There are two fundamental views of economic life. One dominated the economic philosophy of the nineteenth century, under the influence of the British Classical Economists, such as Adam Smith and David Ricardo. The other dominated the economic philosophy of the seventeenth century, under the influence of Mercantilism, and has returned to dominate the economic philosophy of the twentieth century, largely under the influence of Lord Keynes. What distinguishes these two views is this: In the nineteenth century, economists identified the fundamental problem of economic life as how to expand production. Implicitly or explicitly, they perceived the base both of economic activity and economic theory in the fact that man’s life and well-being depend on the production of wealth. Man’s nature makes him need wealth; his most elementary judgments make him desire it; the problem, they held, is to produce it. Economic theory, therefore, could take for granted the desire to consume, and focus on the ways and means by which production might be increased.
In the twentieth century, economists have returned to the directly opposite view. Instead of the problem being understood as how continuously to expand production in the face of a limitless desire for wealth resulting from the limitless possibilities of improvement in the satisfaction of man’s needs, the problem is erroneously believed to be how to expand the desire to consume so that consumption may be adequate to production. Economic theory in the twentieth century takes production for granted and focuses on the ways and means by which consumption may be increased. It proceeds as though the problem of economic life were not the production of wealth, but the production of consumption.
These two diametrically opposed and mutually exclusive basic premises concerning the fundamental problem of economic life play the same role in economic theory as do conflicting metaphysics in philosophy. Point for point, they result either in opposite conclusions or in the advancement of opposite reasons for the same conclusion. So thoroughly and fundamentally do they determine economic theory that they give rise to two completely different systems of economic thought.
Two Views of Employment
If one is on the nineteenth century, productionist premise, one realizes first of all that there is no such thing as a problem of “creating jobs.” There is a problem of creating remunerative jobs, but not jobs. At all times, the productionist holds, there is as much work to be done—as many potential jobs to be filled—as there are unsatisfied human desires which could be satisfied with a greater production of wealth; and as these desires are limitless, the amount of work to be done—the number of potential jobs to be filled—is also limitless. The employment of more and better machinery, therefore, argues the productionist, does not cause unemployment. It merely allows men, to the extent that they do not prefer leisure, to produce more and thus to provide for their needs more fully and in a better way. Nor does the working of longer hours or the employment of women, children, foreigners, or people of minority races or religions deprive anyone of employment. It simply makes possible an expansion of production.
If one is on the twentieth century, consumptionist premise, one takes another view of machinery and the employment of more people. One regards every expansion of production as a threat to some portion of what is already being produced. One imagines that production is limited by the desire to consume. One fears that this desire may be deficient and, therefore, that an expansion of production in any one segment must force a contraction of production in some other segment. Hence, one fears that the work performed by machines leaves less work to be performed by people, that the work performed by women leaves less work to be performed by men, that the work performed by children leaves less to be performed by adults, that the work performed by Jews leaves less to be performed by Christians, that the work performed by blacks leaves less to be performed by whites, and that the extra work of some means a deficiency of work available for others.
Neither the productionist nor the consumptionist desires long hours or child labor. Here, to this extent, both reach the same conclusion. But their reasons are completely different. The consumptionist does not desire them because he thinks there is a problem of what to do with the resulting products, unless other products are to cease being produced and other workers are to become unemployed. The productionist does not desire long hours or child labor because he attaches no value to fatigue or premature exertion. The problem, in the eyes of the productionist, is not what to do with the additional products produced by longer hours or by child labor—only the intense need for the additional products calls forth this additional labor—but how to raise the productivity of labor to a level at which people can afford to have time for leisure and to dispense with the labor of their children.
Wealth Through Scarcity?
Because he imagines production to be limited by the desire to consume (rather than consumption being limited by the ability to produce), the consumptionist values not wealth but the absence of wealth. For example, after World War II, he imagined that the relative absence of houses, automobiles, television sets, and refrigerators in Europe was an asset of the European economy because it represented a large supply of unused consumer desire, thereby supposedly ensuring a strong consumer demand. By the same token, he imagined that the relative abundance of these goods in the United States was a liability of the American economy because it represented a depleted supply of consumer desire, thereby supposedly ensuring only a weak consumer demand. Prosperity depends on the absence of wealth, and poverty follows from its abundance, the consumptionist concludes, because that priceless commodity, consumer desire, more limited in supply than diamonds, is produced by the absence and consumed by the presence of wealth. It is on this principle that the consumptionist relishes war and destruction as sources of prosperity and attributes the poverty of depressions to “overproduction.”
The consumptionist does not believe that the destruction of wealth is the only means of achieving prosperity. Though he believes it difficult of accomplishment, he has hopes that the supply of his commodity, consumer desire, may nevertheless be increased by positive measures. One such measure is a high birth rate. By bringing more people into the world, one brings more consumer desire into the world. The existence of a larger number of people, the consumptionist tells businessmen, will make it possible for business to find someone upon whom to unload its otherwise superfluous goods. Business will prosper because its supply of goods will find a counterpart in an adequate supply of desire for goods. In the absence of a high birth rate, or along with a high birth rate, the consumptionist believes advertising may suggest to the otherwise fully sated consumers some new desire. And, on a somewhat different plane, technological progress, the consumptionist argues, may provide new uses for an expanding supply of capital goods, which otherwise would find no “investment outlets.” Or, if all else fails, the government may be counted upon to supply an unlimited consumption—even in the absence of desire. Or perhaps, the consumptionist hopes, a country may be fortunate enough to be in danger of attack by foreign enemies and therefore stand under the necessity of maintaining a large defense establishment. In either case, the consumptionist imagines that the government will be able to promote prosperity by exchanging its consumption for the people’s products.
Production Limits Consumption
The productionist, of course, takes a different view of matters. He argues that the birth and upbringing of children always constitutes an expense to the parents. In raising children, the parents must spend money on them which they otherwise would have spent on themselves. Of course, the parents may, and hopefully will, consider the money better and more enjoyably spent on their children; but still, it is an expense. And if they have a large enough number of children; they will be reduced to poverty. This is a fact, the productionist argues, that anyone may observe in any large family which does not possess a correspondingly large income. The presence of children does not make the parents spend more than they otherwise would have, but only spend differently than they otherwise would have. They buy baby food, toys, and bicycles instead of more restaurant meals, a better car, or costlier vacations. There is no stimulus given to production. Production is merely differently directed, to the different distribution of demand.
The only increase in production that could take place, the productionist maintains, would be as a result of the parents having to take an extra job or work longer hours to support their children and still be able to maintain their own previous standard of living. And when the children grow up, the additional market which they are supposed to constitute for houses and automobiles and the like will only materialize to the extent that they themselves are able to produce the equivalent of these things and thereby earn the money with which to purchase them. It will only be by virtue of their production, and not by virtue of their desire to consume, that they will be able to constitute an additional market.
Advertising and the Consumer
Advertising, the productionist holds, does not create consumer desire where no desire for additional goods would otherwise have existed. It is not the case that, in the absence of advertising, people would be at a loss as to how to spend their money. Advertising is not required, and would not be sufficient, to rouse vegetables into men. What advertising does is to lead people to consume differently and in a better way than they otherwise would have. Advertising is a tool of competition, and, as such, for every competing product whose sale is increased by it, there is another competing produce whose sale is decreased by it.
The consumptionist’s attitude toward advertising brings into clear relief some further corollaries and implications of his basic premise. His estimate of advertising, like that of war and destruction, is ambivalent, and necessarily so. On the one hand, he approves of it, on the grounds that by creating consumer desires, it creates the work required to satisfy those desires. However, this very belief, that advertising creates desires where absolutely no desires would otherwise exist, also makes him condemn advertising. For if it were true that, in the absence of advertising, men would be perfectly content with very little, the desires created by advertising must appear to be only superficial and basically unnecessary and unnatural.
And this is precisely how the consumptionist regards such desires. In his eyes, all desires men have for goods, beyond what is necessary to make possible bare physical survival and a vegetative existence, represent an unnatural taste for “luxuries.” These desires the consumptionist considers to be inherently unimportant. Their only justification is the creation of work. The consumptionist’s conception of the greater part of economic activity, therefore, is that it represents senseless motion, with deceit and deception required to make people desire goods for which they have no need, in order to enable them to pass their lives in the production of those very same goods.
Paradoxical as it may first appear, it is the productionist who attaches importance to consumer desires. In his view, the desire for “luxuries” is important; it is necessary and natural; for it is nothing but the desire to satisfy one’s inherent needs (including the need for aesthetic satisfaction) in an ever more improved way. It is from the importance which attaches to the satisfaction of the desire for “luxuries,” the productionist maintains, that the importance of the work required to produce them is derived, and not vice versa.
Technology and Capital Goods
The value of technological progress, the productionist holds, does not lie in the creation of “investment outlets” or “investment opportunities” for an expanding supply of capital goods. If the concept of capital goods is properly understood, as denoting all goods which the buyer employs for the purpose of producing goods which are to be sold, then, the productionist maintains, there is no such thing as a lack of “investment opportunity" for capital goods. So long as more or improved consumers’ goods are desired, there is need of a larger supply of capital goods.
For example, ten million automobiles of a given quality require the employment of twice the quantity of capital goods—twice the quantity of steel, glass, tires, paint, engines, and machinery—in their production as do five million automobiles. If the quality of the automobiles is to be improved, then a larger quantity of capital goods is required for the production of the same number of automobiles. For example, a given number of cars of Chevrolet quality require a larger quantity of capital goods in their production than the same number of cars of Volkswagen quality; the same number of cars of Cadillac quality require still a larger supply of capital goods; and the same number of cars of Rolls Royce quality require yet an even more enlarged supply.
The identical principle applies to houses of different size and quality. A given quantity of eight-room houses of a given quality requires the employment of a larger supply of capital goods than the same number of seven-room houses of the same quality. A given number of brick houses requires a larger supply of capital goods than the same number of wooden houses of the same size; the bricks or any more expensive material constitute a larger supply of capital goods because a larger quantity of labor is required to produce it. The principle applies to food and clothing, to furniture and appliances, to every good. So long asmore of any consumers’ good is desired, so long as not every consumers’ good that is produced is of the very best known quality, there is a need for a larger supply of capital goods.
As Technology Advances
It is not the case that in the absence of technological progress, the supply of capital goods would continue to expand, but find no “investment outlet.” It is not the case that what we have to fear from a lack of technological progress is a flood of goods in which every car produced will be the equivalent of the finest known model Rolls Royce, in which every house that is built will be a palatial mansion, in which every suit of clothes produced will be fit for the Duke of Windsor, and in which every morsel of food will be a rare delicacy, and that then we shall be at a loss as to how to employ our expanding supply of capital goods. On the contrary, what we have to fear from a lack of technological progress, the productionist argues, is that we shall not have an increase in the supply of capital goods, that we shall not be able to exploit any considerable portion of the virtually limitless “investment outlets” which already exist, within the framework of known technology.
