Monday, October 31, 2016

Socialism & Communism: What is the Difference? by Arthur Preuss 1908

Socialism and Communism: What is the Difference? by Arthur Preuss 1908

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What is Socialism? Socialism is a special form of Communism, as Agrarianism is a special form of Socialism.

Every system that attacks private ownership and substitutes in its place common ownership is in the proper sense of the word Communistic. Communism, however, may be more or less comprehensive and radical, according as the denial of private ownership extends to one or several or all of the great classes of material goods that are at present and always have been held in severalty. Extreme Communism denies the private ownership of all classes of objects and advocates the transfer of all goods without exception to the community as owner and administrator. Moderate Communism "advocates only the abolition of private property as far as capital, or the materials of labor, or productive goods in contradistinction to non-productive goods, is concerned. By productive goods are meant real estate, all kinds of raw material, factories, machines, tools, means of transportation, in fine, everything not intended for immediate consumption. . . . This moderate form of positive Communism is at present the only one which has adherents. They are divided into two large groups, bitterly hostile to each other: Anarchism and Socialism.

"Anarchism (Anarchist Communism) demands the transfer of productive property to independent groups of workingmen (communities). . . . Socialistic Communism, or simply Socialism, advocates the transformation of all capital, or means of production, into the common property of society, or of the State, and the administration of the produce and the distribution of the proceeds by the State. Since modern Socialists, and chiefly the followers of Karl Marx, intend to realize this scheme upon a purely democratic basis, they call themselves Social Democrats, and their system Social Democracy." The transformation of all the means of production into the common property of the State or commonwealth, is the final aim and the substance of Socialism strictly so called, in which all Socialist platforms both in Europe and America agree. Their other and more immediate demands, in which there are many differences, are, as it were, only steps and means to accomplish that end.—Agrarian Socialism, finally, denies private and advocates common ownership in land only.

All these systems have one and the same principle in common, viz., common or collective ownership; they differ only in its application. Whether they are called Communism or Socialism is immaterial, these terms properly meaning the same thing, just as the words "community" and "society." In their strict sense, however, the terms have come to signify the special systems as enumerated and described above.

In his Encyclical "Berum Novarum" Leo XIII. does not enter upon any classification or enumeration of the various Communistic forms, which he supposes to be sufficiently known; nor does he mention any of their demands except that which is common to all systems and is the basis of all other demands, viz., common landownership. Using the term Socialism and Socialist in a broader sense, he attacks all Communistic forms at once and refutes them all by disproving the one essential and fundamental tenet in which they agree. This was a veritable masterstroke of the great Pontiff. The foundation of a building being destroyed, the stories erected upon it tumble by themselves. Such is Leo's refutation of Socialism and Communism. Apparently he deals only with Agrarianism, but by refuting it he eo ipso refutes all economic systems destructive of society.

In fact, between Agrarian Socialism and the other Communistic forms there is no essential difference; the difference lies merely in a greater or less degree of consistency, the least consistent being Agrarianism, the most consistent, extreme or absolute Communism. A supporter of common landownership cannot consistently fall short of advocating Anarchism or Socialism strictly so called, nay, even extreme Communism.

Saturday, October 29, 2016

There is No Such Thing as Trickle-Down Economics

There is No Such Thing as Trickle-Down Economics

Critics of liberalism and the market economy have made a long-standing habit of inventing terms we would never use to describe ourselves. The most common of these is “neo-liberal” or “neo-liberalism,” which appears to mean whatever the critics wish it to mean to describe ideas they don’t like. To the extent the terms have clear definitions, they certainly don’t align with the actual views of defenders of markets and liberal society.

Trickle Down
Economists have never used that term to describe their views. Another related term is “trickle-down economics.” People who argue for tax cuts, less government spending, and more freedom for people to produce and trade what they think is valuable are often accused of supporting something called “trickle-down economics.” It’s hard to pin down exactly what that term means, but it seems to be something like the following: “those free market folks believe that if you give tax cuts or subsidies to rich people, the wealth they acquire will (somehow) ‘trickle down’ to the poor.”

The problem with this term is that, as far as I know, no economist has ever used that term to describe their own views. Critics of the market should take up the challenge of finding an economist who argues something like “giving things to group A is a good idea because they will then trickle down to group B.” I submit they will fail in finding one because such a person does not exist. Plus, as Thomas Sowell has pointed out, the whole argument is silly: why not just give whatever the things are to group B directly and eliminate the middleman?

There’s no economic argument that claims that policies that themselves only benefit the wealthy directly will somehow “trickle down” to the poor. Transferring wealth to the rich, or even tax cuts that only apply to them, are not policies that are going to benefit the poor, or certainly not in any notable way. Defenders of markets are certainly not going to support direct transfers or subsidies to the rich in any case. That’s precisely the sort of crony capitalism that true liberals reject.

General Prosperity
Government doesn’t “give” us tax refunds; it simply refrains from taking more of what we created.What the critics will find, if they choose to look, is many economists who argue that allowing everyone to pursue all the opportunities they can in the marketplace, with the minimal level of taxation and regulation, will create generalized prosperity. The value of cutting taxes is not just cutting them for higher income groups, but for everyone. Letting everyone keep more of the value they create through exchange means that everyone has more incentive to create such value in the first place, whether it’s through the ownership of capital or finding new uses for one’s labor.
In addition, those of us who support such policies don’t want to “give” anything to anyone, whether rich or poor. When people talk about tax cuts as “giving” something to someone, they implicitly start from the premise that everything belongs to government and we are only able to keep some for ourselves by its indulgence of us.

Aside from the fact that rights are not what government gives to us but what we already have that it should, in theory, protect, the only reason government has any revenue in the first place is because it was taken through taxation from those in the private sector who created it. Government doesn’t “give” us tax refunds; it simply refrains from taking more of what we created through mutually beneficial exchange in the first place.

Grain of Truth
The key is not transferring funds to the currently rich, but ensuring the most competitive economic environment possibleHowever, there is one small grain of truth in the “trickle down” idea. One of the key reasons that modern Westerners, including poor ones, live so much better today than at any point in the past is because our ability to combine our labor with more and better capital has driven up our wages and driven down the cost of goods and services. The accumulation of capital by some does contribute to the enrichment of others as that capital makes workers’ labor more productive and thus more valuable.

That historical truth is not a justification for directly subsidizing the current owners of capital. Contrary to what thinkers like Thomas Piketty appear to believe, merely possessing capital does not ensure a flow of income. It is not ownership of capital per se that benefits others, but the ability to deploy capital in ways that create value for consumers. That is why reducing the tax and regulatory burden on everyone is so important: anyone can come with new ways to create value and potentially enrich themselves and others in the process.

The key is not transferring funds to the currently rich, but ensuring the most competitive economic environment possible so that those with the better ideas can put them into practice. The current owners of capital should not be able to lock in their position by using the political process to enrich themselves by legislation that specifically benefits themselves.
As Hayek observed in his defense of competition:
[I]t is by no means regularly the established entrepreneur, the man in charge of the existing plant, who will discover what is the best method [for efficient production]. The force which in a competitive society brings about the reduction of price to the lowest cost at which the quantity salable at that cost can be produced is the opportunity for anybody who knows a cheaper method to come in at his own risk, and to attract customers by underbidding the other producers.
Today’s owners of capital do not have all of the answers, and the way to ensure the best result for everyone, especially the least well off, is to give everyone the freedom to enter and exit the market and to have the maximum incentive to do so by enabling them to keep the fruits of their successful value creation.

Wealth Creation First
The way to help the poor is to maximize our freedom to create and keep value through the unhampered market economy. No serious economist believes the lives of the poor are improved by wealth being transferred to the rich and then “trickling down” to the poor. What economics does tell us is that wealth has to be created first and foremost. You can’t transfer something that does not exist. Wealth creation is most likely to happen when people are able to innovate without permission and put their ideas to the market test.

