It is no crime to be ignorant of economics, which is, after all, a specialized 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.

In the current world, however, there are fewer excuses for not familiarizing ourselves with economics. This is because, as Peter Boettke often says, while economics is a deadly serious subject, it can explain in simple terms the world around us. Issues such as inflation, the financial crisis, unemployment, unionism, protectionism, taxation, the war on terror, the war on drugs, and more are all tied in with economics and our everyday lives. And as Ludwig von Mises said,

A man who talks about these problems without having acquainted himself with the fundamental ideas of economic theory is simply a babbler who parrot-like repeats what he has picked up incidentally from other fellows who are not better informed than he himself.

In today’s document Mises explains Capital and Interest should be read not only be professional economists, but also by the average person. Capital and Interest is a technical work, but as Mises put it,

Although Böhm-Bawerk’s great opus is “mere theory” and abstains from any practical application, it is the most powerful intellectual weapon in the great struggle of the Western way of life against the destruction of Soviet barbarism.

While our current threats may no longer include Soviet barbarism, technical works in economics are important for any concerned citizen hoping to sound off on our current issues in an informed and intelligent manner. While Capital and Interest may not be the most exciting book on economics it is important and insightful.

Download Mises Review of Böhm-Bawerk’s Capital and Interest here.

Fairchild, at the time a professor of economics at Yale University, attacked the ability-to- pay-principle of taxation, which states that the rate at which one is taxed should increase as income increases. And as Read told Hazlitt in the letter, “It is extremely important at this particular moment.”

So why might Leonard Read and the other founders of FEE have wanted to start with that topic?

The answer lies in what the principle truly means to a free society. Like the income tax itself, the ability-to-pay principle threatens the very foundation of a free society. It attacks private property and the wealth creation that comes with it.

Progressive taxation hides behind the mirage of social justice. But the principle itself is vague and lacks any true logical foundation. If followed to its logical conclusion, it would mean complete financial equality among all citizens. For any excess amount that one person has over another, no matter how small, would indicate an ability to pay more in taxes. And as Ludwig von Mises put it, “The only logical stopping place of the ability-to-pay doctrine is at the complete equalization of incomes and wealth by confiscation of all incomes and fortunes above the lowest amount in the hands of anyone.”

This is dangerous and counterproductive for a free and wealthy society. The only realistic way to achieve such equality is to level downwards, making us all worse off. It would cut away all the incentives to be productive. After all, money does not make money. As Murray Rothbard put it,

“To be earned, money must continually be justifying itself in current service to consumers. Personal income, interest, profits, and rents are earned only in accordance with their current, not their past, services. The size of accumulated fortune is immaterial, and fortunes can be and are dissipated when their owners fail to reinvest them wisely in the service of consumers.”

By taking away the profits of those who had previously and successfully satisfied consumers, we are taking away their incentives to do so again in the future. This also takes away the incentives of anyone new from similarly trying to create wealth.

Thus this justification of taxation attacks the very nature of what makes our society wealthy. It undermines our property rights and the incentives to be productive. It is not the justice of a free society but rather of highway robbers. We should be vigilant against anything that attacks the foundation of a free and prosperous society. Leonard Read and the rest of FEE’s founders understood this.

Download Read’s Letter to Henry Hazlitt from December 12, 1945 here. 

Take for example the issue of bureaucracy. Most bureaucracies are seen as terribly inefficient. The average person may even rant about how terrible the DMV or post office is (no matter how much it tries to appear like a normal business). Most people may understand that the problem has to do with incentives, but they will still probably think there is no choice but for the State to perform such functions. They likely believe that making a few changes or putting in the right bureaucrats can fix things.

Today’s document, Henry Hazlitt’s New York Times review of Ludwig von Mises’s Bureaucracy, shows why we come to view bureaucracies as inefficient. They simply lack the knowledge and incentive to perform efficiently no matter how benevolent the bureaucrats may be. As Hazlitt states, “For the main thesis of Professor von Mises is that bureaucracy is merely a symptom of the real disease with which we have to deal. That disease is excessive State domination and control.”

The issue, as Mises puts it, is whether society should be organized on the basis of private ownership or government control of the means of production. Should goods and services be provided by market or State bureaucracies. It’s one or the other; there is no compromise. With each you get a different set of incentives as well as a different ability to collect and use the information necessary to make efficient decisions.

In a totally free market a private firm (or department within) is guided by the profit motive. It has discretion to expand and experiment as it sees fit. If it fails it will know and if it succeeds it will be rewarded. Bureaucracies, on the other hand, are not guided by the profit motive. The quality of their work cannot be judged in monetary terms. They can have little-to-no discretion since their work must be centralized and operate under the detailed controls of their superiors. Market value cannot be attached to their “product.” In other words, they cannot engage in economic calculation.

The irony is that the decentralized market may seem chaotic and out of control, but in reality it produces efficient outcomes. Resources get channeled to where consumers most want them, to the betterment of everyone. On the other hand, the seeming control of centralized State power is actually a mess of inefficiency that is simply unable to achieve the stated ends.

Incentives do matter, and correcting those incentives starts with picking the right institutions for our society to operate under. Once we understand this, we will choose the free market.

Download Hazlitt’s Review of Mises’s Bureaucracy here.  

In his book, Peikoff, who became Ayn Rand’s intellectual heir, explains the parallels between America and Nazi Germany. This is not about the atrocities the Nazi’s perpetrated, but the ideas rampant in Germany that lead to the rise of National Socialism. The irrationalism and collectivism concerning the nature of man, knowledge, morality, and politics, in Peikoff’s opinion, all helped give rise to the terrible acts of the Nazi State and threaten America in a similar way.

Sadly, we have not improved. The Occupy Wall Street movement, while correctly seeing a problem, is mostly pointing their fury in the wrong direction, attacking the productive sector of our economy. In seeing evil in businessmen, they miss the point, and they fail to understand how wealth is created. It is true that much of Wall Street is in bed with the State, but is more government the correct solution to that problem?

This mistake made by the OWS movement should surprise no one. The movement is strongly steeped in collectivist thinking (sometimes creepily so). The movement truly believes it fighting for liberty. Individuals, in their eyes, seem to have a right to freedom from debt, freedom from need, etc. And it is the State that is to deliver us all from these chains caused by capitalism. But what they fail to see is that it is the State that is at fault in the first place, and giving more power to the State empowers it to perform the atrocities that Childs believes defines the history of the twentieth century.

If we continue down this path we may find that the stronger parallel may actually be to Ayn Rand’s Atlas Shrugged, a parallel that  is just as dangerous, if not more so. Businessmen will not take the antibusiness rhetoric forever; eventually the rise in State power will drive their production down more and more. In the novel Rand correctly shows how such a situation would be devastating. With the lack of business comes a desperate attempt by the State to set things right and to do so by force and planning, which sets us exactly on the road to serfdom that Hayek warned us about. But until we start to realize that the State is the negation of liberty and that freedom must be accompanied by self-responsibility, maybe the continuous growth of State power is exactly what we deserve.

Download Roy A. Childs, Jr.’s review of Leonard Peikoff’s Ominous Parallels here.

Today’s document is a review of Henry Hazlitt’s A New Constitution Now from The Nation on December 5, 1942, by an unknown author. It’s titled “Constitutional Practices vs. Constitutional Revolution.” The author seems skeptical of Hazlitt’s main and radical point, but is overall just descriptive. Hazlitt wanted to replace our current system with an English parliamentary system. Why? Because by 1942 Franklin Roosevelt had almost a complete disregard for the Constitution. Presidential power had grown. The constitutional constraints simply were not working. Hazlitt’s case can still be made today.

Hazlitt’s proposal was radical, not because of what he suggests we replace our current system with, but rather because he saw a problem in the first place. The reviewer wrote, “I feel that it indulges in rather too much exaggeration to be as effective as it might have been.” Such attitudes can cause massive problems. It can lead to adoptions of amendments such as the 18^th amendment (Prohibition), which was not meant to restrain the government’s power but to actively extend it. Such attitudes can make a constitution no constitution at all.

The constitutional political economy project, which James Buchanan and Gordon Tullock revived in economics back in the 1960s, is no easy task. Politicians are not so noble as Ulysses, and are unwilling to bind themselves to the mast. And as Tullock pointed out, any government strong enough to create the chains to bind themselves are strong enough to break them anyway. The fact that Hazlitt saw the need for a constitutional revolution back in 1942, and that the case can still be made today, are not good signs.

Hazlitt’s solution, a parliamentary system, might not be the way to go either. As he admitted later in life, his proposal didn’t explain how to check the parliamentary power. No one has produced a real solution for how to maintain a limited government. Maybe there is no way. As Ludwig von Mises put it, “The state is the negation of liberty.” The State’s tool is coercion after all. Hazlitt was right about one thing though: The first step is to admit there is a problem.

Download the book review of A New Constitution Now here. 

The closest the Soviet Union came to actual pure socialism was the period known as War Communism, 1918 to 1921. This period is unanimously seen as a disaster, even among socialists. Production fell in most if not all industries, and millions starved to death. From then on the Communist Party struggled to keep hold of both their Marxist ideology and their power. Naturally the latter took precedence, and as a result the price system, which they originally wanted to abolish, took on a larger and larger role. Henry Hazlitt discusses Josef Stalin’s struggle with exactly this problem in today’s document, the October 20, 1952, Newsweek Business Tides column, “Stalin as Classical Economist.”

The Soviets certainly liked to keep up appearances. At a glance the Soviet economy looked centrally planned. The planning board for each industry set output levels, and the State owned de jure all means of production. A closer look, however, revealed a different story. As Boettke and Anderson pointed out, the Soviet economy was closer to that of a mercantilist economy, a heavily regulated market economy effectively run by rent-seeking government officials and factory managers. De facto, the factory managers were the owners and residual claimants. They paid the State for the right to run the factory, and in return the State created a monopoly for them, just as in the mercantilist system of old.

Middlemen, known as the Tolkachi, worked on behalf of the State enterprises to sell surplus commodities on the one hand and purchase needed products on the other. They essentially created a market that allowed for economic calculation not possible under a pure socialist system.

This system of course was highly inefficient and unstable, but it allowed the Soviets to stay in power a lot longer than would have been possible under their socialist dream. As Hazlitt put it, “[B]ureaucratic price fixing is a farce, a fraud, and a disaster, . . . economic planners are presumptuous blind men groping in the dark, and . . . there is no substitute for free markets.” In reality, as Hazlitt shows of Stalin, the Soviet rulers were simply putting on a show. Playing the role of the productive socialist economy was capitalism itself.

Download Hazlitt’s “Stalin as Classical Economist” here. 

Today’s document is from the letters section of the New York Times. Eugene Davidson, the editor of Yale University Press at the time, responded to Galbraith’s attack, and Galbraith in turn responded to him (hat tip to Emily Skarbek). Davidson pointed out that “[i]t is an important thesis of the book, and therefore of the jacket copy . . . that government intervention in the market economy produced systems of increasing economic and political coercion that have led to totalitarianism in some countries and to near bankruptcy in others. This intervention in his opinion was supported by erroneous popular economic theories that have swept through Europe and made great headway in the United States.” As a result Davidson claims the jacket is merely condensing Mises’s view, as any good book jacket would. But Galbraith still didn’t buy it, claiming that Yale University Press took authorship of the plug.

Galbraith’s position seems strange. Why wouldn’t a publisher promote the book it has put out? Yale University Press, like any good academic press, will publish works on a wide range of topics and positions in order to engage in scientific discourse. It wants individuals to read the books.

Galbraith strangely ignores that this is a work of positive economic science; he viewed Human Action as a mere polemic, completely overlooking the value-free, means-ends approach Mises took. Human Action is a work of economic science and should be judge accordingly.

This exchange between Davidson and Galbraith raises a few questions. What is the role of a university press in the science of economics? How should a press go about promoting the works it puts out? Between the publisher and Galbraith, who do you think is right?

Download the Yale University Press’s response here. 

Thus Hazlitt is a perfect individual to trust when it comes to advice on what individuals interested in economics and freedom should read. It is no surprise that throughout his life, as a writer for many prominent newspapers and magazines, including the New York Times  and Newsweek, Hazlitt’s advice would be sought by eager readers. This prompted him to write The Free Man’s Library. Published by D. Van Nostrand Co. Inc. in 1956, the book contained 550 titles on the philosophy of liberty, covering a wide range of topics: from why free trade and free markets work to the evils of excessive State power. The Free Man’s Library, however, doesn’t simply list the books but also provides a critical description of each work.

Today’s document (sorry for the faded quality) is a short list of the best economics books in The Free Man’s Library.  Hazlitt hoped “that it will answer most inquires by readers along these lines.” He presents his own Economics and One Lesson (no sense being modest with such an amazing book!) and Faustino Ballve’s Essentials of Economics as the best introductory books. Wilhelm Röpke’s Economics of the Free Society is listed as the best intermediate work. The best works critical of government intervention are Röpke’s A Humane Economy and F. A. Hayek’s The Road to Serfdom. The dangers of inflation are explained in Gottfried Haberler’s Inflation: Its Causes and Cures and Hazlitt’s own What You Should Know About Inflation.