The value of technological progress, the productionist maintains, consists in the fact that it enables us to obtain a larger supply of capital goods, and not that it solves the problem of what to do with a larger supply. The technological advances which made possible the canal building and railroad building of the nineteenth century and the development of the steel industry were valuable, not because they absorbed capital goods, as the consumptionist maintains, but because they made possible the accumulation of capital goods. The consumptionist does not realize that capital goods can only be expanded in supply by means of an expansion in their production, and that precisely this is what technological progress makes possible. Had the technological advances which made possible the first railroads in the 1830s not taken place, the supply of capital goods required for the expanded and improved railroad building of the 1840s would not have been obtainable; or, if obtainable, only at the price of the expansion of some other industry. Had no technological advances been made in railroading in the 1840s, the supply of capital goods in the 1850s would have been less, both for railroads and for all other industries. And so it would have been decade by decade, had the technological advances made in railroading or in any other industry not taken place.
For capital accumulation to continue for any period of time, technological progress is indispensable. Only it can make possible continued increases in production, and only continued increases in production can make possible continued capital accumulation. The consumptionist is not aware that the very thing which he considers to be the solution to his imagined problem is the source of what he imagines to be the problem. Nor is he aware that when he advances technological progress as the solution to the problem of what to do with more capital goods, he is confronting himself with the problem of what to do with the larger supply of consumers’ goods, which even he admits results from technological progress. The consumptionist is faced, in addition to other quandaries, with the dilemma of explaining how it is that technological progress may raise the rate of profit by, as he puts it, “increasing the demand for capital,” while at the same time, as he admits, it increases the production of consumers’ goods, which, he maintains, lowers the rate of profit through “overproduction.”
Consumptionism and Parasitism
The idea that by consuming his product, one benefits the producer, by giving him the work to do of making possible one’s consumption, is absurd, the productionist holds. Only the use of money lends it the least semblance of plausibility. If it were true, then every slave who ever lived should have cherished his master’s every whim, the satisfaction of which required of him more work. A slave should have been grateful if his master desired a larger house, an improved road, more food, more parties, and so on; for the provision of the means of satisfying these desires would have given him correspondingly more work to do.
The belief that the consumption of the government benefits and helps to support the economic system is on precisely the same footing, the productionist argues, as the belief that the consumption of the master benefits and supports the slave. It is a belief the absurdity of which is matched only by the injustice it makes possible. It is the means by which parasitical pressure groups, employing the government as an agent of plunder, seek to delude their victims into imagining that they are benefitted and supported by those who take their products and give them nothing in return.
The only economic benefit which one can give to a producer, argues the productionist, consists in the exchange of one’s own products or services for his products or services. It is by means of what one produces and offers in exchange that one benefits producers, not by means of what one consumes. To the extent that one consumes the products or services of others without offering products or services in exchange, one consumes at their expense.
The use of money makes this point somewhat less obvious but no less true. Where money is employed, producers do not exchange goods and services directly, but indirectly. The buyer exchanges money for the goods of a seller. The seller then exchanges the money for the goods of other sellers, and so on. But every buyer in the series must either himself have offered goods and services for sale equivalent to those he purchases, or have obtained his funds from someone else who has done so.
The fact that in a monetary economy everyone measures his benefit by the amount of money he obtains in exchange for his goods or services is interpreted by the consumptionist to imply that the mere spending of money is a virtue and that economic prosperity is to be found through the creation and spending of new and additional money—i.e., by a policy of inflation.
In rebuttal, the productionist argues that for everyone who spends newly created money and thereby obtains goods and services without having produced equivalent goods and services, there must be others who suffer a corresponding loss. Their loss, says the productionist, takes the form either of a depletion of their capital, a diminution of their consumption, or a lack of reward for the added labor they perform—a loss precisely corresponding to the goods and services obtained by the buyers who do not produce.
The consumptionist’s advocacy of consumption by those who do not produce, to ensure the prosperity of those who do, is, the productionist argues, a pathological response to an economic world which the consumptionist imagines to be ruled by pathology. The consumptionist has always before him the pathology of the miser. His reasoning is dominated by the thought of cash hoarding. He believes that one part of mankind is driven by a purposeless passion for work without reward, which requires for its fulfillment the existence of another part of mankind eager to accept reward without work. This is the meaning of the belief that one set of men desire only to produce and sell, but not to buy and consume, and the inference that what is required is another set of men who will buy and consume, but who will not produce and sell. In the consumptionist’s world, the producers are imagined to produce merely for the sake of obtaining money. The consumptionist stands ready to supply them with money in exchange for their goods—he proposes either to take from them the money he believes they would not spend, and then have someone else spend it, or to print more money and allow them to accumulate paper as others acquire their goods.
Hoarding is not the only phenomenon upon which the consumptionist seizes. Where nothing in reality will serve, the consumptionist is highly adept at bringing forth totally imaginary causes of economic catastrophe. Invariably, the solution advanced is consumption by those who have not produced, for the sake of those who have. Always, the goal is to demonstrate the necessity and beneficial effect of parasitism—to present parasitism as a source of general prosperity.
The Rationality of Economic Life
In view of the overwhelming absurdities and contradictions of consumptionism and the gross perversion of values which it engenders, one may only conclude that its support is founded on the interest which it obviously serves: parasitism. This, of course, does not relieve the economist of the duty of identifying the particular errors of every consumptionist argument. It does, however, disqualify every consumptionist as an economist. No scientist, in any field, can accept the view that reality is irrational or that irrational action is required to deal with it.
Those economists of the present day who openly and defiantly proclaim that the economic world is “non-Euclidean,” do so happily. That is the way they would like the economic world to be. If they merely believed that economic life appeared to be irrational, and did not at the same time desire it to be irrational, they would never proclaim it to be so in fact. Instead of leaping to the support of consumptionism after only the most casual examination of their subject, they would not rest until they had identified the errors which could make them believe that economic life possessed the appearance of irrationality; and the greater such an appearance might be, the greater would they realize their own ignorance to be, and the harder would they work to overcome it and expose the errors. It is this which distinguishes an economist from a Lord Keynes.
This essay originally appeared in the October 1964 issue of The Freeman. It is available as a pamphlet from The Jefferson School of Philosophy, Economics, and Psychology. The author wishes to note that his book Capitalism contains a far more comprehensive treatment of the subjects dealt with here. (See in particular, Chapter 13 “Productionism, Say’s Law, and Unemployment.”)
Copyright © 1964, 1991 by George Reisman. Provided that credit is given to the author and he is notified by e-mail, permission is hereby granted to post this essay, uncut, on the internet and otherwise noncommercially distribute it electronically or in print. All other rights reserved.
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Friday, March 17, 2006
Thursday, March 16, 2006
Debunking a Reported Defiance of Economic Law in South Korea
Today’s [March 16, 2006] New York Times reports as news a story which, if true, would be an event in defiance of economic law and thus a literal miracle, comparable to the raising of the dead or a virgin birth. This alleged miracle is contained in the headline “In Korea, Bureaucrats Lead the Technology Charge.”
The opening paragraph of the article gushes, “With Korea's aggressive electronics conglomerates leading the world's markets into the next frontiers of high technology, an unlikely commander is heading the charge: the government.” This supposedly is the same government and the same bureaucrats who, in the article’s words, led “a push into biotechnology that produced a national scandal over faked stem cell research.” (The scandal first became public last December.)
Reading further into the article, however, one learns some very significant information. Namely, the head of the country’s Ministry of Information and Communication—the ministry described as the leading governmental actor in information technology in South Korea, “with a budget of nearly $1 billion to promote new technologies”—is one Chin Dae Je. Apparently with no awareness of its significance, the article mentions that before becoming minister of information three years ago, Mr. Chin was an executive of Samsung Electronics. The same paragraph in the article also reveals that he “consulted with his former Samsung colleagues, along with other big Korean companies, to pick technologies that would help the nation `leap into the leadership position in the I.T. field.’”
Based on this information, here’s my hypothesis, which I think is far more plausible than financially disinterested Korean bureaucrats glued to following government regulations, somehow suddenly, causelessly, becoming responsible for the country’s economic success: The parties leading the technology charge, and at the same time using the Korean government as a vehicle serving their financial self-interests, are Samsung Electronics and other Korean firms. Their executives tell the bureaucrats what to do. All that’s happened is that they’ve managed to obtain government financing for some of their research. (Of course, sometimes, acting through the government, they may also tell some competitors what to do, which makes it looks like initiative is coming from the government.)
On other occasions, they’ve no doubt managed to obtain other forms of government subsidization, such as, perhaps, some road construction or river and harbor improvements. Looked at in this light, there’s actually nothing more surprising going on in Korea today than went on in our own country in much of the 19th Century, when businessmen used the government under Republican administrations to enact protective tariffs on their behalf. (This, of course, still goes on today in our country, in far more varied forms than tariffs and on a much larger scale than in the 19th Century.)
The same principle of businessmen using the government for their own ends undoubtedly applies to Japan and the alleged role of its Ministry of International Trade and Industry in the success of the Japanese economy. And it applies to every other case of alleged government responsibility for the economic success of a country.
Such behavior on the part of businessmen is morally wrong and economically debilitating. It is morally wrong because it entails initiating physical force against others, for example, in the collection of taxes to pay for the subsidies. It is economically debilitating in all of its forms: Government sponsorship of research easily becomes government control of research and the destruction of research. Protective tariffs distort production and hold down real incomes, living standards, and the ability to save and invest. Roads and river and harbor improvements would be more efficiently built and operated by private firms than by the government.
But such behavior on the part of businessmen is at least intelligible and proceeds from the operation of financial self-interest, albeit misguided financial self-interest. With a proper limitation on the powers of government, it is capable of being rechanneled into morally proper and economically sound forms. It stands on a much higher rung in hell than the dull, dead hatred of self-interest, success, and wealth that so often proceeds from within government itself and always proceeds from ideologues seeking to use government to impose their wealth and life-hating philosophies.
Corrupt businessmen are infinitely cleaner and better than corrupt ideologues. They’re still willing to take money to do what a customer wants. The corrupt ideologue in contrast is unwilling to take money to stop doing what his victim does not want. If I had to choose, I’d take the corrupt businessman any day.
It’s sign of the corruption of our culture that today, businessmen feel the need to hide behind the mantle of corrupt ideology and pretend that what springs from their fundamentally life-giving self-interest comes instead from the government, the agency that can give only destruction and death.
