The H. L. Mencken of Economics

For centuries the State has committed mass murder and called it “war”; then ennobled the mass slaughter that “war” involves.

While reading biographical accounts of Murray Rothbard, one thing becomes clear to me: He was very true to himself, more than most thinkers I have ever read of. Murray Rothbard was an honorable exception in a profession where even blind idealists find themselves being tempted to play by the rules. There was of course, a terrible price for being the greatest entertainer in the history of economic thought. Because, Manu Joseph’s take on Delhi is all the more true of the Economics profession: “Delhi, often, confuses seriousness with intelligence and humour with flippancy. People will not be taken seriously here if they are not, well, serious.”

If you have to be taken seriously by fellow academics, you have to be as dry, boring and confused. Rothbard’s lectures on the contrary, as Bryan Caplan opined, might as well have been named “The joy of Econ”. One of Bryan’s blog posts had an apt title, “History + Comedy = Rothbard”, because he was “Haha funny”. Then, as someone had said, he’d rather have a good laugh than a Nobel Prize.

Rothbard believed that an individualist born in this world “marked by fraud, folly and tyranny” has three ways to deal with it: Retire into one’s own cocoon, set out to reform the world or take immense delight in the nonsense he sees around. Rothbard , it seems, was among the very few who had a driving desire to reform the world and take delight in the spectacle of folly at the same time. He lacked the pessimism of H.L. Mencken who was not too much of a reformer. Mencken knew that his barbaric fellow beings were hopeless and beyond repair and reform. Even when Rothbard writes about the worst of tyrannies, it appeared that like H.L. Mencken, he felt far more delight than indignation. As readers, we feel nothing but amusement even when he cheerfully quotes the listing of monstrosities in the diary of a slave owner who imagined himself to be a kind taskmaster. Continue reading

On Hayek

“At first, I kept wondering how it could be possible that the educated, the cultured, the famous men of the world could make a mistake of this size and preach, as righteousness, this sort of abomination—when five minutes of thought should have told them what would happen if somebody tried to practice what they preached. Now I know that they didn’t do it by any kind of mistake. Mistakes of this size are never made innocently.”-Ayn Rand
Continue reading

Overproduction Doctrine

One of the greatest fallacies on economic depressions is that it is caused by overproduction. “Overproduction is the natural tendency of capitalism to expand the production of commodities that does not acknowledge the limits of the market (demand). Since the production and circulation of goods is not planned and firms are in constant competition for larger profits and greater market share, capitalist’s booms are always followed by busts as we see in the business cycle. In short, capitalist markets are NOT self regulatory.” This Marxian myth is based on the fact that in a depression there are unemployed factors of production and unsold surplus of goods?The adherents of these fallacy conclude from this that the capitalistic system produces too much in the period of boom,which is cleared away in the depression period.

Whatever be the popular perception,the idea that depressions are caused by overproduction is pure hogwash?Human needs are unlimited and as long as there are unsatisfied wants,there can be no overproduction.When this fact is pointed out,the supporters of this doctrine state that though there are unsatisfied needs,people lack the purchasing power to buy the unsold goods.What they fail to notice is that some money exist even in the deepest deflation and it could be used to buy the unsold goods.The fact that businessmen would suffer losses is besides the point.It leads our attention to the fact that businessmen bid up the costs ,which means:prices of the factors of production,so that they would suffer losses.Why did that happen? Such a question takes us back to the Austrian theory of business cycle.It is only the Austrian theory that explains the bidding up of costs and the cluster of errors,which is due to government intervention in the economy-specifically,government manipulation of money and credit.There is no general overproduction of goods.There is overproduction of specific goods and underproduction of other goods.It means that credit expansion has led to malinvestments-which means:investment in wrong lines of production.Depression is the period of liquidation of these investments in wrong lines of production.

What people fail to realize is that overproduction of specific goods and underproduction of other is not caused by anything inherent in capitalism,but due to government intervention?A free uncontrolled,unregulated economy would never lead to overproduction.

Power And Capitalism

t is often argued that, in an anarcho-capitalist society greedy people would end up having a lot of power. The facts are quite the contrary. It is a free society which prevents people from acquiring political power and hence misusing it. What the proponents of this theory forget to consider is that greed could apply to politicians and bureaucrats at least as much as it applies to businessmen. They also forget that market is based on contract and government on coercion. First of all, let’s define greed. Greed is an irrational desire for an excess of something. It is worth noting that there could be greed for money and greed for power. It is our task to find out what is more dangerous. What is power? There is political power and economic power. One can acquire power through economic means or political means. Economic power is acquired by serving ones consumers. Political power is acquired through public polls and force. Implicit in the concept of public polls is the idea that the majority have the right to impose their decisions on the majority by the means of force. It should be evident that economic power is not dangerous in any way. If it is argued that businessmen are motivated by a greed for money, it can’t be evaded that politicians and bureaucrats are motivated by power lust.

