Northwood University

In Defense of Capitalism & Human Progress

 

Thomas Pekitty’s Inequality Trap Distracts from the Real Issue of Freedom by Richard M. Ebeling

A new book by French economist Thomas Piketty on “Capital in the Twenty-First Century” has recently caused a major stir on the opinion pages of newspapers and magazines. Piketty has resurrected from the ash heap of history Karl Marx’s claim that capitalism inescapably leads to a worsening unequal distribution of wealth with dangerous consequences for human society.

Not that Professor Piketty is a Marxist in the traditional sense of believing that mankind follows a preordained trajectory through history that inevitably leads to a worldly utopia called socialism or communism. To the contrary, he believes that capitalism is a wondrously efficient economic system that produces more and better goods and services.

Seeing Income Inequality as a Social Danger

What morally irks him is the inequality of income and wealth that he believes the capitalist economy results in, and may continue to make worse looking to the years ahead. He admits that for a long time in the twentieth century income inequality had considerably diminished between “the rich” and the rest of society. The middle class grew with more people moving out of poverty in the Western nations of Europe and America, and middle class incomes were rising at a more rapid rate than upper income levels were increasing.

But he believes that an array of statistical data strongly suggests that this has been changing over the last several decades. Middle class incomes are now rising much more slowly relative to the increases in the higher income brackets.  Piketty considers that this is likely to continue into the foreseeable future with the wealth of the society more and more concentrated in fewer and fewer hands at the expense of the middle and low income groups in society, as Karl Marx prophesied.

It is not surprising, therefore, that Piketty entitled his book, “Capital in the Twenty-First Century,” because Karl Marx’s major work in the nineteenth century was called “Capital,” and Piketty is offering what some are calling a twenty-first century update of Marx’s prediction that capitalism would make a few in society richer and richer as the many became relatively less well-off in comparison to them.

He even does part of his calculations to justify this assessment with an implicit variation on Marx’s labor theory of value.  He argues that it is fairly easy to determine the productivity and therefore worth of a common laborer such as an assembly line worker or a server in a fast-food establishment. So much additional labor time and effort “in,” and so much additional valued physical production “out.”

But he argues that there is no equivalent way to objectively measure and justify the stratospheric salaries and bonuses of bankers, financiers, and giant corporate CEOs or high-placed executive managers. Since he thinks there is no way to measure the productivity of such multi-millionaire earners in society, then it must necessarily follow that their salaries and wealth positions in society can in no way be justified.

Hence, the incomes of such rich members of society should be considered as arbitrary and unjust. Since it cannot be demonstrated that they earned it through a measurable contribution to the “social” processes of production, it must be viewed as unfair that they be allowed to keep it.

Taxing Away Wealth as an End in Itself

His economic policy conclusions necessarily follow from his diagnose of the “social malady” of income inequality. Incomes above $500,000 or a million dollars should be taxed at 80 percent, and those incomes between $200,000 and $500,000 should be taxed at 50-60 percent. In addition, he proposes an annual wealth tax of 10 percent precisely to prevent any further concentrated wealth accumulations looking to the future.

Clearly, once such a tax regime was imposed not much extra revenue would come from it, because after the first few years there would no longer be many in those higher income brackets; and hardly anyone any longer would have any motive to try to reach that income level since they would know it was going to be all taxed away if they were to succeed in acquiring it.

But that’s the point for Piketty. It is not that he hopes to create a perpetual redistribution machine with million-dollar and multi-million dollar incomes earned each year just waiting to be tax away and transferred by government to presumably more deserving lower-income members of society. Its purpose, instead, is to prevent there ever being such high incomes.

For instance, if one man is making one million dollars, while 100 men are each making, say, around $40,000 a year, the millionaire’s income is 25 times that of the middle class income earners. However, if any million-dollar income earner had 80 percent of what he earned taxed away, then his after-tax income of $200,000 only would be five times as great as the middle-income earner.  Hence, the income inequality gap will have been greatly reduced.

One senses that it is not so much that Piketty wishes to raise the lower and middle-income earners up (though, of course, he would like to see that happen), as he wants to pull down those whom he considers to be receiving far more than he thinks can be fairly or objectively justified.

So it is not so much to take from Peter to give to Paul, as it is to pull Peter down closer to Paul’s level, and prevent Peter from ever again rising significantly above Paul’s average economic earnings. It is a psychology of envy and an ideology of egalitarianism vengefully at work.

I would like to suggest that there are some fundamental misconceptions and errors in Thomas Peketty’s understanding of the nature and workings of a free market capitalist system.

Income Earned is Not an Arbitrary Process

To begin with, he falls into the all-to-frequent conceptual mistake of thinking that the “production” aspect of the market process is independent of or at least separable from the “distribution” of what is produced.

This is an old mistake that goes at least as far back as the mid-nineteenth century British economist, John Stuart Mill.  In his 1848, “Principles of Political Economy” Mill argued that the “laws” of production are more or less as fixed and unchangeable as the laws of nature, but the “laws” of distribution were a matter of the cultural and ethical values of a society at any moment in time.

This view conceives of total output as a large quantity of “stuff” produced by “society,” which then can be ladled out of the community production pot in any manner that “society” considers “good” and “right” and “deserving” to each of the members of that society.

Now in fairness neither John Stuart Mill nor Thomas Piketty believed that the level and amount of taxes did not affect people’s willingness to work and produce all that “stuff.” But Piketty certainly believes that since the multi-million dollar incomes earned by “the few” are not in any way rationally or objectively tied to an individuals’ actual measurable productivity, a lot of it can be taxed away without any significant reduction in those people’s willingness, interest, or ability to go about their work.

Firstly, it must be remembered “society” does not produce “stuff,” and for the simple reason that there is no entity or thinking and acting “being” called “society.”

Everything that is produced is done so by individuals either working on their own or as the result of associative collaboration with others, as is more commonly the case in a complex market system of division of labor.

Entrepreneurial Profit and Executive Pay are Not Irrational

Secondly, what is produced does not just happen and the amount of production does not just, somehow, automatically grow year-after-year. A good portion of that seemingly immeasurable value that is reflected in those higher incomes that bothers Piketty so much is the result of entrepreneurial creativity, innovation and a capacity to better “read the tea-leaves” in anticipating the future directions and forms of consumer demands in the marketplace.

What to produce, how to produce, and where and when to produce are creative acts of a human mind in a world of uncertain and continuous change. As the Austrian economist, Ludwig von Mises, once expressed it, “An enterprise without entrepreneurial spirit and creativity, however, is nothing more than a pile of rubbish and old iron.”

The market gives a clear and “objective” measure of what the achievements of an entrepreneur are worth: Did he succeed in earning a profit or did he suffer a loss? In an open, free competitive market, an entrepreneur must successfully demonstrate this capability each and every day, and better than his rivals who are also attempting to gain a part of the consumer’s business. If he fails to do so the profits he may have earned yesterday become losses suffered tomorrow.

Not every high-income earner, of course, is an entrepreneur in this sense. The market also rewards people who have the skills, abilities and talents to perform various tasks that enterprises need and consumers’ desire.

Again, in an open and competitive free market, no one is paid more than some employer or consumer thinks their services are worth. The executive manager, whether in the manufacturing or financial sectors, for instance, is only offered the salary he receives because others value his services enough to outbid some competing employer also desiring to hire him for a job to be done.

The Tax Code Distorts the Workings of the Market

Piketty’s proposed penalties on earnable salaries through confiscatory or near confiscatory taxes can only be viewed as a form of a maximum wage control. That is, a ceiling above which the incentive for people to search out for higher paying salaries is greatly diminished due to the 80 percent tax rate on anything earned above the Piketty-specified income thresholds.

But how shall these individuals’ valuable and scarce human labor skills and abilities be allocated among their alternative executive employments in the business world if the government uses its tax code to distort the market price system for workers?

It will threaten, over time, to result in mismatches between where the market thinks people should most effectively be employed to help properly guide enterprise activities and the actual places where some of these rare talents actually find themselves working. As with any mismatch between supply and demand, consumer demands and production efficiencies will be less satisfactorily fulfilled.

If such a confiscatory range of tax rates were to be employed, it should not be surprising to see the people in the market attempting to get around the government’s interference with wage determination via the tax code.

In the 1960s and 1970s, Great Britain was considered to be the “sick man of Europe” due to it anemic economic performance. One of the reasons was the extremely high tax rates on corporate and executive salaries that resulted in a British “brain drain” as some of the “best and the brightest” in business moved to the United States and a few other places where the tax penalty for their success was noticeably less than in their home country.

To get around the implicit “wage ceiling” under the tax code, British companies kept or attracted the executive talent they needed through “in-kind” additions to their money salaries. Companies would provide valued executives with high-end luxury automobiles for their own use, or give them company paid-for luxury apartments in the choice areas of London, or allowed them very liberal expense accounts on which many personal purchases could be made under the rationale that they were in some loose way business-related. These companies would then write off all these expenses from their corporate income taxes.

The Price System and a Rational Use of People’s Skills

The market economy has a steering mechanism: the price system. Through prices consumers inform businesses what goods and services they might be interested in buying and the value they would place on getting them. The prices for what the economist loosely calls “the factors of production” – land, labor, capital, resources and raw materials – inform those same businesses what other enterprises think those factors of production are worth in producing and bringing to market the various alternative goods the consuming public wants.

The prices offered and paid for the ordinary assembly line workers or the senior corporate managers are not arbitrary or “irrational.” Given their respective skills, abilities and talents to perform tasks they are paid what others think they are worth to do the job. If it turns out that this was a misestimate, those salaried workers in the “higher” or “lower” position will either be let go and have their wage revised down to what is now considered to be their more reasonable worth.

Whether it be formal price and wage controls that freeze the price system into what politicians and bureaucrats think people should be paid, or a tax code that discriminates against and penalizes threshold levels of success as well as the everyday incentives and ability to work, saving and investment, such policies slowly grind the market economy down, if not to a halt, then into directions and patterns of supply and demand significantly different from what a truly free enterprise could and would generate.

In a recent interview Thomas Piketty said that he had no formula to determine how much is too much in terms of “socially necessary” inequality. But he considered a variety of multi-million and multi-billion dollar wealth positions to be socially unnecessary and harmful.

Viewing the Individual as Owned and Used by the Collective

Notice his phrasing and the mindset that it implies. The society, the community, the tribe is presumed to own the individual and collectively decide how much the material “carrot” should be in terms of unequal incomes that may be “necessary” to induce people to be productive or innovative “enough.”

Enough for what? To make the communal economic pie grow at a rate that he and others like himself may think is the “optimal” amount – not “too much” and not “too little” – from out of which the government will then decide what “share” each will receive.

On the basis of what standard all of this will be determined, he clearly admits he has no clue, other than what he may subjectively think is “right” or “just” or “fair.” Like the difficulty of offering an objective definition of pornography, he just knows it when he sees it.

We have already seen to where this leads in modern democratic society. It is a mutual plunder land of individuals and special interest groups rationalizing every tax, redistribution, and regulation to serve their own purposes at the expense of others who are forced to directly or indirectly foot the bill through the use of government power.

A Society of Peaceful Production or Political Plunder

This gets us, perhaps, to an understanding of from where unjust and unfair inequality can arise. It is precisely when the political system is used to rig the game so as to manipulate the outcomes inside and outside of the market. It suggests the basis for conceiving of a non-Marxist notion of potential group or “class” conflict in society.

A French classical liberal named Charles Dunoyer (1786-1862) explained this long ago in the early nineteenth century. In an article published in 1817, Dunoyer distinguished between two groups in society. One of them he called the “Nation of Industrious Peoples” and the other are those who wish to use government to live at the expense of peaceful and productive others.

“The Nation of Industrious Peoples” Dunoyer said, is made up of “farmers, merchants, manufacturers, and scholars, the industrious people of all classes and all nations. In the other, there are the major portions of all the old and new aristocracies of Europe, office holders and professional soldiers, the ambitious do-nothings of all ranks and all nations who demand to be enriched and advanced at the expense of those who labor.”

“The aim of the first, Dunoyer went on to say, “is to extirpate from Europe the three scourges of war, despotism and monopoly, to ensure that men of every nation may freely exercise their labors, and, finally, to establish forms of government most able to guarantee these advantages at the least cost. The unique object of the second is to exercise power, to exercise it with greatest possible safety and profit, and, thus, to maintain war, despotism and monopoly.”

In other words, Dunoyer was saying that society is composed of one set of people who diligently work and conscientiously save and who honestly produce and peacefully trade; and there is another set of people who wish to acquire and consume what others have saved and produced. The latter group acquires the wealth produced by those others through political means – taxation, regulation, and government-bestowed privileges that interfere with the competitive free market. This source of injustice, and exploitation is the same in every country.

The Plunder Land of Modern Democratic Politics

In our own times, those who want “to be enriched and advanced at the expense of those who labor” are, of course, the welfare statists, the economic interventionists, and the proponents and supporters of every other form of collectivism.

They are the crony-capitalists who use their influence with political power to obtain subsidies, regulations limiting competition, and bailouts and profit-guarantees at the expense of the taxpayers, their potential rivals who are locked out of markets, and the consumers who end up paying more and having fewer choices than if the market was free and competitive.

They are the swarm of locust-like lobbyists who lucratively exist for only one purpose: to gain for the special interest clients who handsomely pay them large portions of the wealth and income of those taxpayers and producers whose peaceful and productive efforts are the only source of the privileges and favors the plunderers wish to obtain.

They are the political class of career politicians and entrenched bureaucrats who have incomes, wealth and positions simply due to their control of the levers of government power; power they gives them control over the success or failure, the life and death of every honest, hardworking and peaceful and productive worker, businessman, and citizen, and who are squeezed to feed the financial trough at which the political plunders gorge themselves.

Regulated markets help preserve the wealth of the politically connected and hinders the opportunities of the potentially productive and innovative from rising up and out of a lower income or even poverty. Wealth and position may not be completely frozen, but it is rigidified to the extent to which it is politically secured and protected from open competition.

Welfare dependency locks people into a social status of living off what the government redistributes to them from the income and wealth of others, and makes escape from this modern-day pauperism difficult and costly. An underclass of intergenerational poverty is created, that reduces upward mobility and makes improvement difficult for those caught in this trap; at the same time it serves the interests of those in political power who justify their position and role as the needed caretakers of those whose dependency they live off.

Most of Human History Based on Plundered Inequality

For most of human history, those with certain inherited endowments and developed skills used their superior physical strength and mental agility to conquer, kill, plunder and enslave their fellow men. Whatever meager wealth may have been produced during those thousands of years ended up concentrated in the hands of the few through coercion and political cunning.

There was little justice in a world in which the “strong” stole from and controlled the “weak.” But slowly men began to revolt against this “unnatural” inequality under which what some had produced was forcefully taken by a handful of powerful others.

Against this imposed system of political and wealth inequality slowly developed a counter conception of a just and good society. Its hallmark was a call for a new vision of man and society based on the alternative notion of individual rights equally respected and enforced for all, rather than privileges and favors for some at the expense of the rest.

A New Society of Equal Individual Rights Before the Law

In a political system under which individuals had the same equal rights to their life, liberty, and honestly acquired property, each person could then rise to his own level based on his natural abilities and those he had acquired through experience and determination.

The outcomes and positions that individuals reached would inevitably and inescapably be different – unequal in terms of material and social achievement. But if some men earned and accumulated more wealth than others, its bases would be peaceful production and free trade.

In such a world of freedom and rights, some men’s skills and abilities would not have given them materially more successful positions through plunder and privilege; but instead it would be as the result of creatively producing and offering for sale in the marketplace what others may wish to buy, as the method through which each non-violently pursued his own self-interest.

If it were possible to give any reasonable meaning to the ambiguous and manipulated phrase, “social justice,” it would be:

Are the material differences among members of a society the result of the peaceful and voluntary associations and trades among individuals on an open and competitive free market? Or are the material inequalities coming from the use of political power to coercively obtain by taxation, regulation and forced redistribution what the recipients had not been able to obtain through mutually beneficial agreement with their fellow men?

The Appropriate Question is: Wealth from Production or Politics?

The only important and relevant ethical and political issue in a free society should be: How has the individual earned and accumulated his material wealth? Has he done so through peaceful production and exchange or through government-assisted plunder and privilege?

Rather than asking the source or origin of that accumulated wealth  – production or plunder –the egalitarians like Thomas Piketty merely see that some have more wealth than others and condemn such an “unequal distribution,” in itself.

By doing so, they punish through government taxation and wealth confiscation the “innocent” as well as the “guilty.” This, surely, represents an especially perverse inequality of treatment among the citizenry of the country, especially since those who have obtained their ill-gotten gains through the political process usually know how to work their way through the labyrinth of the tax code and the regulatory procedures to see that they keep what they have unethically acquired.

The modern egalitarians like Thomas Piketty are locked into a pre-capitalist mindset when, indeed, accumulated wealth was most often the product of theft, murder, and deception. They, and the socialists who came before them, seemingly find it impossible to understand that classical liberalism and free market capitalism frees production and wealth from political power.

And that any income and wealth inequalities in a truly free market society are the inequalities that inescapably emerge from the natural diversities among human beings, and their different capacities in serving the ends of others in the peaceful competitive process as the means to improve their own individual circumstances.

 

The Lower Cost of a Truly Limited Government by Richard M. Ebeling

A demonstration of just how far the United States has moved from its original founding principles is seen in the fact that in all the jousting over ObamaCare, the general rise in “entitlement” spending, and the burden of government regulation over American enterprises, there is one question that seems rarely to be asked: What should be the size and scope of government, and what would it cost if government were cut down more to the size delineated in the original Constitution?

Whenever, occasionally, this question is asked, the answer seems to be very far from what the Founding Fathers had in mind, if one is in anyway familiar with their conception of limited government and individual liberty.

Thinking the Clinton Years were “Limited Government”

For example, in 2012 two books appeared by “conservative,” free market-oriented economists who were clearly trying to influence the terms of the political debate during that presidential election year.

They were, First Principles: Five Keys to Restoring America’s Prosperity by John B. Taylor and Why Capitalism? by Allan H. Meltzer. John Taylor is a professor of economics at Stanford University and a highly regarded monetary theorist who is generally critical of Keynesian “activist” fiscal and central banking policy. He served in President George W. Bush’s Council of Economic Advisors and as Treasury Undersecretary for International Affairs.

Allan Meltzer is a professor of political economy at Carnegie Mellon University, and an internationally acclaimed expert on the history of the Federal Reserve, as well as one of America’s leading monetary theorists who, also, has long been critical of “easy money” policies by America’s central bank.

They both believe strongly in the value and importance of a competitive economic system that fosters entrepreneurship, innovation, and rising standards of living. They also don’t think that government has the knowledge, wisdom or ability to direct a complex market order.

Their books contain insightful and wise analysis of how and why America has gotten into its present dismal situation. Plus, as “insiders” in the halls of Washington, D.C. at one time or another, they have many interesting examples of the manipulation, corruption and inefficiencies to be found in American politics.

