Monday, February 7, 2011

Misesifying the Wiki: German Idealism, Utopia, and The History of Economic Thought

I wrote the following three Mises Wiki "stubs" (incomplete articles) by taking every paragraph from the first section of the introduction to Human Action, asking myself: "What topic would this paragraph best apply to?", plumbing my memory, and doing a bit of research.  I think this is a good approach to take, because, to be true to its name, the Mises Wiki really ought to use the thought of Ludwig von Mises as a starting ground.  Once I got used to the "Wikimedia" mark-up, and developed a workflow, it was very fun and addicting!  Every time I'd look at one of my stubs, I'd think, "Okay, now that really calls for a footnote citation, too!  I know I read something somewhere that would back that up..."  I invite any Misesian scholars (amateur or otherwise) to help me flesh out these (and other) articles, and to start new ones of your own.  Just set up an account at and use any of the great resources at the Mises Wiki help page to get started!

German Idealism

Ludwig von Mises was, to a large extent, discussing German Idealism when he wrote:
"Philosophers had long since been eager to ascertain the ends which God or Nature was trying to realize in the course of human history. They searched for the law of mankind's destiny and evolution. But even those thinkers whose inquiry was free from any theological tendency failed utterly in these endeavors because they were committed to a faulty method. They dealt with humanity as a whole or with other holistic concepts like nation, race, or church. They set up quite arbitrarily the ends to which the behavior of such wholes is bound to lead. But they could not satisfactorily answer the question regarding what factors compelled the various acting individuals to behave in such a way that the goal aimed at by the whole's inexorable evolution was attained. They had recourse to desperate shifts: miraculous interference of the Deity either by revelation or by the delegation of God-sent prophets and consecrated leaders, preestablished harmony, predestination, or the operation of a mystic and fabulous "world soul" or "national soul." Others spoke of a "cunning of nature" which implanted in man impulses driving him unwittingly along precisely the path Nature wanted him to take."[1]
"Cunning of nature" is a Hegelian interpretation of Immanuel Kant's "plan of nature" doctrine[2] "World soul" and "national soul" refer, respectively, to the concepts ofweltgeist and volksgeist, both of which are associated with the philosophical system of G.W.F. Hegel[3] According to Mises, Hegel purported to be a kind of prophet ofGeist.[4]
Mises was highly critical of these holistic doctrines, because they posited that "society is an entity living its own life, independent of and separate from the lives of the various individuals, acting on its own behalf and aiming at its own ends which are different from the ends sought by the individuals." Mises argued that only individuals act, and therefore starting "the study of human action from the collective units"[5] is unsound. Instead, Mises adhered to the principle of methodological individualism[6]
  1.  Ludwig von Mises "Introduction, 1. Economics and Praxeology"Human Action, online edition, referenced 2010-02-05.
  2.  "This expression was originally coined by Eric Weil to suggest a similarity with Hegel’s ‘cunning of reason’", Katerina Deligiorgi, "The Role of the ‘Plan of Nature’ in Kant’s Account of History from a Philosophical Perspective, Footnote 3.
  3.  "Spirit, so far as it is the immediate, truth, is the ethical life of a nation:--the individual, which is a world.", G.W.F. Hegel, The Phenomenology of the Mind, [ "Chapter VI" (accessed 02-07-2011).
  4.  "Hegel... was laboring under the delusion that Geist, the Absolute, revealed itself through his words. There was nothing in the universe that was hidden to Hegel." Ludwig von Mises, "Chapter III. Economics and the Revolt Against Reason: The Revolt Against Reason"Human Action, online edition, accessed 02-07-2011.
  5.  Ludwig von Mises, "Chapter II. The Epistemological Problems of the Sciences of Human Action, 4. The Principle of Methodological Individualism"Human Action, online edition, accessed 02-07-2011.
  6.  "First we must realize that all actions are performed by individuals. A collective operates always through the intermediary of one or several individuals whose actions are related to the collective as the secondary source. It is the meaning which the acting individuals and all those who are touched by their action attribute to an action, that determines its character.", Ludwig von Mises, "Chapter II. The Epistemological Problems of the Sciences of Human Action, 4. The Principle of Methodological Individualism"Human Action, online edition, accessed 02-07-2011.


utopia is a prospective ideal society. Socio-political schemes are considered particularly "utopian" when they are perceived to fail to give due regard to human nature, economic law, or any other primary consideration.
Ludwig von Mises, in discussing social philosophy before the advent of economic science, wrote:
"Other philosophers were more realistic. They did not try to guess the designs of Nature or God. They looked at human things from the viewpoint of government. They were intent upon establishing rules of political action, a technique, as it were, of government and statesmanship. Speculative minds drew ambitious plans for a thorough reform and reconstruction of society. The more modest were satisfied with a collection and systematization of the data of historical experience. But all were fully convinced that there was in the course of social events no such regularity and invariance of phenomena as had already been found in the operation of human reasoning and in the sequence of natural phenomena. They did not search for the laws of social cooperation because they thought that man could organize society as he pleased. If social conditions did not fulfill the wishes of the reformers, if their utopias proved unrealizable, the fault was seen in the moral failure of man. Social problems were considered ethical problems. What was needed in order to construct the ideal society, they thought, were good princes and virtuous citizens. With righteous men any utopia might be realized."[1]
The tradition that Mises discusses above goes as far back as Plato's socio-political scheme in The Republic[2]. Other notable pre-economic-science utopian reform theorists have been Sir Thomas More[3] and Sir Francis Bacon[4].


