“Price Gouging”: Setting the Record Straight

The Washington Post reports that the House of Representatives this week overwhelmingly passed a measure imposing severe penalties for “price gouging,” an alleged phenomenon it was unable to define and has left to the Federal Trade Commission to define. Once the Federal Trade Commission figures out what price gouging is, it is authorized to impose fines of up to $150 million for wholesalers and $2 million for retailers. Two year jail penalties for both retailers and wholesalers are also authorized, though presumably imposition of jail time would still require a jury trial in an actual criminal court, not a mere hearing before the FTC.

The causes of the recent run up in gasoline and crude oil prices are not hard to find. There is a rising global demand for crude oil, in large measure because of rapid economic expansion in China and elsewhere in Asia. At the same time, the supply of crude oil is sharply restricted by the fact that most of the world’s supply has been nationalized by various governments. This greatly reduces incentives and the ability to find and develop new oil supplies. And this applies in large measure even to the United States, in which vast land areas are owned by the Federal government, which has progressively reduced the ability of the American oil industry to develop petroleum deposits on government-owned land. The leading examples, of course, are the North Slope in Alaska and the continental shelf in the Gulf of Mexico and off the coast of California. These problems of government-caused lack of supply are compounded by threats to the existing supply in Iran, Nigeria, and Venezuela.

Besides these problems affecting the price of crude oil, there are also special, additional problems affecting the price of gasoline. One is the fact that since 1976, because of environmental regulations, not a single additional oil refinery has been constructed in the United States. As a result, according to Oil and Gas Journal, total oil refining capacity in the US today is less than it was in 1981: 16.8 million barrels per day versus 18.6 million barrels per day. Add to this the devastation of Hurricane Katrina, from which Gulf Coast refinery operations have not yet fully recovered. Add to that, the further problems caused by the government’s compelling the production of specially reformulated gasoline, to meet environmental requirements. (For an excellent account of these problems and how they further restrict the supply and raise the price of gasoline, see the April 28 posting by Ben Zycher on his blog “The Reform Club.)

And then, serving to drive up not only the price of oil and gasoline, but prices throughout the economic system, is the increase in the money supply caused by the Federal Reserve System. This increase, and the prospects for further increase, have become so substantial that they are more and more reducing the desirability of owning dollars. This further adds to the rise in prices, as dollars previously held are unloaded into the market and are then spent rather than held by those who receive them.

If Congress were serious about rising prices, it would return us to the gold standard. It would also eliminate the obstacles it has placed or allowed to be placed in the way of expanded oil and gasoline production. And rather than investigate oil companies, it would investigate the environmental movement and its policy of operating as a persistent pest, which uses the judicial system and government regulatory agencies to come between man and the actions he needs to perform to support and promote his life.


This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site http://www.capitalism.net/ is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

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Today’s New York Times’ Headline: “Energy Crisis: Many Paths but No Solutions”

The above headline, “Energy Crisis: Many Paths but No Solutions,” appears on page one of the print version of The Times’ National Edition. I can’t find it on the web version of The Times, however. (To wit: “Your search for Energy Crisis: Many Paths but No Solutions in all fields returned 0 results.”) Perhaps it was withdrawn to avoid embarrassment.

The headline should be embarrassing because it suggests either gross dishonesty or gross stupidity. This is because the solution to the energy crisis is so blindingly obvious. The solution is: allow the oil companies to drill for oil—in Alaska, in the Gulf of Mexico, off the coast of California, on all the land mass of the United States now set aside as “wild-life preserves” and “wilderness” areas. Allow the construction of new atomic power plants! Stop interfering with the strip mining of coal! Stop interfering with the construction of refineries, pipelines, and harbor facilities necessary to the supply of oil and natural gas! This will increase the supply and reduce the demand for oil (this last because substitutes for it will be more readily available). All this can be summed up in very few words: Politicians and environmentalists, get the hell out of the way!

Instead, we are told that the oil companies are responsible for the scarcity of oil and its high price and should be punished for it. No! The truth is that the environmentalists and the politicians who support them are responsible.

Perhaps they will claim that they act out of fear: the fear of rising sea levels a hundred years from now. If that’s the reason, then they should say so. They should say that the energy crisis could easily be solved but that they are more afraid of flooding in Bangladesh in a hundred years than of Americans not being able to afford to drive their cars and heat their homes today. Let them have the honesty to say that this is why they choose to prevent the energy crisis from being solved.

This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site http://www.capitalism.net/ is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

Where Has “Austrian” Economics Eliminated Poverty?

ALBATROZ (an internet identity): "And I would like to repeat my challenge to all of you:

"Would anyone be so kind as to tell me in which countries poverty was eliminated by means of your (Austrian) enlightened theories?..."

MY REPLY: Taking "Austrian" economics in its political application to mean private ownership of the means of production and respect for individual rights, including property rights, the answer is (and this should be understood as only a partial list):

Great Britain, the United States, Canada, Australia, New Zealand, France, Belgium, Holland, Germany, Switzerland, Denmark, Norway, Sweden, and more recently, Japan, South Korea, and Taiwan.

In these countries, thanks to the substantial application of the free-market principles of Austrian economics (and before that, Classical economics), saving and capital accumulation were tremendously encouraged along with scientific and technological progress. On this foundation the productivity of labor rapidly increased, resulting in more abundant supplies of food, clothing, and housing per capita, and improved sanitation and hygiene. As a result infant mortality radically declined, life expectancy greatly increased, the average person became able to afford to work fewer hours, child labor was progressively eliminated, and for the first time in human history, it became possible for the average person to have access to books, music, art, and education.

Please let me know if you have any further questions.

George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. His web site is http://www.capitalism.net.

Does Krugman Read The New York Times?

Yesterday’s New York Times carries a piece by op-ed columnist Paul Krugman called “Death by Insurance.” It’s a rant in favor of the "single-payer system," i.e., explicit socialized medicine along the lines of Canada and other countries. The article concludes with the words:

So here we are. Our current health care system is unraveling. Older Americans are already covered by a national health insurance system; extending that system to cover everyone would save money, reduce financial anxiety and save thousands of American lives every year. Why don't we just do it?

Here’s part of the answer to Krugman’s question:

From The New York Times, February 20, 2006:

Ruling Has Canada Planting Seeds of Private Health Care
By CLIFFORD KRAUSS

TORONTO, Feb. 19 — The cracks are still small in Canada's vaunted public health insurance system, but several of its largest provinces are beginning to open the way for private health care eventually to take root around the country.

Last week Quebec proposed to lift a ban on private health insurance for several elective surgical procedures, and announced that it would pay for such surgeries at private clinics when waiting times at public facilities were unreasonable.

The proposal, by Premier Jean Charest, who called for "a new era for health care in Quebec," came in response to a Supreme Court decision last June that struck down a provincial law that banned private medical insurance and ordered the province to initiate a reform program within a year.

