Thursday, February 26, 2009

Menger on Wealth and Prosperity

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger and the Teleological Nature of Economics

The following are Menger's main points in his discussion on wealth:

  • A person's wealth, as defined by Menger, is the sum of economic goods at that person's command.
  • Things with no economic character, even if they are goods, are not wealth.
  • Wealth, according to this definition, does not measure quantity of goods or human welfare. An increase in goods (and thereby an increase in welfare) can lead to a decrease in wealth.
  • Trust funds are not wealth, because they are not economized.
  • "Public wealth" are economic goods owned by the state and economized for the ends of the state.
  • "National wealth" is a misnomer, because the composite of individual economic actors is not itself an economic actor. What is called "national wealth" is really what Menger calls "a complex of wealths linked together by human intercourse and trade."

One of the most destructive misconceptions held by economic thinkers today is the conflation of wealth and prosperity. It is thought that the fewer economic goods (the sum of which is wealth) on the market there are, the worse-off people must be. This is one of the motivations behind the constant demands for the state to "stimulate" the economy into producing more economic goods, and thereby, purportedly, greater prosperity. As Menger here shows, wealth (the sum of economic goods) is NOT prosperity. Advancing techniques and technology, as Menger earlier showed, do indeed tend to turn non-economic goods into economic ones. But that is the result of finding ways of using resources more effectively, which increases welfare by more abundantly providing for real needs. More economic goods qua economic goods do not make people more prosperous.

(A) Vibrancy and prosperity in a society leads to (B) technical innovations which lead to (C) certain particularly useful economic goods (and thereby an increase in wealth) which lead back to (A). But (C) only leads to (A) because the new goods are particularly useful, not by virtue of the mere fact that they are economic goods. The muddle-headed economist sees the conjunction of prosperity, technical innovation, and economic goods, and concludes that an increase in economic goods (ANY economic goods) will in-and-of-itself magically give rise to the other two. And thus, according to this completely backward theory, the government can "stimulate" a virtuous circle of growth by funneling resources mindlessly into the creation of more economic goods. In reality, all this "pushing on a string" does is waste resources and thereby destroy true prosperity for the sake of a meaningless increase in the statistics of wealth.

This is the kind of folly endemic to the economic profession's ridiculous fascination with equilibrium models and complete abandonment of the careful study of causation.

Next in this series: Value Theory Before Menger

Wednesday, February 25, 2009

Menger and the Teleological Nature of Economics

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Economic Character of Higher Order Goods and the Deductive Method of Menger

Thus far, Menger has established that higher order goods only have goods character and economic character by virtue of the goods character and economic character of their corresponding lower order goods. Before Menger, many economists had this exactly backwards, perhaps falling for the common vanity of wanting to give their science the airs of physics. Perhaps they thought that, since a higher order good is prior to its corresponding lower order good, then the former must impart its value to the latter, like a cue ball imparting its energy to an 8-ball. As Menger showed, the proper way of thinking about economics is not the mechanistic analysis of impulsion and impact, but the teleological analysis of ends and means.

Next in this series: Menger on Wealth and Prosperity

Tuesday, February 24, 2009

Economic Character of Higher Order Goods and the Deductive Method of Menger

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Natural Communism

the existence of requirements for goods of higher order is dependent upon the corresponding goods of lower order having economic character.

If goods of lower order do not have economic character, then there would be no need to produce more of them (there are already plenty), and therefore, there is no requirement for the higher order goods used to produce them. And a good with no requirements necessarily can have no economic character, since quantities necessarily exceed requirements. Therefore...

the economic character of goods of higher order depends upon the economic character of the goods of lower order for whose production they serve. In other words, no good of higher order can attain economic character or maintain it unless it is suitable for the production of some economic good of lower order.

This is a nice, simple example of Menger's use of formal logic, and how Menger's method (like all good economics) is deductive. Let the following letters represent the following corresponding terms:

A: Higher order goods with non-economic corresponding lower order goods
B: Goods with no requirements
C: Goods with more available quantities than requirements
D. Non-economic goods

What Menger is saying is basically the following syllogism:
All A's are B's. All B's are C's. All C's are D's. Therefore, all A's are D's.

Next in this series: Menger and the Teleological Nature of Economics

Sunday, February 22, 2009

The Racket and the Cult

As I argued in my post The Sword and the Lie, the state is a symbiosis of violent criminals (the sword) and propagandizing intellectuals (the lie).