Finally, he presents four books he thinks are the best comprehensive and advanced works on the principles of economics. To anyone who knows Hazlitt’s work the first two should be no surprise: Human Action and Murray Rothbard’s Man, Economy, and State. A third is Hayek’s The Constitution of Liberty. The last is Philip Wicksteed’s 1910 book, The Common Sense of Political Economy.

All these books deserve to be read more than they are today, particularly Wicksteed’s, which developed a system of political economy from reflection on and careful study of the everyday conduct of human beings. Economics concerns all people whether they know it or not. Thus we need to understand the economy as a system. Understanding this is more likely to make us free.

Download Hazlitt’s best of The Free Man’s Library here. 

The first edition of Human Action was 889 pages. It was, after all, a treatise on economics. Galbraith, however, barely mentions this. Instead he concentrates his review on Mises’s view of the State. Written in a tone of “Can you believe how irrational this is?,” Galbraith shows how Mises paints the government to be the enemy of the market. There is no need to deny Mises’s distrust of the State. As Galbraith points out, to Mises “Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing and imprisoning.”

Galbraith does seem to show some respect for Mises’s defense of the market. As Galbraith put it, “The market, even more than the wheel, is one of the great commonplace servants of man. Professor Mises powerfully defends it against those who would subvert it to the service of the selfish or shortsighted ends.” But, he continues, “it is possible that the defense is stronger when in the hands of somewhat more moderate men.”

Should the defense of the market, and liberty, be left to more moderate men? I would argue no, it should not. What is moderate will depend on what is popular. Liberty and free markets are not in fashion, just as they were not when Human Action was written. Moderate men would compromise liberty away, just as Mises had warned. And a major reason for this is that many do not see the State for what it truly is. It may make one a radical to claim, as Frederic Bastiat did one hundred years before Mises wrote Human Action, that “the state is the great fiction by which everyone tries to live at the expense of everyone else.” And the State does this through the use of coercion. What the State gives it must take violently away from someone else. One need not be an anarchist to recognize this. (Neither Mises nor Bastiat was an anarchist). If someone doesn’t recognize the danger of fire, we shouldn’t be surprised when he gets burned (which is not to claim that the state is as necessary or useful as fire).

The critics of Human Action should take more time to carefully read it. Mises builds a system of economics from the ground up; thus his beliefs expressed about the State do not appear out of thin air. Perhaps if they read more carefully, those who share Galbraith’s view would realize that such a blind faith in the State to cure the ills of society is really the naive position.

Download Galbraith’s review of Human Action here. 

It is no surprise that the ideas contained in The Road to Serfdom would raise a certain passion in those who still held on to a belief in a free society. It represented a viable alternative to the zeitgeist of the time, which was defined by socialism and scientism. By World War II, both ideas had become presumptions for all Progressive intellectuals. In other words, positivism and formalism had become the norm for scientific discourse, and this paved the way for a “science” of control. The result was a marriage of science and statism. Denying either was tantamount to rejecting logic and reason.

During a book tour, Hayek spoke in Switzerland with businessmen who asked him to recommend ways to propagate a free society in spite of the zeitgeist. “The professor wisely responded that it was not his job to make propaganda – that he could only concentrate on the search for truth,” Hunold said. In other words, it is not the task of the intellectual to publicize the ideas; this is a job for others. It does not mean, however, that there is nothing to be done. Hayek, by gathering like-minded intellectuals together, as well as a few businessmen and activists such as FEE’s Leonard E. Read, was able to spread classical liberals ideas, bringing them back to a greater prominence.

Hunold notes one result: When Ludwig Erhard lifted price controls, shooting Western Germany into prosperity. Hunold credits the intellectual seeds sewn by Walter Eucken and Wilhelm Röpke. The increase in popularity of free markets in the 1980s can also be considered another example. Both Ronald Reagan in the United States and Margaret Thatcher in the Great Britain espoused the ideals of free markets (at least rhetorically). The roots, however, lie in intellectual efforts years earlier by groups such as the Mont Pelerin Society and the FEE.

Now such intellectual movements may not by themselves explain the changes in policy and may not guarantee success, but they are undoubtedly important for social change in any direction. When fighting for unpopular ideas, we are bound to be ridiculed, ignored, and treated with downright hostility. Hunold showed how Joseph Schumpeter mocked the Mont Pelerin Society in its early day when he said that the best proof his thesis that liberal ideas no longer played any role whatsoever in public life was that meeting of liberal economists “on the top of a Swiss mountain of which I have forgotten the name.” Similar mocks and jeers occur today from economists and other intellectuals, but this should not be discouraging. After all, it is always time to stand up for what we believe to be the truth. It is always time to defend and work for a free society.

Download Albert Hunold’s “The Story of the Mont Pelerin Society” here. 

What seems to be motivating the protests? At least in part the goal seems to be equality. The protesters apparently think it as unfair that only a small percentage, the very rich, has so much while everyone else has much less. Today’s document, an article from 1948 by economist Wilhelm Ropke titled “Crusade Against Luxuries,” is relevant. Ropke’s article shows the fallacies related to the prohibiting of luxuries in order to provide more for the poor. Similarly the protesters are revolting against the wealth of the “fat cat” bankers and other large corporations, while most people can’t get simple jobs, afford health care, or pay off their student loans. True, there are individuals with yachts while others barely making a living. The fallacy, however, is in the solution.

Ropke shows that prohibiting certain luxuries does not translate into more for the poor but instead “substitutes” certain luxuries for other less desired luxuries. What we end up with is the same amount of luxuries, or only slightly less, with lower utility throughout society. If the Wall Street protesters get their way, however, things could be even worse. The socialization of industry and banking would be a disaster and overregulating would simply incentivize businesses to produce less, which would mean higher not lower prices. Again we would all be worse off, not better.

So what is the solution? It’s all in the institutions. As David Hume put it, we need to assume all men are knaves. Thus we should want a society were bad men can do the least harm. Right now government power is backing the large corporations and large banks, protecting them from the difficulties of competition. This is the “capitalism” libertarians are attacking. It is crony capitalism, the use of government coercion to back certain individuals and businesses at the expense of everyone else. We want to eliminate this cooperation between government and business. Let free markets and real competition reign. This competition will result in a process that will produce more and more products at lower and lower prices.

The hurdle we need to get over is exactly what Ropke brought up back in 1948: Public Choice problems. There are a lot of vested interests that will not give up their power without a fight. But as a first step we need to recognize the true enemy to progress and freedom: government involvement in the economy. We need to realize that voluntary interactions are superior to any form of coercion, including by government. The protesters want to fight fire with fire and in doing so, they ignore Public Choice issues to their own detriment.

Download “Crusade Against Luxuries” by Wilhelm Ropke here. 

There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

In part she is right. Our economy is based on social cooperation under the division of labor. Our ability to become as wealthy as we have rests on this cooperation, where each of us specializes in the things we do best. The problem is the jump in logic taken from there. As Sheldon Richman points out, her argument is a non sequitur. The jump from working together to higher taxes, particularly for wealthy businesses, doesn’t necessarily follow. Further, the “social contract” she mentions was signed and agreed to by no one. In fact some of the only, if not only, historical examples of real social contracts can be found in medieval trading towns in Germany and on pirate ships, and certainly neither are applicable to our modern and complex society. Providing certain services does not imply complete ownership over us.

There is, however, more wrong with Warren’s words. In Philosophical Society: The Tale of the Slave, the obligation to “pay forward for the next kid who comes along,” she seems to be implying that businessmen, at least in part, should work for the good of others. Going into business requires you to work for others because others worked for you, making your profits possible. This is the Cliché of Socialism number 41, as Leonard Read pointed out.

Morally the libertarian should be outraged by such a notion. Nozick’s tale of the slave may even come to mind. But again, it is a non sequitur. Those things, which “we” have paid for, that benefit the factory owner and other businessmen are just that: beneficial! So much so, in fact, that most would be willing to pay for these services. There is little-to-no reason businesses should pay more in taxes so the State can provide these and many other “services.” They could be provided, at least for the businesses, privately.

Moving your goods to market is all part of the costs of doing business. It is in their own self-interest to make sure they have the roads necessary to get them to the customer (meaning they have a willingness to pay). Roads in fact were historically provided privately, and some still are today.

Employees have an incentive to educate themselves. When we go, or our parents send us, to school we are investing in our future. In other words, we are hoping education will result in higher wages in the future. And employers prefer this because it means a higher productivity. There is already an embedded incentive to educate.

And security. Many businesses don’t even rely on the police but instead hire their own private security. Making sure their goods are secure is another cost of doing business that firms have their own incentive to provide. Some of the safest places in the world are safe not because of public police but because of private security and commerce.

Businesses are willing or would be willing to pay for these things because it is in their own self-interest. And similarly other individuals and businesses would be willing to provide them. There is no need to rely on the coercive tools of the State or some notion of a mythical obligation towards a social duty to provide these goods. As Adam Smith put it,

He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. . . . 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. Nor is it always the worse for the society that it was no part of it.

By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

In other words, these selfish businessmen earning a profit are benefiting society. They are providing society with goods that it wants; it is making us better off. The larger the profits the more it has paid it forward.

The above is not necessarily an argument for anarchy in the broad sense. A case could be made for the need of a State, but that is an argument for another  time and place. What it shows, albeit in an overly simplistic form due to space constraints, is that these goods which make most businesses possible are in themselves the products of businesses. This could all be up for debate. After all a case can be made that these are public goods that would be underprovided by the market. But they certainly can be provided. Even if it is true that they cannot, businesses still pay it forward through the value they generate.

Warren’s argument seems unjustified; the State she envisions is much greater than it needs to be. Thus higher taxes are not necessary; a cut in government is. We are in debt because the State does too much. This type of collectivist thinking will only undermine the incentives that make social cooperation under the division of labor work.

Download Leonard E. Read’s Cliché of the Socialism Number 41 here.  

A large motivation in the early days of economics as a discipline was to fight that fallacy. The mercantilists were seen as the villains in Adam Smith’s work, and this continued into the nineteenth century and up to today. Today’s document, a Henry Hazlitt Newsweek Business Tides column from March 13, 1961, helps to show how alive and well protectionism was in the 1960s.

So why is protectionism a fallacy? First, wealth is not money. When we buy goods and services from abroad, the money leaves the country but something we value even more replaces it; trade is mutually beneficial. Wealth is an increase in the things that make us better off, money is our medium of exchange. Second, when domestic producers are outcompeted by foreign producers this frees up domestic producers to make something else that we were not able to make before. Now we get the goods we purchased abroad plus other goods we value. Society sees a net gain, not a loss. And finally, trade is two-sided. When we buy something from abroad with dollars, in the long run those dollars must come back, either through the purchase of domestic goods or investment in domestic industries. So buying foreign goods eventually stimulates domestic production.

As a result protectionist policies hurt domestic consumers. The extent of the division of labor is reduced, and resources are made more scarce. With the scope production narrower than it would have been, we are less, not more, wealthy.

Economists have long pointed out the absurdities of protectionism. Frederic Bastiat, in one of the most famous and best allegories in economics, ironically “called for” measures to protect French candlestick makers from unfair competition from —  the sun! If we are to protect domestic producers from other foreign competitors why not stop one that competes with them for half the day?

Clearly this would be an absurd use of resources and would make everyone worse off.

This is why nineteenth-century economists had such an affinity for the smuggler. As Nassau Senior put it, “[T]he smuggler is a radical and judicious reformer.” In countries which excessively prohibit the importation of foreign goods, he said, “the smuggler is essential to the well-being of the whole nation.” Economists such as Senior saw those who defy these bad laws as our only protection against the ruin these laws bring.

Protectionism may sound like a good idea but it misses most of the picture. In reality it helps a few at the expense of everyone else. It is pretty obvious that the sun is not our enemy, but neither are foreign producers of the goods we love to consume. If they can be consumed at lower cost than domestic producers can provide them, then this is a good thing.

Download “Protectionism” by Henry Hazlitt here. 

It is not surprising that to an untrained eye the current crisis may appear to be the result of greedy businessmen and the failure of capitalism. After all, banks failed and individuals invested too much in housing. But as Chicago economist Gary Becker recently pointed out, markets work extremely well and the failures we have seen are a result of government intervention, not the workings of the market itself.

So why then do some economists jump the train of economic theory? It could be that they do not see economic theory as matching the real world. Homo economicus (economic man) does not reflect reality. This maybe true at some level, but after all, these are only models. They are not supposed to map reality. Their purpose is to use abstractions to simplify and render understandable the complex world we live in.

