Chapter XIII: The Purpose of Government
What Should the Government be Doing?
Milton Friedman famously remarked that if the government were put in charge of the Sahara, there would soon be a shortage of sand. It is a remark that delighted both the libertarian and neoclassical economists. It is likely that Friedman repeated this remark at many a seminar. To do so, he had to leave his home, one built according to strict building codes and protected by the socialized services of the city police and fire departments, travel over socialized roads and freeways to a government-sponsored and -regulated airport, board an airplane after it had been thoroughly vetted by a government-supervised inspector, go to a college or university which was heavily supported by the government, and later that evening, no doubt, he discussed his witticism with friends and colleagues over dinner at a restaurant that had to meet strict government standards for cleanliness. And all of this took place under the protection of a military establishment which involves considerable expense to the government and its citizens.
It would seem, then, that the government does indeed do many things tolerably well. It may be, as Friedman claimed, that most of these services could be provided by the private market. And while that might be true, and in some cases must be true, it is equally true that while many egregious examples of inefficiency can be found, the government provides many services tolerably well and with as much efficiency as can be found in any large bureaucracy, public or private. Nevertheless, the point of Friedman's remark is still valid: What should government be doing, and at what level should it be doing it? Conservatives leave little room for government and socialists leave little room for anything else. Neither provides us with a set of principles by which we can evaluate the proper role of government.
Man is a social animal; he needs government. We are born into the little ready-made communities called “families” ruled in various ways by parents. We organize ourselves into social and political hierarchies as naturally as we breathe, and we need government to fulfill our natural ends and goals. But while government in theory may be natural, any actual government may not fulfill the natural ends and goals of man—and most don't. The modern nation-state becomes an end in itself, and the citizen a mere client. We need some set of principles by which to distinguish good government from bad, and the “all or nothing” arguments of socialists and conservatives are not really helpful Until we decide on the proper role of government, we cannot possibly talk about the proper level and kind of taxation that is required to support the government.
Associated with the question of what the government should be doing is the question of at what level the government should be doing it. During the last election campaign, Senator Joe Biden boasted that he had sponsored legislation which had placed 11,000 cops on the beat in our cities. But while his boast is likely true, it is somewhat frightening; a problem that we would normally take to our local mayor and city council is resolved at the highest level of government. Every local problem becomes a federal case, and the government farthest from the actual situation becomes the guarantor of the cop on the beat, the teacher in the classroom, and every other aspect of our social lives that is normally resolved by local action.
“Starving the Beast”
The question of the proper role and level of government has become a difficult one because each new government expenditure creates a constituency ready to fight for the expansion of the role of government and especially for the expansion of their particular subsidy. Thus addressing the question at a practical level involves battling a thousand constituencies each with a hundred lobbyists and millions in campaign contributions or promises of lucrative jobs when the legislator retires from public work. These special interests easily combine to defeat any serious attempt at budget and government reform.
Recognizing this problem, the Reagan administration abandoned the question of the proper role of government and opted for a strategy of “starving the beast,” that is, cutting taxes and thereby cutting off the air supply to big government. The resulting super-deficits would force a confrontation over the issue of government spending. Alas, the strategy did not work. The “beast's” diet was merely changed from cash to credit, and it turns out that credit is easier to spend than cash. The government did not shrink, but grew, and grew at an alarming rate. The budget deficit tripled under Reagan-Bush XLI (from $700 million to $2.1 trillion), more than doubled again under Clinton (to over $5 trillion), and more than doubled again under Bush (to nearly $11 trillion). What is really troublesome about the deficit, however, is not the absolute number itself, but the size of the interest payments, which now amount to about half-a-trillion dollars each year. This works out to about $1,500 per person, or $6,000 for a family of four. This means that the first $6,000 of each family's taxes goes to financing the past, with nothing for the present or the future. Sooner or later, the past must overwhelm the present and foreclose the future. Then the beast will indeed be starved, but so will the rest of us. Financing the present by mortgaging the future is not only bad economics, it is bad morals; we pay for our profligacy by burdening our children, thereby reversing the natural order of family and national life.
But the Reagan administration had another reason for their “starve the beast” strategy: they really had no philosophy of governance. They only knew that they wanted “less government,” but they were not quite clear on what that meant in practice. By and large, they were followers of Friedrich Hayek, the Austrian economist. The Austrians limit the role of government to “protecting property,” but they are vague as to what that actually means. Indeed, they are vague about what “property” means, since this is a term that has had many definitions over the course of the centuries. Nor could they give clear reasons why this should be the only function of government; after all, if everything is to be privatized, why not privatize this function as well, and leave property to those who can protect it from their own resources? Hayek himself equivocated on the issue of government, allowing that it could provide basic incomes and health care, handle externalities of the market, and other functions as well. In the end, Hayek ended up refusing the question of the proper role of government and hence could give no clear guidance to his acolytes in the Reagan administration. In practice, Austrian economics proved to be a faster road to socialism than the socialists themselves could build, but it was mainly a socialism for the rich. Since it is a woefully incomplete theory, its unintended consequences overwhelm its theoretical bases with the result that Austrian theory leads to socialist practice, which is exactly the result that Hilaire Belloc predicted for such theories in his book, The Servile State.
