Wage Rates and Purchasing Power

An individual who earns more money per week is obviously in a position to spend more in buying consumers’ goods than is an individual who earns less money per week. For example, a man who makes $1,000 per week has the ability to spend $1,000 per week, while a man who makes only $900 per week has the ability to spend only $900 per week. (For the sake of simplicity, we’re ignoring such possibilities as going into debt or using up savings, and assuming that the individuals both want to live within their incomes.)

When there is unemployment and free-market economists urge the freedom of wage rates to fall as the means of eliminating the unemployment, many people think of examples like the above and conclude that the free-market solution would only serve to make matters worse. They reason, in effect, that now workers who had been earning $1,000 per week would only earn $900 per week and thus be reduced to spending only $900 per week instead of $1,000 per week. Generalizing from this example to wage reductions of any size, and to their effect across the whole economic system, people conclude that wage-rate reductions cause reductions in overall consumer spending and therefore must serve to make the problem of unemployment worse, rather than better. In fact, often going under the name of Keynesianism, this is far and away the prevailing doctrine on the subject and is why reductions in wage rates are rarely if ever advocated as the means of reducing unemployment in the present-day world.

However, let us approach matters now not from the perspective of an individual wage earner, but from that of the economic system as a whole, essentially just like Henry Hazlitt did in his brilliant Economics In One Lesson.

In the economic system as a whole, in any given year, there’s a certain overall total amount of payroll expenditures by business firms, i.e., a certain overall total amount of wage payments. There’s also a certain overall total amount of consumer spending that takes place in the year. Since it‘s always essential to think in terms of numbers when dealing with such matters, let’s assume that in the economic system as a whole in a given year total payroll expenditures amount to 400 units of money. (This is certainly a very small number of units, but each unit can be understood as representing as many billions or tens of billions of dollars as may be necessary for the 400 units to represent the actual total payrolls of the present-day United States. Thinking in terms of a small number of units allows us to avoid wasting valuable brain space in holding strings of unnecessary zeros in our minds)

Let’s also assume that total annual spending to buy consumers goods in this economic system is 500 units of money, with each unit of money representing as many billions or tens of billions of dollars as does each of the 400 units of money paid as wages.

So here we are: 400 units of money is total wage payments and 500 units of money is total consumer spending in our hypothetical economic system.

We can assume that 400 of the 500 of consumer spending represents consumption expenditure by wage earners, out of their 400 of wage incomes. The remaining 100 of consumer spending can be taken as representing consumption by businessmen and capitalists, out of profits, interest, and dividends, and/or out of previously accumulated capital.

Now imagine that in this hypothetical economic system, there is 10 percent unemployment. That means that there is also 90 percent, positive employment. Going from 10 percent unemployment to full employment means increasing positive employment in the ratio of 10 to 9.

Isn’t it clear that if total payroll spending were maintained, a 10 percent reduction in wage rates would secure full employment? That it would mean 10/9 the workers employed at 9/10 the average wage. Wouldn’t consumer spending also hold up in these circumstances, with 10/9 the workers spending 9/10 the average wage per worker?

And if the output per worker remained the same, wouldn’t the same total consumer spending of 500 units of money be sufficient to buy 10/9 the output at 9/10 the prices? And wouldn’t total profit in the economic system, and, by implication, the average rate of profit, be the same, despite the fall in prices? (Wouldn’t total profit essentially continue to be 500 units of money in the form of consumption expenditure minus 400 units of money in the form of wage payments?)

What of real wages? If prices and wage rates both fall to the same extent, wouldn’t real wage rates be the same? In fact, wouldn’t real take-home wage rates actually increase because of the elimination of the burden of supporting the unemployed, who would now be employed and supporting themselves?

And notice the implication for how real wage rates can continually be further increased, namely, simply by virtue of labor becoming more and more productive and thus progressively increasing the supply of consumers’ goods relative to the supply of labor, thereby more and more reducing prices relative to wage rates.

This example, of 400 of wage payments and 500 of consumer spending, is a depiction of the economic world in terms of essentials. Mises would call it an imaginary construction. It is very highly simplified. Yet it is also extremely pregnant with implications: for employment/unemployment, for real wages, for profit/interest, and for much else besides.

Whoever starts to think about this example will have many questions, the answers to which obviously cannot be fitted into a brief article such as this. The questions can concern such things as the effects of adding the buying and selling of capital goods into the example, the effects of allowing for changes in the amount of spending in the economic system and for changes in the relationship between different kinds of spending, and more. For answers to all such questions, I invite those interested to read my book Capitalism: A Treatise on Economics. There I think they will find not only just about all of the answers they are looking for, but also many questions they have not thought of asking, along with the answers to those questions as well.


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.

How Environmentalism Raises Profits at the Expense of Wages

In my last article, “How Government Budget Deficits Reduce Wages and Raise Profits”, I explained why those who complain about profits rising at the expense of wages should not blame the free market but, in part at least, the growth in government budget deficits. I’d now like to show that in addition they should blame the environmental movement and the government intervention that it has inspired.

Environmentalism operates systematically to withhold land and natural resources from the market. Wherever it can, it prohibits economic development, in the form of housing construction, power-plant construction, and road construction. It attempts to stop the opening of new mines and especially new oil fields. While it claims to favor what it calls renewable natural resources, it also attempts to stop logging operations, even though new trees can be grown to replace those removed. It has also succeeded in imposing limits on the emission of such chemicals as sulfur dioxide, nitrogen, and chlorofluorocarbons (cfcs) into the atmosphere, and in these cases systems of “tradable emissions rights” have been established. It currently seeks similarly to limit the emission of carbon dioxide into the atmosphere and to establish a system of tradable emission rights in its case too; indeed, a limitation on carbon dioxide emissions and a system of tradable emission rights for carbon dioxide already exist in the European Union.

Under a system of tradable emission rights, the government acknowledges long-standing emissions and confers a legal right for them to continue. For example, if for many years, a firm has been emitting a ton of sulfur dioxide into the atmosphere each year, the government may grant it a legal right to continue doing so indefinitely and, in addition, to sell that right in the market from year to year or to sell it permanently, just as the firm might rent or sell any other durable property that it owns. Newcomers who wish to emit sulfur dioxide, or established firms that wish to increase their emissions, cannot do so unless they buy emission rights from the firms that possess them. Emission rights quickly become scarce and progressively more valuable as the need for additional production of the kind that must result in more emissions intensifies and comes up against the barrier of the prohibition on a larger volume of emissions.

I do not know of any reliable estimates of the aggregate dollar value of the tradable emissions that are now purchased in a given year in the United States or around the world. But whatever it may be, it represents a clear addition to the aggregate amount of profits in the economic system. This is because the firms that sell their emission rights thereby have sales revenues for something that costs them virtually nothing whatever to provide. And so long as they sell these rights merely on an annual basis or for a limited term of years these sales revenues and profits will be recurring.

Furthermore, looking at things now from the perspective of the purchasers of the emission rights, the need to purchase emission rights equivalently reduces the funds available to business firms for the purchase of other things, notably capital goods and labor services. Thus, the effect of the existence of tradable emission rights is both an increase in the aggregate amount of profit in the economic system and a decrease in the aggregate amount of wages paid in the economic system.

The effect of payments for emission rights on wages can be further inferred from the following considerations. Assume for the moment that the price of emission rights were to count simply as an additional cost of production, added to all of the other costs of production, and to correspondingly drive up the prices of goods to the point required to cover this additional cost. If this happened, the quantity of goods demanded in the economic system would fall. It would fall simply as the result of the combination of higher prices and limited funds with which to pay prices.

