Hayek's Super-Highway

The headline in Sunday's New York Times read In Turnaround, Industries Seek U.S. Regulations. The lead proclaimed, After years of favoring the hands-off doctrine of the Bush administration, some of the nation’s biggest industries are pushing for something they have long resisted: new federal regulations.

The problem with this headline is that what it describes is not a turnaround and it is not news. Corporations may oppose this or that regulation, but the general idea of regulation is something that they love and always have, especially when, through political influence, they get to appoint the regulators. Why should corporations love regulation? The answer involves the need to protect capital from competitive anarchy; it was a situation predicted nearly 100 years ago by Hilarie Belloc in The Servile State. Capitalism certainly creates uncertainty for the worker, but it also creates another kind of uncertainty for the capitalist; a great fortune may be wiped out by a new product and a better service; every investment would be at risk every moment, a situation that is intolerable to every investor.

Hence, no one fears the competitive anarchy of pure capitalism as much as does the pure capitalist. Great fortunes require great protection, and the greater the fortune the higher the wall that surrounds it. And nobody builds walls to protect the corporations better than does the Federal govmint. Regulations are the best form of protection. Regulatory burdens are a small part of a big business, but a large part of a small business, perhaps even the difference between success and failure. The form a market barrier, discouraging most who would enter the competitive lists.

Which brings us to F. A. Hayek's most famous work, The Road to Serfdom. This book, written at the close of World War II, attempted to tie the growth of Fascism and Nazism to the rise of govmint planning. The book played fast and loose with the facts; Germany and Italy pretty much let the industrialists have their way, and their war-time economies were about as "planned" as was the American and British economies. And certainly the Japanese were as capitalist as Hayek or anyone else could wish them to be. Nevertheless, his central thesis, that the greater involvement of government in the economy would lead to a loss of freedom, would be a road to serfdom, cannot be doubted. And in this thesis, both Hayek and Belloc would agree.

Hayek was pretty much derided by his colleagues and ignored by govmint policy makers. But all that changed with the ascension of Margaret Thatcher and Ronald Reagan. His ideas moved to the center of govmint policy. His triumph was near complete in the centers of both academia and power. And since his ideas have reigned supreme, we would expect to see a more modest govmint run on a more frugal basis, minding its own business (mainly order and the defense of property) and paying its own way, right?

Wrong! Since the triumph of Hayek, we have seen just the opposite: an ever-more powerful govmint financed by ever-greater deficits. The govmint has not shrunk, but grown; the deficits were not eliminated but grown great; the power of the state was not curtailed but expanded. All of these are contrary to the intent of Hayek's great work. What went wrong?

The problem is that Hayek's theories are highly abstract and lack the realism of Belloc's work. Hayek's work is a case-study of the law of unintended consequences. His unfettered capitalism lead to the unfettered growth of corporations, with the result of the concentration of wealth and power at the top and their subsequent domination of politics. And they use their influence to protect their positions. This is precisely the effect of accumulation that Belloc predicted 40 years before Hayek.

Hayek was correct that the growth of govmint was threat to freedom and a road to serfdom. However, the Keynesian road was just that: a slow, pot-filled and bumpy road. And since Keynesian policies tended to minimize the differences between wealth and poverty, it was more democratic and may even have slowed the modern march to economic serfdom. Hayek's policies, on the other hand, have converted this slow road to a super-highway. Regulation and planning have not diminished, but grown, and the headline in the Times, like so many of their headlines, is just so much old news.

19 comments:

papabear Monday, September 17, 2007 at 12:23:00 PM CDT  

Mr. Médaille,

Do you cover the development of modern(?) corporations in your book? Are there any other books discussing modern corporations/corporate law (and possible contrasts with medieval corporations/medieval corporate law) that you would recommend? Do you see the treatment of a corporation as a "legal person" as being problematic in itself? Or is it just a question of the rights that are recognized for a person, real or legal? Thanks!

T. Chan

John Médaille Monday, September 17, 2007 at 1:33:00 PM CDT  

Papabear, I do indeed cover the history of the corporation, from its origins in the medieval guild, to its use as a trading monopoly, and its modern manifestation as a "legal person" with "limited liabilities" (those are two contradictory principles, by the way.)

A "legal personhood" grants the corporation political rights that were previously denied to it, and hence invites a takeover of the state by corporate interests.

Limited liability relieves the corporation of the normal responsibilities of owning anything. Without this, corporate ownership would be dangerous. You can still see non-limited corporations, such as Lloyd's of London. You can make a lot of money insuring, for example, shipping, because most ships make it to port and the premiums are pure profit. However, if the ship sinks, they can come after your house.