Until we answer the question about government, we cannot answer the question about taxes; unless we know what the government ought to do, we cannot know how much it ought to cost or how to fund it. And we cannot know what it ought to do without first knowing what purpose government has and upon what principles it rests.
The Purpose of Government
Human beings are not self-sufficient as individuals. We are born naked against the elements and helpless in ourselves; we are dependent from the beginning on others, and apart from them we would not last our first day on earth. This dependency continues throughout our lives, since none of us can or should acquire all the skills necessary to grow our own food, make our own shoes, provide our own education, etc. We are by nature social beings and thrive only in community. The purpose of government is to provide the conditions under which all the other communities that make up the social fabric can flourish. And first and foremost among these other communities is the primary community of the family, the one that first calls us into being through an act of love and gives us the gifts that will form us. Not only the material gifts of food, clothing and shelter, but the gifts of language, of culture, of our first experience of love and belonging and most importantly, the gift of a name, a name that ties us to family but is uniquely ours, the name that lets us know that we are both part of something and unique beings.
At once we note that we are at odds with the modern political and economic theories, which are built on the individual as the prime social and economic unit. But this is not correct because the individual, apart from the social order, is not capable of providing for himself. Indeed, the individual is not even capable of reproducing himself. The individual flourishes in and through the community. This is not to denigrate the value of the individual person, since the purpose of the family is to allow the person to flourish; it is to note that persons only exist in and through communities, first and foremost the community of the family.
Therefore, we can judge the success or failure of government by noting the strength of the family units that make up the society. If they are barely surviving and chronically in debt, if mothers are forced to work by economic conditions and unable to attend to the education of their children, if families seem to be temporary and chronically subject to dissolution, if the children have only limited educational opportunities, if they are more concerned with the getting (and destruction) of more things for their happiness, then we may say that the family is materially, morally, and spiritually weak. Alas, these are the conditions that describe too many American families today, and the failure of the family leads to failures in the economic, political, and social orders, failures which have no solution apart from repairing our damaged families.
Starting with the family, we can go on to assess the health of larger communities, not only governmental ones like cities and states, but those communities of work and social life in which we find ourselves and through which we contribute to the common good and to our own development.
In order to flourish, all of these communities require certain things. They require a material base by way of access to productive property which they can own or share; they require training and education; they require relatively free markets; they require a culture of liberty in which they can grow; they require a certain set of shared values if they are to share a common cultural space; they require certain infrastructures such as roads, a money system, courts, etc. Some of these things are or can be directly supplied by the government and others are merely influenced by its decisions. But all the decisions of government must be based on a recognition of their effect on these communities. Government is not, of course, solely responsible for the flourishing of these communities (that would be socialism or paternalism), but it is often responsible for their failure. In order to assure that the government is acting on behalf of these communities, there are certain bedrock principles that must be followed, no matter what the form of government.
The Principles of Government
It seems today as if government is no more than a competition among special interests each fighting for a share of the public purse and a list of privileges from public law. Along with this we note a centralizing tendency that transcends party rhetoric and leads to an ever-growing central government, which displaces all lower units of government and even private association. And, of course, such competition for power must favor the powerful. This self-aggrandizing tendency of government mirrors a similar cult of bigness in the commercial realm. Companies grow “too big to fail,” and hence can act with impunity, knowing that no matter how foolish their actions, they can always have recourse to the public purse; they can rely on economic blackmail: “If we fail, everything fails; bail us or be damned!” And they get their way with the public purse. As I write this, the government is committing trillions to private bailouts, a perfect socialism for the rich necessary to save everybody else. But this is not the first time this has happened; indeed, it is a chronic condition of corporate capitalism. There have been about 19 bailouts in the last 100 years, making them fairly predictable events. The bailouts get bigger as the corporations and the government grow in size.
Yet bailouts have never reached the size and scale of today's crises, and it is likely that the system will not work and must be reformed, probably after a complete collapse. A reform of the system will require an understanding of the proper principles of government. And these principles are the exact opposite of the practice of modern government. Against the the clash of special interests, we assert The Principle of The Common Good; against the centralizing tendency, we assert The Principle of Subsidiarity; against the tendency to favor the rich and powerful, we assert The Principle of Solidarity.
The Common Good
The idea of the common good would seem self-evident, but in fact most modern political and economic thought is based on the priority of private and personal goods. “Greed is good” has become an implicit assumption of our political and economic lives. This idea was first advanced in 1714 in Bernard de Mandeville's The Fable of the Bees, which was subtitled Private Vices, Publick Benefits. Mandeville offered us the paradox that private vice was the key to public virtue, that the water of private interest could be transformed into the wine of the common good. But this view is far too mystical. It is based on the view that the common good is no more than a summation of individual and particular goods, and that there is no transcendent good which unites us all.
But clearly, this is not true. The individual good of a father, for example, could run counter to the good of his family. The father who spends the bulk of his earnings on himself and his own pleasures and leaves little for the feeding of his family and nothing for the education of his children indulges a private good at the expense of the common good of the family. It is only by realizing himself in and through the family that his good and the good of the family can be united. And this is the key to realizing the common good: we must develop the sense that our particular goods are bound up with the common good. We cannot truly be successful at the expense of our neighbors; their success and ours are connected.