The result of the fall in the quantity of goods demanded would be unemployment. If unemployment is to be avoided, the prices of goods must not rise. But in order for them not to rise, their costs of production must also not rise. In order for costs not to rise in the face of the addition of the new component of cost that is constituted by the price of emission rights, another primary component of cost, notably wages, must fall. In other words, the value of tradable emission rights ends up being at the expense of wages. Thus, environmentalism and the system of tradable emission rights serve to raise profits and reduce wages.

It must be stressed that if wage rates do not fall in order to offset the additional costs constituted by the value of tradable emission rights, then the result is both higher prices and unemployment. In this case, while wage rates in terms of money do not fall, wage rates in terms of buying power still fall because the same wage rates in money must be used to pay higher prices for goods.

The fact that such are the consequences of the system of tradable emission rights should not be taken as a criticism simply of that system. The imposition of the same environmentalist restrictions on production without an accompanying system of tradable emission rights would result in even worse consequences. This is because the costs of complying with the environmental regulations would then be far greater, with the result either that prices would have to rise or wage rates fall by that much more.

For example, a firm that could avoid a million dollars of additional costs if it could emit an additional ton of sulfur dioxide would simply have to incur those additional costs even though elsewhere in the economic system there was a firm that would incur additional costs of only a few thousand dollars if it reduced its emission of sulfur dioxide by a ton. The absence of tradable emission rights in this case would cause the needless imposition of almost a million dollars of unnecessary costs, requiring a corresponding rise in prices or fall in wages in the economic system. It is clearly the substantially lesser evil in this case even if the right to emit a ton of sulfur dioxide were to be sold for several hundred thousand dollars.

The problem is not the system of tradable emission rights. The problem is the prohibition of the increase in emissions that is the necessary accompaniment of the increase in production. The prohibition of additional emissions thus serves to prohibit the increase in production. Of course, in the absence of prohibitions on additional emissions, there would be no basis for the existence of systems of tradable emission rights, and thus they would simply not exist.

As indicated at the beginning of this article, environmentalism’s prohibitions on production go far beyond those that have been accompanied by systems of tradable emission rights. With or without tradable emission rights, the effect of imposing laws and regulations based on environmentalism is to make land and natural resources artificially scarce relative to human labor and thus to enhance the economic value of land and natural resources while reducing the economic value of human labor, above all, wage rates. In the terminology of the old British classical economists, what environmentalism is doing is increasing the portion of national income that takes the form of “land rent,” and doing it at the expense of the portion of national income that is wages.

The rise in the economic value of land and natural resources—the rise in land rent—shows up in the form of a rise in profits. All net monetary earnings derived from the ownership of land or natural resources are profits from the point of view of business accounting. Profits rise to the extent that the prices of minerals and of agricultural products rise relative to the costs of producing them. And precisely this is what happens when the demand for these products rises and environmentalism has meanwhile succeeded in preventing commensurate increases in their supply.

The leading example of this phenomenon at present is the recent rise in the price of oil and natural gas. A growing population and a growing need for oil here in the US, coupled with major economic progress in China and other parts of Asia, has substantially increased the demand for oil and natural gas. However, the environmental movement has done everything in its power to prevent increases in the supply of these commodities.

It has prevented the development not only of the oil deposits in the North Slope of Alaska but also oil and gas deposits on the continental shelf off California and the Gulf Coast, as well as oil and gas deposits present in the vast land areas set aside as wilderness preserves and wildlife areas. In addition, it has prevented the construction of new atomic power plants, whose existence would serve to diminish the demand for oil by the electric power industry and thus make oil more available for other purposes, and at a lower price. The same is true in connection with coal mining. Its expansion too is blocked, and thus the availability of this major substitute for oil is also held back. The result is that the need for oil is made that much more intense and its price correspondingly higher.

Different parts of the supply of minerals and of agricultural commodities have different costs of production. For example, there are some petroleum deposits which are so easily accessible and so productive that they can be exploited at a cost of production of perhaps just $3 or $4 per barrel. But such petroleum deposits can meet only a small portion of the demand. The rest of the demand must be met by exploiting higher-cost deposits, deposits with a cost of production of $10, $20, $30 per barrel, and more. Every time the price of oil rises because its supply is prevented from increasing, profits are increased on all the petroleum deposits in production.

The same principles apply to wheat production and housing construction. The result of all increases in demand not matched by an increase in supply, because environmentalism prevents the increase in supply, is a rise in price and an increase in the portion of the good’s price that reflects the resulting greater scarcity and higher value of land and natural resources. And, as we have seen, this higher value of the economic contribution of land and natural resources that environmentalism causes takes the form of higher profits.

In sharpest contrast to today’s markets that are distorted by environmentalism and the government intervention that it has brought about, a free market would produce results of an opposite kind. In a free market, with its powerful incentives to increase production and to find new and more efficient ways of doing so, supply would increase not only commensurately with the increase in demand but more than commensurately. Lower-cost methods of production would be found that would make it possible for prices to be driven down rather than up. A free market operates to increase the supply of useable, accessible land and mineral deposits relative to the supply of human labor and thus to make them progressively cheaper in real terms.

Accordingly, profits based on the ownership of lower-cost natural resources and farm land would be sharply contained, and even diminish, as scientific and technological progress and capital accumulation served to make available more such deposits and farm land or equally good or better substitutes for them and thus to drive the prices of products produced by means of such deposits and land closer to their low costs, meanwhile further reducing those low costs.

In a free market, wages rise relative to the value of land and natural resources and are thus correspondingly higher relative to profits. This was the record of the United States and the rest of the Western World for approximately 200 years following the start of the Industrial Revolution.

Environmentalism is a movement dedicated to the undoing of the Industrial Revolution. If not checked, one of its results will be the progressive reduction of wages and the further elevation of profit incomes based on the ownership of land and natural resources.


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. For elaboration of the subject of this article, the reader is urged to see Capitalism, pp. 316-317, 667-668, and 313-316.

How Government Budget Deficits Reduce Wages and Raise Profits

In recent years there have been growing complaints over slow growth in wages compared to profits. Those who make the complaints usually offer little in the way of explanation. Here is a part of the explanation: growing government budget deficits.

Government budget deficits are financed partly by the creation of new and additional money. But for the rest, they are financed by selling government securities to the citizens, who pay for the securities with money that already exists and which is part of their savings. If the government had not been running at a deficit and had not needed to sell these securities, the citizens would have used most of the savings with which they buy the government securities to buy corporate securities and in other ways to make their funds available to business firms.

Those savings, in the hands of business firms would have been used to purchase capital goods and to pay wages. These wages, however, never come into existence if the savings out of which they would have been paid are diverted to the government to finance its deficit. Thus, wage payments in the economic system are smaller because of government deficits.

Yes, it is true that the government itself pays wages to some extent. But it is unlikely to do so to the same extent as do business firms. And to whatever extent the additional wage payments it makes out of the proceeds of its securities sales are less than the wage payments that business firms cannot make because of the diversion of part of what would have been their capital funds to the government, total wage payments in the economic system are reduced.

In addition to this likely reduction in overall wage payments in the economic system, the effect of government budget deficits is an increase in the aggregate, i.e., total, economy-wide, amount of business profits. Here’s why.

Whether business gets money to finance its purchase of capital goods and payment of wages, or the government gets money to buy goods and services, including meeting its own payroll, and, of course, simply to give money away in carrying out various welfare-state functions, the amount of business sales revenues in the economic system will be pretty much the same. This is because a dollar from the sale of a good to a business firm and a dollar from the sale of a good to the government is still a dollar of sales revenues. A dollar from the sale of a good to an employee of business or dollar from the sale of a good to a government employee is again still a dollar of sales revenues. And finally, a dollar from the sale of a good to someone who has received his money under one or another of the government’s welfare-state programs is no less a dollar of sales revenues than a dollar spent by someone who had earned that dollar.