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.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
The opening paragraph of the article gushes, “With Korea's aggressive electronics conglomerates leading the world's markets into the next frontiers of high technology, an unlikely commander is heading the charge: the government.” This supposedly is the same government and the same bureaucrats who, in the article’s words, led “a push into biotechnology that produced a national scandal over faked stem cell research.” (The scandal first became public last December.)
Reading further into the article, however, one learns some very significant information. Namely, the head of the country’s Ministry of Information and Communication—the ministry described as the leading governmental actor in information technology in South Korea, “with a budget of nearly $1 billion to promote new technologies”—is one Chin Dae Je. Apparently with no awareness of its significance, the article mentions that before becoming minister of information three years ago, Mr. Chin was an executive of Samsung Electronics. The same paragraph in the article also reveals that he “consulted with his former Samsung colleagues, along with other big Korean companies, to pick technologies that would help the nation `leap into the leadership position in the I.T. field.’”
Based on this information, here’s my hypothesis, which I think is far more plausible than financially disinterested Korean bureaucrats glued to following government regulations, somehow suddenly, causelessly, becoming responsible for the country’s economic success: The parties leading the technology charge, and at the same time using the Korean government as a vehicle serving their financial self-interests, are Samsung Electronics and other Korean firms. Their executives tell the bureaucrats what to do. All that’s happened is that they’ve managed to obtain government financing for some of their research. (Of course, sometimes, acting through the government, they may also tell some competitors what to do, which makes it looks like initiative is coming from the government.)
On other occasions, they’ve no doubt managed to obtain other forms of government subsidization, such as, perhaps, some road construction or river and harbor improvements. Looked at in this light, there’s actually nothing more surprising going on in Korea today than went on in our own country in much of the 19th Century, when businessmen used the government under Republican administrations to enact protective tariffs on their behalf. (This, of course, still goes on today in our country, in far more varied forms than tariffs and on a much larger scale than in the 19th Century.)
The same principle of businessmen using the government for their own ends undoubtedly applies to Japan and the alleged role of its Ministry of International Trade and Industry in the success of the Japanese economy. And it applies to every other case of alleged government responsibility for the economic success of a country.
Such behavior on the part of businessmen is morally wrong and economically debilitating. It is morally wrong because it entails initiating physical force against others, for example, in the collection of taxes to pay for the subsidies. It is economically debilitating in all of its forms: Government sponsorship of research easily becomes government control of research and the destruction of research. Protective tariffs distort production and hold down real incomes, living standards, and the ability to save and invest. Roads and river and harbor improvements would be more efficiently built and operated by private firms than by the government.
But such behavior on the part of businessmen is at least intelligible and proceeds from the operation of financial self-interest, albeit misguided financial self-interest. With a proper limitation on the powers of government, it is capable of being rechanneled into morally proper and economically sound forms. It stands on a much higher rung in hell than the dull, dead hatred of self-interest, success, and wealth that so often proceeds from within government itself and always proceeds from ideologues seeking to use government to impose their wealth and life-hating philosophies.
Corrupt businessmen are infinitely cleaner and better than corrupt ideologues. They’re still willing to take money to do what a customer wants. The corrupt ideologue in contrast is unwilling to take money to stop doing what his victim does not want. If I had to choose, I’d take the corrupt businessman any day.
It’s sign of the corruption of our culture that today, businessmen feel the need to hide behind the mantle of corrupt ideology and pretend that what springs from their fundamentally life-giving self-interest comes instead from the government, the agency that can give only destruction and death.
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.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
Wednesday, March 15, 2006
In the U.S. Senate the Guilty Interrogate the Innocent
In an article titled “A Senate Panel Interrogates Wary Oil Executives” today’s New York Times reports that “The nation's top oil executives were called before Congress again yesterday to defend their industry's recent mergers and record profits, in the face of public outrage over high oil and gasoline prices.”
Judging from The Times’ article, the hearings touched on everything but the simple, obvious cause of high oil and gasoline prices. They dealt with mergers in the oil industry, which, it was recognized by Senator Feinstein (Democrat from California), have served to lower costs of production in the industry. Somehow neither she nor, apparently, any of the other senators present, could see that the resulting lower costs would naturally result in lower prices if that were the only factor operative. (Lower prices would be necessary in order to derive competitive advantage from the lower costs and the mergers that produced them. Absent lower prices, smaller-scale, higher-cost firms would be just as profitable as before. But with lower prices, they would not be and would thus have to yield market share to the merged and now lower-cost producers.)
A witness (a professor in the business school at UC Berkeley) seemed to want to say that gasoline prices had risen because the world price of oil had risen, which, in The Times’ reporter’s words at least, made the oil companies “not solely responsible for high gasoline prices.”
Two Republican senators, Specter from Pennsylvania and DeWine from Ohio, placed the blame on OPEC. And Senator Specter has apparently proposed legislation to allow the U.S. government to take legal action against OPEC for its fixing of oil prices.
I titled this article “In the U.S. Senate the Guilty Interrogate the Innocent.” A more complete title would be, “In the U.S. Senate, Senators Serving the OPEC Cartel Interrogate American Energy Producers Whom They Prevent from Breaking that Cartel.”
How do U.S. Senators, and the whole US government, do this? They do it by preventing the expansion in domestic oil production that could take place in Alaska, offshore on the continental shelf, and in the vast territories that have arbitrarily been set aside as wildlife preserves and wilderness areas and closed to oil drilling. They also do it by preventing the construction of new atomic power plants and by impeding the mining of coal and the development of additional supplies of natural gas.
Larger supplies of domestically produced oil would increase the world supply of oil and drive down its price. And they could do so very dramatically, because just as a few percent decrease in the supply of oil is capable of increasing its price by a multiple of several times that few percent, so a few percent increase in the supply of oil would work just as powerfully in the opposite direction.
At the same time, the availability of larger supplies of atomic power, coal, and natural gas, would reduce the demand for oil, since the additional supplies of these fuels would replace oil to an important extent. The oil no longer needed by an electric utility, for example, because that utility would now use atomic power or burn coal, that oil would have to find some alternative use, and to open up that use its price would have to be substantially lower.
Our government’s policy of preventing the increase in the supply of oil, atomic power, coal, and natural gas, is what is responsible for the high prices of oil and gasoline that we must now pay. Let it just get out of the way, and the supply of all these forms of energy will dramatically increase and the price of oil and gasoline will fall, even more dramatically.
Every senator who votes to place obstacles in the way of U.S. energy production, who helps to harass U.S. energy producers, is voting to hamper OPEC’s most important competitors and to allow OPEC to go on obtaining high prices. Such senators are the ones who bear responsibility for the high price of oil and gasoline. They are senators serving OPEC not the American people.
They are the ones who deserve to be interrogated, in order to learn how they could be so blind, so stupid, and so destructive.
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.
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Judging from The Times’ article, the hearings touched on everything but the simple, obvious cause of high oil and gasoline prices. They dealt with mergers in the oil industry, which, it was recognized by Senator Feinstein (Democrat from California), have served to lower costs of production in the industry. Somehow neither she nor, apparently, any of the other senators present, could see that the resulting lower costs would naturally result in lower prices if that were the only factor operative. (Lower prices would be necessary in order to derive competitive advantage from the lower costs and the mergers that produced them. Absent lower prices, smaller-scale, higher-cost firms would be just as profitable as before. But with lower prices, they would not be and would thus have to yield market share to the merged and now lower-cost producers.)
A witness (a professor in the business school at UC Berkeley) seemed to want to say that gasoline prices had risen because the world price of oil had risen, which, in The Times’ reporter’s words at least, made the oil companies “not solely responsible for high gasoline prices.”
Two Republican senators, Specter from Pennsylvania and DeWine from Ohio, placed the blame on OPEC. And Senator Specter has apparently proposed legislation to allow the U.S. government to take legal action against OPEC for its fixing of oil prices.
I titled this article “In the U.S. Senate the Guilty Interrogate the Innocent.” A more complete title would be, “In the U.S. Senate, Senators Serving the OPEC Cartel Interrogate American Energy Producers Whom They Prevent from Breaking that Cartel.”
How do U.S. Senators, and the whole US government, do this? They do it by preventing the expansion in domestic oil production that could take place in Alaska, offshore on the continental shelf, and in the vast territories that have arbitrarily been set aside as wildlife preserves and wilderness areas and closed to oil drilling. They also do it by preventing the construction of new atomic power plants and by impeding the mining of coal and the development of additional supplies of natural gas.
Larger supplies of domestically produced oil would increase the world supply of oil and drive down its price. And they could do so very dramatically, because just as a few percent decrease in the supply of oil is capable of increasing its price by a multiple of several times that few percent, so a few percent increase in the supply of oil would work just as powerfully in the opposite direction.
At the same time, the availability of larger supplies of atomic power, coal, and natural gas, would reduce the demand for oil, since the additional supplies of these fuels would replace oil to an important extent. The oil no longer needed by an electric utility, for example, because that utility would now use atomic power or burn coal, that oil would have to find some alternative use, and to open up that use its price would have to be substantially lower.
Our government’s policy of preventing the increase in the supply of oil, atomic power, coal, and natural gas, is what is responsible for the high prices of oil and gasoline that we must now pay. Let it just get out of the way, and the supply of all these forms of energy will dramatically increase and the price of oil and gasoline will fall, even more dramatically.
Every senator who votes to place obstacles in the way of U.S. energy production, who helps to harass U.S. energy producers, is voting to hamper OPEC’s most important competitors and to allow OPEC to go on obtaining high prices. Such senators are the ones who bear responsibility for the high price of oil and gasoline. They are senators serving OPEC not the American people.
They are the ones who deserve to be interrogated, in order to learn how they could be so blind, so stupid, and so destructive.
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.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
Tuesday, March 14, 2006
Devastation and Recovery: Reconciling Contrary Observations in Biloxi, Mississippi
A front-page story in today’s [March 14, 2006] New York Times, datelined Biloxi, Miss., reports,
So how does it happen that brand new casinos spring up in months, while during the same period the rest of the region devastated by the hurricane simply continues to be devastated, showing hardly any signs of recovery?
Here’s a hypothesis to explain the disparity: The casinos are privately owned, profit-seeking business firms of a kind ineligible to receive government financial assistance. Thus, as soon it became legal to pursue an opportunity to make a good profit by opening casinos, their owners proceed to do just that, as quickly and as efficiently as possible.
In contrast, the rest of Biloxi and the Mississippi coast, and apparently most of New Orleans as well, are on hold, waiting for government money and busy doing whatever it may be that the government requires as a condition for receiving its money. Possibly, they are busy simply trying to learn what the government requires them to do as a condition for receiving its money. Possibly, the government itself is busy trying to figure out what it wants them to do as a condition for receiving its money.