So what, in their views, should the current size of government be cut back to? Since they were both writing “political” books in an election year, perhaps they were fearful of seeming to be too “radical” in a more limited government direction. But the fact is that for both of them it seems that getting government cut down to its dimensions during the 1980s and 1990s would more or less set everything straight.

For many of us who lived in the 1990s during the presidencies of the older Bush and then Bill Clinton, however, government taxing, spending, and regulating all seemed to be far too high and extensive, given an older conception of what a free America could and should be like.

In other words, two prominent and respected market-oriented economists made the case for using as a benchmark of having a freer America the interventionist-welfare state of merely twenty years ago.

A More Reasonable Benchmark for Judging “Big Government”

So from a more clearly classical liberal perspective, what might be used as a more reasonable standard or benchmark of a limited government and freer market society in judging the size and scope of government today?

The first edition of The World Almanac was published in 1868. The entire federal government fit on one page in that first edition; half of that page was taken up with listing the names of the U.S. ambassadors to foreign countries.

The executive branch of the federal government included only seven departments: Treasury, State, War, Navy, Interior, Attorney General, and the Postmaster General. And this was after the significant growth in the federal government during the recently fought American Civil War (1861-1865)!

Today, the listing of all departments, bureaus and agencies of the federal government takes up at least seven or eight pages of very small print in The World Almanac. The administrative units of the federal government that regulate, control, supervise, plan and oversee virtually every aspect of American life now number in the hundreds. The United States government has sometimes been portrayed as a giant octopus whose numerous tentacles are wrapped around everything that any American does in the market, social, or personal spheres of life.

The Cost of a More Constitutionally Downsized Government

Let us suppose that government were to be “downsized” to what it was in 1868, as listed in that first edition of The World Almanac.  What would be the cost of government and the tax burden on the American citizenry? In making such an estimate, let us recall that the departments of war and the navy are now part of one Department of Defense. Let us also presume that the government’s post office monopoly is abolished and all forms of mail delivery are fully left to private competitive enterprise, so there is no longer a Postmaster General.

That would leave five executive level departments comprising the entire federal government: defense, justice, interior, treasury, and state.  In terms of their combined expenditures in 2013, together the cost of the federal government would come to about $900 billion, if that was all for which Washington was responsible.

Of course, this presumes that in a more limited government America, the current activities of these departments would not be radically reduced to be more consistent with the “original intent” of the Founding Fathers in the Constitution.

If we add the interest paid on the national debt in 2013 ($233 billion) to the cost of this smaller government, the total then would be $1.1 trillion, or less than one-third of what the federal government actually spent in fiscal year 2013.

The Washington spent over $28,200 per American household in 2013. If government were to be reduced to its 1868 size, that dollar spending per household would shrink to $9,800.

Approximately 140 million Americans filed tax returns in 2012. Median household income in 2013 was about $51,000. If the current progressive income tax were transformed into a flat income tax with a rate of about 16 percent, then the average tax burden per taxpayer would be around $8,000. (Repeal of the federal income tax might also be introduced at some point, of course!)

Plus, there would be no budget deficit, and no other taxes of any sort would have to be imposed to cover the costs of running this very much smaller federal government.

Limited Government Means Ending the Welfare State

Of course, the first reaction to these numbers is, no doubt: But what happens to all that other government spending, especially the “entitlement” programs (Social Security and Medicare, in particular) that in the 2013 fiscal year ate up about 50 percent of the government’s nearly $3.5 trillion of total spending?

Clearly, these programs would have to be phased out, privatized, “denationalized,” removed from the controlling and redistributing hands of government. Even if there were the political will to move in that direction, it would no doubt take some time to remove them from the functions of a truly constitutionally limited federal government.

But the point of this seemingly unrealistic exercise is precisely to mark off that point on the political horizon that should be the goal towards which friends of freedom should want to see America move.

This may seem terribly “fantastic” to many in America today. How could government ever be, well, that small?

In fact it was, and only one hundred years ago. In 1913, the year before the beginning of the First World War and the introduction of the federal income tax amendment to the Constitution, all levels of government – federal, state, and local – taxed less than 8 percent of the country’s Gross Domestic Product. In other words, 92 percent of all income received remained in the hands of those who had earned it in the private sector market place.

There was no welfare state, no “entitlement” programs. Americans took it for granted that helping those who had fallen on “hard times,” and who were in “need” and “deserving” of such assistance would receive it through private philanthropy and voluntary community charity. A careful reading of the history of that earlier time shows that the private benevolence of free individuals worked very well.

Freedom Means the “Let-Alone Principle”

It is also worth recalling that there was a time when most Americans did not think that government was supposed to be responsible for them. The vast majority of Americans viewed themselves as self–governing and self-responsible individuals.

Simon Newcomb (1835-1909) was a prominent American astronomer and noted free market economist who taught at Johns Hopkins University in the second half of the nineteenth century. In 1870, he published an article in which he summarized what he took to be the common-sense ideal of what he called, “The Let-Alone Principle.” Newcomb said:

“That each individual member of society should be left free to seek his own good in the way he may deem best, and required only not to interfere with the equal rights of his fellowmen . . .

“The let-alone principle may be regarded either as a declaration of rights or as a maxim of political policy. In the first case, the principle declares that society has not the right to prevent an individual who is capable of taking care of himself from seeking his own good in the way he deems best, so long as he does not infringe on the rights of his fellowmen.

“In the second case, the principle forms the basis of a certain theory of governmental policy, according to which the political system is most conducive to the public good in which the rightful liberty of the individual is least abridged . . .

“It needs only a consideration of first principles to make it plain that the main object of government is the protection of minorities, especially those most powerless minorities, individuals . . . It makes little difference to the minority or to any particular individual whether [his] rights are disregarded by a despot, a highwayman, or a majority of his fellow-citizens, wielding the powers of government . . .

“The real point in dispute between the friends and the opponents of free government and individual liberty is simply this: Is man a being to be taken care of, or is he able when protected in his rights to take care of himself better than any governing power – congress, king, or parliament – can take care of him? The advocates of universal freedom claim that, if each individual is protected in the enjoyment of his individual rights as a responsible member of the community, he can take care of himself, and manage his own affairs and his share of the public affairs better than any other one else can do these for him.”

Simon Newcomb added that government “interference is so apt to lead to unforeseen complications, – that the best course for a government to follow is, to adhere to the let-alone policy as a matter of principle.”

Losing Sight of the Value of Self-Responsible Freedom

The danger, therefore, was drifting into the false and dangerous belief that individuals could not and should not be self-responsible, and that government could and should take paternalistic responsibility for people, instead.

Another prominent American free market economist who expressed this in the late nineteenth century was J. Laurence Laughlin (1850-1933), who founded the economics department at the University of Chicago. In 1887, Laughlin warned:

“Socialism, or the reliance on the state for help, stands in antagonism to self-help, or the activity of the individual. That body of people is certainly the strongest and the happiest in which each person is thinking for himself, is independent, self-respecting, self-confident, self-controlled, and self-mastered. When a man does a thing for himself he values it infinitely more than if it is done for him, and he is a better man for having done it . . .

“If, on the other hand, men constantly hear it said that they are oppressed and down-trodden, deprived of their own, ground down by the rich, and that the state will set all things right for them in time, what other effect can that teaching have on the character and energy of the ignorant than the complete destruction of all self-help? They think that they can have commodities that they have not helped to produce. They begin to believe that two and two make five . . .

“The danger of enervating results flowing from dependence on the state for help should cause us to restrict the interference of legislation as far as is possible, and should be permitted only when there is an absolute necessity, and even then it should be undertaken with hesitation.”

Laughlin added, “The right policy is a matter of supreme importance, and we should not like to see in our country the system of interference as exhibited in the paternal theory of government existing in France and Germany.”

Unfortunately, America did import the theory and policy of political paternalism from the collectivist trends then growing stronger in the late nineteenth and early twentieth centuries in Europe. They became the basis and rationale for a far bigger government in the United States beginning in the Progressive Era in the early decades of the twentieth century and accelerating in the New Deal days of the Roosevelt administration in the 1930s.They have continued ever since, up to our own time, under both Democrats and Republicans.

But the ideological wind is out of the sails of the interventionist welfare state. It continues to exist in America and indeed around the world not because most people really believe that government can solve all their ills and make a paradise on earth, but more out of pure political inertia due to a lack of rightly reasoned principles for a rebirth of a philosophy of individual rights that would logically lead to and necessitate a truly limited government.

Our task, however daunting it may seem at times, is to offer a new vision of a free society grounded in the concept of individual rights that can once again capture the excitement and confidence of our fellow citizens. When that is accomplished the size and cost of government, over time, will be reduced accordingly. And Americans will live in and value a far freer and more prosperous country.

 

 

 

Why Government Grows, and How to Reverse It by Richard M. Ebeling

Regardless of where someone may view himself along the political spectrum (conservative, libertarian, or modern liberal), there are always a variety of government programs and activities that they either think are not worth the money or should not be the business of government in the first place. Yet, it seems almost impossible to rein in government. It keeps growing in size and scope in one direction after another. Why? And is there any way to reverse it?

Increasing Government Spending and Taxing

The federal government keeps getting bigger and more intrusive and more costly. In the 2013 fiscal year that ended on September 30, 2013, Washington spent a bit more than $3.4 trillion. This compares (in inflation-adjusted 2013 dollars) with 2.1 trillion in 1993. In other words federal spending has increased by 62 percent over the last twenty years.

The same dramatic growth has occurred on the revenue side. The federal government took in about $2.8 trillion in taxes in fiscal 2013, compared to $1.7 trillion in 1993 (in 2013 inflation-adjusted dollars), for a 65 percent increase in government revenues compared to two decades ago.

This increase in expenditures and revenues over the last twenty years is reflected in the tax burden on the American people. The average household paid $28,205 in taxes to the federal government in 2013, up from $22,230 (in inflation-adjusted 2013 dollars) in 1993, or a 27 percent increase in twenty years. While the population of the country has increased by around 22 percent during this time period, per capita federal government spending has risen by 33 percent.

Both “entitlement” spending (Social Security, Medicare) and “discretionary” spending (including defense) have significantly increased over these two decades. Discretionary spending went up about 50 percent over this period, while entitlement spending rose by 100 percent.

Special Interests and the Growth in Government

According to “public choice” theory, this growth in government transcends the political differences in modern democratic society. Rather, it is structured into the existing political system itself.

Public choice theorists are economists who argue that the political process should be studied in the same manner as markets are analyzed. Over the last several decades, they have attempted to explain the factors behind the growth of government in modern democratic society. They say that individuals in the political arena are motivated by self-interested goals (which can include ideological or ethical ends, as well as financial gains).

This self-interest prompts individuals and “special interest” pressure groups to weigh the costs and the benefits in deciding to be for or against various government policies; and they attempt to influence political outcomes through their votes, their campaign contributions, and their lobbying expenditures.

Their goal to obtain through either government regulations or income redistribution what they cannot or do not want to peacefully and voluntarily acquire on the open, competitive market: other people’s money.

Rather than earning the revenues or income they desire by offering the consuming public more, better and less expensive products, they turn to government to get anti-competitive domestic regulations, import restrictions against foreign rivals, or subsidies or government contracts to acquire the additional wealth they want – all at taxpayers’ and consumers’ expense, of course.

If they are “non-profits” such as many environmental groups, they turn to government to restrict people’s use of their own private property through land use prohibitions or regulations, or through government control and ownership of land and wildlife they want preserved from private access and development. Unable to persuade enough of their fellow citizens to voluntarily contribute sufficient money to buy up and maintain the land they wish “untouched by man,” they turn to the coercive power of government to get what they want through taxes and regulations.

Politicians, Bureaucrats and the Growth in Government

Politicians, on the other hand, desire to be elected and reelected. They gain political office by “selling” programs, regulations, and spending taxpayer dollars for the benefit of various constituent groups whose campaign contributions and votes they hope to receive.

Why do they want to be elected or reelected? So they can impose on the citizenry – both supporters and those who may have voted against them – programs and spending and taxing that they arrogantly presume to be good for “the people,” under the presumption that they know what is good for others; and which those others would want of their own free will if only they were intelligent enough to have the wisdom and values that those holding political office believe they possess.

Of course, sometimes the desire for political office arises out of pure personal ambition, including the desire to “leave their mark on history,” their “legacy” that future generations of little children will learn about in government schools. And, sometimes, it is the simple desire for power over others, and any material wealth that can come their way through political plunder and manipulation.

Those who run the government bureaucracies desire larger budgets and greater administrative responsibilities over economic and social affairs. They hope to gain promotions, higher salaries, and more control through discretionary decision-making.

Larger budgets and expanded regulatory authority opens the door to promotions and higher salaries in the government pay grades. In addition, some of those in the government departments, bureaus, and agencies suffer from the “psychology of the petty bureaucrat” who craves power over others; others who deferentially have to come to them and plead for the regulatory and licensing permissions without which the honest men of the market place cannot go about their productive business.

Bureaucrat’s Incentive to Never Get the Job Done

There is also a perverse incentive mechanism within the halls of bureaucratic power. Those who manage and work in these government departments and agencies have little or no incentive to “solve” the problems for which their department or agency was originally created. If they do so they lose the rationale for maintenance of or increase in the budgets and authority without which they have neither their incomes nor positions.

This stands in stark contrast to the incentives for the private enterpriser in the competitive market. In the free market there is only one way to gain and retain the consumer business from whose purchases market-base enterprises earn their revenues: to solve people’s problems.

It may be a tastier coffee or frozen dinner; or a more wrinkle-free shirt or suit; or a longer-lasting chewing gum; or better fitting and lighter wearing prescription eye glasses; or a better quality and less expensive private education; or a wider covering and lower premium car insurance or health insurance policy. Whatever it may be, in the voluntary free market attracting customers and winning their repeat business requires private enterprisers to make people’s lives easier, more comfortable and less expensive.

There are no such incentives within the government bureaucracies, in which the “servants of the people” have monopoly control over certain services and regulatory rules and permissions. In addition, they acquire their incomes not through voluntary transactions but through compulsory taxation.

If this is the crude, but no less true reality behind the “public interest” and “general welfare” political rhetoric and ideology with which those in political power attempt to mesmerize citizens and taxpayers, then why, once it is understood, does the governmental system of paternalism and plunder persist?

Concentration of Benefits, Diffusion of Burdens

One of the core ideas of the public choice theorists is that there is a bias toward growth in government spending and redistribution that results from the pattern of a “concentration of benefits and a diffusion of burdens.” The logic of this process was actually explained more than a century ago, in 1896, by the famous Italian economist and sociologist Vilfredo Pareto.

Imagine that in a country of 30 million people, the government proposes to tax each citizen $1 more, and then redistribute the extra $30 million among a special interest group of 30 individuals. Each taxpayer will have one extra dollar taken away from them by the government for the year, while each of the 30 recipients of this wealth transfer will annually gain an extra one million dollars.

Pareto suggested that the 30 recipients would collectively have a strong incentive to lobby, influence, and even corruptly “buy” the votes of the politicians able to pass this redistributive legislation. Each individual taxpayer, on the other hand, will have little incentive to spend the time and effort to counter-lobby, influence, and petition members of the legislature merely to save one dollar off his or her tax bill.

Let’s look at the U.S. federal government’s budget. In 2013, the per capita amount of government expenditures was around $11,000 for every man, woman and child. Not everyone, of course, pays taxes. The average taxpayer burden of government spending in 2013 came to around $26,000. However, the cost of each of the government departments and bureaus and the specific line items in their respective budgets was only a fraction of the overall tax burden.

Big Government Spending, Individual’s Tax Burdens

Suppose a “conservative” is critical of the Department of Education, thinking that many of its activities are misplaced, or perhaps that the whole department should be abolished. While the Department of Education spent nearly $72 billion last year, the average taxpayer only shoulder $522 of this expense or on average only $43.50 in monthly taxes, which came to around $1.45 a day. This is far less than a latte at Starbucks or a lunch meal at a fast food establishment.

In most instances, it would be hard to interest a member of the general taxpaying public to learn enough about the pros and cons of the actual programs run by the Department of Education for him to make an informed decision as to whether nor not what the Education Department was doing was really worth it. After all, even if the Department of Education was abolished, it would save the average taxpayer less than two dollars a day, assuming taxes were cut by the full amount.

On the other hand, that $72 billion is concentrated on the incomes and activities of, at most, several hundreds of thousands of teachers, educators, school administrators, and textbook and school-supply providers. Those federal dollars represent a sizable portion of their administrative budgets, take-home pay, and business profits. The lobbying and voting incentives, therefore, will be heavily on the side of those who see financial and related gains from continuing and increasing federal spending on government-funded education.

Someone on the “liberal” side of the political spectrum might be equally critical of some of the line item spending in the Department of Defense budget, or on subsidies to corporate agri-businesses funded by the Department of Agriculture. But the same bias would work in these areas of government activity, as well, making it difficult to create the necessary political counterweights to lobby for the reduction or elimination of these federal programs.

The Defense Department’s spending on warplanes and battleships, uniforms and boots, ammunition and weaponry, spying devices and unmanned drones represents hundreds of millions, sometimes billions of dollars to the various contractors who win and fulfill these military contracts. They have a strong incentive to lobby and influence for the greatest amount of defense-related spending, and to know every detail and potential rationale to demonstrate that such expenditures are in the “national interest” and why they are the right ones to get the taxpayer-funded procurement deals.

But how many taxpayers will have the motive and incentive to wade through all the (unclassified) details concerning the various parts of Defense Department spending to make an informed decision about how much defense spending America needs and of what type, considering that even if some programs were to be cut back or eliminated it would maybe result in a cut in his personal taxes by the equivalent of a few dollars a day. For most individual citizens their time and attention have a higher value in doing other things.

Because of this, government tends to grow in many directions in the form of concentrated benefits for special interest groups of all types at the expense of the general citizenry and taxpayers. The dispersed financial burden that falls on each taxpayer as his “contribution” to fund these programs nonetheless adds up, of course, to hundreds of billions, indeed trillions, of dollars a year of government spending.

Division of Labor and the Bias Toward Producer Interests

Since the time of Adam Smith in the eighteenth century, economists have emphasized the productive benefits from specialization through the division of labor. Each of us will be materially far better off if we specialize in what we are relatively more productive at doing, and then trade away our particular good or service for what others are offering to sell us. This is really the basis for all the material, scientific, intellectual, and cultural advancements of modern civilization.

But near the beginning of the twentieth century, British economist Philip Wicksteed pointed out, in his “The Common Sense of Political Economy” (1910), that such specialization also tends to create a bias against the open, competitive market in which people need to apply themselves in the most productive and cost-efficient ways. This was also strongly emphasized by the free market, German economist Wilhelm Röpke, in his work, “The Social Crisis of Our Time” (1942).

Once individuals have divided their labors, each becomes the producer of one product (or at most a small handful of things) and the consumer of all the multitudes of goods that others in society produce. But it is impossible for any of us to buy the goods that others offer to us as consumers, unless we have first succeeded in earning an income from what we are selling on the market in our own role as a producer.

Because of this, our interest as a producer always tends to take precedence over our role as a consumer, it has been argued. If I oppose some special interest group that is trying to get a subsidy from the government, I may save a dollar in my role as taxpayer and consumer (to use the earlier example from Pareto). But is it worth the cost in time, effort and expenditure to do so?