The great difficulty of recognizing the common good is that we are all members of the community mostly through participation in particular communities, each of which makes a partial contribution to the common good. That is, we participate in the over-all community in and through our participation in, say, the arts community, the business community, the educational community, etc. The end of each of these communities is partial and private, in the sense of the Latin term, privatus, which connotes a lack of something, a privation. The tendency of private communities is to let their partial and private ends dominate over the contribution they make to the public and general good. But the common good cannot flourish unless we recognize that our particular communities depend on, and are ultimately successful through, the success of the whole community. This takes a constant recognition of the wider community and a constant effort of the will to limit our demands on the community only to what is necessary for, and proportional to, our contributions to that wider community.
Subsidiarity
As members of vast, modern nation-states, especially those governed by the principles of pure individualism, we cannot help but see ourselves as mere infinitesimal cogs in a vast machine over which we have very little control, save for annual, semi-annual, or quadrennial plebiscites in which we get to choose “leaders” from a very limited list. Indeed, due to the miracle of national television, the government official most remote from us, the President, is a daily presence in our living room, while the person who might be our neighbor, the local mayor or city councilman, remains a stranger whose very name we cannot recall. In other words, we have stood the natural order of government and social life on its head, with the most remote becoming more important than the local.
In opposition to this centralizing tendency, solidarity implies a “bottom-up” view of society. It starts with the family as the basic unit of society. All economic, social, and political activity is built around the family and serves its needs. But because no family is self-sufficient, families in turn require economic and social contexts, including government. Higher social formations have a right to interfere in the affairs of lower organizations, including the family, but this is only a limited right; such interventions can only be used to correct egregious failures, and may last only for as long as necessary to correct the failure. Some problems, of course, don’t go away, such as unemployment: as long as the economic system is unable to offer all persons meaningful employment, then society must provide other means for their dignified subsistence. But this must be clearly seen as a defect of the system, in the same way that the need for a police force or an army is really a defect arising from original sin. From the viewpoint of subsidiarity, society is highly “textured”; instead of a simple system of an “individual/government” relationship, there should be a rich collection of levels within society, each with its own realm of competence and authority. At present, government has absorbed functions which used to belong to the Church or other authorities such as the guilds. Marriage, education, charity, and commercial regulations had been guided by other bodies, even if their decisions were enforced by the state. The all-powerful, centralized state has displaced all of these other and (I contend) more natural authorities. Other authorities, even the family itself, exist only by the sufferance of the central administration.
According to the principle of subsidiarity, the higher-level organization can only justify its existence by the necessary support it gives to lower-level one. Assuming that most functions of political, social, and economic life can be adequately handled at the local level, the higher levels are therefore the least important, and their importance diminishes the higher up they are. This does not mean that they they have no meaningful authority, nor any right to intervene. For example, we know that African-Americans would not enjoy full citizenship in America were it not for forceful interventions by the central government. But even this intervention is instructive, since it involves a community that extends beyond any local jurisdiction, and was clearly oppressed in many jurisdictions, indeed, perhaps in most or even in all, at least to some degree. And since the oppression was egregious, it was clearly the right and duty of the central government to act, even in disregard of local rights. Nevertheless, such interventions should be made only on clear necessity, only as much as necessary, and only for as long as necessary. In general, local organizations should be free to develop in their own way and with their own resources.
One important point that needs to be made about subsidiarity is that not only should control be as local as possible, but funding as well. If the funding for governmental programs comes from afar without directly impacting local resources, it appears to be “free” money, which always distorts the decision-making process. If someone else pays, we can never have enough; when the money comes from our own resources, we tend to spend it as conservatively as we can. This does not preclude higher authorities from making contributions to local programs, but such contributions must be related to the common good, and it does the local authority no good to become dependent on the remote power. This is, as we shall see, one of the most important principles in government funding and taxation.
Solidarity
Solidarity is complimentary with subsidiarity. Subsidiarity provides the vertical dimension of life, while solidarity provides the horizontal dimension; subsidiarity is a connection between elements of society viewed as a hierarchy, while solidarity provides the connections between the elements viewed as if they were on the same level. Solidarity connects us with the common good and impels us, in the name of Christian charity, to act for the good of all. There can be no vision of the common good unless there is solidarity between all the elements of society.
Of particular importance to solidarity is the preferential option for the poor. When we act in solidarity, we act for the good of all. The preferential option for the poor serves as a practical test of whether we are acting for all, or just for some. Under the preferential option, we always examine the effects of any action on the poorest of our neighbors; if it is not good for them, it breaks solidarity. Since we are all inclined to opportunism and rationalization, solidarity, particularly when it forces us to look at our actions from the standpoint of the poor, helps in ensure the common good.
If what we have said so far is correct, then we have provided a purpose for government and the principles of government, and with these tools we can examine our actually existing government to see how well it conforms to purpose and principle, and ask what can be done to change it.