The Supreme Court decision ruled that long waits for various medical procedures in the province had violated patients' "life and personal security, inviolability and freedom," and that prohibition of private health insurance was unconstitutional when the public health system did not deliver "reasonable services."

Comments on Krugman copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute them electronically and in print, other than as part of a book and provided that mention of the author’s web site www.capitalism.net is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

Galbraith's Neo-Feudalism

[Editorial Note: The following is a fitting remembrance for John Kenneth Galbraith, whom today's New York Times reports as having died on April 29.]

Material progress and individual liberty have once again been made the targets of a crude, sniper attack. In his book, The Affluent Society, John Kenneth Galbraith, Harvard social commentator, has indicated that he views with grave displeasure the “sense of urgency" which is attached to “the craving for more elegant automobiles, more exotic food, more erotic clothing, more elaborate entertainment—indeed for the entire modern range of sensuous, edifying, and lethal desires [sic].” (p. 140.) He has proclaimed that there are things of greater importance, such as more public schools, public parks, public roads, and anything else which “public authority” may deem to be in “relative need.” (pp. 311f.) And he has let it be known that the liberal should cease being “a co-conspirator with the conservative in reducing taxes." (p. 314.)

Were it not for the fact that Mr. Galbraith and his followers will exercise considerable power and influence in the new [Kennedy] Administration, there would be no purpose in discussing the ideas of this man. For as a thinker, Mr. Galbraith is not overly distinguished. His procedure is to combine an immense moral pretentiousness with a rather limited understanding of the teachings of the economists. And though he depicts himself as a daring innovator writing in defiance of an overwhelmingly hostile intellectual environment, his practical position is in essence no different from that of the typical leftist club-woman; nor has it been for quite some time. However, the recent Democratic victory at the polls means that the attempt will be made to implement policies based on the theories of Mr. Galbraith; and, therefore, his ideas bear closer examination.

The thesis of The Affluent Society is a variant of the Marxian dialectic. Our social morals, economic science and political institutions are, in Galbraith’s eyes, the products of an age of scarcity. When men had to contend with cold and hunger, when they had to devote all of their energies to securing their bare, physical survival, production was of paramount importance. It was natural, therefore, that productivity and industriousness should be regarded as virtues, while anything which reduced the supply of goods in the hands of private individuals, such as taxes, should be considered an evil. Thus, Galbraith explains, the businessman and business efficiency were held in high esteem, while the government was viewed with suspicion and forced to bear the burden of proof for the need of every tax dollar; every transfer of resources from private individuals to the government required a specific, affirmative act of the legislature.

Now, however, the underlying economic reality has changed, leaving behind an outmoded political and ideological superstructure which Galbraith calls “the conventional wisdom." For, in America, at least, we have reached an age in which "affluence is rendering the old ideas obsolete . . . ." (p. 143.) In the future, it will be college professors and government officials, not businessmen, to whom the public will grant prestige. (pp 184ff., pp. 194f.) And what is required fiscally is “a system of taxation which automatically makes a pro rata share of increasing income available to public authority for public purposes. The task of public authority, like that of private individuals, will be to distribute this increase in accordance with relative need. Schools and roads will then no longer be at a disadvantage as compared with automobiles and television sets in having to prove absolute justification." (pp. 311f.)

What is Galbraith saying? Stripped of the veneer of pseudo-scientific disinterestedness, he is blatantly arguing for the institution of a modern brand of Prussian feudalism! It is possible that he himself is unaware of this. For he imagines that somewhere, off in the stratosphere as it were, there are private individuals, “public authority," “increasing income," and “relative need." In his eyes, it is a question of mere technical expediency whether “increasing income" is to accrue to private individuals or to “public authority"; in either case, it will be distributed in accordance with “relative need." Affluence now dictates that a pro rata share of “increasing income" accrue to “public authority."

Thus, Galbraith is not for one moment bothered by such mundane questions as to whom does the "increasing income" belong, and whose “relative need" is to determine its distribution? There is simply "increasing income” and “relative need.” The fact that private individuals have produced the goods which constitute the “increasing income" is not considered a valid reason for them to determine its disposal. As was the case with the feudal lords of the pre-capitalist era, “public authority" is to have an unquestioned claim to a regular share of the fruits of others' industry; it will distribute the products of others in accordance with what it, and not they, deems to be in “relative need." And, just as in old Prussia or Czarist Russia, the servants of public authority—the government officials and their intellectual flunkies in the tax supported schools and universities—will have prestige, while the businessman, who supports them, if not considered vulgar, will be regarded as unimportant.

In Galbraith's words: “To the extent that problems of military defense, foreign policy, agricultural administration, public works, education, and social welfare are central to our thoughts, so the generals, foreign service officers, administrators, teachers, and other professional public servants are the popular heroes." (p. 184.)

The chain of reasoning by which Galbraith proceeds from the existence of affluence to advocacy of an irresponsible “public authority" having arbitrary power to spend a pro rata share of the increasing income of the individual is somewhat involved. He begins by citing the law of diminishing marginal utility, according to which the importance an individual attaches to the possession of any given quantity of means of provision diminishes as the total quantity of means of provision at his disposal increases. Thus, according to the law of diminishing marginal utility, a man attaches less importance to the possession of a gallon of water if he has 1000 gallons than he would if he had but ten gallons. Likewise, an individual attaches less importance to $100 if his wealth is $10,000 than he would if his wealth were but $5,000.

Galbraith, in defiance of the most explicit testimony on the part of the leading theorists of marginal utility (see the works of Menger, Böhm-Bawerk, and, Wieser), would have his readers believe that economics as a science has tried to hide the
fact that the marginal utility of wealth in general as well as that that of particular goods diminishes. (Chap. X.) And after overcoming the straw man of an incorrect version of the marginal utility theory, and showing that it must apply to wealth in general as well as to particular goods, he draws two totally unwarranted, conclusions:

(1) He infers from the law of diminishing marginal utility, as applied to wealth in general, that the acquisition of wealth becomes progressively less important as the amount of wealth increases. Here he makes an enormous equivocation between the importance of a concrete amount of wealth as the total amount of wealth increases and the importance of acquiring wealth as its total amount increases. For while the importance of the former diminishes with the increase in the amount of wealth, the importance of the latter does not. The very purpose of acquiring wealth and the source of the importance of so doing consist precisely in the reduction of the marginal utility of wealth. The achievement of a progressively lower marginal utility of wealth is one of the main goals of every rational individual. For the ability to achieve an ever lower marginal utility of wealth is identical with the ability to make an ever greater and more complete provision for the maintenance and enhancement of one’s life and wellbeing. It was the desire to be able to reduce the importance attached to bearskins, animal bones, and caves which brought man out of the depths of savagery; and it was the desire to be able to reduce the importance attached to rags, breadcrusts, and primitive hovels which brought man to modern civilization.

