Tag Archives: Economics
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Paying People not to work won’t make us Richer
One of the most important principles of economics is that people respond to incentives. You get more of whatever you incentivize. You get less of whatever you disincentivize. This is irrefutable. The supplemental unemployment payment does both—it incentivizes people not to work, and simultaneously disincentivizes them from working.
The number of people who have dropped out of the labor force in Colorado, those who are not actively seeking employment, remains near record highs even as open jobs go begging. Employers cannot find sufficient workers to restart their businesses, or to expand existing operations back to full capacity. They face higher costs by having to entice people out of unemployment. After a full year of partial economic lockdown in Colorado, this is holding back our recovery.
According to U.S. government data, total employment in Colorado has yet to return to pre-lockdown levels. Personal income in Colorado has yet to return to pre-lockdown levels. Real GDP in Colorado has yet to return to pre-lockdown levels. Furthermore, employment and income losses are concentrated among the poor and minorities. The last thing they need is an increased incentive not to work.
Another important economic principle is that income is created by production. When fewer people work and fewer businesses operate at capacity, it is axiomatic that less income is produced. Government payments in lieu of earned income may help some individuals in the short run, but it harms the economy as a whole in the long run. One dollar of supplemental unemployment does not have the same economic impact as one dollar of production-based earned income.
Progressives imagine that they can ignore the laws of economics. But they cannot ignore the consequences of ignoring the laws of economics. They imagine that their policies, that pay people not to work, do not result in fewer people working. They are shocked, shocked, at the very suggestion.
With supplemental benefits, many people receive more in unemployment than they earned in their previous job. And, although even more people receive less in unemployment that at their previous job, the differential at the margin is frequently not enough to incentivize a return to work. A recent article in the Wall Street Journal makes my point, “Unemployment Rolls Shrink Faster in States Cutting Aid.” Businesses see an increase in job applications as jobless aid is reduced. That is based on data—what used to be called “science.”
Even for those who receive more in unemployment than by working, the short-term money cannot make up for the long-term loss of moving up the employment ladder, achieving seniority, and earning raises. At a sociological level, the loss of earned self-esteem that comes from gainful employment is incalculable. Generational damage will occur from children not observing the social benefits of employed parents.
The unintended economic consequences to Colorado of paying people not to work go far beyond the immediate impact of reduced employment. From where will the money come? Taxes on job creators? That harms all Coloradans as fewer jobs will be created. The government printing press? That harms all Coloradans through increased inflation. From Communist China buying more U.S. Treasury debt? That harms all Coloradans by making us more beholden to a country that has shown itself to be a global enemy of freedom.
I am reminded of a saying by one of my favorite economists, Murray Rothbard, “It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”
Ludwig von Mises
They Don’t Hate Gold Because It’s Gold. They Hate It Because It’s Not Government Money.
Men have chosen the precious metals gold and silver for the money service on account of their mineralogical, physical, and chemical features. The use of money in a market economy is a praxeologically necessary fact. That gold—and not something else—is used as money is merely a historical fact and as such cannot be conceived by catallactics. In monetary history too, as in all other branches of history, one must resort to historical understanding. If one takes pleasure in calling the gold standard a “barbarous relic,”one cannot object to the application of the same term to every historically determined institution. Then the fact that the British speak English — and not Danish, German, or French — is a barbarous relic too, and every Briton who opposes the substitution of Esperanto for English is no less dogmatic and orthodox than those who do not wax rapturous about the plans for a managed currency.
The demonetization of silver and the establishment of gold monometallism was the outcome of deliberate government interference with monetary matters. It is pointless to raise the question concerning what would have happened in the absence of these policies. But it must not be forgotten that it was not the intention of the governments to establish the gold standard. What the governments aimed at was the double standard. They wanted to substitute a rigid, government-decreed exchange ratio between gold and silver for the fluctuating market ratios between the independently coexistent gold and silver coins. The monetary doctrines underlying these endeavors misconstrued the market phenomena in that complete way in which only bureaucrats can misconstrue them. The attempts to create a double standard of both metals, gold and silver, failed lamentably. It was this failure that generated the gold standard. The emergence of the gold standard was the manifestation of a crushing defeat of the governments and their cherished doctrines.
In the 17th century, the rates at which the English government tariffed the coins overvalued the guinea with regard to silver and thus made the silver coins disappear. Only those silver coins that were much worn by usage or in any other way defaced or reduced in weight remained in current use; it did not pay to export and to sell them on the bullion market. Thus England got the gold standard against the intention of its government. Only much later the laws made the de facto gold standard a de jure standard. The government abandoned further fruitless attempts to pump silver standard coins into the market and minted silver only as subsidiary coins with a limited legal tender power. These subsidiary coins were not money, but money-substitutes. Their exchange value depended not on their silver content, but on the fact that they could be exchanged at every instant, without delay and without cost, at their full face value against gold. They were de facto silver printed notes, claims against a definite amount of gold.