The sword needs the lie. Rulers always outnumber the ruled, so a reign predicated on bald criminality (like a protection racket) would shortly be overthrown. To maintain its power, a regime must transmute murder into justice, tribute into taxation, and slavery into citizenship in the minds of its subjects. To do that, it needs intellectuals.

The lie needs the sword. Elaborate scams based on lies and manipulations (like cults) are difficult to maintain. Eventually some people begin to see through the lies and speak out. To keep its hold on its flock, an elite must be able to silence or coerce dissenters. To do that, it needs thugs.

So which came first in the original state, the racket or the cult? And how did the first-comer bring its partner into the scheme?

Let us consider the sword preceding the lie. Thomas Paine speculated that:

“It could have been no difficult thing in the early and solitary ages of the world, while the chief employment of men was that of attending flocks and herds, for a banditti of ruffians to overrun a country, and lay it under contribution. Their power being thus established, the chief of the band contrived to lose the name of robber in that of monarch; and hence the origin of monarchy and kings.”1

But how exactly could the bandit chief have established such false legitimacy? The easiest thing to do what have been to brainwash the children. While the banditti’s first “subjects” would never forget the criminal basis of their subjugation, the malleable minds of their children could be molded to accept just about anything. And as keeping brains sufficiently washed became a bigger part of the enterprise, some of the bandits may have come to specialize in it. Thus, through division of labor, might the sword have begotten the lie.

How, then, might the lie have given rise to the sword? That question is easier to answer, because we’ve seen this happen in our own age. After the cult leader Jim Jones had acquired enough influence over his flock and managed to lead it into isolation from the rest of the world, it was quite easy for him to arm his most loyal supporters and thus gain coercive control over the rest. One can imagine a similar development happening in antiquity.

In fact, as I will argue in my next post, I believe just such a development was indeed the origin of the very first state in the world.

1 Thomas Paine, excerpted from Liberty and the Great Libertarians, edited by Charles T. Sprading


Friday, February 20, 2009

Brigands as Hunters of Men; Magistrates as Farmers

Hunting and livestock farming are both ways of coercively exploiting animals. The fundamental difference is that farming is stationary and involves the "breaking in" of the animal.

Aristotle thought of brigands as basically hunters.

Others support themselves by hunting, which is of different kinds. Some, for example, are brigands1

This makes perfect sense. And if brigands are hunters, then statesmen are farmers.
Watch the video below by Stefan Molyneux to see how:

  1. Nation-states are farms
  2. Citizens are livestock
  3. Public schools are training pens
  4. States allow certain freedoms only because of the greater productivity of "free-range livestock"

It is a crime against natural justice that we be treated as livestock. As Thomas Jefferson said,

"the mass of mankind has not been born with saddles on their backs, nor a favored few booted and spurred, ready to ride them legitimately."

1 Aristotle, Politics, Book 1

Menger on Natural Communism

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Economic vs. Non-Economic Goods

As discussed before, economic goods (goods for which requirements exceed available quantities) necessitate the existence of property in a society. Non-economic goods (goods for which available quantities exceed requirements), on the other hand, do not. A man will not feel the need to secure non-economic goods as property, because "even if all other members of society completely meet their requirements for these goods, more than sufficient quantities will still remain for him to satisfy his needs." Thus only with non-economic goods is true communism possible (not the false communism of modern times in which the effective property-holding of the ruling caste simply goes by other names), and indeed generally actual. Hesiod and his fellow Boeotians were communists when it came to the forests of Mount Helicon. And we are all communists when it comes to air and light.

Next in this series: Economic Character of Higher Order Goods and the Deductive Method of Menger

Thursday, February 19, 2009

Menger on Economic vs. Non-Economic Goods

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Property

If a good is scarce (that is, if requirements for it exceed its available quantities), then it is an economic good, which is to say it is economized.

If a good is not scarce (that is, available quantities exceed requirements for it), then it is a non-economic good, which is to say it is not economized.

For Hesiod, in Works and Days, grain is an example of an economic good. He warns Perses to:

  1. try not to lose it ("measure it and store it in jars. And so soon as you have safely stored all your stuff indoors...")
  2. try not to break it ("if you plough the good ground at the solstice, you will reap sitting, grasping a thin crop in your hand")
  3. try to prioritize what he uses it for ("Let a brisk fellow of forty years follow them, with a loaf (of bread) of four quarters and eight slices for his dinner")
  4. try to use it as efficiently as possible ("No younger man will be better than he at scattering the seed and avoiding double-sowing")

And for Hesiod, good wood during the autumn is a non-economic good ("There are lots of bent timbers: search for one on the mountains or through the fields").