If this line of explanation is correct, and I am confident that it is, then it follows that if one wants rapid recovery from large-scale disasters, the government should offer no financial assistance and offer absolutely no prospect of financial assistance.
Is there anything else the government might do, or not do, to speed recovery in such cases? Yes. It should suspend all requirements for obtaining permits of any kind relating to building and construction and the opening of new businesses, including, above all, requirements for environmental impact statements and their approval.
Further, the government should not wait for new disasters to strike. Legislation suspending permitting requirements during the aftermath of disasters should be enacted well before the next one occurs. That would permit banks and insurance companies to develop their own criteria for making loans and writing insurance policies in the absence of governmental requirements.
Given these changes, natural disasters would be followed by the most rapid possible recoveries. The freedom to respond to them would go a very long way in diminishing their character as disasters.
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.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
The devastation of the coast here remains shocking to the uninitiated eye; towns where people have clearly worked night and day just to remove debris look as though they were hit by a hurricane six days ago, rather than six months.However, just two paragraphs later we are told,
Before hurricane Katrina, there were no casinos on land in Mississippi. They had all been on riverboats. The legislation authorizing them on land was enacted only after Katrina.Biloxi is still a tangle of crumbling buildings, bent signs and silent streets. But all that changes in the parking lots of the three casinos that have opened on land, where drivers are lucky to find a space. Crowds appear within the casinos from seemingly nowhere, as if planted in place, with people holding cocktails and clutching room keys that double as casino entry cards in the cavernous, smoke-fogged halls.
So how does it happen that brand new casinos spring up in months, while during the same period the rest of the region devastated by the hurricane simply continues to be devastated, showing hardly any signs of recovery?
Here’s a hypothesis to explain the disparity: The casinos are privately owned, profit-seeking business firms of a kind ineligible to receive government financial assistance. Thus, as soon it became legal to pursue an opportunity to make a good profit by opening casinos, their owners proceed to do just that, as quickly and as efficiently as possible.
In contrast, the rest of Biloxi and the Mississippi coast, and apparently most of New Orleans as well, are on hold, waiting for government money and busy doing whatever it may be that the government requires as a condition for receiving its money. Possibly, they are busy simply trying to learn what the government requires them to do as a condition for receiving its money. Possibly, the government itself is busy trying to figure out what it wants them to do as a condition for receiving its money.
If this line of explanation is correct, and I am confident that it is, then it follows that if one wants rapid recovery from large-scale disasters, the government should offer no financial assistance and offer absolutely no prospect of financial assistance.
Is there anything else the government might do, or not do, to speed recovery in such cases? Yes. It should suspend all requirements for obtaining permits of any kind relating to building and construction and the opening of new businesses, including, above all, requirements for environmental impact statements and their approval.
Further, the government should not wait for new disasters to strike. Legislation suspending permitting requirements during the aftermath of disasters should be enacted well before the next one occurs. That would permit banks and insurance companies to develop their own criteria for making loans and writing insurance policies in the absence of governmental requirements.
Given these changes, natural disasters would be followed by the most rapid possible recoveries. The freedom to respond to them would go a very long way in diminishing their character as disasters.
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.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
Wednesday, March 08, 2006
The Global Warming Bugaboo
The environmental movement maintains that science and technology cannot be relied upon to build a safe atomic power plant, to produce a pesticide that is safe, or even to bake a loaf of bread that is safe, if that loaf of bread contains chemical preservatives. When it comes to global warming, however, it turns out that there is one area in which the environmental movement displays the most breathtaking confidence in the reliability of science and technology, an area in which, until recently, no one—not even the staunchest supporters of science and technology—had ever thought to assert very much confidence at all. The one thing, the environmental movement holds, that science and technology can do so well that we are entitled to have unlimited confidence in them is forecast the weather—for the next one hundred years!
It is, after all, supposedly on the basis of a weather forecast that we are being asked to abandon the Industrial Revolution or, as it is euphemistically put, “to radically and profoundly change the way in which we live”—to our enormous material detriment. We are being asked to freeze and then progressively reduce global carbon dioxide emissions and, of course, to correspondingly reduce our consumption of the oil, coal, and natural gas that causes these emissions. Indeed, according to The Earth Policy Institute, “Scientists believe that an immediate 70–80 percent reduction in current carbon emissions is necessary to mitigate further climate change.” And we had all better be ready to throw away our refrigerators, wear plenty of sweaters in the winter, fan ourselves in the summer, and ride bicycles or walk to wherever we need to go.
Of course, any global limitation on carbon dioxide emissions whatever, let alone a 70-80 percent reduction, implies that the economic development and hence increased energy consumption and carbon dioxide emissions of the vast presently backward regions of the world would have to be accomplished at the expense of the equivalently reduced energy consumption and carbon dioxide emissions of the more advanced countries. Thus, as much as the two and a half billion or so people of China and India consumed more energy, the billion or so people of the United States, Western Europe, and Japan would have to consume equivalently less energy.
Very closely connected with the demand for reduced carbon-dioxide emissions and energy consumption is something else that might appear amazing. This concerns prudence and caution. No matter what the assurances of scientists and engineers, based in every detail on the best established laws of physics—about backup systems, fail-safe systems, containment buildings as strong as U-boat pens, defenses in depth, and so on—when it comes to atomic power, the environmental movement is unwilling to gamble on the unborn children of fifty generations hence being exposed to harmful radiation. But on the strength of a weather forecast, it is willing to wreck the economic system of the modern world—to literally throw away industrial civilization!
The meaning of this insanity is that industrial civilization is to be wrecked because this is what must be done to avoid bad weather. All right, very bad weather. The very bad weather of hurricanes like Katrina.
In a manner reminiscent of an old Hollywood movie in which some great white hunter might attempt to frighten a tribe of jungle savages in darkest Africa, the environmentalists tell a badly dumbed-down American public that Katrina and worse hurricanes to come are the result of global warming resulting from fossil fuel consumption. They tell us in effect, that if we destroy the energy base needed to produce and operate the construction equipment required to build strong, well-made, comfortable houses for hundreds of millions of people, we shall be safer from such hurricanes than if we retain and enlarge that energy base. They tell us that if we destroy our capacity to produce and operate refrigerators and air conditioners, we shall be better protected from hot weather than if we retain and enlarge that capacity. They tell us that if we destroy our capacity to produce and operate tractors and harvesters, to can and freeze food, to build and operate hospitals and produce medicines, we shall secure our food supply and our health better than if we retain and enlarge that capacity.
There is actually a remarkable new principle implied here, concerning how man can cope with his environment. Instead of our taking action upon nature, as we have always believed we must do, we shall henceforth control the forces of nature more to our advantage by means of our inaction. Indeed, if we do not act, no significant threatening forces of nature will arise! The threatening forces of nature are not the product of nature, but of us! Thus speaks the environmental movement.
More on this madness will follow.
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 from p. 88 of the author’s Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996).
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
It is, after all, supposedly on the basis of a weather forecast that we are being asked to abandon the Industrial Revolution or, as it is euphemistically put, “to radically and profoundly change the way in which we live”—to our enormous material detriment. We are being asked to freeze and then progressively reduce global carbon dioxide emissions and, of course, to correspondingly reduce our consumption of the oil, coal, and natural gas that causes these emissions. Indeed, according to The Earth Policy Institute, “Scientists believe that an immediate 70–80 percent reduction in current carbon emissions is necessary to mitigate further climate change.” And we had all better be ready to throw away our refrigerators, wear plenty of sweaters in the winter, fan ourselves in the summer, and ride bicycles or walk to wherever we need to go.
Of course, any global limitation on carbon dioxide emissions whatever, let alone a 70-80 percent reduction, implies that the economic development and hence increased energy consumption and carbon dioxide emissions of the vast presently backward regions of the world would have to be accomplished at the expense of the equivalently reduced energy consumption and carbon dioxide emissions of the more advanced countries. Thus, as much as the two and a half billion or so people of China and India consumed more energy, the billion or so people of the United States, Western Europe, and Japan would have to consume equivalently less energy.
Very closely connected with the demand for reduced carbon-dioxide emissions and energy consumption is something else that might appear amazing. This concerns prudence and caution. No matter what the assurances of scientists and engineers, based in every detail on the best established laws of physics—about backup systems, fail-safe systems, containment buildings as strong as U-boat pens, defenses in depth, and so on—when it comes to atomic power, the environmental movement is unwilling to gamble on the unborn children of fifty generations hence being exposed to harmful radiation. But on the strength of a weather forecast, it is willing to wreck the economic system of the modern world—to literally throw away industrial civilization!
The meaning of this insanity is that industrial civilization is to be wrecked because this is what must be done to avoid bad weather. All right, very bad weather. The very bad weather of hurricanes like Katrina.
In a manner reminiscent of an old Hollywood movie in which some great white hunter might attempt to frighten a tribe of jungle savages in darkest Africa, the environmentalists tell a badly dumbed-down American public that Katrina and worse hurricanes to come are the result of global warming resulting from fossil fuel consumption. They tell us in effect, that if we destroy the energy base needed to produce and operate the construction equipment required to build strong, well-made, comfortable houses for hundreds of millions of people, we shall be safer from such hurricanes than if we retain and enlarge that energy base. They tell us that if we destroy our capacity to produce and operate refrigerators and air conditioners, we shall be better protected from hot weather than if we retain and enlarge that capacity. They tell us that if we destroy our capacity to produce and operate tractors and harvesters, to can and freeze food, to build and operate hospitals and produce medicines, we shall secure our food supply and our health better than if we retain and enlarge that capacity.
There is actually a remarkable new principle implied here, concerning how man can cope with his environment. Instead of our taking action upon nature, as we have always believed we must do, we shall henceforth control the forces of nature more to our advantage by means of our inaction. Indeed, if we do not act, no significant threatening forces of nature will arise! The threatening forces of nature are not the product of nature, but of us! Thus speaks the environmental movement.
More on this madness will follow.
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 from p. 88 of the author’s Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996).
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
Saturday, March 04, 2006
Ayn Rand Answers, The Best of Her Q&A, Edited by Robert Mayhew, New American Library, 2005. x + 241 pp.
Ayn Rand’s question-and-answer sessions following her lectures, and following the lectures of Nathaniel Branden, were always a fascinating display of her brilliance. They showed an incredibly powerful mind at work on the spot, instantaneously able to unravel virtual pretzels of mistaken premises, errors of logic, and, not infrequently, one or more forms of dishonesty, and bring everything into the clearest, sharpest light. Watching her do this incredible work, I came to think of her as a kind of avenging angel, routinely righting the intellectual wrongs that were destroying our culture and that almost always went unanswered. She answered them—in spades! I thought of her as taking the questions of intellectual shysters and hanging them with them.