Later in the course of the 19th century, the double standard resulted in a similar way in France and in the other countries of the Latin Monetary Union in the emergence of de facto gold monometallism. When the drop in the price of silver in the later 1870s would automatically have effected the replacement of the de facto gold standard by the de facto silver standard, these governments suspended the coinage of silver in order to preserve the gold standard. In the United States, the price structure on the bullion market had already, before the outbreak of the Civil War, transformed the legal bimetallism into de facto gold monometallism.
After the greenback period, there ensued a struggle between the friends of the gold standard on the one hand and those of silver on the other hand. The result was a victory for the gold standard. Once the economically most advanced nations had adopted the gold standard, all other nations followed suit. After the great inflationary adventures of the First World War, most countries hastened to return to the gold standard or the gold-exchange standard.
The gold standard was the world standard of the age of capitalism, increasing welfare, liberty, and democracy, both political and economic. In the eyes of the free traders its main eminence was precisely the fact that it was an international standard as required by international trade and the transactions of the international money and capital market.2 It was the medium of exchange by means of which Western industrialism and Western capital had borne Western civilization into the remotest parts of the earth’s surface, everywhere destroying the fetters of age-old prejudices and superstitions, sowing the seeds of new life and new well-being, freeing minds and souls, and creating riches unheard of before. It accompanied the triumphal unprecedented progress of Western liberalism ready to unite all nations into a community of free nations peacefully cooperating with one another.
It is easy to understand why people viewed the gold standard as the symbol of this greatest and most beneficial of all historical changes. All those intent upon sabotaging the evolution toward welfare, peace, freedom, and democracy loathed the gold standard, and not only on account of its economic significance. In their eyes the gold standard was the labarum, the symbol, of all those doctrines and policies they wanted to destroy. In the struggle against the gold standard, much more was at stake than commodity prices and foreign-exchange rates.
The nationalists are fighting the gold standard because they want to sever their countries from the world market and to establish national autarky as far as possible. Interventionist governments and pressure groups are fighting the gold standard because they consider it the most serious obstacle to their endeavors to manipulate prices and wage rates. But the most fanatical attacks against gold are made by those intent upon credit expansion. With them, credit expansion is the panacea for all economic ills. It could lower or even entirely abolish interest rates, raise wages and prices for the benefit of all except the parasitic capitalists and the exploiting employers, free the state from the necessity of balancing its budget — in short, make all decent people prosperous and happy. Only the gold standard, that devilish contrivance of the wicked and stupid “orthodox” economists, prevents mankind from attaining everlasting prosperity.
The gold standard is certainly not a perfect or ideal standard. There is no such thing as perfection in human things. But nobody is in a position to tell us how something more satisfactory could be put in place of the gold standard. The purchasing power of gold is not stable. But the very notions of stability and unchangeability of purchasing power are absurd. In a living and changing world there cannot be any such thing as stability of purchasing power. In the imaginary construction of an evenly rotating economy there is no room left for a medium of exchange. It is an essential feature of money that its purchasing power is changing. In fact, the adversaries of the gold standard do not want to make money’s purchasing power stable. They want rather to give to the governments the power to manipulate purchasing power without being hindered by an “external” factor, namely, the money relation of the gold standard.
The main objection raised against the gold standard is that it makes operative in the determination of prices a factor that no government can control — the vicissitudes of gold production. Thus an “external” or “automatic” force restrains a national government’s power to make its subjects as prosperous as it would like to make them. The international capitalists dictate and the nation’s sovereignty becomes a sham.
However, the futility of interventionist policies has nothing at all to do with monetary matters. It will be shown later why all isolated measures of government interference with market phenomena must fail to attain the ends sought. If the interventionist government wants to remedy the shortcomings of its first interferences by going further and further, it finally converts its country’s economic system into socialism of the German pattern. Then it abolishes the domestic market altogether, and with it money and all monetary problems, even though it may retain some of the terms and labels of the market economy.3 In both cases it is not the gold standard that frustrates the good intentions of the benevolent authority.
The significance of the fact that the gold standard makes the increase in the supply of gold depend upon the profitability of producing gold is, of course, that it limits the government’s power to resort to inflation. The gold standard makes the determination of money’s purchasing power independent of the changing ambitions and doctrines of political parties and pressure groups. This is not a defect of the gold standard; it is its main excellence. Every method of manipulating purchasing power is by necessity arbitrary. All methods recommended for the discovery of an allegedly objective and “scientific” yardstick for monetary manipulation are based on the illusion that changes in purchasing power can be “measured.” The gold standard removes the determination of cash-induced changes in purchasing power from the political arena. Its general acceptance requires the acknowledgment of the truth that one cannot make all people richer by printing money. The abhorrence of the gold standard is inspired by the superstition that omnipotent governments can create wealth out of little scraps of paper.