Limited liablity means you have liability only to the value of your investment; it denies the responsibilities of ownership. Suppose that you own an anvil and it drops on somebodies foot. LL means you can say, "I'm sorry, but I am responsible for your damages only up to the value of the anvil," as if it were the anvil that had been harmed and not the foot.

Mark Twain went broke when his linotype company went bankrupt and he had to pay its debts from his own resources. Imagine if that had been in place for ENRON. Do you think the executives would have played quite so loosely as they did?

Paul Tuesday, September 18, 2007 at 5:14:00 AM CDT  

The claim that the writing and thought of Friedrich Hayek somehow led to greater state power are pure assertion and a misrepresentation of fact. You have in now way demonstrated that there is a causal link between Hayekian economics and "ever more powerful government". You appear to confuse correlation with causation. It is ridiculous as making the argument that increased world literacy has lead to more statism.

Defenders of private property and free markets are not defending any particular type of institutional arrangement (corporations) but rather are defending particular principles. Namely the principle that no one has the right to use coercion against any person and his property without just cause. Defending the market economy is as simple as consistently holding to the commandment not to steal. No true free marketer supports corporate welfare, subsidies, government granted monopolies etc. that corporations extract from the state most illegitimately. Clearly this behaviour is wrong.

One has to realise that it is not just corporations but all sorts of people: politicians, unions, interest groups that use the state in order to enrich themselves at the public's expense.

The solution is not to abolish corporations but to abolish governments' ability to serve the interests of specific groups of people at the expense of others.

****

There is nothing at all wrong with limited liability corporations.

A limited liability company is a specific set of assets owned by a specific set of people which enters into contracts. Merely the fact that the the legal system uses personal language to refer to corporations proves nothing regarding the legitimacy of corporations.

The ability for people to create limited liability corporations allows for increased capital investment, increased incentive to hire workers and an intensified division of labour. Hence corporations increase social wealth.

The analogy of an anvil is a fallacious one. If I were to drop my anvil on your foot it is clear who has committed the crime (namely myself).

Limited liability is simply a type of standardisation used to distinguish between claims on ownership of specific assets.

In practise it means that owners of a company should not be held accountable for the wrongdoing of of employees. Claims on assets for the payment of debts or fines are limited to the specific assets that form the company and not the shareholders property.

Therefore, corporations in multiply ways allow ordinary people to hold capital assets. This is utterly in contrast to what the 'distributists' claim.

Imagine the following example in which I demonstrate why corporations are useful:
Brown, the baker desires to obtain a loan in order to finance expansion of his bakery.
Green, the moneylender is happy to finance such enterprise but wants access to legal means of forcing Brown to pay the loan in case of default.

However, this is problematic for Brown if his business fails because he runs the risk of loosing his other assets (e.g. house, car) in order to pay Green.

So what is the solution for Mr. Brown and Mr. Green? The solution is the Brown pledges certain assets (e.g. the bakery itself, a certain bank account etc.) which Green will have the legal right in case of default. In other words Brown has limited the liability to the specific assets he has nominated with his contract with Green.

This is obviously a mutually beneficial agreement - Brown can expand the bakery without the risk of loosing his house, Green can get security on his loan.

Brown can achieve this precise end in another way using a limited liability company. He creates a company, Brown Bakery Pty. Ltd. which in turn owns the actual bakery, equipment and bank deposits. Green lends money to this company.

Mr. Médaille has not shown what is wrong with such an arrangement.

John Médaille Tuesday, September 18, 2007 at 1:40:00 PM CDT  

Paul,

You are certainly correct that causation and correlation are not the same. Causation is very difficult to ascribe, especially in economics, because there are simply too many moving parts.

However, while causation is difficult, correlation is easy, and when there seems to be a universal correlation, we are permitted to suspect causation. That is how science proceeds. And, as far as I know, there are no exceptions to the correlation between increased reliance on Hayek's theories and the massive increase in gov't power over the economy and the lives of its citizens. If you do have an exception to this, I should like to hear of it.

Since the correlation is so strong, we are permitted to look for a cause of the correlation (unless we merely blind ourselves by ideology). So what could this cause be?

I think that you correctly identified the cause of this clearly unintended consequence when you said, "Defenders of private property and free markets are not defending any particular type of institutional arrangement (corporations) but rather are defending particular principles."

Exactly.

I agree. But if you say that the institutional arrangement is not included in the theory, then you must be saying either that institutional arrangements have no effects (which would be absurd) or that the theory is incomplete, and hence will have unintended consequences.