He does NOT bother instructing Perses to:

  1. try not to lose it by gathering a bunch of it for future use
  2. try not to break it by storing it away safely in a shed
  3. try to prioritize what he uses it for by only limiting a certain wood to a certain use
  4. try to use it as efficiently as possible by taking care to not waste any of the forest's wood

A thing's economic character (its status as an economic good) is not intrinsic to the thing--just as its goods character (its status as a good) is not intrinsic either. Both are determined by the changeable relationship between the thing and rational actors who may or may not use it. Any given thing may be an economic good in one situation and a non-economic good in another.

there can be only two kinds of reasons why a non-economic good becomes an economic good: an increase in human requirements or a diminution of the available quantity.

In the example of Hesiod's Works and Days, the woods of Mount Helicon would change from non-economic to economic goods if

  • A. a technological revolution occurred which made the trees highly useful as fuel (an increase in requirements, and an example of what Menger calls, "advances in the knowledge men have of the causal connection between things and their welfare, as the result of which new useful purposes for goods arise.") or
  • B. there was a great forest fire (a diminution of the available quantity).

Conversely, there can only be two kinds of reasons why an economic good becomes a non-economic good: a diminution of human requirements or an increase in the available quantity.

For Hesiod, grain would change from an economic to a non-economic good if

  • A. men became gods who needed no bread for sustenance (an diminution of requirements) or
  • B. the blessed Golden Age were to return to men, and once again the fruitful earth, unforced, bore "fruit abundantly and without stint" (an increase in available quantity).

My examples above of non-economic goods becoming economic goods were quite realistic, and my examples of the reverse happening were quite fanciful. It actually makes sense that this would be the case. As Menger claimed, in real life, as civilization advances, the trend will be that of non-economic goods becoming economic goods...

chiefly because one of the factors involved is the magnitude of human requirements, which increase with the progressive development of civilization. If to this is added a diminution of the available quantities of goods that previously did not exhibit economic character (timber, for instance, through the clearance or devastation of forests associated with certain phases of cultural development), nothing is more natural than that goods, whose available quantities on an earlier level of civilization by far outstripped requirements, and which therefore did not show economic character, should become economic goods with the passage of time.

There are some goods, Menger notes, which are of special classes regarding whether they are economic or non-economic. Firstly, there are goods which would naturally be economic, but are artificially made non-economic by governments taking them over and offering them for free. He gives the example of water transported by the government from wet to dry areas. To my mind however, the general scarcity of the water still gives it economic character. In this case, the government has appropriated it as its effective (though not rightful) property. And due to its scarcity the government

  1. tries not to lose it
  2. tries not to spoil it
  3. tries to prioritize what they use it for (by transporting it to its favored constituents)
  4. try to use it as efficiently as possible (although they are limited in this endeavor by their lack of price signals)

Menger also gives the example of public education. Again, even in this case, there is still a scarcity of teaching services, and the government economizes (however incompetently) the teaching services in its command.

The second special class for Menger are goods which are naturally non-economic, but which are commandeered by a powerful party and made economic. He gives an example of a forest which reminds me of an ancient story.

In the Mesopotamian Epic of Gilgamesh, the Sumerian king Gilgamesh travels to the "cedar mountain" (Lebanon) to cut down trees for use in construction in his city of Uruk. He is confronted by the monster Humbaba who has an asserted claim on the trees. Humbaba couldn't possibly use all of these trees himself, so he hardly meets the Lockean criteria of property rights. But again, Menger seems to only consider effective property, and not rights. Since the available quantity of cedar trees exceeds the requirements of the entire near east at the time, they would naturally be non-economic goods. But since Humbaba has acquired a forceful monopoly on them, they are treated as economic goods.

Next in this series: Menger on Natural Communism

Wednesday, February 18, 2009

Morality, Reason, and Passion

Edwin Patterson, as quoted by Murray Rothbard, defines natural law as:

“Principles of human conduct that are discoverable by “reason” from the basic inclinations of human nature, and that are absolute, immutable and of universal validity for all times and places. This is the basic conception of scholastic natural law . . . and most natural law philosophers.”1

The word “principles” here might mean descriptive truths: for example that, “if you financially support your son into adulthood, then he will likely become lazy”; or that, “the best way to feed the world is through free markets.” This may be termed “positive natural law.” “Principles” could also mean moral principles:, whether it is simply wrong to let your son become lazy or to let people go hungry. Call this “normative natural law”. 