This process of market-tested permissionless innovation will indeed make some people rich, and it will make some rich people poor. What it also does is to drive the creation of value across entire societies, raising the standard of living for all of their inhabitants.

The momentary snapshots of rich and poor are not the categories that matter for sound economic policy. Wealth does not “trickle down” from rich to poor. It is created by all of us when we develop new ideas, skills, and products as either workers or owners of capital.

The way to help the poor is to maximize our freedom to create and keep value through the unhampered market economy. The answer is not giving hand-outs to those who, momentarily, occupy the group we call “the rich.” And history tells us that the improving standard of living for everyone that results from more economic freedom will be more of a flood than a trickle.
Steven Horwitz
Steven Horwitz
Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He is spending the 2016-17 academic year as a Visiting Scholar at the John H. Schnatter Institute for Entrepreneurship and Free Enterprise at Ball State University.
He is a member of the FEE Faculty Network.

This article was originally published on FEE.org. Read the original article.

Wednesday, October 26, 2016

Plato Wasn’t Fully Liberal but Nor Was He a Totalitarian - Aeon Skoble

Plato Wasn’t Fully Liberal but Nor Was He a Totalitarian

No one reading Plato’s work Republic is likely to come away seeing it as a manifesto for libertarianism. However, it’s common to hear people claim that it is a blueprint for totalitarian collectivism, as, for example, FEE past president Richard Ebeling wrote in his September 23, 2016 column.

Plato isn’t even engaged in utopian political theory in the first place. As someone who is both a classical liberal and a philosopher who frequently teaches the Republic, I’d like to register a dissent from that interpretation. While he is no libertarian, Plato is not the proto-fascist some make him out to be, and indeed is making a number of points that are friendly to the interests of classical liberals.

This Is Metaphor, People
To begin with, Plato isn’t even engaged in utopian political theory in the first place. The purpose of talking about a city in the first place is metaphorical (“our city of words”). The dialogue is about justice as a human virtue. When Socrates is confronted with the question of whether the just life is the happy life, he suggests that we consider a just city first. This is a hypothetical city that is, by stipulation, perfectly just. He is well aware that no such cities exist, and says as much.

It’s a thought experiment: imagine we had a perfectly just city – what would have to be true of it in order for it to be just?  This will tell us something about the nature of justice, and thus give us insight into how to live.  The thought experiment is built on the analogy between how a city is organized and how a person’s character is organized.  Since “justice” is potentially a property both of societies and of individuals, the features of a just city that make it just would be features that, if we lived according to them, would make us just.

What’s one example? Well, a perfectly just city wouldn’t have terrible economic arrangements. As Ricardo would note centuries later, it’s better if we have a division of labor. Plato sensibly observes that if the various crafts are performed by people who are good at them and enjoy doing them, then (a) we’ll all be better off as a society, because we’ll have quality goods, and (b) we’ll all be better off individually, because people like what they do.  It couldn’t be a perfectly just city if half the people hated their jobs and resented the other half. It couldn’t be a perfectly just city if products were produced by people who didn’t know how to do them well.

There’s nothing contrary to liberalism about this observation. Where we get into trouble is if we ask, who will be in charge of making sure that every job in the city is being done by someone who has true knowledge of that job and the corresponding love of doing it?   But the problem only arises from assuming that this or that person could know that much (which classical liberals know is impossible), not that the point is false.

Plato, Peace, and Love
The city needs to avoid civil war; the individual needs inner peace and harmony. But Plato’s point is the analogy: just as the city functions best when everyone does the job he or she is best at and loves, an individual’s psyche functions best when each “part” is doing what it’s best suited for. The just city would be characterized by a lack of civil strife; the just person is someone whose passions are moderate, whose decision making is guided by reason. The fact that no one is wise enough to be in charge of the city is literally irrelevant to the analogy, since each individual really is capable of pursuing virtue and wisdom.  

In general, all the features of the city half of the analogy that a classical liberal would find problematic are not deal-breakers for the psyche half of the analogy. Plato suggests that the ideal city would have rulers who truly know – and only care about – wisdom and justice.

In the real world, are we likely to have rulers like that?Of course not – and Plato says as much (“I think [this city] can be found nowhere on earth”). But we’re each perfectly capable of using reason to moderate our passions, to be people who seek wisdom and self-control.

The city needs to avoid civil war; the individual needs inner peace and harmony.  Are we likely to find rulers in the real world who can guarantee absolute political harmony?  Of course not – and Plato says as much. But it’s none the less true that we as individuals will be happier if we’re not consumed by unrestrained passions and riven with internal conflict. Indeed, this is Lawrence Reed’s point in his essay “Are We Good Enough For Liberty?” 

Some Other Writings
It’s a mistake to characterize him as a proto-totalitarian on the basis of the “ideal city” thought experiment in the Republic.When Plato is making explicitly political points, they’re actually very insightful, and relevant to many arguments made by classical liberals. For example, in Book 8 of Republic, Plato argues that unrestrained majoritarian democracy is unjust and leads to tyranny. Like many classical liberals, I think this is correct, and indeed the argument anticipates many points Hayek would make in The Road to Serfdom.

In the “ideal city” thought experiment, Plato suggests the rulers and soldiers should not be allowed to accumulate wealth. The insight that underlies this should be very familiar to opponents of crony-capitalism: you should not be seeking political power in order to get rich. 

Does any classical liberal believe that in the real world, our political leaders selflessly work only for the common good and aren’t remotely interested in enriching themselves?  If you want to get rich, start a business. Sure enough, this is Plato’s point. Excellence in the productive trades isn’t incompatible with wealth accumulation, because the incentives align. Since you love to bake and are an excellent baker, lots of people will buy your bread.  But the incentives do not align for political and military power. Unrealistic or not, it’s true that we do not want people seeking power just to get rich.

Not Liberal but Not Terrible Either
Let me be clear: Plato is not Ricardo or Locke or Hayek or Nozick. He was probably more optimistic about political authority than most classical liberals (including me). But it’s a mistake to characterize him as a proto-totalitarian on the basis of the “ideal city” thought experiment in the Republic, which is really an argument in individual moral philosophy. He is very explicit about the allegorical nature of the analogy, and his non-allegorical political observations, such as the dangers of unrestrained democracy, are mostly spot-on. It’s not helpful to classical liberalism to rail against a totalitarianism that isn’t there, especially when the ethical insights are both intrinsically worthwhile and relevant to the philosophy of freedom.

Again, Lawrence Reed: “What [the American] Founders were getting at is the notion that liberty is built upon the ability of a society to govern itself, without government intervention. This ability to self-govern is itself built upon—you guessed it—individual character.”  Plato’s observations about self-governance are more helpful to – and amenable to – classical liberalism than he is usually given credit for. We are more impoverished for dismissing Plato.
Aeon Skoble
Aeon Skoble
Aeon J. Skoble is Professor of Philosophy at Bridgewater State University.
This article was originally published on FEE.org. Read the original article.

Wednesday, October 19, 2016

A Criticism of Socialism (1906 Article)


A 1906 Criticism of Socialism

Article in The Theosophical Quarterly 1906

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A book on Socialism cannot be reviewed in the space this magazine can afford to give it, so that this does not pretend to be more than a notice of some of many points which occur to one when glancing through the above volume. In the first place we are confronted with the eternal difficulty when dealing with the subject of Socialism; that is that there are as many kinds of Socialism as there are exponents of a socialistic belief. It should be understood, therefore, that the following remarks refer to the Wilshire brand. It is a not unpleasant brand in several ways, for Mr. Wilshire is a kind-hearted man who sees and avoids the evils of inflaming class hatred, which is so important a stock in trade of so many socialists. He endeavors to treat the question from an economic standpoint and has kind things to say of every one, even the hated capitalist. He does not agree with most socialistic writers that they are a wicked and perverse generation, but on the contrary says that they are pretty much like other men, and only differ, because, by birth or circumstance, they are exploiters of labor, instead of being laborers.