The "institutional arrangements" you are talking about are property relations, and property relations are the most fundamental of all economic relations. Property relations are not fixed, but vary from culture to culture. Since 1886 (but never before) the corporation has had certain privileges not seen before in property relations. Now, this may be good, and it may be bad, but in any case the economic theory must take note of them. But you say that Hayek's theory doesn't depend on them, and I say, "Right, hence it is incomplete."

We can see the complete causal mechanism as a consequence of Hayek's own theory of human action, which is based on Mises (with, admittedly, some modifications). As property accumulates, so does power, for as Daniel Webster noted, Power follows property." Now, the corporation allows for the unlimited concentration of power. In fact, no socialist state was ever as successful at collectivizing production as has been the modern corporation; Lenin can only look on with envy. As property is more concentrated, so is power, so that those who control the property (as opposed to those who, nominally, "own" it) come to dominate the state. Now, Mises and Hayek contend that people always act to maximize self-interest, and if, through control of the state, these corporate collectives can maximize their self-interest, they will, by Hayek's own theory.

Hence the theory contains a self-contradiction which leads to unintended consequences. In order for the controllers of corporate property to refrain from acting to their own advantage, they would have to act with the altruism which is excluded by the self-interest that Mises makes the basis of all human action. The theory collapses on itself, and we get the observed effects that correlate the Hayek's theories to the growth of gov't power, usually in behalf of the corporations. Once, again, this precisely the effect predicted by Belloc and ignored by Hayek.

The Austrians love to speak of the Theory of Unintended Consequences. However, they always apply it to other economic theories, and never to their own. This is a strange lapse; it is one thing to advance something as an economic law; it is quite another thing to exempt yourself from that law.

John

Anonymous,  Tuesday, September 18, 2007 at 10:25:00 PM CDT  

Did you hear about the North American Union highway?

Its causing quite the controversy in Texas! Especially landowners who are in the highway's planned areas.

Stopping the Trans Texas Corridor of this superhighway is first step to prevent the establishment of the North American Union.

Paul Tuesday, September 18, 2007 at 10:30:00 PM CDT  

"Causation is very difficult to ascribe, especially in economics, because there are simply too many moving parts."

I absolutely agree with this point. That is why I am so sceptical of using data and statistics to construct theory. It is the reason that I am so attracted to the Austrian School. Austrians conduct economic analysis by using deductive reasoning to explain what happens in the real world. They go from premises resulting from the very nature of human action to conclusions.

Austrians conduct economics much like the way theologians conduct theology or mathematicians conduct mathematics. Note that Austrians are concerned with whether a theory is true - NOT whether it has predictive power (unlike positivists would have).

"We are permitted to suspect causation."

Why would we suspect this? If a man says "government's should get out of people's way" and then the government goes on a spending and regulation spree why would we suspect this man at all responsible? This is entirely irrational. There is no reason for me to come up with exceptions because the burden on proof is on you.

Although there are many inconsistencies. Namely, Hayek fell out of favour in the economics profession in the 30s (a time of huge expansion of government power) and never regained mainstream acceptance. There was a renewed interest in his ideas in the late 70s (precisely after the expansions of the state in the 60s and earlier in the decade). In modern times we have seen decrease in state control in some ways (moves towards free trade, labour deregulation, privatisation, tightening welfare) despite the ballooning budget deficits of many nations. [Although where I come from, Australia, the federal government is running a surplus]. This is the exact opposite of what Mr. Médaille claims!

As for corporations - they are fully accounted for in Austrian theory. Read some of the literature.

"the corporation allows for the unlimited concentration of power."

This is a pure assertion. You have nothing to back this up. Merely possessing wealth does not give any illegitimate power. As stated, no free marketeer defends companies that use the political system to enrich themselves at the expense of the taxed and regulated public.

"Now, Mises and Hayek contend that people always act to maximize self-interest, and if, through control of the state, these corporate collectives can maximize their self-interest, they will, by Hayek's own theory."

Your forgetting that this is a statement of fact - not an ethical claim. Misesians do not claim that people should always act in their own interest because sometimes in doing so they harm others. For instance a bank robber obviously acts in his own interest but one could hardly maintain that Mises or Hayek (or myself) defend bankrobbers.

Mr. Médaille seems to misunderstand what the Austrians are really saying. There is no "Theory of Unintended Consequences" of untended consequences in Austrian economics. All Austrians claim is that many statist interventions make more the problems that they seek to solve (e.g. minimum wages creating unemployment, rent control causing housing shortages)

I strongly advise that you read the Austrian economic literature more fully.