On the other hand, lobbying and otherwise influencing the legislative process to win some favor or privilege for myself and the others in my sector of the economy may produce better financial results. A protective tariff to limit foreign competition, for example, or a regulatory or licensing rule that restricts new domestic rivals can increase my income per year by tens of thousands of dollars, in my role as a producer.

The Democratic Dilemma and the Need to Limit Government

This is, in a sense, the modern democratic dilemma.

Over the last one hundred years, there have been fewer and fewer restraints on what is viewed as the proper role of government in society. The arena in which government may take an active part, both in the United States and around the world, grows ever wider. This widening arena of government has become the playground of special interest politicking from both the political “left” and “right” by those hoping to gain something through government intervention at the expense of others in society.

In 2013, there were over 12,000 registered lobbying groups in Washington, D.C. They officially spent more than $3.2 billion in 2013 to influence legislation on behalf of special interest groups from across the political spectrum, and reflecting virtually every sector of the U.S. economy. Just since this century began in 2001, annual spending by Washington-based lobbying groups (in real inflation-adjusted dollars) has increased by nearly 50 percent.

How do we break out of this dilemma, and return to limited government? Unfortunately, there are no electoral “quick fixes” or political sleights-of-hand that can reduce or eliminate the political paternalism and plunder land of the modern interventionist welfare state.

A Return to the Idea of Individual Rights Inviolable by Government

It requires a sea change in the philosophical, ethical and political-economic premises upon which American society operates. In other words, those of us who believe in and desire liberty and a free society must return to “first principles” and articulate the same to others.

We must hone our own understanding of the ideas and ideals upon which the United States was originally founded, and most especially as enunciated in the Declaration of Independence, where it was clearly and explicitly stated that freedom is inseparable from the recognition and defense of those inalienable rights to “life, liberty, and the pursuit of happiness” that are universally possessed by each and every individual.

In more modern times, Ayn Rand expressed this concisely and insightfully in her essay, “Man’s Rights” (1963):

If one wishes to advocate a free society – that is, capitalism – one must realize that its indispensible foundation is the principle of individual rights. If one wishes to uphold individual rights, one must realize that capitalism is the only system that can uphold and protect them.

“Rights” are a moral concept . . . the concept preserves and protects individual morality in a social context – the link between the moral code of a man and the legal code of a society, between ethics and politics. Individual rights are the means of subordinating society to moral law . . .

A “right” is a moral principle defining and sanctioning a man’s freedom of action in a social context. There is only one fundamental right . . . a man’s right to his own life . . . The right to life is the source of all rights – and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means of sustaining his life. The man who produces while others dispose of his product, is a slave . . .

The United States regarded man as an end in himself, and society as a means to the peaceful, orderly, voluntary coexistence of individuals . . . and that the only moral purpose of a government is the protection of individual rights . . .

To violate man’s rights means to compel him to act against his own judgment, or to expropriate his values. Basically, there is only one way to do it: by the use of physical force. There are two potential violators of man’s rights: the criminals and the government.

The great achievement of the United States was to draw a distinction between these two – by forbidding to the second [government] the legalized version of the activities of the first [private plunder].

As long as people believe that “society” or the “democratic majority” or some empty notion of the “general welfare” comes before and is above the rights and interests of the peaceful individual, then there will be no breaking out of the trend towards the growing size and scope of government’s controlling reach over all of us.

It must become “second nature,” a “habit of the mind” for Americans in general to once more take it for granted that certain things are, well, “just not done.” And more precisely, that it is the duty of government to protect the right of each individual to his life, liberty, and honestly acquired property, and not to violate that person’s rights.

For it to become “second nature” and a “habit of the mind” again, people must rediscover the reason for and rightness of an inviolable “right” of each individual to his own life, which should not be sacrificed to some mystical and imagined “higher good” or any collective entity called “the nation,” or the “state” or “society.”

This is why, in answer to her own question, “Philosophy, Who Needs It?” Ayn Rand once argued that each of us does; we must become intelligent students of the theory of individual rights based on reason and reality.

Changing the Course of Human Events with Right Ideas

Enough of us have to have sufficiently done so that we can explain to others the essentials of such a theory of individual rights, and with sufficient persuasiveness that those other, too, come to see the rightness in them. Then it won’t matter that most people never have an incentive to know enough to decide whether the U.S. Department of Education is spending too little or too much on a “common core” curriculum or whether the Defense Department has just the right number of aircraft or ocean vessels to “police the world.”

Enough people will enter the voting booth and think as “second nature” and as a “habit of the mind,” is this candidate for or against respect for and protection of individual rights? Does this party platform advocate or oppose private property and free market capitalism? Does this party and these candidates believe that the function of government is to defensively protect the citizens of the country from the clear and present dangers of foreign aggressors or do they wish to sacrifice the lives and fortunes of Americans in foreign adventures and wars?

Most people, if they see a person drop their wallet will pick it up and hand it back to them, because as “second nature” and “habit of the mind” they take for granted that taking what belongs to another is “wrong.” For a free society to prevail it is necessary for many people to no longer give even a second thought that it is ethically right for them to run to government and take by political power what they would never think of stealing in their private interactions with others.

It is not that advocacy of liberty should become a “prejudice,” that is, a preconceived idea not based on reasoned reflection or learned experience. A mere “faith” in freedom without a well-grounded set of reasons for advocating it will not sustain a free society in the long run.

What it does mean is the each generation must be encouraged to think about and learn the meaning of individual rights, and what they imply about the nature of man, human associations, and the role and place of a government in society.

If properly and effectively understood, it will become the generally accepted notion that, “Well, every thinking and reasonable person knows that . . . using the coercive power of the government to compel any man to sacrifice his life for others is as ethically not right as expecting others to be forced to sacrifice for him.”

Then, as a matter of implied “first principles” it will be impossible for some in the society to successfully coerce others through the tools of political power, because it will be culturally counter to the general “habit of the mind” that liberty is too precious as both a moral and practical matter to be forgone for even the most attractive short-run gains from political paternalism and plunder.

It is neither an easy nor a quick task to change, in this sense, the “climate of opinion” about the appropriate moral order to sustain a free, prosperous and ethically healthy society. But we have no tools other than our minds and our reason and an understanding that it is in our own self-interests to try.

If enough of us take on this task the growth in government can be both halted and reversed. The world of coercive plunder can be replaced with a human community of free men pursuing mutually beneficial peaceful production. The democratic dilemma of every growing government will be brought to an end.

Individual Self-Determination vs. Ukrainian or Russian Nationalism by Richard M. Ebeling

(This article originally appeared in two parts on the news and commentary website, EpicTimes, March 17 and 24, 2014)

 I

The Ukrainian-Russian crisis over the de facto occupation of Crimea by Russian military forces, which has enveloped the concerns and fears of the world over the last weeks, revolves around two conflicting claims of national self-determination. It has, once again, brought with it the danger of war on the European continent.

What is this conflict about? It concerns the issue of how it will be decided under what political authority people will live.

Americans do not easily understand the anger and fear this issue has for many in Europe and other parts of the world, and why it can result in such potential or actual violent conflict.

The American Philosophy of Individualism

The American political system was based on a philosophy of individualism. That is, each individual is recognized as possessing certain inalienable rights to his life, liberty, and honestly acquired property. The individual is not the property of an absolute monarch or an arbitrary majority.

Under the traditional American system, virtually every area of human life was viewed as the private affairs of the individual who had that inalienable right to guide and design his life according to his own values, beliefs, and purposes. Interpersonal relationships in society were formed, took shape and changed over time based on the voluntary and mutually beneficial associations and exchanges into which people freely entered.

In the social arena this individualistic philosophy implied that people should be judged as individuals, and not on the basis of such “accidents of birth” as language, religion, ethnicity or race. Of course, and unfortunately, people in their social interactions with others have not always consistently practiced this ideal. Americans, in their private life, too frequently have judged others and acted on the basis of racial, religious, linguistic or other group prejudices.

However, where such racial prejudice was still legally imposed as in the southern states until the 1960s in the form of segregation laws, it was recognized by more and more Americans to be inconsistent with and an offense against the founding principles of the country, and which could not stand in the long run.

Private prejudices and discriminatory acts on the basis of race, religion or language surely might be morally reprehensible but were a part of an individual’s freedom to decide with whom to associate. However, such discrimination was not supposed to be brought into the arena of governmental social or economic policy since this was considered to be violations of individuals’ rights by using the power of the state to harm them on the basis of a collective classification of their identity.

Americans also have been a highly mobile people. From colonial times, Americans always have been open to “moving on.” That nineteenth century phrase attributed to Horace Greeley, “Go west young man,” has been the cultural motto of the nation. Immigrants came from faraway countries and spread across the continent, as did every generation of the native-born Americans.

While the continent has been “conquered” and settled long ago, Americans still pick themselves up and change in what part of the country they live and work far more readily and frequently than most Europeans do in their own part of the world.

The lowering of the migration barriers within the European Union is changing this, especially among the younger generation of Europeans, but it is still, in general, less than among Americans. People in Europe, due to their relatively greater immobility, have traditionally felt a stronger “connectedness” to a specific and local geographical area.

Europe’s Philosophy of Collectivism

Europe’s history is grounded in a philosophy of collectivism, the idea that the group comes before the individual and that his identity and sense of meaning and purpose is tied to the particular “tribe” into which he has been born.

One of the most powerful modern variations on this collectivist theme has been nationalism. Before the demise of monarchism in the late eighteenth and early nineteenth centuries, the individual owed his allegiance to the king or emperor who claimed to own and rule over all and everything with absolute authority in his domain, and usually by asserted “divine right.”

But with the coming of the French Revolution in 1789, all this began to change. With the end of monarchy, the issue arose, “If not to the king, to whom does the individual owe allegiance?” It was declared that within the boundaries of what had been the territory of the former king, the new ruler was “the people” themselves. The “nation” was the new collective to which the individual owed his allegiance and for which he should expect to sacrifice himself if the good of “the nation” required it.

Nationalism and Collectivist Identity

But what defined a “nation” or a “people” as one collective group versus another? Some of the advocates and propagandists of the new nationalist ideal of human identity spoke of a common culture or set of traditions extending over many generations that shaped and made the individual’s sense of who he was and to whom he was connected.

Others spoke of language or race as the unifying determinate of what bound a people together as “one” in terms of national belonging and common destiny. The structure of language and the meanings of words shape how a group of people think and reason, it was said, thus, binding together all those speaking the same language. Even deeper, it was argued by others, was the connection between those coming from the same genetic stock; the collective identity and sense of “oneness” among a group of people was “in the blood.”

All of these ways of identifying a people’s common nationality were also often linked to a geographical area in Europe that for long period of time, it was claimed, marked off the historical or “natural” homeland of the people sharing that common collectivist root.

The rise of nationalism in the nineteenth and early twentieth centuries now saw the call for all “suppressed peoples” (that is, those minority national groups living within a country dominated by the majority of another nationality) to have their own nation-states to preserve and protect their language, cultural and ethnic uniqueness.

In addition, since under the monarchical system lands had been conquered or acquired through royal marriages that had nothing to do with those “natural” geographical boundaries of various national groups, borders needed to be redrawn. The political borders of countries, it was said, should reflect the national groups that lived within those areas.

There was a problem, however, especially in Central and Eastern Europe. Hundreds of years of wars, conquests and migrations had created overlapping areas of “mixed” national populations. There was little way to nicely and neatly draw the political lines on the map so that only those of a particular national group lived within that national group’s borders.

Every nation-state invariably contained within its political boundaries one or more minorities belonging to other linguistic, cultural or ethnic groups.

Now, if the same individualist and (classical) liberal philosophy that was at the foundation of the American political system also had been present in Europe, there would have been no or few “conflicts” between different national groups living within the same country.

Some people might have found it personally irritating or inconvenient that some of their neighbors spoke a different language, or practiced a different religion or had different cultural traditions and manners. But if their political systems had been based on those same liberal individualist principles as America, then there could have been no politically bestowed favors or privileges for the benefit of those in the majority national group at the social and economic expense of the members of any national minority groups.

But, alas, and again especially in Central and Eastern Europe, this was not the case. Governments were elected or came to power that viewed it as their purpose to secure and safeguard the interests and improvements of the majority national group. Government interventions, regulations, and restrictions were implemented to benefit the one group at the expense of any others. And sometimes this included acts of violence and brutality, which the government either instigated or turned a blind eye to.

Nationalism and the Conflicts over Borders

This ideal of and appeal for national self-determination and self-rule was behind the drive for Italian and German political unification and the revolts of the Poles against the Russians and the Hungarians against the Austrians in the nineteenth century.

The First World War broke up the German, Austro-Hungarian, and Russian Empires that dominated Central and Eastern Europe. In their place arose a host of new or expanded nation-states meant to represent a new political order of national self-determination and self-rule. Many of the governments of these nation-states used the cover of national independence and national preservation to discriminate against and politically and economically abuse clusters of minority national groups under their jurisdictions.

Hitler played upon these “injustices” against German-speaking minorities in neighboring Czechoslovakia and Poland to justify the need to use political and military force to protect these minorities and bring them within the national fold of a greater and “racially purer” Nazi Germany.

In the aftermath of the Second World War, the Soviet Union’s conquest of Eastern Europe and the imposition of communist governments in the countries that were totally controlled by Moscow artificially suppressed practically all of the nationalist differences and animosities of the pre-World War II period.

But with the collapse of those communist regimes in Eastern Europe in 1989-1990 and then the end to the Soviet Union itself in 1991, many of the nationalist conflicts once more rose to the surface. It was witnessed with the peaceful division of Czechoslovakia into two separate countries in 1993.

It was most viciously exposed in the cruel and murderous wars in the former Yugoslavia throughout the 1990s as the various national groups that had comprised Yugoslavia vied for national independence and an insistence upon lands and boundaries consistent with their respective notions of their “rightful” historical borders, which inescapably overlapped with the claims of some of the other national groups.

Borders and Nationalism in the Post-Soviet Countries

With the disintegration of the Soviet Union at the end of 1991, the fifteen “Soviet Republics” had had comprised the Union of Soviet Socialist Republics (U.S.S.R.) became independent nation-states. The problem was that their national boundaries were the legacy of lines drawn on the map by the Soviet leadership, in some cases directly by Stalin in the 1920s and 1930s.

In the case of the Crimea, it had been a provincial unit within the Soviet Russian Republic and was transferred to the Ukrainian Soviet Republic by a decree of the Soviet government in Moscow in February 1954. It was a “gift” to mark the three hundredth anniversary of the merging of Ukraine into the Russian Empire.

Both post-Soviet Russia and Ukraine contain linguistic or ethnic minorities within their borders. In Russia this has been most visible in the conflict that the government in Moscow has waged against the Muslim groups in the North Caucasus mountain regions, the most brutal of which has been with the Chechens desiring national independence.

The political boundaries of Ukraine include the two dominant linguistic groups of the Ukrainians, who make up about 68 percent of the population, and Russian speakers who comprise around 30 percent. (Virtually all Ukrainian speakers also fluently know and use Russian, and many Russian speakers know and understand Ukrainian.)

In the Crimean peninsula, the breakdown is almost 60 percent Russian speaking, 25 percent Ukrainian speaking, and 12 percent Tatars, who are Muslims and speak a Turkic-based language. After the breakup of the Soviet Union in 1991 the Crimea remained part of the new independent state of Ukraine, with no thought to the fact that many of the Russian-speaking people there would have preferred to be part of the post-Soviet Russian Federation.

Historically, many Ukrainians living especially in the western part of the country have long been strongly anti-Russian. This part of Ukraine had been part of the Austro-Hungarian Empire before the First World War, and then was incorporated into the new Poland after 1918.

Western Ukraine only was annexed by the Soviet Union in 1939, as part of the infamous Hitler-Stalin Pact that started the Second World War by a mutual agreement to divide Poland and Eastern Europe between the two totalitarian tyrants.

“Sovietization” of western Ukraine bore down heavily, with many Ukrainians killed or deported to Siberia by Stalin’s secret police as “enemies of the people.” And this was after millions of other Ukrainians in the part of the country already controlled by the Soviet Union before 1939 had been shot, starved or worked to death in the early 1930s as part of Stalin’s forced collectivization of the land.

A sizeable number of Ukrainians actively collaborated with the Nazis after the German invasion of the Soviet Union in June of 1941, including participation in the mass murdering of Jews. Even after the war ended in 1945, bands of Ukrainian nationalists continued to fight the Soviet Army in the forests of western Ukraine until 1951.

The more radically nationalist of the Ukrainians, no doubt, wish to limit the linguistic liberty and language education of the Russian speakers in the eastern areas of the country, where the Russian-speaking part of the population is most concentrated. But many Ukrainians, from all evidence, have no or little sentiment for such discriminatory policies against their Russian-speaking fellow citizens.

A good number of the Russian-speaking citizens of the country feel a much stronger linguistic and cultural tie to Russia next door. Many do resent the sometimes anti-Russian nationalist fervor of some of their fellow Ukrainian citizens. They also sometimes look down upon the Ukrainians as mere “little brothers” of the wider and “greater” Russian people.

This is, clearly, most intense right now in the Crimea. Even separate from the manipulations of the Russian government’s propaganda machine, the majority of the Russian-speakers living in Crimea would most likely prefer a far greater autonomy from the Ukrainian authorities in Kiev, or even to be politically joined with the neighboring Russian Federation.

At the same time, the Ukrainian-speaking parts of the Crimean population, along with the Tatars, would rather be politically a part of Ukraine than under the tighter political control of a Russian-speaking majority, whether just in the Crimea and as part of Russia.

It must be emphasized that the propaganda that has been coming out of Russia since the overthrow of the Ukrainian president, Victor Yanukovych, in February that there has been a “fascist” takeover in Kiev by Nazi thugs and Ukrainian nationalist extremists is an exaggeration from all accounts.

Many of the thousands who were out on the streets of the Ukrainian capital in opposition to Yanukovych’s corrupt regime for over three months, and dozens of whom were shot and killed by government forces, came from a wide spectrum of Ukrainian society, both politically and ethnically. But nonetheless, members of the most extreme Ukrainian nationalist parties do have a number of prominent ministerial positions in the provisional government leading up to the elections to be held in May 2014.

Nationalism and Interventionism the Core of the Dilemma

Nonetheless, the core of the conflict arises from two dilemmas: First, “self-determination” is defined in collective terms. It is not the individual’s right to decide in which nation-state or other political entity he shall freely choose to live. No, this is a matter for the linguistic and cultural group as a whole to which he is identified to belong.

The implicit assumption is that all people who happen to share a common language or culture or religion all have the same interests and desires. This would include a preference to want to belong to the same nation-state as guardian and preserver of one’s group national identity against other national groups who are presumed to be a “threat” to the national collective.

Second, in spite of the degree of market-oriented reforms that have been introduced in both Ukraine and Russia since the end of the Soviet Union, the fact is that both, in their own distinct ways, are political and economic plunder lands of government intervention and manipulation.

