labor and Economic Council in Nuremberg.

And finally

From Rand’s Voices of Reason,

10 - The Intellectual Bankruptcy of Our Age

…It was not the businessmen or the industrialists or the workers or the labour unions that began the revolt against freedom, the demand for greater and greater government power and, ultimately, for the return to an absolute, totalitarian state; it was the intellectuals. For a detailed history of the steps by which the intellectuals of Germany led it toward totalitarianism, culminating in the establishment of the Nazi dictatorship, I will refer you to a brilliant book entitled Omnipotent Government by Professor Ludwig von Mises. For a detailed history of the intellectuals' role in America, I will refer you to The Decline of American Liberalism by Professor Arthur A. Ekirch, Jr., which I mentioned earlier….

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FURTHER READING:

• The logical place to begin would be the with the books and writing already recommended above, in addition to the magnum opus of the student of both Rand and Mises, George Reisman’s Capitalism: A Treatise on Economics, the very title a tribute to both.
• More impatient students however who still need convincing that the enthusiast for Rand will find much to value in Austrian economics may enjoy some of Ed Younkins’s many article-length efforts to demonstrate the connections between them both, including
  • Austrian Economics Can be Compatible with Objectivist Ethics
  • Can the Ideas of Mises and Rand Be Reconciled?
  • Metaphysics & Epistemology for a Free Society: The Views of Menger, Mises & Rand
  • Ayn Rand and Friedrich A. Hayek: A Side-by-Side Comparison

UPDATED 10 and 11 Jan. (Update 1 & 2) to add:

NOTE

1. James Valliant has reminded me that Henry Hazlitt & Leonard Read had introduced Rand to Mises’s work in the mid-40s (their names have been added), and has challenged me on the claim regarding Reisman.
    This last is my own supposition based on a combination of Reisman’s ‘Preface’ to his book Capitalism, and the context given by note 7, page 172 of the Ayn Rand’s Marginalia, which says that the comments therein on Human Action have omitted all references to George Reisman, to whom "a few" of her marginal notes were addressed. (How many or how few we can only guess.)
    Given this context, and understanding that several of the marginal comments are addressed to "George," it seems clear she is reading Human Action for the first time, which means encountering Mises’s actual economics in toto for the first time, and while ploughing through the praxeology of the early chapters she has not yet realised either the value of the book to come, nor of its author, nor of the school for which he was then the foremost proponent. (For Example "George!” she notes at one point [p.136], “If it weren't for you, I would drop any book containing that sentence." She didn’t, but it seems likely it was only because of George’s recommendation.)
PS: There is probably a good article to be written on how her comments change as she progresses through Human Action (a shame, in this context, that George's name has been edited out), noting (as the editor does in his introduction) that most the criticisms in the Marginalia recede as she gets past the praxeology and on to the economics.
2. From the chapter ‘Common Fallacies About Capitalism’ by N. Branden
3. From the chapter ‘The Effects of the Industrial Revolution on Women and Children,’ by Robert Hessen

UPDATE 3: James Valliant adds further ammunition on this front:

To see how Rand appreciated the Austrians, including Mises, all one needs to do is to open the very first issue of Rand's first periodical, 'The Objectivist Newsletter', which declared Mises to be "the most distinguished economist of our age" and "an intransigent advocate of freedom and capitalism" ('The Objectivist Newsletter', "Review: Planned Chaos by Ludwig von Mises," vol. 1, no. 1, Jan., 1962, p. 2), praising his "brilliant lucidity and ruthless logic," and then, the second issue which declared Henry Hazlitt's Economics in One Lesson to be "a classic in the literature of freedom" and "the finest primer available for students of capitalism" ('The Objectivist Newsletter', "Review: Economics in One Lesson by Henry Hazlitt," vol. 1, no. 2, Feb., 1962, p. 2.)
    The admiration was reciprocated: Mises invited Rand to attend his seminar as an "honoured guest" (J. Burns, Goddess of the Market, p. 177), and he praised Atlas Shrugged as "a pitiless unmasking of the insincerity of the policies adopted by governments and political parties" and "a cogent analysis of the evils that plague our society" in a personal letter to Rand (dated Jan. 23, 1958, quoted in Hülsmann, Mises: The Last Knight of Liberalism, p. 996.)

FURTH

.FIRYTHJER

Free Ebooks: Five pro-freedom economists who will liberate your mind

 

Five free ebooks here that every lover of liberty can now have with them at all times – five free ebooks that will liberate your mind, made available by FEE, the Foundation of Economic Education.