John Médaille Wednesday, September 19, 2007 at 7:22:00 PM CDT  

Paul, in his latest replies, goes right to the heart of the issue and gives us a very account of the epistemology of Austrian economics. I am glad that he does, because if I did it, people would just say I was trying to put down the Austrians. For example, Paul says Austrians conduct economics much like the way theologians conduct theology or mathematicians conduct mathematics. This is indeed what Austrians, and also the reason why they can never reach the truth. Mathematics is indeed a "demonstrative" science using mainly deduction from axioms; it deals with formal relations. But the other sciences (including theology, by the way) deal with contingent realities: created things, where on thing is dependent on another, and where the discovery of truth must involve the practical reason.

Mises, the founder of neo-Austrianism, believed he had discovered the keys to all human action in a "new" science called Praxeology. From the axioms of this "science," he believed he could deduce all of economics. The fact that all of the humane sciences, sociology, psychology, psychiatry, etc., have contradicted his assumptions of human action does not sway an Austrian, because he considers such mere "realities" irrelevant, and refers only to his own closed systems of axioms.

Paul states that mere correlation should not lead us to suspect causation. By this, the Austrians overthrow not only all science, but all normal human thinking. Each of us notes a correlation between the sun coming out and the temperature going up, and we suspect that the correlation of sun and heat might indeed involve a causation. Of course, Austrians think this way as well, in any situation were they are not being Austrian economists; it is only in their professional lives that they forget that they are normal human beings.

Paul tells us that Note that Austrians are concerned with whether a theory is true - NOT whether it has predictive power (unlike positivists would have). He has correctly described Austrian thinking but has asserted an absurdity. The Austrian position, as Paul presents it, is equivalent to saying, "A causes B, but A does not predict B." Now, if this merely means that something might intervene to cause B from happening, even in the presence of A, then all right. However, even then the statement has to be predictive, either of B or of "B + forces suppressing B." If you could have, as the Paul tells us the Austrians believe, causation without prediction, then one can only wonder what they mean by "truth."

If this notion of "truth" were correct, it would cut the ground out from under Hayek, because you could not call any set of policies a "Road to Serfdom," or a road anywhere else, since that would imply prediction, which the Austrians eschew, as Paul says. Hayek would have to change the title of his book from The Road to Serfdom to The Road to Somewhere--We Don't Know Where Exactly. Hardly a catchy title.

In another post on another topic (I'll reply to both here), Paul tells us concerning the Austrian position on the normal starting conditions for marginal productivity, None of these assumptions are made at all by Austrians. In fact Austrians spend much time arguing against these assumptions.

Exactly. I couldn't have put it better myself. Austrians do not condition their statement to initial conditions for anything. However, any statement about contingent reality is always dependent on the starting conditions, and is true only under such conditions. For example, physics tells us that objects near the earth fall towards the center of the earth with an acceleration of 16 feet x second squared when falling in a vacuum. For other conditions, the speed is modified by the strength of the air pressure. A theory that disdains initial conditions disdains reality itself, and one can only wonder what they mean by "truth."

Of course, what they mean is "validly deduced from our axioms of action." But deduction does not establish truth, but only validity. Take the syllogism:
All men are painted blue;
Socrates is a man;
Therefore, Socrates is painted blue.


This syllogism is perfectly valid and perfectly false. Starting with the "blue man" axiom, you can reach the Blue Man Group, but that is a small segment of mankind, and they only do it on stage. Mises simply did not understand the difference between speculative reason (which deals only with formal relationships) and practical reason, which deals with contingent reality and action in the world. Like Hegel, he stakes all on speculative logic, and hence makes Hegel's mistake. The whole thing ends up as a closed system of axioms which themselves are subject to no test of reality.

Hence, Austrians can never be persuaded by mere empirical evidence. For example, the fact that the productivity of the average worker has for more than 30 years expanded rapidly while his wages have stagnated, a result contrary to the predictions of marginal productivity, does not sway the Austrian because he upholds the "truth" of MP and denies its predictive power. (Which leads one to ask, "what is the point of such "truths" that can tell us nothing about how things actually work?")

Thus it is that when Paul tells me the bad things that will happen under distributive enterprises, it is pointless for me to point him to actual distributive enterprises that work and have worked. It is useless to tell him of the Mondragon Cooperative Corporation, 50 years old, 80,000 worker-owners, and about $18 Billion in sales and responsile for about 3% of the GDP of Spain. It is useless for me to tell him of the cooperative economy of Emilia-Romagna, where about 40% of the GDP comes from cooperatives and which has one of the highest living standards in Europe. It is pointless for me to tell him that Taiwan lifted itself from abject poverty to industrial powerhouse by distributing the land of the feudal estates to the peasants. It is useless because all of these things deal with reality, and not axioms, and hence cannot be considered as "real" evidence by Austrians.