But here’s a crucial difference: The dollars spent by business firms in buying capital goods and in paying wages sooner or later show up as costs of production. Those costs of production, of course, must be deducted from sales revenues in calculating profits. Aggregate profit in the economic system reflects their subtraction.

To the extent that government budget deficits divert funds from the purchase of capital goods and the payment of wages by business firms, their effect is sooner or later to reduce the magnitude of costs of production in the economic system and equivalently to increase the aggregate amount of profit in the economic system. Costs reflect prior outlays of money. To the extent that those outlays are less, the costs will be less. The reduction in costs of production raises profits equivalently, because, as we have just seen, the amount of sales revenues in the economic system is the same either way; it’s the same with or without the budget deficits. In the face of the same aggregate sales revenues, reduced aggregate costs mean equivalently higher profits.

So growing budget deficits are part of the explanation of profits rising relative to wages.

Before concluding, it’s necessary to point out that a rise in profits achieved in this way is not a cause for joy. What is present is an illustration of the dichotomy identified by Ricardo that often exists between monetary value and physical wealth. (See his Principles of Political Economy and Taxation, chap. XX.) Aggregate money profit is up, but in large part that is the result simply of the expenditure for capital goods being down. What that signifies is less previously produced wealth being available to serve in the production of future wealth. A part of the output of the economic system that would have gone into the production of future output is instead diverted to the government’s consumption and to the consumption of those to whom the government gives money.

The effect of this cannot fail to be that the productivity of labor in the economic system will be less than it otherwise would have been and that real wages in the future will consequently suffer from production being less than it otherwise would have been and thus from prices being higher than they otherwise would have been. And, ironically, as an integral part of these developments, while total costs of production in the economic system, are lower, unit costs of production will be higher than they otherwise would have been, because of the reduced output that results from the smaller total outlays of business and the consequent reduction in the supply of capital goods available for use in further production.

In sum, the effect of government budget deficits is lower money wages, higher money profits, and lower real wages to the extent that the deficits serve to increase prices and unit costs on top of reducing money wages.


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. This article is an application of his theory of profit/interest presented in Capitalism. It is based specifically on the discussion on pp. 829-830 of his book.

Politics Masquerading as Science, by Mark Humphrey

The following comment by Mr. Mark Humphrey was originally posted on the blog of the Mises Institute on June 29. It is reprinted here with his permission.

The global warming crusade is politics masquerading as "science". One indication of this bait and switch tactic is the argument, continually promoted by left-wing Greens, that a "consensus" of climate scientists supports this officially sanctioned thesis. Aside from the questionable truth of this claim (more on this below), consensus has nothing to do with the process of identifying evidence, facts, and the logical integrations that lead to new scientific breakthroughs. So scientists properly ought not to be concerned with consensus. Consensus is the obsession of politicians maneuvering to impose their will by force on other people.

Reasonable people should be highly skeptical of much of the "science" produced by contemporary state-sanctioned institutions, because those institutions owe their existence to coercion. They are financed with tax dollars, and more and more they tend to be staffed and run by ambitious political types, who know how to massage the system for grants, prestigious awards, budget boosts, and official approval. Authentic scientists devoted to the adventure of discovery and understanding do not fare well in these institutions of Correctness, because the greater their devotion to science, the higher their resistance to compromising truth for political gain. There are many examples from history of the basic contempt for knowledge fostered by and characteristic of command science. As Ayn Rand explained years ago, force and intelligence are logically and fundamentally antagonistic.

In sharp contrast to the deceit that emerges when science is distorted by a regime of coercion, privately funded science, whether by Exxon or some other organization, has a major stake in establishing the truth. For private funding is voluntary, so both sponsors and scientists have a huge stake in getting results, which in this case means establishing facts. The privately-funded scientists want to establish facts because their reputations and prospects for advancement in science depend on it. Their sponsors want to establish facts, because such is their only effective defense against those who attack them. "Scientists" who embark on a career in tax-funded politically-driven institutions think of themselves as engaged in science, but to the extent that their job security and advancement depend on acceding to political considerations, they are engaged in pretend-science. And these political considerations, whether or not they are acknowledged in public, comprise the whole purpose behind the institution that employs them!

The seeming unanimity of opinion among scientists about global warming is the result of powerful political tides, all pulling in one direction. Dissenters get the silent treatment, are denied grants and fellowships, and will be demoted, sidelined and ostracized by their more politically-sensitive brethren. But despite this great pressure to conform with the official line, 17,000 scientists signed a petition a few years ago dissenting from the global warming thesis. These were scientists who had some professional connection to this issue, climatologists, oceanographers, astronomers, etc. The left-wing dominated press, whose reporters all emerged from public universities with nearly identical ideological outlooks, saw fit to bury this news—a program that continues to this day.

No Fourth of July Celebration at The New York Times/Pravda

The New York Times does not mention Independence Day on its editorial page. And there is no word of celebration of it on its Op-Ed page. What is present on the Op-Ed page is a further demonstration of that newspaper’s hostility to the fundamental values on which the United States was built.

One article, titled “Spinning the Revolution,” seeks to undercut the value of the American Revolution by presenting it not as the kind of great world-shaking event that it was, signifying for the first time in human history the establishment of a government dedicated to the protection of individual rights, but as a matter of mere “spin,” manufactured by a collection of writers and pamphleteers. In the same vein, it belittles the value Americans have rightly attached to the Declaration of Independence and the United States Constitution by sarcastically describing those documents as being viewed as “sacred scripture."

Another article, “Billionaires to the Rescue,” which compares Warren Buffet’s gift of $31 billion to charity to the charitable giving of Andrew Carnegie early in the last century, proceeds as though it never heard of such a thing as the right to the pursuit of happiness. Clearly revealing the perspective of a collectivist, it dares to ask,

Is society served by permitting so much capital to be accumulated by so few? Should we have to rely on the usually unfulfilled hope that fortunes of this magnitude will be put to a good cause? What becomes of a society that must rely on "gifts" from a handful of socially conscious billionaires to save its schools, cure disease and alleviate poverty?

The author believes that “society,” i.e., politicians and government officials have the right to thwart the individual’s accumulation of wealth, thereby denying his right to the pursuit of happiness. In claiming that it is an accidental matter whether large fortunes are put to a good cause, he reveals his ignorance of the fact that the fortunes are invested in business firms as capital, and thereby serve as the source of supply of goods and services to consumers and of demand for the services of wage earners. He demonstrates further ignorance in failing to realize that the high profits out of which fortunes are accumulated are the result of introducing a series of important innovations in the form of new and better products or more efficient methods of production.

He also does not realize that all that prevents the charitable giving of fortunes from resulting in a reduction in the well-being of consumers and wage earners is their continuing to remain invested rather than being consumed by the recipients of charity. The consumption of the recipients of charity needs to be held within the limits of the income on the capital in order for this destructive outcome to be avoided.

Finally, seizing the fortunes by the government to “save . . . schools, cure disease and alleviate poverty” will accomplish little but the reduction of capital. Schools, books, and all the means of learning are properly the province of private business firms meeting the demand of consumers, just as is the supply of food and clothing. Likewise, curing disease is properly the province of privately owned pharmaceutical firms, hospitals, clinics, and of physicians in private practice. The alleviation of poverty is the daily work of businessmen who introduce the newer and better products and more efficient methods of production: in addition to being the source of fortunes, these last are the source of the rise in the standard of living of everyone. They are what enable almost everyone in the modern world to be well fed, clothed, and housed and to have such goods as indoor plumbing, central heating, refrigerators, stoves, telephones, and television sets.