When the real world does not match reality it is certainly easy to abandon the models, say they are not accurate enough, and move on to something else, and many have done this. The problem, though, is that since Adam Smith, much economic theory has been shown time and again to be correct. Its abandonment is likely a matter of lazy analysis and/or a lack of fundamental understanding of economic theory itself. A deeper look at what is going on often shows that economic theory is indeed correct.

John Kenneth Galbraith in the late 1970s produced a television series and book titled The Age of Uncertainty, which like many economists today abandoned much of economic theory. Today’s document is a review of Galbraith’s ideas by Chicago economist George Stigler:  “John Kenneth Galbraith’s Marathon Television Series: A Certain Galbraith in an Uncertain Age.” Stigler is rightly critical of much of what Galbraith presents and, like Becker’s recent article, shows why economic theory is being misunderstood and misused.

Take, for just one example, Galbraith’s interpretation of Adam Smith’s notion of self-interest, an idea that is constantly misunderstood even today. Galbraith seems to believe that self-interest might not lead us to the socially optimal outcome, as the invisible-hand idea would suggest. This is a terrible misunderstanding of the role of self-interest in economics.

First, self-interest does not automatically equal greed in economic theory. It is not assumed that individuals are motivated solely by selfishness or material gain. Economics is not about the particular motivations individuals have but rather is a method of analysis. It assumes individuals attempt to maximize their welfare as they conceive it, which can be selfish, altruistic, spiteful, loyal, or even masochistic. Individuals are attempting to achieve their ends with the means they believe to be the best.

Second, institutional context matters. The rules we live under will determine whether Adam Smith’s invisible hand achieves socially beneficial outcomes or not. The invisible hand guides self-seeking individuals — people who are attempting to achieve their ends — to serve the public good, but only under the correct rules. Private property, freedom of contract, and competition are all necessary to achieve what Smith envisions with the invisible hand. As Sigler says in the review, “[T]o discuss Smith’s theory without mention of competition is to discuss Napoleon without mention of war.”

As Becker pointed out in the article mentioned above, the failure has not been with economic theory but with the disruption of the competitive process that markets operate in. The failures we see are not only compatible with economic theory, but are explained by it.

Both Becker and Stigler understand that when economists talk about market failure and abandon economic theory, it is more than likely that they simply do not fundamentally understand economic theory. This is why, when it appears markets are not working, we would do ourselves a great service by stepping back and using basic economic principles to analyze what is going on, rather than abandoning them all together.

Download the Stigler review here.

Rothbard articulates the economic way of thinking in a clear and straightforward way, making economic theory accessible to a wide variety of individuals. His discussion on price formation (not determination) is significant for understanding Austrian price theory. His elaborations on capital, production and entrepreneurship, money’s role in the business cycle, monopoly and competition, the role of the State, and political economy are all indispensable for economists to better understand the world outside our windows. Peter Boettke and Christopher Coyne have also pointed out the vital insights Rothbard contributed to the socialist calculation issue in Man, Economy, and State.

The bottom line is, despite being a principles text, Man, Economy, and State made important analytical contributions to economics. It also is taken for granted just how knowledgeable Rothbard was of mainstream economics of the time, which is illustrated by his footnotes. These footnotes deserve as much attention by scholars as the main text.

“It is in fact the most important general treatise on economic principles since Ludwig von Mises’ Human Action in 1949.” These closing words of Hazlitt’s review help to clearly illustrate my point. Hazlitt was not one to make such a statement lightly. Human Action was of earth-shattering importance for individuals like Hazlitt. Just as in 1962, both books are still as important today, along with F. A. Hayek’s Individualism and Economic Order and Israel Kirzner’s Competition and Entrepreneurship. These are the texts that anyone who claims to have mastered Austrian economics needs to have read and absorbed.

Download Hazlitt’s review of Man, Economy, and State, “The Economics of Freedom” here.

How accurate is the above story? It certainly sounds plausible. But is the real picture as black and white as the story suggests? Is it really the greedy businessmen vs. the powerless consumers? Is the government really helping?

In today’s document, the cliché of Socialism number 58 “Government should control prices, but not people,” Dean Russell points out that attempts at price controls require coercion on real people. Too many individuals divorce human action from prices and don’t see that the government does not control the price of commodities but rather controls the sellers of those commodities through coercion.

It might be argued that this is all well and good but in times of crisis, such as in preparation for a hurricane, coercion is necessary. Individuals, especially the poor, need to be able to afford certain items to help them get through the coming crisis, so government should control sellers to stop the price from rising.

This logic, however, is incomplete. Even if we assume that businessmen are completely greedy the increased price still services an important purpose. To see this purpose we must turn to basic economics.

As the hurricane approaches individuals’ demand for certain commodities, such as water, batteries, canned food, etc. increases, meaning they would like to buy more of these goods. This gives sellers an incentive to raise the price, as the goods began to fly off the shelves much faster than usual. While the motivation to raise the price might be purely greed-based, it actually benefits consumers and society as whole. The increased price has two important functions. First, it induces sellers to supply more of the good. At the higher price sellers will increase the quantity of the good, thus providing more of the good for individuals to buy (satisfying the increased demand). Second, it discourages other consumers from buying too much of the good. In other words, the higher price helps ration the good amongst more individuals. Demand curves slope downward, meaning the lower the price the higher the quantity each individual will buy. By raising the price each individual will by less of the good than if the price were to remain at the pre-storm level, leaving more for others. Thus, in an unhampered market, the price rises and more consumers get what they need.

If the government stops sellers from increasing the price then a shortage will ensue. Why? Well first, demand has risen but sellers are still only willing to supply the same amount as the pre-storm level. Thus eliminating the advantage of the increased quantity supplied mentioned above. Second, with the increased demand consumers see the lower price as an incentive to take more for themselves. Their motivation to conserve and take less (leaving more for others) is eliminated. This creates the shortage. Meaning many individuals will find the shelves completely empty when they arrive at the stores. The result is that more individuals will go without the very necessities the government, in enacting the price control, is trying to make sure they can get.

From this we should, even in cases of emergency, question the use of coercion to support prices. The price system after all channels resources to their highest valued use, benefiting society. In coercing certain individuals to maintain a certain price, the price system is distorted and channels resources from, not to, their highest valued use, which hurts many people. It should be clear that voluntary interaction tends to work better than coercion and this is especially true in the market.

Download the clichés of socialism number 58 here.

In today’s document, Henry Hazlitt’s 1962 Business Tide Column article for Newsweek entitled “Worth the Price?”, the question of whether the Space Race was worth the price is addressed. It is particularly interesting to see Hazlitt’s perspective given it was written before we had reached the moon. Hazlitt ultimately sounds as if the price is far too high and the reason deals with the inability of the government to properly assess the costs and benefits of engaging in the space exploration.

For many, if space exploration was to occur at all, it needed to be conducted by the state. The costs are simply too great and the ability to transform the possible benefits, such as scientific and technological discoveries, were too difficult to transform into “profits” for private businesses to undertake. But with a new space race starting to develop this claim is becoming less true. The new race seems to be between NASA and private companies attempting to reach Mars. Back in 2007 NASA stated the goal of putting a man on Mars by 2037 and recently the private company SpaceX, which is already attempting commercial space travel, stated their goal of establishing a means of getting to and from Mars.

As technology is improving the discovery process of the market is in full swing with entrepreneurs finding new ways of improving and satisfying the desires of his fellow man. And space exploration seems to be in the cards.

The difference between NASA and the private companies is in the price. With NASA we need to ask, like Hazlitt did some 50 years ago, is it worth the price? But with the private company, no such question exists because the market, through the profit and loss mechanism, provides the answer. Going to Mars is a risk; it may or may not be worth the price. With NASA the government takes our money whether we like it or not and there are no signals to say whether it was truly what people want or not. With private companies, however, if the venture is not worth it, they would know because they would have lost money. Money, which was voluntarily provided at the investor’s own risk. If it pays off then the rewards will be in the form of profits and others will follow suit, further reducing the costs and increasing the availability for others.

Asking whether something, particularly expensive as space exploration, is worth the price is an important question. And it is a question we should have a real answer for. So, maybe this, as with so many things, is another example of the state overstepping its bounds.

Download Hazlitt’s “Is it Worth the Price?” here.

Just to quote Hoover, “We might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and the Congress of the most gigantic program of economic defense and counter attack ever evolved in the history of the Republic.” In fact, many of the New Deal’s programs stem directly from Hoover’s efforts.

Despite the obvious evidence that Herbert Hoover was anything but free market, it is not difficult to see why the truth is often blurred. Hoover’s rhetoric, at least leading up to his presidency, was to move towards limiting the regulatory power of the federal bureaucracy, which is common among Republican presidential candidates.

FEE founder Leonard E. Read was an early supporter of Herbert Hoover. When Hoover was elected president, Read organized a large crowd (16 cars large, no small sum in the 1920s) of Californians to travel across the country to participate in the inauguration. And as today’s document is proof of, Read and Hoover occasionally corresponded and saw each other until Hoover’s death in 1964.

Is Read’s early support and subsequent friendship with Herbert Hoover evidence of Hoover’s free market leanings as a president? No, of course not. Read was, of course, an unyielding supporter of free markets, but he did not start out that way. He did not gain a classical liberal/libertarian perspective until he met William Mullendore in the mid-30s. In fact, in the beginning, Read believed in Roosevelt and the New Deal, albeit not completely. Soon, though, thanks to Mullendore, Read became one of the few lone voices of opposition to such policies, which as stated above, clearly have their roots in Hoover.

Once FEE got off the ground Read often sent many of the Foundation’s articles to Hoover, such as today’s document (though what article Read sent is sadly lost), but their correspondence tended to be very brief. There is a story, however, that Hoover once submitted an article for The Freeman, which Leonard Read rejected. Of course we can only speculate why but maybe because, just as his presidency illustrated, Herbert Hoover was not as free market as many like to claim.

Download the March 4, 1950 Letter from Herbert Hoover to Leonard E. Read here.

What is clear, in anytime, is that our options with debt are simple. As the clip states, “There are only two answers—repudiate our enormous debt—and be the disgrace of the world. Or pay off the debt and be self-respected again.” But there is another option missing here, which seems to be the route taken by our government over the years, namely, to maintain the debt in perpetuity. This latter option seems to be politically popular because citizens, shockingly, don’t like tax increases and politicians and bureaucrats don’t like to reduce spending. This realization should, however, make such a crisis a perfect time to stand up for principles in order to force the system to real change.

Where should the classical liberal stand on such issue? Clearly, maintaining the debt is out of the question; we cannot keep spending more than we take in, as it is simply not sustainable. So, instead the classical liberal is left with the options to either repudiate or pay the debt back. What to actually do is a big debate even amongst classical liberals. Today’s document clearly makes a brief case for the need to pay the debt back but others have made the case for repudiation (see here). There are, of course, cases to be made for both.

The case for repudiation stands on the desire to reduce the power and size of government. The disgrace of repudiating the debt would fall on our government, drastically reducing the government’s ability to continue such spending behavior. Historically, repudiation brought a widening circle of benefits. Governments became wary of investing and spending money, and investors were cautious in dealing with government borrowing. Negative consequences to repudiation certainly exist but tend to be short lived as the market, if allowed to operate, would sort these out relatively quickly.

Repudiation, however, could be called a breach of contract and therefore unjust. But if we wish to pay back the debt we have two options. The first is to increase taxation and the second is to cut spending. Certainly we could achieve this through a mix of the two but the former is inconsistent with classical liberalism. Why? Taxation is coercive and the tax money is being taken from individuals who have a legitimate claim over the money. Cutting spending, however, is a perfectly consistent, albeit difficult, means of paying back the debt.

Both options have their problems, as they are both politically infeasible. Public choice issues stand as a roadblock for achieving either. This, however, makes now the perfect time to stand up for radical position and force a real change to the system. True change must come from standing up for what is right not popular and not backing down because it is difficult.

What do you think? Would you choose to pay back or to repudiate the debt? Or would you choose a different option altogether?

Download “Is America bankrupt?” here.

In today’s document, a letter from John Maynard Keynes to Henry Hazlitt dated September 17, 1931, Keynes reluctantly declines Hazlitt’s offer to participate in a series of articles entitled “If I were dictator.” Hazlitt’s project seems to never have come to fruition (though it is possible I was simply unable to find it). Still, what would it have been like with Lord Keynes as dictator? Despite the fact that, at the time of this letter, Keynes had yet to publish his General Theory, a book Hazlitt himself spent much effort attacking, the idea of dictator Keynes would raise many eyebrows.

In spite of the positions Keynes took throughout his career, the widespread view in academia is that Keynes was a model classical liberal, who many profess to be the “savior” of capitalism. Keynes even viewed himself as a defender of a free society. How he differed from most classical liberals was a result of him trying to update the essential liberal principles to the more modern economic conditions.