Yes, it is true, bearskins and rags no less than the “more erotic clothing" of modern times afford protection against the cold; it is true, animal bones and breadcrusts no less than the “more exotic food" of our day provide nourishment; it is true, caves and hovels no less than the luxurious American homes with air conditioning and swimming pools offer shelter from the elements. And it is also true that if such a catastrophe should ever occur and people be forced to choose, they would attach greater importance to the means of bare, physical survival than to the qualitative differences which distinguish the products of modern industry from those of primitive toil. But does this mean that man should have stayed in the cave, or have stopped upon reaching the hovel ? And does it mean that he should rest content with what he has today? Are life and productive achievement to give way to a passive stupor, merely because one has a full belly and is no longer at the mercy of wind, rain, and cold?

(2) Galbraith's second inference is that the reduced marginal utility of wealth is an argument for the enlargement of the role of the government in satisfying the wants of consumers. This conclusion in no way follows. For not only are the services of the government fully as much subject to diminishing marginal utility as everything else, a point which he seems to overlook, but they are also always of lower marginal utility than the alternative private goods and services. If people must be forced to pay for them under the threat of a jail term for non-payment of taxes, that is the proof. In fact, however, Galbraith's argument is not based on the law of diminishing marginal utility, but only appears to be.

Not diminishing marginal utility, but the alleged determinism of advertising is the cornerstone of his argument. For the proof he offers of the unimportance of production is the fact that had they not been advertised, there would have been no demand for a great many of the products now being produced. Without advertising and salesmanship to “contrive a sense of want for them, he declares, the marginal utility of such products would have been zero. (p. 160.)

If goods which require advertising and salesmanship satisfy only “contrived” wants, what then is Mr. Galbraith's standard by which goods satisfy legitimate, non-"contrived" wants ? Apparently, his standard is that the buyers must know precisely what they want and precisely from whom to obtain it without the benefit of advertising and salesmanship. “A man who is hungry need never be told of his need for food. If he is inspired by his appetite, he is immune to the influence of Messrs. Batten, Barton, Durstine & Osborne. The latter are effective only with those who are so far removed from physical want that they do not already know what they want. In this state alone men are open to persuasion." (p. 158.)

The absurdity of this standard is immediately evident. If a man is suffering from pneumonia, need he never be told of his need for penicillin? If a man desires to travel, need he never be told of the existence of automobiles, airplanes, railroads, and steamships and from whom they or their services are available? If a man desires artificial light, need he never be told of the existence of electricity and electric lights and where to obtain them? Or if he is hungry, need he never be told of the hundreds of different kinds of food and where to come by them ? Or must men be born with a knowledge of all these things and where to acquire them, before they can be considered to satisfy non-"contrived" wants?

Indeed, advertising and salesmanship do bring about the desire for goods. More than that, they are even responsible for giving to what would otherwise be mere things, the very character of goods. For in order for a thing to become a good, three conditions must be fulfilled. Not only must it satisfy a human need, but also one must, know that it satisfies one's need, and one must have disposal over it. Advertising and salesmanship provide the knowledge that it does satisfy a human need and where to obtain disposal over it. Needs are original with the buyers; advertising and salesmanship transform needs into desires for concrete goods by providing knowledge: knowledge of what things satisfy the various needs and where to obtain them.

Again, it is the doctrine of the determinism of advertising which is the basis for his conclusion that the role of the government in satisfying the wants of consumers must be expanded.

For not only does advertising compel people to buy the products which are advertised, but also, he alleges, it inevitably tends to prejudice the consumer in favor of private goods and services, even in his capacity as a voter. The result is that “ . . public services will have an inherent tendency to lag behind." (pp. 260f.) And it is this which explains why “The family which takes its mauve and cerise, air-conditioned, power-steered, and power-braked automobile out for a tour passes through cities that are badly paved, made hideous by litter, blighted buildings, billboards, and posts for wires that should long since have been put underground.” And why “They picnic on exquisitely packaged food from a portable icebox by a polluted stream and go on to spend the night at a park which is a menace to public health and morals.” Hopefully, “Just before dozing of on an air mattress, beneath a nylon tent, amid the stench of decaying refuse, they may reflect vaguely on the curious unevenness of their blessings." (p. 253.)

Rarely has such sophistry been employed in an attempt to evade the obvious. Indeed, the material blessings of Americans are uneven, and Galbraith is correct when he says: “The line which divides our area of wealth from our area of poverty is roughly that which divides privately produced and marketed goods and services from publicly rendered services." (p. 251.) But is the reason that advertising causes a voter bias against appropriating funds for government services, or that government
services are provided by individuals using tax revenues, individuals who will make no profit if they are successful, and who will suffer no loss of their own capital if they are unsuccessful? Does the solution lie in devoting still more wealth to an institution inherently unfit to be a producer, the government, or is it not time to ask whether the roads, parks, and sanitation services should not be run on the same principles which have proved so successful in the manufacture of automobiles, food, refrigerators, air mattresses, and nylon tents?

Moreover, is the concept of bias applicable in explaining the voters’ reluctance to appropriate funds for public schools and public parks etc., at the expense of such things as television sets and “erotic clothing?" “The voters" comprise many millions of particular, individual voters. And it is just possible that part of the explanation may lie in the fact that a man prefers his television set to finger-painting materials for someone else's children, or that a woman prefers her new dress to a tree in some park which she herself will rarely or perhaps never visit. Is it a matter of bias for a man to be more concerned with his family's entertainment than with the education of someone else’s children or for a girl to be more concerned with her own appearance than with the appearance of some town’s landscape? It may come as a great shock to Mr. Galbraith: not only are there things of greater importance than “the community’s schools and parks,” but the decision as to what is important to whom is not his to make!

Is there anything at to Galbraith's claim that advertising causes a voter bias in favor of private goods and services, and thus an inherent tendency for public services to lag? The empirical evidence is overwhelmingly against him. Our armed forces, after all, are no longer provided with muskets, but with rockets and hydrogen bombs. And never before has the government had at its disposal so much revenue, both absolutely and relatively, for its various social projects. If anything is true, it is that voters today have a bias against privately produced goods and services and that expenditure for public services, far from having a tendency to lag, has shown a remarkable tendency to increase!

Galbraith's doctrine of the determinism of advertising suffers from a number of other serious shortcomings. For if it were true that advertising determined one to buy, how could the choices consumers make among numerous highly advertised products be explained? How could the fact that people still buy unadvertised products be explained when there are close substitutes which are advertised, as in the case of fresh versus canned vegetables? And how is it possible for Mr. Galbraith to avoid being biased by advertising in the same manner as he alleges the voters to be? By what mysterious means are Mr. Galbraith and “public authority" enabled to rise above the alleged causal forces acting on lesser mortals?

And, finally, even if advertising were deterministic, it must never be forgotten what Mr. Galbraith's alternative is: In the place of the television cartoon and radio voice causing people to prefer private goods and services, he proposes to substitute the tax collector and the whole apparatus of informers, police, jailers and prisons; this will ensure that people will prefer public services. The choice he offers must be made explicit: The alleged determinism of the billboard and poster, or the determinism of the gun and club.