Ask yourself these questions. Who is more likely to misuse his power?-A politician who acquired power through promising to deliver or the businessman who acquired his power through delivering goods and has to keep on delivering goods if he wants to keep that power? Who is more likely to serve the public? A businessman who has both financial and moral incentives to do so, or a politician who has only a moral responsibility? More importantly, how can a businessmen misuse his power? He can’t, on a large scale, without the help of the government. If it is true that the greed of the businessman is harmful to the society, why is it that the life standards of the people have improved in countries of high economic freedom (which means: countries known as capitalistic countries) since the beginning of the industrial revolution? The answer is that in a free society, there is no conflict between the rightfully understood rational interests of people.

If you look deeply and think you would understand that what is usually considered as resulting from the greed of businessmen is actually the result of government intervention in the economy-Monopolies, for instance. Most of the people are not economists and they are not able to understand the bad consequences of such evil government policies. They are not qualified to do so. But, they are competent enough to decide what all they have to buy from the market and where to buy them. To take a concrete example, when asked to decide between protectionism and free trade, most of the public would opt for protectionism not knowing that it would lead to a decline in their living standards. If they are free to decide whether to buy foreign products of lower prices or domestic products of higher prices, they would buy foreign goods. Why not make things simple and leave things for the market to decide?

One favorite argument of collectivists is that greed would lead to monopolies and concentration of power. But, it is entirely contrary to the truth. It is the free market which puts a rein on the development on monopolies. Let us suppose that a market leader jacks up its prices. The other firms which sell similar products would find that opportunity appealing and they would step in to sell their products at a lower price. On a free market, when a firm jacks up its prices, the available funds on the market would be diverted in to the same industry and that firm would be forced to either go bankrupt or change its policies. Even if a certain firm has near monopolistic power in the market, it would only lead to more productivity and lower prices. From 1888 to 1940, Alcoa had a total monopoly on the manufacture of aluminum in the U.S.A. It maintained this monopoly by selling such an excellent product at such low prices that no other company could compete with it. During its monopoly period, Alcoa reduced aluminum prices from $8 to 20tf a pound and pioneered hundreds of new uses for its product. Isn’t it now obvious that a free market wouldn’t lead to monopolies? If you look at it like that in India, post office is a monopoly. Electricity board is a monopoly. Monopolies happen only when government forcefully monopolizes a certain industry or when the Government grants the monopoly privilege to a certain firm, like that happened in the Railroads in the United States in the 19th Century.

The fear of monopolies is rational, if it is fear of government monopolies. It must seem surprising, but it is Anti-Trust laws, and other government interventions which are designed to check monopolies which lead to monopolies. If IBM decides to get into the Automobile industry and undersell its competitors it is likely that anti-trust laws would check its entry. Laws against insider trading prevent business executives from accumulating capital and becoming competitors to big business. Taxation prevents small businessmen from accumulating capital and competing with big businesses. Protectionism prevents foreign competitors from entering a nation. Government licensing prevents people from entering industries and thus it leads to a society in which people hold a virtual monopoly over services. The same goes for pro labor union legislations which gives a virtual monopoly to its members in a particular profession.

In the whole of human history, no private firm was able to set its price independent of the market. On the other hand, several evil political leaders and philosophies were able to acquire power and misuse it. Yet, it is not political power or dictatorships that people fear. It is the market.

Inflation Is Man Made

“Food Inflation”, as they have named it, has soured to a decade’s high in India. As usual, speculation and hoarding is being blamed. False remedies are being proposed. It is time to think in terms of fundamental principles. Ayn Rand had pointed out decades back in her essay “Egalitarianism And Inflation” that “Inflation, a man made scourge, is made possible by the fact that most people don’t understand it.” If people were sound on monetary matters, government manipulation of money and credit would not have happened. Ayn Rand asks what would have happened if a person is allowed to trade in paper in a society in which gold has evolved as money. What if such a person claims that he is the best customer and expands the market? The issue, now, must be clearer than crystal to everyone. That person is making a claim on goods for nothing. That’s precisely what the Government does-Counterfeiting, a crime which is punished severely if done by an ordinary citizen. As Ayn Rand had noted, there is only one institution which has the legal power to trade by means of rubber checks: the Government. Counterfeiting is implicit theft. Of course, it is true that the Government doesn’t simply print paper money and circulate in the market. The process is more complicated. But, that doesn’t change the intrinsic picture. The fact remains that the Central Bank, a Government institution, creates money out of thin air. Ayn Rand identifies that there will be two concepts a savage thinking on the range of the moment transported into an Industrial society can’t grasp-“Credit” and “Market”. We, however, can’t make such an excuse. We are capable of long range thought. If we are to stop inflation, we should grasp these concepts and step into action.