The government is viewed as an engine of favor, privilege, and protection from competition. Political connections, bribery, and influence are the determiners of wealth and social status. Tens of billions have been corruptly made and corruptly hidden away at the expense of the majority of the population based on political “pull” and power.

Ukrainians fear that if they were under the control of Russia, the levers of privilege and plunder would flow more through Russian hands than their own, so they would be the victims at whose expense others might benefit. And some Russian-speakers in Ukraine fear that the more radical Ukrainian nationalists would use political power to repress and discriminate against them in various cultural and economic ways.

But it must also be said that an important distinction between the Ukrainian and Russian situations is that in Ukraine right now vast numbers of people have taken to the streets and demonstrated, sometimes with the loss of their lives, their desire for real political change away from political corruption and power plundering. Whether it succeeds in the longer-run without a radical change in political philosophies away from collectivism and in the direction of true individualism remains to be seen.

In Russia, on the other hand, political dissent is forcefully kept in check by an authoritarian regime. It has the additional element of a Russian president, Vladimir Putin, who considers the collapse of the Soviet Union to have been the greatest geopolitical tragedy of the twentieth century, and who wants to restore the “greatness of Russia” in terms of political power and fear on the global stage of international affairs. In Putin’s eyes, Ukraine and Crimea need to be in the Russian sphere of influence and control as a matter of “vital national interest,” even if this means the use of military force and propagandistic lies and deceptions.

Since two political authorities cannot occupy and have administrative control over the same geographical area at the same time – it is either Ukrainian national and political sovereignty or Russian national and political sovereignty over Crimea – the conflict over borders and political control threatens to spill over into potential real war.

Is there no way out of this dilemma? While the reality of nation-state power politics and nationalist appeals to collective identity makes it unlikely, what might be a (classical) liberal or individualist solution to this crisis?

II

Russian president Vladimir Putin’s power grab and annexation of the Crimea has filled global news headlines as he attempts to reverse what he has called the “greatest geopolitical catastrophe of the twentieth century” – the collapse of the Soviet Union.  But it needs to be remembered that this conflict has its deeper roots in two ideas that have plagued the world for over two centuries: nationalism and government interventionism into economic affairs.

In the early years of the nineteenth century the new nationalist idea of self-determination in establishing in what country people should live was considered a logical extension of the general idea of individual liberty and freedom of choice.

Just as an individual should have the liberty to guide his own life according to his own values, beliefs and ideals; just as he should be free to peacefully associate with whomever he chose on the basis of commonly shared goals or mutually beneficial exchanges; so, too, individuals should have the freedom to choose in what political state they wanted to live.

Freedom and the Government Under Which to Live

The (classical) liberal ideal included, therefore, the individual’s right to freedom of movement. That is, if an individual chose to move to another country to live, work or visit, and as long as he was peaceful in his conduct and paid his own way, then there should be no legal barriers preventing him from freely migrating from one part of the world to any other.

Thus, if a person did not agree with the government under which he was living, or considered himself in some way oppressed or persecuted by that political authority, he should have the freedom to “vote with his feet” and move to a political jurisdiction more to his liking and desire.

However, it was also argued that people should not necessarily have to leave their home and country due to oppression and control by an arbitrary and tyrannical government under which they lived. They should be able to influence and determine both who held political office in that country and through them the policies implemented by that government. Thus, arose the advocacy of representative government in place of absolute monarchies claiming to rule by “divine right.”

It was also argued, as stated in the American Declaration of Independence, that when a government has become oppressive, and after many reasonable and peaceful attempts for a redress of their grievances, individuals have a right to replace that government and form a new one that will respect and enforce their respective inalienable rights to life, liberty and honestly acquired property. This was the American Founding Father’s rationale for revolution and breaking away from Great Britain, and in forming their own new nation and political system.

Self-Determination and the Right of Peaceful Secession

But why should men have to resort to and bear the human and material costs of violent change if they no longer wished to live under a particular political authority? Thus, there arose the idea of a right to peaceful secession.

If a group of individuals who shared a set of common values and beliefs, or a similar language or culture wanted to form their own political country independent of the one that they had belonged to up to that time, or be joined with another existing political country through a territorial transfer, they should be free through peaceful plebiscite to make that decision.

The fundamental premise of this right to secession was that of the individual’s right of self-determination. This was explained with great cogency by the free market Austrian economist, Ludwig von Mises, in his book, Liberalism (1927):

“The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to another other state, their wishes are to be respected and complied with. This is the only feasible and effective way of preventing revolutions and civil and international wars . . .

“The right of self-determination of which we speak is not the right of self-determination of nations, but rather the right of self-determination of the inhabitants of every territory large enough to form an independent administrative unit. If it were in any way possible to grant this right of self-determination to every individual person, it would have to be done.

“This is impracticable only because of compelling technical considerations [in the provision and enforcement of police and justice], which make it necessary that a region be governed as a single administrative unit and that the right of self-determination be restricted to the will of the majority of the inhabitants of areas large enough to count as territorial units in the administration of the country.”

The Collectivist Turn to National Self-Determination

The problem was that the idea of the individual’s right of self-determination in the form that Mises explained become replaced by the collectivist notion of national self-determination in the nineteenth and twentieth centuries.

That is, the unit of decision-making was not the individual, but “the people” as a whole defined as a national group sharing some characteristic such as a common language, culture, religion, ethnicity or race, and an often presumed shared “national homeland” over a particular geographical area.

Once established, the government representing that national group was to use its political authority to enforce the use of a particular language or to educate and indoctrinate all inhabitants of this “nation-state” into the cultural customs and traditions of that national group through government schooling, propaganda, and restrictions on the introduction of “alien” cultural influences – regardless of the wishes of the individual citizens of that country, including those who may happen to make up a linguistic or cultural minority in that nation-state.

Government Intervention Against National Minorities

Often in European history, national governments harshly discriminated against linguistic, ethnic or religious minorities within their national borders. Regulatory procedures have been used to restrict members of such a minority group from entering and practicing certain professions, occupations, or trades. Taxes have been imposed in an apparently “neutral language” that, in fact, ended up targeting certain sectors of the economy containing many members of the minority group, and thus placing them at a competitive disadvantage relative to the majority national group.

Economic intervention by the government through taxing and regulatory procedures and practices can and have imposed biased burdens on individuals and minority linguistic, ethnic and religious groups under the cover of “preserving” the majority national group’s cultural, linguistic, or historical heritage.

Here we see the “national self-determination” and government interventionist dilemmas in the current international crisis between Russia and Ukraine. This part of Europe never had the opportunity to fully absorb and integrate the ideas of “the West” concerning the political philosophy of individualism, personal freedom, private property, respect for contacts, and the general, impartial rule of law.

The Collectivism of Imperial and Soviet Russia

Carried over from both the older imperial era of Russia before the Bolshevik Revolution as well as the nearly seventy-five years of communist control and economic planning has been the notion that the sole purpose of government is to plunder others in society through political privileges, favors and “connections” with those in authority.

In old Russia under the absolute monarchy, the Czar was the ruler and nominal owner of all land and property on it. Possession was not a “right” belonging to the individual, but a privilege bestowed upon a person and his heirs for as long as it served the “pleasure” of the Czar.

Both commoner and nobleman were subject to having all that they possessed taken back by the Czar if they fell out of favor due to criticisms or opposition to the wishes of the absolute ruler. This could include exile to the vast wastelands of Siberia.

Following the communist revolution of 1917, all privately owned land and capital were confiscated and transferred to the new revolutionary socialist state. The means of production were controlled and managed by the new Soviet government through a comprehensive system of central planning – of course, in the name of the people and for their claimed benefit.

With the socialist government as the single monopoly producer and employer, every person within the Soviet Union had his fate and future determined and dictated by how he fit within the socialist “plan” of building the bright, beautiful collectivist future.

Political Privilege in the Soviet “Classless” Society

The asserted “classless society” of the Soviet Union was a huge and intricate system of power, position and privilege overseen, commanded and controlled by the Communist Party. Gradations of privilege permeated the entire Soviet system reflected in apartment allocations, accesses to special food shops and medical clinics, acceptance into institutions of higher learning for one’s children, and even designated resorts for rest and recreation based on one’s position within the Party structure and management or employment in the various state enterprises.

The Soviet system worked on the basis of “rank” within the hierarchies of power. Within the Communist Party structure subordinates paid “tribute” to those above them with “gifts” and “services,” and, in turn, these subordinates received “favors” and perks for loyalty and obedience from those “above,” in an almost feudalist relationship of lord and serf.

In such a system the notion of “rights” to life, liberty and property had no meaning. The only implicit rule was to get what one could from any privileged access to the resources and goods owned and produced by the state.

Cheating, manipulating, and stealing what you could was the nature of “competition” in the worker’s paradise of socialist central planning. The only “rules of the game” were to not get caught, remain on the “good side” of those above you in the communist power structure, and often use people in any way that might further your personal interest

The Plunder Lands of Ukraine and Russia

This is the legacy inherited by those who came to power in the newly independent and “democratic” Ukraine, as well as in the post-Soviet Russian Federation.

Every political party that has come into office in Ukraine since 1991 has used the power of the State to enrich its leading members and others who have given support and allegiance to those in power who can bestow various privileges and favors.

Ukraine, like most of the other former Soviet Republics, has been a plunder land of abuse, corruption, and huge wealth grabs for plutocratic oligarchs and special interest groups that revolve around and manipulate the redistributive and interventionist halls of political power.

In Ukraine, however, the thousands who demonstrated against and overthrew the corrupt and murderous government of Victor Yanukovych in February 2014 have shown their desire, and some of them with the loss of their lives, that they want a new and more “Western”-oriented country.

Yet among those Ukrainians are a significant number ardent nationalists who are more concerned with their collectivist conceptions of a “protected” and enforced Ukrainian culture and language than an open and free society in which each citizen makes his own choices on such matters, and lives his life is own way as he considers best and most desirable.

The main difference between Ukraine and Russia over the last twenty-two years since the end of the Soviet Union in this regard is that Russia is a larger land to plunder and far worse in its political authoritarianism under Vladimir Putin.

Nothing happens in Russia without connections, “pull,” and bribes. Property rights have no meaning – a Russian or a foreigner can find that one day they own a business and the next it has been confiscated under some trumped up charges, with the Russian owner imprisoned and sent off to Siberia or in the case of the foreign investor being expelled from the country with a total loss of his investment.

The news media, especially radio and television, are under virtual government monopoly control. Even “independent” newspapers and other Internet information outlets are subject to conscious degrees of self-censorship under the threat of being shut down. Those from the West wishing to share and disseminate news or information that is in any way viewed by the Russian government as a challenge or threat to the existing system of power have their permissions to operate and their visas to reside in Russia revoked.

Dissent in the street is often met with harsh treatment from the police, and with the danger of high financial fines and uncertain periods of imprisonment.

Ethnic Conflicts within Russia

In addition, Russia’s central, regional and municipal governments have also dealt harshly with some ethnic minorities within the Russian Federation. Several Muslim and ethnic groups in southern European Russia in the Caucasus mountain region, especially the Chechens, have attempted to gain national independence.

This has resulted in massive physical destruction and thousands of deaths as the Russian government under Putin has tried to crush the rebellions in this part of the country. In response, the Chechens and some other related groups have resorted to indiscriminate and deadly terrorist attacks on civilian targets, including in Moscow and most recently, shortly before the winter Olympics, on a train station in Volgograd.

This has angered and frightened ethnic Russians in many parts of the country. Chechens and other groups from that southern region of European Russia have been beaten up, had their property vandalized, and in some cases have been killed in Moscow and other places. In addition, in spite of the fact that every Russian citizen is lawfully to have freedom of movement and residence within the borders of the Russian Federation, the Chechens and some other groups have been required to have residency permits or have been expelled from Moscow and other cities, simply based on their ethnicity.

Ukrainian and Russian Conflict over Crimea

In Kiev, it is said that Crimea is an integral part of Ukraine and cannot secede from that country, either to be independent or a part of Russia, without the approval of the entire country. In Moscow, it is said that Crimea is a historically important area for Russia, and the people of the peninsula had to decide whether or not to join the Russian Federation.

The problem is that Crimea is populated by three groups: Russian-speakers who make up almost 60 percent of the population, Ukrainian-speakers who represent around 25 percent of the people there, and the Muslim Tatars, who make up an additional 12 percent.

If any referendum on Crimea’s future were to require a vote by the entire population of Ukraine, or by the representatives in the parliament in Kiev, the Ukrainian majority would no doubt vote against it. This would result in many in the Russian-speaking majority in Crimea forced to live within a country to which they do not want to be a part.

Any vote in Crimea, even if “fair” and open to international supervision to prevent “irregularities” compared to the vote recently taken for incorporation into Russia, easily would end in the Russian majority expressing their desire for unification with the Russian Federation. This would leave many of both the Ukrainians and the Tartars forced now to be citizens of a country (Russia) they would prefer not to live in as a result of a change in the political lines on a map.

After the thuggish and brutal behavior of the ‘self-defense” gangs of Crimean Russians and the Russian military forces “hiding” their identities by not having official insignias on their jackets since the “non-invasion” by Russia, the Ukrainian and Tatar minorities most certainly would be frustrated and fearful of a pro-Russia outcome to such a free and impartial referendum.

At the same time, given the behavior of a seemingly sizable number of the Russian-speakers in Crimea to actively and aggressively support the move for annexation by Russia, if the peninsula remained a part of Ukraine resentment and anger against them could easily result in their lives being made “uncomfortable,” or even arrest and imprisonment of some of them as “traitors” to the Ukrainian motherland.

These alternative possible outcomes reflect the effect of thinking of self-determination in nationalist and collectivist terms. The “nation as a whole” of Ukraine has to decide, or the national majority within the entire Crimean peninsula must have its political way and impose it on the ethnic and linguistic minorities who live around them.

A More Individual Self-Determination Solution for Crimea

What, then, could be a (classical) liberal “third way” rather than a nation-wide Ukrainian referendum or a “winner-take-all” plebiscite on the Crimean peninsula? A solution to the dilemma along the lines presented by Ludwig von Mises would suggest that each village and town in Crimea should have a plebiscite, in which the residents would decide between independence, reunification with Russia, or continuing political unity with Ukraine.

A new political map of Crimea might look like a colored checkerboard, with some villages or towns where the majority of the occupants are Ukrainians or Tatars being the same color as Ukraine. Other portions of the Crimea, perhaps a large part of the peninsula, would be the same color as Russia on the map. And possibly some areas would be a different color different from either Ukraine or Russia, being those districts or towns in which the majority had opted to form a separate Crimean government.

Would this prevent the continuing discomfort of some ethnic or linguistic minorities who might still find themselves surrounded by a majority of people who speak a different language or practice different customs in the village or town in which they reside? Or would it prevent political discrimination or favoritism against them by the majority if state power were used in this way? Unfortunately, the answers are, “No.”

As long as people believe that it is the duty and responsibility of government to regulate commence and industry, redistribute wealth and interfere into the individual’s right of free and peaceful association, political power will be used and abused to benefit some at other’s expense.

But such a system of local plebiscite in determining both the formation of governments and the boundaries of political entities, would give each individual more weight in deciding his own future and fate than when he is lost in the great mass of people in the modern nation-state. And it would at least tend to minimize the number of people who might find themselves in the situation of being an ethnic or linguistic or other type of minority within a political entity.

The fact that some areas belonging to one political authority may not be contiguous to the others but separated by the territories of other countries need cause no problems if a minimum of freedom of movement and free trade exist between them. One particularly enlightened outcome of the European Union has been the dismantling of border controls, so people may move as freely between member countries, for the most part, as Americans take it for granted in traveling between and across the states that make up the U.S.

If such a more (classical) liberal method was followed as an answer to these types of disputes everywhere, then at least state borders and political frontiers would no longer be determined by blood and conquest, but by the local choices of the people themselves who reside in such areas.

In addition, they could be open to revision and change periodically as demographics and people’s preferences changed. A plebiscite might be held once every ten or twenty years, as a formality. Or it could be held whenever, for example, two-thirds of the population in an area petitioned for the holding of such a plebiscite.

Such a system for the defining of boundaries of political entities does not necessarily imply exclusionist nationalism. The people of some regions, towns or districts might wish to form separate states or join larger ones that are consciously multi-ethnic and multi-linguistic, and culturally diverse precisely because of the societal advantages of such pluralistic communities. Furthermore, to the extent that freedom of movement and trade existed, everyone could take advantage of global culture diversity and a commercial international division of labor.

The Ideal of Individualist Self-Determination for the Future

Unfortunately, too many people and their governments are not ready for such a system of tolerance and respect for the choices of their fellow individual human beings in establishing their political affairs and boundary lines. Too many still take the collectivist view that the group or tribe owns the entire territory of a nation-state, including those who live, work, and die within it.

But we may wish that after enough wars and conquests, civil wars and campaigns of terrorism against the innocent, people may finally come to see the importance and value of respecting the rights and choices of the other individuals with whom they live in this troubled world.

Shanghai’s History Was a Tale of Successful Capitalism by Richard M. Ebeling

China’s impressive modernization since the death of Mao Zedong in 1976 and the end to the destructive madness of the Cultural Revolution has been epitomized by the dramatic growth of the industrial and port city of Shanghai, with its majestic skyline of impressive futuristic skyscrapers. It is forgotten that Shanghai already was a commercial and industrial center before the Second World War, built on the principles of laissez-faire capitalism.

Following the Chinese-British War of 1842, several ports along the China coast were opened to Western merchants. In these “treaty ports,” portions of the cities were recognized to be under European jurisdiction. Known as “concession” areas, the European powers administered these areas according to Western principles of the “rule of law,” with recognition and protection of property rights, personal freedom and civil liberties.

By the end of the 19th century, Shanghai had become the most important of the treaty ports. Indeed, it was the industrial, commercial and cultural center of modem China until the Japanese occupation of the city in December 1941, following the attack on Pearl Harbor.

Shanghai an Almost Free City-State

The Western-administered portions of Shanghai were divided into two districts: the French Concession and the International Settlement. A Consul-General appointed by Paris administered the French Concession.

But the much larger International Settlement was administered by a Municipal Council composed of fourteen members elected by the permanent foreign residents of the city, with the franchise based on being a “ratepayer,” i.e., a tax-paying property owner within the boundaries of the International Settlement. By the 1930s, around 90,000 Europeans and Americans lived in Shanghai.

Hence, Shanghai’s International Settlement was almost an independent “city-state” based on the nearly unhampered principles of free trade and free enterprise under the protection of the Western Powers (which ended up meaning mostly a British and American military presence).

In general, the economic policies of Shanghai’s International Settlement followed the ideas of Adam Smith’s system of natural liberty and laissez faire. The Municipal Council limited itself primarily to three functions: administration of justice; police protection of individual liberty and property; and the undertaking of a limited number of “public works,” such as construction of roads, traffic control (administered by Sikh policemen brought by the British from India), harbor patrol, and the dredging of the Whangpoo River that connects Shanghai with the mouth of the Yangtze.