Still, many may find it difficult to square this with many of his strange beliefs. In 1933 he endorsed, though with reservations, the social “experiments” of the 1930s of Germany, Italy, and Russia. In the introduction to the General Theory he admits his approach to economic policy is better suited to a totalitarian state, such as the one run by the Nazis. He said the Soviet Union was a book “which every serious citizen will do well to look into.” And Keynes’s new economics presented in the General Theory gave the state more control over the economy.

If it were up to me I would certainly not want to see the dictatorship of Lord Keynes. He was far from a “model” classical liberal, in fact he was a statist, a defender of mercantilist ideas, and apparently had a little too much sympathy for some of the 20^th centuries most ruthless regimes. Keynes was undoubtedly a brilliant man but in the battle of ideas of the 20^th century a true classical liberal would have to say F. A. Hayek was right and Keynes was wrong. Still, it is a shame Keynes had to turn down Hazlitt’s invitation to participate because at the very least what he had to say would have definitely been interesting.

Download the September 17, 1931 Letter from J.M. Keynes to Henry Hazlitt here.

As economist Wilhelm Röpke put it, “When demanding assistance from the state, people forget that is a demand upon the other citizens merely passed on through the government, but believe they are making a demand upon a sort of fourth dimension which is supposed to be able to supply the wants of all and sundry to their hearts’ content without any individual person having to bear the burden.”

It is as if the state has become an entity that owes us all a living, and its ability to provide that living is almost magical. Individual’s expectations of what the state can do seem to belong more in a Harry Potter novel than reality. As English historian T. B. Macaulay put it, “it is supposed by many that our rulers possess, somewhere or another, an inexhaustible storehouse of all the necessaries and conveniences of life, and from mere hardheartedness, refuse to distribute the contents of his magazine among the poor.”

In reality, we all live in a world of scarcity. Everything we do has trade-offs. This is why Milton Friedman said there is no such thing as a free lunch. When a resource is used in one manner, then the next highest valued use, or the opportunity cost, is given up. Who pays for the goods and services we have in this life, no matter how essential to our lifestyles, is not irrelevant. How resources are allocated is also not irrelevant. If one does not pay for something, but gets it provided nonetheless, then there is a good chance that good will be overused and wasted, and this is no accident.

Sending other peoples money is easy. Why should you care how much it costs as long as you can get the highest value out of what you get? And when we spend other people’s money on other people, we again, don’t care about the cost but also put much less concern into the value others get out of it. In contrast, when we spend our own money we typically want the highest value for the lowest cost we can find. This is why a world in which the consumers foot the bill is more likely than not going to be more efficient and wealthy (and even for the least well off).

The common belief in what the government can provide is indeed a delusion. There is no forth dimension. The government’s ability to provide so-called essentials comes at a cost and is typically very inefficient. If we leave the responsibility to the individuals, the world will work much better than most seem to think. Remember, this is not an argument against charity. There is nothing wrong with voluntarily helping those in need. But a world where individuals are forced to provide for others is unsustainable. We must abandon the fantasy that the state operates outside of constraints and scarcity. We must wake up to the reality, whether we like it or not, that prosperity is created by the desire of man to improve his own lot in life. And, in general, this requires personal responsibility.

Download Henry Hazlitt’s “The Fourth Dimension” here.

As the newsletter states, when the horrors of the Soviet system were pointed out, most socialists either denied the brutality or claimed a “middle way”. The newsletter raises a good question, “What middle way? Is freedom only halfway good? And is slavery only halfway bad?”

In fairness, most socialists are well-intentioned people and what they desire is planning with freedom. They believe that planning is a way of fixing the flaws in the economy and a way of achieving social justice. And they believed this can be done while maintaining liberty. What they fail to realize is the incompatibility of central planning and liberty. Given the impossibility of economic calculation in a socialist economy, the socialist means cannot achieve the socialist ends.

Central planning under democracy is certainly possible. The problem, however, is that it is unstable. Without economic calculation, planners cannot properly allocate scarce resources to their highest valued ends and so the desired ends cannot be achieved. This leaves the planners with two options, either abandon the intervention into the market, i.e. stop central planning, or increase the interventions, i.e. new and more planning.

Under democracy coming up with new plans to correct the failed old plans is easier said than done. Finding agreement is next to impossible. If central planning is to continue it requires a stronger arm to implement any new plan. This was the point F.A. Hayek was making in his book, The Road to Serfdom. Thus, to continue central planning socialists must abandon the ideals of freedom that they hold. In order to make one plan work more planning is necessary. Soon the end result is that the workers, whose lot this system is supposed to help, end up being treated as bad as, or in some instances, even worse than, cattle.

This makes slogans such as, “Let’s drop the holier than thou attitude, and meet them halfway,” impractical. In the long run, there is no middle way. Achieving planning and liberty is like having your cake and eating it too. While today the Soviet Union is gone and few advocate for outright central planning, this threat is far from gone. Distrust in the market to achieve efficiency and provide justice still exists. Through the failures of socialism in the last half century the calls for a middle way have never gone away. If we don’t learn the dangers of the middle way we will soon find out through experience. As Yogi Berra once said, “If you don’t know where you are going, you might wind up someplace else.” And most likely, that someplace else is not somewhere any of us want to be.

Download the Harvard Free Enterprise Society Newsletter Vol. II, No. 3 here.

These opponents of the free market see liberty in a different light, almost wholly separate from personal responsibility, because they view responsibility as a job for society as a whole. Material needs become a human right and society, through its agent the state, is responsible for providing such needs. In such a system, equality is material and justice distributive. Metcalf and others have attacked libertarian thought by showing so-called flaws in Robert Nozick’s entitlement theory (with his famous example of Wilt Chamberlain). But as Steven Horwitz points out, this completely misses the point Nozick was making.

Nozick wasn’t attempting to justify, morally or otherwise, the free market but instead used the example to show how you cannot have a theory of distributive justice and allow individuals to use their private property as they see fit. The point then is that if you believe in a distributive theory of justice you must also advocate the restraint of liberty to dispose of individuals’ income. A consequence of liberty is an inequality of material well-being. So we must choose what type of equality we want. Do we want equality of outcomes? If so we must treat people unequally. Or do we want to be treated equally? If so, then we must put up with some level of unequal outcomes.

What is interesting, though, is that, countries that attempt to create equality of outcomes end up with much less of both equality of outcomes and equality under the law. Freedom in these countries is greatly curtailed and major wealth gaps exist with the majority in relative poverty. Countries, on the other hand, that put the responsibility in the hands of the individuals, find more freedom and equality under the law and more equality of outcomes. True it is not perfect, no system can achieve that (at least not without creating equality in poverty) but those societies tend to be wealthier overall, even for those in the lowest economic positions. As Leonard Read points out in the article, it is the countries that attempt to provide free shoes for the poor that have many more individuals without shoes.

Why is that? In a way it could seem counter-intuitive but the reason is that, yes people are working for their own self-interest but in order to make oneself better off they must make others better off. And the more people you make better off, the more you can achieve for yourself. Through the market process competition lowers prices so more individuals can have more material things at lower costs. In this sense, the market far from ignores the poor, it helps lift them up out of poverty.

Take away the incentives embedded in the free market system and efficiency will go with it. As Read noted, “Agreement with the idea of state absolutism follows socialization, appallingly.” Once this happens it becomes hard to remember how well the market works because in stomping out real entrepreneurship we have also crushed our imaginations. And despite what the critics think, with their wholly inaccurate caricature of libertarianism and the free market, I believe that is not just sad, it is abhorrent.

Download The Cliches of Socialism Number 8 “The free market ignores the poor” by Leonard E. Read here.

Planning, even for freedom, inevitably leads to a totalitarian state due to the problems of economic calculation and bureaucratic inefficiencies. The efforts to plan, from both the right and left, were the real danger. Thus, Hayek was offering a warning to the countries of the west to avoid the paths taken by both Nazi Germany and the USSR. The analysis within the book traced out the unintended undesirable consequences of attempting democratic planning. Even these civilized attempts can end up with the result of a totalitarian state.

The book was written for the British audience and thus little was expected of it in the United States. In fact, Hayek, with the help of Fritz Machlup, attempted to find an American publisher with much difficulty. Three publishers rejected the book before the University of Chicago Press agreed to publish the it with just 2,000 copies in the first printing. When the book came out, however, it quickly sold out thanks to a laudable review by Henry Hazlitt on the front page of the New York Times book review section.

Over the years Hazlitt was often asked to tell how he helped make The Road to Serfdom a hit. Today’s document is a letter from Henry Hazlitt explaining just how this happened. The book became an even bigger hit after a condensed version appeared in The Readers Digest, again thanks in part to Hazlitt, as well as a cartoon version that appeared in Look.

Recently the book is once again seeing an increase in sales thanks, in part, to Glen Beck’s promotion. Both friends and foes, however, often miss the important message of the book. It frequently gets written off as an argument from the extreme right. Conservatives do use the book to attack the welfare state. This is different from the type of socialism Hayek was referring to; he meant the nationalization of the means of production, not extreme wealth redistribution through taxes and welfare programs. Though, in the preface to the 1976 edition Hayek did admit he believes such a system would lead to the same problems but in a longer and different way described in the book.

This does not make Hayek’s argument conservative. In fact, while Hayek did believe a certain level of conservativism was necessary in any stable society, it is not a social program and contains many dangerous tendencies that are paternalistic, nationalistic, and power-adoring and as a result put it much closer to socialism than classical liberalism. In many ways Hayek is right. Conservativism is by its very nature bound to protect the established privilege and to lean on the power of government to protect such privilege. The classical liberal tradition, on the other hand, is the denial of all privileges.

The point is that the road to serfdom is a result of us giving up our own ability to run our own lives. Once we accept the top-down authoritarian worldview we create a sickness in ourselves, which leads to more trouble than even the most well-intentioned social planner would ever want. Ideas have consequences and planning, as Hayek traced out, leads to consequences few of us are willing to accept. As John Papola and Russ Roberts put it, what we want is the plans of the many not the plans of the few. Hayek’s book is only a warning but we should listen before it’s too late.

Download the Henry Hazlitt letter from January 30, 1975 about his role in the success of the road to serfdom here.

Take, for just one of many possible examples, the current drive for stricter immigration laws. Recently Alabama governor Robert Bentley has signed the nations strictest immigration law. The issue is certainly one many Americans take very seriously. One concern many have with allowing more immigration is the loss of American jobs to foreign workers. This logic is not wrong but rather is incomplete. This is a consequence of looking only at the immediate direct effects rather than all the effects in the long run. As Bastiat put it, we need to see the seen, as well as the unseen.

If asked almost everyone would clearly prefer more to less, but by supporting tougher immigration individuals are advocating a desire for less. Meaning they desire to have fewer in the labor force by keeping foreign workers out. Why? Well, mostly out of a false premise. They view the number of jobs as a fixed pie, if an immigrant takes a job then that is one job an American cannot have. They also see that this would also mean lower wages for those “lucky” Americans who still have their jobs. The more labor that enters the market, the more wages are depressed.

These presumptions are, however, false. Immigrants do not steal domestic jobs. This is because in the long run higher number of labor frees up individuals to move on to producing different and new goods and services that were not possible when there were fewer in the labor force. The pie is not fixed; in fact, more labor allows the pie to grow. Wages also don’t end up being depressed either. Why? Well, most immigrants don’t substitute for domestic skill sets, they complement them, again this frees up domestic labor to produce different goods and services, as a result we all become more productive.

Not surprisingly, empirically this is what economists find: over the last 50 years the work force has grown dramatically, but unemployment rates have remained relatively constant. People currently see our high unemployment rate and blame the wrong cause. More labor, from foreign sources, will allow us to produce more at a lower cost. The high unemployment is due to our misguided monetary policy that produced malinvestment. Many are unemployed because producers are struggling to reallocate resources back to what consumers are actually demanding (see this article for more on this). If anything, the more immigrants who join the labor force the faster we can recover.

The problem, as Bastiat pointed out, really boils down to which group the law should care about, producers or consumers. As producers we desire goods on the market to be scarce because it means we can receive higher prices for them. As consumers we want the opposite. The two are critically opposed to one another. As a result only one can be for the betterment of society. And a wealthy society is one where individuals are able to satisfy as many of their desires as possible. This can only be done the more abundance there is. The answer then should be obvious when we think about it in this way.

One thing is clear: Bastiat was and still is very relevant. There should be no doubt Bastiat’s writings have had an important impact on the world and it is up to us to make sure he still continues to do so.

Download Henry Hazlitt’s “Bastiat for ‘65” here.

Many individuals in favor of liberty simply retire from the social and political world into their own occupations and let the light slowly extinguish. Luckily, there are always the brave few who fight to keep the idea of liberty alive and well. They hold their candles up and fight the battle of ideas in order to make the world a better place, or, at the very least, attempt to make the world a better place. Undoubtedly, the world should be indebted to these individuals for keeping the hope alive, for these individuals are necessary to achieve any sort of liberty.