Individuals, then, would use positive natural law to rationally choose the best means to an end. Normative natural law would be used to rationally choose the ends themselves. 

Does normative natural law exist? 
Few doubt the truth of there being such a thing as positive natural law. Skepticism of normative natural law, however, goes back to the cultural relativism of the Ancient Greek sophists. The skeptic who is supposed to have buried normative natural law is that king of skeptics, David Hume. According to Hume, reasoning from natural law can only be used to choose practical means, and that moral ends are only chosen via emotions. 

“This is the second part of our argument; and if it can be made evident, we may conclude, that morality is not an object of reason. But can there be any difficulty in proving, that vice and virtue are not matters of fact, whose existence we can infer by reason? Take any action allow’d to be vicious: Wilful murder, for instance. Examine it in all lights, and see if you can find that matter of fact, or real existence, which you call vice. In which-ever way you take it, you find only certain passions, motives, volitions and thoughts. There is no other matter of fact in the case. The vice entirely escapes you, as long as you consider the object. You never can find it, till you turn your reflection into your own breast, and find a sentiment of disapprobation, which arises in you, towards this action. Here is a matter of fact; but `tis the object of feeling, not of reason. It lies in yourself, not in the object. So that when you pronounce any action or character to be vicious, you mean nothing, but that from the constitution of your nature you have a feeling or sentiment of blame from the contemplation of it.”2

As discussed and concurred with by Rothbard, A. Kenneth Hesselberg countered that Hume, in his own writings, inconsistently resorts to normative natural law. Hume states that man’s happiness depends on a social order. Hesselberg notes that the way a social order can be attained and preserved can only be found through contemplation of natural law. Therefore, according to Hume’s own theory, concludes Hesselberg and Rothbard, reasoning from natural law is needed for choosing ends. 

While Rothbard is my intellectual hero, I must here differ with him. In Hume’s construction, the social order is a means to the end of human happiness. And, as Rothbard himself states, Hume recognizes the value of natural law in choosing means. And, nowhere in his construction, does Hume ever promote the use of natural law to choose the end of human happiness; it is only promoted for choosing the means of social order. 

The establishment of moral axioms through reason alone also suffers from the problem of “progress ad infinitum“. A moral stance can be justified by another moral stance, which in turn is justified by yet another, and so on. Eventually there must be a principle of “unjustified justice” –a moral equivalent of Agrippa the Skeptic’s “unreasoned reason” and Aristotle’s “unmoved mover”–, and that can only be established by our emotions. 

So I don’t subscribe to Rothbard’s “reason-only” conception of normative natural law. We can’t be said to rationally choose our moral ends. But neither am I convinced by Hume that there is no such thing as natural morality. I believe there are certain emotionally-based moral feelings which all men have in common, and which are hard-wired in our nature. These include, among others, promotion of our genetic posterity, individual self-interest, respect for property, and fellow feeling. Such natural morality can be termed “law” by virtue of their being universal and constant, if not for being discoverable by reason. 

1Murray N. Rothbard, The Ethics of Liberty, Chapter 2: Natural Law as “Science”
2David Hume, Treatise of Human Nature, Book 3: Of Morals


Menger on Property

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Economizing

We do not live in paradise. There is always scarcity: requirements in society always exceed available quantities. Therefore there will always be individuals whose requirements are not met; and according to variant circumstances, there will always be varying degrees of to which the requirements of different individuals are met. Men in these conditions of scarcity, according to natural self-interest, will have opposing interests, as the means of meeting their requirements will often be under the control of others. These opposing interests can lead to violent conflicts. A society cannot survive without mores which protect people regarding their possessions, in other words, without property.

Since property is a necessary condition for society, it cannot be abolished without destroying the society. For example, even in a communist society, whichever cadre establishes the rules for the communal use of a good thereby has command of it, and to the degree that it holds the exclusive right to establish those rules, holds it as its property (however wrongly held it may be). Also individuals in a communistic society hold their rations of consumer's goods (food, clothes, etc) as property to the degree that the state does not allow other individuals to snatch those rations.