Treaty agreements between China and the major Western nations established that legal disputes in which a Chinese citizen sued a Western resident were adjudicated before a court of the country of which the Westerner was a citizen. This system was known as “extra-territoriality.” While viewed as an insult to Chinese territorial integrity, and while not always free of abuse and bias, this meant that on the whole, an impartial and efficient system of Western-style justice was guaranteed for everyone in Shanghai’s International Settlement.

A Prosperous Metropolis of Asia

Under a regime of limited government, low taxes, and economic laissez faire, Shanghai became the most prosperous metropolis in all of Asia. The standard of living, including that of Chinese residents in the International Settlement and in surrounding Chinese-administered areas, was the highest in East Asia. It was this free market environment that created that Western-style skyline that in the 1930s was considered the Asian rival of New York.

The city also became the focal point for the Chinese intellectual community as well as a Chinese cultural center — and one in which freedom of speech and press were protected for all, Westerner and Chinese alike. While tempests of civil war engulfed China in the period between the two World Wars, Shanghai was a haven of economic and civil liberty.

Through a system of private colleges and universities that served both Westerner and Chinese, Shanghai developed into China’s center for higher learning. Indeed, through scholarships and philanthropic endowments — many being supported by Christian missionaries — many of those who later became China’s leaders in politics, literature and the arts acquired their advanced schooling in Shanghai.

A Refuge from Taxes and Tyranny

The city was a refuge for many searching for fortune or freedom, and often both. For Western businessmen Shanghai was a haven for those “escaping” from heavy taxation in other parts of the world. For example, along the Bund, the commercial waterfront, stands an impressive hotel with a pyramid roof. This was the Cathay Hotel, also known as Sassoon House, built by Sir Victor Sassoon, who left Britain with a good part of his fortune in 1927, to get away from the high business and income taxes in Great Britain.

The port bustled with the coming and going of merchant ships from all over the world. Shanghai’s manufacturing enterprises supplied inexpensive but quality goods to serve the consumers of China, and competitively exported many products on the global market.

Shanghai also was a haven for many people escaping real tyranny — not just tax “oppression.” Following the Bolshevik Revolution, thousands of (anti-communist) “White Russians” found refuge in Shanghai. They became famous in the city, not only among the city’s “sing-song” girls, but as doormen at nightclubs and bodyguards for Chinese gangsters who usually preferred the nightlife in the French Concession; and, of course, for the city’s many fine Russian cuisine restaurants. (Russian noblemen, or their sons, were seen playing the balalaika in those restaurants, or even in the streets pulling rickshaws, to earn enough to live, having lost their family wealth to communist confiscation in Russia.)

In the 1930s, thousands of German Jews who fled Nazi Germany found refuge in Shanghai, because the city had neither passport nor visa requirements. Many of them settled in the Hongkew district of Shanghai, which had been badly damaged during the fighting between Chinese Nationalist and Imperial Japanese army forces, first, in 1932, and then, again, in 1937.

But under the diligent work ethic and industry of these refugee German Jews, much of the Hongkew district was rebuilt and again became a thriving part of the city. And, then, in an irony of fate, when the Japanese occupied the International Settlement following the attack on Pearl Harbor they did not intern these Jews (unlike the systematic roundup and imprisonment and cruel treatment of all French, British and American citizens), because these Jews carried German exit passports. And though these passports were stamped with the infamous “J,” the Japanese viewed them as citizens of their wartime ally.

A Safe Haven from Chinese Tyrants and Warlords

Shanghai was also the headquarters for numerous religious and secular charities and philanthropies that ministered to the needs and improvements of the Chinese population both in the city and throughout other parts of China. There were voluntarily funded orphanages, soup kitchens, shelters, schools, and vocational training colleges to give a “helping hand” to the Chinese.

Finally, throughout the second half of the 19th century and up until the 1941, Shanghai’s International Settlement and French Concession were a refuge for many Chinese when revolutions, civil wars, or the general cruelty of Chinese government governors or warlords made life “nasty, brutish, and short.”

There in Shanghai, financial savings were safe in Western banks, and property rights were respected and protected from both illegal plunder and the “legal” plunder of Chinese officials and warlords.

But, in addition, Shanghai’s International Settlement was a cultural oasis for Chinese artists and intellectuals. Here was born the Chinese motion picture industry; non-traditional music and art; and a haven for freedom of speech and the press, which were not allowed in surrounding Chinese administered areas. Here civil liberties were respected and secure, under the rule of law.

It was also a property rights-safe place for the development of Chinese-owned manufacturing and industry — not only Western businesses. In Shanghai, these Chinese entrepreneurs were free from the “squeeze,” the Chinese term for bribes and corrupt protection rackets and government official shakedowns.

Imperfect People, But Still a Free and Prosperous City

It was also a city that operated on the basis of commercial trust and integrity. Many of the foreign residents, for instance, never paid for anything with cash or check. A person simply signed his name to a “chit” for any purchase, and just settled up at the end of the month, and rarely did these everyday debts go unpaid.

Shanghai was, of course, a many-sided city. In the French Concession were the homes of many of the most notorious Chinese gangsters. Opium dens abounded and houses of ill repute existed in the hundreds — and catered to every imaginable racial and socio-economic group. And the city attracted its fair share of adventurers, conmen and hucksters from all around the world.

Like everywhere, in an imperfect world with imperfect people, Shanghai was no “utopia.” But its instituting and general protecting of Western civil and economic liberty made the International Settlement a place of practical, everyday personal and economic freedom.

Of course, most Chinese — from intellectuals down to the ordinary (and usually) illiterate Chinese “coolies” — resented the power and presence of the European and American “foreign devils.” And this resentment and anger against the power and too-often arrogance of the Westerner, took many forms, including boycotts and strikes, and sometimes violent demonstrations, especially in the 1920s and 1930s.

But, de facto, Shanghai’s International Settlement gave many Chinese the personal safety and economic and cultural opportunities they could never have under their corrupt and power-lusting Chinese rulers in the rest of the country.

The End to Shanghai’s Era of Laissez-Faire

This all came to an end in 1941, with the Japanese occupation of the city. Then, at the 1943 Cairo Conference between Franklin D. Roosevelt, Winston Churchill and Chiang Kai-Shek (the head of the Nationalist Chinese government), the Western powers relinquished their rights to “extra-territoriality,” which was the basis for those foreign concessions in China, of which Shanghai’s International Settlement was the most important and famous.

After the war, from 1945 to 1949, when Shanghai was under the control of Chiang’s Nationalist government, the city suffered through political corruption and abuse, and as well as a hyperinflation caused by the Nationalist government’s massive printing of paper money to finance its war against Mao’s communists.

Then from 1949 until the 1980s, the communist regime left the city in a state of a “frozen moment in time,” with its skyline virtually unchanged from what it was in the 1930s.

Yet, Shanghai’s “frozen” capitalist-built commercial skyline symbolized all that was possible when men and their creative, entrepreneurial minds are left free, and people are at liberty to peacefully and profitably produce, trade and prosper to the mutual benefit of all individuals concerned.

 

 

The Austrian Economists Who Refuted Marx (and Obama) by Richard M. Ebeling

The president of the United States has publicly declared that he knows the minimum wage any worker in the United States should earn as an hourly salary: $10.10. Why not $11.11 or $9.99 has been left a mystery.  But what the president is sure of is that businessmen clearly are stonehearted money grabbers exploiting some of their workers by not paying them the real value of what their labor is worth.

Left unspoken in Obama’s assertion of knowing what a minimum “fair” or “just” wage should be in America is the ghost of a thinker long thought to have been relegated to the dustbin of history: Karl Marx (1818-1883).

Marx’s Labor Theory of a Worker’s Value

Marx’s conception of the unjust “wage slavery” that businessmen imposed on their workers became the premise and the rallying cry that resulted in the communist revolutions of the twentieth century, with all their destruction and terror.

Marx insisted that the “real value” of anything produced was by determined by the quantity of labor that had gone into its manufacture.  If it takes four hours of labor time to produce a pair of shoes and two hours of labor time to prepare and bake a cake, then the just ratio of exchange between the two commodities should be one pair of shoes in trade for two cakes. Thus the quantities of the two goods would exchange at a ratio representing comparable amounts of labor time to produce them.

If a worker’s labor produced, say, three pairs of shoes during a twelve-hour workday, then the worker had a just right to the ownership of the three pairs of shoes his labor had produced, so he might exchange it for the productions of other workers from whom he wanted to buy.

But, Marx insisted, the businessman who hired the worker did not pay him a wage equal to the value of the three pairs of shoes the laborer had produced.  Simply because the businessman owned the factory and machines as private property with which the worker produced those shoes, and without access to which the worker would be left out in the cold to starve, the employer demanded a portion of the worker’s output.

The employer paid him a wage only equal to, say, two of the pairs of shoes, thus “stealing” a part of the worker’s labor. Hence, in Marx’s mind, the market value of the third pair of shoes that the businessman kept for himself out of the worker’s work was the source of his profit, or the net gain over the costs of hiring the worker.

Here is the origin of the notion of “unearned income,” the idea of income not from working and producing, but from, well, simply owning a private business in which the workers who really did all the work were employed.

The businessman, you see, does nothing. He lives off the labor of others, while sitting up in his office, with his feet on the desk, smoking a cigar (when it was still “politically correct” to do so). It is not surprising that given this reasoning about work, wages and profit that a president of the United States then says to businessmen “You really did not make it.”

Carl Menger and the Personal Value of Things

Karl Marx died in 1883, at the age of sixty-four.  A decade before his death, in the early 1870s, his labor theory of value had been overturned by a number of economists. The most important of them was the Austrian economist, Carl Menger (1840-1921), in his 1871 book, Principles of Economics.

Menger explained that the value of something was not derived from the quantity of labor that had been devoted to its manufacture. A man might spend hundreds of hours making mud pies on the seashore, but if no one has any use for mud pies, and therefore does not value them enough to pay anything for them, then those mud pies are worthless.

Value like beauty, as the old adage says, is in the eyes of the beholder. It is based on the personal, or “subjective,” use and degree of importance that someone has for a commodity or service to serve some end or purpose that he would like to satisfy.

Goods do not have value because of the amount of labor devoted to their production. Rather, a certain type of labor skill and ability may have value because it is considered useful as a productive means to achieve a goal that someone has in mind.

And furthermore, the value of things decreases as our supply of them increases, because we apply each additional quantity of a good at our disposal to a purpose less important than the purpose for which previously acquired units of that good were used.

As I am adding shirts to my wardrobe, each extra shirt generally serves a use for that type of clothing less important to me than the shirts I had purchased earlier. Economists call this the “diminishing marginal utility of goods.”

Nobody Pays More for Anything Than They Think its Worth

So there is no “objective” minimum value that labor is inherently worth. An employer hires workers because they have value to him in assisting to produce a product that he thinks he can sell to potential buyers. As he hires workers of a particular type and skill, each of these workers is assigned to a task less important than the one the previous worker was hired to do.

As a result, no employer can or does pay more for any worker than he thinks his labor services are worth in contributing value to his production activities. The value of the worker to the employer is an assigned reflection of what that employer thinks the product is worth to the buying public who may purchase what the worker helps to produce.

Suppose that he thinks that some of the people in his work force contribute no more than, say, $6.00 an hour to the making of a product he hopes to sell to consumers. It should not be surprising that when the government tells him that he is legally obligated to pay each one of them a minimum wage no less than $7.40 an hour or $10.10 an hour, he lets go those that he considers now to be more costly to employ than they are worth. In addition, other jobs that he might have made available at that $6.00 an hour will never come into existence.

All that a government-mandated minimum wage succeeds in doing is pricing out of the labor market those workers whose valued contribution in the eyes of the employer in making a product is less than what the government dictates must be paid to them.

But what, exactly, does the employer do? What does he contribute to the production process, over and above the work down by the hired employees? Marx, as we saw, argued that the businessman’s “profit” was the value of that portion of the worker’s output that he appropriated for himself simply because he owned the business in which the worker was employed.

Böhm-Bawerk and the Importance of Savings for Job Creation

Another Austrian economist, Eugen von Böhm-Bawerk (1851-1914), who developed many of the ideas that originated with Carl Menger, gave the answer to Marx. In an important three-volume work on Capital and Interest (1914), and in several essays, the most important of which were, “Unresolved Contraction in the Marxian Economic System” (1896) and “Control or Economic Law” (1914) Böhm-Bawerk asked: Where does the business come from in which the worker is employed? And from where comes the funds with which the worker is paid his salary?

How has the factory been built? From where comes the capital – the machinery, tools, equipment – in the factory with which the hired workers do their work to produce the products that eventually are available for consumers to buy?

Böhm-Bawerk’s answer was that someone had to do the necessary savings out of income earned in the past so resources could be devoted to building the enterprise and housing it with the capital equipment without which any worker’s labor would be far less productive, far smaller in output, and far more crude in its quality.

The businessman who undertakes an enterprise must either have saved the necessary funds to cover his own investment expenses to do all of this, or he must have borrowed if from others who had done the necessary savings. Someone had to sacrifice, forego, the desirable consumption uses in the present that that savings could have been used for if it had not been invested in starting up and maintaining the operations of the business that may generate a financial payoff in the future when a product has been produced and can be sold at some point in that future.

No one sacrifices the uses and enjoyments that their income could provide them with today unless they are sufficiently compensated with a gain in the future that makes it worthwhile to forego those consumption uses and pleasures of the present

That is why interest is paid, as the price for trading the use of resources across time, between the present and the future. It is the price that savers receive in the future for sacrificing satisfactions closer to the present until the borrowed sums are paid back. And the borrower pays that interest because he values more highly the uses he has for the money and resources he borrows today than the interest premium that he pays over the principle on the loan when it is repaid in the future.

Businessmen Save the Workers from Having to Wait for Their Wages

The fact that the businessman has such savings at his disposal, either from his own savings out of income earned in the past or from the borrowed savings of others, means that those that he employs do not have to wait until the product is finished and actually sold to receive their wages for the work they perform over the period of production.

The employer, in other words, “advances” to the workers the discounted value of what their labor services are worth while the production process is ongoing, precisely to relieve those whom he is employing from having to wait until revenues are received in the future from the sale of the product to consumers.

Indeed, this is why it is correct to say that the businessman really did “make it,” because without his willingness and ability to organize, fund, and direct the enterprise those whom he employs would have no jobs and would have no wages to live on before a marketable product was made and successfully sold.

This last point is also crucially important to appreciate. The businessman is not only the organizer of the enterprise and the investor of savings to “make it” happen, he is also the entrepreneur, the one who may or may not earn a profit from his enterprising efforts.

Businessmen Bear the Uncertainty of Planning for the Future

The workers and all others who supply businessman with the useful services and resources to undertake a production process receive their pay while the work is on going and being done. But the entrepreneur bears the uncertainty of whether or not he will earn enough from selling the product to cover all the expenses he has incurred when the product is finally ready for sale and actually offered on the market.

By paying those he employs the agreed upon and contracted for wages, he relieves his employees from the uncertainty as to whether or not, at the end of the day, a profit is earned, a loss is suffered, or the enterprise barely breaks even.

It is the businessman who has to make the creative speculative judgments about what to produce and at what price his product might sell. The correctness of that entrepreneurial judgment, in better anticipating than his competitors what it is consumers may want to buy in the future and the price they might pay for it, is what determines the success or failure of his enterprise.

Thus, Karl Marx had it all wrong in misunderstanding what determined the value of goods, the worth of workers in the production process, and the vital and essential role of the enterprising entrepreneurial businessman who really does “make it” all happen.

The Harm That Comes from Marxian-Based Polices

It matters little whether the president of the United States and others who share his views about work, wages and businessmen are consciously aware of how much their conception of capitalism and the labor market is implicitly derived from and influenced by the obsolete ruminations of a long-dead socialist revolutionary from the middle of the nineteenth century.

What does matter is that economic policies based on such Marxian misconceptions of the nature and workings of the free market economy can only lead to harm and disaster for multitudes of the very people it is claimed they wish to help.

And such misplaced policies will further undermine the essential foundations of the free market system that over the last two hundred years has given man more personal freedom and material prosperity than has ever known in all of human history.  They are policies that erode away at people’s liberty to work and freely associate in the ways they find most advantageous, and therefore move society down a road that leads to potential ruin.

 

The Continuing Relevance of F. A. Hayek’s “The Road to Serfdom” by Richard M. Ebeling

Seventy years ago this month, on March 10, 1944, The Road to Serfdom by Friedrich A. Hayek was first published in Great Britain. For seven decades it has continued to challenge and influence the political-economic landscape of the world. Hayek delivered an ominous warning that political trends in the Western democracies, including America, were all in the direction of a new form of servitude that threatened the personal and economic liberty of the citizens of these countries.

Austrian economist, F.A. Hayek (1899-1992) was already famous as the leading free-market opponent of the emerging Keynesian Revolution in the 1930s. He also was one of the most prominent critics of socialist central planning, having helped demonstrate why government management of an entire economy was inherently unworkable, and could never “deliver the goods” as efficiently and effectively as competitive capitalism.

Published During Global War and Socialist Dangers

Now, in The Road to Serfdom, Hayek showed that government planning was not only an economic disaster, but also more tellingly a political system of control and management that threatened to bring about the end of human freedom.

When the book was published Great Britain and the United States were engulfed in a global war with Nazi Germany as the primary enemy and Soviet Russia as the primary ally. In 1944 the British had a wartime coalition government of both Conservative and Labor Party members, with Winston Churchill as its head. During these war years plans were being designed within the government for a postwar socialist Britain, including nationalized health care, nationalized industries, and detailed economic planning of industry and agriculture.

For the eight years before America’s entry into the war Franklin Roosevelt’s New Deal had transformed the United States through levels of government spending, taxing, regulation, and redistribution the likes of which had never before been experienced in the nation’s history. Many of the early New Deal programs had even imposed a network of fascist-style economic controls on private industry and agriculture; fortunately, the Supreme Court had declared most of these controls unconstitutional in 1935.

At the same time, the Soviet Union was frequently portrayed as a model – however rough around the edges – of an ideal socialist society, freeing “the masses” from poverty and exploitation. The Nazi regime, on the other hand, was usually depicted as a brutal dictatorship designed to maintain the power and control of aristocratic and capitalist elites that surrounded Hitler.

Nazism an Outcome of Bismarck’s Welfare State

Hayek’s challenge was to argue that German Nazism was not an aberrant “right-wing” perversion growing out of the “contradictions” of capitalism. Instead, the Nazi movement had developed out of the “enlightened” and “progressive” socialist and collectivist ideas of the pre-World War I era, which many intellectuals in England and the United States had praised and propagandized for in their own countries.

It was in Bismarck’s Germany, after all, that there had been born the modern welfare state – national health insurance, government pension plans, regulations of industry and the workplace – and a philosophy that the national good took precedence over the interests of the “mere” individual.

In this political environment Germans came to take it for granted that the paternalistic state was meant to care for them from “cradle to grave,” a phrase that was coined in Imperial Germany.

Two generations of Germans accepted that they needed to be disciplined by and obedient to the enlightened political “leadership” that guided the affairs of state for their presumed benefit. Beliefs in the right to private property and freedom of exchange were undermined as the regulatory and redistributive state increasingly managed the economic activities of the society for the greater “national interest” of the German fatherland.