The overwhelming anti-democratic implications of this position cannot be ignored, even if Mr. Galbraith does not pursue them. For what does it mean to. say that the voters are determined (p. 260) while “public authority" and, to be sure, Mr. Galbraith are not? This is nothing but the assertion that he and his friends have the right to make decisions without the consent of the voters, because he and they alone, being exempt from determinism, are in a position to make rational decisions.

Though he has much in common with them, Galbraith is not simply a modern “liberal” or do-gooder. For modern “liberalism” is still characterized by a high degree of secularism, while Galbraith is openly and consistently “anti-materialistic." In spite of this, however, it may appear to the reader of The Affluent Society that Galbraith does base his program on some concept of the individual's happiness on earth, even if reserving to himself the right to lay down wherein that happiness is to be pursued. But this is highly doubtful. For on a number of occasions the mask begins to slip.

The first doubts arise when he advances his arguments on diminishing marginal utility, and then in Chapter XI, when economic activity is compared to the purposeless motion of a squirrel trying to keep abreast of a wheel which is propelled by its own movement. (p. 154, p. 159.) And, earlier in the same chapter, when he compares modern desires for goods to artificially cultivated demons called into being by the goods themselves, and asks if the solution lies with more goods or fewer demons. (p. 153.) This smacks very heavily of the Oriental, mystical view of man. The fact that life requires continuous action to maintain it, that happiness requires continuous progress and improvement, and that no matter how much one has already done, there is still more to do, is looked upon as pointless, and the proposal made that instead, one do nothing.

In Chapter XII, he says something truly remarkable. For there, packed between page upon page of prattle about the importance of more public schools and more public recreational and cultural opportunities, we find that they too appear on the list of “nonessentials,” along with the restaurants, cafes, garages, and movie theaters. This occurs in his discussion of the great allied bombing raid on Hamburg during three nights of July, 1943. “On these three nights of terror their [the inhabitants of Hamburg] standard of living, measured by house-room, furnishings, clothing, food and drink, recreation, schools and social and cultural opportunities, had been reduced to a fraction of what it had been before." (p. 162.) Is this a disaster of the most enormous proportions? Not for Galbraith. For, he concludes: “In reducing, as nothing else could, the consumption of nonessentials and the employment of men in their supply, there is a distinct possibility that the attacks on Hamburg increased Germany's output of war material and thus her military effectiveness." (p. 163.)

Thus, in the last analysis, the only thing really essential, according to Galbraith, is the military effectiveness of the state. Everything else is “nonessential.”

And, finally, in perhaps what is the most amazing slip of all, in his advocacy of the arbitrary spending power of “public authority," Galbraith is on the verge of suggesting that individuals ought to be made to prove their need for things before being allowed to buy them: “But with increasing income, resources do so accrue [automatically] to the private individual. Nor when he buys a new automobile out of increased income is he required to prove need. We may assume that many fewer automobiles would be purchased than at present were it necessary to make a positive case for their purchase. Such a case must be made for schools." (p. 311.)

One must wonder if what Galbraith is really advocating is not simply state power as an end in itself and individual deprivation both as an end in itself and as a means of demonstrating the power of the state. The possible suffering which such a man may inflict on the American people, once having achieved a position of power or influence, is unspeakable. For he seems to combine the mentality of a dictator with a total contempt for the individual.


This article is copyright © 2006, by George Reisman. It originally appeared in Human Events in February of 1961 under the title “Galbraith’s Modern Brand of Feudalism” and was soon thereafter reprinted as a pamphlet under its present title. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site http://www.capitalism.net/ is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

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The Real Friends and Enemies of Wage Earners: An Intellectual Challenge to the Left

The reaction to my article on the United Automobile Workers and GM , confirms how many people—namely, "liberals," "moderates," socialists, communists, syndicalists, "mutualists" and others—believe that businessmen and capitalists are the enemy, and labor unions and labor legislation, the friend, of wage earners. This is an enormous error, with devastating consequences. The integration of Austrian and Classical economics carried out in Chapters 11 and 14 of my book Capitalism: A Treatise on Economics proves the exact opposite of this belief. It proves that businessmen and capitalists are the friend, and labor unions and labor legislation, the enemy, of wage earners.

Here, in briefest essence, is how.

The greater is the respect for the property rights and economic freedom of businessmen and capitalists, the greater is the degree of saving in the economic system and thus the higher is the demand for labor relative to the demand for consumers’ goods and thus the higher are wages relative to profits. At the same time, the greater is the demand for capital goods relative to the demand for consumers’ goods, and the greater are the incentives to develop and introduce improved products and methods of production. The result of this combination is continuing capital accumulation and a rising productivity of labor.

The effect of the progressive rise in the productivity of labor achieved under capitalism is a progressively increasing supply of consumers’ goods relative to the supply of labor and thus progressively falling prices of consumers’ goods relative to wage rates. (In the face of an increasing quantity of money and rising monetary demand for both labor and consumers’ goods, the result is wages rising faster than prices. Either way, the result is rising real wages.)

The rise in real wages, the result of the saving and innovation of businessmen and capitalists, and of wage earners who become businessmen and capitalists, is a growing ability of wage earners to afford to work shorter hours, and to dispense with the labor of their children, and also increasingly to afford improvements in working conditions of the kind that do not pay for themselves through increased productive efficiency. In this way, the saving and innovation of businessmen and capitalists are what are in fact responsible for all of the improvements in the conditions of wage earners typically, and utterly mistakenly, attributed to labor unions and labor legislation.

Labor unions do not even know how to raise real wages. All they are concerned with is raising the money wages and protecting the jobs of the members of their particular union. Since labor unions do not control the quantity of money or volume of spending in the economic system, the only way that they can raise the money wages of their members is by artificially reducing the supply of labor in their field. But the effect of this is to correspondingly increase the supply of labor and reduce wage rates in other fields. In other words the success of any given union is obtained at the expense of the loss of wage earners in the rest of the economic system. And the losses necessarily outweigh the gains, because an essential aspect of the process is workers being forced into jobs requiring less skill and ability than the jobs from which they are expelled.

If the unions, or the unions plus minimum-wage laws, succeed in raising wage rates throughout the economic system, the effect is corresponding unemployment in the economic system, as well as higher prices because of higher costs and reduced production. If the unions can succeed in having the government and its central bank increase the quantity of money in pace with their wage demands, the unemployment may be avoided but the effect is still rising prices along with the rising wages, and no rise in real wages. Moreover, the undermining of capital accumulation that results from the policy of inflation serves to reduce and, if great enough, reverse the rise in the productivity of labor and real wages.

The efforts of unions to protect the jobs of their members is a policy of actively combating the rise in real wages of workers throughout the rest of the economic system. As should be clear from what has already been said, the way real wages rise is not from the side of the average worker earning more money. Earning more money is the result merely of the increase in the quantity of money, or of the reduction in the supply of labor available in the market by forcing part of it into unemployment.