  1.  Ludwig von Mises, "Introduction, 1. Economics and Praxeology"Human Action, online edition, referenced 2010-02-05.
  2.  Murray N. Rothbard, "Plato's Right-wing Collectivist Utopia"It all began, as usual, with the Greeks, Excerpted from An Austrian Perspective on the History of Economic Thought, vol. 1, Economic Thought Before Adam Smith" (1995), referenced 2010-02-07.]
  3.  Sir Thomas More, Utopia ("Etext")
  4.  Sir Francis Bacon, The New Atlantis ("Etext")

History of Economic Thought

The History of Economic Thought is the history of theories concerning human action, and especially concerning the market process.
To quote Ludwig von Mises:
Economics is the youngest of all sciences. In the last two hundred years, it is true, many new sciences have emerged from the disciplines familiar to the ancient Greeks. However, what happened here was merely that parts of knowledge which had already found their place in the complex of the old system of learning now became autonomous. The field of study was more nicely subdivided and treated with new methods; hitherto unnoticed provinces were discovered in it, and people began to see things from aspects different from those of their precursors. The field itself was not expanded. But economics opened to human science a domain previously inaccessible and never thought of. The discovery of a regularity in the sequence and interdependence of market phenomena went beyond the limits of the traditional system of learning. It conveyed knowledge which could be regarded neither as logic, mathematics, psychology, physics, nor biology.[1]
Systematic treatments of logic, psychology, and biology were given as early as the 4th century B.C.[2] The sciences of mathematics and physics are even older.[3] Since ancient times, writers have made fragmentary insights into praxeological and economic considerations. However, economics as a science did not emerge until Richard Cantillon's Essai Sur La Nature Du Commerce En Général (written in 1730, and published in 1755), which was the first unitary and systematic treatment of the market process.[4]

Wertfreiheit and the Advent Economic Science

The approach taken with social philosophy before the advent of economic science was largely normative and utopian.[5] Yet, according to Mises,
"The discovery of the inescapable interdependence of market phenomena overthrew this opinion. Bewildered, people had to face a new view of society. They learned with stupefaction that there is another aspect from which human action might be viewed than that of good and bad, of fair and unfair, of just and unjust. In the course of social events there prevails a regularity of phenomena to which man must adjust his actions if he wishes to succeed. It is futile to approach social facts with the attitude of a censor who approves or disapproves from the point of view of quite arbitrary standards and subjective judgments of value. One must study the laws of human action and social cooperation as the physicist studies the laws of nature. Human action and social cooperation seen as the object of a science of given relations, no longer as a normative discipline of things that ought to be--this was a revolution of tremendous consequences for knowledge and philosophy as well as for social action."[5]
This "value-free" approach to the social sciences is known as "wertfreiheit".

[edit]The Limitations of Classical Political Economy

The "Classical Political Economy" tradition of Adam Smith and David Ricardo failed to formulate a sound theory of value and prices. They were unable to make the theoretical connection between market prices and consumer preferences. For this reason, consumers were left largely out of the picture. This limited the new method introduced by economic science to the treatment of people in their roles as producers. Thus economics was scorned as a useless science which only dealt with a fictional "homo economicus" (a man only concerned with monetary profit). As Mises explains,
"For more than a hundred years, however, the effects of this radical change in the methods of reasoning were greatly restricted because people believed that they referred only to a narrow segment of the total field of human action, namely, to market phenomena. The classical economists met in the pursuit of their investigations an obstacle which they failed to remove, the apparent antinomy of value. Their theory of value was defective, and forced them to restrict the scope of their science. Until the late nineteenth century political economy remained a science of the "economic" aspects of human action, a theory of wealth and selfishness. It dealt with human action only to the extent that it is actuated by what was --very unsatisfactorily--described as the profit motive, and it asserted that there is in addition other human action whose treatment is the task of other disciplines. The transformation of thought which the classical economists had initiated was brought to its consummation only by modern subjectivist economics, which converted the theory of market prices into a general theory of human choice."[6]
By "modern subjectivist economics", Mises is referring to economics after the formulation of the Marginal Theory of Value, which, by explaining the link between market prices and consumer preferences, finally permitted the application of the methods introduced by economic science to the "whole man": man as consumer, as well as producer.


Mises goes on to write,
For a long time men failed to realize that the transition from the classical theory of value to the subjective theory of value was much more than the substitution of a more satisfactory theory of market exchange for a less satisfactory one. The general theory of choice and preference goes far beyond the horizon which encompassed the scope of economic problems as circumscribed by the economists from Cantillon, Hume, and Adam Smith down to John Stuart Mill. It is much more than merely a theory of the "economic side" of human endeavors and of man's striving for commodities and an improvement in his material well-being. It is the science of every kind of human action. Choosing determines all human decisions. In making his choice man chooses not only between various material things and services. All human values are offered for option. All ends and all means, both material and ideal issues, the sublime and the base, the noble and the ignoble, are ranged in a single row and subjected to a decision which picks out one thing and sets aside another. Nothing that men aim at or want to avoid remains outside of this arrangement into a unique scale of gradation and preference. The modern theory of value widens the scientific horizon and enlarges the field of economic studies. Out of the political economy of the classical school emerges the general theory of human action, praxeology. The economic or catallactic problems are embedded in a more general science, and can no longer be severed from this connection. No treatment of economic problems proper can avoid starting from acts of choice; economics becomes a part, although the hitherto best elaborated part, of a more universal science, praxeology.[7]
Mises himself was the first economist to explicitly delineate the "general theory of human choice" that subjective value theory made possible. He first began to do so in his"Epistemological Problems in Economic Science"(1933), in which he referred to the general theory of human choice as "sociology". He further advanced the theory in"Human Action" (1940), in which he referred to it as "praxeology".


  1.  Ludwig von Mises, "Introduction, 1. Economics and Praxeology"Human Action, online edition, referenced 2010-02-05.
  2.  In Aristotle's OrganonDe Anima, and biological works
  3.  Systematic treatments of mathematics were given by the ancient Egyptians and Babylonians. Systematic treatments of physics were given by the pre-socratic philosophers.
  4.  Murray N. Rothbard, "Richard Cantillon: The Founding Father of Modern Economics, Excerpted from "An Austrian Perspective on the History of Economic Thought, vol. 1, Economic Thought Before Adam Smith" (1995), referenced 2010-02-07.
  5. ↑ 5.0 5.1 Ludwig von Mises"INTRODUCTION, 1. Economics and Praxeology"Human Action, online edition, reference 02-07-2011
  6.  Mises, ibid.
  7.  Mises, ibid.

Monday, January 17, 2011

Hazlitt on Justice

"...we recognize that Justice is not the ultimate ethical end, existing purely for its own sake, but is primarily a means, and even a means to a means. Justice and Freedom are the great means to the promotion of Social Cooperation, which in turn is the great means to the realization of each individual's ends and therefore to the realization of the ends of "society.""