By 1933, when Hitler came to power, the German people not only accepted the idea of the “führer principle,” Hayek argued, but many now wanted it and believed they needed it. Notions about individual freedom and responsibility had been destroyed by the philosophy of collectivism and the ideologies of nationalism and socialism.

But Hayek’s main point was that this tragic history was not unique or special to the German people. The institutional changes that accompanied the implementation of socialist and interventionist welfare-state policies potentially carried within them the seeds of political tyranny and economic servitude in any country that might follow a similar path.

Government Planning Means Control over People

The more government takes over responsibility for and control over the economic activities of a society, the more it diminishes the autonomy and independence of the individual. Government planning, by necessity, makes the political authority the ultimate monopoly, with the power to determine what is produced and how the resulting output shall be distributed among all the members of the society.

What freedom is left to people, Hayek asked, when the government has the ability to decide what books will be printed or movies will be shown or plays will be performed? What escape does the individual have from the power of the state when the government controls everyone’s education, employment, and consumption?

He also warned that the more that government plans production and consumption, the more the diverse values and preferences of the citizenry must be homogenized and made to conform to an overarching “social” scale of values that mirrors that hierarchy of ends captured in the central plan.

Fulfilling the Plan Requires Obedience

One of Hayek’s central points was the fact that a comprehensive system of socialist central planning would require the construction and imposition of a detailed system of relative values to which and within which all in the society would have to conform, if “the plan” was to succeed.

This was the origin of Hayek’s warning that government central planning ran the danger of becoming tyranny and a new form of “serfdom,” since any meaningful dissent in word or deed could not be permitted without threatening the fulfillment of the goals of the plan. All would have to be assigned to their work, and be tied to it to assure “the plan” met its targets.

Even dissent, Hayek warned, becomes a threat to the achievement of the plan and its related redistributive policies. How can the plan be achieved if critics attempt to undermine people’s dedication to its triumph? Politically incorrect thoughts and actions must be repressed and supplanted with propaganda and “progressive” education for all.

Thus unrestricted freedom of speech and the press, or opposition politicking, or even observed lack of enthusiasm for the purposes of the state becomes viewed as unpatriotic and potentially subversive.

No Rule of Law, and the Worst Get on Top

In addition, the classical liberal conception of an impartial rule of law, under which individuals possess equal rights to life, liberty, and the peaceful acquisition and use of private property, would have to be replaced by unequal treatment of individuals by the political authorities to assure an ideologically preferred redistributive outcome. But, asked Hayek, by what benchmark, other than prejudice, caprice, or the influence of interest groups, would or could the planners make their decisions?

Finally, in one of the most insightful chapters in the book, Hayek explained why, in the politicized society, there is a tendency for “the worst to get on top.” Fulfillment of the government’s plans and policies requires the leaders to have the power to use any means necessary to get the job done. Thus those with the least conscience or fewest moral scruples are likely to rise highest in the hierarchy of control. The bureaucracies of the planned and regulated society attract those who are most likely to enjoy the use and abuse of power over others.

Hayek died on March 23, 1992, at the age of 92. In the 22 years since his passing, The Road to Serfdom has come to be seen as one of the greatest political contributions of the twentieth century. Indeed, it played a very crucial role in stemming the tide toward totalitarian collectivism in the decades that followed World War II.

The Relevance Today of Hayek’s Warnings

The fundamental insights and truths of his analysis about the dangers from an ever encroaching paternalistic and interventionist government are no less valid now than when he wrote The Road to Serfdom in the midst of the Second World War.

Think of the mounting corruption from special interest groups feeding at the trough of government spending; or the misuse and abuse of intrusive power into people’s lives in the name of “national security”; or the imposition of a paternalistic scale of values concerning presumed “fair wages” and “progressive” redistribution of income and wealth; or the misguided and dangerous presumption that those in political power know better how people should live than those people themselves; or the arrogant discarding of the Rule of Law and constitutional procedures and restraints.

All of these fearful trends in modern-day America show why reading and learning the lessons offered in Hayek’s Road to Serfdom is as important now as it was in 1944, when the book first appeared in print.

 

For Healthcare the Best Government Plan is No Plan by Richard M. Ebeling

One of the most difficult lessons for people to understand and learn is that sometimes you just have to “let go.” That is, you must accept the fact that not everything can be controlled and trying to do so sometimes can make a situation worse. This is never truer than when it concerns government intervention in the economic affairs of the citizenry.

Think of the controversy around the implementation and imposition of ObamaCare. Critics have hammered away at the disaster surrounding the opening of the government’s enrollment website; at the loss of coverage by millions of health insurance policy holders; or the jolting higher premiums or deductibles that many people have discovered they must pay under the “Affordable” Care Act.

Everyone is Looking for a Healthcare Plan

What has been the response of President Obama’s administration and by other supporters of government compulsory health insurance? Besides an illusionary insistence that “now” everything is working just fine, and that people will just “love” this government-mandated “good product” as soon as everyone has had to live under it for a while, their reply has been, “Well, if you think that the Affordable Care Act is so bad, what is your plan for replacing it with something better? What is your alternative agenda for assuring that all Americans have high quality and reasonably priced health insurance and medical care?”

How have the critics responded to this challenge from Obama and his supporters? They often have seemed to be fumbling around, first pointing the finger back at all the problems with ObamaCare, and, second, vaguely alluding to the idea that they have an alternative plan that the government could introduce that would “fix” the healthcare “problem” and make everyone much happier.

In other words, the critics of ObamaCare have bought into the fundamental premise that healthcare should be the concern of government, and that if it is, then there needs to be a different political “plan” that also would be imposed on all the people.

What About Government Planning of Shoes?

Suppose tomorrow the “progressives” were to discover a new crisis in America, the “shoe crisis.” Yes, it seems that not everyone has good, quality, comfortable shoes. Some people can barely afford shoes, and what about “the children”? Children’s feet keep growing, and how can we be sure that parents will be financially able and willing to buy new shoes for their sons and daughters as their feet grow out of the current size they are wearing?

Isn’t this what government is for, to assure that every American has the decent, affordable, and comfortable shoes to which they have a “right” as a human being? Why, every American is “entitled” to a good pair of shoes!

Can we rely upon the profit-motivated greed of private shoe manufacturers to keep shoes available and affordable for every American? Just think of those who may have bunion “preconditions” when buying shoes. There ought to be a law!

So before we know it the president of the United States goes on television saying that he is pushing for Congress to pass the “Affordable Footwear Act.” And if Congress does not do what he knows is good for every American, he has a pen and a telephone to implement executive orders to meet the shoes requirements of “the needy.”

Now, how should the critics respond to such an Affordable Footwear Act, or “ObamaWear,” as it begins to be called? It certainly should not be by saying that they have some alternative plan for government to subsidize low-income shoe consumers, or mandate a special tax-funded program for “footwear for tots.”

Freedom Means the Right to Live for Yourself

The first response should be a philosophical one, which harks back to the founding principles of the country. The purpose of government is not to paternalistically manage and manipulate the lives of the citizenry. The government in a free society is meant to be the protector of each individual’s right to his own life, liberty, and honestly acquired property, and to assure that all human relationships are based on peaceful voluntary consent, rather than violence or fraud.

Who is the president of the United States to presume that he knows what shoes every American needs or wants? Who is he to declare that he will not stand by and allow private shoe manufacturers to sell “substandard” footwear? How does he, a mortal human being like the rest of us, presume to have God-like wisdom to know what type of shoe meets the needs of every man, woman, and child in America?

Is he like some absolute monarch of the past who imposed ancient “sumptuary laws” dictating the cloths, food, and furniture that were considered necessary and appropriate for the various members and groups of society, and which were mandated for some and prohibited for others under threat of legal fine or imprisonment?

The critics should declare and insist that any such “ObamaWear” legislation that might be passed should be repealed, for it would not be compatible with the principle and practice of individual freedom.

The mark of a free man is that he is at liberty to determine his own needs and requirements, and make his own choices and trade-offs concerning what is wanted and desired for him and his family. This applies no less to healthcare or footwear than to anything else in everyday life.

Markets Use More Knowledge than Governments Possess

The second response to such a proposal for an “ObamaWear” piece of legislation should be that the government has neither the knowledge, wisdom nor ability to successfully plan, dictate and direct the production, distribution and sale of a commodity such as shoes.

The special benefit of leaving the supplying of any good or service to the competitive market place – including healthcare and footwear – is that it brings to bear the skills and talents of a vast number of people without any planner or regulator having to know enough to successfully direct all of them in the required tasks to bring a desired commodity to market.

Competitive market prices serve as the signals to tell potential producers what it is that consumers may want and the relative profitability from providing it, while leaving each individual free to use the knowledge, experience, and talent that only he possesses in deciding how best to undertake the task of fulfilling some consumer demand for which he may be best suited to help satisfy.

The freedom of the market place is profoundly important because we can never anticipate what it may be that some individual might creatively come up with to solve a problem or better provide some product or service that might never be imaged until that creative mind sets itself to work on it.

Freedom is Important Because of What We Don’t Know

As the free market Austrian economist and Nobel Prize winner, F. A. Hayek, pointed out in his book, The Constitution of Liberty (1960):

“Liberty is essential in order to leave room for the unforeseeable and the unpredictable; we want it because we have learned to expect from it the opportunity of realizing many of our aims.

“It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it.”

In other words, government planning and regulation undermines, indeed, prevents the real planning out of which human problems are solved and the human condition is improved: The individual planning of each member in society for his own life and in his own place in the social system of division of labor through which both he and all the rest of us benefit.

As a number of critics of government intervention and control have long pointed out, the issue is not government planning versus no planning. Rather, shall the government impose through political coercion its own one plan to solve some supposed “social problem,” or shall multitudes of human plans be set free to work on improving the human condition through the free associations and transactions of the competitive market place?

Millions of Minds are Better than a Few Government Minds

Surely, a nation of millions of minds at work is far better than depending upon what a handful of minds of those in government can imagine, master and effectively management and coordinate in better satisfying the wants, desires, and needs of all in society.

This means that when advocates of government solutions to those social problems ask, “Well, what’s your plan?” the appropriate answer is, “I don’t believe or have confidence in a master plan to which all must conform.”

In other words, we should say, “I want to ‘let go’ and set loose all the plans that may and will be designed by all the people in a free society, precisely because I know that the politicians and bureaucrats do not know enough to do it better for all of us.”

We take it for granted that competitive markets filled with self-interested free men pursuing profit opportunities will give us new and improved televisions, cell phones, home appliances, more durable and wrinkle resistant shirts and pants, and multitudes of other goods that year-in and year-out get better all the time.

This includes shoes of all conceivable styles, fashions, designs, sizes, and price ranges to fit people’s pocketbooks. We should realize and emphasize that this can and will apply no less to people’s health insurance and medical requirements if we would just get government out of the way.

Who and how will lower-cost health insurance policies and medical treatments get developed and introduced that reflects and serves the different needs of all the different people of the United States? I have no idea. And neither does anyone in Washington, D.C.

That is why, as Hayek argued, freedom is so important. Neither you nor I nor the planners and regulators in government can know what someone will creatively come up with, if only he is left free to try and do so.

The Right to Your Own Life Comes First

These improvements in the human condition, however, are the useful and desirable results and often unintended consequences that can emerge only when each man is recognized and respected in his right to live for himself as a free person. It is that right to his own life and to live it as he thinks best that is the primary principle that brings about the secondary outcomes of all those social benefits of the competitive market place.

You want good quality and affordable healthcare? Then get government out of the healthcare business and leave people alone to solve their and other people’s problems through the self-interested pursuit of profit in the free market place.

ObamaCare: Will America’s Health Care Future Follow Germany’s Past? by Richard M. Ebeling

As the American people contemplate the future of their health care system with the implementation of ObamaCare, it is, perhaps, useful to look backward and briefly recall the origin and early history of government-managed national health care in the country where it all began: Imperial Germany in the late 19th century.

In the 1870s, the Social Democratic Party had been increasing its share of the vote among the German electorate and winning a growing number of seats in the Reichstag, the German Parliament. The triumph of Germany’s socialist party seemed very likely in the near future. The German monarch, Kaiser Wilhelm, and the conservative parties sensed that something needed to be done to deflect voter support away from the socialists and their radical vision for nationalization and a centrally planned economy.

Bribing the Workers with the Welfare State

The “Iron Chancellor,” Otto von Bismarck, persuaded the Kaiser to sponsor welfare-statist legislation, including a program for national health care. Bismarck believed that the working class would shift its support from the radical program of the socialist movement to a renewed allegiance for the monarchy and the political status quo.

Years later Bismarck explained his reasoning to William Dawson, an American admirer who quoted the Chancellor in his book, “Bismarck and State Socialism” (1890): “My idea was to bribe the working classes, or shall I say, to win them over, to regard the state as a social institution existing for their sake and interested in their welfare.”

But the philosophy behind national health insurance and other government welfare programs was not merely cynical political manipulation. German political scientists and economists, who were known as members of the German Historical School, argued that what was being implemented was a new era of political paternalism that would free people from the uncertainties of everyday life.

For the German Historical School, “state socialism,” as they called it, offered the middle ground between a radical individualism that desired the state to do nothing and a radical Marxian socialism that desired the state to do everything. The guiding principles, they said, about what the government should regulate and control were to be “pragmatism,” “expediency,” and “opportunism.”

Frederic C. Howe (an American intellectual who played a leading role in the Progressive movement and later served in Franklin Roosevelt’s New Deal) explained this new German thinking about social welfare in his book “Socialized Germany” (1915):

“The [German] state has its finger on the pulse of the worker from the cradle to the grave. His education, his health, and his working efficiency are matters of constant concern . . . First in the list of such [distributive] activities are the social insurance schemes which distribute to the community the burdens of sickness, old age, accident, and invalidity.”

Dawson also summarized the political philosophy behind the expansion of the role of government in society:

“In the mind of the Germans the functions of the state are not susceptible of abstract, a priori deductions. Each proposal must be decided by the time and the conditions. If it seems advisable for the state to own an industry it should proceed to own it; if it is wise to curb any class or interest it should be curbed. Expediency or opportunism is the rule of statesmanship, not abstraction as to the philosophic nature of the state . . . There is almost no dissent to the assumption of state supremacy, of subordination of the individual, of the necessity for personal and class sacrifice to the Fatherland . . . The individual exists for the state, not the state for the individual.”

Howe insisted, “This paternalism does not necessarily mean less freedom to the individual than that which prevails in America or England. It is rather a different kind of freedom,” under which the government relieved people of having to personally plan much of their own lives and those of their families.

Introducing German National Health Insurance

State-mandated health insurance began in Germany in January 1884 and initially covered workers in factories, mines, foundries, banks, dockyards, railroads and inland shipping. The blanket of coverage was extended over increasing portions of the work force in 1885 and 1892, with family members of workers included after 1892. In 1911, workers in agricultural and forestry occupations were added, and by 1928, practically every trade, occupation, and craft in Germany was enveloped in the system.

Before the First World War, anyone making less than 2,000 marks in the covered occupations was required by law to participate in the insurance scheme. By 1928, all those earning less than 3,600 marks were forced to participate. The insurance funds mandated by the German state were organized on the basis of trades and occupations. But the state continually consolidated them, with the result that, while in 1909 there were 23,000 of such funds, by 1914 they had been reduced to 10,000, and to about 7,400 in 1929.

Representatives of employers and labor unions managed the insurance funds in each industry. The government required that at least a sum equal to 1.5 percent of the average wage in an occupation be contributed to the fund by each firm, with the contribution split on the basis of two-thirds being paid by the employee and one-third by the employer. And as a result, worker representatives made up two thirds of the members on the board of each fund.

Benefits first included 13 weeks of free medical care and a cash payment equal to 50 percent of the prevailing wage in the pertinent occupation, with the cash benefit starting on the fourth day of an illness. After 1903, free medical care and cash payments were expanded to a period of 26 weeks. In case of hospitalization, the cash payment was cut in half.

Besides these basic benefits, the compulsory-insurance funds often provided cash benefits equal to 75 percent of the worker’s pay (depending upon family size), and by the 1920s, these cash payments often started only one day after an illness began. Financial coverage was also extended to include nursing services and convalescent treatment for up to a year after the end of cash benefits. Maternity benefits were mandatory as well.

The Results of German Health Insurance

The benefits paid out by the state-mandated health insurance system continuously exceeded contributions received from member employees and employers and required government subsidization. Total contributions received by the health-insurance funds from employers and employees in 1929 were 375 percent larger than they had been in 1913.

But health-insurance benefits paid out by the funds in 1929 were 406 percent larger than what was paid out in 1913. Costs of administering the mandatory insurance funds had increased 288 percent between 1913 and 1929. And the government subsidy to the system had increased by 270 percent between 1924 and 1929.

The extension of socialized health insurance also saw an increase in what the German literature called “malingering.” Walter Sulzbach explained this phenomenon in his study of the “German Experience with Social Insurance” (1947): “Over a period of fifty years [1880-1930], during which medical science scored one triumph after another, it took the average patient under compulsory health insurance an ever longer time to recover.”

In 1885, a year after socialized health insurance began, the average number of sick days taken by members of the system each year was 14.1. In 1900, the annual average number of sick days per member had gone up to 17.6; in 1925, it had increased to 24.4 days; and in 1930, it was an average of 29.9 days.

People also were noticeably sicker around weekends and Christmas and New Year’s Day, particularly in those occupational insurance funds that waived the four-day rule before receiving cash benefits. (The cash benefits were also tax-exempt, so the take-home pay lost by not working was less than 50 percent.)

The ease with which an increasing number of insured workers were able to receive benefits from longer or more frequent periods of illness was not independent of the behavioral incentives at work on the physicians who were part of the system.

Originally, the insurance funds set the fees for services rendered. But in 1913, a doctors’ strike almost occurred and was only averted at the last minute. After that, a joint committee comprised of representatives of the medical profession and the insurance funds determined the fee schedules. An essential ingredient of the fee system was that similar fees were paid for similar services, regard- less of the patient’s ability to pay.

National Health Care Corruption and Abuse

In other words, the frequent practice of private physicians to charge higher fees to wealthier patients as a means to earn higher income and to subsidize voluntarily the treatment they provided to poorer patients was outlawed. Hence, the determination of income earned by doctors in the system was purely on the basis of “quantity,” i.e., the number of bodies examined at the fixed fee per period, as opposed to the quality of the service provided.

At the same time, the tendency of a conveyor-belt view of patients resulted in workers insured under the compulsory system demanding freedom of choice in selecting a physician, rather than being assigned to a doctor participating in the system. This was established as part of the agreement of 1913. But it also meant that a doctor now had an incentive for greater leniency in diagnosing an illness and prescribing sick leave. A less accommodative physician ran the risk of losing his steady patients and suffering a decline in his income as fewer patients entered his examination room.

According to some estimates, by the late 1920s, up to 80 percent of the medical profession in Germany was working for the mandatory health-insurance system, and 60 percent of all earnings in the medical profession came from payments from the compulsory-insurance funds.