Few things could be more valuable for advancing Ayn Rand’s philosophy of Objectivism, rescuing contemporary culture from the philosophical poison that is destroying it, and, at the same time, giving a sense to those who never met her of what Ayn Rand was like in person, than making her Q&A sessions available to the public, in the original, spoken form in which they took place and were recorded.
Unfortunately, this was not the approach taken by Prof. Mayhew and Leonard Peikoff, whom Prof. Mayhew credits with having encouraged him to undertake the project. Instead of remaining faithful to the oral nature of the material being presented, they decided to make a book out of it, which it never was and now cannot properly be.
Speaking is not writing. Converting lectures, and still more, spontaneous answers in question periods, into the form of an essay or book requires editing and a process of considerable intellectual refinement. As a result, in order to put her oral material into the form of a book, Prof. Mayhew was placed in the impossible position of trying to improve upon Ayn Rand. This is an assignment that no one in the world would be capable of carrying out but Ayn Rand herself.
It was totally unnecessary to attempt it. Making the attempt must rank as a classic example of context dropping. Of dropping the context that while carefully considered, edited writing is superior to spontaneous speech, it by no means follows that the most carefully considered, edited writing produced by Robert Mayhew is superior to the spontaneous speech of Ayn Rand. Nothing can be gained from attempting such a conversion when there is no one alive capable of reliably carrying out the conversion.
The result of Prof. Mayhew’s misguided attempt is a product that, in his own words, “should not be considered part of Objectivism.”
In his view, the reason is simply that “no one can guarantee that Ayn Rand would have approved of editing she herself did not see.” But these words subsume something much more substantial. This is revealed when Prof. Mayhew says, “I should mention, however, that some (but not much) of my editing aimed to clarify wording that, if left unaltered, might be taken to imply a viewpoint that she explicitly rejected in her written works.”
Here we have a confession that the content of some of Ayn Rand’s answers has been materially altered, indeed, apparently transformed, at least in part, into the very opposite of what she actually said. We have no way of knowing if what was involved was a mere act of misspeaking, or something of real significance, possibly representing a change in her position on a subject. We cannot know if Ayn Rand was addressing a complexity in her position that was too subtle for Prof. Mayhew to follow and that he mistakenly inferred a contradiction of her published position when in fact there was none. Whatever the explanation may be, the reader will never know. Nor will anyone know what significant new knowledge the world may have been deprived of because Prof. Mayhew assumed that he was entitled to correct Ayn Rand.
Even the most minimal respect for honesty would have required explicitly naming all such Q&As and providing the exact text of Ayn Rand’s answers in all such cases. If transcripts were not to be provided for all the Q&As, they should most certainly and absolutely have been provided in cases of this kind. That way, the reader would know what Ayn Rand actually said, not what Prof. Mayhew had decided she should be allowed to say. In his capacity as editor, Prof. Mayhew could have argued for his particular interpretation in a footnote if he wished, but not present his interpretation as though it were the view of Ayn Rand.
But with the most cavalier disrespect for his readers’ independence and powers of judgment, Prof. Mayhew not only does not provide the transcripts necessary to know what Ayn Rand actually said, but he does not even tell us which particular answers of Ayn Rand he has altered in this way nor how many answers he has altered in this way. The result is that a reader who has had no first-hand experience with Ayn Rand’s answers can never be sure if what he is reading on any given page is the views actually expressed by Ayn Rand in a Q&A or some distortion of Ayn Rand’s views invented by Prof. Mayhew. In effect, his policy of disrespect and secretiveness has substantially destroyed the value of the whole book.
Many years ago, there was a young actress to whom Ayn Rand gave the responsibility of directing a production of her play “The Night of January 16th.” Toward the close of the play’s run, an actor prevailed upon this young woman to allow him to alter one of Ayn Rand’s lines in one of the play’s last performances. When Ayn Rand learned of this, she was furious and completely ended her relationship with this young woman, who had been in her inner circle for several years. Ayn Rand attached the highest value to her every word and would never agree to her words being altered by anyone, let alone made to represent the opposite of what she said.
I cannot say if Ayn Rand were alive and knew what Prof. Mayhew had done with her words, and what Leonard Peikoff had allowed and encouraged him to do, that neither of these gentlemen would now still be alive. Ayn Rand would not literally have killed them, though she might have thought about it. What I can say is that neither of them would ever again be welcome to touch a single word or thought of hers.
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.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
Few things could be more valuable for advancing Ayn Rand’s philosophy of Objectivism, rescuing contemporary culture from the philosophical poison that is destroying it, and, at the same time, giving a sense to those who never met her of what Ayn Rand was like in person, than making her Q&A sessions available to the public, in the original, spoken form in which they took place and were recorded.
Unfortunately, this was not the approach taken by Prof. Mayhew and Leonard Peikoff, whom Prof. Mayhew credits with having encouraged him to undertake the project. Instead of remaining faithful to the oral nature of the material being presented, they decided to make a book out of it, which it never was and now cannot properly be.
Speaking is not writing. Converting lectures, and still more, spontaneous answers in question periods, into the form of an essay or book requires editing and a process of considerable intellectual refinement. As a result, in order to put her oral material into the form of a book, Prof. Mayhew was placed in the impossible position of trying to improve upon Ayn Rand. This is an assignment that no one in the world would be capable of carrying out but Ayn Rand herself.
It was totally unnecessary to attempt it. Making the attempt must rank as a classic example of context dropping. Of dropping the context that while carefully considered, edited writing is superior to spontaneous speech, it by no means follows that the most carefully considered, edited writing produced by Robert Mayhew is superior to the spontaneous speech of Ayn Rand. Nothing can be gained from attempting such a conversion when there is no one alive capable of reliably carrying out the conversion.
The result of Prof. Mayhew’s misguided attempt is a product that, in his own words, “should not be considered part of Objectivism.”
In his view, the reason is simply that “no one can guarantee that Ayn Rand would have approved of editing she herself did not see.” But these words subsume something much more substantial. This is revealed when Prof. Mayhew says, “I should mention, however, that some (but not much) of my editing aimed to clarify wording that, if left unaltered, might be taken to imply a viewpoint that she explicitly rejected in her written works.”
Here we have a confession that the content of some of Ayn Rand’s answers has been materially altered, indeed, apparently transformed, at least in part, into the very opposite of what she actually said. We have no way of knowing if what was involved was a mere act of misspeaking, or something of real significance, possibly representing a change in her position on a subject. We cannot know if Ayn Rand was addressing a complexity in her position that was too subtle for Prof. Mayhew to follow and that he mistakenly inferred a contradiction of her published position when in fact there was none. Whatever the explanation may be, the reader will never know. Nor will anyone know what significant new knowledge the world may have been deprived of because Prof. Mayhew assumed that he was entitled to correct Ayn Rand.
Even the most minimal respect for honesty would have required explicitly naming all such Q&As and providing the exact text of Ayn Rand’s answers in all such cases. If transcripts were not to be provided for all the Q&As, they should most certainly and absolutely have been provided in cases of this kind. That way, the reader would know what Ayn Rand actually said, not what Prof. Mayhew had decided she should be allowed to say. In his capacity as editor, Prof. Mayhew could have argued for his particular interpretation in a footnote if he wished, but not present his interpretation as though it were the view of Ayn Rand.
But with the most cavalier disrespect for his readers’ independence and powers of judgment, Prof. Mayhew not only does not provide the transcripts necessary to know what Ayn Rand actually said, but he does not even tell us which particular answers of Ayn Rand he has altered in this way nor how many answers he has altered in this way. The result is that a reader who has had no first-hand experience with Ayn Rand’s answers can never be sure if what he is reading on any given page is the views actually expressed by Ayn Rand in a Q&A or some distortion of Ayn Rand’s views invented by Prof. Mayhew. In effect, his policy of disrespect and secretiveness has substantially destroyed the value of the whole book.
Many years ago, there was a young actress to whom Ayn Rand gave the responsibility of directing a production of her play “The Night of January 16th.” Toward the close of the play’s run, an actor prevailed upon this young woman to allow him to alter one of Ayn Rand’s lines in one of the play’s last performances. When Ayn Rand learned of this, she was furious and completely ended her relationship with this young woman, who had been in her inner circle for several years. Ayn Rand attached the highest value to her every word and would never agree to her words being altered by anyone, let alone made to represent the opposite of what she said.
I cannot say if Ayn Rand were alive and knew what Prof. Mayhew had done with her words, and what Leonard Peikoff had allowed and encouraged him to do, that neither of these gentlemen would now still be alive. Ayn Rand would not literally have killed them, though she might have thought about it. What I can say is that neither of them would ever again be welcome to touch a single word or thought of hers.
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.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
Wednesday, March 01, 2006
Answer to Krugman on Economic Inequality
Paul Krugman is very upset. In his Monday New York Times Op-Ed column this week, he complains that while the real incomes of the great majority of Americans have essentially stagnated or declined over the last thirty-five years, “income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent.”
He describes the situation as one of “a rising oligarchy” and says, “[i]t suggests that the growth of inequality may have as much to do with power relations as it does with market forces.” Krugman does not explain what he means by “power relations” beyond implying that economic inequality in and of itself is their cause. “There's an arrow of causation,” he says, “that runs from diverging income trends to Jack Abramoff and the K Street project [a project designed to enmesh Republican politicians and lobbyists].”
The essential thing to understand here about Krugman is that he is a Keynesian. And as Mises observed, “The essence of Keynesianism is its complete failure to conceive the role that saving and capital accumulation play in the improvement of economic conditions.” This failure is present in Krugman’s hostility to economic inequality.
Krugman and all other enemies of economic inequality conceive of wealth and income strictly in terms of consumers’ goods. As they see matters, a wealthier, higher-income individual simply has more goods and services that he personally can enjoy than does the average person. This view is reflected in the typical depiction of capitalists as fat men, whose plates are overflowing with superfluous food, while struggling wage earners starve. The alleged solution is to take from the surplus of the capitalists and make good the deficiency of the wage earners.
The truth, which real economists, from Adam Smith to Mises, have elaborated, is that in a market economy, the wealth of the rich—of the capitalists—is overwhelmingly invested in means of production, that is, in factories, machinery and equipment, farms, mines, stores, and the like. This wealth, this capital, produces the goods which the average person buys, and as more of it is accumulated and raises the productivity of labor higher and higher, brings about a progressively larger and ever more improved supply of goods for the average person to buy.
Thus, for example, because the automobile companies have numerous modern and efficient automobile factories, there is a production of automobiles sufficient for almost every family in the United States to own one. Because Exxon-Mobil and other oil companies own oil wells, pipelines, and refineries, there is gasoline and heating oil for the average American to buy. (And if the wealth of these companies were greater, and if its use in developing sources of supply were not blocked again and again by those who value the wildness of nature above the welfare of people, there would be a larger and more affordable supply of gasoline and heating oil to buy.)