Trusts, he thinks, are a natural outcome of economic conditions, therefore inevitable, and therefore not evil. They are simply a step on the road towards the national ownership of the means of production, and he rather likes them because they indicate that a very considerable distance has been traveled on that road. He believes that the time is close at hand, a year or two perhaps, unless a great war or a great calamity postpones it, when this country will be confronted by the "great unemployed problem," which will usher in the socialistic regime. It is here that we must depart from him. He has been making the same prediction for the last fifteen years and, so far as we can read the economics of the matter, there is no reason why he should not continue to make such predictions indefinitely.


He says that capital is already finding difficulty of profitable investment, and that another year or two will find it going begging. How he reconciles this with the recent statements of J. J. Hill that the railroads of this country need five billion dollars and five million men to carry out needed improvements in the next five years, we do not understand. He says that our economic troubles are owing to the competitive system of labor and that the solution of the trouble is to have government ownership of the means of production, but he does not show how this will be the case. He simply says it would. We do not believe it, and deny it, and our statement in the absence of proof is quite as valid as his.

The main defect of his writings is along this line. He regards Socialism (his brand, always remember) as a panacea for all our social troubles, but he nowhere shows how this would be the case. He makes the assertion that the government ownership of the means of production would do all these things, and then leaves the matter just as it begins to get interesting. How would the government ownership of the means of production actually work out in practice? Most people think that it would result in indescribable chaos, and there is nothing in Mr. Wilshire's book to lead us to think otherwise.

Of course, he falls into the fundamental socialistic fallacy of attributing the result of production to labor, although he goes farther than many socialists, and adds "labor plus machinery," but he then ignores the share of machinery. As a matter of fact, and this is the crux of the whole subject, labor cannot and does not produce any more now than it did a hundred or a thousand or a million years ago. In fact it does not produce as much, for men do not have to work as hard as they used to. The increase in production has not been brought about by labor at all but by ability, by enterprise, by systematizing the means of production, by the invention of machinery, by combination, and by the countless other factors which represent our modern commercial and industrial life. Mallock sums up all these factors in the single word "ability," and it will do as well as any other. The great increase in production has been brought about by "ability," and it is easy to show that instead of labor receiving less than its share of this increase, that it actually receives more than it is justly entitled to. Wilshire says in one place that we produce twenty times as much as our ancestors and in another place he says it is a hundred times as much. Now, although this increase of production has been brought about by ability and not by labor, he acknowledges that labor now receives about a fifth to a sixth of the total product, which is either three or four times or twenty times as much as it should receive, according to his own statistics.

This is the Great Heresy of Socialism and comes straight down from Marx himself. Marx founded his entire system on the theorem that wealth is the result of labor applied to natural objects, and it is not true. Wealth is the result of labor and ability applied to natural objects, and "ability" is responsible for and should receive all the great increase in the amount produced in recent times. Labor, without the assistance of ability and all that ability represents, could still produce only a bare livelihood by unremitting and incessant toil. Fortunately this is a matter of observation and not of argument. All we have to do is to go to a country where ability, and what it represents, is still absent and we see millions of people engaged in incessant toil for a bare livelihood. China and India are cases in point; and we know that there will be no relief for the peoples of those two countries until the labor of their inhabitants is associated with ability and the production of wealth is thereby increased. From this increase labor will get, as heretofore, more than the share to which it is strictly entitled, and so will the general condition of the people of those two countries be gradually ameliorated.

Neither Wilshire nor any other socialist of whom we have knowledge is free from this fundamental fallacy, which invalidates all their conclusions and makes useless all they write. C. A. G. Jr.

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Sunday, October 16, 2016

Why Socialism Failed

Why Socialism Failed

Also see: Your Socialist Zombie Survival Kit
Socialism is the Big Lie of the twentieth century. While it promised prosperity, equality, and security, it delivered poverty, misery, and tyranny. Equality was achieved only in the sense that everyone was equal in his or her misery.

In the same way that a Ponzi scheme or chain letter initially succeeds but eventually collapses, socialism may show early signs of success. But any accomplishments quickly fade as the fundamental deficiencies of central planning emerge. It is the initial illusion of success that gives government intervention its pernicious, seductive appeal. In the long run, socialism has always proven to be a formula for tyranny and misery.

A pyramid scheme is ultimately unsustainable because it is based on faulty principles. Likewise, collectivism is unsustainable in the long run because it is a flawed theory. Socialism does not work because it is not consistent with fundamental principles of human behavior. The failure of socialism in countries around the world can be traced to one critical defect: it is a system that ignores incentives.

In a capitalist economy, incentives are of the utmost importance. Market prices, the profit-and-loss system of accounting, and private property rights provide an efficient, interrelated system of incentives to guide and direct economic behavior. Capitalism is based on the theory that incentives matter!

Under socialism, incentives either play a minimal role or are ignored totally. A centrally planned economy without market prices or profits, where property is owned by the state, is a system without an effective incentive mechanism to direct economic activity. By failing to emphasize incentives, socialism is a theory inconsistent with human nature and is therefore doomed to fail. Socialism is based on the theory that incentives don’t matter!

In a radio debate several months ago with a Marxist professor from the University of Minnesota, I pointed out the obvious failures of socialism around the world in Cuba, Eastern Europe, and China. At the time of our debate, Haitian refugees were risking their lives trying to get to Florida in homemade boats. Why was it, I asked him, that people were fleeing Haiti and traveling almost 500 miles by ocean to get to the “evil capitalist empire” when they were only 50 miles from the “workers’ paradise” of Cuba?

The Marxist admitted that many “socialist” countries around the world were failing. However, according to him, the reason for failure is not that socialism is deficient, but that the socialist economies are not practicing “pure” socialism. The perfect version of socialism would work; it is just the imperfect socialism that doesn’t work. Marxists like to compare a theoretically perfect version of socialism with practical, imperfect capitalism which allows them to claim that socialism is superior to capitalism.

If perfection really were an available option, the choice of economic and political systems would be irrelevant. In a world with perfect beings and infinite abundance, any economic or political system–socialism, capitalism, fascism, or communism–would work perfectly.

However, the choice of economic and political institutions is crucial in an imperfect universe with imperfect beings and limited resources. In a world of scarcity it is essential for an economic system to be based on a clear incentive structure to promote economic efficiency. The real choice we face is between imperfect capitalism and imperfect socialism. Given that choice, the evidence of history overwhelmingly favors capitalism as the greatest wealth-producing economic system available.
The strength of capitalism can be attributed to an incentive structure based upon the three Ps: (1) prices determined by market forces, (2) a profit-and-loss system of accounting and (3) private property rights. The failure of socialism can be traced to its neglect of these three incentive-enhancing components.

Prices
The price system in a market economy guides economic activity so flawlessly that most people don’t appreciate its importance. Market prices transmit information about relative scarcity and then efficiently coordinate economic activity. The economic content of prices provides incentives that promote economic efficiency.

For example, when the OPEC cartel restricted the supply of oil in the 1970s, oil prices rose dramatically. The higher prices for oil and gasoline transmitted valuable information to both buyers and sellers. Consumers received a strong, clear message about the scarcity of oil by the higher prices at the pump and were forced to change their behavior dramatically. People reacted to the scarcity by driving less, carpooling more, taking public transportation, and buying smaller cars. Producers reacted to the higher price by increasing their efforts at exploration for more oil. In addition, higher oil prices gave producers an incentive to explore and develop alternative fuel and energy sources.
The information transmitted by higher oil prices provided the appropriate incentive structure to both buyers and sellers. Buyers increased their effort to conserve a now more precious resource and sellers increased their effort to find more of this now scarcer resource.

The only alternative to a market price is a controlled or fixed price which always transmits misleading information about relative scarcity. Inappropriate behavior results from a controlled price because false information has been transmitted by an artificial, non-market price.
Look at what happened during the 1970s when U.S. gas prices were controlled. Long lines developed at service stations all over the country because the price for gasoline was kept artificially low by government fiat. The full impact of scarcity was not accurately conveyed. As Milton Friedman pointed out at the time, we could have eliminated the lines at the pump in one day by allowing the price to rise to clear the market.