Pharmacies also were increasingly dependent upon the compulsory system, with as much as 50 percent of their business turnover coming from these insurance funds in 1928; by 1932, that figure was estimated to be as high as 85 percent.

Walter Sulzbach summarized the nature of the system by the end of the 1920s:

“The members of the German insurance funds were rarely satisfied with the medical help they received. There was little personal contact between the patients and their doctors. It was a system of mass treatment under which many doctors spent only a few minutes on each visitor during their office hours and made home calls as short as possible. ‘Kassenarzt,’ meaning ‘sickness fund doctor,’ was not a complimentary term. ‘Kassenloewe,’ meaning ‘sickness fund lion,’ a term used to describe doctors who made big money from a huge number of insurance patients, was even less complimentary.”

Under the Nazi regime after 1933, the compulsory health insurance system became even more centralized and controlled. The insurance funds lost almost all autonomy and became subservient to the Fuehrer principle. And the employer share of health-insurance payments was increased from one-third to 50 percent. Once the Nazis were in power, explained Melchior Palyi, in “Compulsory Medical Care and the Welfare State” (1949):

“The ill-famed Dr. Ley, boss of the Nazi labor front, did not fail to see that the social insurance system could be used for Nazi politics as a means of popular demagoguery; as a bastion of bureaucratic power; as an instrument of regimentation; and as a reservoir from which to draw jobs for political favorites and loanable funds for rearmament.”

Bismarck’s Paternalism or a Free Market?

Begun by Bismarck as a tool of state policy to fight radical socialism through the implementation of Imperial State Socialism, it ended up as one of the cogs in the wheel of Hitler’s National Socialism. And in the post-World War II period, it has remained a part of the German “social market economy,” in which the government continues to view the citizens as medical wards of the state.

Few advocates of national health insurance in the United States today are probably aware that they are the intellectual great-grandchildren of Otto von Bismarck—but they are. Indeed, it is possibly the most enduring legacy of that famous German statesman of the late 19th century. As Sulzbach observed almost seventy years ago:

“Bismarck’s fame is mainly based on his diplomatic and military successes and on the founding of the German Empire under Prussian leadership. Of all that nothing remains: The Kaiser is gone, the Reich is gone . . . In domestic policy he failed to stop the Social Democrats . . . But the idea of compulsory social insurance which neither he nor his contemporaries considered even remotely his principal achievement took roots and spread. Many countries have adopted it, and its expansion continues.”

America, it seems, is the Iron Chancellor’s latest victory in the political battle over health care.  Or will Americans find a free market way out of their own version of the Bismarckian paternalistic state before it is too late?

 

 

 

 

Before Modern Collectivism: The Rise and Fall of Classical Liberalism by Richard M. Ebeling

(Delivered at the Hungry Minds Speaker Series in Denver, Colorado, February 8, 2014)

This year marks the one hundredth anniversary of the beginning of the First World War. In June of 1914, a Serbian nationalist assassinated Archduke Franz Ferdinand, the heir to the Austro-Hungarian throne, along with his wife, Sophie, in the Bosnian capital of Sarajevo. This set in motion a chain of events that in July and August 1914 brought all the Great Powers of Europe into war with each other.

Men marched off to war in all the major European capitals, cheered on by huge crowds. There was a joyous excitement among many that heroic adventures awaited them on the battlefields across the continent. Large numbers of those going off to war in each country were confident that God was on their side, and easy victories would soon be theirs.  They would all be home by Christmas, their heads bearing laurels of military glory.

Reality soon confronted them all. The war did not end by Christmas time in 1914. It did not end in 1915, or 1916, or even 1917. It went on-and-on until they were mutually exhausted in terms of manpower and material ability to continue any longer. Finally, the Germans and Austrians, and their Turkish and Bulgarian allies sued for an armistice in November 1918, when the military and economic might of the United States – which had entered the war in April 1917 – turned the scales in favor of a British, French and Italian victory.

By the end of the conflict, all the warring nations had called up more than 60 million men to serve in the military, and at least 20 million soldiers and civilians had lost their lives. The total monetary cost of the war, estimated in the equivalent of 2013 dollars, was nearly $3.5 trillion.[1]

The Great War Released the Collectivist Demons

The First World War also set lose all the “demons” that ended up bringing so much horror to the 20th century. In the midst of the war, in November 1917, Vladimir Lenin and the Bolsheviks succeeded in engineering a coup d’état in Russia that ushered in a nearly 75-year brutal communist dictatorship, which ended up threatening the freedom of the world until the collapse of the Soviet Union in 1991.

In 1922, Benito Mussolini and his fascist movement engineered a political crisis in Italy that brought “Il Duce” to power, and which raised the flag of an all-embracing collectivist nationalism for which Mussolini coined the term, “totalitarianism.”  Like the communists in Russia, the fascists insisted that the individual had no life or meaning outside of the collective. The communists talked of “social classes” and “class conflict.” The fascists spoke of nation-states and global nationalist conflicts.

In defeated Germany, a postwar hyperinflation in the early 1920s undermined what remained of the middle class and the foundations of German civil society. In this weakened social state, and with the coming of the Great Depression in the early 1930s, a mesmerizing demagogue named Adolf Hitler came to power in 1933 by playing upon the fears of wide segments of the German people with promises of full employment, decent standards of living, and a restoration of the German nation’s “greatness” through a purification of “the race.” The triumph of Hitler and the German National Socialist – Nazi – movement set in motion a sequence of events that lead to an even worse and more destructive Second World War.

In the United States, the Great Depression resulted in Franklin D. Roosevelt being elected president in 1932. Soon after coming to office in early 1933, FDR introduced the “New Deal” as his answer to America’s economic hardships. He implemented a series of government planning programs covering industry and agriculture that paralleled the fascist economic model of Mussolini’s Italy.

The Human Cost of Collectivism

Historians have attempted to add up the human cost of 20th century collectivism – whether in its communist, fascist, Nazi or general authoritarian forms. Their estimates suggest a a number of many as 250 million innocent and unarmed men, women, and children who were killed on the altars of creating a “new socialist man” or a “new master race,” or super powerful nation-states.

The largest numbers killed by execution, torture, slave labor, or government-created famines are estimated to be:

  • Communist China (1949-1976) under Mao Zedong – 80 million;
  • Soviet Union (1917-1991) under Lenin, Stalin, and their successors – 68 million;
  • Nazi Germany (1933-1945) under Hitler and his henchmen – 25 million.

Such numbers are more than the human mind can comprehend. It is worth remembering that each of these victims was an individual human being with hopes and dreams, plans and purposes for their life. Each one was someone’s mother or father, brother or sister, or aunt or uncle or cousin. Each was a unique individual person whose life was wiped out in the name of building a beautiful, bright Utopian future.[2]

In Western Europe and America the extreme forms of collectivism never were able to gain power. Yet, nonetheless, the socialist seeds took root and merely germinated into less totalitarian forms. They became what today we continue to call the interventionist-welfare state. The government regulates industry, trade, and commerce; it redistributes wealth; and its imposes various conceptions of “good behavior” and “right living” on the basis of a political paternalism that presumes that individuals may not be trusted to manage their own lives or freely choose their associations and relationships with others, both in the marketplace and the wider society.

How did this all come about? And why?

The Classical Liberal Era Before World War I

Any answers must see the First World War as a watershed separating two distinct epochs and eras in the recent history of mankind. The world before 1914 was in many ways far different from what we take for granted today, especially in terms of various personal, political and economic freedoms we have lost since then.

The best way to get a sense of what that now bygone age before World War I was like is to quote John Maynard Keynes, from his 1919 book, The Economic Consequences of the Peace:

“What an extraordinary episode in the economic progress of man that age was which came to an end in August 1914! The greater part of the population, it is true, worked hard and lived at a low standard of comfort, yet were, to all appearances, reasonably contented with this lot. But escape was possible, for any man of capacity or character at all exceeding the average, into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages. The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could dispatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice.”[3]

It was what another economist, Gustav Stolper, referred to in his book, This Age of Fable (1942) as the era of the three freedoms: the free movement of men, money, and goods.

“Everyone could leave his country when he wanted and travel or migrate wherever he pleased without a passport. The only European country that demanded passports (not even visas!) was Russia . . . Who wanted to travel to Russia anyway? . . . There were still customs barriers on the European continent, it is true. But the vast British Empire was free-trade territory open to all in free competition, and several other European countries, such as the Netherlands, Belgium, Scandinavia, came close to free trade  . . . And the most natural of all was the freedom of movement of money. Year in, year out, billions were invested by the great industrial European Powers in foreign countries . . . These billions were regarded as safe investments with attractive yields, desirable for creditors as well as debtors, with no doubt about the eventual return of both interest and principle . . . The interest paid on these foreign investments [were] protected not only by [the] political and military might [of the great industrial Powers], but – more strongly – by the general, unquestioned acceptance of the fundamental capitalist principles: sanctity of treaties, abidance by internal law, and restraint of governments from interference in business.”[4]

What needs to be appreciated is that a hundred years earlier, in 1815, at the time of the defeat of Napoleon by Great Britain, Imperial Russia and their allies, most parts of Europe had none or few of such freedoms.

Throughout Europe absolute or near absolute monarchies reigned nearly supreme from one end of the continent to another. Governments regulated and restricted domestic and international trade, imposed wage and price controls, censored the press, and discriminated against individuals and groups on the basis of religion; civil liberties either were not respected or were easily abridged by governments on arbitrary grounds. In addition, slavery still existed around the world, including in the global empires of these European Great Powers.

America the Beacon of Individual Liberty

Only across the Atlantic, in that new nation of the United States of America, was there a written constitution that in principle and practice recognized the rights of individuals to their life, liberty and honestly acquired property. Only in America could an individual say and do virtually anything that he wanted, as long as it was peaceful and not an infringement on other citizens’ similar individual rights. Only in America was trade across this new and growing country free from government regulations and controls or oppressive taxes, so people could live, work and invest wherever they wanted, for any purpose that took their fancy or offered them profit.

Michel Chevalier, was a Frenchman who, like Alexis de Tocqueville, visited America in the 1830s, then returned to France and wrote a book about his impressions of the Society, Manners and Politics of the United States (1839). Chevalier explained to his French readers:

 “The American is a model of industry . . . The manners and customs are altogether those of a working, busy society. At the age of fifteen years, a man is engaged in business; at twenty-one he is established, he has his farm, his workshop, his counting-room, or his office, in a word his employment, whatever it may be. He now also takes a wife, and at twenty-two is the father of a family, and consequently has a powerful stimulus to excite him to industry. A man who has no profession, and, which is the same thing, who is not married, enjoys little consideration; he, who is an active and useful member of society, who contributes his share to augment the national wealth and increase the numbers of the population, he only is looked upon with respect and favor. The American is educated with the idea that he will have some particular occupation, that he is to be a farmer, artisan, manufacturer, merchant, speculator, lawyer, physician, or minister, perhaps all in succession, and that, if he is active and intelligent, he will make his fortune. He has no conception of living without a profession, even when his family is rich, for he sees nobody about him not engaged in business. The man of leisure is a variety of the human species, of which the Yankee does not suspect the existence, and he knows that if rich today, his father may be ruined tomorrow. Besides, the father himself is engaged in business, according to custom, and does not think of dispossessing himself of his fortune; if the son wishes to have one at present, let him make it himself!”[5]

Chevalier also emphasized the competitive spirit of the American: “An American’s business is always to be on edge lest his neighbor get there before him. If a hundred Americans were about to go before a firing squad, they would start fighting for the privilege of going first, so used are they to competition”![6]

It may seem to many as a cliché, but in those decades of the 19th and early 20th centuries, when few migration restrictions barred the door, America stood out as a beacon of hope and promise. Here a man could have his “second chance.” He could leave behind the political tyranny, religious oppression and economic privileges of the “old country” to have a new start for himself and his family. Between 1840 and 1914, nearly 60 million people left the “old world” to make their new beginnings in other parts of the world, and almost 35 million of them came to America. Many of us are the lucky descendants of those earlier generations who came to “breathe free” in the United States.[7]

The Ancient Dream of Unfulfilled Freedom

Since ancient times, there have been some thinkers who dreamed of a world with greater freedom for all men. But for most of human history this remained only dreams. The ancient Greeks spoke of the importance of man’s reason and the need for freedom of thought if our minds were to challenge each other’s logic and understandings as we groped toward a more complete awareness of the objective world around us.

The Romans argued about a higher more universal or general law for men to live under, if only they came together to reason and agree about what could be a just “natural order” in society, given the nature of man. Jews and Christians appealed to a “higher law” concerning “right” and “justice” that was above the power of earthly kings and princes, and to which all men are subservient and responsible since it was given to them by the Creator of all things.[8]

But for all of human history men lived under the earthly powers of conquerors and kings who claimed “divine rights” to rule over them. They were objects to be used and abused for the ends of those who held the whips and swords over their heads. Their lives and their efforts were to serve and be sacrificed for something that was said to be greater than and above them.

Their lives were not their own. They belonged to another. They were slaves, regardless of the names and phrases used to describe and defend what was a master-servant relationship. Human society was a world of the unfree.

Then this began to change, first in men’s minds, then in their actions, and finally in the political and economic institutions under which people lived and worked.

Classical Liberalism and Natural Rights

While it is today often ridiculed or discounted by philosophers who often find it easier to speak about ethical nihilism and political relativism, the modern world of freedom had its origin in the conception of “natural rights.” Rights that reside in men by their “nature” as human beings, and which logically precede governments and any man-made laws that may or may not respect and enforce these rights.[9]

Political philosophers such as John Locke articulated them in the 1600s. “Though the earth and all inferior creatures be common to all men, yet every man has a ‘property’ in his own ‘person,’” insisted Locke. “This nobody has any right to but himself. The ‘labor’ of his body and the ‘work’ of his hands, we may say, are properly his.”

While every man has a natural right to protect his life and his peacefully produced or non-aggressively acquired property, men form political associations among themselves to better protect their respective rights. After all, a man may not be strong enough to protect himself from aggressors; and he cannot always be trusted when in the passion of the moment he uses defensive force against another that may not be reasonably proportional to the offense against him.[10]

Here in a nutshell is the origin of the ideas that germinated for nearly another century, and then inspired the Founding Fathers in the words of the Declaration of Independence in 1776, when they spoke of self-evident truths that all men are created equal with certain unalienable rights, among which are life, liberty and the pursuit of happiness, and for the preservation of which men form governments among themselves.

While every American schoolboy knows – or should I say, used to know – by heart those stirring words in the Declaration of Independence, what most Americans know less well is the remainder of the text of that document. Here the Founding Fathers enumerated their grievances against the British crown: taxation without representation; restrictions on the development of trade and industry within the British colonies and regulations on foreign commerce; a swarm of government bureaucrats intruding into the personal and daily affairs of the colonists; violations of basic civil liberties and freedoms.

What aroused their anger and resentment is that a large majority of these American colonists considered themselves to be British by birth or ancestry. And here was the British king and his Parliament denying or infringing upon what they considered to be their birthright – the customary and hard won “rights of an Englishman,” gained over several centuries of successful opposition against arbitrary monarchical power.

Freedom is the common intellectual inheritance left to us by the great thinkers of the West. But it is nonetheless the case that much that we consider and call individual rights and liberty had it impetuous in Great Britain, in the writings of the political philosophers like John Locke and David Hume, legal scholars like William Blackstone and Edward Coke, and moral philosophers and political economists like Adam Smith.

What their combined writings and that of many others gave the West and the world over the last three or four centuries has been the philosophy of political and economic liberalism.

The Liberal Crusade Against Slavery                                                  

What was the vision and agenda of 18th and 19th century liberalism? They may be understood under five headings:[11]

First, was the freedom of the individual as possessing a right to own himself. The great British liberal crusade in the second in the half of the 18th century and then in to the early decades of the 19th century was for the abolition of slavery. The words of the British poet William Cowper in 1785 became the rallying cry of the anti-slavery movement:

“We have no slaves at home – Then why aboard? Slaves cannot breathe in England; if their lungs receive our air, that moment they are free. They touch our country, and their shackles fall.”

The British Slave Trade Act of 1807 banned the slave trade, and British warships patrolled the west coast of Africa to interdict slave ships heading for the Americas. This culminated in the Slavery Abolition Act of 1833, which formally abolished slavery throughout the British Empire 180 years ago, on August 1, 1834.[12]

Though not overnight, the British example heralded the legal end to slavery by the close of the 19th century through most of the world that was touched by the Western nations. The unimaginable dream of a handful of people over thousands of years of human history finally became the reality for all under the inspiration and efforts of the 19th century liberal advocates of individual freedom.

The Liberal Crusade for Civil Liberties                                                 

 The second great liberal crusade was for the recognition of and legal respect for civil liberties. Since Magna Carta in 1215, Englishmen had fought for monarchical recognition and respect for certain essential rights, including no unwarranted or arbitrary arrest and imprisonment. These came to include freedom of thought and religion, freedom of speech and the press, and freedom of association. Above it all was the wider idea of the Rule of Law, that justice was to be equal and impartial, and that all were answerable and accountable before the law, even those representing and enforcing the law in the name of the king.[13]

England in the 19th century became a refuge in Europe for many of those denied such civil liberties in their own lands. Karl Marx, for example, settled in and lived out the rest of his life in London in the middle of the 19th century, due to censorship and repression of his socialist ideas on the continent.

The Liberal Crusade for Economic Freedom                                         

The third great liberal crusade was for freedom of enterprise and free trade. Throughout the 17th and 18th centuries governments in Europe controlled, regulated and planned all the economic activities of their subjects and citizens as far as the arms of their political agents could reach.

Adam Smith and his Scottish and English allies demolished the assumptions and logic of Mercantilism, as the system of government planning was then called. They demonstrated that government planners and regulators have neither the wisdom, nor knowledge, nor the ability to direct the complex interdependent activities of humanity.

Furthermore, Adam Smith and his economist colleagues argued that social order was possible without political design. Indeed, “as if guided by an invisible hand,” when men are left free to direct their own affairs within an institutional setting of individual liberty, private property, voluntary exchange, and unrestricted competition, there spontaneously forms a “system of natural liberty” that generates more wealth and coordinated activity than any governmental guiding hand could ever provide.

The benefits of such economic liberty that made Great Britain and then the United States the industrial powerhouses of the world by the end of the 19th century, was rapidly doing the same, though at different rates, in other parts of Europe, and then, slowly, to other parts of the world, as well. Population sizes in the West grew far above anything known or imaged in the past, yet increased production and rising productivity were giving those tens of millions of more people an increasing standard and quality of living.

The Liberal Crusade for Political Freedom

The fourth liberal crusade was for greater political liberty. It was argued that if liberty meant that men were to be self-governing over their own lives, should that not also mean that they participate in the governing of the society in which they live, in the form of an enlarged voting franchise through which the governed selected those who held political office under their behalf?

Liberals condemned the corrupt and manipulated electoral process in Great Britain that gave office in Parliament to handpicked voices defending the narrow interests of the landed aristocracy at the expense of many others in society. So as the 19th and early 20th centuries progressed the right to vote moved more and more in the direction of universal suffrage.