The capital of business firms is also the foundation of the demand for labor. The wealthier and more numerous are business firms, the greater is the demand for labor and the higher are wage rates. As illustration, just consider where it is more desirable to work: in an economy with few or no business firms or only small, impoverished business firms, or in an economy with large numbers of wealthy business firms. It is obvious whose competition for one’s services will be more beneficial.
Thus, in a market economy, people have a two-sided benefit from the capital owned by others. The capital of others is the source of the supply of the goods they buy and the source of the demand for the labor they sell. And the greater is that capital, the greater is this two-sided benefit to everyone. To the extent that the supply of goods produced is greater, prices are lower. And to the extent that the demand for labor is greater, wages are higher. Lower prices and higher wages: that is the effect capital accumulation.
An essential prerequisite of capital accumulation is saving. What is saved out of income is added to capital.
For a variety of reasons, the incomes that are most heavily saved and invested are higher incomes rather than lower incomes. A major reason is that high incomes are often earned as high rates of return on capital, and, by being heavily saved and invested, are the means of building a personal fortune. Such high incomes, moreover, are earned as the result of introducing new and better products and more efficient methods of production. Their being heavily saved and invested and thus enlarging the capitals employed makes possible an increased production of the new and better products and a wider application of the more efficient methods of production.
To the extent that our economy is still free, all this is undoubtedly true of the high incomes Krugman complains about. They are the incomes of the great innovators of our time, such as Bill Gates, Michael Dell, Steve Jobs, and Sam Walton—the men whose efforts have transformed important parts of our economic system and who could not have done it had they not been free to earn and then save and invest extraordinarily high incomes.
Of course, not all the high incomes earned in our economy are of this character. There are also high incomes earned as the result of government subsidies and government harassment of competitors. And there are high incomes earned by trial lawyers who bring bogus class-action law suits. These incomes are earned largely at the direct expense of the innovators. And precisely because of this, it should be clear, they are earned indirectly at the expense of everyone else in the economic system.
The essential point here is that the economic inequality that results from economic freedom is to the material self-interest of everyone. It is the foundation of rising real wages and a rising standard of living.
Given the actual nature of economic inequality under economic freedom, how can we reconcile the apparent side-by-side existence of greater economic inequality with economic stagnation or outright decline?
Some part of the answer may be that the increase in the degree of economic inequality is only a matter of appearance, not reality. The lower income tax rates of the last generation may well have resulted in the reporting of substantial high incomes that were previously concealed by means of various methods of tax avoidance.
But let’s put that aside and proceed to a more substantial answer. This is an answer suggested, surprisingly enough, by Krugman himself, when he referred to “power relations” in contrast to “market forces.”
“Power relations”—i.e., the use of physical force by one person or group against another—are present in all forms of government intervention in the economic system. There is no law, regulation, ruling, edict, or decree whose enforcement does not rest on the threat of sending armed officers to arrest and imprison violators, and, if they resist, to kill them if necessary.
This force is appropriate when used against common criminals, whose defining characteristic is that they themselves have previously used force against innocent victims, in committing such acts as robbery, rape, and murder. In cases of this kind, the government’s use of force serves to protect the innocent and to enable them to go about the peaceful pursuit of their happiness.
Government intervention in the economic system, in contrast, is the use of force not against common criminals, who have previously initiated its use, but against peaceful citizens engaged in production and voluntary exchange and whose only “crime” is that they have done something the government has decided it does not like. This force serves to prevent people from doing what they judge to be in their interest to do and to compel them to do what they judge to be against their interest to do.
In all cases of this kind, the government’s force operates to make people worse off than they could have been. And the more extensive the government’s intervention becomes, the greater becomes the gap between the life that people must live and the better life they could have lived had the government not stood in their way. At some point government intervention becomes sufficient to cause people to live not only worse than they might have lived, but worse than they actually did live in the past.
This last is what has been happening to the American people since the era of the “New Frontier” and the “Great Society.” Since that time, the weight of government intervention has become sufficient to stop or nearly stop economic progress for large numbers of Americans and to cause actual economic decline for many.
Inflation, Social Security, and Medicare undermine the incentive to save and accumulate capital. Vast government budget deficits absorb large amounts of the savings and capital that do exist and divert them from business investment to financing the government’s consumption. More recently, the government-engineered housing boom, built on the foundation of artificially low interest rates imposed by the Federal Reserve, has operated in a similar way and diverted further vast sums from business investment to housing purchases. And before the housing boom, the dot-com bubble, also created by the Federal Reserve, created the illusion of vast wealth and capital that served to squander substantial portions of the capital that did exist.
Inflation has also played a major role in enlarging the highest incomes in the economic system. This has been the case insofar as inflation (understood in terms of an increase in the quantity of money) entered the economic system in the form of new loans that served to drive up securities prices and thus the value of stock options. Take this away, and the rise in the highest incomes over the period that Krugman complains about would be much less, if it existed at all.
But there is more. The last forty years or so have seen the imposition of environmental legislation and consumer product safety legislation, and numerous other government programs that serve to increase the costs of production. The great majority of people assume that the higher costs simply come out of profits and need not concern them. But the fact is that the general rate of profit in the economic system remains more or less the same, with the result that increases in costs show up as increases in prices, or as decreases in other costs, notably, wages.
The real wages of the average American are stagnating in large part because the higher real wages he could have had—precisely on the foundation of the work of today’s great businessmen and capitalists—have instead been used to pay for the cost of environmental and safety regulations. Money that might have been paid as higher wages has instead been used to buy equipment, materials, and components required to be in compliance with these regulations. Larger supplies of goods that might have come into existence and driven down prices or at least prevented inflation from raising them as much as it has, have been prevented from coming into existence, especially by environment regulations.
This is the answer economic theory gives to Krugman and to the hordes of other intellectual dilettantes whose writings and lectures on the subject of economic inequality proceed in ignorance and thus end up amounting to just so much clutter—clutter irrespective of the prestige attached to the venues in which it accumulates.
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.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
He describes the situation as one of “a rising oligarchy” and says, “[i]t suggests that the growth of inequality may have as much to do with power relations as it does with market forces.” Krugman does not explain what he means by “power relations” beyond implying that economic inequality in and of itself is their cause. “There's an arrow of causation,” he says, “that runs from diverging income trends to Jack Abramoff and the K Street project [a project designed to enmesh Republican politicians and lobbyists].”
The essential thing to understand here about Krugman is that he is a Keynesian. And as Mises observed, “The essence of Keynesianism is its complete failure to conceive the role that saving and capital accumulation play in the improvement of economic conditions.” This failure is present in Krugman’s hostility to economic inequality.
Krugman and all other enemies of economic inequality conceive of wealth and income strictly in terms of consumers’ goods. As they see matters, a wealthier, higher-income individual simply has more goods and services that he personally can enjoy than does the average person. This view is reflected in the typical depiction of capitalists as fat men, whose plates are overflowing with superfluous food, while struggling wage earners starve. The alleged solution is to take from the surplus of the capitalists and make good the deficiency of the wage earners.
The truth, which real economists, from Adam Smith to Mises, have elaborated, is that in a market economy, the wealth of the rich—of the capitalists—is overwhelmingly invested in means of production, that is, in factories, machinery and equipment, farms, mines, stores, and the like. This wealth, this capital, produces the goods which the average person buys, and as more of it is accumulated and raises the productivity of labor higher and higher, brings about a progressively larger and ever more improved supply of goods for the average person to buy.
Thus, for example, because the automobile companies have numerous modern and efficient automobile factories, there is a production of automobiles sufficient for almost every family in the United States to own one. Because Exxon-Mobil and other oil companies own oil wells, pipelines, and refineries, there is gasoline and heating oil for the average American to buy. (And if the wealth of these companies were greater, and if its use in developing sources of supply were not blocked again and again by those who value the wildness of nature above the welfare of people, there would be a larger and more affordable supply of gasoline and heating oil to buy.)
The capital of business firms is also the foundation of the demand for labor. The wealthier and more numerous are business firms, the greater is the demand for labor and the higher are wage rates. As illustration, just consider where it is more desirable to work: in an economy with few or no business firms or only small, impoverished business firms, or in an economy with large numbers of wealthy business firms. It is obvious whose competition for one’s services will be more beneficial.
Thus, in a market economy, people have a two-sided benefit from the capital owned by others. The capital of others is the source of the supply of the goods they buy and the source of the demand for the labor they sell. And the greater is that capital, the greater is this two-sided benefit to everyone. To the extent that the supply of goods produced is greater, prices are lower. And to the extent that the demand for labor is greater, wages are higher. Lower prices and higher wages: that is the effect capital accumulation.
An essential prerequisite of capital accumulation is saving. What is saved out of income is added to capital.
For a variety of reasons, the incomes that are most heavily saved and invested are higher incomes rather than lower incomes. A major reason is that high incomes are often earned as high rates of return on capital, and, by being heavily saved and invested, are the means of building a personal fortune. Such high incomes, moreover, are earned as the result of introducing new and better products and more efficient methods of production. Their being heavily saved and invested and thus enlarging the capitals employed makes possible an increased production of the new and better products and a wider application of the more efficient methods of production.
To the extent that our economy is still free, all this is undoubtedly true of the high incomes Krugman complains about. They are the incomes of the great innovators of our time, such as Bill Gates, Michael Dell, Steve Jobs, and Sam Walton—the men whose efforts have transformed important parts of our economic system and who could not have done it had they not been free to earn and then save and invest extraordinarily high incomes.
Of course, not all the high incomes earned in our economy are of this character. There are also high incomes earned as the result of government subsidies and government harassment of competitors. And there are high incomes earned by trial lawyers who bring bogus class-action law suits. These incomes are earned largely at the direct expense of the innovators. And precisely because of this, it should be clear, they are earned indirectly at the expense of everyone else in the economic system.
The essential point here is that the economic inequality that results from economic freedom is to the material self-interest of everyone. It is the foundation of rising real wages and a rising standard of living.
Given the actual nature of economic inequality under economic freedom, how can we reconcile the apparent side-by-side existence of greater economic inequality with economic stagnation or outright decline?
Some part of the answer may be that the increase in the degree of economic inequality is only a matter of appearance, not reality. The lower income tax rates of the last generation may well have resulted in the reporting of substantial high incomes that were previously concealed by means of various methods of tax avoidance.
But let’s put that aside and proceed to a more substantial answer. This is an answer suggested, surprisingly enough, by Krugman himself, when he referred to “power relations” in contrast to “market forces.”