To the extent that schools, medical care, and poverty represent problems in need of solution, the first step in the solution is removing the government from the picture and allowing the profit motive and the pursuit of happiness to succeed in solving these problems. That is a principle to be remembered on America’s Independence Day.

These pathetic articles are what The Times has to offer on the day dedicated to the celebration of America’s existence. It is an alien publication, dedicated to collectivism and the worship of the State, to principles the opposite of those on which the United States was founded. Over the years, it has been the champion of Stalin, of Mao, and of Castro, and more recently, of the reincarnation of socialism known as environmentalism. One cannot expect it to be the champion of Washington and Jefferson and of the United States. And it certainly is not.

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.

The Spring is Silent on DDT by Llewellyn H. Rockwell, Jr.

It's as if the socialists discovered that their plan creates poverty, so they decided to change their name to environmentalists and make poverty their goal.

Let there be no doubt that the war on malaria has failed. It is estimated that 800,000 children in Africa die from the disease every year, and as many as three million people altogether every year.

We know how people contract it: from mosquitoes. We know how to control it: kill the carrier mosquitoes. And we know what kills them: DDT.

So why has the war on malaria failed? Because governments banned the cure. Now they claim to wonder why people are sick and dying.

DDT was discovered during World War II to be a great means of stopping infection from typhus and malaria. Its inventor, Paul Hermann Mueller, won the Nobel Prize in 1948.

It was used throughout the 1950s and '60s and was on the verge of wiping out mosquito-borne diseases from the planet. Then something very peculiar came along. A book called Silent Spring by Rachel Carson was published in 1962, and it eventually created a fantastic backlash against progress. The spring was silent supposedly because of the lack of birds, all killed off by DDT.

The only problem is that Carson's claims were never scientifically validated. Indeed, it was a hoax. Studies pumped primates full of DDT with no effect. Human volunteers ingested the stuff with no effect. Workers with 600 times the typical exposure to DDT showed no increased side effects. (Some details here.) What's more, she never once mentioned in her book that DDT had saved hundreds of thousands of lives.

Even so, governments acted. First in Norway and Sweden in 1970. The United States banned it in 1972. The United Kingdom acted in 1984. The Stockholm Convention of 2001 called for the complete elimination of DDT. Of course, the United States government enforced its opposition through its foreign aid programs.

Here it is 2006 and what happens? People are stunned that malaria is back with a vengeance. Every 30 seconds, someone dies of malaria, and three-quarters of the victims are under the age of 5. Survivors can be left with insufferable mental and physical ailments. So far as I know, neither governments nor greens were ever held liable.

Today, the big bucks are looking to fix the problem. Nearly $1 billion was spent last year alone. Warren Buffett ($31 billion) and the Gates Foundation have gotten in on the act. Where is the money going? Only a tiny portion will be spent on DDT spraying, the restrictions on which are only now being slightly loosened, provided it is sprayed in homes and not on crops.

Mostly the money is going to nets. Nets! As if this were the 19th century! It's obvious that the agencies involved in this struggle are reluctant to reach for the spray can, or even discuss it.

The hidden hand behind this horror is none other than the environmentalists. The frenzy against DDT launched their movement. It is what emboldened them, and gave their political agenda momentum. In some ways, their campaign against DDT perfectly sums up their political bent: using state power to ban products and services that help humans, and thereby cause history to roll backward.

The extent to which the green movement is wrapped up in this history is obvious from the fact that we are living through a genuine silent spring, with the press ignoring the causes of malaria. The New York Times presents the epidemic as "mystifying," and most people know nothing about the role of the environmentalists who are responsible for millions of deaths by malaria, and in Africa, of all places, the continent that the Left claims to love to help.

Does no one at the New York Times read back issues? The full case is presented in the zillion-word magazine masterpiece from Tina Rosenberg "What the World Needs Now Is DDT" (April 11, 2004).

The politics of the environmentalists are increasingly predictable and obvious. They oppose all forms of capitalistic innovation. Indeed, they represent a special kind of danger to the human race that socialism never did. At least the socialists favored human progress, or at least said they did. These greens are against all that. They claim that we should be happy to live amidst disease, filth, and death, if only the bugs and birds can be left alone to thrive and kill us.

It's as if the socialists discovered that their plan creates poverty, so they decided to change their name to environmentalists and make poverty their goal.

And note how their agenda fits so well with the state agenda. The state hobbles and hinders productivity in millions of ways through its taxing, regulating, and warmongering. But that makes little difference to the state, which prefers the exercise of power to the good of society. So too do the environmentalists pursue their agenda without regard to the effects on human society.

Currently, there are many environmental issues alive in the policy world, from the debate over sprawl to the frenzy over global warming. The environmentalists have the upper hand in all of them, which is a crying shame, given that they're responsible for millions of lost lives – in just one of their conquests. More victories for them are sure to make life worse for all of us.


Lew Rockwell is president of the Mises Institute and editor of LewRockwell.com. Send email to Rockwell@mises.org. See Lew's columns on Mises.org. Comment on the blog

CO2 Science’s Finding on Global Warming: A Marxist-Type Response

One of the very first replies to my posting of CO2 Science’s journal review "A 221-Year Temperature History of the Southwest Coast of Greenland" was this: "’CO2 Science’ is funded by Exxon. Come on, you guys are usually such independent thinkers—you can do better than rehash this stuff.” (The response was on the blog at the Mises Institute.)

The author of this statement believes that it is sufficient to name the economic affiliation of an individual or organization to be able to dismiss and ignore anything that comes from them. This was a tactic employed for generations by the Marxists. Instead of refuting the criticisms leveled against their doctrines by economists and others, they were content to identify critics as a member of the capitalist class or as having received financial support from capitalists. The Nazis had their own variant of the practice. They were content to identify their critics as Jewish or as somehow supported by Jews or otherwise affiliated with Jews. The devastating criticisms of socialism made by Mises were dismissed on both grounds.

Now, today, here is Exxon. I don’t even know that it is the source of funds for CO2 Science, or is the major or only source. But I’m willing to assume that it is. How does it follow from that, that whatever comes from CO2 Science, or from Exxon, on the subject of global warming and CO2 emissions is automatically false?

Yes, it is true that Exxon-Mobil is the largest American oil company and wants to be able to remain in that branch of business, while the environmental movement would like to destroy it, and the whole rest of the oil industry, along with the coal and atomic power industries, and is using the alleged connection between global warming and CO2 emissions as its main weapon in its attempt to do so. (This weapon, of course, does not apply in the case of atomic power. But atomic power is regarded by the environmental movement as a terrifying death ray, even more frightening than global warming.)

So, yes, Exxon may have a financial self-interest at stake, which depends on whether or not there is a real connection between the CO2 emitted by the consumption of its fuels and global warming. Its financial self-interest may very well lie with the establishment of lack of any connection.

As a minor digression, I need to point out that this is not necessarily the case. To the extent that the environmental movement succeeds in making petroleum scarcer and more expensive, the revenues and profits earned by the owners of existing petroleum reserves rise. Major oil companies like Exxon-Mobil have actually gained in this way and have been severely criticized for these gains. In fact, some of their critics seem to imply that oil companies are, or at least should be, actual supporters of the environmental movement, precisely because it makes oil scarcer and more expensive and thus increases their profits to the extent that they already have reserves.