• The Essential Leonard E. Read (epub)
• The Essential Ludwig von Mises (epub)
• The Essential F. A. Hayek (epub)
• The Essential Frederic Bastiat (epub)
• The Essential Henry Hazlitt (epub)

at FEE are happy to present the Essential series, five free ebooks collecting the key works of five great freedom philosophers: Leonard Read, Ludwig von Mises, Henry Hazlitt, F.A. Hayek, and Frédéric Bastiat. In each of these compact anthologies, you will find a powerful case for liberty.

But the ideas within are not mere fodder for debate. Like all great sages, these authors offer true wisdom that can inspire you and benefit you personally in your own life. Here is a discussion of just a few of the included works.

The Essential Leonard Read

Power corrupts and captivity degrades.

Leonard Read (1898-1983), FEE’s founder, dedicated his life to spreading “the freedom philosophy.” In addition to facilitating the contributions of others, Read himself was a prolific author and a font of wisdom. For example, in the included "How Socialism Harms the Individual," Read explains how the forced transfer of wealth degrades and cripples everyone involved. In addition to being directly harmed, the victim of the transfer becomes less provident and charitable. The beneficiary becomes less self-reliant and capable. And the enforcer of the transfer becomes power-addled and contemptible. Power corrupts and captivity degrades. Read cuts through the weeds of public policy debate, and counsels the reader to renounce any role in the redistribution of wealth "for his own mental and spiritual health."

In “I, Pencil,” his most famous work (also included), Read charmingly adopts the voice of a pencil who recounts the tale of its own ancestry. Despite its humble appearance, the pencil is the end result of a mind-boggling, globe-spanning feat of cooperation among millions of strangers. This triumph of coordination is all the more marvelous for having no mastermind. Indeed no central planner, however brilliant and public-minded, could have pulled it off. Such an intricate order can only emerge out of the voluntary interplay of free people. Read imparts to the reader his own sense of wonder at the miracles of the market. After reading Read, you’ll never look at the abundance that surrounds you the same again.

The Essential Frédéric Bastiat

Collectivism severs action from result.

Frédéric Bastiat (1801-1850) also devoted his life to spreading, in his words, “the idea of liberty.” Like Read, he especially sought to convey that idea to the rising generation. And so he began one of his major works with an open letter addressed, “To the Youth of France” (included in this collection). Bastiat describes what happens to individual character under a regime of wealth redistribution (or “legal plunder” as he termed it in his classic, mind-expanding essay “The Law,” which is also included).

Within such an incentive structure, as Bastiat writes, “the individual's sense of responsibility becomes more and more apathetic and ineffectual.” This is because collectivism severs action from result. Acting in error results in suffering, as it always does. But that detriment "strikes innocent parties” instead of falling “upon the one who has erred.” Artificially insulated from the effects of his own folly, the errant person does not learn from experience and has no incentive to adjust his conduct. So, as Bastiat writes, when individual responsibility is nullified by government intervention:

“...evil nonetheless follows upon error, but it falls upon the wrong person. It strikes him whom it should not strike; it no longer serves as a warning or a lesson; it is no longer self-limiting; it is no longer destroyed by its own action; it persists, it grows worse, as would happen in the biological world if the imprudent acts and excesses committed by the inhabitants of one hemisphere took their toll only upon the inhabitants of the other hemisphere.”

Bastiat’s analysis helps us understand the present world, and not just the failures of socialism. Through this lens, we see clearly the connections between reckless bank lending and the “too big to fail” doctrine, between police brutality and the “qualified immunity” doctrine, between the belligerence of foreign allies and the “collective security” doctrine. In all realms, collectivism corrupts.

The Essential F.A. Hayek

Every price is the knowledge and values of millions boiled down to a single number.

The distinguished economist F.A. Hayek (1899-1992) also noted the strong association among prosperity, freedom, and personal responsibility. In “The Moral Element in Free Enterprise” (included), he writes:

"Free societies have always been societies in which the belief in individual responsibility has been strong. They have allowed individuals to act on their knowledge and beliefs and have treated the results achieved as due to them. The aim was to make it worthwhile for people to act rationally and reasonably..."

The importance of individuals acting on their knowledge was the theme of Hayek’s groundbreaking article “The Use of Knowledge in Society” (included). Hayek asks, how are the innumerable scarce resources in a global economy to be used to best satisfy human wants? Of all the practically infinite possible ways of combining them, which is to be chosen?

Every tiny detail about the economy is relevant to this question. This includes every single preference of every single soul, and every relevant fact about every material resource. Existing knowledge about those myriad details is dispersed among billions of minds. How can all those bits of knowledge be integrated and utilized to inform the use of society’s resources? A central planning board could not possibly hope to gather and get a handle on so many bits, much less keep up with constant changes in knowledge and values. For a central planner to think otherwise would be “The Pretense of Knowledge” (which is the title of Hayek’s Nobel Prize acceptance speech, also included).