From our experience with price controls on gasoline and the long lines at the pump and general inconvenience, we get an insight into what happens under socialism where every price in the economy is controlled. The collapse of socialism is due in part to the chaos and inefficiency that result from artificial prices. The information content of a controlled price is always distorted. This in turn distorts the incentives mechanism of prices under socialism. Administered prices are always either too high or too low, which then creates constant shortages and surpluses. Market prices are the only way to transmit information that will create the incentives to ensure economic efficiency.

Profits and Losses
Socialism also collapsed because of its failure to operate under a competitive, profit-and-loss system of accounting. A profit system is an effective monitoring mechanism which continually evaluates the economic performance of every business enterprise. The firms that are the most efficient and most successful at serving the public interest are rewarded with profits. Firms that operate inefficiently and fail to serve the public interest are penalized with losses.

By rewarding success and penalizing failure, the profit system provides a strong disciplinary mechanism which continually redirects resources away from weak, failing, and inefficient firms toward those firms which are the most efficient and successful at serving the public. A competitive profit system ensures a constant reoptimization of resources and moves the economy toward greater levels of efficiency. Unsuccessful firms cannot escape the strong discipline of the marketplace under a profit/loss system. Competition forces companies to serve the public interest or suffer the consequences.

Under central planning, there is no profit-and-loss system of accounting to accurately measure the success or failure of various programs. Without profits, there is no way to discipline firms that fail to serve the public interest and no way to reward firms that do. There is no efficient way to determine which programs should be expanded and which ones should be contracted or terminated.
Without competition, centrally planned economies do not have an effective incentive structure to coordinate economic activity. Without incentives the results are a spiraling cycle of poverty and misery. Instead of continually reallocating resources towards greater efficiency, socialism falls into a vortex of inefficiency and failure.

Private Property Rights
A third fatal defect of socialism is its blatant disregard for the role of private property rights in creating incentives that foster economic growth and development. The failure of socialism around the world is a “tragedy of commons” on a global scale.

The “tragedy of the commons” refers to the British experience of the sixteenth century when certain grazing lands were communally owned by villages and were made available for public use. The land was quickly overgrazed and eventually became worthless as villagers exploited the communally owned resource.

When assets are publicly owned, there are no incentives in place to encourage wise stewardship. While private property creates incentives for conservation and the responsible use of property, public property encourages irresponsibility and waste. If everyone owns an asset, people act as if no one owns it. And when no one owns it, no one really takes care of it. Public ownership encourages neglect and mismanagement.

Since socialism, by definition, is a system marked by the “common ownership of the means of production,” the failure of socialism is a “tragedy of the commons” on a national scale. Much of the economic stagnation of socialism can be traced to the failure to establish and promote private property rights.

As Peruvian economist Hernando de Soto remarked, you can travel in rural communities around the world and you will hear dogs barking, because even dogs understand property rights. It is only statist governments that have failed to understand property rights. Socialist countries are just now starting to recognize the importance of private property as they privatize assets and property in Eastern Europe.

Incentives Matter
Without the incentives of market prices, profit-and-loss accounting, and well-defined property rights, socialist economies stagnate and wither. The economic atrophy that occurs under socialism is a direct consequence of its neglect of economic incentives.

No bounty of natural resources can ever compensate a country for its lack of an efficient system of incentives. Russia, for example, is one of the world’s wealthiest countries in terms of natural resources; it has some of the world’s largest reserves of oil, natural gas, diamonds, and gold. Its valuable farm land, lakes, rivers, and streams stretch across a land area that encompasses 11 time zones. Yet Russia remains poor. Natural resources are helpful, but the ultimate resources of any country are the unlimited resources of its people–human resources.

By their failure to foster, promote, and nurture the potential of their people through incentive-enhancing institutions, centrally planned economies deprive the human spirit of full development. Socialism fails because it kills and destroys the human spirit–just ask the people leaving Cuba in homemade rafts and boats.

As the former centrally planned economies move toward free markets, capitalism, and democracy, they look to the United States for guidance and support during the transition. With an unparalleled 250-year tradition of open markets and limited government, the United States is uniquely qualified to be the guiding light in the worldwide transition to freedom and liberty.

We have an obligation to continue to provide a framework of free markets and democracy for the global transition to freedom. Our responsibility to the rest of the world is to continue to fight the seductiveness of statism around the world and here at home. The seductive nature of statism
continues to tempt and lure us into the Barmecidal illusion that the government can create wealth.
The temptress of socialism is constantly luring us with the offer: “give up a little of your freedom and I will give you a little more security.” As the experience of this century has demonstrated, the bargain is tempting but never pays off. We end up losing both our freedom and our security.

Programs like socialized medicine, welfare, Social Security, and minimum wage laws will continue to entice us because on the surface they appear to be expedient and beneficial. Those programs, like all socialist programs, will fail in the long run regardless of initial appearances. These programs are part of the Big Lie of socialism because they ignore the important role of incentives.

Socialism will remain a constant temptation. We must be vigilant in our fight against socialism not only around the globe but also here in the United States.

The failure of socialism inspired a worldwide renaissance of freedom and liberty. For the first time in the history of the world, the day is coming very soon when a majority of the people in the world will live in free societies or societies rapidly moving toward freedom.

Capitalism will play a major role in the global revival of liberty and prosperity because it nurtures the human spirit, inspires human creativity, and promotes the spirit of enterprise. By providing a powerful system of incentives that promote thrift, hard work, and efficiency, capitalism creates wealth.

The main difference between capitalism and socialism is this: Capitalism works.
Find a Portuguese translation of this article here.
Mark J. Perry
Mark J. Perry
Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.
This article was originally published on FEE.org. Read the original article.

Wednesday, October 12, 2016

10 Dead Economists Who Deserve a Nobel Prize

10 Dead Economists Who Deserve a Nobel Prize

My friend Reuvain Borchardt, a lawyer, asks if it’s possible for a Nobel Prize to be awarded posthumously. What if unlimited posthumous economic Nobel awards were possible?My understanding (at least for the economics prize) is the following: a person loses his or her eligibility to win the prize come January 1st of the year following his or her death. So, for example, someone who dies on September 30th, 2017 will be eligible to win the 2017 Prize, but not in any following years.

My understanding might be mistaken, but I once heard the above explanation from what my memory says was a credible source. (Also, no Nobel in economics was ever so awarded posthumously, although William Vickrey died very soon after it was announced that he won it in 1996. He died before the December ceremonies in Stockholm.)

Anyway, Reuvain’s question got me to thinking: What if unlimited posthumous economic Nobel awards were possible? Who are the ten now-dead, non-laureate economists who I believe would be most deserving. My idiosyncrasies will be evident in my list:
  1. Adam Smith (of course, and not just because his is the single most famous name in all of economics)
  2. David Ricardo
  3. Carl Menger
  4. Alfred Marshall
  5. Ludwig von Mises
  6. Frank Knight
  7. Aaron Director
  8. Armen Alchian
  9. Gordon Tullock
  10. Julian Simon
The hardest name to leave off of this list of ten is a tie between Joseph Schumpeter and Knut Wicksell; a name that was quite easy to leave off is John Maynard Keynes.
Republished from Cafe Hayek.
Donald J. Boudreaux
Donald J. Boudreaux
Donald Boudreaux is a senior fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University, a Mercatus Center Board Member, a professor of economics and former economics-department chair at George Mason University, and a former FEE president.
This article was originally published on FEE.org. Read the original article.

Monday, October 10, 2016

And the Nobel Prize in Economics Should Go To...

And the Nobel Prize in Economics Should Go To...

The Nobel Prize in Economics will be announced, for 2016, this Monday. Economists during this season get giddy with predicting who will, and in opining on who should, win. Despite my conviction that the Nobel Prize in Economic Science is every bit as legitimate and justly respected as is any other Nobel Prize (even though it’s not one of the original Prizes established by Alfred Nobel himself), over the past eight or so years my interest in the Prize has diminished. This fact is due chiefly to the Nobel committee’s inexplicable failure to award the Prize to the late Armen Alchian and to my late colleague Gordon Tullock before each died having lived well into his 90s.