"The subordination of Justice to a "mere" means, however important that means is regarded to be, may come as a shock to many moral philosophers, who have been accustomed to regard it as the supreme ethical end, at least in the social field. The extreme form of this view is epitomized in the famous phrase: fiat justitia, ruat caelum, or even fiat justitia, pereat mundus. Let justice be done though the heavens fall, let justice be done even if it destroys the world. Common sense draws back from any such frightful conclusion. But the answer to such slogans is not that we should be satisfied with a little less than Absolute Justice, in order to hold things together; the answer is that there is something wrong in the conception of justice embodied in such slogans. Justice was made for man, not man for justice."

Henry Hazlitt, The Foundations of Morality

Sunday, January 9, 2011

Intellectual Property and the Market Economy

Intellectual property results in monopoly prices and concomitant shortages, thereby harming the interests of consumers (all the members of society).  To demonstrate that, I present here a catallactic analysis of the function of ideas (recipes) in market production.

Recipes and Labor

As an act of production on the market, to formulate ideas (or recipes, in Misesian terminology) is to labor.  To formulate a recipe is to expend personal energy.  What the formulator directly gives up for the sake of formulating his ideas (his opportunity cost) is either his leisure, or the wages he might have otherwise earned had he not expended the personal energy to formulate the recipe.  It cannot be characterized as the performance of any other economic (catallactic) function.1  

It obviously cannot be characterized as a performance of the landowner function.  Neither can it be characterized as the performance of the capitalist function.  The formulator does not expend saved capital to directly formulate the recipe.  He may expend his savings on supporting his formulation of an idea (like, for instance, purchasing drafting materials). But supporting the thinking process is not itself thinking.  The act of thinking up an idea is itself labor, not the expenditure of saved capital.

Finally, it cannot be characterized as a performance of the entrepreneurial function, for the following reasons.

Entrepreneurs are uncertainty bearers. To truly bear uncertainty, one must be exposed to its downside, as well as its upside: to loss, as well as profit.  As Murray N. Rothbard pointed out, workers can in a sense be called entrepreneurs, because they are, like all humans, perpetually faced with uncertainty.  However, they cannot be said to incur entrepreneurial losses, since they cannot...
 “suffer negative incomes in production. Even if a laborer emigrates to a nation where pay turns out to be lower than expected, he ab­sorbs only a differential, or “opportunity,” loss from what he might have earned elsewhere. But he still earns a positive wage in production. Even in the unlikely event of a labor surplus vis-à-vis land, the laborer earns zero and not negative wages. But the capitalist-entrepreneur, the man who hires the other factors, can and does incur actual monetary losses from his entrepreneurial effort.”2
Because workers cannot be said to truly be subject to monetary loss, they cannot be said, in a strict sense, to fill the role of the entrepreneur in the Misesian framework of the market; a role which is by definition characterized by exposure to both profit and loss.  As Peter Klein has stressed in his work, the entrepreneurial function is predominantly filled by the capitalist-entrepreneur.3

Recipes and Economic Goods

For something to attain a price on the market, it must be an economic good, which is to say it must be scarce and rivalrous.  Recipes, in themselves, can never be scarce, and thus can never be rivalrous; recipes can never be economic goods.  Through enforcement, however, the privilege to utilize recipes, can be made scarce, and thus rivalrous.  Also through enforcement, the privilege to grant use-privileges for recipes can also be made scarce, and thus rivalrous.

Under most copyright and patent regimes, this usually entails the privilege to grant use-privileges for recipes being created, and granted solely to the formulator of the recipe.  This granting privilege is not created by the formulator-worker.  It is produced by whatever agency enforces the privilege, and granted to formulator, effectively, in exchange for his labor.  Thus, catallactically, the copyright/patent-holding formulator-worker can only be considered a hireling of the enforcing agency (generally the state) who is paid in privileges.

Again a recipe cannot ever be an economic good.  Only a marketable expression of the recipe (or a privilege to utilize it) can be.  Since the marketable expression can only be produced with saved, scarce means, it can only be produced by a capitalist, with the hired assistance of workers.  And in the real world of uncertainty, all capitalists are capitalist-entrepreneurs.

Recipes and Capitalist-Entrepreneurs.

Regardless of who originates a recipe, it must be adopted and acted upon by an capitalist-entrepreneur who gives the idea a marketable embodiment.  It is the capitalist-entrepreneur (whose own savings are on the line) who is the one who bears the uncertainty with regard to the scarce means invested in the physical expression of the recipe.  The person who, as a capitalist-entrepreneur, gave the recipe a marketable expression with saved scarce means may be the same person who, as a worker, formulated the recipe, but this need not necessarily be the case.  Thus the distinguishing characteristic of the functional concept of the capitalist-entrepreneur is not creativity per se, but judgment.4

Capitalist-entrepreneurs, by hiring labor and investing their savings, arrange and deploy the factors of production in order to better satisfy consumers in the future than they otherwise would be. An entrepreneur's way of arranging and deploying factors of production is a "how to" idea; it is a recipe.   Let us term such recipes "entrepreneurial recipes".  The capitalist-entrepreneur does not need to originally formulate a recipe; he need only judge it worthy of implementing, using his scarce means.  For example, an entrepreneurial recipe may be formulated by a hired middle manager.  But it can only be given expression by saved scarce means if it is adopted by the shareholders, as capitalist-entrepreneurs.  Even if the shareholders do not sign off on the plan (or even if they do not know about it), it is still their ultimate judgment which commits the saved scarce means to it, because they decided to put their capital under the revocable stewardship of the middle manager.

The better a capitalist-entrepreneur anticipates the future state of consumer tastes and desires, the more efficaciously, from the consumers' perspective, will he arrange and deploy the factors of production; in other words, the better will be the entrepreneurial recipe he adopted prove to have been. If his plan for arranging and deploying factors of production serves the consumers better than that of his competing entrepreneurs, he will make profits. If it serves the consumers poorly, he will incur losses. Profits put yet more of the factors of production in the hands of the entrepreneur who adopts an effective entrepreneurial recipe. So much the better for the consumers his judgment has served so well. Losses remove factors of production from the hands of the entrepreneur who adopts an ineffective entrepreneurial recipe. So much the better for the consumers he failed to satisfy.