I have to say that I believe that the norm of competition within the oil industry, as well as its pride in the products it produces, prevents any such monopolistic, pro-environmentalist mindset. The individual oil company knows that its self-interest lies with an increase in its reserves, because whatever the effect on the overall supply and price of petroleum, its own situation would be worse if others added those reserves instead of it. Because then, it would be faced with the same lower price, but have less to sell.

So, granted, the individual oil companies, like Exxon Mobil, have a financial self-interest in the continued and growing production of petroleum and are glad to find any evidence they can that diminishes the threat of the environmentalist agenda. The relevant question is, which better serves their self-interest in accomplishing this? Is it to fabricate the facts or to find the actual facts and present them if they support its case? Or, to say the same thing in different words, which is the better defense of their self-interest: The actual truth if it supports their case? Or simply lies?

In the United States, we are fortunate to have both a long-standing tradition and clear Constitutional protection of a defendant’s right in a criminal trial not to testify. What the Marxists and Nazis and those who are following in their path today are seeking is the equivalent of a prohibition of a defendant’s right to testify.

Individuals, corporations, industries, are to be subject to attack by those who seek to injure or destroy them, and they are to be prohibited from defending themselves by virtue of people being unwilling listen to what they have to say. They are not to be listened to for no other reason than that their avoidance of injury and their survival matters to them. They have an “interest” in the outcome. Yes, they do. And they have a right to be heard—for that very reason! Because their best defense is truth.

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.

An Important Study Challenging the Connection Between CO2 and Global Warming

I had been receiving e-mails for more than a year from an organization called CO2 Science. They all looked so abstruse and technical that I had never bothered to open any of the numerous links that they typically contained to this, that, and the other study, scientific journal, conference, or whatever. But for some reason, the other day, I did click on one of the links and what I found was not only readable, but also quite startling. Since the item was fairly short, I’ve taken the liberty of reproducing the whole of it here:

A 221-Year Temperature History of the Southwest Coast of Greenland
_______________________________________
Reference
Vinther, B.M., Andersen, K.K., Jones, P.D., Briffa, K.R. and Cappelen, J. 2006. Extending Greenland temperature records into the late eighteenth century. Journal of Geophysical Research 111: 10.1029/2005JD006810.

What was done
Combining early observational records from 13 locations along the southern and western coasts of Greenland, the authors extended the overall temperature history of the region - which stretches from approximately 60 to 73°N latitude - all the way back to AD 1784, adding temperatures for 74 complete winters and 52 complete summers to what was previously available to the public.

What was learned
In the words of the authors, "two distinct cold periods, following the 1809 'unidentified' volcanic eruption and the eruption of Tambora in 1815, [made] the 1810s the coldest decade on record." The warmest period, however, was not the last quarter century, when climate alarmists claim the earth experienced a warming that was
unprecedented over the past two millennia. Rather, as Vinther et al. report, "the warmest year in the extended Greenland temperature record [was] 1941, while the 1930s and 1940s [were] the warmest decades." In fact, their newly-lengthened record reveals there has been no net warming of the region over the last 75 years!

What it means
With approximately half the study region located above the Arctic Circle (where CO2-induced global warming is suggested by climate models to be most evident and earliest expressed), one would expect to see
southwestern coastal Greenland's air temperature responding vigorously to the 75-ppm increase in the atmosphere's CO2 concentration that has occurred since 1930, even if the models were only half-way correct. However, there has been no net change in air temperature there in response to the 25% increase in the air's CO2 content experienced over that period. And this is the region the world's climate alarmists refer to as a climatological canary in a coal mine??? If it is, real-world data suggest that the greenhouse effect of CO2 has been hugely overestimated.

Reviewed 28 June 2006

The New York Times: It Just Can’t Stop Hating Success and the American Way of Life

To combat climate change, we need to break our addiction to consuming oil, while developing countries need to break their addiction to selling it. We need a different lifestyle model . . . . —Thomas L. Friedman

The biggest problem with our bounty of coal is not what it does to our mountains or the atmosphere, but what it does to our minds. It preserves the illusion that we don't have to change our lives. Given the profound challenges we face with the end of cheap oil and the arrival of global warming, this is a dangerous fantasy. — JEFF GOODELL

The above two quotations are from side by side op-ed pieces in The New York Times of June 23, 2006. They read like an orchestrated effort to make people feel guilty about a way of life in which man-made power eliminates most of the drudgery of life and makes possible light, heat, refrigeration, air conditioning, television, computers, and high speed travel, among many other things. This power, of course, is derived mainly from oil and coal. Much of it could be derived from atomic energy, but that is denounced even more than oil and coal. Man-made power, and the Industrial Revolution that spawned it, is what the pleasure-hating crew at The New York Times wants us to give up, along with years of our lives.

There is more ignorant and destructive verbiage in the same issue of this newspaper, this time on The Times’ editorial page proper:

Yesterday, the House of Representatives passed an estate-tax cut that is a repeal in everything but name. The so-called compromise would exempt more than 99.5 percent of estates from tax, slash the tax rates on the rest and cost at least $760 billion during its first full decade. Of that, $600 billion is the amount the government would have to borrow to make up for lost revenue from the cuts, which would benefit the heirs of America's wealthiest families, like the Marses of Mars bar and the Waltons of Wal-Mart Stores. The remaining $160 billion is the interest on that borrowing, which would be paid by all Americans. — “A Look at Republican Priorities: Comforting the Comfortable”

The Mars candy company (Milky Way, Snickers, M&Ms, etc.) and Wal-Mart are great benefactors of mankind. The first provides the pleasure of delicious candy at a price practically everyone can afford. The second provides an enormous array of goods at the most economical prices possible. The owners of these companies, and of all others like them, deserve every penny they have made and the right to pass all of their wealth on to the heirs of their choice.

If their heirs are allowed to receive that wealth, it will most likely continue to be invested in the provision of excellent goods that people want and need. If, instead, the wealth is diverted to pay taxes to finance welfare-state spending, it will certainly not remain invested in the provision of such goods, because it will end up in the hands of welfare-state clients and in such things as “bridges to nowhere” and other ridiculous pork-barrel projects currently financed by taxes.

The heirs should not be blamed for budget deficits. All they want is what is rightfully theirs—wealth that has been earned by those eager to pass it on to them. The budget deficits are created by massive government spending. Whoever is concerned with budget deficits, must urge the reduction of government spending to eliminate them.

Whoever is concerned with the plight of welfare-state clients deprived of government support, must urge the freedom of the individual to find employment on the best terms the market has to offer and his freedom to be supplied by the most economical suppliers he can find. This means the wholesale abolition of restrictions on production and exchange, from agricultural subsidies to zoning laws.

But here again, The Times shows itself to be the enemy of human success. It urges a forty percent increase in the minimum wage, a measure that that will inevitably deprive large numbers of people of the possibility of finding any employment and thus of gaining the skills and experience that might qualify them for better-paying jobs later on. In its ignorance and moral pretentiousness, The Times declares:

At the same time that Republicans are fighting to exempt the richest estates from taxes, they are blocking a raise for the nation's poorest workers. . . . Senate Democrats tried unsuccessfully this week to raise the federal minimum wage, which stands at just $5.15 an hour. It has not been increased in nearly a decade, and at its current stingy level, the rate flies in the face of Americans' belief that those who work hard and play by the rules will be rewarded. — “A Look at Republican Priorities: Afflicting the Afflicted”

The Times (and the Senate Democrats who are its heroes), is apparently ignorant of the well-established elementary principle of economics that the higher the price of anything, the less of it that will be bought, and that the same principle applies to wages. The fact that the minimum wage has not been raised in almost a decade is one of the reasons that the United States does not have the unemployment rate of France or Germany.