Two of the most creative, productive, and finest economists of the last century failed to receive the premier prize for economists.Both Alchian and Tullock were among the most creative, productive, and finest economists of the past century – indeed, of the past two centuries. Each of these men forgot more economics than at least one fifth of the Nobel laureate economists ever knew. And yet neither Alchian nor Tullock was awarded what has become the premier prize for economists.

Still, the Nobel for economists retains much significance. My emeritus colleague Vernon Smith (’02) and my late colleague Jim Buchanan (’86) were indeed worthy recipients. Of course, I believe that the same is true for Hayek. And for Friedman. And for Coase and Becker and Stigler and North and Ostrom and Williamson and Schultz and Schelling and Hicks and Modigliani and Arrow and, yes, Samuelson – and, indeed, for a number of other recipients. But I still am unable to get my head around the fact that Alchian and Tullock each was denied this Prize. It’s inexplicable. And this failure diminishes, for me at least, the luster of the Nobel in economics.

So here’s my wish: I hope, sincerely, that the 2016 Nobel Prize in Economic Science is awarded to Harold Demsetz. No living economist who is without the Prize is more worthy than Demsetz to receive it. And – at most, and all things considered – only a small handful (Baumol, Bhagwati, Harberger, Higgs, Kirzner, McCloskey, Plott, Sowell, and Yeager) are even plausibly as worthy. But among all non-Nobel-laureate living economists, none is more worthy to receive the Prize than is the 86-year-old Demsetz, whose writings on property rights, competition, industrial organization, law, and regulation are unfailingly brilliant and important and, often, downright pioneering.
Again, that is my sincere hope – although, alas, not my prediction.
This first appeared at Cafe Hayek.
Donald J. Boudreaux
Donald J. Boudreaux
Donald Boudreaux is a senior fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University, a Mercatus Center Board Member, a professor of economics and former economics-department chair at George Mason University, and a former FEE president.
This article was originally published on FEE.org. Read the original article.

Thursday, October 6, 2016

Adam Smith on What It Means to Flourish by Ryan Patrick Hanley

Adam Smith on What It Means to Flourish

Excerpted with permission from AEI's new book, Economic Freedom and Human Flourishing 2016.
It is difficult to imagine two things more different, on their face, than public policy and political philosophy. One is concrete; the other abstract. One provides solutions; the other asks questions. One responds to the challenges of the moment; the other to challenges that have been with us from the earliest times.

Yet for all these differences, the divorce of political philosophy from public policy would be fatal to each. The policymaker who limits his vision to what can be done and is deaf to questions about what ought to be done seems as dangerous as the philosopher who focuses on the ideal and ignores the real conditions of human beings. Bringing the two enterprises together thus seems necessary for the success of each individually. It is especially necessary when the substantive issue at stake concerns the relationship of human flourishing to economic liberty—a relationship that was particularly well understood by Adam Smith, one of the modern world’s most careful and insightful students of both public policy and political philosophy.

The divorce of political philosophy from public policy would be fatal to each.Adam Smith is of course today famous for his defense of economic liberty and thus as a founding father of capitalism. In his book The Wealth of Nations, Smith laid out a comprehensive defense of what he called “commercial society,” analyzing at length and in detail the policies of a market society and their several advantages over more restrictive policies associated with alternative forms of economic order.
The book is today remembered largely for its images and metaphors: the pin factory that shows the remarkable advantages of divided, specialized labor and the invisible hand that generates wealth and promotes its distribution. Yet those who have read the whole book know that its primary focus is public policy—evident in the simple fact that The Wealth of Nations invokes the invisible hand only once, but cites and studies no less than 266 discrete English statutes and Scottish parliamentary acts.
Smith’s credentials as both a champion of economic liberty and a policy wonk are thus solid. But his interests hardly end here and in fact extend to the concept of human flourishing. In what follows, I argue that Smith’s credentials on this philosophical front are every bit as solid as those on the practical economic front. In particular I argue that Smith thought long and hard about the concept of human flourishing; and, most importantly, that the vision of human flourishing he developed is itself the grounds for his defense of economic liberty.

If this is right, it has implications for how we understand Smith and for how we understand the relationship of philosophy to policy. On the first front, the main implication of the view I want to defend is that Smith’s defense of the superiority of market orders rests not on concerns with simple utility maximization, but rather on the belief that markets are indispensable to human flourishing.
Put in this volume’s terms, Smith’s defense of the economic liberty fundamental to capitalism is founded on the belief that economic liberty is not an end in itself, but a means to the greater end of promoting the flourishing of both individuals and societies. And on the latter front, the main claim I want to defend is that Smith, insofar as he brings together the concerns of both policy and philosophy, remains a useful model for those of today’s legislators seeking to transcend mere ideology and instead articulate a vision for an enlightened public policy informed by political philosophy.

Economic Flourishing
What follows focuses on three discrete claims that Smith advances in three separate passages. Each passage focuses on the concept of human flourishing, and analyzed and read in context, they illuminate not only Smith’s understanding of human flourishing, but also the foundations of his defense of economic liberty. Yet the three passages, while all focused on human flourishing, treat different sides of the concept, with one focused on what we might call economic flourishing, the second on political flourishing, and the third on moral flourishing.

There was a claim that higher wages for laborers would make them dissatisfied with previous conditions.We begin with the first of these: economic flourishing. Smith uses the term “flourishing” in a variety of places in The Wealth of Nations, often in the context of describing the flourishing condition of a particular trade or particular manufacture in a particular country. So far as I know, only once in the text does he invoke the explicit concept of flourishing in its traditional, philosophical sense of referring to the healthy state of a society or individual. But it is a very important reference, one that well deserves the attention of both Smith specialists and students of capitalism more generally.

The reference comes in the midst of Smith’s chapter on the wages of labor in the first book of The Wealth of Nations. Its specific context is Smith’s intervention in a current debate over the relative desirability of “improvement in the circumstances of the lower ranks of the people.” Not everyone welcomed the prospect of improvement in the condition of the poor. Smith was intimately familiar with the counterargument that higher wages for laborers would translate into a new taste for luxury, leading to dissatisfaction with previous conditions, as well as the claim that high wages would tend to sap industriousness and incentivize laziness. But Smith rejected such claims on the grounds of human flourishing:
Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconvenience to the society? The answer seems at first sight to be abundantly plain. Servants, laborers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconvenience to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed, and lodged.
This is a striking and important passage for several reasons. Some of these concern what they reveal about Smith, while others concern their implications for how best to understand market orders and their benefits today.

On the former front, the passage especially clarifies the degree to which Smith cannot be reduced to a caricature view that defines the good society as that in which the most talented few enjoy the maximum possible opportunities for achievement and self-advancement. Smith of course values the utility of the free pursuit of self-interest, but freedom to pursue self-interest alone neither defines a flourishing society nor justifies a market order. As made clear here, what defines the flourishing society is not the condition of the few but the condition of the majority; indeed, only when the “far greater part” of a society no longer lives in a state of indigence can the society be said to flourish.
The measure of the good society is thus at least as much the state of the worst-off as that of the well-off. And as Smith here and elsewhere explains, the proper measure of this state is whether the worst-off are able to acquire goods relatively easily. In his university lectures on jurisprudence, Smith defined this state of flourishing via the concept of “comeattibleness”—that is, the relative ease by which even the most indigent can “come at,” or acquire via purchase, goods.

Freedom to pursue self-interest alone neither defines a flourishing society nor justifies a market order.Smith dropped this awkward phrase when he revised his thoughts for The Wealth of Nations. Yet the concept remains central to his published defense of market orders. In short, his argument is that the market is desirable not as an end in itself, or merely because it makes possible economic growth, but because it alleviates the condition of the poor and thereby helps to realize the flourishing society.