42 comments:
>By and large, they were followers of Friedrich Hayek, the Austrian economist
I thought Reagan was more of a Milton Friedman follower. Ron Paul would be a better example of an Austrian influenced politician. One of the main political goals of the Austrians is to end the Federal Reserve System and establish a 100% gold standard
According to William Grider, Reagan did want to go to a gold standard. But on the issue of money supply as the key to inflation, the Austrians and the Monetarists do not really disagree. The Austrians merely see gold as the way to limit the supply, while the monetarists do it with monetary policy. The Austrians are right about gold limiting money supply. It does, and does so disastrously (with deflation), except when there is a gold strike, at which point it becomes inflationary.
John, that is a terrific chapter. I have to frame this particular passage:
Against the the clash of special interests, we assert The Principle of The Common Good; against the centralizing tendency, we assert The Principle of Subsidiarity; against the tendency to favor the rich and powerful, we assert The Principle of Solidarity.
Excellent post. I particularly liked your point about Friedman having to use numerous pubic - i.e. socialized - services to go off and give speeches and comments in favor of rampant privatization.
According to the Libertarians the only purpose of government is protecting our negative rights - essentially our life, liberty, and property. The government controls courts, jails, police and military to punish and hopefully prevent physical harm and maybe fraud. That's it.
But what about Postive rights and positive freedom? Does not the state exist to ensure a quality of life - "the pursuit of happiness -? And not merely "keep us from being murdered or robbed?!
And even life and liberty? What kind of life is a life bereft of the social services that you mention? And how am I free in any meaningful sense if my government does not do its part to contribute to my quality of life?!
This "pull yourself up by your own bootstraps" and "government is the problem" philosophy is truly pernicious.
my favorite example is the fire department. Fire fighting use to be privatized. Quick research on the subject shows the problems that had.
And can we really object to public roads, schools, libraries, or the post office?!
Such thinking is awful.
Keep up the fine posts against such views!
"In practice, Austrian economics proved to be a faster road to socialism than the socialists themselves could build, but it was mainly a socialism for the rich."
This is a howler. Austrian economics hasn't been put into practice and that's why our economy is tanking right now. Anyone who is at all familiar with the writings of Austrians knows of the myriad criticisms of Reagan's monetary and fiscal policy that have been written over the decades. A few minutes of searching can find Rothbard's critiques from 1982. Start here: http://www.lewrockwell.com/rothbard/rothbard55.html
"The Austrians are right about gold limiting money supply. It does, and does so disastrously (with deflation), except when there is a gold strike, at which point it becomes inflationary."
Austrians hold that inflation is an increase in the money supply, and deflation is a decrease in the money supply. The effect of inflation, ceteris paribus, is an increase in prices. The effect of deflation, ceteris paribus, is a decrease in prices. Mainstream economists get causation backwards and define inflation as an increase in prices and deflation as a decrease in prices. In the passage I quoted, you agree with the Austrians and correctly identify the inflationary consequences of a gold strike, but seem to take the mainstream approach with respect to deflation. Unless gold is being destroyed or lost, there is no deflation. I assume you are referring to the long-term trend of lowered prices under the gold standard, as money supply remains stable and capital accumulation and technological advances lead to increased production and thus a decrease in prices, as per the quantity theory of money. You can't critique Austrianism by changing your definition of inflation/deflation to suit your argument.
You know what, pomofo? Communism was never really tried, either.
Austrian schoolers are just Communists turned inside-out.
Quote: "But what about Postive rights and positive freedom? Does not the state exist to ensure a quality of life - "the pursuit of happiness -?"
The concept of "happiness" is from Liebnitz's "New Essays on Human Understanding" written to attack Locke's views of human nature and his notion of absolute property.
Quote: "Austrian economics hasn't been put into practice and that's why our economy is tanking right now"
Tell that to all the British school children in the Thatcher years who had the school milk program canceled on the advice of von Hayek and it resulted in the return of rickets and other illnesses not seen in British children for decades. Tell that the Georgian who's wages collapsed because government created a strike breaking program because under the Austrian logic that Unions are cartels that interfered with the markets thus it was justified to send cops into the streets to beat up those evil cartel organizers.
I could talk about "El Model" in Latin American and the countless of other times the Austrian policies where put into place and resulted not only in the economic collapse but violent police state repression.
Quote: "Unless gold is being destroyed or lost, there is no deflation. I assume you are referring to the long-term trend of lowered prices under the gold standard, as money supply remains stable and capital accumulation and technological advances lead to increased production and thus a decrease in prices, as per the quantity theory of money."
Except that has never happen on a gold standard and it has always resulted in deflation. The idea that a fixed amount of gold will aways match the totally amount of commodity goods in circulation is absurd.
If the total amount of physical goods increases and the gold supply remains fixed then there's less money (gold) chasing more goods thus demand for money rises and therefore the value of said money.
If the money supply increases without an increase in physical goods then there's more money chasing less goods and thus money has lost value i.e. inflation.
Now you can try to hide the inflation using bogus financial "investments" but in the end it won't work and you get the mess we are currently in.
The value of a national currency has nothing to with the amount of gold, sea shells or Whale Teeth. It has to with the productive capacity of the nation and available output of physical goods and the demand for those goods.
If you want the dollar to have value then the United States must must increase production of physical goods the world wants to buy and thus the demand for the dollars used to buy those goods.