There is, however, another direction a libertarian can take. In the words of Murray Rothbard, “he can stay in the world, enjoying himself immensely at this spectacle of folly.” In other words, he can lampoon the society, which is turning its back upon the path it should be on. This is a cynical approach, but probably more important than is often realized. Rather than attempting to extend your flame, you mock the system and those who remain in the dark, while having fun doing it.

This was the path taken by the journalist H.L. Mencken. Many write Mencken off as merely a conservative, but as Henry Hazlitt pointed out, this is far from the truth. Mencken was a very principled libertarian. Behind the words he used to lampoon society’s follies, he consistently championed liberty and the dignity of the individual. His attacks upon the welfare state, censorship, prohibition, etc. were more than the grumblings of a crotchety cynic; they were a consistent defense of liberty through pointing out the errors of others.

Mencken used to refer to politics as a carnival of buncombe, which means unacceptable behavior. As he once said, “a good politician is quite as unthinkable as an honest burglar.” And he took great enjoyment in this, as, “A national political campaign is better than the best circus ever heard of, with a mass baptism and a couple of hangings thrown in.” The whole process is a result of what the people want. To Mencken democracy meant the right of the majority to suppress or persecute a nonconformist minority. As he said, “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.” This was the system we asked for and the results were what we deserved.

The world could do with another Mencken. Of course its crucial to have those who expound the importance of liberty, but it is also important to have someone point out the absurdity of our current ways. After all, at best another Mencken will influence others to fight for liberty, and at worst we can at least enjoy the show. For Mencken may only have been a journalist, but as Hazlitt pointed out, he knew what he was talking about.

Download Mencken: A Retrospect by Henry Hazlitt here.

And what is one half of almost every exchange? Money. Based solely on this fact, it is easy to see the importance money play in any economy. Without money how could an exchange take place? Well, barter is an option but this sort of a direct exchange is extremely difficult.

If we produced everything ourselves, and did not exchange, then life would be more than tough. Many of the luxuries we enjoy would simply not be possible. In order to achieve the advanced material production, we have become accustomed that we need to engage in specialization and the division of labor. But under the division of labor, barter requires the double coincidence of wants. One must hope that the person who produces what they want will also want what they produce. Due to this problem, as Carl Menger explained, money, or a medium of exchange emerged. Now one accepts money not as an end in itself, but as a means of acquiring what one truly wants. You accept money because you know others will similarly accept it.

What this really tells us is that money was not created by the state. No central authority was needed to create it. It was an emergent spontaneous order; a result of human action, but not of human design. But something funny happened along the way. Trust in the ability of the market to provide money seems to have disappeared. The common view now seems to be that the state needs to hold the monopoly on the production of our currency.

Yet, we constantly face troubles with our monetary system. Many economists have attempted to solve these problems but even then kept the power solely in the hands of the state. Even Milton Friedman, for example, believed in favoring rules over discretion within the government monopoly over money. So, free trade is good, but only if a central authority can create and maintain our currency?

F.A. Hayek in the late 70s, “suggested a radical cure, – i.e., taking away the government monopoly of issuing money, and handing the task to private industry –partly as a bitter joke.” Hayek’s position on money shifted throughout his career but by 1975, the more he thought about it, his position went from a ‘bitter joke’ to completely supporting privatization of the money supply, as he explains in this 1977 Wall Street Journal article.

It is hard to see what is so “funny” about private money. After all, money was originally created and provided this way. Even in our more complex modern financial systems, private banks, not the state, originally provided bank notes, which are technically what our Federal Reserve notes are. And this system of free banking worked extremely well, as economist Lawrence White pointed out.

The state has a lot to gain through the monopoly profits earned with its control over money supply, but on the flip side we, as individuals, have a lot to lose. Maybe the real joke is with our current system, which is sad because the joke is on us.

Download The 1977 Wall Street Journal article Toward Free Market Money by F.A. Hayek here.

Mises wholly rejected this notion. As he explained in his 1942 essay “Social Science and Natural Science,” originally published in the Journal of Social Philosophy and Jurisprudence (Vol. 7, No. 3), while he was working for the National Bureau of Economic Research, the social and natural sciences require different methods. Economics is a human science that derives laws that take into account the complexity of human experience. These laws have the same status as the laws of the natural sciences, but due to the complexity of human action different methods are needed to derive them.

This position of methodological apriorism was not completely new to Mises, it was also the approach of the earlier Austrian tradition emphasized by Carl Menger and Eugen Boehm-Bawerk. Experiments are very important to the natural sciences but as Mises explains, “the social sciences cannot make use of experiments. The experience with which they have to deal is the experience of complex phenomena… The social sciences never enjoy the advantage of observing the consequences of a change in one element only, other conditions being equal.” So, unlike in a laboratory, economists cannot verify their statements using experience.

But by the 1950s, however, the economics profession had followed Paul Samuelson’s lead, rather than Mises’s, using the methods of formalism and positivism. Formalism had become synonymous with logical rigor and positivistic testing was the only means of conducting empirical analysis. To not follow in this direction was considered unscientific. By the 1960s economists had come to distance themselves from the exact laws of Menger and the apriorism of Mises. Indeed, with the exception of a handful of Austrian followers, they had become things of the past.

Today many have come to misinterpret the Austrian position on the role of theory and history in economics. Perhaps due to the fact that economics has become dominated by what many have called “physics envy”, most are ignorant of what Mises’s position truly was. The caricature of the position seems to be that Austrian theory places no importance on empirical analysis. In fact, empirical work is completely rejected and thus ignored. Nothing could be further from the truth.

The role of empirical analysis is still very important, but you cannot treat statistical findings in the real world as you would treat a laboratory experiment. Material provided by statistics is the outcome of historical complex forces. Thus theory is necessary to aid historical investigations. As Mises said, “There is no doubt that up to now in history only nations which have based their social order on private ownership of the means of production have reached a somewhat high stage of welfare and civilization. Nevertheless, nobody would consider this an incontestestable refutation of socialist theories.” The advancement of economics requires blending of both deduction in theory and empirical induction.

There is no doubt the profession has steered away from aprioristic approach. It is born out of the confusion over the role knowledge plays within economic theory. Austrian economics has an important place in better understanding of this problem. More economists should take the time to read the methodological work of Mises and the Austrians.

Download “Social Science and Natural Science” by Ludwig von Mises here.

The example with the fly tells us that the state should be restricted to those tasks, and only those tasks, that it can do well. It is up for a debate, even amongst libertarian/classical liberal circles, just what these tasks are but what is clear is that there is a limit. For example, some libertarians believe the state is not necessary at all. The provision of law and order and defense should be left to the private market. Other libertarians/classical liberals believe in, what has become known as, the night-watchman state, where the role of government is limited to the provision of law and order, defense, and possibly providing some public goods. Still, no matter what anyone’s position is, we must admit that the state is not capable of doing everything. There will certainly be many functions the state simply cannot perform well, or at all, and thus we should never ask it to.

Forgetting the past is a very dangerous thing. It can lead to the Cliché of Socialism number 48, “There ought to be a law.” As William C. Mullendore explains the growth of government, in terms of both scale and scope, grows out of this often well-intentioned phrase. A certain situation will attract the attention of sympathetic or disproving citizens, who then turn to legislators to fix the problem. Soon this becomes a rally cry for all our problems.

It is rarely asked whether this is something the government should be doing and instead is simply assumed it should. More often than not the government’s legislation would fail to achieve its intended ends and instead of repeal, new laws (that also are unlikely to work) would be enacted to fix this, costing us more and more freedom.
In his book Democracy in America, Alexis de Tocqueville titled one of the chapters, “What Sort of Despotism Democratic Nations Have to Fear.” The answer is majoritarian despotism, and this is exactly what we have today. Tocqueville warned that an intrusive government in attempting to protect and relieve its citizens “from the trouble of thinking and all the cares of living” would create a sort of “orderly, gentle, peaceful slavery.”

By crying, “there ought to be a law” at every problem, we have given the state parental authority. The result has removed our personal responsibility and also has led to the surrender of many of our freedoms. For freedom and personal responsibility are two sides of the same coin. By turning to the state, instead of finding ways to voluntarily interact and solve our problems, we are reducing ourselves into a condition of perpetual childhood.

This is not the way of a self-governing society; in fact, it is a means of destroying our ability to self-govern. If we truly wish to be a free society, we must learn that the state is not capable of taking care of others or ourselves. The state is not a substitute for personal responsibility. At best the state is a coercive tool that is easily abused. As the founders of our country realized, the larger the state grows the more dangerous it becomes to a prosperous society. The point of our constitution was/is to restrict and constrain the government but it hasn’t worked. Maybe Leviathan cannot be constrained. Perhaps the state can only institutionalize predation. Even if this is the case, if we have any hope for a solution, it must start within ourselves. We must learn to be a society of free and responsible individuals.

Download the Clichés of Socialism number 48 by W.C. Mullendore here.

The above quote from Leonard Read is from his brilliant 1948 essay, Pattern for Revolt. The reason liberty is slipping from our grasps is due to our attention to expediency over our principles. In order to sound more attractive and gain more followers, especially in politics, we make compromises that sacrifice our liberal ideals.

The revolt that Read believed was necessary back in 1948, is still necessary today. We must rebel against all political devices and ideas that place the government in the role of master. Anti-liberal policies are slipped through because the voice of expediency whispers in our ear, “heed the voice of your conscience and you will lose five million votes!” And many of us listen. But, as Read noted, “This voice always misleads. Of necessity it must mislead because it represents the rejection of moral principles for the hope of temporary gain.”

If we are to revolt, we must reject expediency altogether and ask, “What is right?” The role of the libertarian/classical liberal is to say what he believes to be true and right not what is popular. This is not an easy task, especially since our ideas are not in popular accord, but if we are truly to ever succeed, compromises cannot be made. It is better to stand for true liberty and lose than to win at the cost of our freedoms. There is no guarantee for victory, but if we don’t try then there is no hope. How can we change when we continually do the same thing over and over again?

Today’s document is a letter from Rose Wilder Lane to Leonard Read from August 16, 1948. Lane informs Read of two politicians, in a fringe political party, who were very influenced by Pattern for Revolt, one even quoted the essay in his nomination acceptance speech. Of course, these two politicians did not win in the election, but this is besides the point. A truly free society is built upon principles. Expediency is a cheat; the role of compromise in these principles is the distortion of liberty and growth of the state.

If there is one complaint about Pattern for Revolt it is the concentration upon the political process. The principles of liberty need to start with our understanding. The revolt, or revolution, needs to start in the world of ideas. If we lose the battle of ideas, elections won’t matter. The pattern for revolt must come from our loudly expressed and uncompromised principles of liberty.

Read the Pattern for Revolt by Leonard E. Read here.

Download the August 16, 1948 letter from Rose Wilder Lane to Leonard E. Read here.

Richard Cornuelle wrote several books on voluntary society. His first, and most known, was 1965s Reclaiming the American Dream. In this book he builds on Alexis de Tocqueville to illustrate how a society of free and responsible individuals live, participate, and prosper in caring communities through commercial activities. Friedrich Hayek even relied on Cornuelle’s argument in this book while writing his three-volume set Law, Legislation, and Liberty.

In his second book De-Managing America (1975) he rejects the idea that society should be managed by some central authority. Instead, he inserts, society should be the outcome of voluntary interactions of individuals and communities, because decentralization could more effectively mobilize and correct human action. Managers, or politicians and bureaucrats, whom we have come to rely on, are much more clueless and helpless than we have ever imagined, resulting in many of our problems.

The “sickness” of America is our ever-growing size of government. This is Richard C. Cornuelle’s argument in his 1983 book Healing America. The fruits of increasing statism have resulted in larger bureaucracies and increasing taxes, which is continually putting a heavy burden on the productive private sector and causing a decline in the quality of community services. The answer is not more statism but a drastic reduction in the size and scope of the state. Today’s document is the review of this book by Richard Ebeling that appeared in the January 1984 Laissez Faire Review.

Richard Ebeling explains that Cornuelle’s solution is for society to come to a better understanding of how voluntarism works, so we can intellectually and ideologically defeat the case for more government involvement in our lives (also see here, for why Peter Boettke believe this book can also help us solve our current crisis).

Richard Cornuelle’s lifetime liberty work has already made a lasting impression. Now it is up to us to continue to read his wonderful books, so we come to a better understanding of voluntarism and perhaps one day live in a voluntary world he wrote so clearly about and understood so well.

Thank you, Richard C. Cornuelle, for all you have done and for the lasting impression you will continue to have.

Download the Ebeling Review of Richard C. Cornuelle’s Healing America here.