John

Paul Thursday, September 20, 2007 at 2:52:00 AM CDT  

Dear Sir,
I am afraid that we are trying to discuss to many things at once. However, here is my reply to some of your statements.

"The fact that all of the humane sciences, sociology, psychology, psychiatry, etc., have contradicted his assumptions of human action does not sway an Austrian, because he considers such mere "realities" irrelevant, and refers only to his own closed systems of axioms."

No such contradictions ever exist. Can you name one? Perhaps you should name the axioms the Austrians use and we shall discuss them.

As for the issue of Hayek, it is important to note that he was strictly speaking not a praxeologist so that your critique of the Road to Serfdom (which is not based on praxeological reasoning) misses the point.

Mr. Médaille grossly misrepresents my position. When I claimed that Austrians are concerned with the truth of a theory and not its predictive power I never in any way implied that true theories do not have predictive power - indeed they do. However, it is important to note that we do not suppose what the content of people intentions are but what consequences follow given that humans do intend to act. Thus Austrian economics does not aim to do what whether forecasters do.

What I was trying to say is that other schools of thought rely solely on the predictive power of a theory as a means of validation that theory. In fact, people like Milton Friedman say that they do not care if a theory is true - only if it can predict certain events.

I would like to ask Mr. Médaille if he or any other distributists have any alternate economic epistemology. Funnily enough, when I read Belloc and Chesterton I don't much in the way of laboratory tests or mathematics but I do see a lot in the way of attempts to reason deductively.

The statistics that you cite concerning wages and productivity are those of a mixed economy (the USA) so your argument does more to harm interventionists than free marketers. Study the economic impact of the increasing regulatory burden, budget deficit and the manifest inflationism of the Fed.

The theoretical basis of supposed statistics (like the ones you cite concerning wages and productivity) are most dubious. Namely, how do you measure for productivity? What are wages? How about other factors? Distributists are foolish to think that they can toss out real analysis for statements that rarely go beyond "Wages down ergo capitalists bad/evil/greedy"

The fact is that there there is nothing wrong with cooperatives from the free market point of view. The key question is whether the co-ops have received any assistance in any way from the government. According to Wikipedia, Mondragon CC has. Apart from this debate it is certainly true there are many worker owned busnesses that are very successful. I know that there are law firms, stockbrokers, holding companies, accountants and medical practices that are owned by employees. In fact from a free market point of view it is often beneficial to award employees with holdings of company stock in order to aligned the workers interests with the owners. This is why so many companies pay their top level management with equities and stock options.

The reason that cooperatives are not beneficial for all types of enterprises is simple: workers don't want or have the means to provide capital for their own businesses.

Capitalism allows for the worker to get paid for the work before the product is sold or even completed. A certain ship takes three years to build but the workers get paid at the end of each week. When does the capitalist get paid? When and if the ship is sold.

It would be very unfair for you to demand that every person who wants to feed himself to posses the very large quantities of capital necessary in order to do so. And then expect him to wait for his product is complete and sold for a profit for him to reap the rewards of his labour.

Perhaps Hayek is right when he said "Collectivism is slavery."

papabear Thursday, September 20, 2007 at 4:12:00 PM CDT  

I would like to ask Mr. Médaille if he or any other distributists have any alternate economic epistemology. Funnily enough, when I read Belloc and Chesterton I don't much in the way of laboratory tests or mathematics but I do see a lot in the way of attempts to reason deductively.

Paul, do you have an examples? If they exist, they would be part of the construction of a practical science, not a speculative one--and hence they are not "predicting" anything, but determining the suitable means towards accomplishing a given end.

John Médaille Thursday, September 20, 2007 at 9:00:00 PM CDT  

Paul, I certainly haven't misrepresented you; you were the one who said (and I quote)Note that Austrians are concerned with whether a theory is true - NOT whether it has predictive power (unlike positivists would have). And you also claimed they do economics like theology (as a theologian, I can tell you that you are wrong about theology).

However, an indifference to effects has always been a hallmark of Austrian methodology; as you said, they use deduction only. But they never tell us, as you didn't tell us, although I asked, what their standard of truth is. Rather than face reality, you tell us (quoting again)The theoretical basis of supposed statistics (like the ones you cite concerning wages and productivity) are most dubious. That is the Austrian response to all inconvenient data. But measuring productivity is really not that hard, and if it was, no business could ever succeed except by accident. It is beyond any reasonable doubt that the workspace is more productive than it was 30 years ago, and that wages have not risen to reflect that productivity.