Any form of Monetarist theory must be reject because economics in not driven by money but creative human production of goods which is primarily a physical process.
Money doesn't create inflation people do because people are the creators of value in a human economy. Any theory that rejects the creative aspect of man in the universe is fundamentally incompetent.
It's time we go back the Cameralist thinking and place the care of humans back at the center of a economy not money. Economy for Man, not Man for Economy.
A good and thoughtful article that starts in the right place (man is born social) and follows through the concentric rings surrounding him (family, parish, city, etc.). I also like the point about subsidiarity and solidarity being complementary. One point I would query, however, is the notion of "a preferential option for the poor". I have two problems with this.
First, the phrase itself is too much associated in my mind with the post-Vatican II socio-political direction of parts of the Church (one thinks of the Jesuits in particular) that led to quasi-Marxist approaches to social issues and that in practice led to a purely social gospel stripped of any spiritual or transcendent content.
Second, I'm not sure that a question such as, "How does policy X affect the poor?" is an effective test of solidarity. For example, I could envisage welfare policies that benefit the poor, leave the rich unaffected, but hit middle income families. Is that solidarity? The best social and economic model should not, in my opinion, focus on how it affects the poor, but on the family - a point you make earlier in the piece. The point is that the poor have families too. And if they don't any more because they're broken, split up etc. then a pro-family approach will help them, but without disadvantaging other groups.
"Tell that to all the British school children in the Thatcher years who had the school milk program canceled on the advice of von Hayek and it resulted in the return of rickets and other illnesses not seen in British children for decades."
This strikes me as a bit simplistic, as many different factors determine public health. And that's exactly the problem with central planning: It is impossible for a governing body to ascertain and meet the various demands of millions of people. Politicians are not clairvoyant. What government does do is eliminate private alternatives. This creates dependency on a body that bears no responsibility for its actions.
I applaud Mr. Médaille's emphasis on subsidiarity and look forward to future chapters.
Although I think the chapter is an intelligent discussion, I do have to object to the statements linking Reagan with Austrian economics. Reagan's monetary policy came primarily from Milton Friedman, and his supply-side fiscal policy came from Arthur Laffer. Both policies ran contrary to Austrian thinking. Like most Republicans, Reagan simply paid lip service to the gold standard and limited government.
Sept, pomofo is partially correct: Austrian economics has never been successfully implemented. Reagan, Thatcher, Pinochet, and others have tried (Thatcher was a confidant of Hayek), but the theory is so woefully incomplete that the unintended consequences overwhelm the theoretical base.
Indeed, the "defense" of Mises is that it has never been tried, which means that no one can know if it works, since only by "working" can we test an social system. When people present us with abstractions with no historical instance, we have ample reason for suspecting ideology rather than science or prudent thought.
The defense of Mises is the same as the defense of Marx: "it's never been done right!" True, but in both cases, many have tried, and achieved the same results. They have both been tried as well as they are ever going to get tried, because that's the best that can be done. Both promise a "withering away of the state"; both deliver mega-states with mega-debts in societies dominated by smaller and smaller elites.
Been there; done that. No mas!
Guild Master, "The Preferential Option for the Poor" is part of Catholic Social Teaching, and as a Catholic, I feel bound by it. But your comment is still valid in the sense that no class should be played off against any other class. Nevertheless, every public action must be tested for its effect on the poor, since this is the easiest group to overlook.
Jim, actions have consequences, and we cannot ignore the consequences of an action simply because they contradict our pet theories.
>When people present us with abstractions with no historical instance
anything new is by definition untested. So by your logic nothing new should ever be tried.
The American Revolution implemented a pretty radical departure from the past. The fact that the theories that motivated the founding fathers were untested didn't seem to stop them from trying it
Gamzoo, actually, the Founding Fathers appealed to ancient principles. You're thinking of the French Revolution, which really was revolutionary.
Septeus7:
Can you provide a source that the school milk program was eliminated on Hayek's advice? It certainly doesn't seem to square with his support of safety nets quoted here: http://www.theartofthepossible.net/2008/06/04/hayek-on-safety-nets/ That second paragraph sounds like something that could have been written by a distributist.
Rickets is a disease caused by lack of Vitamin D, and is particularly common among dark-skinned British residents, the immigration of whom was rising during the late 1960s and early 1970s. Lack of Vitamin D synthesized from sunlight is arguably a more important factor than insufficient Vitamin D in the diet. To blame the outbreak of rickets on policies which Education Secretary Thatcher may or may not have supported is a little disingenuous, especially because there have been further recent outbreaks in Britain and other Northern European nations among dark-skinned immigrant populations.
Opposition to school milk programs is not a uniquely Austrian position. It's a relatively non-controversial position held by economists across the spectrum of more or less free market-leaning schools of thought. Furthermore, you can't hold up everything Hayek thought or wrote as definitively Austrian. Hayek's influence among Austrians today is far less than Mises or Rothbard. He's arguably one of the most statist Austrians, the one most willing to compromise with socialist policies, and the one best-received by the Establishment, as witnessed by his Nobel Prize. Kind of like an Austrian Uncle Tom.