Real wages rise as the result of capital accumulation and the rise in the productivity of labor, which operates to make prices fall relative to wage rates. In combating the rise in the productivity of labor, unions actively combat the rise in real wages. Thus, for example, when the printing unions opposed computerized typesetting, and thus the resulting lower costs and lower prices of printed matter, they were combating the rise in real wages of workers throughout the economic system who otherwise would have obtained printed matter for less money and had correspondingly more money to spare for other things (which workers displaced from printing could have helped to produce). Identically the same thing is true any time any union opposes labor saving improvements: both the buying power of wage earners throughout the economic system and the supply of goods for them to buy are held down.

Yes, a union may behave this way out of fear of the difficulties its workers will have in finding new jobs. But those difficulties would be far less if money wage rates in the economic system were lower and thus the quantity of labor demanded were greater. And what would make that possible is the absence of coercively imposed union pay-scales and of minimum wage laws.

Yes, there are times when employers treat their employees disrespectfully, indeed, may even treat them as essentially valueless. But what causes such conditions is an excess of the supply of labor available over the quantity of labor demanded. In such conditions an employer need not fear the loss of an employee because he can be immediately replaced from the ranks of the unemployed, and the employee will be ready to accept abuse out of fear that he will not be able to find another job.

But what causes this situation is wage rates held too high relative to the demand for labor. It arises under a system of fractional reserve banking, when credit expansion is followed by financial contraction and wage rates have not yet fallen to the point required by the contraction. Let wages rates fall and the quantity of labor demanded increase to equal the supply available. At that point, the scarcity of labor will be felt and the employee will cease to be instantly replaceable from the ranks of the unemployed. Plus, he will be able to find other jobs, and thus not be prepared to accept abuse. The solution is again a free market. And ironically, to the extent that labor unions and minimum wage laws prevent the adjustment of wage rates to the demand for labor and thus the market’s natural achievement of essentially full employment, they are responsible for the bad treatment of workers that their supporters complain of. (Be sure to watch for the mirror image of the phenomenon of someone being treated as valueless, the next time price controls are imposed on gasoline. Then, as in the early ’seventies, there will be a shortage of gasoline and surplus of customers, who will appear to be economically valueless because instantaneously replaceable from a waiting line, and ready to accept abuse because of no where else to go to be supplied.)

The fall in wage rates needed to eliminate unemployment serves to increase production at the same time that it reduces the costs of production. It thus serves to bring down prices. It also eliminates the burden of supporting the unemployed. As a result, it is almost certain that it soon results in a rise in real take-home wages.

There are people who produce so little per hour that they must work many hours to provide for their minimum necessities, and even use the labor of their children as a source of additional earnings. It is of no more help to such people to compel them to work less, and to do without the labor of their children, than it would be to compel Robinson Crusoe to work less or Swiss Family Robinson to work less and to do without the labor of its children. Crusoe and the Robinson family do the work they do because that is what they need to do to live. Compelling them to work less is to compel poor people to be poorer than they need to be. It is the same in the conditions of society. It is no consolation that those who cause the greater poverty of the poor say that they have good intentions and want to help. They cause harm and need to learn to stop.

As shown, what actually reduced the working day and abolished child labor was not destructive state interference but the dramatic and progressive rise in the productivity of labor brought about by businessmen and capitalists. That raised real wages and made it possible for more and more workers to be able to afford to accept the comparatively lower earnings of jobs with shorter hours and to eliminate the need to send their children to work. As a growing proportion of wage earners came to prefer shorter hours, the effect was the same as a growing proportion of workers coming to prefer any one set of occupations over another, namely, a fall in the wages of the preferred occupations relative to the wages in the occupations not preferred. Thus, the wages of jobs with shorter hours incur a discount, while the wages of jobs with longer hours gain a premium. This makes it profitable for employers to shorten the hours of work. This is how the free market shortens hours.

My challenge to the left is to read and study these ideas at length and in depth in my book Capitalism: A Treatise on Economics, Chapters 11 and 14 in particular. I say to the left, take the risk of giving up the fallacies you presently regard as knowledge, in order to gain the satisfaction of having actual knowledge. Stop supporting the enemies of economic progress and the harm they do to wage earners and give your support to the actual friends of economic progress and of wage earners. The transformation of you leftist intellectuals into advocates of capitalism would actually help greatly to change the direction of the world and, if it is the overcoming of poverty that you want, move it in the direction in which you say you want it to go.


This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site www.capitalism.net is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

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Graphic Artistry

One of the pleasures of writing a Daily Article for the Mises Institute is the satisfaction of having one’s article accompanied by a well-chosen graphic. However, none of my previous experiences of this kind could have prepared me for the absolutely brilliant graphic that accompanied my most recent article “Where Would General Motors Be Without the United Automobile Worker’s Union?” This is a graphic that deserves the kind of commentary usually reserved for paintings, and in fact is more deserving of commentary than are most paintings.

Consider the starting point of the graphic: the actual logo of the UAW (whose use was suggested by Jeffrey Tucker). Contrary to the intent of those who created that logo (but true to its actual meaning), its presence in conjunction with my article depicts a collection of goons linked arm to arm, in a mindless circle.

The artist—Chad Parish of the Mises Institute—has taken a liberty, however.

He’s had several of the goons detach themselves from their mindless circle to go and do some good old-fashioned union dirty work—the kind of work they do best. (Some might say that it’s the only kind of work they do. But that would be an exaggeration.) Using nothing but GM’s logo, as representing the whole actual company, he shows the goons busy at the work of destroying the company. This is communicated by their act of tearing down the logo, which looks as if it’s ready to fall. One goon is on the ground, pulling on the logo with a rope that is hooked around its top, and another is standing on top of it, in a triumphant posture, holding what looks like a rifle; or perhaps it’s only a club. A third goon is just completing his graffiti message announcing “UAW WUZ HERE” Two other goons seem to have no function. Perhaps they are included in deference to the UAW’s insistence on the employment of unnecessary workers, represented here by the employment even of unnecessary goons.

In every way, down to its misspelling of the graffiti, this graphic is an incredible visual depiction of the mentality that has decimated or destroyed one American industry after another and is now on the verge of destroying what was once the leading manufacturing corporation in the United States and in the world.


This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site http://www.capitalism.net/ is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

Where Would General Motors Be Without the United Automobile Workers Union?

This is a question that no one seems to be asking. And so I’ve asked it. And here, in essence, is what I think is the answer. (The answer, of course, applies to Ford and Chrysler, as well as to General Motors. I’ve singled out General Motors because it’s still the largest of the three and its problems are the most pronounced.)

1. The company would be without so-called Monday-morning automobiles. That is, automobiles poorly made for no other reason than because they happened to be made on a day when too few workers showed up, or too few showed up sober, to do the jobs they were paid to do. Without the UAW, General Motors would simply have fired such workers and replaced them with ones who would do the jobs they were paid to do. And so, without the UAW, GM would have produced more reliable, higher quality cars, had a better reputation for quality, and correspondingly greater sales volume to go with it. Why didn’t they do this? Because with the UAW, such action by GM would merely have provoked work stoppages and strikes, with no prospect that the UAW would be displaced or that anything would be better after the strikes. Federal Law, specifically, The National Labor Relations Act of 1935, long ago made it illegal for companies simply to get rid of unions.