It has been asserted that the gold standard too is a manipulated standard. The governments may influence the height of gold’s purchasing power either by credit expansion — even if it is kept within the limits drawn by considerations of preserving the redeemability of the money-substitutes — or indirectly by furthering measures that induce people to restrict the size of their cash holdings. This is true. It cannot be denied that the rise in commodity prices that occurred between 1896 and 1914 was to a great extent provoked by such government policies. But the main thing is that the gold standard keeps all such endeavors toward lowering money’s purchasing power within narrow limits. The inflationists are fighting the gold standard precisely because they consider these limits a serious obstacle to the realization of their plans.
What the expansionists call the defects of the gold standard are indeed its very eminence and usefulness. It checks large-scale inflationary ventures on the part of governments. The gold standard did not fail. The governments were eager to destroy it, because they were committed to the fallacies that credit expansion is an appropriate means of lowering the rate of interest and of “improving” the balance of trade.
No government is, however, powerful enough to abolish the gold standard. Gold is the money of international trade and of the supernational economic community of mankind. It cannot be affected by measures of governments whose sovereignty is limited to definite countries. As long as a country is not economically self-sufficient in the strict sense of the term, as long as there are still some loopholes left in the walls by which nationalistic governments try to isolate their countries from the rest of the world, gold is still used as money. It does not matter that governments confiscate the gold coins and bullion they can seize and punish those holding gold as felons. The language of bilateral clearing agreements by means of which governments are intent upon eliminating gold from international trade, avoids any reference to gold. But the turnovers performed on the ground of those agreements are calculated on gold prices. He who buys or sells on a foreign market calculates the advantages and disadvantages of such transactions in gold. In spite of the fact that a country has severed its local currency from any link with gold, its domestic structure of prices remains closely connected with gold and the gold prices of the world market. If a government wants to sever its domestic price structure from that of the world market, it must resort to other measures, such as prohibitive import and export duties and embargoes. Nationalization of foreign trade, whether effected openly or directly by foreign exchange control, does not eliminate gold. The governments qua traders are trading by the use of gold as a medium of exchange.
The struggle against gold, which is one of the main concerns of all contemporary governments, must not be looked upon as an isolated phenomenon. It is but one item in the gigantic process of destruction that is the mark of our time. People fight the gold standard because they want to substitute national autarky for free trade, war for peace, totalitarian government omnipotence for liberty.
It may happen one day that technology will discover a method of enlarging the supply of gold at such a low cost that gold will become useless for the monetary service. Then people will have to replace the gold standard by another standard. It is futile to bother today about the way in which this problem will be solved. We do not know anything about the conditions under which the decision will have to be made.
Ludwig von Mises was the acknowledged leader of the Austrian school of economic thought, a prodigious originator in economic theory, and a prolific author. Mises’s writings and lectures encompassed economic theory, history, epistemology, government, and political philosophy. His contributions to economic theory include important clarifications on the quantity theory of money, the theory of the trade cycle, the integration of monetary theory with economic theory in general, and a demonstration that socialism must fail because it cannot solve the problem of economic calculation. Mises was the first scholar to recognize that economics is part of a larger science in human action, a science that he called praxeology.
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Joe Biden is Killing Small Business by Paying Workers NOT to Work
I read on MSN yesterday that Joe Biden claims he sees “no evidence” for people staying home because of unemployment benefits that surpass the salary of most jobs.
Clearly, Joe Biden doesn’t own a small business. Nor does he know anyone who does. He doesn’t care, either. Why should he? He has made millions (perhaps even billions) off of corruption and pull, thanks to his criminal family’s association with the Communist Party of China.
Joe lives in the world of payoffs. He’s the career politician to end all career politicians. He and his kind only understand what Ayn Rand called “the aristocracy of pull”. And it has nothing whatsoever to do with merit, achievement, or an honest day’s work. NOTHING.
Joe, like all tyrants, is a liar. He knows full well what the purpose of inflated, endless unemployment is: To make people dependent on the government; and to punish small businesses for not paying what elite politicians think employees should be paid. He has no grasp whatsoever of market economics, supply and demand, or the challenges small business owners in particular face every day of their lives.
There’s nothing wrong with big business, by the way. But big business should receive NO benefits or handouts due to pull or connection with the government. The only way to keep big business from becoming corrupt (as it has) is to separate economics and state … completely. A healthy economy will give rise both to big businesses and small enterprises. May the best products and services win, and often there’s room in the free market for plenty of big and small.
But the reality remains: Small businesses comprise most of the economic activity in America. By paying their workers to STOP WORKING, we are systematically murdering those small businesses.
Michael J. Hurd, Daily Dose of Reason
Let Us Be Clear Once and For All: Socialism Is Not at Root About Economics!
Over and over for decades, Conservatives have made the point that socialism does not “work,” that it does not create wealth but rather leads to poverty. This is true. Despite promising nirvana, “utopian” (socialist) communities and countries based on communism and socialism always failed economically.
Conservatives (including Wall Street Journal op-ed writers, right-wing think tanks, and pro-free enterprise economics departments) keep repeating the obvious and assert that people simply need better economic education to set them straight. Yet Conservatives keep losing every battle; the left repeatedly responds by ignoring their argument and rationalizing socialist failures.