As for strikebreaking, I'd like to quote Rerum Novarum, paragraph 36, in which Leo XIII states: "If by a strike of workers or concerted interruption of work there should be imminent danger of disturbance to the public peace...in such cases, there can be no question but that, within certain limits, it would be right to invoke the aid and authority of the law." That's all the justification any government needs. It's true that there is some knee-jerk opposition to unions among Austrians, but most of it comes about because of union use of violence against "scabs" and because of union efforts to oppress low-income workers through mandatory minimum or living wages. There's certainly nothing un-Austrian about supporting unions as a voluntary collective bargaining association.
Could you provide examples of Austrian policies that were implemented in Latin America? For some reason it seems that distributists have an intense loathing for Austrianism that causes them to label every policy action they dislike with a pejorative "Austrian" label, despite such policies' Chicagoan, neo-Keynesian, or other corporatist roots.
"Except that has never happen on a gold standard and it has always resulted in deflation."
What has never happened? Price levels have never decreased? Then how has deflation resulted? Please explain.
"If the total amount of physical goods increases and the gold supply remains fixed then there's less money (gold) chasing more goods thus demand for money rises and therefore the value of said money.
If the money supply increases without an increase in physical goods then there's more money chasing less goods and thus money has lost value i.e. inflation."
You're also making the same mistake Mr. Medaille is by using differing definitional standards for inflation and deflation.
If the supply of money increases, inflation occurs. Ceteris paribus, prices increase, in other words the purchasing power of money decreases.
If the supply of money decreases, deflation occurs. Ceteris paribus, prices decrease, in other words the purchasing power of money increases.
If total production decreases, ceteris paribus, prices increase. This is price inflation, and results in a diminution of purchasing power of money.
If total production increases, ceteris paribus, prices decrease. This is price deflation, and results in an increase in the purchasing power of money.
You can't define inflation as having a monetary cause and then define deflation as having a non-monetary cause. Inflation and deflation are two sides of the coin, either you believe both have a monetary cause, or you believe both have a non-monetary cause.
Pomo, you are working off a discredited theory called the "quantity of money" theory. It is isn't true. Prices cannot be reduced to the quantity of money. Other issues, such as the velocity, the distribution, where the money is spent (speculation, production, consumption), etc. all affect price levels. Further, money is dynamic, and an increase in supply of money often leads to an increase in the supply of goods. All of these reductionist theories turn out to be false.
Hi GM,
I want to echo John's comments that we certainly wouldn't pursue any policy in regards to class warfare. I would however, wish to add that the Church prior to Vatican II also had a preferential option for the poor.
I don't have time to elaborate unfortunately, but we can look at The Gospel According to St. Matthew 25:40,
And the king answering, shall say to them: Amen I say to you, as long as you did it to one of these my least brethren, you did it to me.
Or Rerum Novarum p.37
Still, when there is question of defending the rights of individuals, the poor and badly off have a claim to especial consideration
Actually, economist David Friedman has done research into the history of anarcho-capitalism. Several societies have lived peacefully under these principles, most notably medieval Iceland. In addition, it's hard to deny that today's most free-market-oriented societies have the highest living standards. Austrian thought is not a "pet theory"; it is based on logic, justice, and history.
Of course, no society, in my view, can be perfect without God's love, which is why the Church must promote charity, rather than rely on politicians.
I thought medieval Iceland was a kingdom, one of the "hegemonic" communities excluded from Misean thought. And they had a completely different notion of property than that found in the Miseans. And Mises specifically (and repeatedly) rejects the notion of charity.
OH, and there are NO "free-market" regimes in the Misean sense. All successful regimes today are Keynesian. You cannot claim credit for the success of a theory you oppose.
On the other hand, there ARE successful distributist enterprises and societies. Capitalism goes from bailout to bailout; that is the only constant in capitalist history. Distributism goes from success to success.
>On the other hand, there ARE successful distributist enterprises and societies.
what are you referring to?
Mr. Medaille:
Please name one instance when the implementation of Austrian economic policies has been attempted within the past century. You can't, because it hasn't happened. The closest instance you can find might be Böhm-Bawerk's period as Austro-Hungarian finance minister, but he resigned in 1904 because the government wanted to run up deficits and embark on public works projects.
The Austrian school's central contributions to economic theory have been the theory of the business cycle and its victory in the socialist calculation debate. How can you plausibly argue that a school that demonstrates the impossibility of centralized planning and price control leads to megastates and megadebts?
How many countries have done away with their central banks? How many have returned to commodity-backed money? How many have eliminated all price controls on milk, sugar, and other agricultural commodities? How many have done away with laws regarding price gouging and undercutting? I could go on, but of course there are no countries that have done these things, because following Austrianism diminishes the power of the state.
If you want to create a megastate, familiarize yourself with Austrian economics and then do the exact opposite. That's exactly what's happening today.
Most mainstream economists would accuse Austrians of being perpetual pessimists, as there is not a single government action that Austrians haven't criticized. I'm sure the mainstreamers would be interested in hearing how influential we really are.
Gamzoo, see
http://distributism.blogspot.com/2007/09/hayeks-super-highway.html
>Capitalism goes from bailout to bailout; that is the only constant in capitalist history.