At the time Hayek’s Nobel prize in economics came as quite a surprise. Hayek was the leading proponent of the Austrian school of economics (Ludwig von Mises had passed away a year earlier), which by this point had fallen out of the mainstream (in fact, Hayek’s Nobel win and a Institute for Humane Studies conference in June of 1974 on Austrian economics held in South Royalton, VT are often considered the two main catalysts for the revival of the Austrian school at that time).

Friedrich A. Hayek was a leading critic of the overuse of mathematical formalization, which had come to dominate the economic discipline. Not to mention, Hayek was popularly known, mostly thanks to his book The Road to Serfdom, as overtly a free market economist. This was why Read expressed shock that he shared the prize with Myrdal, who was notorious for his left-wing anti-market views. It is often believed that sharing of 1974 Nobel prize in economics occurred because the Royal Swedish Academy of science recognized the need for some balance.

Regardless, Hayek’s recognition has been extremely important to the development of economics. He has become one of the most cited winners of the Nobel Prize by other Nobel laureates in economics and his influence on them is undeniable, from James M. Buchanan, Ronald Coase, Douglas North, Vernon Smith, Robert Lucas, Edmond Phelps, Leonid Hurwicz, and Elinor Ostrom, and even to Joseph Stiglitz, just to name a few.

The economic discipline in the 20^th century is often viewed as a battle of ideas between Hayek and John Maynard Keynes, where, as the rap song Fear the Boom Bust (a new one, Fight of the Century premiers today April 28^th) says, “I want to steer markets (Keynes), I want them set free (Hayek).” The battle boiled down to this: Can markets be planned and controlled by the state or is the invisible hand, or spontaneous order, where the multitudes of individual plans come together through no conscious human effort, necessary for markets to function? Hayek’s work on knowledge illustrates very well why it must be the latter, as state planning and control will always fail to achieve its ends. And, the current crisis seems to be proving Hayek correct, yet again.

In his last days Ludwig von Mises supposedly said that he hoped for another Hayek. Hayek’s Nobel prize was not only an achievement for the economics profession, but a big win for the liberty movement as well. Another Hayek would not only be helpful, but would arguably be necessary, if we are to continue to gain ground. It is easy to see why: nearly 40 years later we are still celebrating Hayek’s Nobel Prize.

The letter from Leonard E. Read to Friedrich A. Hayek from October 9, 1974.

P.S. The books Read is referring would be the 3 volume set, Law, Legislation and Liberty.

Yet, Public Choice economics, which applies the tools of economics to the political realm, can present an interesting problem. What if
businessmen could make money without competing within the free market? Now self-interest may indeed become a problem. If businessmen are able to operate free from competition then they can charge monopoly prices, squeezing every penny they can from the hapless consumers. After all, what can the consumer to do? Their choices have been restricted.

This problem is sadly far from the work of science fiction and very much steeped in reality. But, it is not an outcome of free markets; it is a product of government intervention. Governments restrict competition through various laws and regulations creating special interests which will do anything to keep their advantageous positions. This system also creates incentives for others to try and spend their way into gaining favors through additional lobbying. This process is known as rent seeking. It is the use of resources in a non-productive manner, i.e. the few are gaining at the expense of everyone else.

This is why businessmen are typically against free markets and in favor of regulations. Society would be better off without such policies but businesses stand to gain big from them. So, why are they enacted? The answer is in the concentrated benefits and dispersed costs. Businessmen gain greater profits from the reduced competition and thus lobby politicians, through financial kickbacks. Politicians, on the other hand, love the greater political campaign funds this process creates for them. The rest of us end up picking up the tab, but we barely notice because each of us pays only a tiny fraction of the whole cost.

Recently the billionaire Koch brothers have come under attack for supporting free market policies, “just to help their business.” It is true the Koch’s have been funding free market policies and research, but as the above shows, this hardly would be the best way to help their business in the short run. Yet, the Koch’s are not the first, and probably won’t be the last, businessmen to support free markets.

The free market movement since the early 20^th century has seen many virtuous benefactors who have used their wealth to spread economic liberty. Today’s document, entitled Why Liberty?, was written by a businessman, who was also a founder of Liberty Fund, Inc., Pierre F. Goodrich for the 1958 Mont Pelerin Society’s meeting in Princeton, New Jersey. Goodrich understood why we needed liberty. Why it was a good idea in the long run, for not only businessmen, but for everyone, to embrace liberty as much as possible. He asked the right questions as this pamphlet shows. And the answers all point to liberty.

Many businessmen deserve the criticisms, but they should receive criticisms them for the right reasons. The blame is often placed on the free market notion, rather than on government interventions. The public needs to understand better the process public choice economics studies, and then maybe we will get more of the type of businessmen we need. Its never too late to get more Pierre F. Goodrich’s.

Download Why Liberty? By Pierre F. Goodrich here.

This leads to the question: why the misconception that economists are heartless? I believe the answer has to do with emotions. The suffering of human beings, no matter who they are, is no laughing matter. This is just another reason that solutions need to be looked at calmly, coolly, and objectively. We need to find the correct solutions and this requires checking your emotions at the door.

Humanitarians seem to become too attached to their stance at an emotional level, even seeming to suffer from a mystical belief in the moral superiority of their solutions, no matter what the outcome. In fact, this has led to the enactment of countless terrible public policies. Economics, on the other hand, is a science. The economist’s job is to take the end as given and then explain the best ways to achieve that end.

For example the issue of sweatshops is one of the most emotional issues, which enrages many Americans today. People see struggling women and children “forced” to work in terrible working conditions and call: “Sweatshops must be Stopped!” “Ban them!” “We must boycott!” The question is: will closing sweatshops stop “exploitation” and get people out of poverty?

Many economists argue that these solutions would have detrimental effects on the poor.

Today’s document is the Cliché of Socialism Number 40 by Paul L. Poirot, in which he correctly argues why the labor laws put in place to prevent child labor and improve working conditions are not responsible for ending sweatshops in the United States. That kind of labor was necessary at one time, but as wealth was accumulated, this type of labor became undesired and went away. In fact, laws banning sweatshops, if put in place at that time, would have done more harm than good and would not have achieved the desired ends. Paul Poirot is not alone; many economists point that there are some positive benefits of sweatshops for the poor. One of these economists is Professor Benjamin Powell.

“Positive benefits! Outrageous, would you want to work in a sweatshop?” Of course not, none of us would, if given the right choice, but sweatshops are not the problem, poverty is. Poverty creates a situation where sweatshops might just be the best option given all other alternatives. When we step back and look at the problem objectively this becomes clear. First, there is no magic solution to quickly eliminate poverty but with the right institutions in place individuals will have incentives to create and foster economic growth. Second, opportunity costs matter. If you take away sweatshops, what will these workers do? Well, many will be “forced” to work in much worse and less paying jobs, some (perhaps even children) may resort to prostitution, others may simply starve to death. If sweatshops create slavery it would be another matter, but the fact is this: given all opportunities and constraints these individuals want to work in the sweatshops. As workers become wealthier competitive forces improve working conditions, increase wages, create more leisure, etc. So, they can enjoy the same benefits, us people living in wealthy countries enjoy today. There is no quick path to this point and wealth must be built up.

Once humanitarians acknowledge this fact, the right response should be to encourage trade with countries where sweatshops exist. Buy sweatshop goods, higher demand for their services means the quicker wealth accumulation by these workers, which inevitably will lead to disappearance of sweatshops. Restricting trade with countries where sweatshops still exist keeps these individuals poor, which is the opposite of what we want.

Download the Cliché of Socialism Number 40 “Without Legislation, We’d still have Child Labor and Sweatshop Conditions” by Paul L. Poirot here.

The problem is that it can’t be both. Are interventions into the market economy the cause of prosperity? If they are, then free markets cannot be blamed when things go wrong because we don’t have free markets on first place! It could, of course, be argued that there are not enough regulations but there are two problems with this. First, the flaw is still not that free markets failed us. And second, it is empirically not true.

The evidence tends to point to the importance of free markets for achieving high sustainable economic growth. Recently two empirical papers, Harvard University economist Andrei Shleifer’s “The Age of Milton Friedman” and George Mason University economist Peter Leeson’s “Two Cheers for Capitalism?”, analyze economic growth throughout the world in the last quarter century. Both find similar results. Countries that became more “capitalist” during this period, meaning the freer the markets were, became wealthier, healthier, more educated, and politically freer. On the opposite, countries that restricted markets endured stagnating income, shorter lives, less education, and oppressive political regimes.

In other words, when it is appropriate to say, “we have never had it so good,” the reason is because markets have produced wealth in spite of the regulations and restrictions. In times of trouble the appropriate response should be to blame the regulations, which distorted the markets that were responsible for the wealth in the first place. What is needed in both good and bad economic times is not calls for the state to intervene, but instead calls for freer markets. The empirical evidence for pure free markets are a lot stronger than many give it credit for. As my colleague Daniel J. Smith once said, “It doesn’t make one dogmatic to embrace these facts, it makes one dogmatic to refuse to acknowledge them.” The world needs more individuals to fully embrace these facts, and maybe the world needs more market fundamentalism.

Download the Cliché of Socialism Number 32 by Leonard E. Read here.

Today’s document is a negative review of Henry Hazlitt’s book The Inflation Crisis and How to Resolve It by Marilyn Vencel, published in the Wilton Bulletin in September 1978, and two letters to the editor in response, one from Hazlitt’s friends Richard and Viola Turner and another from Hazlitt himself. Vencel’s review is mostly vicious and empty rhetoric, as the Turners point out, but at its heart is the complaint that Hazlitt’s theory on inflation is simplistic. Ironically, in making this argument she oversimplifies Hazlitt’s arguments to the point of distorting his position.

Now it stands to reason that a complex theory isn’t correct merely because it is complex. And similarly, a simple theory isn’t necessarily wrong because it is simple. After all, there is danger in overcomplicating matters. As Occam’s razor states, “Entities should not be multiplied unnecessarily.”

But there is another problem. Hazlitt’s argument against inflation uses basic economic theory, which is not really simple. Basic economic theory describes a complex order of economic forces at work, matching the most willing suppliers and the most willing demanders in order to realize mutual gains from exchange. It shows us markets work extremely well but only in the correct institutional context. Leonard Read’s “I, Pencil” tells us exactly why this is far from simple. And Hazlitt’s work on inflation tells us exactly why inflation distorts market signals.

Hazlitt’s book was of course put in simple terms. After all it was written for a popular audience, and the solution of “stop printing more money” is simple, but it is not a description of a simple theory. Inflation’s distortion of market signals is real and has negative consequences. Hazlitt’s book shows us why those consequences, such as the undermining of production incentives, are not something to brush aside. Institutions matter, and the rules regarding money are particularly important. Sound money is crucial for market forces to function properly. When one understands basic economic theory, one intuitively sees why inflation is undesirable, but that doesn’t mean the theory is simplistic.

Download the Wilton Bulletin review of Hazlitt’s The Inflation Crisis and How to Resolve It here.

Friedman, as with the other papers that day, found inflation to be a massive problem. In fact, next to the threat of a third world war, inflation is what he finds to be the most serious threat to the preservation of a free society. Friedman believed the source of inflationary pressure mainly stemmed from calls for governmental responsibility and action to correct deviations from full employment. Keynesian policy subscriptions clearly had become ingrained in the public and political consciousness as solutions to any economic downturn.

While the economics profession today has seemingly deviated away from such notions, the same cannot be said about the public in general. In my paper (co-authored with Daniel J. Smith and Peter Boettke), Been There, Done That: The Political Economy of Déjà Vu (which Dan Smith and I will be presenting at the Atlas Economic Research Foundation Tuesday, March 1^st), we argue the Keynesian debates of the 1930s, relating to government responses to a financial crisis, sound eerily similar to today’s debates on the current crisis.

Despite the advances in the economic tools developed in the last century, most Keynesian economists and policy “experts” revert back to the basic (and proven wrong) Keynesian solutions at the first sight of a downturn and the public eats it up. In the short run, these policies can indeed look very appealing. Politicians are seen to be doing something and, in doing so, temporarily remove the hurt caused by the crisis. But such actions lead us down, what Adam Smith called, a path of deficits, debt, and debasement of the currency. The solutions to the deficit must be to tax, borrow, or print more money. Raising taxes is often met with much resistance, so the government borrows but this is only a future tax. Printing money thus ends up as a real solution, as it is a hidden tax, which the public barely notices. But it is no less a serious problem in the long run, as Friedman points out.

This juggling trick of deficits, debt, and debasement is as much as threat today as it was in 1958. Friedman correctly points out what really needs to be done:

“The Major requisite for preventing these results is indeed “restraint” but not restraint on the part of business or labor with respect to individual price or wage changes. What we need is “restraint” on the part of the public at large in demanding vigorous governmental action the first sign of a downturn and on the part of governmental authorities in yielding to such demands. The crucial problem is how to get such “restraint.”