Profits attract other capitalist-entrepreneurs to emulate the already-successful one. To emulate a successful entrepreneur is to copy key parts of his entrepreneurial recipe. The competition brought on by this emulation eliminates profits, but only gradually so. Early adopters of the key parts of the efficacious entrepreneurial recipe get high profits in direct correlation with how quick they were in arranging and deploying yet more factors of production according to the new and improved modus operandi. Consumer goods thus get cheaper, and entrepreneurs are thus impelled to move on to finding their next profit-lavishing, consumer-satisfying, and game-changing entrepreneurial recipe.

This is the way the market process works to continually transform the structure of production for the benefit of all (since we are all consumers).  Its functioning depends on the freedom of capitalist-entrepreneurs to adopt entrepreneurial recipes formulated by hired managers, and of other capitalist-entrepreneurs to emulated the successful entrepreneurial recipes of competitors.  Were formulators or first-adopters given sole privileges in the granting of use-privileges for entrepreneurial recipes, those use-privileges would command monopoly prices.  (Monopoly prices are discussed further below.)  This would result in drastic shortages of the entrepreneurial recipe use-privileges.  Since entrepreneurial recipes are present in almost every market event, this would cripple the market process.  Adoption and emulation would be entirely stymied, productivity would crash, and consumers (all the members of society) would suffer immensely.  Actually, a great portion of human population would die.

The above is important for the matter of intellectual property, because the chief catallactic importance of creative works is their role as entrepreneurial recipes. Remember, an entrepreneurial recipe is simply a way of arranging and deploying factors of production in anticipation of what will satisfy consumers better in the future. What is a vocal song? It is a way of arranging and deploying a human's vocal chords (which are factors of production) in order to please consumers of music better than they would have been had they not heard the song. What is a book? It is a way of arranging and deploying any digital or physical printing technology (which are factors of production) in order to please consumers of information, arguments, or stories better than they would have been had they not read the book.  It is the songwriter or author who, via his labor, originates a song or book.  But a marketable expression of his song or book requires scarce, saved means; it requires investment from a capitalist-entrepreneur (again, whether or not that capitalist-entrepreneur is the same person as the creator-laborer).

Moreover, the chief catallactic importance of technical inventions is their role as entrepreneurial recipes too. What makes a "more efficient" new design for a machine potentially useful is not the bare fact that it uses up certain resources less (like time, space, energy, coal, aluminum etc.). What makes it potentially useful is the anticipation that consumers will consider themselves better served if the resources saved by the new design are used instead for other purposes, and that they will not be too concerned about the machine perhaps using up certain other resources more prolifically. Thus, the efficient new design of a machine is also a way of arranging and deploying factors of production in anticipation of what will satisfy consumers better in the future.  It is the inventor who, via his labor, originates the design.  But a marketable expression of the design requires scarce, saved means; it requires investment from a capitalist-entrepreneur (whether or not the capitalist-entrepreneur is the same person as the inventor).

To make their case, advocates of patent and copyright law who base their advocacy on economic analysis, and who do not advocate intellectual property over entrepreneurial recipes, must explain how creative works and technical designs are different in their catallactic function from any other entrepreneurial recipe.

Recipes and Monopoly Prices

Some advocates of patent and copyright law have argued that monopoly prices do not necessarily harm consumer interests.  Below, I aim to demonstrate why the usual argument for this position is faulty.  First let us consider what monopoly prices are, why they are prejudicial to consumer satisfaction, and how they can arise due to intellectual property laws.

Monopoly prices occur when a monopolist is able to achieve higher net revenues by simply restricting supply, not so as to reallocate scarce means toward other consumers' goods more urgently demanded, but solely so as to raise his selling prices.  With monopoly prices (which are almost always brought about by government intervention), the consumer-oriented character of the market, and thus the harmony of interests that is characteristic of a capitalist society, breaks down to an extent.  Between consumers and producers, "with regard to monopoly prices there is not harmony, but conflict of interests."5

And, as Mises clearly states,
"recipes are as a rule free goods as their ability to produce definite effects is unlimited. They can become economic goods only if they are monopolized and their use is restricted. Any price paid for the services rendered by a recipe is always a monopoly price."6  
Sole ownership over the right to grant recipe use-privileges leads to monopoly prices for those use-privileges, because the sole owner can increase his net returns by restricting the supply of use-privileges, not for the sake of reallocating the privilege toward production more urgently demanded by consumers, but simply for the sake of increasing his selling price.  This results in use-privilege shortages, and thus shortages of the goods whose production requires them.  Therefore, sole ownership over the right to grant recipe use-privileges (in other words, intellectual property rights) harms the interests of consumers.

However, Mises did not take an unequivocal stand against copyrights and patents, for he admitted a possible exception:
"Yet there is an exception to this general rule that monopoly prices benefit the seller and harm the buyer and infringe the supremacy of the consumers' interests. If on a competitive market one of the complementary factors, namely f, needed for the production of the consumers' good g, does not attain any price at all, although the production of f requires various expenditures and consumers are ready to pay for the consumers' good g a price which makes its production profitable on a competitive market, the monopoly price for f becomes a necessary requirement for the production of g. It is this idea that people advance in favor of patent and copyright legislation. If inventors and authors were not in a position to make money by inventing and writing, they would be prevented from devoting their time to these activities and from defraying the costs involved. The public would not derive any advantage from the absence of monopoly prices for f. It would, on the contrary, miss the satisfaction it could derive from the acquisition of g."7
The advocate of copyright and patent law might say that often, creative works and technical designs are indeed needed for the production of goods that are potentially profitable (and thus serviceable to consumers); but, without copyright and patent laws, those creative works and technical designs would not attain any price at all.  They might argue that patents and copyrights are necessary to create monopoly prices for recipes (like the information content of a song or a blueprint), and that such monopoly prices are necessary to incentivize their creation, thereby making possible the wonderful consumer goods (like song recordings and physical machines) that depend on them.

Now in the case of f being a creative work or technical designs, it is actually impossible for a capitalist-entrepreneur to purchase f on the market, because, again, recipes cannot in themselves be marketable goods (see above).  The capitalist-entrepreneur who wants to produce g can only purchase the privilege to use f.

Yet, even if they accept this formulation, advocates of copyright and patent law might still take recourse to the above argument.  They might say that copyright and patent laws are necessary to create monopoly prices for privileges to use a recipe, by granting the sole privilege to grant use-privileges to the formulator of a recipe, and that such monopoly prices are necessary to incentive the creation of recipes, thereby making possible the wonderful consumer goods that depend on them.