“Power relations”—i.e., the use of physical force by one person or group against another—are present in all forms of government intervention in the economic system. There is no law, regulation, ruling, edict, or decree whose enforcement does not rest on the threat of sending armed officers to arrest and imprison violators, and, if they resist, to kill them if necessary.
This force is appropriate when used against common criminals, whose defining characteristic is that they themselves have previously used force against innocent victims, in committing such acts as robbery, rape, and murder. In cases of this kind, the government’s use of force serves to protect the innocent and to enable them to go about the peaceful pursuit of their happiness.
Government intervention in the economic system, in contrast, is the use of force not against common criminals, who have previously initiated its use, but against peaceful citizens engaged in production and voluntary exchange and whose only “crime” is that they have done something the government has decided it does not like. This force serves to prevent people from doing what they judge to be in their interest to do and to compel them to do what they judge to be against their interest to do.
In all cases of this kind, the government’s force operates to make people worse off than they could have been. And the more extensive the government’s intervention becomes, the greater becomes the gap between the life that people must live and the better life they could have lived had the government not stood in their way. At some point government intervention becomes sufficient to cause people to live not only worse than they might have lived, but worse than they actually did live in the past.
This last is what has been happening to the American people since the era of the “New Frontier” and the “Great Society.” Since that time, the weight of government intervention has become sufficient to stop or nearly stop economic progress for large numbers of Americans and to cause actual economic decline for many.
Inflation, Social Security, and Medicare undermine the incentive to save and accumulate capital. Vast government budget deficits absorb large amounts of the savings and capital that do exist and divert them from business investment to financing the government’s consumption. More recently, the government-engineered housing boom, built on the foundation of artificially low interest rates imposed by the Federal Reserve, has operated in a similar way and diverted further vast sums from business investment to housing purchases. And before the housing boom, the dot-com bubble, also created by the Federal Reserve, created the illusion of vast wealth and capital that served to squander substantial portions of the capital that did exist.
Inflation has also played a major role in enlarging the highest incomes in the economic system. This has been the case insofar as inflation (understood in terms of an increase in the quantity of money) entered the economic system in the form of new loans that served to drive up securities prices and thus the value of stock options. Take this away, and the rise in the highest incomes over the period that Krugman complains about would be much less, if it existed at all.
But there is more. The last forty years or so have seen the imposition of environmental legislation and consumer product safety legislation, and numerous other government programs that serve to increase the costs of production. The great majority of people assume that the higher costs simply come out of profits and need not concern them. But the fact is that the general rate of profit in the economic system remains more or less the same, with the result that increases in costs show up as increases in prices, or as decreases in other costs, notably, wages.
The real wages of the average American are stagnating in large part because the higher real wages he could have had—precisely on the foundation of the work of today’s great businessmen and capitalists—have instead been used to pay for the cost of environmental and safety regulations. Money that might have been paid as higher wages has instead been used to buy equipment, materials, and components required to be in compliance with these regulations. Larger supplies of goods that might have come into existence and driven down prices or at least prevented inflation from raising them as much as it has, have been prevented from coming into existence, especially by environment regulations.
This is the answer economic theory gives to Krugman and to the hordes of other intellectual dilettantes whose writings and lectures on the subject of economic inequality proceed in ignorance and thus end up amounting to just so much clutter—clutter irrespective of the prestige attached to the venues in which it accumulates.
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.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
Tuesday, February 21, 2006
Papiere, Bitte (Papers, Please)
Growing up as a child in World War II, I saw countless movies in which a German soldier in uniform, or a Gestapo agent in plain clothes, would utter the spine-chilling words “Papiere, Bitte” (“Papers, Please"). What made those words spine chilling was the fact that whoever they were uttered to was in imminent danger of arrest, imprisonment, torture, and execution. This was almost certain to be the fate of any hapless soul who was unfortunate enough not to have his “Papiere” or whose “Papiere” did not satisfy the German who examined them.
Now, over sixty years later, it appears that those dread words, “Papiere, Bitte,” will soon be spoken in English—“Papers, Please”— and with all kinds of British accents. This was reported exactly a week ago, in The New York Times of February 14, in an article titled “A Bit of Good News for Blair: ID Cards for Britons Advance.” The article reported, “The government of Prime Minister Tony Blair faced down its opposition on Monday in a politically charged vote in the House of Commons on a plan to introduce mandatory national identification cards. The vote moved Britain closer to the use of such cards but did not make clear precisely when that would be.”
Worse still, the United States may not be all that far behind Britain in the adoption of such a system. An op-ed piece in today’s New York Times is testing the waters. Titled “A Card We Should All Carry,” the article dares to assert that “a national ID can put power in the hands of the people.” It will allegedly do this by, among other things, providing access to a national database containing everyone’s complete medical history and by enabling people with no fixed address to more easily claim welfare benefits.
It doesn’t seem to have occurred to the author (or to Tony Blair and his supporters, for that matter), that as a government becomes more and more oppressive, people have more and more reason not to want to be identified by it, indeed, to have their government know nothing whatever about them. For as a government more and more prohibits behavior that is both peaceful and advantageous to people, and more and more compels behavior that is against the interests of people, there will necessarily be more and more violations of its ever growing body of laws and regulations. In such circumstances, the easier it is for the government to identify and find the violators, the more effective is its oppression. By the same token, the less the government knows about its citizens, the greater is their freedom from it and thus the greater their ability to pursue their happiness.
Of course, today we have a problem of terrorism. And many people are prepared to accept such a thing as national identity cards in the belief that they are necessary to combat terrorism. It does not seem to have occurred to such people, that the terrorists who pose a serious problem are those supported by foreign governments and that they will soon be equipped with identity cards that are good enough forgeries to make the system worthless as a means of protection. The people who will be stopped by the system will not be terrorists but innocent citizens, seeking to evade unjust laws and regulations.
The United States and Great Britain defeated Nazi Germany in World War II. It is disgraceful that they are they now on the road toward importing this vicious feature of that regime, and that there is as yet so little opposition to 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.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
Now, over sixty years later, it appears that those dread words, “Papiere, Bitte,” will soon be spoken in English—“Papers, Please”— and with all kinds of British accents. This was reported exactly a week ago, in The New York Times of February 14, in an article titled “A Bit of Good News for Blair: ID Cards for Britons Advance.” The article reported, “The government of Prime Minister Tony Blair faced down its opposition on Monday in a politically charged vote in the House of Commons on a plan to introduce mandatory national identification cards. The vote moved Britain closer to the use of such cards but did not make clear precisely when that would be.”
Worse still, the United States may not be all that far behind Britain in the adoption of such a system. An op-ed piece in today’s New York Times is testing the waters. Titled “A Card We Should All Carry,” the article dares to assert that “a national ID can put power in the hands of the people.” It will allegedly do this by, among other things, providing access to a national database containing everyone’s complete medical history and by enabling people with no fixed address to more easily claim welfare benefits.
It doesn’t seem to have occurred to the author (or to Tony Blair and his supporters, for that matter), that as a government becomes more and more oppressive, people have more and more reason not to want to be identified by it, indeed, to have their government know nothing whatever about them. For as a government more and more prohibits behavior that is both peaceful and advantageous to people, and more and more compels behavior that is against the interests of people, there will necessarily be more and more violations of its ever growing body of laws and regulations. In such circumstances, the easier it is for the government to identify and find the violators, the more effective is its oppression. By the same token, the less the government knows about its citizens, the greater is their freedom from it and thus the greater their ability to pursue their happiness.
Of course, today we have a problem of terrorism. And many people are prepared to accept such a thing as national identity cards in the belief that they are necessary to combat terrorism. It does not seem to have occurred to such people, that the terrorists who pose a serious problem are those supported by foreign governments and that they will soon be equipped with identity cards that are good enough forgeries to make the system worthless as a means of protection. The people who will be stopped by the system will not be terrorists but innocent citizens, seeking to evade unjust laws and regulations.
The United States and Great Britain defeated Nazi Germany in World War II. It is disgraceful that they are they now on the road toward importing this vicious feature of that regime, and that there is as yet so little opposition to 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.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
Monday, February 20, 2006
Why Socialized Medicine Leads to the Prohibition of Private Medicine
An article in today’s (Feb. 20, 2006) New York Times makes clear that Canada’s much ballyhooed system of socialized medicine, in addition to being plagued by interminable waits for treatment, has prohibited competition from private medicine. But now, as the result of a ruling last June by Canada’s Supreme Court, limited forms of private medical care are apparently in process of being allowed to appear, at least in some provinces. In The Times’ article’s words: “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.” [See full Times article.]
The Canadian Supreme Court’s decision was the outcome of a lonely and courageous struggle conducted at great personal cost in time and money by a Canadian physician, Dr. Jacques Chaoulli. Dr. Chaoulli went to court with the case of a chemical salesman who had been forced to wait a year for a hip replacement and who at the same time was prohibited from paying for private surgery. As described in an earlier Times article, Dr. Chaoulli argued
To most Americans it may come as something of a shock simply to learn that all is not well with health care in Canada. That’s because Canada’s system has continuously been held up as the model for the United States to follow. Sometimes it seems that every ignoramus with a graduate-school diploma is ready to pontificate on how wonderful medical care is north of the border and that to solve our problems with medical care, all we need do is adopt that wonderful, single-payer Canadian system.
I could stop here, with the satisfaction of conveying knowledge that the system of socialized medical care in Canada is in fact so unwell that the door to its replacement with private medical care has been opened. But there is a deeper point I want to make, which will help to establish why socialized medicine is a profoundly evil and immoral system, that should never be implemented anywhere.
And this is the fact that the prohibition of private medical care that has existed in Canada is not some inexplicable accident but, on the contrary, follows logically from the very nature of socialized medicine. The connection is this:
Socialized medicine is advocated as the means of making medical care free or almost free, thereby enabling even the very poorest people to afford all of it that they need. Unfortunately, when medical care is made free, the quantity of it that people attempt to consume becomes virtually limitless. Office visits, diagnostic tests, procedures, hospitalizations, and surgeries all balloon. If nothing further were done, the cost would destroy the government’s budget. Something further is done, and that is that cost controls are imposed. The government simply draws the line on how much it is willing to spend. But so long as nothing limits the office visits, requests for diagnostic tests, etc., etc., waiting lines and waiting lists grow longer and longer.
Then the government seeks to limit the number of office visits, tests, procedures, etc., etc., by more narrowly limiting the circumstances in which they can occur. For example, a given diagnostic test may be allowed only when a precise set of symptoms is present and not otherwise. A hospitalization or surgery may be denied if the patient is over a certain age.
As part of the process of cost control, the government controls and sometimes reduces the compensation it allows to physicians and surgeons. For example, in the present fiscal year, in the United States, the fees paid to physicians by Medicare are scheduled to fall by four percent. (The New York Times, Feb. 4, 2006.)