The rationalizations run the gamut:
- Previous socialist programs were not run correctly.
- The moral ideal was right, but people are just too corrupt to practice it—there is a flaw in human nature.
- The failure was caused by a plot by the U.S. (usually the CIA).
- Socialism takes years to come to fruition and will triumph at some unspecified, future date….and so on.
What is striking is that no matter what the economic failures, true socialists rarely give it up. Why not. Because it has a moral base. Ayn Rand has made it clear that, “The power of morality is the strongest of all intellectual powers…men will not act, in major issues, without a sense of being morally right.” (quoted in Binswanger, 1986, p. 315).
Morality trumps economic facts if there is a conflict. This is true even if one’s accepted code of morality is objectively wrong. Millions have died fighting for Communism and Nazism (national socialism), including murdering millions of victims and keeping millions of others in hopeless poverty.
What is the problem with Conservatives (for more details, see Binswanger, 1986, pp. 95-100)? The Conservative argument is based on a contradiction: Capitalism is practical because most people want to live better, but morally it is defended by altruism, the premise that one must live only for the sake of others. Thus, Capitalism is only permissible so long as one lives, or claims to live, for “the public good.” For the Conservatives, Capitalism is moral only to the extent that the capitalist lives to serve others. Self-interest can be smuggled silently in but not as a moral right or as a moral ideal. This means that “creeping socialism” always has the advantage and thus creeps unabated. The hapless Conservative defense is routinely: “Hey, let us not overdo it. Let us have some capitalism. The welfare state will work better if capitalists have permission to function.” Socialists face no such internal contradiction; sacrifice for and of others is the morally right thing to do even when everyone stays poor, cf. Cuba and Venezuela. (See Locke, 2020, for a detailed discussion of Venezuela).
The socialist’s indifference to poverty reveals that there is a deeper moral (objectively anti-moral) layer than altruism which means sacrifice for the benefit of others. Since others do not actually benefit, the deeper standard is the destruction of economic freedom as an end in itself. This is pure nihilism, destruction for the sake of destruction: better to have everyone grovel in poverty than to let one person make a profit. Socialism is based on hatred for human life. In socialist societies, the worst people, power lusters, rise to the top, but they only rise because socialism gives them a moral sanction.
What then would change a socialist’s mind? Convincing them that socialism is anti-life and that Capitalism, which is based on individual rights, is morally good, i.e., that every individual has a right to their own life, which includes the right to trade freely with others, based on self-interest, and profit from it (i.e., without fraud or coercion). This would mean that capitalists would be admired, both practically and morally, rather than reluctantly tolerated as a necessary evil or totally forbidden. Economic education will only be embraced by people who think that Capitalism is not just practical but morally good. Moral education is needed as the proper base for economic education.
Some might ask about the puzzling situation of a Communist dictatorship, China, openly fostering Capitalism (though with numerous controls). This is a historically unprecedented event. So, what explains it? It is not based on respect for individual rights since communists deny them. It is based purely on power lust. For centuries China was backwards in relation to the west. Now they have decided to be imperialists, and they saw that the only way they could get the needed power was to create wealth which would give them the ability to intimidate or dominate other countries by using economic and military force together, e.g., massive exports, cyber-crime, building a large, military including a nuclear arsenal, trying to forcibly take over international waters in the South China Sea, threatening and harming fishing vessels from other countries, seizing islands they do not own to build military bases, stealing copyrighted and military technology from foreign countries, bullying countries which displease them (Australia), invasion (Hong Kong, Tibet), continual military threats (Taiwan), loaning money to poor countries, who will not be able to repay them, as a means of gaining power over them, cooperating with other dictatorships such as North Korea and Iran which are also building nuclear weapons to attack the U.S., etc.
China recently acknowledged that their use of Capitalism was only a strategic move until full socialism could be established. China, right now, is the single biggest threat to world peace and freedom. The old-line Marxists said capitalists would buy or make the rope that will be used to hang them. China wants to make their own rope and hang us with it. It remains to be seen how all this will turn out. Our weapons are: the Declaration of Independence, the Constitution, our military might, Capitalism, and our commitment to freedom as a moral ideal–if we can keep them.
Edwin Locke, Capitalism Magazine
Taxation and Regulation Won’t Help America Heal
How will the passage of Biden’s sweeping COVID relief bill affect our futures and those of our children? What does $1.9 trillion mean for the national economy and your investments?
In a word, inflation.
And trust me, the government is just getting started.
The Fed is engaged in a dangerous bit of fiscal table-setting, creating an environment where asset prices will surge at a rate that’s inconsistent with our economy’s fundamentals.
Cue the bubble bursting… Ready yourself for the likes of the dot-com implosion or 2008’s financial crisis.
Plus, as many are getting vaccinated and heading back to work, this stimulus spending appears to be too much, too late – what sort of economic hangover should we expect in the coming year?