You claim that is the government's fault; an easy claim to make, but a hard one to prove. Especially since we have had a long period when there was only a fraction of government involvement in the economy, and the results were much worse. The historical truth is (for those who can still care enough to be bothered by history) is that Econommic Austria and Social Chaos are lands with a common border, and you cannot draw close to the former without coming near the later. That's history.

In the period between 1853 and 1953, a period when for the most part, the government was barely involved in the economy by modern standards, the economy was in recession fully 40% of the time. Since the government has become the arbiter of the economy, we have been in recession 15% of the time.

Now, I am not a supporter of government intervention, by and large. But if you are going to run an economy on capitalistic principles of predation, you are going to need a government to prevent the slide into chaos which has always been the result of Austrian systems.

As for which of the axioms of action are not supported by psychology or any other science, the answer is "all of them, without exception." Man is not the individualistic, egotistic, self-interested, utility maximizer described in Human Action. To be sure, he is occasionally, but these cases are clearly pathological, and you cannot build a stable, just economic order on pathological behaviors.

As to the dispute as to whether we should be concerned with truth or predictive value, the answer is yes to both. To chose one or the other is to chose wrongly. When has no check on one's vision of the truth is one will not compare it to reality, and one cannot be sure that a theory is really predictive unless it is backed by a coherent account of the truth. For example, the height of women's hemlines can often be correlated to the height of the Dow Jones Industrial Average, but I wouldn't take that as investment advice without a better theory connecting them.

Austrians reject the one thing that could prove or disprove their theory because they are (quite rightly, in their case) more worried about the disproof then the proof, a proof they can never find and always avoid.

By the way, speaking of investment advice, anybody who took my advice a few weeks ago should be doing very well. The market piling into gold stocks and I have returns in the 12-17% range in less than two weeks. Next tip: the dollar will crater; buy Euros or European companies.

John

Paul Friday, September 21, 2007 at 6:27:00 PM CDT  

Considering we haven't talked about theology it would be odd for you to claim that I am wrong about theology.

I think you have represented me. When I claimed that Austrians are not concerned with prediction I did in no way claim that their theories have no predictive power or contradict what happens in the real world. Your objections therefore do not follow.

The reason statistics are eschewed is because Austrians view economics as a qualitative not merely quantitative discipline. Going out in lab coats does not tell you why the world works the way it does.

The theory must be clearly stated, internally consistent and logically sound. This applies to all theories, not just economic ones. Even if the various distributist contentions were true, distributists would need to have a correct interpretive framework in order to explain what's happening in the real world. The distributists (and others) cry of "the data, therefore the data" is not a syllogism and is not good enough for sound economic, much less moral analysis.

Its funny how on Monday distributists cry fowl about the assault on human dignity and then on Tuesday add up few numbers and start calling people names.

You make a classic statement that demonstrates the fallacy of your own epistomological position:
"In the period between 1853 and 1953, a period when for the most part, the government was barely involved in the economy by modern standards, the economy was in recession fully 40% of the time. Since the government has become the arbiter of the economy, we have been in recession 15% of the time."

Apart from the obvious post hoc ergo proper hoc, the problem is that you use words like 'recession', 'economy' and 'government' without providing accurate definitions of these words. We have to have a CONCEPTUAL idea of what recession is before we can go out and claim there was one.

I would like to make the following points about your remark.
1) Please cite where the statistic was from and on what criteria recessions are defined.
2) Mainstream economists define rescissions as periods of price deflation - something that Austrians find no problem with.
3) If we defined recession by employment statistics then we find another story. Correct my if I am wrong but the entire period of the late 19th century had employment rates of 1.5% to 2.5%. And the highly regulated economies of Europe have unemployment rates of +7%. So we could say that the whole 1800s was in a boom and the whole of Germany and France since the 1960s were in severe recessions.
4) Government involvement in the banking sector has persisted throughout history.
5) The Great Depression occurred 16 years the establishment of the Federal Reserve and the income tax. Both Hoover and especially Roosevelt went on a spree of interventions subjecting the economy to even deeper depression.
6) The policies used by governments to 'fix' recessions are injections of newly created money into the banking system and large budgetary spending programs. How supportive are you of these policies, Mr Médaille?

Users of statistics always pick 'facts' that display there own biases. How often do distributists talk of empirical data that runs counter to their position.

The fact is that real wages grew tremendously during industrialisation and that the common man is materially better off than kings were in the 18th century. And indeed there are many recent cases of deregulated economies displaying very positive statistics including my own country, Australia.

Mr Médaille, Please excuse me for indulging my own biases.