However, the whole hypothetical scenario (presented in the block quote above) of any monopoly price for any kind of f benefiting consumers by resulting in g is faulty.  The core issue is the fact that complementary factors do not need to command prices on the market to be produced.  The production of the complementary factor can simply be hired as labor, as is done with all in-house talent.

The value of higher order goods is derived from the lower order goods they help to produce.  If, as is assumed in the hypothetical scenario, the production of f really is necessary to produce profitable good g, then a would-be capitalist-entrepreneurial vendor of g would have every incentive to acquire f.  And if he cannot purchase f on the market, he can simply hire somebody to produce f "in-house".

There are several upsides of producing something "in-house", perhaps foremost among which is avoiding transaction costs, as was pointed out by Ronald Coase.  There are also several downsides; for instance, as Rothbard noted, if a firm “vertically integrates” to the extent that it starts to completely subsume whole markets for its factors, it will start to suffer from calculation problems with regard to those factors.  The "make or buy" decision (as it is known in theory of the firm literature), like all decisions regarding capital on the market, are made by capitalist-entrepreneurs, with the aim of maximizing profits, by way of serving consumers better than their competitors.  Thus, in a market economy, "make or buy" decisions are ultimately under the sway of the sovereign consumers.  By not supporting a market price for f, the consumers are in effect supporting the "make" option with their dollars.  Anyone, including advocates of copyrights and patents, who insist that f be granted a monopoly price so as to make it saleable on the market, is essentially insisting on the "buy" option, in direct contravention to consumer preferences.


The formulation of recipes is labor.  The marketable expression of recipes can only be accomplished by capitalist-entrepreneurs, with the hired help of workers.  The market process depends on the fluid adoption and emulation of non-priced recipes.  The possession of sole privilege to grant recipe use-privileges by recipe formulators (or anybody else) results in monopoly prices, and thus shortages that harm the interests of consumers (all members of society).  Intellectual property, therefore, is prejudicial to the well being of all members of society.

1"The entrepreneurs, capitalists, landowners, workers, and consumers of economic theory are not living men as one meets them in the reality of life and history. They are the embodiment of distinct functions in the market operations." (Ludwig von Mises, Human Action, chapter 14, section 7.)

2Murray N. Rothbard, Man, Economy, and State, Chapter 9.

3Peter G. Klein, The Capitalist and the Entrepreneur.


5Mises, Human Action, chapter 24, section 3.

6Mises, Human Action, chapter 16, section 6.

7Note that Mises does not say whether patents and copyrights generally, or even ever, meet the criteria for a hypothetical case of a monopoly price actually serving the interests of the consumers.  He merely states that that is what "people advance" to make the case for patents and copyrights.

8Klein, The Capitalist and the Entrepreneur.


Friday, January 7, 2011

The Significance and Success of the Mises Academy

Over a century ago, a young statist read a book. His life was never the same again. In fact, his reading of that book changed the world. Last year, an online school opened its doors. In what follows I will explain how these two events are connected.

The book the young man read was Principles of Economics by Carl Menger, and the young statist himself was Ludwig von Mises. Mises would later write that reading Principles, "made an economist out of me." On that day, an intellectual odyssey began; a single, coherent project of intellectual advancement that continues to this day. This Misesian project has been both scientific and pedagogical; for science and pedagogy are two sides of the same precious coin of intellectual progress. Through science, man discovers truth; and through pedagogy, successive generations discover it anew.

The crystalline mind of Mises--clear, ordered, and intricate--refracted the discoveries of classical political economy and Mengerian economics into a complete picture of the sciences of man, and what they entail for the big political choices that lie before us.

But, again, science was only one side of the coin. Then came the teaching. For Mises, teaching what he had discovered was particularly urgent, because the ideology of his age disastrously attempted to contravene every law of human action. As he saw it, the western world, in chasing the chimera of socialism, was flinging itself headlong into a "crisis of interventionism" in which civilization itself would be in mortal danger. Picture a conscientious epidemiologist transported to plague-ridden, 14th-century Europe. Imagine the sense of urgency such a fellow would have. Then you can have an inkling of what it must have been like for Mises to hold in his hands economic truth in a time of politico-economic madness.

Unfortunately for the world, Mises found himself at a severe disadvantage in his efforts to teach. As Jeffrey Tucker says in his splendid speech Dissident Publishing: Then and Now, it often surprises people to learn that Mises was never a full professor at the University of Vienna. As Mr. Tucker explains, Mises had three strikes against him in the eyes of the German-speaking academic establishment: he was Jewish, not a socialist, and principled. But, Mr. Tucker goes on, Mises did not despair or give up; he simply found a work-around. He got a job at the Austrian Chamber of Commerce, and taught a private seminar out of his own office. This private seminar, the original Mises Circle, as Lew Rockwell writes in his moving essay Economics and Moral Courage, "grew into a full-blown economic society" before Mises was pressured out of Austria by the rise of Nazism, and the Circle was scattered to the four winds.
Years later, the Nazis forced Mises out of Europe altogether, and he took refuge in the United States. Yet, even in the "land of the free", there was no academic chair to be found for a true liberal, no matter how brilliant and accomplished. But Mises once again found a work-around. As Mr. Rockwell tells us, some of Mises' American admirers, "put together a fund that would provide Mises a position at New York University, where he could teach and write. He was not paid by the university, where he was always a visiting professor, but through a private endowment."

While countless others in his time abjured principle in order to "get along" with their careers (Mises' colleague in Austria Hans Meyer being the paradigm of this type), Mises always preferred the challenging, creative work-around over the easy, dishonest compromise.

That was also the principled approach Lew Rockwell took when, inspired by the examples of Mises and Murray Rothbard, he founded the Mises Institute. As Jeffrey Tucker explained in the speech mentioned above:
That's what the Mises Institute is about. We go outside official channels, and we try to make a difference. We've inherited this tradition.
The Mises Institute honors this inheritance in promoting unfiltered, unflinching Misesian science and all its pro-liberty implications by going outside official lecture channels with its Mises Universities and Mises Circles, by going outside official publishing channels with its web sites, books, and journals, and now by going outside official classroom channels with the Mises Academy. As of now, the Mises Academy does not offer credits that can be applied to a state-accredited school; what it does offer is real knowledge that can be applied to a state-afflicted world.