On the American Consequences podcast this week, I sat down with famed publisher Steve Forbes, chairman and editor in chief of Forbes Media, who thinks we’re poised for a real comeback in the American economy… if only the government would get out of the way.
Washington in Its Own Way
Steve believes the American economy could right itself organically if given a chance. Even California’s looking like it could rebound, as the threat of a recall seems to have pushed Gavin Newsom into action.
But Washington’s putting barriers in the way of our recovery… The government hasn’t even spent the money from the past two relief bills… And we’re looking at another almost $2 trillion on top of that, along with chatter about trillions more in spending bills down the pike.
All of this spending will only dampen an economy trying to thrive. We have nearly 7 million job openings, yet we’re giving people a reason not to work.
Steve says, “If the government took a six-month vacation, the economy would boom.”
And all of this is compounded with Biden’s new aggressive taxation. We’re talking hiked income and business taxes, a capital gains tax up to 44%, and even carbon taxes (thereby raising the cost of energy).
From Steve: “Jerome Powell, head chair of the Fed, is Titanic’s captain right now – and we have an inflation iceberg straight ahead.”
The Fed thinks prosperity causes inflation… No, weak monetary policy as summoning trillions from the ether causes inflation. Click here to see how Steve Forbes would fix the Fed.
And it’s going to be a wave of destruction when the Fed suddenly raises interest rates. Remember, due to these low rates and high debt, a 1% increase in interest rates would cost the economy $280 billion annually, putting real pressure on government finances and businesses. And Steve has no confidence that the Fed will navigate this properly.
An Endangered Dollar
While central banks and the Fed flail around the marketplace and the U.S. dollar potentially flounders, other currency options will be even more appealing – from blockchain to Swiss francs.
Steve thinks bitcoin believers will wake up and realize how to leverage their cryptocurrency for daily transactions or long-term investments. Forbes finds the flaw of crypto in that it’s finite, as he suggests that suppressing supply isn’t the best use of a currency – it’s value stability.
And Steve lauds the Swiss franc as the best national currency for maintaining value for the past century. Then there’s that other 5,000-year-old store of value: gold. Cryptos could back themselves with either gold or the Swiss franc in a fiscal shotgun wedding of the analog and digital – folding in the former’s gravitas with the ease of use of the latter.
In terms of the inevitable digitization of money, the U.S. government has mismanaged paper currencies, and it’ll do the same with digital currencies – and China’s certainly more aware of this than the Fed.
Hear Steve Forbes’ investing tips for when the dollar is low.
A Plea for Economic Peace
Biden says we’re at war with COVID and that we need these trillions of dollars to combat the virus– but guess what?
The battle is nearly over, everyone… This is D-Day, and we’re storming the beaches of Normandy armed with pharmaceuticals. We have not one, but three vaccines between Moderna, Pfizer, and Johnson & Johnson, and so far, more than 100 million vaccinations have been administered nationally.
With spring and summer upon us, new life blooms, and fresh opportunities beckon. From Connecticut to even California (I know), the country and its businesses are reopening – even Disney World is back in action. It’s time for something approaching hope, America.
But the Biden administration doesn’t want to hear it. It seems bent on convincing the American people that we’re far worse off than reality would suggest.
The Dems continue to leverage the pandemic for their political agenda, thereby deterring the economic freedom that’s intrinsic for Americans. We have to ensure prosperity for our children… And unfortunately, taxation, inflation, and regulation won’t get us there.
Listen to the full podcast here.
Publisher, American Consequences
With Editorial Staff
Individualism and the Industrial Revolution
Liberals stressed the importance of the individual. The 19th-century liberals already considered the development of the individual the most important thing. “Individual and individualism” was the progressive and liberal slogan. Reactionaries had already attacked this position at the beginning of the 19th century.
The rationalists and liberals of the 18th century pointed out that what was needed was good laws. Ancient customs that could not be justified by rationality should be abandoned. The only justification for a law was whether or not it was liable to promote the public social welfare. In many countries the liberals and rationalists asked for written constitutions, the codification of laws, and for new laws which would permit the development of the faculties of every individual.
A reaction to this idea developed, especially in Germany where the jurist and legal historian Friedrich Karl von Savigny (1779–1861) was active. Savigny declared that laws cannot be written by men; laws are developed in some mystical way by the soul of the whole unit. It isn’t the individual that thinks—it is the nation or a social entity which uses the individual only for the expression of its own thoughts. This idea was very much emphasized by Marx and the Marxists. In this regard the Marxists were not followers of Hegel, whose main idea of historical evolution was an evolution toward freedom of the individual.
From the viewpoint of Marx and Engels, the individual was a negligible thing in the eyes of the nation. Marx and Engels denied that the individual played a role in historical evolution. According to them, history goes its own way. The material productive forces go their own way, developing independently of the wills of individuals. And historical events come with the inevitability of a law of nature. The material productive forces work like a director in an opera; they must have a substitute available in case of a problem, as the opera director must have a substitute if the singer gets sick. According to this idea, Napoleon and Dante, for instance, were unimportant—if they had not appeared to take their own special place in history, someone else would have appeared on stage to fill their shoes.