Economists, such as Friedman, have effectively pointed out the flaws of the Keynesian arguments. We are right to chide those who make Keynesian arguments for not learning what should be obvious, but free market economists have also been guilty of a lack of creative thinking of how to refute these arguments once and forever. As a result Keynesian ideas continue to pop up every time a crisis occurs. If we are to convince the public we cannot keep saying the same things over and over again.  As James Buchanan has said, “it takes varied reiterations to force alien concepts upon reluctant minds.”

Download Milton Friedman’s Mont Pelerin Essay, Inflation, here.

Written by Milton Friedman and George Stigler early in their careers, the pamphlet explains through economics why the choice is between having less, and poorer quality housing through price ceilings (rent control’s means), or to have more, and better quality roofs over our heads through the use of price rationing, i.e. letting the market work. And Friedman and Stigler do an exceptional job with this task.

Despite certain positive effects, such as introducing a young Murray Rothbard to the works of FEE, the pamphlet was met with much controversy. Ayn Rand viewed Roofs or Ceilings? as, “the most dreadful thing ever put out by a conservative organization… I never expected that from Leonard Read. He was really my last hope of a conservative who would act on the proper principles, and take some positive practical action for our cause; and it is awfully hard to see a last hope go.” She even referred to Friedman and Stigler, both future Noble prize winners who are as much known for their work in the freedom movement as for their economics, as the “two reds!”

Rand’s complaint boils down to the absence of morality and justice within the pamphlet’s argument. For her, the pamphlet views government rationing by command as the moral equivalent of rationing by a free price system, with efficiency being the difference. In other words, it does not state that it is always and everywhere wrong for the government to ration. Efficiency should come second to morality and justice.

The problem with Rand’s critique is that this requires a value judgment, which economics cannot provide as a positive science. All economics is value free, it tells us what is and not what should be. Mises’s argument on the impossibility of socialism for example does not say socialism is wrong, but that it is impossible for it to achieve its ends due to the inability to provide economic calculation. This is no different from Friedman and Stigler’s argument against rent control.

Still, many within FEE, including Read himself, found Friedman and Stigler’s soft-core approach to liberty within the pamphlet to be troublesome. Specifically, Read and others at FEE were concerned about a paragraph on page 10, which seems to suggest the authors agree with the goal of equalizing income. And seem to suggest a need for “long-term measures” to achieve this goal. Read asked Friedman and Stigler to remove the paragraph but they refused. So, in response the Foundation inserted a footnote spelling out its objections. It states:

“Editors note: The authors fail to state whether the ‘long-term measures’ which they would adopt go beyond eliminating special privilege, such as monopoly now protected by government. In any case, however, the significance of their argument deserves special notice. It means that, even from the standpoint of those who may put equality above justice and liberty, rent controls are the height of folly.”

On page 11 there is another example of Friedman and Stigler’s willingness to use the power of government to “solve” a problem. One objection to free markets in housing is that the rise in rents means an inflation. They correctly point out that even if this is true it is better to attack the threat at its source. Friedman and Stigler use confusing language and say the source is an increase in family income but this would be an indirect result of an increase in the money supply. What’s troubling is their proposed solutions: heavy taxation, governmental economies, and controlling the stock of money. Most free market economists, and certainly all the hard-core ones, would suggest only the latter.

The problem is the Chicago School’s separation of the micro and macro spheres of economics. They view them as sharply separate and independent worlds, with micro being determined by the forces of supply and demand and best left free and alone. Macro, on the other hand, is a world of aggregates that don’t always line up and are thus best left to the control of the state. This way, if problems such as uneven distribution of wealth and inflation exist, taxation becomes a real solution, as it doesn’t, after all, effect the micro sphere.

But in reality it does. As Peter Boettke often says, there are macroeconomic problems but only microeconomic solutions. This is because macro and micro spheres are integrated and intertwined. It is impossible to give the macro sphere to the state in order to manipulate social ends and retain freedom at the micro level. Taxes inject systematic theft into the micro level, distort the market signals and lead to a host of negative consequences for many in the economy.

Maybe it is best if these problems, in an otherwise excellent pamphlet, are simply forgotten, but I think this would be a mistake. We need to understand why they are wrong, so we don’t continue to make the same mistakes of regulating liberty to a footnote or losing it completely to fix some mystical aggregate.

Download a scanned original printing of Friedman and Stigler’s Roofs or Ceilings? here.

Or read a more readable version here.

Today, libertarianism is assumed to be some corky and crazy minority. This is unfortunate. As Read correctly points out, libertarianism is neither “left” nor “right”. The libertarian is indeed very different from the liberal on the “left” and conservative on the “right.” Some on the “right” are starting to notice and revolt against the similarities. As Kevin McCullough of Fox News recently said in an article,

“Libertarians and Conservatives are as different as Libertarians and Liberals. The truth is libertarians are the worst form of political affiliation in the nation. Combining the desire of economic greed, with the amoral desire to promote any behavior regardless of its cost to our culture is a stark departure from the intent of the Founding Fathers.”

Mr. McCullough’s words attempt to disparage the libertarian view through the use of language meant to leave the reader no other option but to agree with him. In reality, a libertarian is an individualist who is uncompromisingly anti-authoritarian. He believes in the freedom of all individuals or as John Stuart Mill once said, “The only freedom which deserves the name is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their efforts to obtain it.”

The “desire of economic greed” is simply the belief in the free market. Greed, or self-interest to use a more apt word, is ever present in human nature. What matters is how it is channeled. The free market allows individuals pursuing their own self-interest to enrich themselves only by enriching others first. Adam Smith called this the “invisible hand”. This is contingent upon a system of protected private property rights, where individuals, who own themselves, are free to own and exchange property. To stifle this system, by the use of force, means to stifle human creativity which would certainly sets us on a path to poverty.

As for “the amoral desire to promote any behavior regardless of its cost to our culture,” Mr. McCullough is simply twisting words in a way that is meant to leave the reader in shock. In reality he has distorted the true view. He mainly points to the examples of libertarian support for drug legalization and gay marriage. It is true libertarians support these policies. But, to not support them is inconsistent with the belief in individual liberty. You can’t have your cake and eat it too.

This does not mean, however, that the libertarian must approve of and promote the use of drugs or gay marriage. He may personally disapprove of one or both. He is free to do so, just as any individual is. There is no desire amongst libertarians to promote “amoral” behavior. What he actually promotes is the freedom for all individuals to make their own choice. Besides, culture is a form of spontaneous order and cannot be controlled at a gunpoint. Attempting to do so is essentially central planning. Black markets will emerge, and in order to make the coercion work more coercion will be necessary. Protecting culture from so-called “amoral” behavior requires education and promotion of family life, not the use of the state to restrict the freedom on which our nation is founded upon.

As Read points out, the “right” and “left” simply just offer two different forms of authoritarianism. Libertarianism is neither; it is a rejection of the use of force to centrally plan individual’s life in both the economic and social spheres. If this makes being a libertarian the worst form of political affiliation, then I still maintain, I am a libertarian, for I am neither “left” nor “right”.

Download Leonard E. Read’s Neither Left Nor Right here.

“In this age of the great struggle in favor of freedom and the social system in which men can live as free men, you are our leader. You have indefatigably fought against the step-by-step advance of the powers anxious to destroy everything that human civilization has created over a long period of centuries…. You are the economic conscience of our country and of our nation.”

Henry Hazlitt spent his career in journalism promoting the works of the Austrian School of economics. What separated Hazlitt from the rest, and lead Mises to call him our leader, was his understanding of economics. Although he had not been an economist by training or profession, his work proved he understood the economic concepts better than many with doctorate degrees. Through his work in journalism and organizations like the Foundation for Economic Education and the Mont Pelerin Society he was able to spread the ideas of liberty and economics to audiences that would not dare to pick up professional journals or technical tomes, like Human Action.

Today’s document, a letter from the Canton Supply Company to Hazlitt on April 17, 1951, illustrates how Henry Hazlitt spread important ideas of liberty through his work. The letter is a piece of fan mail praising Hazlitt for his book The Great Idea, which was republished later as Time Will Run Back. This book is a distinctive and often forgotten work by Hazlitt. It is different because in the form of a fictional novelit attempts to illustrate the knowledge problems associated with socialism. While few may find the tale of dystopia where an ignorant young man inherits the role of dictator of a world communist system to be classic literature, it is nevertheless a brilliant economic step-by-step reasoning from the failure of communism back to the success of a purely free market.

Henry Hazlitt’s book explains why socialism as a means is impossible for achieving the desired ends of an advanced material society. The idea that socialism fails to connect the means with the desired ends come from Mises’s “Economic Calculation in the Socialist Commonwealth” and Hayek’s “The Use of Knowledge in Society.” While in debates on the merits of socialism college students commonly respond “but socialism is perfect in theory,” Mises and Hayek illustrate why this socialism is complete nonsense even in theory. Sadly, Mises and Hayek were not known to be good communicators. Hazlitt, on the other hand, was a skilled, clear, and entertaining writer. He may be gone, but because his work lives on he is, in many ways, still our leader.

Download the Canton Supply Company to Hazlitt letter of April 17, 1951 here.

Joseph Kennedy is, of course, most famous for being the father of President John F. Kennedy and Senator Robert F. Kennedy, but a close second is known for taking part in the notorious trade in which he (possibly) made his family’s fortune; namely bootlegging alcohol during the Prohibition.

Alcohol prohibition is largely considered a failure today and for good reason; see for example, Douglas Roger’s review in the Freeman of Daniel Okrent’s fantastic book Last Call: the Rise and Fall of Prohibition. The negative consequences of America’s noble experiment stretched far and wide. The quality of liquor went down, potency went up, and as result the emerging black markets created environment of secrecy, corruption, and violence, etc. The 18^th amendment even bred contempt for the law, which led many to refer to the 1920s as the lawless decade.

Kennedy’s story, however, shows that not everyone found prohibition to be so bad. Many, like Kennedy, gained greatly from the temperance movement’s ploy. These bootleggers, rumrunners, gangsters, and others operating in the black market not only didn’t find the law a disadvantage but also openly supported it, even financially. This is what Bruce Yandle referred to as the bootleggers and Baptists theory of regulation. All regulation is supported not just by those who viewed as moral, but also by those who stand to gain at the expense of others.

Prohibition transformed the market for alcohol into a violent and dangerous trade by weakening property rights and driving its activities underground. Supporters of various prohibitions today, such as the prohibition of drugs and tobacco, should learn a lesson from this story. We must, as Frederic Bastiat warned, look at not only what is seen but also what is unseen. Sure people are gaining from these laws, but is this at the expense of everyone else? We need to ask whether these laws are achieving the real desired ends or helping to line the pockets of some while harming many others. Lets face the facts, just like alcohol before, drugs have not gone anywhere and violence has increased. No matter what your feelings on such substances are, there must be a point where you step back and say, “this is just not working and not worth it.”

Download the Kennedy to Read Letter here.

*This post is dedicated to my very good friend and colleague Douglas Rogers. The world has been robbed of a great mind. Doug’s work on organized crime was an important part of seeing the unseen effects of all prohibitions. He was also a passionate teacher of economics and advocate of liberty. I feel wealthier for having known him and I am sure I’m not alone.

While it is an advertisement for the magazine, it does contain an important message, one that many “believers” in freedom often miss, which causes them to advocate, what the ad calls, the Trojan horse of interventionism and socialism within our walls.  As the ad says, “Diverse ‘isms’ that attempt to replace individual thinking and initiative can not grow or survive where love of freedom inhabits the heart of man.” In other words, knowing what freedom means or understanding what Leonard Read called the freedom philosophy is important for everyone in order to achieve and maintain a free society. Just to hammer it home, as former FEE economist F. A. “Baldy” Harper said, “The Man who knows what freedom means will find a way to be free.”  But saying you support freedom and wanting to be free are not enough. Liberty requires understanding as well.

While few would deny freedom is important to them, many will still willing throw chains on others. In a recent blog post economist Bryan Caplan brilliantly illustrates this. Looking at the ethics of strangers, on both the left and right, we can see the desire for freedom but also the willingness to deny freedom to others. Many on the left, despite their calls for wealth redistribution, will often take great offense to homeless people’s demands for their money. But they have no qualms with the State taking by force from others to help the poor. That’s hardly consistent.

Similarly, some on the right argue for closed boarders to protect American workers. A closer look, however, reveals this is not in line with freedom at all. As Caplan puts it, “People in the Third World are strangers, but we still have a moral obligation to leave them in peace.  Instead, we pass draconian laws forbidding these strangers to work for other complete strangers.  And for what?  To fulfill our fantastical obligation to maintain the wages of fellow citizens we don’t trust enough to give our kids a ride.”

Wanting to be free is one thing; it is a desire seen through most, if not all, of human history. But knowing why freedom is crucial for a prosperous and peaceful society is the only way to really achieve it. We need to know why property and the freedom to use it creates the markets that foster growth, and how interventions, such as wealth redistribution, distort and destroy wealth. We need to know that freedom of association for all is something that is part and parcel of the very same property rights. Freedom is not just for you. It is for everyone. Until we believe and understand this, the benefits of a truly free society will be out of reach.