But as you say, Capitalism that is practiced in modern societies is Keynsien not Misean. According to the Austrian theory, firms should be allowed to fail. 19th century America was relatively free market. Most of the major booms and busts occurred after the central bank was instituted in 1913 and other centralization
Sorry, last message was for Pomo, not Gamzoo. Gamzoo, see
http://distributism.blogspot.com/2008/11/mondragn-cooperativa.html
and
http://distributism.blogspot.com/2008/11/emilia-romagna-cooperatives.html
Actually, Richard Howard from "The Humanist Society" points to Norway, Switzerland, and Iceland most resembling a distributist society.
http://www.hsnsw.asn.au/Distributism.html
"Pomo, you are working off a discredited theory called the "quantity of money" theory. It is isn't true. Prices cannot be reduced to the quantity of money. Other issues, such as the velocity, the distribution, where the money is spent (speculation, production, consumption), etc. all affect price levels."
Ceteris paribus means all other things being equal. When velocity, production, etc. are held constant, a rise in money supply leads to a rise in prices. In practice there are mitigating factors, such as velocity, productivity changes, time factors, etc., that make it difficult to determine the extent to which money supply affects price increases, but money supply increase is still the dominant factor.
Pomo, then your first statement is a misuse of ceteris paribus. Your statement now reduces to "inflation is the result of the quantity of money, plus a whole lot of other things." True, but not very useful.
[cyber-sigh], yes, Pomo, firms should fail. But not the economy. When firms grow so big that their failure means everybody else fails, the authorities will act. This is what happens. Austrianism has no scale limits, and hence encourages giganticism, or at the very least puts no limits on it.
Distributism, on the other hand, very much recognizes scale, so that the failure of one enterprise cannot equate to the failure of the whole economy.
You are willing to let the innocent suffer with the guilty, a sort of group punishment. Oddly enough, the public authorities, be they democratic or monarchical, will not quietly let that happen. Hence unscaled Austrianism will always lead to statism. That's history.
Mr. Medaille:
I've explained the problems Austrians have with Hayek, I've come up with numerous examples of Austrian policies that have not been implemented, and all you can do is continue to make the assertion that Reagan and Thatcher's policies were Hayekian and therefore Austrian.
I also find it interesting that you belittle the relationship between government planning and the rise of fascism. Germany and Italy were just as planned as the US and Britain, you are correct, and that's because all four adopted state planning and corporatism. FDR idolized Mussolini and adopted corporatist economic policies in the New Deal. Ever since then we've had to deal with corporatism masquerading as "free market" or "pro-business" policies.
Have you ever read Rothbard's history of the rise of central planning during WWI. From the first paragraph: "I regard progressivism as basically a movement on behalf of Big Government in all walks of the economy and society, in a fusion or coalition between various groups of big businessmen, led by the House of Morgan, and rising groups of technocratic and statist intellectuals." Link here: http://mises.org/story/2543
Or his article on war collectivismin WWI, "It was a 'war collectivism,' a totally planned economy run largely by big-business interests through the instrumentality of the central government, which served as the model, the precedent, and the inspiration for state corporate capitalism for the remainder of the twentieth century." Link here: http://mises.org/web/2024
Or the Mises Institute's conference on the economics of fascism: http://mises.org/media.aspx?action=category&ID=82
Fine, Pomo, but then you are reduced to saying Austrianism has no examples. And in the case of a material science, a theory without an example does not compel belief. One is suspicious that in 10,000 years of human history, there are no working models.
That's the sure sign of ideology.
But in fact, the economy was closer to the Austrian model prior to World War II, and even closer prior to World War I.
Nobody wants to go back to that time of economic turmoil.
Mr. Medaille:
Scale limits are a peripheral topic to most Austrians. Those of us in the anarchist wing understand that the only just limit to scale is that which is supported by voluntary exchange. I agree with Kevin Carson and other left-libertarians that government policies have led to artificially large economies of scale that would not be supported in a truly free market. The only way to get rid of these policies, however, is to reduce the size and scope of the state, and that's something that, for whatever reason, most distributists seem to be unwilling to do. It's as though distributists believe that the right system with the right people and the right policies will somehow lead to a just outcome. This ignores the fact that human nature is marred by original sin, and evil people will use the power of any state to their own advantage.
Ever since I became an anarchist I've held that anarchism will result in much smaller communities than those to which people at the present are accustomed. But that seems to be anathema to some people who think that we can somehow create a more just system while maintaining the entire structure of modern society. I just don't think that's possible.
"but then you are reduced to saying Austrianism has no examples. And in the case of a material science, a theory without an example does not compel belief."
Of course it doesn't compel belief, but economics isn't a material science, nor are Austrians empiricists. I've never seen anyone stick their hand into a flame, nor have I done so myself, but I know it will hurt. How? Reason.
"One is suspicious that in 10,000 years of human history, there are no working models."
Because anything that might have come close to an Austrian ideal is overcome by the force of the state. Might is right may establish dominance in the real world, but it doesn't establish objective truth.
"But in fact, the economy was closer to the Austrian model prior to World War II, and even closer prior to World War I.
Nobody wants to go back to that time of economic turmoil."