It was not that liberals were unconcerned about the potential abuses from democratic majorities. In fact, John Stuart Mill, in his Considerations on Representative Government (1859) proposed that all those who received any form of financial subsidy or support from the government should be denied the voting franchise for as long as they were dependent in such a manner upon the taxpayers. There was too much of a possible conflict of interest when those who received such redistributive benefits could vote to pick the pockets of their fellow citizens. Alas, his wise advice was never followed.[14]

The Liberal Crusade for International Peace

Finally, the fifth of the liberal crusades of the 19th century was for, if not the abolition of war, then at least the reduction in the frequency of international conflicts among nations and the severity of damage that came with military combat.

And, in fact, during the century that separated the defeat of Napoleon in 1815 and the commencement of the First World War in 1914, wars at least among the European Powers were infrequent, relatively short in duration, and limited in their physical destruction and taking of human life.

It was argued that war was counter-productive to the interests of all nations and peoples. It prevented and disrupted the natural benefits that can and did improve the conditions of all men through peaceful production and trade based on an international division of labor in which all gained from the specializations of others in industry, agriculture, and the arts.[15]

Due to the liberal spirit of the time there were some successful attempts to arrange formal “rules of war” among governments under which the lives and property of innocent non-combatants would be respected even by conquering armies. There were treaties detailing how prisoners of war were to be humanely treated and cared for, as well as the banishing of certain forms of warfare deemed immoral and ungentlemanly.[16]

It would, of course, be an exaggeration and an absurdity to claim that 19th century liberalism fully triumphed in terms of its ideals or its goals of political and economic reform and change.

However, if there is any meaning to the notion of a prevailing “spirit of the age” that sets the tone and direction of a period of history, then it cannot be denied that classical liberalism was the predominate ideal in the early and middle decades of the 19th century. And that it changed the world in a truly transformative way. Whatever (properly understood) political, economic, and personal liberty we still possess today is due to that earlier classical liberal epoch of human history.

(It may also be argued that any extensions of the principles of individual rights and equality of treatment before the law relating to gender or race that occurred in the 20th century were the logical applications of those classical liberal principles.)

The Rise of Reactionary Collectivism

Unfortunately, before the full fruits of the liberal ideal of individual liberty, free markets and constitutionally limited government could be more completely implemented and benefited from, the 19th century saw the rise of a set of counter-revolutionary ideas. These reactionary ideas came from several directions; they all wanted to move man and humanity back to forms of the collectivist and tyrannical systems of the past.

There were the reactionaries who wished to preserve or restore the absolutist monarchical systems that liberalism had challenged and was defeating. But far more dangerous and successful were the new reactionaries who clothed themselves in a rhetoric and rationale of being revolutionary progressives who wanted to take man to a higher and purer freedom than merely the illusionary freedom of liberal individualism.[17]

The spokesmen for these new reactionary collectivisms were many, but it is fair to say that among them such voices as those of Jean-Jacques Rousseau, Georg Wilhelm Friedrich Hegel, and Karl Marx have been especially influential and damaging.

Rousseau and the “General Will”

In his work on The Social Contract (1762), Rousseau formulated the notion of a collective General Will of “the people” as a whole, which by definition represented what was in the true interest of humanity, and to which each individual should accept his subservience as a member of the human community.

When in January 1793 a messenger was sent to inform the revolutionary French forces in the east of the country, who were facing the invading armies of anti-revolutionary foreign monarchs, that the French king had been executed, one of the French officers asked, “For whom shall we fight from now on,” if not the king? The reply was, “For the nation, for the Republic.”[18]

Thus, was born the myth of “the people,” the “nation” as a collective entity with a will, a purpose, a meaning of its own for which the individual was to sacrifice his life and his fortune. And, in fact, the revolutionary government in Paris soon imposed political tyranny and a planned economy in the name of “the people of France” as a whole.[19]

Hegel and Marx’s Dialectic of Historical Determinism

Hegel’s contribution was to assert that human history followed a preordained course through a conflict of inescapable stages that would all lead to a higher spiritual conception of freedom as perfect knowledge and understanding, which would free men from their chains of ignorance and materialistic living. The fundamental social instrument for the progressive purification of man was the State, Hegel insisted; and specifically, the Prussian State reflected in his mind the finest in political rule and which all should follow as a model of governmental goodness.[20]

Marx took Hegel’s conception of dialectical progress, and “turned it on its head,” as he claimed. Human progress does not come though the purification of some abstract idea of “mind perfected.” No, it comes through the realization that mind is a product of the material means through which men live and work. Freedom of thought, of human choice and decision-making are all illusions.

We are the products and victims of the technological means through which production is undertaken. These pass through uncontrollable stages of transformation, each of which requires its own unique set of social, political and economic institutional relationships for their respective maturing.

All of this, in Marx’s view, would lead to a final stage of post-scarcity human existence in which technology would relieve man from work, and its accompanying alienation of men having to do things not because they want to but because they must to live and survive. Real freedom, “communism,” Marx promised, would be when we could all hunt in the morning, fish in the afternoon, and sit around in the evening reflecting on socialist philosophy without the necessity to do any of the effort to have such a life of play and ease.

But this would only come when the mass of humanity came to have the consciousness raising insight that individuals were defined by their relationship to owning or not owning productive property. Therefore, were you a member of the “social class” of exploiting, profit-seeking greedy capitalists or a member of the exploited, toiling masses, the “working class,” who were the real producers of everything but who were denied their just due by those handful of property-owning capitalists who lived off part of what the real producers created with their physical labor?[21]

Progressivism as Collectivist Inevitability

Here is the origin of “progressivism” as policies of enlightened and forward-looking change. History follows a path of progressive improvement in terms of its technological change to relieve people from work, and the social replacement of out-of-date property and political arrangements that all move society more and more in the direction of blissful socialism and post-scarcity communism.

How can any “right-thinking” person oppose such programs as Social Security and National Health Care? Are these not “progressive” improvements by which the “General Will” of the people as a whole replaces the burdens and uncertainties of individual life under profit-seeking capitalism with an enlightened collective caring and securing?

If peoples and their histories have a life of their own independent of the individual members of these societies, and if those collective histories move in a certain “progressive” direction determined by enlightened thought and social necessity, then why should not those who see more clearly and earlier than others give it all a “helping hand” through intentionally guided revolutionary change?

This explains the socialist, communist, fascist and Nazi revolutions of the 20th century. An enlightened elite that knows the nature and necessities of class conflicts or national and racial rivalries shall undertake action. Somehow the members of that elite know that they know what the social or national or racial “General Will” really is and what is required from all of its members for that collective to advance and triumph.

Social Utility versus Individual Rights

But why did these counter-revolutionary collectivisms supersede that older liberalism? Those who have bemoaned the passing of classical liberalism in our time have attempted to offer explanations. Some have suggested that it was caused by the rise of utilitarianism in place of natural rights. Any economic or social policy was to be evaluated on the basis of its consequences or outcomes. By what standard or benchmark? Its “social utility,” as based on its improvement in the human condition as measured by material welfare, human happiness or improved opportunity.

But an improvement in human welfare, happiness or opportunity in whose eyes? After all, casual reflection makes it clear that men differ on what these terms may mean and include, and what relative trade-offs would be considered acceptable in changing circumstances for different individuals.

This, in my opinion, was a major wedge in splintering the liberal movement into classical and modern, or “progressive,” liberals. This weakened the idea that “freedom” was inseparable from a notion of individual rights. “Freedom” was redefined in terms of people’s ability to do desired things, rather than connected to a “right” to be free from the coercion of others; that is, to “own yourself” and not to be forced to serve and sacrifice for the ambitions and purposes of others, whether that was a king or majority of democratic voters. This opened wide the door for the claim that the “good of the many” comes before the “good of the one.”

As the French liberal, Benjamin Constant, expressed it in his Principles of Politics (1815) in opposition to Jeremy Bentham’s Utilitarian philosophy,

“Right is a principle, utility is only a result . . . Say to a man: you have a right not to be put to death or arbitrarily plundered. You give him quite another feeling of security and protection than you will by telling him: it is not useful [for society] for you to be put to death or arbitrarily plundered.”[22]

Social Engineers and Their Pretense of Knowledge

The older liberalism was also undermined by what some friends of freedom have explained and warned about as the “hubris of the intellectual” and the “pretense of knowledge” on the part of the social engineer.[23] The advancements of the natural sciences that have enabled the taming of the physical world to serve men’s purposes lead to an arrogant self-confidence that applying the same methods and techniques to the social sciences would enable man to remake and transform human society into any desired shape that enlightened men may want and consider better for their fellow human beings.

Again, since “society” was considered a collective entity to be judged and acted upon, it easily lead to the rise of that dangerous person about whom Adam Smith warned us nearly 250 years ago: “The man of system” who is so “wise in his own conceit” about how he thinks society should be reordered that he views individuals as mere “pawns” to be moved about on the “great chessboard of society,” under the presumption that those human pawns have no will or motion other than the one the social engineer imposes on it.[24]

Democracy as Coerced Club Memberships

Still others have pointed to the dangers of modern democracy, under which the presumption is that society is a collective club in which the members deliberate and vote on various problems of common interest, and then agree to abide by the will of the majority as the only practical rule of group decision-making.

What the advocates of unlimited modern democracy blurred in this conception of society as a “club” is that clubs are normally considered to be voluntary associations of people who may share one or a variety of common interests and goals, but from which the individual may withdraw and resign if he comes not to share those goals or purposes any longer or decides that he disagrees with the means the other club members have chosen to try to achieve them.

The modern “democratic club of society” is one from which the individual cannot easily withdraw. Indeed, even if he strongly disagrees with the ends and/or means that the majority may have decided upon concerning some “social issue” he is compelled to partly pay for it through compulsory taxation. He is also made to conform to what the political “club” imposes under threat of fine, imprisonment and even physical harm if he resists.

Collectivism versus the Individual

In other words, the reactionary counter-revolution that has undermined the classical liberal ideal and its agenda was a revolt against its essential and core concept: the uniqueness and the separateness of the individual from the collective, the group, the tribe into which he was born.

Freedom means that the individual may live for himself. He lives in society with others with whom he may share values, find mutually beneficial opportunities for association and trade, and for whom he may “sacrifice” if he wisely or unwisely chooses to do so as his own voluntary decision.

But the collective does not own the individual and it has no compulsory claim on his creative efforts or the fruits of his labors. This was something too many others in society found intolerable. He might act and live in ways different or disagreeable to many of the others around him. He might excel at what he placed his mind and hand to do, and others resented his achievements, since his success made some of them more conscious of their own failures or more modest successes in comparison to his.

Still others feared and were made angry by the fact that his right to the fruits of his own mental and physical labors gave them no claim on his production and wealth. They were left to live on the smaller fruits of their own labor and thus on less than what they wanted or desired. It easily degenerated into the assertion that no one could have such wealth unless they had somehow taken from others what rightfully belonged to them.[25]

This remains the political and social state of the world, now, in the 21st century. To the extent that degrees of free market capitalism operate around the world, it continues to “deliver the goods” and raise millions out of poverty.

Restoring the Foundations of Liberty

But its classical liberal political philosophical roots remain in retreat. What is needed more than anything is a successful new grounding of the case for individual rights and economic liberty. Clearly, the foundations developed in earlier centuries, as either “self-evident truths” or “God-given” rights have neither the appeal nor persuasiveness that they once had.

What must be developed is a case for freedom that starts with a better demonstration and defense of the nature of man in the world and what is necessary for his survival and improvement. In an age in which religion has lost it hold and appeal for many, such a defense of freedom must have its basis in reason, logic and objective reality.

Central to such a new defense of liberty must be its emphasis on principle versus expediency; that freedom is a tightly woven tapestry of principles that when compromised “at the margin” between individual liberty and political paternalism has the risk of incremental loses of freedom that cumulatively run the danger of an unplanned but no less serious “road to serfdom.”

As Friedrich Hayek argued, minor or marginal “exceptions” to advance seemingly “good causes” through government regulation, redistribution, or planning, always threaten to become a slippery slope:

“The preservation of a free system is so difficult precisely because it requires a constant rejection of measures which appear to be required to secure particular results, on no stronger grounds than that they conflict with a general rule [of non-government intervention], and frequently without our knowing what will be the costs of not observing the rule in the particular instance. A successful defense of freedom must therefore be dogmatic and make no concessions to expediency, even where it is not possible to show that, besides the known beneficial effects, some particular harmful result would also follow from its infringement. Freedom will prevail only if it is accepted as a general principle whose application to particular instances requires no justification. It is thus a misunderstanding to blame classical liberalism for having been too doctrinaire. Its defect was not that it adhered too stubbornly to principles, but rather that it lacked principles sufficiently definite to provide clear guidance . . .

“People will not refrain from those restrictions on individual liberty that appear to them the simplest and most direct remedy of a recognized evil, if there does not prevail a strong belief in definite principles. The loss of such belief and the preference for expediency is no part the result of the fact that we no longer have any principles that can be rationally defended.”[26]

As Hayek argued on another occasion, if the cause of liberty is to prevail once again, it is necessary for friends of freedom to not be afraid of being radical in their case for classical liberalism – even “utopian” in a right meaning of the term.[27] To once more make it a shining and attractive ideal to imagine a world of free men who are no longer slaves to others, whether they be monarchs or majorities.

It would be a world of sovereign individuals who respect each other, who treat each other with dignity and who view each other as an end in himself, rather than one of those pawns to be moved and sacrificed on that chessboard of society to serve the ends of another who presumes to impose coercive control over his fellow human beings.

If we can do this, the collectivist counter-revolution can be defeated and the classical liberal revolutionary ideal of free men who form a great and good society through their associations on the basis of trade rather than tyranny can bring us liberty, peace and prosperity before the end of this new century.

 

End Notes


[1] See, Richard M. Ebeling, “The Lasting Legacies of World War I: Big Government, Paper Money and Inflation,” Economic Education Bulletin (Great Barrington: MA: American Institute for Economic Research, Nov. 2008).

[2] R. J. Rummel, Death by Government (New Brunswick, NJ: Transaction Books, 1994).

[3] John Maynard Keynes, The Economic Consequences of the Peace (New York: Harcourt, Brace, 1920), pp. 10-12.

[4] Gustav Stopler, This Age of Fable: The Political and Economic World We Live In (New York: Reynal & Hitchcock, 1942), pp. 7-8.

[5] Michel Chevalier, Society, Manners, and Politics of the United States (Boston: Weeks, Jordon, 1839) pp. 383-284.

[6] Quoted in William E. Rappard, The Secret of American Prosperity ( New York: Greenberg, 1955) p. 59.

[7] R. R. Palmer and Joel Colton, A History of the Modern World (New York: McGraw-Hill, 8th ed., 1995), pp. 592-595.

[8] Ramsey Muir, Civilization and Liberty (London: Jonathan Cape, 1940), pp. 26-52; and Louis Rougier, The Genius of the West (Los Angeles, CA: Nash Publishing, 1971), pp. 1-55.

[9] George H. Smith, The System of Liberty: Themes in the History of Classical Liberalism (New York: Cambridge University Press, 2013).

[10] John Locke, The Works of John Locke, Vol. 4: Two Treatises on Government (London, 1824), Chapter V: “Of Property.”

[11]  Cf., Ramsey Muir, “Civilization and Liberty,” The Nineteenth Century and After (Sept. 1934), pp. 213-225.

[12] Harry Pratt Judson, Europe in the Nineteenth Century (New York: Charles Scribner’s Sons, 1900) p. 215.

[13] Albert Venn Dicey, The Law of the Constitution (Indianapolis: Liberty Classics, 1982 [1885; revised ed., 1914]), pp. 114 & 132; also, Richard M. Ebeling, “Free Markets, the Rule of Law, and Classical Liberalism,” The Freeman: Ideas on Liberty (May 2004), pp. 8-15.

[14] John Stuart Mill, The Collected Works of John Stuart Mill, Vol. 19: Considerations on Representative Government (Toronto: University of Toronto Press, [1859] 1977), Chapter VIII: “Of the Extension of the Suffrage.”

[15] Edmund Silberner, The Problem of War in Nineteenth Century Economic Thought (New York: Garland Publishing, [1946] 1972),

[16] Richard M. Ebeling, “World Peace, International Order, and Classical Liberalism,” International Journal of World Peace (Dec. 1995) pp. 47-68.

[17] See, Herbert Spencer, The Man versus the State (Indianapolis: Liberty Classics, 1981), Chapters 1 & 2: “The New Toryism” and “The Coming Slavery,” pp. 5-70.

[18] Hans Kohn, Prelude to Nation-States: The French and German Experience, 1789-1815 (Princeton, NJ: D. Van Nostrand, 1967) p. 47.

[19] Richard M. Ebeling, “Inflation and Controls in Revolutionary France: The Political Economy of the French Revolution,” in Stephen Tonsor, ed., Reflections on the French Revolution (Washington, D.C.: Regnery Gateway, 1989) pp. 138-156.

[20] See, Karl Popper, The Open Society and Its Enemies, Vol. II: The High Tide of Prophecy: Hegel, Marx, and the Aftermath (Princeton, NJ: Princeton University Press, 1945), Chapter 12: “Hegel and the New Tribalism,” 27-80; G.P. Gooch, Studies in Modern History (Freeport, NY: Books for Libraries [1931] 1968), Chapter 5: “German Theories of the State,” pp. 208-232; Rudolf Rocker, Nationalism and Culture (St. Paul, MN: Michael E.  Coughlin, Publisher, 1978) pp. 192-199.

[21] Karl Popper, The Open Society and Its Enemies, Vol. II, 81-211; Ludwig von Mises, Theory and History: An Interpretation of Social and Economic Evolution (New Haven, CT: Yale University Press, 1957), Chapter 7: “Dialectical Materialism,” pp. 102-158; Ludwig von Mises, Marxism Unmasked: From Delusion to Destruction (Irvingon-0n-Hudson, NY: Foundation for Economic Education, 2006) pp. 1-49.

[22] Benjamin Constant, Principles of Politics Applicable to All Governments (Indianapolis, IN: Liberty Fund [1815] 2003), p. 41.

[23] Wilhelm Röpke, Civias Humana: A Humane Order of Society (London: William Hodge, [1944] 1948) pp. 43-60; Friedrich A. Hayek, The Collected Works of F. A. Hayek, Vol. 15: The Market and Other Orders (Chicago: University of Chicago Press, 2014), Chapter 16: “The Pretense of Knowledge” [1975] pp. 362-372.

[24] Adam Smith, The Theory of Moral Sentiments (New Rochelle, NY: Arlington House [1759] 1967) pp. 342-343.

[25] Ayn Rand, The Virtue of Selfishness (New York: Penguin Books, 1964); and Capitalism: The Unknown Ideal (New York: Penguin Books, 1967)

[26] F. A. Hayek, Law, Legislation and Liberty, Vol. I: Rules and Order (Chicago: University of Chicago Press, 1973) p. 61.

[27] Friedrich A. Hayek, The Collected Works of F. A. Hayek, Vol. 10: Socialism and War: Essays, Documents, Reviews (Chicago: University of Chicago Press, 1997), Chapter 11: “The Intellectuals and Socialism,” [1949], pp. 221-237.