This is the departure point for The Wealth of Nations itself, as made clear in its opening chapter, which argues that the superiority of the well-governed society consists precisely in its capacity to achieve “that universal opulence which extends itself to the lowest ranks of the people” and thereby ensure that “a general plenty diffuses itself through all the different ranks of the society.”
Now, this view of Smith may surprise some. Within the Beltway, Smith tends to be regarded as the property of the Republicans whose ties bear his portrait rather than bleeding hearts. But recent scholars have reopened debate on this front, asking the question—to borrow the title of an important recent article—“Adam Smith: Left or Right?” The question has seen a number of prominent academic voices weigh in on either side. But perhaps the most important effect of this debate is to help us see the degree to which Smith—and especially his conception of human flourishing—transcends narrowly partisan concerns.

An anecdote may help show this. I spent the afternoon prior to delivering the first version of these remarks playing tourist and going for a walk around the Tidal Basin. My destination was the Jefferson Memorial. I had visited it several times prior, having grown up not far from Washington, D.C. But I had never before visited the Franklin Delano Roosevelt Memorial. Visiting it that day, perhaps because I was thinking of Smith, I was struck by the quotation from FDR’s second inaugural address that dominates the memorial’s “room” dedicated to the New Deal years: “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”

Is FDR then a faithful follower of Adam Smith? Clearly not, in one key sense; his casting of the question as one of how “we” ought to “provide” for the poor points toward a role for political agency that much in Smith’s system resists.

Yet even if Smith and FDR stand on opposite sides of the fence on the question concerning who ought to provide for the poor and how such relief is best provided, they agree that the flourishing of a society is measured by the conditions of the poor. For all their disagreements on means, FDR and Smith envision the same ends, and together they point to a view of human flourishing that transcends familiar partisan distinctions.

Political Flourishing
Attending to Smith’s passage on flourishing in The Wealth of Nations helps clarify not only his conception of human flourishing itself, but also the way in which he understood the relationship of human flourishing to economic liberty. In particular, it helps us see that Smith defined the flourishing economic order not as that which allows only a part of society to benefit, but one that instead promotes the flourishing of society as a whole. Smith’s second key passage on flourishing points in a similar direction. This second passage is to be found not in The Wealth of Nations, but in The Theory of Moral Sentiments, Smith’s first and only other book.

For much of the past two centuries, The Theory of Moral Sentiments has been overshadowed by his much better-known treatise on political economy. But things have changed recently. The Theory of Moral Sentiments has not only gained a wide academic following, but also attracted a striking amount of popular attention for a work of 18th-century ethics, as evident in its prominent recommendations by world leaders from British Prime Minister Gordon Brown to Chinese Premier Wen Jiabao.
What explains the attractions of The Theory of Moral Sentiments to these and others today? Among other things, the book describes a world in which exchanges of sympathy encourage individuals to cultivate the sense of propriety and the ethical virtues necessary to navigate life in a modern market society. It is a complex vision, one to which we cannot do full justice here. But we can note one of its most attractive features, namely its vision of human flourishing.

Smith presents this vision most clearly in the course of comparing justice and beneficence, in which he asks us to imagine two very different kinds of societies. In the first, he explains:
All the members of human society stand in need of each other’s assistance, and are likewise exposed to mutual injuries. Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy. All the members of it are bound together by the agreeable bands of love and affection, and are, as it were, drawn to one common center of mutual good offices.
He then compares this flourishing and happy society to a second type of society:
But though the necessary assistance should not be afforded from such generous and disinterested motives, though among the different members of the society there should be no mutual love and affection, the society less happy and agreeable, will not necessarily be dissolved. Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by a mercenary exchange of good offices according to an agreed valuation.
Smith’s comparison of these two types of societies strikes to the very heart of his project—and indeed to the core concerns of political philosophy more generally.

Regarding Smith himself, these passages clearly reveal his view of what distinguishes the flourishing society: the society that “flourishes and is happy” is precisely that in which all are “bound together” into “one common center” by ties of “love and affection.” It is fundamentally distinct from the society that in conspicuous contrast cannot be said to flourish, but rather merely “subsists”—that in which men, lacking mutual love and affection, maintain minimal ties based on a “mercenary exchange of good offices according to an agreed valuation.”

Smith's challenge to our world, built on the freedom to engage in "mercenary exchange," is to never forget that this alone cannot make us "happy."What is Smith after in comparing these two societies in this way? Many have argued that his fundamental sympathies lie with the second type of society and not the first. And not without reason: in The Wealth of Nations, Smith praises the utility of exchange and criticizes benevolence in ways decidedly reminiscent of the second society described here.
Yet assuming that he somehow preferred the second society would do Smith an injustice. His description of it is of course painted in decidedly grim colors, clearly not meant to inspire enthusiasm. Indeed, the cash nexus that allows this society to persist cannot seem anything but repellant when set next to—as Smith does—the warm bonds of love and friendship that define the best society.

This in turn brings us to the second reason why these passages are important—a reason that goes beyond their simple importance for Smith and speaks rather to the more general claims of political philosophy. At least since Aristotle, it has been customary for political philosophers to distinguish the best or ideal society from the best sort of society that can be realized in practice. Something like this distinction seems to be at work in Smith’s comparison.

Smith was enough of a realist to know all too well the infinite difficulties inherent to any attempt to found the first and best sort of society here on earth; the ideal society of love asks more of us than what many of us are capable of. Our capacities and their limits compel us to live in societies of the second type rather than the first. At the same time, it would be fatal for us, amid our realism, to lose sight of the ideal that Smith aims to reawaken in us, even if that ideal cannot be fully realized in practice. Put in the terms of our main question, Smith’s challenge to our world, a world built on the freedom to engage in “mercenary exchange,” is to never forget that this alone cannot make us “happy.”

Moral Flourishing
Our concerns to this point have largely focused on how Smith understood the flourishing society. Yet Smith, like Aristotle, was also concerned to describe the way in which an individual flourishes. To this end, he dedicated a large part of his book to the question of virtue—even going so far as to write, in the last year of his life, a completely new part of the book on the “character of virtue.”
Smith’s conception of virtue is itself of key significance for his project. It will also be of great interest to all concerned to define the virtues necessary for success in happiness in our own world—a world full of challenges and complications that render it quite different from the conditions of the ancient polis inhabited by Aristotle’s gentleman. A full account of this theory, however, would again require much more space than is available here. My hope instead is to end with a brief look at a third key passage in Smith on human flourishing—one particularly valuable for the way in which it connects the concepts of social flourishing to individual flourishing.

Smith in fact thinks that an individual can be happy and flourish only when others around him are happy and flourish.In this passage, Smith makes one of his boldest claims about human nature—a claim that itself subverts certain easy and common assumptions about his project. Smith’s popular reputation as an ostensible champion of selfishness persists despite the repeated and conclusive debunking it has received from many scholars. Indeed, one need read only the first line of The Theory of Moral Sentiments to see how far he is from a defender of selfishness.

“How selfish soever man may be supposed,” Smith begins, “there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.” Smith’s opening has deservedly received much scholarly attention, especially in recent years.

I want to focus on only one aspect of it here. At least one of Smith’s aims, in starting his book this way, is to make clear from the outset that our happiness and the happiness of others around us are intimately bound up with each other. On some deep level, Smith in fact thinks that an individual can be happy and flourish only when others around him are happy and flourish.

This claim reappears several times in the book, perhaps nowhere more directly than in a second key passage on human flourishing. A few pages into the chapter that begins with the comparison, examined earlier, of the flourishing and merely subsisting societies, Smith again invokes the concept of human flourishing in a striking way:
Man, it has been said, has a natural love for society, and desires that the union of mankind should be preserved for its own sake, and though he himself was to derive no benefit from it. The orderly and flourishing state of society is agreeable to him, and he takes delight in contemplating it. Its disorder and confusion on the contrary is the object of his aversion, and he is chagrined at whatever tends to produce it. He is sensible too that his own interest is connected with the prosperity of society, and that the happiness, perhaps the preservation of his existence, depends on its preservation.
Smith makes a functionalist claim here: our existence depends on the existence of society. But another claim is also at work here, namely that our happiness depends on society’s happiness. In this sense, he tells us, the “orderly and flourishing state of society” is something that we “delight in contemplating.”