2. Without the UAW, GM would have been free to produce in the most-efficient, lowest cost way and to introduce improvements in efficiency as rapidly as possible. Sometimes this would have meant simply having one or two workers on the spot do a variety of simple jobs that needed doing, without having to call in half a dozen different workers each belonging to a different union job classification and having to pay that much more to get the job done. At other times, it would have meant just going ahead and introducing an advance, such as the use of robots, without protracted negotiations with the UAW resulting in the need to create phony jobs for workers to do (and to be paid for doing) that were simply not necessary.

(Unbelievably, at its assembly plant in Oklahoma City, GM is actually obliged by its UAW contract to pay 2,300 workers full salary and benefits for doing absolutely nothing. As The New York Times describes it, “Each day, workers report for duty at the plant and pass their time reading, watching television, playing dominoes or chatting. Since G.M. shut down production there last month, these workers have entered the Jobs Bank, industry's best form of job insurance. It pays idled workers a full salary and benefits even when there is no work for them to do.”)

3. Without the UAW, GM would have an average unit cost per automobile close to that of non-union Toyota. Toyota makes a profit of about $2,000 per vehicle, while GM suffers a loss of about $1,200 per vehicle, a difference of $3,200 per unit. And the far greater part of that difference is the result of nothing but GM’s being forced to deal with the UAW. (Over a year ago, The Cincinnati Enquirer reported that “the United Auto Workers contract costs GM $2,500 for each car sold.”

4. Without the UAW, the cost of employing a GM factory worker, including wages and fringes, would not be in excess of $72 per hour, which is where it is today, according to The Post-Crescent newspaper of Appleton, Wisconsin.

5. As a result of UAW coercion and extortion, GM has lost billions upon billions of dollars. For 2005 alone, it reported a loss in excess of $10 billion. Its bonds are now rated as “junk,” that is, below, investment grade. Without the UAW, GM would not have lost these billions.

6. Without the UAW, GM would not now be in process of attempting to pay a ransom to its UAW workers of up to $140,000 per man, just to get them to quit and take their hands out of its pockets. (It believes that $140,000 is less than what they will steal if they remain.)

7. Without the UAW, GM would not now have healthcare obligations that account for more than $1,600 of the cost of every vehicle it produces.

8. Without the UAW, GM would not now have pension obligations which, if entered on its balance sheet in accordance with the rule now being proposed by the Financial Accounting Standards Board, will leave it with a net worth of minus $16 billion.

What the UAW has done, on the foundation of coercive, interventionist labor legislation, is bring a once-great company to its knees. It has done this by a process of forcing one obligation after another upon the company, while at the same time, through its work rules, featherbedding practices, hostility to labor-saving advances, and outlandish pay scales, doing practically everything in its power to make it impossible for the company to meet those obligations.

9. Without the UAW tens of thousands of workers—its own members—would not now be faced with the loss of pension and healthcare benefits that it is impossible for GM or any of the other auto companies to provide, and never was possible for them to provide. The UAW, the whole labor-union movement, and the left-“liberal” intellectual establishment, which is their father and mother, are responsible for foisting on the public and on the average working man and woman a fantasy land of imaginary Demons (big business and the rich) and of saintly Good Fairies (politicians, government officials, and union leaders). In this fantasy-land, the Good Fairies supposedly have the power to wring unlimited free benefits from the Demons.

Without the UAW and its fantasy-land mentality, autoworkers would have been motivated to save out of wages actually paid to them, and to provide for their future by means of by and large reasonable investments of those savings— investments with some measure of diversification. Instead, like small children, lured by the prospect of free candy from a stranger, they have been led to a very bad end. They thought they would receive endless free golden eggs from a goose they were doing everything possible to maim and finally kill, and now they’re about to learn that the eggs just aren’t there.

It’s very sad to watch an innocent human being suffer. It’s dreadful to contemplate anyone’s life being ruined. It’s dreadful to contemplate even an imbecile’s falling off a cliff or down a well. But the union members, their union leaders, the politicians who catered to them, the journalists, the writers, and the professors who provided the intellectual and cultural environment in which this calamity could take place—none of them were imbeciles. They all could have and should have known better.

What is happening is cruel justice, imposed by a reality that willfully ignorant people thought they could choose to ignore as long as it suited them: the reality that prosperity comes from the making of goods, not the making of work; that it comes from the doing of work, not from the shirking of it; that it comes from machines and methods of production that save labor, not the combating of those machines and methods; that it comes from the earning and reinvestment of profits not from seizure of those profits for the benefit of idlers, who do all they can to prevent the profits from being earned in the first place.

10. In sum, without the UAW, General Motors would not be faced with extinction. Instead, it would almost certainly be a vastly larger, far more prosperous company, producing more and better motor vehicles than ever before, at far lower costs of production and prices than it does today, and providing employment to hundreds of thousands more workers than it does today.

Few things are more obvious than that the role of the UAW in relation to General Motors has been that of a swarm of bloodsucking leeches, a swarm that will not stop until its prey exists no more.

It is difficult to believe that people who have been neither lobotomized nor castrated would not rise up and demand that these leeches finally be pulled off!

Perhaps the American people do not rise up, because they have never seen General Motors, or any other major American business, rise up and dare to assert the philosophical principle of private property rights and individual freedom and proceed to pull the leeches off in the name of that principle.

It is easy to say, and also largely true, that General Motors and American business in general have not behaved in this way for several generations because they no longer have any principles. Indeed, they would project contempt at the very thought of acting on any kind of moral or political principle.

One of the ugliest consequences of the loss of economic freedom and respect for property rights is that it makes such spinelessness and gutlessness on the part of businessmen—such amorality—a requirement of succeeding in business. Business today is conducted in the face of all pervasive government economic intervention. There is rampant arbitrary and often unintelligible legislation. There are dozens of regulatory agencies that combine the functions of judge, jury, and prosecutor in the enforcement of more than 75,000 pages of Federal regulations alone. The tax code is arbitrary and frequently unintelligible. Judicial protection of economic freedom has not existed since 1937, when the Supreme Court abandoned it, out of fear of being enlarged by Congress with new members sufficient to give a majority to the New Deal on all issues. (Try to project the effect of a loss of judicial protection of the freedoms of press and speech on the nature of what would be published and spoken.)

Any business firm today that tried to make a principled stand on such a matter as throwing out a legally recognized labor union would have to do so in the knowledge that its action was a futile gesture that would serve only to cost it dearly. And a corporation that did this would undoubtedly also be embroiled in endless lawsuits by many of its own stockholders blaming it for the losses the government imposed on it.

But none of this should stop anyone else from speaking up and making known his outrage at what the UAW has done to General Motors.


This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site http://www.capitalism.net/ is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.