If The Times understood the principle that the higher the wage, the smaller the number of workers sought, it might also realize that the way to raise the wage rates of low-paid workers, would be to repeal the laws and regulations that enable labor unions and professional organizations to obtain artificially high wage rates for their members.

The inability of more-skilled workers to obtain employment in jobs commensurate with their skills, because artificially high wage rates hold down the quantity of their services that employers seek to buy, is responsible for an artificially large supply of labor competing for lower-skilled and unskilled jobs. And this larger supply requires that wage rates in the lower end of the labor market be lower than they would have to be if the middle and upper portions of the labor market were free and could thus employ all the labor they should employ.

Wage rates everywhere are also needlessly depressed by all of the allegedly “free benefits” that employers are made to pay for. These alleged free benefits include employer contributions to Social Security and Medicare, providing maternity leave, holidays, and paid vacations, and meeting the requirements of job safety laws. Their cost is as much a part of the cost of employing a worker as is his take home wage. It would make no difference to employers if the workers received the cost of these “free benefits” as actual take-home wages instead.

The Times doesn’t care to know any of this. Instead, it prefers what it considers to be the “moral high ground” of everyday contemptuously looking down its long, supercilious nose and sneering at the capitalist economic system, those who make it work, and those who enjoy its benefits.

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.

Mutualism’s Support for the Exploitation of Labor and State Coercion

[“Mutualism” is currently a hot topic of discussion on the blog of The Ludwig von Mises Institute. (See the extensive thread following my last posting there.) The following is my most recent posting there on this subject. Hopefully, it will be of interest to readers of this blog as well.]

Mutualism claims to oppose the exploitation of labor, i.e., the theft of any part of its product. But when it comes to labor that has been mixed with land, it turns a blind eye and comes out foursquare on the side of the exploiter.

Thus, to elaborate on the case I presented in my last post, “Mutualism: A Philosophy for Thieves,” let us imagine that our legitimate land owner—legitimate even by Carson’s standards—has spent several years clearing or draining his land, pulling out stumps, removing rocks and boulders, digging a well, building a barn and a house, and putting up fences to keep in his livestock. It is this land that he agrees to rent to a tenant, or, what is not too different, sell on a thirty-year mortgage, which he himself will carry, on the understanding that every year for thirty years he will receive a payment of interest and principal.

The tenant or mortgagee signs a contractual agreement promising to pay rent, or interest and principal, and takes possession of the property. Being a secret mutualist, however, he thereupon proclaims that the property is now his, on the basis of the mutualist doctrine that, in Carson’s words, “occupancy and use is the only legitimate standard for establishing ownership of land.”

This is a clear theft not only of the land, but also of the product of labor. A worker has toiled for years and is now arbitrarily deprived of the benefit of his labor, and this in the name of the protection of the rights of workers!

Mutualists cannot help but be uncomfortable with cases of this kind. And because of this, they don’t mention them. Instead, they assert that land is unique, because it is not the product of labor. But in all cases of this kind, which are so common as actually to be the norm, major features of the land clearly are the product of labor.

After he has been robbed, mutualists tell the worker to be content with getting the thief’s moveable property, but not “his” real estate. Well, farmhouses, barns, wells, and the improvements in the ground itself that are products of labor, are not moveable. And yet they are just as much the product of labor as any manufactured product. And the worker who created them has the only legitimate claim to them in these circumstances.

The mutualist fraudster who has violated his contract is clearly a vicious exploiter of labor. And Mutualism is on his side.

Mutualists pretend that there will be communities in which such behavior is accepted and routine, and chide opponents for their lack of knowledge of anthropology for not understanding this. They do not care to admit that the only thing which can enforce such a practice is the threat of physical force against those who would put an end to it, i.e., for all practical purposes, the existence of some form of tyrannical state. Yes, mutualists are “anarchists” who turn out to be statists!

It is possible to see why this must be so by starting with a condition in which there is no government. In this state of affairs, our exploited worker-victim easily proves to his neighbors that a “lying, thieving mutualist” has stolen his land and deprived him of the benefit of years of work. If his neighbors have neither been lobotomized nor castrated, they will probably contemplate lynching this “mutualist.” In any case, they proceed with our victim to his land and are ready forcibly to evict the “mutualist.” What will stop them from doing so and thus putting an end to any practice of Mutualism’s depraved concept of “property rights”?

The only thing that will stop them is the threat or actuality of greater force exerted by mutualists, i.e., by a mutualist armed gang. If the mutualist gang has its way, it constitutes a de facto mutualist state, which must continue in existence indefinitely in order to uphold the mutualist concept of “property rights.”

Mutualism thus ends in nothing more than a state dedicated to the violation of property rights.

And, of course, it is worth pointing out that there is nothing genuinely “mutual” about “Mutualism.” It is a system designed to protect thieves, who gain at the expense of victims, who lose. Mutuality of gains requires the enforcement of voluntary contracts. It requires that the tenant or mortgagee pay the landowner or mortgagor what he has promised to pay. He gains, and only by honoring his contract can the other party gain too. Abiding by contractual agreements can legitimately be called “mutualism.” In contrast, the doctrine of “Mutualism” is a self-desecration.


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.

Mutualism: A Philosophy for Thieves

The collapse of socialism-communism has not only given rise to the remarkable growth of environmentalism, as a replacement outlet for hostility to capitalism, but also to some growth, vastly less considerable of course, in the remnants of the old anarchist movement, which now sometimes calls itself “libertarian” or “left-libertarian.” A leading strand of this remnant goes under the name “Mutualism.” And its philosophy has recently been set forth in a book by one Kevin Carson, called Studies in Mutualist Political Economy (Fayettville, Arkansas: Self-published, 2004), which I reviewed in the current issue of The Journal of Libertarian Studies. The opening portion of my review appears in my blog posting of June 14 on this site.

The purpose of this posting is to expand on the following paragraph of that portion of my review:

Thus, for example, if I, a legitimate owner of a piece of property, legitimate even by Carson’s standards, decide to rent it out to a tenant who agrees to pay the rent, the property, according to Carson, becomes that of the tenant, and my attempt to collect the mutually-agreed-upon rent is regarded as a violent invasion of his [the tenant’s] “absolute right of property.” In effect, Carson considers as government intervention the government’s upholding the rights of a landlord against a thief. He believes he has the right to prohibit me and the tenant from entering into an enforceable contract respecting the payment of rent and that such action is somehow not a violation of our freedom of contract and not government intervention.

In support of my claims, I now quote Mr. Carson:

For mutualists, occupancy and use is the only legitimate standard for establishing ownership of land, regardless of how many times it has changed hands. An existing owner may transfer ownership by sale or gift; but the new owner may establish legitimate title to the land only by his own occupancy and use. A change in occupancy will amount to a change in ownership. Absentee landlord rent, and exclusion of homesteaders from vacant land by an absentee landlord, are both considered illegitimate by mutualists. The actual occupant is considered the owner of a tract of land, and any attempt to collect rent by a self-styled landlord is regarded as a violent invasion of the possessor's absolute right of property. (p. 200.)

Careless readers of this passage from Carson may assume that all that he is talking about is the case in which a later owner chooses not to occupy or use the property to which he has obtained title. Such a case is certainly possible, but it is not the case that needs to be considered first. The case that needs to be considered first is that of land which passes from the possession of someone whom Carson acknowledges as a legitimate owner, that is, precisely the kind of person of whom he says, “An existing owner may transfer ownership by sale or gift” to someone else, and then this someone else does, indeed, occupy and use the land.