John Médaille Friday, September 21, 2007 at 9:28:00 PM CDT  

Paul, let us dispose of one matter right off. You said, on Tuesday [Distributists] add up few numbers and start calling people names. I have examined all the posts, and I can't find one that treats your ideas and your person with anything but respect. Do you have some specific comment in mind? If not, I think it would be better to stick to the issues, don't you?

As for theology, you brought it up, not me. You claimed that Austrian economists think like theologians. As a theologian, I can testify that you are wrong; moral reasoning is part and parcel of the practical reason; it always deals with actions in a given situation. It is not primarily deductive.

As for the statistics I gave, they come from the National Bureau for Economic Research (http://www.nber.org/cycles.html) which is the organization officially charged with determining the business cycles.

You reveal something interesting about Austrians when you say, The reason statistics are eschewed is because Austrians view economics as a qualitative not merely quantitative discipline. Going out in lab coats does not tell you why the world works the way it does. I am perplexed. If you "eschew statistics," how can you then possibly claim "predictive powers" for your theories? Wouldn't the predictions, in a money economy, show up as changes in the statistics?

I completely agree that without a theoretical framework, you cannot look at statistics (and those who pretend to do so without a framework are deluding themselves); however, you cannot test your framework without looking at the statistics. Its a reiterative process, one that is part and parcel of the practical reason, but not of the demonstrative reason.

As Distributists, we are metaphysical realists; we do not choose between idealism and realism, but recognize that both are necessary for a view of reality. We avoid the false choices given us by the Chicago and Austrian schools: to be all number and no mind, or all mind and no numbers. We do not advance empty schemes incapable of being tested in the real world, but use the practical reason and the moral imagination to re-create the world in the image of God. Hence, we have success after success: cooperatives (both small and immense), ESOPs, micro-lending, land to the tiller programs, mutual banks and insurance companies--all these, and more, embody, in the real world, distributive principles.

As for the Australian economy, I can't say much about, even though I own bits and pieces of Australian mines (which are rather "hot" just now, given China's insatiable appetite for natural resources). I accept your assessment that they are both Hayekian and successful. However, I did take a quick glance at the government website and learned that the budget has grown from $136B in 1996 to $220B in 2006. That doesn't leave room for much shrinkage. In fact, it would seem that they are on the same Hayekian super-highway which is the subject of this thread.

John

P.M.Lawrence Wednesday, September 26, 2007 at 8:41:00 AM CDT  

"Limited liablity [sic] means you have liability only to the value of your investment".

No, not quite; that's an example of a rather rare beast, the no liability company (they do crop up in Australian mining). Limited liability means that shareholders are only liable to the extent of the nominal value of their shares, so if the shares weren't fully paid up and the company goes broke, they still have to pay some multiple. What's more, there may be bank loans that were made under guarantees precisely because the bank wanted less risk. If so, the guarantors face that added liability.

Oh, don't jump out of any windows on this planet. Gravity is about twice as strong as you think.

Kevin Carson Wednesday, September 26, 2007 at 11:27:00 PM CDT  

Your explanation of why capitalists fear an unregulated market was brilliantly put, John. I entirely agree.

Which is exactly why it seems so unlikely that the present corporate-dominated economy could have come about through Hayek's free market recipe. It's more likely that Reagan and Thatcher just paid lip service to free markets while in fact further strengthening the corporate state. "The voice is Jacob's, but the hands are Esau's."

John Médaille Wednesday, September 26, 2007 at 11:53:00 PM CDT  

Kevin Carson writes, it seems so unlikely that the present corporate-dominated economy could have come about through Hayek's free market recipe.

I respond that while the current situation was no part of his intent (quite the opposite) it is the inevitable result of his policy prescriptions. While he envisioned limitations on state power, he had no such limitations on corporate power. But this is naive; you can limit both or neither, but not just one. If wealth can accumulate without limit in corporations, that wealth will seek protection, and it will always seek protection by government action. Power follows property. That is the rule.

As power accumulates, it will seek to legitimize itself through law, and to do that it must control the state. And does. Inevitably.

My critique of the Libertarian position is not with their description of a free market economy (which is correct) but with their failure to recognize the non-market externalities. And power is an "externality" of wealth accumulation. Thus the naive libertarian position is always doomed to failure. Worse, it is doomed to be a tool of its own failure, providing good arguments for bad systems, systems which always result in the breakup of libertarian systems.

John

Kevin Carson Thursday, September 27, 2007 at 12:35:00 PM CDT  

The converse, though, is that property follows power. You seem to be presupposing large concentrations of wealth as a natural state of affairs, when they themselves are the product of state intervention.

The large corporations could not have come into existence in the first place without the existence of power to subsidize their operating costs and protect them from competition. Had it not been for the subsidized national railroad system, patents, and tariffs, industrialization would have been incorporated into a localist framework of small-scale production for local markets, and the transportation system would likely have been something like Mumford's local light rail networks linking neighboring communities together.