It is a striking claim and indeed one that suggests some sensitivity on Smith’s part to the joys of contemplation and the claims of philosophy. But for now we need to limit ourselves to a single but important observation: namely that Smith thinks that we flourish when we see others around us flourish. Once again, Smith gives reasons for us to wonder whether our happiness can in fact be separated from the happiness of those around us.

Conclusion
Adam Smith, we can conclude, was not only a champion of economic freedom, but also a champion of human flourishing. In his view, economic freedom was not a mere end in itself, but rather the indispensable means to a greater end, namely that of promoting human flourishing in its economic, political, and moral dimensions. In addition, Smith saw these three dimensions of human flourishing as all emanating from the same core principle: the superiority of a society joined together by the ties that bind to a society of disconnected and disaffected individuals.

Is the society to come, the one in which extreme global poverty has been overcome, likely to be able to sustain the bonds necessary for flourishing?But what implication does all of this have for us today? Much of course has happened in the quarter millennium since the publication of Smith’s books. But in some sense, Smith’s concerns remain ours. In particular, much of what Smith most hoped for as a theorist of social order continues to be realized.

This is particularly evident in the remarkable progress that has been made in overcoming extreme global poverty. Recent predictions suggest that in the next 15 years, we are likely to witness the virtual eradication of extreme global poverty, defined as living below $1.25 USD per day. This accomplishment would constitute one of the most significant achievements of human civilization, one that reflects both the influence of Smith’s ideas and the realization of one of his deepest hopes.
At the same time, this achievement is likely to bring in its wake a challenge of its own—a challenge that Smith’s thoughts on human flourishing can help clarify. As we have seen, the core principle at the heart of Smith’s various statements on the nature of human flourishing concerns the bonds that connect individuals to societies and different orders of society to each other when they flourish. One thus wonders: is the society to come, the one in which extreme global poverty has been overcome, likely to be able to sustain these bonds?

The question may well come down to the degree to which our principal focus is soon likely to shift from concerns about poverty to concerns about inequality. Put bluntly, economic freedom, insofar as it has to now served to mitigate poverty, has to now promoted human flourishing. At the same time, economic freedom, were it to encourage inequality in the future, may diminish future human flourishing. If so, it may be that one of the most urgent tasks that liberals and conservatives each will soon have to face will be to explain whether and how an unequal society can hope to remain, in Smith’s words, “bound together” around “one common center.”
Ryan Patrick Hanley
Ryan Patrick Hanley is the Mellon Distinguished Professor of Political Science at Marquette University.
This article was originally published on FEE.org. Read the original article.

Tuesday, October 4, 2016

Socialism Has Always Failed, by Guilford L. Molesworth 1918


SOCIALISM HAS ALWAYS FAILED By Sir Guilford Lindsey Molesworth 1918

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Socialism is neither new nor untried. It has been tried over and over again either by State, Municipal or private agency, but has always failed disastrously, and, when carried out on an extended scale by a State, it has led to wholesale ruin, bloodshed and destruction of property, followed by absolute despotism.

Six hundred years before Christ, AEsop exposed the folly of the antagonism between labour and capital in the fable of

The Belly And The Members

The members (labour)—the hands, the legs, arms, etc.—being indignant that the belly (capital) should remain idle whilst absorbing the fruit of their labour, stopped the supplies, with the result that they themselves began to suffer and pine away; and then the fools discovered that the belly was essential to their very existence, and that, far from being idle, it was working in their interest by digesting the food which they had supplied and distributing it to the members.


It was by the recital of this fable that Menenius Agrippa, the Roman Consul, quelled that which was practically a Socialist insurrection directed by labour against capital.

It is an old saying that "Experience keeps a dear school, but fools will learn in no other"; Socialists, however, fail to profit by experience, and the lessons taught by the ghastly failures and ruin caused by State Socialism in France at different periods. When confronted with the horrors and atrocities of the French Revolution in the eighteenth century, they argue that its promoters were "not Socialists." The Revolution was promoted by the writings of Voltaire, Diderot, and the Encyclopaedists, who attacked religion; and especially by Rousseau, who in his Contrat Social affirmed the sovereignty of the people, and the equality of all men; but the movement gradually drifted into Socialism. It contained all the germs of modern Socialism, of which it may be said to be the parent; its watchwords were "Liberty, Equality, Fraternity, the Rights of the People, etc." And what has been the result? The most terrible tyranny and despotism; a reign of terror which has disgraced humanity, in which innocent men, women and children were butchered in cold blood; a fraternity which ended in the leaders bringing one another to the scaffold, until Robespierre only remained, and he was guillotined amidst the curses of the populace. Then followed the inevitable results of such movements, in the absolute depotism of Napoleon, who for nearly twenty years afterwards plunged all Europe into war, and inflicted upon France ruin from which she only recovered after the lapse of many years.

Practically the French Revolution carried out every principle advocated by modern Socialists, such as the nationalization of land, the appropriation of the means of production, excessive taxation of wealth, State workshops, and food for the unemployed, with the result described by Alison:—

"The aspect of France was that of universal destitution. One would have thought that the whole wealth which centuries of industry had accumulated had suddenly been swallowed up."

"The capitalists and the middle class, indeed, were ruined; but the working class was simultaneously reduced to beggary. Every economic stroke delivered at the luxuries of one rich man fell on the necessities of a score of workers. There was first an immense accumulation, and, later, an immense repudiation of national debt. It was found an economic impossibility to enrich the poor by impoverishing the rich. The system tended to intensify and perpetuate itself up to the breaking point by its own vices; thus as the municipalities throughout France copied the Paris Commune, they increased the distress and unemployment which they intended to cure, and thereby widened the breach between the classes" (Menace of Socialism, p. 122).

Again in 1848 the Socialist Government of France, under the influence of Louis Blanc, yielding to the clamour for "the Right to Work," instituted a system of National works and workshops; although Lamartine, who held a high position in the Socialistic Government, warned them that to do away with capital in order to increase employment was "like drying up a spring in order to increase the flow of water." However, the national works and workshops were established, and, as might have been expected, failed disastrously. The Socialist workman, with his notions of liberty and equality, naturally declined to do anything like an honest day's work; the Government was brought to the verge of bankruptcy, and the number of unemployed increased in a few months from about 8,000 to upwards of 100,000; and, as Lamartine told the National Assembly, "The rich idler we all know; but you have created a class a hundred times more dangerous to themselves and to others, a class of pauper idlers." The sequel showed that Lamartine was right; for these hundred thousand pauper idlers congregated in Paris, broke out into an insurrection, which was only quelled after four days' heavy street fighting, in which Paris was wrecked; 3,000 were killed, and about 3,500 were deported to Algeria. In all, about 16,000 lost their lives, and France fell under the despotism of Louis Napoleon, which lasted for twenty years, and was only ended by the disastrous defeat of the French at Sedan. Again, the French Communist Government of 1871 fortunately came to a speedy end, after a course of disorder, bloodshed and wanton destruction of property, culminating in the murder of the Archbishop of Paris and other clergy. The event has been described even by so ardent a Revolutionist as Mazzini in the following terms:—

"A people wallowing about as if drunk, raging against itself . . . killing, burning, committing crime, without sense, aim or hope. ... It put one in mind of the most horrid vision of Dante's Hell."

Yet this movement has been applauded by Socialist leaders; and Marx has declared that it will "for ever be celebrated as the glorious harbinger of a new society."