This seems to be a theory of effective property, and not one of rightful property, which, as I believe is irrespective of societal mores, and depends instead on individual natural morality.

Next in this series: Menger on Economic vs. Non-Economic Goods

Tuesday, February 17, 2009

The Sword and the Lie


I normally wouldn’t quote another work at such length, but the following seven paragraphs are devastatingly true and important, and need to be disseminated as widely as possible. I couldn’t summarize or abbreviate it without losing something crucial. I can only hope to encapsulate its lesson, as I try to in my own contribution after the quote.

From The Ethics of Liberty, Chapter 22, by Murray N. Rothbard:

Ideology has always been vital to the continued existence of the State, as attested by the systematic use of ideology since the ancient Oriental empires. The specific content of the ideology has, of course, changed over time, in accordance with changing conditions and cultures. In the Oriental despotisms, the Emperor was often held by the Church to be himself divine; in our more secular age, the argument runs more to “the public good” and the “general welfare.” But the purpose is always the same: to convince the public that what the State does is not, as one might think, crime on a gigantic scale, but something necessary and vital that must be supported and obeyed. The reason that ideology is so vital to the State is that it always rests, in essence, on the support of the majority of the public. This support obtains whether the State is a “democracy,” a dictatorship, or an absolute monarchy. For the support rests in the willingness of the majority (not, to repeat, of every individual) to go along with the system: to pay the taxes, to go without much complaint to fight the State’s wars, to obey the State’s rules and decrees. This support need not be active enthusiasm to be effective; it can just as well be passive resignation. But support there must be. For if the bulk of the public were really convinced of the illegitimacy of the State, if it were convinced that the State is nothing more nor less than a bandit gang writ large, then the State would soon collapse to take on no more status or breadth of existence than another Mafia gang. Hence the necessity of the State’s employment of ideologists; and hence the necessity of the State’s age-old alliance with the Court Intellectuals who weave the apologia for State rule.

The first modern political theorist who saw that all States rest on majority opinion was the sixteenth-century libertarian French writer, Etienne de la Boetie. In his Discourse on Voluntary Servitude, de la Boetie saw that the tyrannical State is always a minority of the population, and that therefore its continued despotic rule must rest on its legitimacy in the eyes of the exploited majority, on what would later come to be called “the engineering of consent.” Two hundred years later, David Hume—though scarcely a libertarian—set forth a similar analysis. The counter-argument that, with modern weapons, a minority force can permanently cow a hostile majority ignores the fact that these weapons can be held by the majority and that the armed force of the minority can mutiny or defect to the side of the populace. Hence, the permanent need for persuasive ideology has always led the State to bring into its rubric the nation’s opinion-moulding intellectuals. In former days, the intellectuals were invariably the priests, and hence, as we have pointed out, the age-old alliance between Church-and-State, Throne-and-Altar. Nowadays, “scientific” and “value-free” economists and “national security managers,” among others, perform a similar ideological function in behalf of State power.

Particularly important in the modern world—now that an Established Church is often no longer feasible—is for the State to assume control over education, and thereby to mould the minds of its subjects. In addition to influencing the universities through all manner of financial subventions, and through state-owned universities directly, the State controls education on the lower levels through the universal institutions of the public school, through certification requirements for private schools, and through compulsory attendance laws. Add to this a virtually total control over radio and television—either through outright State ownership, as in most countries—or, as in the United States, by the nationalization of the airwaves, and by the power of a federal commission to license the right of stations to use those frequencies and channels.

Thus, the State, by its very nature, must violate the generally accepted moral laws to which most people adhere. Most people are agreed on the injustice and criminality of murder and theft. The customs, rules, and laws of all societies condemn these actions. The State, then, is always in a vulnerable position, despite its seeming age-old might. What particularly needs to be done is to enlighten the public on the State’s true nature, so that they can see that the State habitually violates the generally accepted injunctions against robbery and murder, that the State is the necessary violator of the commonly accepted moral and criminal law.