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The Actual Nature of Offshoring and of Our Balance of Trade Deficits

Few issues are more frequently commented on than the shifting of American manufacturing to locations outsides the United States, in order to take advantage of lower foreign wage rates, particularly in Asia. This shifting is what is meant by “offshoring.” With equal or greater frequency lamentations are heard concerning the United States’ chronic excess of imports over exports, i.e., its so-called “unfavorable” balance of trade.

Here’s an example that will help to put both matters in proper perspective.

Assume that an American firm is contemplating the investment of $10 million of capital, to build a factory. Construction materials and the use of construction equipment, along with the machinery to be installed in the factory, will cost $5 million of those $10 million. The remaining $5 million will have to be paid to cover the wages and benefits of 100 American construction workers for a year, at the rate of $50,000 per man.

In an impoverished country in Asia, however, the cost of equally capable construction workers is only $1,000 per man. In other words, a total labor cost of $100 thousand, instead of $5 million. The construction materials, construction equipment, and the machinery for the factory can all be shipped there. To make it simple, let’s ignore the costs of transportation and any other costs associated with set up abroad. Thus, the total cost of constructing the plant in Asia would be just $5.1 million, instead of $10 million. This, of course, is a powerful incentive for building the plant in Asia. And, then, once the plant is built, whatever the number of workers it needs for its operation can be found locally at a comparably small fraction of the cost of employing American workers.

Exactly such considerations explain why a very substantial amount of American manufacturing has moved offshore. It’s just so much cheaper.

Commentators, who are almost invariably critics, see this movement of capital offshore. But strangely, what they do not see is that the process is much more than just a movement of a given amount of capital from one place to another. That much, or, better, that little, is true in terms of monetary value, but in terms of actual physical wealth, and, in this case, physical capital, there is a substantial increase. Being able to obtain for $5.1 million what one would otherwise need to spend $10 million for, makes it possible to buy practically twice as much for the same $10 million. Our firm can build practically two factories in Asia for the price of one in the United States.

An American firm which invested in this way, would be in a position to supply its customers with approximately double the output for the same money, because it conducted its manufacturing operations in Asia rather than in the US. Even if it were the case, as is so often claimed, that displaced American factory workers must end up as mere hamburger flippers, the American economic system would still have this doubled output; plus it would have all the extra hamburgers the displaced factory workers would produce.

This sounds to me like quite an overall gain to the American economic system.

In the nature of the case, the gain enters the American economy in the form of imports. In essence, we’re getting the output of two factories in Asia instead of one in the United States, and the doubled output is coming into our economy in the form of imports. Absurdly, this gain in our wealth is what is called “unfavorable.” It’s certainly not unfavorable to American consumers. The only thing I can imagine that would be more favorable and, at the same time, would be ignorantly denounced as more unfavorable, would be imports simply washing up on our shores for free, but recorded by the customs bureau as having substantial value.

Offshoring has not resulted in a decline in the American economic system but just the opposite. It’s provided the American people with access to vastly increased manufacturing capacity, which is providing much larger quantities of goods at sharply lower prices. And this last is despite substantial inflation of the American money supply.

Thanks to offshoring, we are supplied with shoes and clothing, television sets, computers, CD and DVD players, microwave ovens, and many other goods in unprecedented quantities and at extremely low prices. In the nature of the case, this abundance comes to us in the form of imports.

What is the economic problem in this?

I say, “economic” problem, because I can imagine something arising that could cause a problem. That would be the loss of the offshore factories and the imports they provide, say, as the result of seizure by foreign governments and the inept, chaotic management the governments would impose. That would be a catastrophe.

But it cannot be stressed too strongly, the problem is not in offshoring or in imports; the problem is in anything that would threaten offshoring and the imports it provides.


This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site http://www.capitalism.net/ is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

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WSJ Article "Climate of Fear"

Prof. Richard Lindzen, a genuine climate expert from MIT, has written a very valuable op-ed piece in The Wall Street Journal describing the role of government funding and media hype in discussions of global warming. The article can be accessed at http://www.opinionjournal.com/extra/?id=110008220. The article appeared yesterday, April 12, 2006.

Immigration Plus Welfare State Equal Police State

Illegal immigrants are overwhelming the resources of the Welfare State: government–funded hospital emergency rooms are filled with them; public schools are filled with their children. On the basis of such complaints, many people are angry and want to close the border to new illegal immigrants and deport those who are already here.

They want to keep new illegal immigrants out with fences along the border. It is not clear whether the fences would contain intermittent watchtowers with searchlights and machine guns. The illegal immigrants who are already here would be ferreted out by threatening anyone who employed them with severe penalties and making it a criminal offense not to report them.

This is a classic illustration of Mises’s principle that prior government intervention into the economic system breeds later intervention. Here the application of his principle is, start with the Welfare State, end with the Police State. A police state is what is required effectively to stop substantial illegal immigration that has become a major burden because of the Welfare State.

The philosophy of individual rights and capitalism implies that foreigners have a right to come and to live and work here, i.e., to immigrate into the United States. The land of the United States is owned by individuals and voluntary associations of individuals, such as private business firms. It is not owned by the United States government or by the American people acting as a collective; indeed many of the owners of land in the United States are not Americans, but foreign nationals, including foreign investors.

The private owners of land have the right to use or sell or rent their land for any peaceful purpose. This includes employing immigrants and selling them food and clothing and all other goods, and selling or renting housing to them. If individual private landowners are willing to accept the presence of immigrants on their property as employees, customers, or tenants, that should be all that is required for the immigrants to be present. Anyone else who attempts to determine the presence of absence of immigrants is simply an interfering busybody ready to use a gun or club to impose his will.

At the same time, however, the philosophy of individual rights and capitalism implies that the immigrants do not have a right to be supported at public expense, which is a violation of the rights of the taxpayers. Of course, it is no less a violation of the rights of the taxpayers when native-born individuals are supported at public expense. The immigrants are singled out for criticism based on the allegation that they in particular are making the burden intolerable.

The implementation of the rights both of the immigrants and of the taxpayers requires the abolition of the Welfare State. Ending the Welfare State will end any problem of immigrants being a public burden.

Of course, ending the Welfare State is much easier said than done, and it is almost certainly not going to be eliminated even in order to avoid the environment of a police state.

But the burdens of the Welfare State and the consequent resentment against immigrants could at the very least be substantially reduced by means of some relatively simple, common-sense reforms in the direction of greater economic freedom.

In a future posting, I’ll explain how not only the problem of chronically crowded hospital emergency rooms but also the whole so-called crisis of the medically uninsured, which certainly applies to all illegal immigrants, could be radically reduced, if not entirely eliminated, by introducing some simple economic freedoms into medical care.


This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site www.capitalism.net is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

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First, Witchcraft Trials; Now, Impending Health Insurance Fiasco: Massachusetts Leads the Way

Having just read today’s New York Times’ lead page-one article titled “Massachusetts Sets Health Plan for Nearly All,” I think I know what it must be like to live in some place like Caracas and participate in a popular celebration of the joyous wonders wrought by La Revolución. That’s certainly the spirit of the article.