The problem is that, according to Carson, this new party’s mere occupancy and use of the land extinguishes any possible property right in the land on the part of the previous possessor, whom Carson acknowledged as legitimate.

For suppose the first owner and the prospective second owner mutually agree on a rental of the land. According to Carson, once the second owner takes possession of the land and begins using it, he is now the legitimate owner. “A change in occupancy will amount to a change in ownership,” he has just said. If the first owner, who no longer occupies or uses the land, collects rent on it, he is a landowner who is absent from the land on which he collects rent. He is thus, necessarily, an “absentee landlord.” And Carson has also just said: “Absentee landlord rent, and exclusion of homesteaders [i.e., presumably the second occupant-user] from vacant land by an absentee landlord, are both considered illegitimate by mutualists. The actual occupant is considered the owner of a tract of land, and any attempt to collect rent by a self-styled landlord is regarded as a violent invasion of the possessor's absolute right of property.”

Here there is a mutually and voluntarily agreed upon rental contract, but after taking possession, the new occupant decides that he is the owner of the land and will not pay any “absentee landlord rent,” which Carson believes it is his absolute right to decide. Has he not obtained another’s legitimate property and is now refusing to pay for it? And, having taken it, and both refusing to pay for it and refusing to give it back, is he thus not stealing that property?

Would he have been able to obtain the use and occupancy of the land if it had been known or suspected that this is how he would behave, once having obtained it? Obviously, he would not have been able to, and the assurance of his not behaving in this way is a written and signed enforceable rental contract. In that contract it is agreed that in the event of failure to pay the rent, the use and possession of the property reverts to the first user/possessor, who is recognized as the property’s owner despite his absence from the property. The contract also provides that in the event of non-payment of the rent, the owner has the right to dispossess the tenant by force if necessary.

Carson denies the landowner’s rights in a case of this kind and regards the landowner’s act of dispossession as “a violent invasion of the possessor's absolute right of property.” He considers the support given the landlord by the courts and the police in enforcing the contract to be “government intervention.”

Because of these facts, I concluded in my review of his book, as I said near the beginning of this posting, that “Carson considers as government intervention the government’s upholding the rights of a landlord against a thief. He believes he has the right to prohibit me and the tenant from entering into an enforceable contract respecting the payment of rent and that such action is somehow not a violation of our freedom of contract and not government intervention.”

It should be realized that Carson’s hostility to private property rights is not limited to the case of land. He makes clear that it also includes houses and apartments. He advocates the seizure of vacant homes and apartments by homeless squatters. Thus, he declares:

If every vacant or abandoned housing unit in a city is occupied by the homeless, they will at least have shelter in the short term until they are forcibly removed. . . . In the meantime, the squatters' movement performs a major educative and propaganda service, develops political consciousness among urban residents, draws public attention and sympathy against the predatory character of landlordism, and—most importantly—keeps the state and landlords perpetually on the defensive. (pp 377-378.)

On the basis of this and all of the foregoing, I say that Carson’s “Mutualism” is a philosophy for thieves. As I wrote in my full-length review in the JLS:

The logic of Carson’s position extends to legitimizing auto theft: An individual rents a car from Hertz or Avis. He is the user/occupant. Hertz or Avis is the absentee owner demanding rent. It extends to the theft of clothing that is not being worn at the moment by its—absentee—owner. It extends to all property, for once in the possession of the thief, the thief as user/possessor becomes the legitimate owner, according to Carson’s conception of things.

Carson simply does not understand that ownership is not the mere possession and use of property but rather the moral and legal right to determine the possession and
use of property.

Ironically, his failure to grasp this last principle totally undercuts his condemnation of the massive seizures of land that have occurred throughout history and which are the ostensible reason for his condemnation and hatred of “landlordism.” To the extent that such seizures were the result of a population of outsiders that not only seized the land of the previous occupants but also proceeded to work it, Carson has no basis of opposition, because his principle is that use determines ownership, and they are now the users. His principle of use determining ownership leaves no basis for opposing any theft, so long as the thief uses what he has stolen.

What Carson is actually opposed to is not violent appropriation of land —indeed, as we have seen, that is precisely what he advocates whenever he thinks it is “just.” What he is actually opposed to is merely the case in which the thief does not use what he has stolen—the leading example being when the thief settles down to become a landlord collecting rent on land that others use.

But, of course, Carson is equally opposed to someone who is not a thief also not using his own property. Non-use is alleged justification for legitimate property being seized, and, as I’ve shown, not just land but also homes and apartments, and by implication, automobiles, clothing, and everything else that is not being used by its owner.

I cannot help but suspect that what Carson is actually opposed to is not at all force, fraud, or actual injustice in the history of mankind but the existence of large inequalities of wealth and income, whatever their basis. The idle wealth of the rich is what he has in mind for seizure and subsequent use by the poor, who would allegedly be its rightful owners by virtue of the mere fact of their use of what they had stolen.

Hopefully, in the future, I will be able to address further the problems connected with violent seizures of land in the past and explain why they are irrelevant to the present and do not justify programs of redistributionist “land reform.” For those who may be interested, I have already written on this subject in my book Capitalism, on pp. 317-322.

For now what it is essential to understand is that Carson’s “Mutualism” is a philosophy that urges theft.


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.

Freedom Is Slavery: Laissez-Faire Capitalism Is Government Intervention, A Critique of Kevin Carson’s Studies in Mutualist Political Economy

Kevin Carson’s new book Studies in Mutualist Political Economy (Fayettvile, Arkansas, 2004, 409 pp.) centers on the incredible claim, self-contradictory on its face, that capitalism, including laissez-faire capitalism, is a system based on state intervention, in violation of the free market: “It is state intervention that distinguishes capitalism from the free market,” declares the book’s preface.” Capitalism, writes Carson, is “a system of privilege in which the State enable[s] the owners of capital to draw monopoly returns on it, in the same sense that the feudal ruling class was able to draw monopoly returns on land; or, as the left-Rothbardian Samuel Konkin put it, `Capitalism is state rule by and for those who own large amounts of capital (p. 92).’” Perhaps not surprisingly, in view of his description of capitalism, Carson hopes his book will provide a foundation for “free market socialist economics (p. 10).”

Exposition and Critique of Carson’s Framework

For the most part Carson is a Marxist. But not entirely. He adds to Marxism a large dose of what he calls “individualist anarchism” and, beyond that, a significant dose of apparent syndicalism.

Carson is a Marxist insofar as he upholds both an essentially absolutist labor theory of value and the Marxian exploitation theory, which follows from such a version of the labor theory of value.[1] According to the exploitation theory, all exchange value and thus all income is produced by labor and therefore properly belongs to wage earners. Under capitalism, however, a more or less considerable part of the income that properly should go to workers as wages is instead unjustly appropriated as profit, interest, and land rent, i.e., as one or another of the various forms of “surplus value.”