To understand certain words, you must understand the German language. From the 17th century on, considerable effort was spent in fighting the use of Latin words and in eliminating them from the German language. In many cases a foreign word remained although there was also a German expression with the same meaning. The two words began as synonyms, but in the course of history, they acquired different meanings. For instance, take the word Umwälzung, the literal German translation of the Latin word revolution. In the Latin word there was no sense of fighting. Thus, there evolved two meanings for the word “revolution”—one by violence, and the other meaning a gradual revolution like the “Industrial Revolution.” However, Marx uses the German word Revolution not only for violent revolutions such as the French or Russian revolutions, but also for the gradual Industrial Revolution.
Incidentally, the term Industrial Revolution was introduced by Arnold Toynbee (1852–1883). Marxists say that “What furthers the overthrow of capitalism is not revolution—look at the Industrial Revolution.”
Marx assigned a special meaning to slavery, serfdom, and other systems of bondage. It was necessary, he said, for the workers to be free in order for the exploiter to exploit them. This idea came from the interpretation he gave to the situation of the feudal lord who had to care for his workers even when they weren’t working. Marx interpreted the liberal changes that developed as freeing the exploiter of the responsibility for the lives of the workers. Marx didn’t see that the liberal movement was directed at the abolition of inequality under law, as between serf and lord.
Karl Marx believed that capital accumulation was an obstacle. In his eyes, the only explanation for wealth accumulation was that somebody had robbed somebody else. For Karl Marx the whole Industrial Revolution simply consisted of the exploitation of the workers by the capitalists. According to him, the situation of the workers became worse with the coming of capitalism. The difference between their situation and that of slaves and serfs was only that the capitalist had no obligation to care for workers who were no longer exploitable, while the lord was bound to care for slaves and serfs. This is another of the insoluble contradictions in the Marxian system. Yet it is accepted by many economists today without realizing of what this contradiction consists.
According to Marx, capitalism is a necessary and inevitable stage in the history of mankind leading men from primitive conditions to the millennium of socialism. If capitalism is a necessary and inevitable step on the road to socialism, then one cannot consistently claim, from the point of view of Marx, that what the capitalist does is ethically and morally bad. Therefore, why does Marx attack the capitalists?
Marx says part of production is appropriated by the capitalists and withheld from the workers. According to Marx, this is very bad. The consequence is that the workers are no longer in a position to consume the whole production produced. A part of what they have produced, therefore, remains unconsumed; there is “underconsumption.” For this reason, because there is underconsumption, economic depressions occur regularly. This is the Marxian underconsumption theory of depressions. Yet Marx contradicts this theory elsewhere.
Marxian writers do not explain why production proceeds from simpler to more and more complicated methods.
Nor did Marx mention the following fact: About 1700, the population of Great Britain was about 5.5 million; by the middle of 1700, the population was 6.5 million, about 500,000 of whom were simply destitute. The whole economic system had produced a “surplus” population. The surplus population problem appeared earlier in Great Britain than on continental Europe. This happened, first of all, because Great Britain was an island and so was not subject to invasion by foreign armies, which helped to reduce the populations in Europe. The wars in Great Britain were civil wars, which were bad, but they stopped. And then this outlet for the surplus population disappeared, so the numbers of surplus people grew. In Europe the situation was different; for one thing, the opportunity to work in agriculture was more favorable than in England.
The old economic system in England couldn’t cope with the surplus population. The surplus people were mostly very bad people—beggars and robbers and thieves and prostitutes. They were supported by various institutions, the poor laws,1 and the charity of the communities. Some were impressed into the army and navy for service abroad. There were also superfluous people in agriculture. The existing system of guilds and other monopolies in the processing industries made the expansion of industry impossible.
In those precapitalist ages, there was a sharp division between the classes of society who could afford new shoes and new clothes, and those who could not. The processing industries produced by and large for the upper classes. Those who could not afford new clothes wore hand-me-downs. There was then a very considerable trade in secondhand clothes—a trade which disappeared almost completely when modern industry began to produce also for the lower classes. If capitalism had not provided the means of sustenance for these “surplus” people, they would have died from starvation. Smallpox accounted for many deaths in precapitalist times; it has now been practically wiped out. Improvements in medicine are also a product of capitalism.
What Marx called the great catastrophe of the Industrial Revolution was not a catastrophe at all; it brought about a tremendous improvement in the conditions of the people. Many survived who wouldn’t have survived otherwise. It is not true, as Marx said, that the improvements in technology are available only to the exploiters and that the masses are living in a state much worse than on the eve of the Industrial Revolution. Everything the Marxists say about exploitation is absolutely wrong! Lies! In fact, capitalism made it possible for many persons to survive who wouldn’t have otherwise. And today many people, or most people, live at a much higher standard of living than that at which their ancestors lived 100 or 200 years ago.