We have seen clearly why the State needs the intellectuals; but why do the intellectuals need the State? Put simply, it is because intellectuals, whose services are often not very intensively desired by the mass of consumers, can find a more secure “market” for their abilities in the arms of the State. The State can provide them with a power, status, and wealth which they often cannot obtain in voluntary exchange. For centuries, many (though, of course, not all) intellectuals have sought the goal of Power, the realization of the Platonic ideal of the “philosopher-king.” Consider, for example, the cry from the heart by the distinguished Marxist scholar, Professor Needham, in protest against the acidulous critique by Karl Wittfogel of the alliance of State-and-intellectuals in Oriental despotisms: “The civilization which Professor Wittfogel is so bitterly attacking was one which could make poets and scholars into officials.” Needham adds that “the successive [Chinese] emperors were served in all ages by a great company of profoundly humane and disinterested scholars.” Presumably, for Professor Needham, this is enough to justify the grinding despotisms of the ancient Orient.

But we need not go back as far as the ancient Orient or even as far as the proclaimed goal of the professors at the University of Berlin, in the nineteenth century, to form themselves into “the intellectual bodyguard of the House of Hohenzollern.” In contemporary America, we have the eminent political scientist, Professor Richard Neustadt, hailing the President as the “sole crownlike symbol of the Union.” We have national security manager Townsend Hoopes writing that “under our system the people can look only to the President to define the nature of our foreign policy problem and the national programs and sacrifices required to meet it with effectiveness.” And, in response, we have Richard Nixon, on the eve of his election as President, defining his role as follows: “He [the President] must articulate the nation’s values, define its goals and marshall its will.” Nixon’s conception of his role is hauntingly similar to the scholar Ernst Huber’s articulation, in the Germany of the 1930s, of the Constitutional Law of the Greater German Reich. Huber wrote that the head of State “sets up the great ends which are to be attained and draws up the plans for the utilization of all national powers in the achievement of the common goals . . . he gives the national life its true purpose and value.”

Thus, the State is a coercive criminal organization that subsists by a regularized large-scale system of taxation-theft, and which gets away with it by engineering the support of the majority (not, again, of everyone) through securing an alliance with a group of opinion-moulding intellectuals whom it rewards with a share in its power and pelf.

There will always be crime: assault, plunder, and enslavement. We will always have “the Sword”. But mankind has natural safeguards to defend against crime: including the ability to recognize justice, and the ability to strike back against criminals.

There will always be deceit: slander, fraud, and supersition. We will always have “the Lie”. But mankind has natural safeguards to defend against deceit as well: reason, skepticism, and the senses.

The state is a pernicious partnership of the Sword and the Lie. The Lie fosters the Sword through twisted sophistries which establish a false legitimacy and engineered consent to disarm our natural safeguards against criminality. The Sword fosters the Lie through compulsory indoctrination (state religions and public schools) and through using its ill-gotten gains to corrupt the persuasive classes (state-beholden media and academia), all of which disarms our natural safeguards against deceit.

The state has us in bonds, but also under a spell. The former could not hold us without the latter. In order to break our bonds, we must first break the spell.


Menger on Economizing

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Available Quantities

When a good is scarce (when the requirements for it exceed its available quantity), men economize it, which means they (the quotes below are Menger's wording):

  1. try not to lose it ("maintain at their disposal every unit of a good standing in this quantitative relationship")
  2. try not to spoil it ("conserve its useful properties")
  3. try to prioritize what they use it for (" make a choice between their more important needs, which they will satisfy with the available quantity of the good in question, and needs that they must leave unsatisfied")
  4. try to use it as efficiently as possible ("obtain the greatest possible result with a given quantity of the good or a given result with the smallest possible quantity—or in other words, to direct the quantities of consumers’ goods available to them, and particularly the available quantities of the means of production, to the satisfaction of their needs in the most appropriate manner.")
Next in this series: Menger on Property

Monday, February 16, 2009

Because School Told Us


I recently taught a workshop about brains for a group of 24 5th graders. First I wrote on the board, “What does the brain do?” The students dutifully enumerated the standard list: controls your movements, thinks, feels emotion, controls your heartbeat, controls your body temperature; obviously they’d been studying this. Then I wrote on the board, “How do you know that?”

An awkward silence followed.

Finally a student hesitantly ventured, “Because school told us.”

“What if school is wrong?,” I asked. “Can school ever be wrong?”

I heard an indistinct rumble of “yeah” and “I guess.”

One student tried to resolve her cognitive dissonance by saying that we know because scientists have studied it.

I asked, “What if the scientists are wrong? Let me tell you a secret: scientists have been wrong about tons of stuff throughout the years. They were proved wrong by later scientists. How do you know that today’s scientists aren’t wrong about this? How can YOU know, from your own thinking and your own experience, that the brain does all these things: think, feel, move the body?”