Now all one need do to understand why socialized medicine leads to the prohibition of private medicine is simply to hold in mind the combination of deteriorating medical treatment and controlled physician incomes under socialized medicine and ask what would happen if an escape from this nightmare exists in the form of private medicine. Obviously, physicians who want to earn a higher income and to have the freedom to treat their patients in accordance with their own medical judgment will flee the socialized system for the private system and leave basically only the dregs of medicine for what will remain of the socialized system. That is what the government’s prohibition of private medical care is designed to prevent. This was confirmed in arguments before the Canadian Supreme Court. The Times article on the subject reported that
And there you have it. Socialized medicine destroys the quality of medical care and dare not allow the competition of private medical care. To prevent that competition, it must prohibit private medical care and establish a legal monopoly on 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 http://www.capitalism.net/ is included. (Email notification is requested.) All other rights reserved.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
The Canadian Supreme Court’s decision was the outcome of a lonely and courageous struggle conducted at great personal cost in time and money by a Canadian physician, Dr. Jacques Chaoulli. Dr. Chaoulli went to court with the case of a chemical salesman who had been forced to wait a year for a hip replacement and who at the same time was prohibited from paying for private surgery. As described in an earlier Times article, Dr. Chaoulli argued
that regulations that create long waiting times for surgery contradict the constitutional guarantees for individuals of “life, liberty and the security of the person,’' and that the prohibition against private medical insurance and care is for sick patients an “infringement of the protection against cruel and unusual treatment.''
To most Americans it may come as something of a shock simply to learn that all is not well with health care in Canada. That’s because Canada’s system has continuously been held up as the model for the United States to follow. Sometimes it seems that every ignoramus with a graduate-school diploma is ready to pontificate on how wonderful medical care is north of the border and that to solve our problems with medical care, all we need do is adopt that wonderful, single-payer Canadian system.
I could stop here, with the satisfaction of conveying knowledge that the system of socialized medical care in Canada is in fact so unwell that the door to its replacement with private medical care has been opened. But there is a deeper point I want to make, which will help to establish why socialized medicine is a profoundly evil and immoral system, that should never be implemented anywhere.
And this is the fact that the prohibition of private medical care that has existed in Canada is not some inexplicable accident but, on the contrary, follows logically from the very nature of socialized medicine. The connection is this:
Socialized medicine is advocated as the means of making medical care free or almost free, thereby enabling even the very poorest people to afford all of it that they need. Unfortunately, when medical care is made free, the quantity of it that people attempt to consume becomes virtually limitless. Office visits, diagnostic tests, procedures, hospitalizations, and surgeries all balloon. If nothing further were done, the cost would destroy the government’s budget. Something further is done, and that is that cost controls are imposed. The government simply draws the line on how much it is willing to spend. But so long as nothing limits the office visits, requests for diagnostic tests, etc., etc., waiting lines and waiting lists grow longer and longer.
Then the government seeks to limit the number of office visits, tests, procedures, etc., etc., by more narrowly limiting the circumstances in which they can occur. For example, a given diagnostic test may be allowed only when a precise set of symptoms is present and not otherwise. A hospitalization or surgery may be denied if the patient is over a certain age.
As part of the process of cost control, the government controls and sometimes reduces the compensation it allows to physicians and surgeons. For example, in the present fiscal year, in the United States, the fees paid to physicians by Medicare are scheduled to fall by four percent. (The New York Times, Feb. 4, 2006.)
Now all one need do to understand why socialized medicine leads to the prohibition of private medicine is simply to hold in mind the combination of deteriorating medical treatment and controlled physician incomes under socialized medicine and ask what would happen if an escape from this nightmare exists in the form of private medicine. Obviously, physicians who want to earn a higher income and to have the freedom to treat their patients in accordance with their own medical judgment will flee the socialized system for the private system and leave basically only the dregs of medicine for what will remain of the socialized system. That is what the government’s prohibition of private medical care is designed to prevent. This was confirmed in arguments before the Canadian Supreme Court. The Times article on the subject reported that
Various medical experts, government representatives and union leaders argued in court that privatization of insurance and services would bring an exodus of medical talent from public to private practices, and make waiting times even longer.
And there you have it. Socialized medicine destroys the quality of medical care and dare not allow the competition of private medical care. To prevent that competition, it must prohibit private medical care and establish a legal monopoly on 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 http://www.capitalism.net/ is included. (Email notification is requested.) All other rights reserved.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
Saturday, February 18, 2006
Double Takes in Reading Yesterday’s (February 17, 2006) New York Times
Department of Homeland Security’s response to fears about an Arab company having “a major role in operating ports in and around New York City”:
Op-Ed Columnist Thomas L. Friedman on how Israel can get rid of Hamas:
Success and failure depend on a comparison of results achieved with results intended. If the Palestinian people had wanted Hamas to be disarmed, the very least they would have done would have been to abstain from voting for it. If they wanted a ruling body delivering peace and security, the last thing they would have done is vote for a government to be run by terrorists openly bent on the annihilation of a neighboring country. Waiting for the Palestinian people to get rid of Hamas is about as reasonable a prospect as waiting for the German people in the 1930s to get rid of Hitler.
Indeed, I think I remember another column by Friedman, in a previous 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 www.capitalism.net is included. (Email notification is requested.) All other rights reserved.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
Stewart Baker, assistant secretary for policy at the Department of Homeland Security, said his department had no information about Dubai Ports World that justified an objection to the deal. . . . "We did not find derogatory information in our review," he said. [See full article.]Isn’t something glaringly obvious being overlooked here? Something that everyone can easily see who is not blinded by “political correctness”? Namely, that when the immense majority of terrorists are Arabs, such as nineteen out of nineteen of the 9/11 airplane hijackers, you don’t put Arabs in a position to wreak even greater havoc, such as bringing in an atomic weapon in the hold of a ship and detonating it in New York harbor.
Op-Ed Columnist Thomas L. Friedman on how Israel can get rid of Hamas:
If Israel truly wants to get rid of Hamas, or at least see it disarmed, the only people who can do that effectively are the Palestinians. . . . If Hamas is going to fail now in leading the Palestinian Authority, it is crucial that it be seen to fail on its own — because it can't transform itself from a terror group into a ruling body delivering peace, security and good government for Palestinians — not because Israel and the U.S. never gave it a chance. [See the full column.]
Success and failure depend on a comparison of results achieved with results intended. If the Palestinian people had wanted Hamas to be disarmed, the very least they would have done would have been to abstain from voting for it. If they wanted a ruling body delivering peace and security, the last thing they would have done is vote for a government to be run by terrorists openly bent on the annihilation of a neighboring country. Waiting for the Palestinian people to get rid of Hamas is about as reasonable a prospect as waiting for the German people in the 1930s to get rid of Hitler.
Indeed, I think I remember another column by Friedman, in a previous life:
If Britain and France truly want to get rid of the Nazi party, or at least see it disarmed, the only people who can do that effectively are the German people . . . . If the Nazis are going to fail now in leading the German people, it is crucial that they be seen to fail on their own—because they can’t transform themselves from a terror group into a ruling body delivering peace, security, and good government for Germans—not because the Allies never gave them a chance.
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.
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Thursday, February 16, 2006
Socialized Medicine and Rationing
A news story from Great Britain highlights an essential flaw of socialized medicine and of our own, also highly collectivized system of medical care. Namely, that it results in having to choose between bankruptcy, to pay for unlimited medical care, or the government’s rationing of medical care, including its denial to people whose very life may depend on it.
Thus, a branch of Britain’s National Health Service was upheld by a judge of the country’s High Court in its refusal to pay for the expensive cancer drug required by a 54-year-old woman to extend her life, and who had brought suit to compel it to pay. The judge wrote that he found nothing “irrational” in the refusal to pay, which was based on the proposition that "`The primary care trust has to care for the whole population . . . . We have other people in our community who don't have a strong voice, and we have to consider them.'"
This rationale and its acceptance by a judge is an illustration of what Ayn Rand, with good reason, used to describe contemptuously as a “collectivist stewpot.” Here is an individual, the cancer victim, who has been compelled to pay taxes all of her life to help finance the National Health Service and has thus been equivalently deprived of funds she might have used for her own medical care and who now cannot obtain medical care because the funds are required for others, whose need for her money is held to be more important than her own.
Such a situation is apparently all well and good as far as New York Times columnist Paul Krugman is concerned. Last December, in arguing for socialized medicine, he wrote: “Eventually, we'll have to accept the fact that there's no magic in the private sector, and that health care - including the decision about what treatment is provided - is a public responsibility.”
There is a different system: namely, that medical care is the responsibility of each individual and family, with the right to keep and use its own money for its own purposes and to choose the best it can find for its money.
This is the principle we follow with tremendous success in the purchase of food, clothing, automobiles, computers, and almost everything else. Its abandonment in medical care, and also in education, is the cause of the great and growing problems we are now experiencing in these areas. But more on this in future postings.
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 the author’s web site http://www.capitalism.net/ is included. (Email notification is requested.) All other rights reserved.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
Thus, a branch of Britain’s National Health Service was upheld by a judge of the country’s High Court in its refusal to pay for the expensive cancer drug required by a 54-year-old woman to extend her life, and who had brought suit to compel it to pay. The judge wrote that he found nothing “irrational” in the refusal to pay, which was based on the proposition that "`The primary care trust has to care for the whole population . . . . We have other people in our community who don't have a strong voice, and we have to consider them.'"
This rationale and its acceptance by a judge is an illustration of what Ayn Rand, with good reason, used to describe contemptuously as a “collectivist stewpot.” Here is an individual, the cancer victim, who has been compelled to pay taxes all of her life to help finance the National Health Service and has thus been equivalently deprived of funds she might have used for her own medical care and who now cannot obtain medical care because the funds are required for others, whose need for her money is held to be more important than her own.
Such a situation is apparently all well and good as far as New York Times columnist Paul Krugman is concerned. Last December, in arguing for socialized medicine, he wrote: “Eventually, we'll have to accept the fact that there's no magic in the private sector, and that health care - including the decision about what treatment is provided - is a public responsibility.”
There is a different system: namely, that medical care is the responsibility of each individual and family, with the right to keep and use its own money for its own purposes and to choose the best it can find for its money.
This is the principle we follow with tremendous success in the purchase of food, clothing, automobiles, computers, and almost everything else. Its abandonment in medical care, and also in education, is the cause of the great and growing problems we are now experiencing in these areas. But more on this in future postings.
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 the author’s web site http://www.capitalism.net/ is included. (Email notification is requested.) All other rights reserved.
You Can Earn College Credit for Studying the Works of George Reisman and Ayn Rand! Click here for Details.
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