Hayek argues that the market price system is the only way that humanity has discovered to meaningfully cope with “the knowledge problem.” Every resource price is essentially the knowledge and values of millions of minds concerning that resource boiled down to a single number. All individuals can use these simple, yet information-rich prices to guide their economic choices. Describing what he calls the “marvel” of the market price system, Hayek writes:

“In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.”

The Essential Ludwig von Mises

In the market economy, consumer wishes are the guiding stars of production.

An essential feature of money prices is that they share a common denominator, so they can be subjected to arithmetic. Entrepreneurs can use them for cost accounting, and to determine if their investments resulted in profit or loss. The great economist Ludwig von Mises (1881-1973) identified such “economic calculation” as the key characteristic of the market economy. “Profit and Loss” (which is the name of an included essay) give the entrepreneur a simple metric that communicates how much his or her rearrangement of production has either boosted or impaired consumer welfare.

As Mises brilliantly demonstrates in “Planned Chaos” (also included), there can be no economic calculation under socialism. This is because there would be nothing to calculate in the absence of money prices, which presuppose market exchange and private property. Without profit and loss, socialist planners are economically adrift at sea without a compass.

Also featured is “Liberty and Property,” a speech in which Mises presented the most important features of free market capitalism. In order to earn profits and avoid losses, entrepreneurs must strive to arrange production so as to please consumers. Thus in the market economy, consumer wishes are the guiding stars of production. Mises called this “consumer sovereignty.”

Moreover, the serious money is to be made by serving mass markets. Therefore it is the average, not the elite, consumers who most sway and are served by the market. Capitalism, as Mises argues, means "mass production for the masses” and widespread, ever-rising prosperity for humankind.

Socialism is no substitute for capitalism. And neither is the “middle road” of “interventionism.” Every market intervention by the government harms the general public by countermanding the orders delivered by the sovereign consumers. If the government tries to address the ill effects of intervention with further intervention, the maladies will mount and elicit ever more intervention until every corner of the economy is subjected to government control. Thus, “Middle-of-the-Road Policy Leads to Socialism,” as Mises titled another included essay.

The Essential Henry Hazlitt

Henry Hazlitt (1894-1993) was another great economics educator. Like Mises, Hazlitt was a perceptive critic of interventionism, which is the theme of his “The Lesson” and “The Lesson Restated” (both excerpted from his classic Economics in One Lesson). Hazlitt’s “Lesson” (which is a modern update of “Seen and Not Seen,” included in The Essential Frédéric Bastiat) is that the art of economics lies in looking beyond the direct, narrow, and intended consequences of intervention. The vision of a true economist encompasses the long-term, indirect, and widespread repercussions of a policy as they ripple throughout society.

In “The Problem of Poverty," Hazlitt eloquently tells of how economic freedom allowed the West to grow amazingly rich after untold millennia of almost universal grinding poverty.

And in “The Early History of FEE,” Hazlitt lovingly tells the origin story of the Foundation for Economic Education, of which he was a founding board member.

These are just some of the highlights of these wonderful collections. Download the FEE Essential series today to be inspired by five of the greatest communicators of the freedom philosophy.

Tables of Contents

The Essential Leonard Read

1. I, Pencil
2. Neither Left nor Right
3. A Break with Prevailing Faith
4. Socialism Is Noncreative
5. How Socialism Harms the Individual
6. How Socialism Harms the Economy
7. The Most Important Discovery in Economics
8. The Greatest Computer on Earth
9. The Service Motive
10. Why Freedom Works Its Wonders
11. Asleep at the Switch
12. In Pursuit of Excellence

The Essential Frédéric Bastiat

1. To the Youth of France
2. What Is Seen and What Is Not Seen
3. A Petition
4. A Negative Railroad
5. The Law

The Essential F.A. Hayek

1. The Case for Freedom
2. The Use of Knowledge in Society
3. The Pretense of Knowledge
4. Intellectuals and Socialism
5. The Moral Element in Free Enterprise
6. Why I Am Not A Conservative

The Essential Ludwig von Mises

1. Liberty and Property
2. Profit and Loss
3. Planned Chaos
4. Middle-of-the Road Policy Leads to Socialism
5. The Place of Economics in Learning

The Essential Henry Hazlitt

1. The Lesson
2. The Early History of FEE
3. Understanding “Austrian” Economics
4. The Problem of Poverty
5. False Remedies for Poverty
6. On Appeasing Envy
7. Planning vs. The Free Market
8. Can We Keep Free Enterprise?
9. The Lesson Restated

Fill your boots up!

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