“There was a smart guy a long time ago named Hippocrates who believed, like today’s scientists do, that thinking and emotion come from the brain. But there was another smart guy named Aristotle who said, ‘you know what, I believe thinking and emotion comes from the heart. What does the brain do: it sits there! It never budges an inch! How can all these amazing abilities come from something that doesn’t do anything? The heart is where all the action is: it’s constantly beating, boom-boom, boom-boom. That’s where you’re going to get exciting stuff like thoughts and feelings!’ So how do YOU know Aristotle is wrong, and that school and today’s scientists and Hippocrates are right?”

That’s when the students, one by one, stopped reciting, and started thinking. One student said that when he concentrates on his thinking, it feels like it’s happening in his head, and not in his chest. Another noted that when a person’s brain is damaged, their thinking and emotions are often changed. A third offered an argument-for-argument’s sake for Aristotle’s side saying that the heart is indeed involved in movement. A fourth countered with the example of paralysis from brain injury as proof that the brain is key to movement. For the rest of the intro, the students contributed evidence and arguments instead of memorized facts: except, that is, whenever their teacher interjected. Although she was basically pleased with the class, throughout the session I could tell she was perturbed by my approach. And every time she chimed in, she conducted little call-and-response exercises, pressing them to vocalize the various lobes and bulbs they had memorized, warning them, “this will important later in school!” She was my customer, so I could only sigh inside.

The role of teachers is to encourage students to reason for themselves and to question pedagogic authority. Memorizing facts may help children “perform” according the meaningless standards of formal schooling, but it will not make them true students of the world around and inside them.


Menger on Available Quantities

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Foreseeing Requirements

Successful human action depends on especially two kinds of knowledge.

  1. Foresight regarding requirements (quantities of goods necessary for the satisfaction of one's needs in the time period of one's plans), as discussed in my last Menger post, and
  2. Knowledge of stocks, or available quantities of the goods required.

Goods are considered "available" if a) they are in one's possession or b) they are in the possession of someone you have a "trading relation" with. The more division of labor, and thereby trade, there is in a society, then the more important, and the more difficult b) (above) will be. As such, in advanced economies, one finds businessmen going to great lengths and expense to accurately ascertain the available quantities "on the market". He cites as examples the exhaustive London grain reports, Berlin sugar reports, and Liverpool cotton reports of the time, the last of which...

contain periodical information about current stocks of the different grades of cotton in Liverpool, in England in general, on the continent, and in America, India, Egypt and the other producing regions; they inform us regularly about the quantities of cotton in process of shipment on the high seas (floating cargo), about the ports to which they are consigned, and whether the quantities in England are still in the hands of the wholesalers, already in the warehouses of spinners or other buyers, or assigned for export, etc.

Next in this series: Menger on Economizing

Sunday, February 15, 2009

Adam Smith and Hesiod

One does not need be a philosopher to have a working theory of morality. Nor need one be an economist to have a working theory of value. One can find implicit theories in the writings of any thoughtful person; and the ancient Greek poet Hesiod was a very thoughtful man.

Conversely, one can be a philosopher or an economist and still have their prejudices corrupt their lofty theories One can find such prejudices in the writings of any biased person; and Adam Smith was a very biased man.

Or at least it can be argued he was. Murray N. Rothbard, to my mind, has convincingly made the case1 that Adam Smith's labor theory of value was largely based on a Calvinist bias for work (for its own sake) and against consumption (except as a requirement to sustain work).

At first glance, one might see a similar ethic in Hesiod's Works and Days: particularly in the admonishments he gives his brother Perses to work. This would be a poor and shallow understanding of Hesiod's credo. Hesiod does not make a fetish of labor: far from it. In fact, he longs for the Age of Gold in which, as he believes, men were, "entirely free from toil."2

They had all good things: the grain-giving field bore crops of its own accord, much and unstinting3

And Hesiod sorrowfully regrets being born in the Age of Iron in which man must toil miserably all day stooped over the ground. For Hesiod, work is valued only by virtue of its role in satisfying needs: satiating hunger, keeping out the cold, and even enjoying a drink now and then.

It might seem strange to find religion in the Wealth of Nations and a subjective utility theory of value in a 2,700 year old poem which also discusses Zeus and Hephaestus; but it should not. Much folly can be found in the twisted sophistries of intellectuals, and much wisdom can be found in the simple beliefs of honest men.