This advertisement may be old but it should still sell because the world would be better off if more people read The Freeman.

Download The Freeman advertisement here.

One reason economists often misdiagnose the importance of advertising can be found in the neo-classical models they use. In a general equilibrium model there is no need for advertising due to assumptions such as perfect competition, homogeneous goods, and full information, i.e. markets clear, each particular product is identical so there is no quality competition, and individuals have full information.

Now, of course, in the real world this is not true. Which is why, in looking at a question like this, Austrian models paint a more accurate picture. The market is a competitive process where individuals do not have full information and entrepreneurs compete on more than just price. This makes advertising necessary. For example, a hamburger sold on the market is going to differ from other hamburgers in regards to the grade of meat, toppings put on it, type of bread, etc. But the product is not only just the actual burger. The atmosphere of where you purchase it also matters, whether it is eaten at a restaurant or taken to go, the product is the whole package. Finding this information increases consumer satisfaction. Advertising helps consumers do this. Essentially, advertising entrepreneurs are picking up big bills on the sidewalk by matching the subjective preferences of consumers with what they desire but previously did not see.

If advertising is loud, big, and in your face it is only because it needs to be. We live an “affluent society.” Meaning a society were many, many opportunities are placed before consumers who must choose for themselves. Producers must fight to be heard over each other to get consumers the information they need to get the products they want.

If there is a distaste or moral repugnance to the advertising we receive, well it is our own fault. As Ludwig von Mises has noted, the consumer is king. The market is like an efficient democracy where each dollar is like a vote. In a free market, entrepreneurs would only provide the things consumers desire, this goes for advertising as well. H.L. Mencken once said democracy is the theory that people know what they want and deserve to get it, good and hard. And the market, as a democracy, is very good at doing just that.

Of course there will always be the cheats and the liars but in time the market will weed them out. For the market is a discovery process and advertising does play a vital role. So, we should raise our glasses of whiskey, or whatever we’re drinking, in thanks to the real life Donald Drapers of the world, for helping us find what we desire.

Download the Israel Kirzner lecture of Advertising here.

The government needs money to operate after all. and It has three options for financing, it can tax us, borrow, or print more money. But the latter two are just different forms of taxation. Borrowing is a future tax and inflation is a hidden tax because it lowers the value of each dollar we hold. So, taxation is how the government gets what it needs to pay for police, courts, national defense, welfare programs, the post office, infrastructure, schooling, college, creating jobs (like paying people to chase tumbleweeds on windy days during the great depression), inspect our food, employ individuals to collect the taxes, take censuses, etc. Money, after all, does not grow on trees (though our current fiat standard is made from trees).

Beyond taxes being our share of the governments activities, what exactly are they? According to Frank Chodorov, Taxation is Robbery! But is he right? Well if we look at it from a value free perspective, meaning we don’t look at it as good or bad but simply what it is, then it certainly does have a lot in common with theft. Both are transfers from A to B without the consent of A. Both also use coercion. A mugger who threatens to shoot or stab you for your money is coercing you into making the transfer. Similarly, just imagine what the government will do if you don’t pay your taxes.

Now a tax is simply a transfer but it also comes with additional costs. They give individuals the incentive to do less of what they normally do, creating a dead weight loss. Think of it this way, if a bully steals your milk money everyday, are you going to bring more, less, or the same for milk everyday? The dead weight loss is the milk given up due to the constant thieving by the bully. Similarly we do less of things when we are taxed. They also cause us to engage in new activities in order to avoid being taxed more. Just as we expend resources to avoid theft, like buying new lock for our door, we similarly expend resources to minimize how much the government takes, such as hiring a lawyer. This costs us billions of dollars a year. And these are resources that could have been put to other, more productive, uses!

Still, there is one remaining catch in order for taxation to really be theft: namely we must actually own the money. It’s not theft if it wasn’t yours in the first place. Some people in social democracies tend to believe the state is the ultimate owner of all property rights. This concept, of overlordship, hardly seems consistent with a free society, as Daniel Klein recently pointed out. Instead if we believe that we own ourselves and the fruits of our labor then, necessary or not, taxation is robbery!

Download Frank Chodorov’s Taxation is Robbery here.

The letter sees Wayne attempting for clarify his position. As he said in a letter to the US Senate in 1977, “I have studied the Treaty, and I support it based on my belief that America looks always to the future and that our people have demonstrated qualities of justice and reason for 200 years. That attitude has made our country a great Nation. The new Treaty modernizes an outmoded relation with a friendly and hospitable country. It also solves an international question with our other Latin American neighbors, and finally the Treaty protects and legitimates fundamental interests and desires of our Country.” He believed Reagan was completely wrong on the issue, as he said to Reagan in a letter, “Now I have taken your statement and I will show you point by goddamn point in the treaty where you are misinforming people. If you continue to make these erroneous remarks (I will) prove that you are not as thorough in your reviewing of this treaty as you say or are damned obtuse when it comes to reading the English language.”

The issue seems to be a difficult one as it was wrapped up in the usual political roadblocks. Buckley in his book on Reagan even claims Reagan privately supported the treaties. From the libertarian side Murray Rothbard wrote an article attacking the treaties called, the Treaty that Wall Street Wrote, attacking them as simply another instance of special privileges altering government action for their own gain.

Download the Letter from John Wayne to Leonard Read on January 30, 1978 here.

Even in spite of this, it is still amazing to see today’s document (which is difficult to read so I apologize), as it is difficult to think of a correspondence between two people more different on so many margins. The document is a letter from Bolshevik revolution leader Leon Trotsky to free market journalist Henry Hazlitt on November 12, 1931. The letter has Trotsky responding to Hazlitt’s request for an article meant for the Nation, which Hazlitt was managing editor. At the time Trotsky was in exile in Turkey. It was nine years before he was assassinated with an ice axe in Mexico.

Trotsky did publish one article in the Nation entitled “The French Revolution Has Begun!” in 1936. Whether this is the article discussed in the letter, however, is not certain. Still, Hazlitt publishing the work of an intellectual opponent is a good idea, particularly by someone of Trotsky’s reputation and standing. As, M. Uritsky, another Bolshevik revolution leader, once said, “Now that the great revolution has come one feels that however intelligent Lenin may be he begins to fade beside the genius of Trotsky.” The stronger the arguments for socialism that we can take down, the better chance we have for strengthening our ideas, which makes it more likely they will be understood by more individuals.

Another reason not to worry is that Austrian economics is particularly apt at arguing against the major flaws of socialism and communism. Mises had demonstrated the impossibility of socialism by 1920. And some 15 years after this letter, Hayek, in 1945 would show why Mises’s argument was still relevant for a not so pure form of socialism, such as the Soviet Union.

Download the Trotsky to Hazlitt Letter of November 12, 1931 here.

Or read the text here:

Kadikoy, Turkey

November 12, 1931

Mr. Henry Hazlitt,

Managing Editor, the Nation,

New York, N.Y.

Dear Mr. Hazlitt,

In reply to your letter of September 23^rd, can advise that I hope that I hope to deliver an article of the kind you want for the Nation, but this I cannot do at the present time.

Just now I am very busy completing the last chapters of the second volume of my “History of the Russian Revolution”, which I must finish by the 1^st or December of this year.

In January, if nothing interferes, you will receive my manuscript. I must warn you however, that I will write in Russian because I do not have anyone here who can translate it into English or American.

Very truly yours,

L. Trotsky

In reality, a voluntary society cannot be opened as a gift. Freedom is an outcome of a societal process where many individuals act and cooperate with one another. This requires a certain type of ideology, which the majority of it members must hold. We must learn to respect and uphold private property rights. We must learn that personal responsibility is important. Liberty is not something that can just be given. It must be understood and it must be wanted. We face many different competing views and so the supporters of a voluntary society must study and understand what a free society could be.

Today’s document will not likely bring the gift of a free society but it does contain a list of 100 hundred books F.A. “Baldy” Harper deemed worth studying for anyone wishing to understand the merits of a free society. It is Harper’s “A Bibliography on the Voluntary Society: 100 Selected Titles in Economics, History, and Philosophy.” Many of these books would make great gifts (some are even available free online) for ourselves and our friends, family, and even (and possibly more important) our intellectual opponents.

Harper collected these books in March of 1953. It is, of course, not comprehensive but it is quite impressive. As many of the great classical liberal economists are present from Frederic Bastiat, Eugen von Boehm-Bawerk, John Bates Clark, Fred Rogers Fairchild (one of the original founders of FEE), Frank Fetter, F.A. Hayek, Frank Knight, Carl Menger (which Harper spells his first name wrong, Karl was his son who was also a noted mathematician and economist), John Stuart Mill, Ludwig von Mises, David Ricardo, Lionel Robbins, J.B. Say, Henry Simons, Adam Smith, and Phillip Wicksteed, among many more!

It is probably safe to say that the more people who studied this list, the better off the world would be. Of course this list was made almost 60 years ago, so many more wonderful and important works have been done since. What important books do you think should be added? Let us know in the comments.

Download “Baldy” Harper’s A Bibliography on the Voluntary Society here.

As Israel Kirzner (who many can rightly claim to be the current dean of the Austrian school) illustrates well in his “History of the Austrian School” lecture every summer here at FEE (watch his 2009 lecture here), the Austrian school at about the time of FEE’s founding in 1946 was anything but the mainstream of economic thought. Sure Mises and Hayek were still putting out work, but as Kirzner says in his lecture “…books that no one was reading.” Economists at the time were following Paul Samuelson’s lead with the neo-classical synthesis, which stated that the classical school was correct in microeconomic issues but Keynesian economics was needed for macroeconomic issues, and the mathematical formulation of the discipline.

Kirzner is not completely right though; the work of Mises and Hayek was not completely unread. A small minority was still resisting the new trends of the economics of the 1940s and 1950s and this is in large part due to the work of organization’s like FEE. For a while FEE was the lone voice for these ideas and because of these efforts Austrian ideas are spreading. This, however, is all the more reason to work harder to make sure these ideas spread even further.

The Austrian school is part of the larger mainline of economic thought from Adam Smith, Carl Menger, Ludwig von Mises, F.A. Hayek, and to modern economists such as James Buchanan and Israel Kirzner. And this tradition is still moving forward and being written. Today’s document is a photo of a slightly younger Israel Kirzner giving a lecture (probably his history of Austrian economics lecture) in the historical FEE classroom in Irvington. He is writing Menger (for Carl Menger the founder of the Austrian tradition) followed by ….. Many great minds have helped contribute to the ideas of Austrian economics but this photo is a stark reminder that the best may still be yet to come. Who will be the next in the line of great Austrian economists? Who ever it is they, like many of the current Austrians today, may very likely get their start here at FEE.

Download the picture of Kirzner lecturing in the FEE classroom here.

As we can see, the tale of a coat displays three different ways one can transfer a coat from A, the person who has the coat, to B, the person who does not but is in ‘need’ of one. The first is through charity. Seeing how cold the individual in ‘need’ is the person with the coat voluntarily hands it over in an effort of kindness. The second is through theft. The person in ‘need’ uses coercion to transfer the coat from the person who has it to himself. And finally, the third is the use of the welfare state. Which, if we are being honest is no different from the previous method. Instead of the person in ‘need’ doing the stealing, a third party, namely the state, performs the redistribution, through coercion.

Morally libertarians and classical liberals find methods two and three to be of the same character. As Leonard Read once said, “…statism is but socialized dishonesty; it is feathering the nests of some with feathers coercively plucked from others—on the grand scale. There is no moral difference between the act of a pickpocket and the progressive income tax or any other social program.” But more importantly there is an economic lesson to be learned.

Economics is neither moral nor immoral. It can only tell us what is. An economist would look at the tale of a coat and say all three methods are simply ways of transferring the coat from A to B. But if our goal is a wealthier more prosperous society than the economist would tell you that both theft and the welfare state would hinder society from achieving this goal. Why? Incentives!

In a world where theft runs rampant no one would produce beyond subsistence because anything produced is likely to be taken. So, few would disagree that it is beneficial for society to prevent theft, which we do in many different ways. But, few see the same problem with the welfare state; but everyone should. Why work when what you work for will be taken from you to go to the ‘needy’? Why work when if you don’t things will be provided for you by the state anyway? But if no one produces everyone will suffer in the long run. This prisoner’s dilemma, or what Gordon Tullock called the Social dilemma, will create a society of dependence rather than production. Some societies may be wealthy enough to afford to engage in social welfare programs but by doing so they set themselves down a path of economic and moral decay. Theft is wrong no matter who performs it and it is wrong because it inevitably reduces social cooperation, which is essential for a prosperous society.

Download the Tale of the Coat Cartoon here.