You see, we all share one unfortunate thing in common with Mises. We too live in a time of politico-economic madness. But we, like Mises, must never give in to disaster, but strive ever more boldly against it. For, as Mises wrote in the Conclusion of Socialism:
Society lives and acts only in individuals; it is nothing more than a certain attitude on their part. Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us.
But, you might ask, how can "every man" take part in a "great historical struggle" that is fought with intellectual armament? Isn't such combat a matter solely for the experts? Solely for those with PhDs or working toward their PhDs? Although he was fully aware that creative geniuses like himself were few and far between, Mises would have none of that. As he wrote in Human Action:
Economics must not be... left to esoteric circles. It is the philosophy of human life and action and concerns everybody and everything. It is the pith of civilization and of man's human existence. (...) 
There is no means by which anyone can evade his personal responsibility. Whoever neglects to examine to the best of his abilities all the problems involved voluntarily surrenders his birthright to a self-appointed elite of supermen. In such vital matters blind reliance upon "experts" and uncritical acceptance of popular catchwords and prejudices is tantamount to the abandonment of self-determination and to yielding to other people's domination. As conditions are today, nothing can be more important to every intelligent man than economics. His own fate and that of his progeny is at stake. 
Very few are capable of contributing any consequential idea to the body of economic thought. But all reasonable men are called upon to familiarize themselves with the teachings of economics. This is, in our age, the primary civic duty. 
Whether we like it or not, it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society's fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen.
In the two passages quoted above, Mises packed an entire manifesto into nineteen sentences: a general call to intellectual arms one might call the "Misesian Injunction".

The Mises Institute, more than any other organization, has heeded the Misesian Injunction by taking what has sneeringly been called a "populist" approach, but which would be more accurately characterized as public education in the best sense of that term.

The Mises Academy was a natural next stage in the Mises Institute's pedagogical mission. We have the openly available literature (and other media) to fill out a world-class syllabus, thanks to the tireless efforts of Mr. Tucker and his team. We have the expert teachers thanks to the educational groundwork provided years ago by Murray Rothbard and his students. We have the growing throng of brilliant students, largely thanks to Ron Paul's presidential campaign. And we have the communicative catalyst of the internet at hand, finally powered with the technology to make an all-online course effective. The Mises Academy brought these four reactants together, and the result has been powerful and brilliant.

It all started in spring 2010 with a single course, Understanding the Business Cycle with Robert Murphy.  Turnout for the course was huge: over 200 students.  And the post-class feedback was hugely and enthusiastically positive.  Then in the summer, with a slate of 3 courses we expanded from economics proper to economic history.  With the summer courses already underway, public awareness of F.A. Hayek’s classic, The Road to Serfdom, exploded.  The Mises Academy, with the reflexes and nimbleness that you’ll only find with an online, consumer-driven university, turned on a dime to seize the moment.  Thomas DiLorenzo was enlisted to teach a course covering the book, and the Mises Academy had another huge hit.  In the fall, the Academy broadened its horizons even further with courses on political history, legal history, and even legal theory.  With every new season, the enrollment numbers have swelled, relative to the previous season.  Hundreds upon hundreds of students have been guided through fascinating and enormously important subjects by top Misesian scholars, and they continue to love it.

And what's not to love?  This is not the online education of yesteryear, which generally consisted of little more than an online reading list.  Mises Academy classes have live video sessions, in which you can pose questions directly to, and get real-time answers from, economists like Robert Murphy, Thomas DiLorenzo, and Peter Klein; historians like Tom Woods, David Gordon, Doug French, and Hunt Tooley; and even to our resident legal scholar, Stephan Kinsella.  These are brilliant scholars who have made, and continue to make, tremendous advances for the scholarship of liberalism in the Austrian tradition.  Countless readers will never look at Lincoln the same because of DiLorenzo, or look at intellectual property the same because of Kinsella, or look at the 2008 market crash the same because of Woods.  Now, you can pour a glass of wine or grab a beer, fire up your laptop, and study with these outstanding thinkers in the comfort of your own home.

Students have greatly appreciated the lectures.  However, what's really unique about the Mises Academy experience is the question and answer period.  Not only have these sessions been useful opportunities for students to clear up anything they don't understand about the weekly topic, but students have loved just chatting it up with Mises Academy professors.  Conversations have ranged from hope for the cause of liberty, to the political and economic news of the day, to anecdotes about Ron Paul and Murray Rothbard.

Add to this a complete hyperlinked syllabus, archived lectures, course forums, and optional graded assignments such as quizzes and papers, and you've got yourself an exquisite educational experience.  Just ask repeat student Marc Abela, who took courses with Stephan Kinsella, Doug French, and Robert Murphy:
"Thank you so very much for all the excellent work — very few classes have really changed my life dramatically, actually only 3 have, and all 3 were classes I took at the Mises Academy, starting with Rethinking Intellectual Property (PP350) (the other two were EH476 (Bubbles), and PP900 (Private Defense)). …
My purposes for taking the classes are: 1. just for the fun of it, 2. learning & self-education, and 3. to understand what is happening with some degree of clarity so I can eventually start being part of the solution where I live — or at least stop being part of the problem.
The IP class was a total blast — finally (finally) sound reasoning. All the (three) classes I took dramatically changed the way I see the world. I'm still digesting it all, to tell the truth. Very few events in my life have managed to make me feel like I wished I was 15 all over again. Thank you. …
[M]uch respect and admiration for all the great work done by all the members of the whole team."
With our winter offerings, we've expanded our repertoire even further, with a slate of 6 courses on such a wide range of topics as to cover logic, Lincoln, libertarian law, the Fed, the internet, and basic economics.  What's more, we've taken advantage of digital economies of scale to slash our prices by 40%.

As Mises wrote, "everyone, in his own interests, must thrust himself vigorously into the intellectual battle."  For this, we hope you will make the Mises Academy your intellectual armory.

Monday, December 27, 2010

Political Economy: False Choices and the True Dilemma

In 1789 a group of men gathered in Paris to sound the death knell for the ancien regime, and to inaugurate the modern political world.  But there were some differences among them.  Some wanted to abolish the old order more completely.  Others wanted to retain some vestiges of the old privileges.  In this "National Constituent Assembly" of France, the ideological birds of a feather sat together; the more radical members on the left, the more conservative members on the right.