It claims in essence to describe how the Governor and Legislature of Massachusetts have managed to make medical insurance both available and affordable for nearly all, at hardly any cost. “The bill,” The Times’ reporter breathlessly gushes,

does what health experts say no other state has been able to do: provide a mechanism for all of its citizens to obtain health insurance. It accomplishes that in a way that experts say combines methods and proposals from across the political spectrum, apportioning the cost among businesses, individuals and the government.

The Times did not print a copy of the bill, and so I have not read it. But judging from the article, I’m sure it must be one incredible mishmash of contradictions, deceptions, and distortions that are going to cost the people of Massachusetts dearly. The bill is openly touted, in effect, as being all things to all men. An alleged expert is quoted as saying, “`For a conservative Republican, this is individual responsibility. For a Democrat, this is government helping those that need help.’” So the bill simultaneously satisfies those who supposedly want to keep the government out of our wallets and those who eagerly want to let it in, those who want it to take less from us and those who want it to take more from us. (Guess which side will win, when the government is assigned a new and additional task—in this case, being sure that almost everyone has health insurance.)

If that were not enough, the article actually talks of part of the cost of the bill being apportioned to the government. That’s what allegedly helps to make the bill so affordable: the government will pay part of its cost. The article’s actual words, which bear repeating, are “apportioning the cost among businesses, individuals and the government.” This treats the government as some kind of rich fairy godmother, who is helping to take care of her people. And to be sure that this claim is not lost, the print edition of The Times brazenly states this fable in a callout set in large, bold type: “A health care plan paid for by businesses, individuals and the government.” One of the surprises apparently in store for many people in Massachusetts is going to be learning that whatever is paid for by their government is going to be paid for by them.

The article makes clear that those who have not purchased medical insurance, because they think it’s too expensive, but who are nevertheless deemed capable of “affording” it, are going to have it rammed down their throats. It will be illegal not have medical insurance.

But never mind. The bill is not always so nasty. It treads relatively lightly on businesses. “Businesses with more than 10 workers that do not provide insurance will be assessed up to $295 per employee per year.” This is probably enough to cover the cost of first-class insurance for aspirin tablets and band aids. The difference between this and any serious medical insurance will either be paid for by the taxpayers of Massachusetts or it will turn out that the whole bill is just a band aid.

There is, however, a bright spot in this bill. And that is, that if it is enacted, as is virtually certain, it will be in the state that is the locale of a major portion of the leftwing intellectual establishment. So, to that extent, it really couldn’t happen to a more deserving bunch of people. But, unfortunately, there are many, many more people in Massachusetts who do not deserve such legislation and who will suffer as the result of it.

This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site http://www.capitalism.net/ is included. (Email notification is requested.) All other rights reserved. George Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

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They Still Don’t Know What They’re Doing, But They Want to Do It at the Point of a Gun

Here’s a message from an environmentalist who hides under the name “Tokyo Tom.” He says it comes “off of the web page of the world-renowned Wood`s Hole Oceanographic Institute”:

[W]orld leaders may be planning for climate scenarios of global warming that are opposite to what might actually occur.

It is important to clarify that we are not contemplating a situation of either abrupt cooling or global warming. Rather, abrupt regional cooling and gradual global warming can unfold simultaneously. Indeed, greenhouse warming is a destabilizing factor that makes abrupt climate change more probable.

What this means is that “world leaders” simultaneously want to deprive people of the fossil fuels needed to keep them warm, in the name of combating global warming, while subjecting them to freezing cold. They call that government “planning.” Well, I guess they’re right: it’s par for government “planning.”

I point out such problems and say that “Economic freedom is what is required to cope with global warming, global freezing, or any other form of large-scale environmental or social change.” And I explain precisely how it would do so. (See my recent post “Collectivism, Climate Change, and Economic Freedom.”) But when I explain how a free market would solve such problems, I’m accused of simply denying the existence of global warming and refusing to face the facts. The truth is the collectivists don't want to face the fact that the free market is the solution.

And yes, the environmentalists are collectivists. They blame and seek to punish the individual for the cumulative by-products of the actions of all of mankind, as though the individual and the human race were one and the same. If such a thing is possible, they’re a lower, more lunatic form of collectivist than were the old socialists. The Marxists in Russia at least claimed to be concerned with building up the material means of production—hydroelectric stations, power plants, steel mills, and so forth, things that if built on a foundation of voluntary saving and free labor, really do enormously contribute to human life and well-being. The environmentalist witch-doctors in contrast want to compel a massive global sacrifice of means of production, in the hope that that will improve the weather. Maybe they don’t really believe in some kind of “Weather God” whom their forced sacrifice will placate, but they’re sure behaving as though they did.


This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site http://www.capitalism.net is included. (Email notification is requested.) All other rights reserved. The author is Pepperdine University Professor Emeritus of Economics.

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Different Flag, Different Lyrics, But the Same Old Tune

The flag is Green now, instead of Red. And the lyrics are different. But the tune is still the same old tune.

When the Reds sang it, the lyrics were that the individual could not be left free because the result would be such things as “exploitation,” “monopoly,” and depressions. When the Greens sing it, the lyrics are that the individual cannot be left free because the result will be such things as destruction of the ozone layer, acid rain, and global warming. (Add an extra chorus now for global warming.)

The tune is still that the individual cannot be left free, that he cannot be left free because his peaceful pursuit of his own happiness and prosperity somehow inflicts harm on others, and that only the government’s pointing a gun at his head will save the rest of mankind from some dreadful calamity.

The Red thugs wanted to control the economic system to set things right. The Green thugs want to control the environment, especially the climate, to set things right.

The Red thugs had no idea of what they were doing and neither do the Green thugs. Just consider this statement from a supporter of prohibitions on carbon dioxide emissions in order to stop global warming:

One of the ironies of the Arctic melting is that it runs the risk of flipping the switch on oceanic thermohaline circulation and shutting down the Atlantic current - this could lead to a sharp cooling in Europe (which lies further north than the US), and appears to have happened in the past. (Posted by “Tokyo Tom” on the Ludwig von Mises Institute’s Blog on March 30, 2006 08:24PM)

Here is someone who doesn’t even know if the global warming he wants to stop will turn out to be a continent-wide cooling instead. But that gives him no pause. He still thinks he knows enough to send the police out to stop people from acting on the knowledge they have about the good they can achieve for themselves by producing and buying goods that happen to emit some carbon dioxide into the air. Their knowledge is to count for nothing. The allegedly superior knowledge of “scientists” is to prevail—at the point of a gun.

That’s the bottom line. Pointing guns at people in the name of some higher collective good, and prohibiting them from achieving their own good. That’s socialism. That’s environmentalism.


This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site http://www.capitalism.net/ is included. (Email notification is requested.) All other rights reserved. This article was adapted in part from p. 102 of the author’s Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996). The author is Pepperdine University Professor Emeritus of Economics

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