You mean the economic turmoil caused whenever governments decided to depart from sound economic theory and print paper money to beat the band? The Austrians studied these episodes and diagnosed their origins in flawed monetary policy, not as endogenous to the market. Do you have a better explanation?
Pomo, that works only if property is reduced to usufruct (and personal usufruct at that), which is what Kevin Carson is saying, if I understand him correctly. Within some limits I am willing to agree, but that is a complete contradiction to Austrian theory which rests on unlimited property rights.
What you have then is not really libertarianism, but pre-Marxist socialism, in the manner of Proudhon. What libertarians generally do not realize is that before Marx, socialism was generally anti-statist and identical to what is now called libertarianism, minus state protection of property.
I think it is somewhat romantic, even though I agree with many of the elements, since these elements are, in fact, distributism. What to see a reduction in State Power? Look at Mondragon, which provides many "governmental" services internally, without the aid of the state, and from their own funds.
So long as there is big property, there will be big government. The higher you pile property, the higher the walls will be that are needed to protect it. Further, big property will always have an inordinate influence in the state. As Daniel Webster noted, Power follows property. If there are no limits to property, there will be no limits to power and hence no limits to the state.
Hence Austrianism leads to statism, as Belloc noted. Whatever its aims, its results are always the same.
Pomo, the idea that economics, the science of material provisioning, is not a material science, is the prime bit of Austrian nonsense. Mises did not understand the difference between speculative and practical science, nor between physical and humane science, nor between formal and material science. He therefore tried to reduce what is obviously a humane, material, and practical science to a Speculative formal science.
Practical sciences do not originate in "axioms" and a prioris. This is appropriate only for speculative sciences, the sciences of formal relations. Mises was wrong before he wrote a single line, because he started at the wrong end.
You are right that they disdain any hint of empiricism; that is the problem; you can only know the world by looking at the world. You cannot deduce a market or a chemical composition from abstract principles. You have to run some tests, and the test for humane sciences is history. But Austrianism has no history, at least no successful history. And is never likely to acquire one.
The rest is nonsense.
BTW, Pomo, you are wrong on the causes of the depression. The Fed had allowed the money supply to grow at the annual rate of 2.7% from 1921 through 1929, slightly slower than the economy grew over that period, thus the economically booming 1920's was a period of price stability and even modest deflation. Between 1930 and 1933 the Fed refused to replenish the banking system sufficiently, even though the money supply was shrinking due to hoards of bankruptcies and bank failures. Many at the Fed saw the austerity as a bitter but necessary medicine. The money supply fell 27% from 1929 to 1933 and real economic output fell 29% accordingly. Thus early bank failures led to further bank failures and bankruptcies and so on. Had the Fed been more accommodating, much of the domino effect would not have occurred.
Indeed, the actions of the Fed were all in support of Britain trying to re-establish the Gold standard in that country (we still on the gold standard).
It wasn't inflation that caused the crash, it was inflation in the financial sectors, because money was shifting from production to speculation. That's all in the "ceteris paribus" part of the equation.
"Preferential option for the poor"
I have no problem with the quotes from the Gospel and Rerum Novarum that Richard mentions. Likewise, I agree with John's comment that we must look at the effect of any policy on the poor. What I'd say is that it's not only the poor that we should consider.
I suppose my reservations are with the actual phrase "preferential option for the poor" and its associations. The phrase itself was coined, I believe, by Gustavo Gutierrez in the late 1960s. As I'm sure you know, he was one of the founders of liberation theology, which has been condemned by the Church (in fact by the current Pontiff when head of the CDF).
I suppose if any other description of Catholic Social Teaching had been used, my hackles wouldn't have risen!
GM, you have to keep in mind that Ratzinger made two declarations on liberation theology. The first was extremely harsh and was generally acknowledged to be an over-reaction. The second was more balanced and took as its starting point The Magnificat. LT has some problems, but points to real problems in the economy, especially the economy of South America. It is a poor response to those problems, but the problems are real nevertheless.
But one thing the liberationists did get right was the connection between Orthodoxy and Orthopraxis; in other words, we must be doers of the Word, and not merely hearers. As things stand now, we have our Sunday theology and our weekday economics, and the two do not match up. Distributism is an effort to overcome this false dichotomy, in a way that really "liberates" people 7 days a week.
Hi GM,
For the most LTers have hurt social justice and given it a bad rap. The most traditional Catholic tends to ignore the excellent priests who have fought long and hard for CSD to be actionable.
Like John says, we must build this bridge, and I think our alternative will accomplish this.
I'd rather bring Distributism to the people.
As a CONSTITUTIONALIST and Author of books in the INSPECTOR-RIKATI® series on certain constitutional and other legal issues I hold the view that politicians are by far overpaid and the Framers of the Constitution would be horrified to know how much they are getting paid for the little they really are doing. See also my blog at http://au.blog.360.yahoo.com/blog-ijpxwMQ4dbXm0BMADq1lv8AYHknTV_QH
As this posting cannot set it all out.
Mr. G. H. Schorel-Hlavka
This is a great and highly important piece. What can be done to change the government is a good question. There is a concerted war waged against Solidarity by the corps and their fake unions.
We should adopt this statement as a proposed program for a Solidarity Society. We should recommend a return to the General Strike as a means to achieve it.
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