On that day, on the eve of the French Revolution, not only was the modern political world born, but so was its terminology.1  To this day, politics is bisected into a "left wing" and "right wing".  Now with regard to specific fleeting political agendas, vague distinctions like this make sense.  Movable umbrella terms are necessary since legislation involves shifting coalitions of people who do not agree on every single point.  The trouble starts when the terminology of the political moment is imported wholesale into the language of science, in which precise, fixed distinctions are called for.  The "left/right" divide is downright confusing for social science.

Where this confusion is most pronounced is in intellectual discussion of western society following World War I. According to common opinion, there are two politico-economic extremes: communism (or socialism) on the left, and fascism (or Nazism) on the right.  Sound policy then is considered a balancing act between two opposite forms of totalitarianism.  If one leans too far to the left toward the interests of the poor and weak, one arrives at communism/socialism.  Veer too far to the right toward the interests of the rich and strong, and you get fascism.  This political taxonomy is entirely unscientific.  Neither fascism, nor Nazism have ever been scientifically identifiable social orders.  They are party platforms, and thus are assemblages of often-contradictory ideas and slogans.  Calling fascism a "social order" makes as little sense as calling "Tea Partyism" or "Blue Dog Democrat-ism" a social order.

Moreover, as Ludwig von Mises demonstrated2, the allegedly "right-wing" social order of Nazi Germany was just as much socialism as was Lenin's Russia.  Through economic interventions the German government completely took over the economy.  The only "market" left was a sham.  Private individuals owned the means of production in name only.  Real ownership of the means of production was in the hands of the state.  This is what Mises called "socialism of the German or Hindenburg pattern".  This variety of socialism is also known as Zwangswirtschaft, which is basically German for "compulsory economy".  Those who were once entrepreneurs, devolve in a Zwangswirtschaft into mere shop manager (Betriebsfuhrer in Nazi legalese), following the orders of a central command.

The only way in which "socialism of the Russian or Lenin pattern" (as Mises termed the more familiar variant of socialism) is distinct from the Zwangswirtschaft is in the non-essential fact that it has no such veneer of faux-private ownership.  Its socialism is simply more overt.

Another way of stating this is as follows.  In the populist propaganda of Bolshevism, under "socialism of the Russian or Lenin pattern" the people ostensibly own the state, and the state in turn owns the means of production.  While, under the sham capitalism of Nazism and "socialism of the German or Hindenburg pattern", the people ostensibly own the means of production, but the state in turn owns the people.

Thus these occupants of different political "poles" really occupy the same ground, and are only separated by a trivial technicality: the existence or absence of a sham market.  Each variant of socialism does indeed have its own distinctive path.  But it has nothing to do with "left vs. right", "poor vs. rich", or "weak vs. powerful".  Rather, it is a matter of "bureaucratization vs. interventionism".   Bureaucratization, by forthrightly gobbling up the market bite-by-bite, leads to the overt socialism of the Russian or Lenin pattern.  Interventionism, by subtly crippling the market and replacing it incrementally with a network of government diktats, leads to the sham market of socialism of the German or Hindenburg pattern.3

Revolutionary socialist governments, like the Nazi and the Bolshevist states, will generally adopt one path or the other.  But it is by no means necessarily an either/or choice.  Gradual approaches toward socialism, like the one the U.S. is currently taking, often rely on both: here overtly socializing an industry via nationalization, there covertly socializing an industry via market interventions.  And one type of socialization often leads to the other.  Thus through this gradual, dual approach to socialization, one can imagine what one day might be called "socialism of the American pattern" arising, characterized by a hodgepodge of vast bureaus and sham markets.

Thus it is conceivable that there can be a single socialist system that is a mixture of the two varieties of socialism.  However, a mixture of capitalism and socialism is entirely inconceivable, in spite of the fact that many think of all real world economies as "mixed systems".4

As Mises wrote, the mere existence of some bureaus and state-owned firms does not alter the capitalist nature of society and make it a "mixed system" of capitalism and socialism.  Such institutions, although they are inept in comparison with private firms, exist in the midst of a market society.  Because of this, they have recourse to market prices, and can thus have some rationality in their budgets.  Rationalization of the social division of labor is thus still effectuated by the market.

Another important distinction is that, according to Mises, bureaucratization is not a form of interventionism.5  Bureaucratization makes people poorer to be sure, but it does so by constraining the ambit of the market, not by interfering in its workings.

Some have said "interventionism" is system in-and-of itself, and they propose it as a sensible, "middle of the road" policy between capitalism and socialism.  Mises exploded this fallacy.  Utilizing the findings of classical political economy, as well as the findings of modern economics (including his own original insights), he demonstrated that all economic interventions are, in effect, contrary to the purposes of all; including the purposes of those who advocate them.6  They are thus destructive, not constructive.  Interventionism is not a system of social production; it is nothing but a hampering of capitalism.  A hampered capitalist order is still a capitalist order.  The social division of labor in a hampered capitalist order is always effectuated by the sectors of the market which have not yet been crippled by interventions.

When one is confronted by the contrary-to-purpose effects of an intervention, one has two choices in dealing with those effects.  One can undo the intervention, in which case one chooses capitalism.  Or one can try to eliminate the harm with further intervention.  However, further intervention can only lead to still more harm, which would thus call for yet further intervention.  Thus, if one does not choose capitalism, one must choose ever-increasing interventions, which ultimately will completely destroy the market and culminate in socialism of the German pattern.7  If one does not choose capitalism, one chooses socialism.

Not everybody associates "fascism" with the economic policy of the Nazis.  Those who know their history remember that part of the economic policy platform of Benito Mussolini, the founder of fascism, was "corporativism", in which production was directed by "corporatives", each of which represented the participants of a specific industry.  Some even call our present economic order "fascist", because they equate "corporatism" with the "corporativism" that they identify with fascism.  But corporations lobbying for privileges (corporatism) is not the same thing as whole industries collectively owning the means of production relevant to their industry (corporativism).  The two notions are distinct, and must be treated separately.

Corporatism is not a system of social production.  Corporations lobby for privileges which hamper capitalism, it is true.  But, regardless of who instigates the hampering, hampered capitalism is capitalism nonetheless.