During the 18th century, there appeared a number of eminent authors—the best known was Adam Smith (1723–1790)—who pleaded for freedom of trade. And they argued against monopoly, against the guilds, and against privileges given by the king and Parliament. Secondly, some ingenious individuals, almost without any savings and capital, began to organize starving paupers for production, not in factories but outside the factories, and not for the upper classes only. These newly organized producers began to make simple goods precisely for the great masses. This was the great change that took place; this was the Industrial Revolution. And this Industrial Revolution made more food and other goods available so that the population rose. Nobody saw less of what really was going on than Karl Marx. By the eve of the Second World War, the population had increased so much that there were 60 million Englishmen.
You can’t compare the United States with England. The United States began almost as a country of modern capitalism. But we may say by and large that out of eight people living today in the countries of Western civilization, seven are alive only because of the Industrial Revolution. Are you personally sure that you are the one out of eight who would have lived even in the absence of the Industrial Revolution? If you are not sure, stop and consider the consequences of the Industrial Revolution.
The interpretation given by Marx to the Industrial Revolution is applied also to the interpretation of the “superstructure.” Marx said the “material productive forces,” the tools and machines, produce the “production relations,” the social structure, property rights, and so forth, which produce the “superstructure,” the philosophy, art, and religion. The “superstructure,” said Marx, depends on the class situation of the individuals, i.e., whether he is a poet, painter, and so on. Marx interpreted everything that happened in the spiritual life of the nation from this point of view. Arthur Schopenhauer (1788–1860) was called a philosopher of the owners of common stock and bonds. Friedrich Nietzsche (1844–1900) was called the philosopher of big business. For every change in ideology, for every change in music, art, novel writing, play writing, the Marxians had an immediate interpretation. Every new book was explained by the “superstructure” of that particular day. Every book was assigned an adjective—”bourgeois” or “proletarian.” The bourgeoisie were considered an undifferentiated reactionary mass.
Don’t think it is possible for a man to practice all his life a certain ideology without believing in it. The use of the term “mature capitalism” shows how fully persons, who don’t think of themselves as Marxian in any way, have been influenced by Marx. Mr. and Mrs. Hammond, in fact almost all historians, have accepted the Marxian interpretation of the Industrial Revolution.2 The one exception is Ashton.3
Karl Marx, in the second part of his career, was not an interventionist; he was in favor of laissez-faire. Because he expected the breakdown of capitalism and the substitution of socialism to come from the full maturity of capitalism, he was in favor of letting capitalism develop. In this regard he was, in his writings and in his books, a supporter of economic freedom.
Marx believed that interventionist measures were unfavorable because they delayed the coming of socialism. Labor unions recommended interventions and, therefore, Marx was opposed to them. Labor unions don’t produce anything anyway and it would have been impossible to raise wage rates if producers had not actually produced more.
Marx claimed interventions hurt the interests of the workers. The German socialists voted against [Otto von] Bismarck’s social reforms that he instituted circa 1881 (Marx died in 1883). And in this country the Communists were against the New Deal. Of course, the real reason for their opposition to the government in power was very different. No opposition party wants to assign so much power to another party. In drafting socialist programs, everybody assumes tacitly that he himself will be the planner or the dictator, or that the planner or dictator will be intellectually completely dependent on him and that the planner or dictator will be his handyman. No one wants to be a single member in the planning scheme of somebody else.
These ideas of planning go back to Plato’s treatise on the form of the commonwealth. Plato was very outspoken. He planned a system ruled exclusively by philosophers. He wanted to eliminate all individual rights and decisions. Nobody should go anywhere, rest, sleep, eat, drink, wash, unless he was told to do so. Plato wanted to reduce persons to the status of pawns in his plan. What is needed is a dictator who appoints a philosopher as a kind of prime minister or president of the central board of production management. The program of all such consistent socialists—Plato and Hitler, for instance—planned also for the production of future socialists, the breeding and education of future members of society.
During the 2,300 years since Plato, very little opposition has been registered to his ideas. Not even by Kant. The psychological bias in favor of socialism must be taken into consideration in discussing Marxian ideas. This is not limited to those who call themselves Marxian.
Marxians deny that there is such a thing as the search for knowledge for the sake of knowledge alone. But they are not consistent in this case either, for they say one of the purposes of the socialist state is to eliminate such a search for knowledge. It is an insult, they say, for persons to study things that are useless.
Now I want to discuss the meaning of the ideological distortion of truths. Class consciousness is not developed in the beginning, but it must inevitably come. Marx developed his doctrine of ideology because he realized he couldn’t answer the criticisms raised against socialism. His answer was, “What you say is not true. It is only ideology. What a man thinks, so long as we do not have a classless society, is necessarily a class ideology—that is, it is based on a false consciousness.” Without any further explanation, Marx assumed that such an ideology was useful to the class and to the members of the class that developed it. Such ideas had for their goal the pursuit of the aims of their class.