It is impossible for wealth to draw a perpetual return on itself without some sort of state-enforced entry barrier to thwart the natural process of price falling to cost.

John Médaille Thursday, September 27, 2007 at 8:25:00 PM CDT  

Kevin writes, You seem to be presupposing large concentrations of wealth as a natural state of affairs, when they themselves are the product of state intervention.

I think the thesis that accumulations of property can only come from state intervention is somewhat doubtful. Natural abilities, for example, will lead to natural differences. And once property gains an advantage over its neighbors, it is likely to develop further advantages, which leads to further disparities, and so forth.

However, even granting your point for the sake of argument would not save Hayek's argument, for Hayek argues in an environment where these accumulations of power already exist. To attack only the accumulation of power in the gov't would likely lead to where it has led: more accumulations of private power.

Whatever theoretical and abstract plan one can devise, one must realize that one is not working in a vacuum, but in a real, concrete situation. And remedies must address the situation as it exists, not as we wish it to exist in the abstract.

Kevin Carson Thursday, September 27, 2007 at 10:39:00 PM CDT  

On the contrary, I think existing concentrations of economic power depend for their continued existence on the ongoing use of state power. If the state's basic structural supports to corporate capitalism were withdrawn, every company in the Fortune 500 would bleed red ink until it sold off every subsidiary and every plant at fire sale prices; even more likely, it would abandon them in the face of bankruptcy--hopefully to be taken over by workers' syndicates, as in Argentina.

There certainly winners and losers in the market, from differences in effort and skill; likewise entrepreneurial profits, as someone who's ahead of the curve in predicting a need and meeting it derives short-term rents from being the first in a market. But there are built in limits to the return on such advantages. They can only serve as the basis for perpetual rents when the state is invoked to prevent competition from entering the market. The natural tendency is for entrepreneurial profit to fall to zero, as newcomers raise production levels to meet demand. Likewise, a person might be able to accumulate a few tens of millions of $$ through exceptionally hard work and innovation; but that wealth wouldn't be able to grow on itself unless property were first made the source of permanent income, through artificial scarcity rents on land and capital.

As a modest proposal, I suggest we eliminate all patents and copyrights, eliminate all subsidies (including those made via the military-industrial complex), and finance the highways entirely through weight-based tolls on heavy trucks. (That shouldn't take much doing, eh?) My guess is that, far from using its "economic power" to force some form of corporate feudalism on the country, big business would on the contrary suddenly find itself so devoid of economic power as to be utterly unable to stop its own disintegration.

Mel Monday, October 15, 2007 at 10:30:00 PM CDT  

Kevin, I'm sorry, but I just can't see how your "modest proposal" could do what you say it should. First of all, explain to me what exactly are all these subsidies that you keep talking about. Yes, I've heard about corporate welfare, but much of that seems to be complaints about the non-payment of corporate income tax, which levies don't strike me as particularly wise anyway. (The best way to achieve less economic inequality, it strikes me, is a sharply graduated property tax on households. The CIT, by contrast, seems a blunderbuss approach, taxing those with small pensions and vast fortunes at the same rate.) But there are elements of corporate welfare I'm sure I would agree shouldn't be there, tho they may be not as much as they pay in CIT, and I look forward to your expostulating on them.

But let's take an example of a giant corporation, the largest in the US now, and perhaps the biggest in the world: Wal-Mart. OK, they would have to pay more taxes than they now do on highways with all their trucks. But they're not, to the best of my knowledge, dependent on patents or copyrights to any great extent, and the extra charges on the roads just don't seem to me sufficient to bring about this hemorrhage of red ink of which you prate. Many, if not most, of the other large corporations strike me as being very similar to Wal-Mart in that respect.

Speaking of hemorrhagic flows of cash, you said, in a post previous to your last, that wealth couldn't draw a perpetual return to itself without the state imposing barriers to competition, because price has a natural tendency to fall to cost. First of all, what are these barriers? And second of all, are you actually saying that investors should get no recompense beyond their money back in a stateless economy? Why would anyone commit funds for the future that they could spend now then? If you mean simply that they would get only the market rate of interest, then that's in effect a perpetual return on wealth. I'm quite puzzled by this.

Finally, your proposal for abolishing copyrights and patents. I'll just say here that I doubt that many people will write a book, produce a movie, invest a lot of time, money, and effort in research & development, even publish a newspaper, if there's no guarantee against piracy. Intellectual work is labor like any other, and to my mind deserves equal protection.

Mel

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