In the Socialist State of Paraguay most of the land was nationalized, and the Government undertook the organization and working of industries, as well as the regulation of labour; but, under this policy, the State was brought into a most deplorable condition of ruin, and fell under the despotism of Francia as Dictator, who had all his political opponents executed, and set up a reign of terror. Finally, under military despotism, the country was dragged into war, and Paraguay was nearly annihilated as a nation. In 1870, however, Socialism was abandoned, land was transferred to private individuals, industries were encouraged, and the country enjoyed comparative prosperity.

Failure, however, has not been confined to State Socialism. It has been universal in municipal as well as in private communes in every country. As an example of the failure of municipal communism may be cited that of Milwaukee, a prosperous city of 370,000 inhabitants, captured by the Socialist Party, with a Socialist mayor, and all the municipal officials of the party of the "Red Flag." The mayor, on election, had announced that they would show the country how the doctrines of Marx, the father of modern Socialism, would produce a new era in American municipal government. He declared that there should be no unemployment, that everybody should have a job, vice and drunkenness were to be swept away, economy practised, and the cost of everything reduced; but after twelve months of Socialist rule the people of Milwaukee discovered that they were in a bad plight. Unfit persons, the sons, brothers or other relations of the councillors, had been pitchforked into the public posts; there had been wholesale bribery and corruption; taxation had increased enormously; thousands of men were walking the streets wanting a job; the cost of everything had been raised; the number of gambling hells had increased; the municipal dances, organized by the council, proved to be meeting-places for vicious men, women, and criminals; drunkenness had grown to a fearful extent. The municipality, having undertaken a number of useless, faddist schemes, was hopelessly in debt, and on the verge of bankruptcy. The citizens of Milwaukee, after two years of Socialist mismanagement, combined to oust the municipal officials by a large majority, and to elect non-party officials.


The Socialist municipality of Schenectady, New York, a city of 73,000 inhabitants, also failed, though not so flagrantly as Milwaukee. One member of it who at the outset was the most strenuous promoter of the movement, resigned after six months' experience, declaring that "when put to the test of practical government, Socialism must fail."

In the election of November, 1913, the mayor was defeated by a large majority, and the Socialists lost control of the city council.

In France, the names of Baboeuf, St. Simon, Fourier, Bazin, Enfantin, and others suggest a series of tragic failures.

In England, the name of Owen recalls the brief existence of Orbiston and Titherley; although these Owenite communities were supported by a very capable man of business, who contributed £60,000 to their maintenance.

In Australia, the Murray River and the Alice River Socialist colonies proved absolute failures. The latter colony dragged on a wretched existence of discontent for nearly twenty years, when only three of its original members remained, and they sold the property to capitalists, who converted this communistic failure into a successful private enterprise.

In New Zealand, the following description is given, in 1912, by Mr. Jellicoe, formerly a prominent Labour candidate for Parliament in Liverpool:—

"During the last eight months I have revisited the Dominion. All my political views have been falsified. The development and working in New Zealand of Socialistic reforms have resulted in bringing a country, possessing all the potentialities of prosperity, almost to the brink of financial and industrial ruin. Individual enterprise and individual thrift have been substantially annihilated; capital has been withdrawn, or is withheld from private enterprise, and employment, as a consequence, has slackened, in some places ceased. The cost of living has risen enormously. A similar mad, Socialistic labour legislation has overtaken Australia, and the Labour Party in the Commonwealth and in New Zealand to-day are working out, not only their own destruction, but the destruction of all their fellow citizens."

In the United States, Noyes, in his book on American Socialism, recounts the failure of forty-seven communistic societies, the capital of which was estimated at £2,000,000, and which owned land to the extent of 150,000 acres.

The attempt to establish the Socialist State of "New Australia" is worthy of notice, because, although one of the numerous instances of Socialist failure, it is unique in the extraordinarily favourable conditions under which it started—conditions which must have ensured success if success were possible under Socialism.

Lane, the founder of this State, was a man of great personality, sterling honesty, and an enthusiastic believer in the view that Socialism would "sweep away want, greed, and vice, and would establish peace and good will on earth." The class enlisted were the pick of Australian labour, accustomed to "rough-and-tumble work." They had implicit faith in their leader, sold all their possessions, and put the proceeds into the treasury, establishing a society with a capital of £20,000. The Paraguay Government had given to them, with complete autonomy, the concession of a State between 500 and 600 square miles in extent of fertile, well-watered land, in a good climate, with pasture land capable of supporting 700,000 head of cattle, and forests containing valuable timber; but the venture turned out to be a most disastrous failure. Instead of sweeping away poverty, misery and greed, Socialism, in this case, produced exactly the contrary effects. It confirmed the view expressed by the Socialist Blatchford, that under State Socialism "life would be hell." It also confirmed the accuracy of Herbert Spencer's verdict, "All Socialism involves slavery."

A few weeks after the formal inauguration of the State of New Australia, acrimonious disputes broke out. The State was divided into two hostile factions—those who had the soft jobs, and those who had to do the dirty or disagreeable work; almost every one complained that others were not doing their fair share of work; workers naturally resented being speeded up by the foremen, whom they considered their equals, and they retorted that they were not slaves. One colonist wrote: "We have surrendered all our civil rights, and become mere cogs in the wheel; in fact, a man is practically a slave."

In 1894 Mr. Finlay, of the British Legation, reported to the Foreign Office:—

"The colonists have started with everything in their favour—the land immune from taxation, a good climate, and a certain amount of capital. . . . They came to found Utopia, and before I visited the colony, had succeeded in creating (as they said) 'a hell upon earth.' If they fail, it will not be owing to any want of fertility in the land, or generosity on the part of the Paraguayan Government" (Foreign Office Report, 1357, of 1894).

A year afterwards Mr. Peel reported to the Foreign Office:—

"They had only been settled three months, in Paraguay, and yet, in that short space of time dissensions had arisen, of a nature so acute as to cause eighty-five members to sever their connection altogether with the colony. . . . They complained that life under such conditions was intolerable, and it was clear that, what with the absence of liberty, the isolation of existence, the suspicion with which one party regarded the other, the mutual fear, the boycotting, the constant disputes, and hundreds of other little disagreeable events that went on the whole day long, they were one and all disposed to agree that New Australia was anything but a working man's paradise. . . . They were so disheartened that they even begged Her Majesty's Consul to convey information about their unfortunate condition and disappointed hopes to their friends in Adelaide, who were almost immediately to sail in the second batch" (Foreign Office Report, 358, of 1895).

At last, by a vote of the majority, Socialism was abandoned, the Constitition was changed, and every man could dispose as he pleased of the produce of his labour. The Paraguayan Government, approving of this change, rescinded the agreement by which this Socialist State had been created, and entered into a new agreement, by which every man could select 30 acres of land, of which he would receive the title-deeds when he had built a house and complied with the specified conditions. This gave the colonists an incitement to work, and, in an incredibly short space of time, comfortable houses, surrounded by gardens, sprang up, in substitution for the miserable hovels that previously existed; the grass lands became studded with cattle, and many of those who had previously been Socialists became capitalists— one of them owning 600 head of cattle. With this change moral improvement began, bringing peace and good will where discord, greed and jealousy had previously reigned.

Lane, who very soon after the establishment of the State had been censured for his despotism, seceded, and formed the new State of Cosme, which collapsed after nine years' downward course of misery and degradation, everything having been mortgaged.

Full and graphic accounts of this failure of the Socialist State of New Australia have been given in Stewart Grahame's interesting book Where Socialism Failed (John Murray, Albemarle Street).

It is surprising that, notwithstanding such records of inevitable failure, Socialism should be greatly on the increase in England; and it seems probable that wisdom will only come to the British people through the instrumentality of some crushing disaster to the nation.

In Russia reckless Socialism has brought about the most terrible results, of defeat, bloodshed, civil war, and utter ruin to the country, which can only end in more bloodshed and anarchy, until the nation falls under the absolute despotism of a dictator.

In England the Social Democratic Union, the Independent Labour Party, the peace cranks, the conscientious objectors and the Christian Socialists are doing their utmost to bring on a disaster similar to that which has overtaken Russia.