Marx and Engels appeared and developed the class ideas of the proletariat. Therefore, from this time on the doctrine of the bourgeoisie is absolutely useless. Perhaps one may say that the bourgeoisie needed this explanation to solve a bad conscience. But why should they have a bad conscience if their existence is necessary? And it is necessary, according to Marxian doctrine, for without the bourgeoisie, capitalism cannot develop. And until capitalism is “mature,” there cannot be any socialism.
According to Marx, bourgeois economics, sometimes called “apologetics for bourgeois production,” aided them, the bourgeoisie. The Marxians could have said that the thought the bourgeoisie gave to this bad bourgeois theory justified, in their eyes, as well as in the eyes of the exploited, the capitalist mode of production, thus making it possible for the system to exist. But this would have been a very un-Marxist explanation. First of all, according to Marxian doctrine, no justification is needed for the bourgeois system of production; the bourgeoisie exploit because it is their business to exploit, just as it is the business of the microbes to exploit. The bourgeoisie don’t need any justification. Their class consciousness shows them that they have to do this; it is the capitalist’s nature to exploit.
A Russian friend of Marx wrote him that the task of the socialists must be to help the bourgeoisie exploit better and Marx replied that that was not necessary. Marx then wrote a short note saying that Russia could reach socialism without going through the capitalist stage. The next morning he must have realized that, if he admitted that one country could skip one of the inevitable stages, this would destroy his whole theory. So he didn’t send the note. Engels, who was not so bright, discovered this piece of paper in the desk of Karl Marx, copied it in his own handwriting, and sent his copy to Vera Zasulich (1849–1919), who was famous in Russia because she had attempted to assassinate the police commissioner in St. Petersburg and been acquitted by the jury—she had a good defense counsel. This woman published Marx’s note, and it became one of the great assets of the Bolshevik Party.
The capitalist system is a system in which promotion is precisely according to merit. If people do not get ahead, there is bitterness in their minds. They are reluctant to admit that they do not advance because of their lack of intelligence. They take their lack of advancement out on society. Many blame society and turn to socialism.
This tendency is especially strong in the ranks of intellectuals. Because professionals treat each other as equals, the less capable professionals consider themselves “superior” to nonprofessionals and feel they deserve more recognition than they receive. Envy plays an important role. There is a philosophical predisposition among persons to be dissatisfied with the existing state of affairs. There is dissatisfaction, also, with political conditions. If you are dissatisfied, you ask what other kind of state can be considered.
Marx had “antitalent”—i.e., a lack of talent. He was influenced by Hegel and Feuerbach, especially by Feuerbach’s critique of Christianity. Marx admitted that the exploitation doctrine was taken from an anonymous pamphlet published in the 1820s. His economics were distortions taken over from [David] Ricardo (1772–1823).4
Marx was economically ignorant; he didn’t realize that there can be doubts concerning the best means of production to be applied. The big question is, how shall we use the available scarce factors of production. Marx assumed that what has to be done is obvious. He didn’t realize that the future is always uncertain, that it is the job of every businessman to provide for the unknown future. In the capitalist system, the workers and technologists obey the entrepreneur. Under socialism, they will obey the socialist official. Marx didn’t take into consideration the fact that there is a difference between saying what has to be done and doing what somebody else has said must be done. The socialist state is necessarily a police state.
The withering away of the state was just Marx’s attempt to avoid answering the question about what would happen under socialism. Under socialism, the convicts will know that they are being punished for the benefit of the whole society.
Words of Wisdom by Ayn Rand
Productiveness is your acceptance of morality, your recognition of the fact that you choose to live–that productive work is the process by which man’s consciousness controls his existence, a constant process of acquiring knowledge and shaping matter to fit one’s purpose, of translating an idea into physical form, of remaking the earth in the image of one’s values–that all work is creative work if done by a thinking mind, and no work is creative if done by a blank who repeats in uncritical stupor a routine he has learned from others–that your work is yours to choose, and the choice is as wide as your mind, that nothing more is possible to you and nothing less is human–that to cheat your way into a job bigger than your mind can handle is to become a fear-corroded ape on borrowed motions and borrowed time, and to settle down into a job that requires less than your mind’s full capacity is to cut your motor and sentence yourself to another kind of motion: decay–that your work is the process of achieving your values, and to lose your ambition for values is to lose your ambition to live–that your body is a machine, but your mind is its driver, and you must drive as far as your mind will take you, with achievement as the goal of your road–that the man who has no purpose is a machine that coasts downhill at the mercy of any boulder to crash in the first chance ditch, that the man who stifles his mind is a stalled machine slowly going to rust, that the man who lets a leader prescribe his course is a wreck being towed to the scrap heap, and the man who makes another man his goal is a hitchhiker no driver should ever pick up–that your work is the purpose of your life, and you must speed past any killer who assumes the right to stop you, that any value you might find outside your work, any other loyalty or love, can be only travelers you choose to share your journey and must be travelers going on their own power in the same direction.”
― Ayn Rand