And as Mises explained, corporativism is no more a permanent social order than is interventionism.8  The crux of the matter is: who is to determine policy decisions within a given corporative: the landowners, the capitalists, or the workers?  If the state adjudicates between them, then it is the state which is essentially disposing of the means of production, and thus corporativism devolves into socialism.  If the corporatives operate according to a democratic principle, then it is the majority workers who will dictate policy, and thus corporativism devolves into syndicalism.

Under syndicalism, the means of production of each industry are owned by the workers of that industry.  The syndicalist program is distilled by the slogans, "the railroads to the railroadmen!" and "the mines to the miners!"  Syndicalism too has been put forth as another candidate as a "third way" between capitalism and socialism.  But syndicalism is no system of social production either.9  As soon as the needs of society change in the slightest, how is a syndicalist order to adapt?  Under capitalism, shifts in consumer demand adjust prices.  In seeking profits, entrepreneurs try to anticipate these price adjustments, and thereby adjust the structure of production to best satisfy consumer wants in the new state of affairs.  In the flux of the market, resources shift from one industry to another, in response to consumer demand.  But, under syndicalism, why would any producer's syndicate acquiesce to a diminution of its importance and wealth in society?  Production is for the sake of consumption, never the other way around.  Therefore, any system of social production worthy of the name must have some means of at least conceivably adjusting production for the sake of consumption.  Even socialism ostensibly fits this bill, because the central administration at least has the authority to adjust production by diktat, in order to try to better serve society (if not the intellectual means to do so rationally).  But no syndicalist has ever put forth any idea of how a syndicalist state would do so, that did not involve becoming, in essence, capitalism or socialism.

Thus, every economic policy decision is a two-pronged fork in the road; there is no third prong.  And neither are the two prongs toward the "left" and the "right".  There is capitalism, and there is socialism.

One is tempted to say that the two prongs are "forward" and "backward".  This would be to adopt the strategy of the Marxists who characterized everything they liked as "progressive" (as well as everything the disliked as "reactionary").  But again, this would be eschewing scientific distinctions for political word games.  The honest man does not rely on catchwords and slogans, in hopes that the gullible public will latch onto his program by dint of its association with words that resound favorably in their ears.  The honest man tries to speak to the mind of his auditors, not to their ears, because he is confident in the inherent strength of his ideas.  He will even accept unflattering names for his position, and grant flattering names to his opponent's position, if that will but put an end to the distracting word games, and allow the true debate to begin.

What is more "social" than the coordinated ecumenical society of mutual benefactors produced by capitalism?  It is true that capitalism progresses via the accumulation of capital.  But the upshot of increased capital in proportion to labor is an increase in the marginal productivity of labor, and thus a rise in real wages.  And if anything is prejudicial to the vested interests of the already-rich capitalist, is it not pure capitalism, which does not let him rest on his laurels, but demands that he put himself up to the test of the market again and again, lest his fortune gradually dwindle?  Thus should not the market order be given a more flattering (and descriptive) name than "capitalism"?  Should not socialism, that fundamentally anti-social program, be stigmatized with an ugly appellation?

Such are the distracting games of demagogues, and they would only slow liberalism down.  The most direct path to success is to use the terms at hand, as they are found in the best literature in our tradition (which happens to be the oeuvre of Ludwig von Mises), and simply explain what we mean by them.  Any sane person who learns what is truly entailed in "that which is called capitalism" and what is truly entailed in "that which is called socialism" will choose the former over the latter.  That is because socialism (which, again, is the only direction one can choose besides capitalism) is social suicide.  As Mises irrefutably proved as early as 192010, the socialist state has no way of rationally directing production.  Socialism means discoordination, capital consumption, famine, and death.  Thus between capitalism and socialism (which, once more, are the only two choices), the informed chooser could not have an easier choice to make.

And this is the choice that is before everybody.  The fact that everybody in their right mind would choose capitalism, if only they knew what the choice really meant, is why there is a harmony of interests.  Cognizance of this harmony of interests is what underpinned the scientific liberalism (one might call it "harmonist doctrine", as Mises does11) that first arose in the writings of men like Hume, Smith, and Condillac; that intellectually won the field in the days of Ricardo and Say; and that had its greatest impact on policy in the days of Cobden and Bastiat.  And it was the denial of this harmony of interests-- what amounted to a philosophy of irreconcilable conflict (or, as Mises termed it, an "anti-harmonist doctrine")-- that underpinned the revolt against liberalism which reached its culmination in the twentieth century.

This philosophy of irreconcilable conflict is yet another common feature between the totalitarians of the so-called "left" and "right".  With the overthrow of liberalism, the world once again came to embrace the "Montaigne dogma"12: the incorrect notion that no group can gain except by another group's loss.  This was the social philosophy of the mercantalists, which was heroically overthrown by the early liberals.   The people of the early 20th century west came under the sway of the new "anti-harmonism", dominant among the intellectuals of the time.  Thus, adherence (or at least acquiescence) to the party programs of the both the "far right" and "far left" came naturally to them.  They either adopted the lebensraum doctrine of national conquest promoted by the Nazis, Fascists, and other national imperialists, or the doctrine of perpetual class warfare promoted by the internationalist Marxists.  As Mises brilliantly characterized it, the only important difference between the two doctrines, was that one divided society into irreconcilable camps vertically (along national lines) and the other did the same horizontally (along class lines).13

The sooner classic liberals abandon the sloppy distinctions of party politics,  and adopt the scientific distinctions of Ludwig von Mises, the better will it be for our efforts in explaining to our fellow man the stark choice that lies before him.  Right vs. left, fascist vs. communist, all the alleged "middle ways" (interventionism, syndicalism, corporativism, etc.): these are all false choices.  As Mises demonstrated, ultimately there is one true dilemma in political economy: capitalism vs. socialism.

1Dean Russel, The First Leftist

2Ludwig von Mises, Socialism

3Mises, Critique of Interventionism

4Mises, Socialism

5Mises, Bureaucracy

6Mises, Interventionism: An Economic Analysis

7Mises, Interventionism: An Economic Analysis


9Mises, Socialism

10Mises, Economic Calculation in the Socialist Commonwealth

11Mises, Theory and History

12Mises, Human Action

13Mises, (gotta look up where I read that)