Marx held that exploitation is inherent in the nature of commodity production, because the determination of the value of commodities by the quantity of labor expended in their production is a universal law, applicable to labor itself, no less than to its products (hence the expression/complaint that under capitalism, “labor is a commodity”). According to Marx, the labor expended in the production of labor itself, is the labor expended in the production of the wage earner’s minimum necessities. It is this quantity of labor, the so-called necessary labor time that allegedly determines the value of labor.[2]

Thus, for example, if 6 hours of labor are required to produce the necessities that enable a worker to work for 12 hours, all that the capitalist pays for the 12 hours of labor is a wage corresponding to those 6 hours. The capitalist is thereby enabled to obtain the benefit of the employment of 12 hours of labor, and thus the addition of 12 hours of labor value to the value of his materials and machinery consumed in the production process, for a wage corresponding only to the 6 hours. The 6 hours the worker works over and above the necessary labor time, Marx calls “surplus labor time.” It is the alleged basis of all surplus value. As illustration, if $1 of product value corresponds to each hour of labor expended in production, the worker’s 12 hour day adds $12 of value, while the capitalist pays him a wage of only $6, and thereby gains $6 of profit or surplus value.[3]

Carson accepts this analysis, but with one alleged significant difference. Namely, he claims that in what he conceives of as a free market, namely, a market without alleged state intervention on behalf of capitalists, the value of labor would not be determined by the so-called necessary labor time, as Marx claimed, but by the full value that the worker’s labor adds to the value of the materials and machinery used up in the production. In other words, the worker’s wage would correspond to the 12 hours of labor he worked, and not merely to the 6 hours required to produce his minimum necessities. It would be $12 and not $6. It is this that Carson describes as “individualist anarchism's central insight (p. 10).” In Carson’s own words that insight is “that labor's natural wage in a free market is its product, and that coercion is the only means of exploitation. It is state intervention that distinguishes capitalism from the free market.”

Carson does not realize it, but he has fallen into a veritable abyss of error. Not only is the entire Marxian analysis as utterly wrong as an economic theory can be,[4] but in his efforts to modify it, he adds to it still more major errors.

Carson describes numerous forms of state intervention in the course of his book, many of them actual, such as wars of conquest, taxation, tariffs, subsidies, conservation laws, and licensing legislation. All such intervention, of course, is opposed by all consistent advocates of capitalism. Carson, however, includes under the heading of government intervention what he calls, following the anarchist Benjamin Tucker, “the land monopoly” and “the money monopoly,” which he regards as the respective foundations of rent and profit/interest. It is in the absence of this alleged intervention that labor would be able to receive its alleged full product as wages.

What Carson means by the land monopoly, at least as far as it relates to his claim that laissez-faire capitalism is a system of state intervention, is nothing other than that legal protection of the rights of landowners to collect contractually agreed upon rents represents government intervention (Carson, pp. 197, 200). He declares that, according to “Mutualists,” of which he is one, “[t]he actual occupant is considered the owner of a tract of land, and any attempt to collect rent by a self-styled landlord is regarded as a violent invasion of the possessor's absolute right of property” (p. 200).

Thus, for example, if I, a legitimate owner of a piece of property, legitimate even by Carson’s standards, decide to rent it out to a tenant who agrees to pay the rent, the property, according to Carson, becomes that of the tenant, and my attempt to collect the mutually-agreed-upon rent is regarded as a violent invasion of his [the tenant’s] “absolute right of property.” In effect, Carson considers as government intervention the government’s upholding the rights of a landlord against a thief. He believes he has the right to prohibit me and the tenant from entering into an enforceable contract respecting the payment of rent and that such action is somehow not a violation of our freedom of contract and not government intervention.

What Carson means by the money monopoly is equally bizarre: namely, the inability of the banking system to engage in a permanent policy of radically easy money that would drive the rate of interest and rate of profit to “near zero” (Carson, pp. 219-24). He believes that this inability is the result merely of “the state's licensing of banks, capitalization requirements, and other market entry barriers [which] enable banks to charge a monopoly price for loans in the form of usurious interest rates. Thus, labor's access to capital is restricted, and labor is forced to pay tribute in the form of artificially high interest rates” (p. 200).

Although Carson quotes a few paragraphs from Mises, and even claims to agree to the correctness of the time preference theory of interest, he apparently never heard of Mises’s demonstration of why unlimited credit expansion can succeed only in destroying the value of money, not in permanently reducing the rate of interest. He also seems to be unaware that in a free market, competition, if not the laws against fraud, would severely limit or totally eliminate credit expansion and that it is only government intervention that has enabled it to become as great as it has and that the unlimited credit expansion he advocates would require massively more government intervention in money and credit.[5]

Carson also claims that capitalism has been subsidized by history, as though it could be guilty of practicing government intervention retroactively:

the single biggest subsidy to modern corporate capitalism is the subsidy of history, by which capital was originally accumulated in a few hands, and labor was deprived of access to the means of production and forced to sell itself on the buyer's terms. The current system of concentrated capital ownership and large-scale corporate organization is the direct beneficiary of that original structure of power and property ownership, which has perpetuated itself over the centuries. (Carson, 2004, p. 144)

Some readers may be tempted to stop reading further, having reached the conclusion that Carson is nothing but a fool, ignorant of the nature of individual rights, of economics, and of logic, and, in claiming, on such a patently absurd basis, that capitalism rests on state intervention, dishonest to boot, seeking to hijack the concept of the free market into the service of its opposite, much as an earlier generation of socialists did with the word “liberalism.” Nevertheless, as Mises used to point out in his seminar, it is dangerous simply to dismiss people as cranks, or to attack their motives, without fully unmasking their errors. And, following that advice, this is what we must do with Carson [in the remaining 36 pages of this article].


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

This article is excerpted from the author’s much larger article of the same title which appears in The Journal of Libertarian Studies, Vol. 20, No. 1. The entire issue of the journal, which also contains articles by Walter Block, Roderick Long, and Robert Murphy, is devoted to an analysis of Carson’s book. A closely related article by Murray Rothbard is devoted to a critique of the wider doctrine of individualist anarchism.

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Notes

[1] See Carson, 2004, p. 14, where he disingenuously quotes Ricardo along these lines, totally ignoring Ricardo’s recognition of the role both of the period of time that must elapse in production and of the rate of profit as determinants of the relative value of reproducible commodities, alongside the quantity of labor required to produce them. In contrast to Ricardo’s doctrine, the absolutist version of the labor theory of value, which was held by Marx, recognizes nothing but the quantity of labor expended in production as the source of exchange value.

[2] Cf. Marx, 1867, vol. 1, pt. 2, chap. 6.

[3] Cf. ibid., pt. 3, chap. 9, sec. 1.

[4] On this subject, see Reisman (1996, chaps. 11 and 14, passim). On the subject specifically of the exploitation theory and Marx’s treatment of interest, see also Böhm-Bawerk (1959, vol. 1, pp.263–271; and idem, 1962, pp. 201-302).

[5] This same point is made by Rothbard in the first essay of the present volume, in application to Carson’s predecessors in the Mutualist school. Despite frequent references to Rothbard, Carson seems totally unaware not only of that essay but also of Rothbard’s (1962, 2001) support of a one-hundred-percent-reserve gold standard as an essential feature of a fully free market and of the fact that in such a market credit expansion would necessarily be totally absent.

References

Böhm-Bawerk, Eugen. 1959 [1914]. Capital and Interest, South Holland, IL: Libertarian Press, George D. Hunke and Hans F. Sennholz, trans.

───. 1962 [1898]. “Karl Marx and the Close of His System,” reprinted as “Unresolved Contradiction in the Marxian Economic System” in Shorter Classics of Eugen von Böhm-Bawerk, South Holland, Ill.: Libertarian Press.

Carson, Kevin A. 2004. Studies in Mutualist Political Economy. Self-published: Fayetteville, AR.

Marx, Karl. 1867. Capital, vol. 1, London.

Reisman, George. 1996. Capitalism: A Treatise on Economics, Ottawa, Illinois: Jameson Books.

Rothbard, Murray N. 1962. Man, Economy, and State, 2 vols., Princeton, N. J.: D. Van Nostrand Company, Inc.

───. 2001. The Case for a 100 Percent Gold Dollar. Auburn, Alabama. The Ludwig von Mises Institute.