1Murray N. Rothbard, An Austrian Perspective on the History of Economic Thought, Volume 1: Economic Thought Before Adam Smith, p. 457
2Hesiod, Works and Days, verse 109-126

Saturday, February 14, 2009

The Crippling of Curiosity


Modern schooling has served to cripple the intellectual lives of every generation since its inception.

In schools, children are herded and harrangued into completing academic chores.  These chores are usually utterly mindless, pointless, forgettable, boring, harrowing, or some combination of the above.  Some students never get the hang of it.  Some put their heads down and plow through it, because they know how important it is to their future.  Some have been conditioned so well by their Pavlov-like teachers that they come to enjoy the work for the sake of the expected reward.  And a few of them manage to find interest in the world of thoughtfulness despite all the schools do.  The kids in the last group (and a few in the second-to-last) end up as thoughtful adults.  A smaller subset of them become true philosophers, in the broadest sense of the term, with an insatiable curiosity and a lust for the truth.  But the majority of people end up as one in the burgeoning mass of the shallow and the frivolous.  Even those who manage to succeed in school, college, and even graduate school generally end up never reading a book from cover-to-cover again: let alone explore a school of thought, question long-held beliefes, or debate another person intelligently about politics, religion, or ethics.

That is why on the television show “Are You Smarter Than A Fifth Grader?”, the answer to the show’s fundamental, eponymous question is so often, “No.”  Many people peak intellectually in the fifth grade, or soon thereafter.  They cram their brain with as many facts and algorithms as they need to in order to succeed while in school, but then intellectually check out for the rest of their lives.


Aristotle on the State as Association

Aristotle argued that the state is the form of society with the highest purpose:

“Every state is an association of some kind, and every association is established with a view to some good; for mankind always act in order to obtain that which they think good. But, if all associations aim at some good, the state or political association, which is the highest of all, and which embraces all the rest, aims at good in a greater degree than any other, and at the highest good.” 1

But what would make the state the highest association: that it “embraces all the rest”? It does not. If two traders, one from Aristotle’s adopted city of Athens, and one from Athens’ mortal enemy Persia, contrive to evade political restrictions and trade with each other, then they are associating with each other. They have an association: one which transcends the bonds imposed by the brutish quarrels between their two states. Of course even broader associations than that existed, even in the ancient world. Let us say the Persian trader exchanged some gold for spices from an Indian trader. Then the Persian trades those spices for some pottery with the Greek trader. This is the kind of trade that happened countless times over in antiquity. And therein we have a super-national association that transcends a city-state, a kingdom, and an empire: and one which stretches from the Aegean Sea to the Indus Valley. It is the society that manifests out of peaceful world trade, and not the state, which “embraces all the rest”.

Furthermore, I would argue that a state is not even an association at all. Would you call the relation between a bandit and his victim an “association”? If not, then neither should you so term the relation between a ruling caste and its subject population.

1 Aristotle, Politics, Book 1, Part 1


The Relative Virtues of the Common Criminal

The only difference between the taxing state and a robber is that the former, through its apologists (ancient priests, modern experts, etc) makes you think its for your own good, and subjects you to a greater variety of injustice. In fact, the comparison makes the profession of robbery look downright benign. Lysander Spooner said it best…

The government does not, indeed, waylay a man in a lonely place, spring upon him from the roadside, and, holding a pistol to his head, proceed to rifle his pockets. But the robbery is none the less a robbery on that account; and it is far more dastardly and shameful. The highwayman takes solely upon himself the responsibility, danger, and crime of his own act. He does not pretend that he has any rightful claim to your money, or that he intends to use it for your own benefit. He does not pretend to be anything but a robber. He has not acquired impudence enough to profess to be merely a “protector,” and that he takes men’s money against their will, merely to enable him to “protect” those infatuated travellers, who feel perfectly able to protect themselves, or do not appreciate his peculiar system of protection. He is too sensible a man to make such professions as these. Furthermore, having taken your money, he leaves you, as you wish him to do. He does not persist in following you on the road, against your will; assuming to be your rightful “sovereign,” on account of the “protection” he affords you. He does not keep “protecting” you, by commanding you to bow down and serve him; by requiring you to do this, and forbidding you to do that; by robbing you of more money as often as he finds it for his interest or pleasure to do so; and by branding you as a rebel, a traitor, and an enemy to your country, and shooting you down without mercy if you dispute his authority, or resist his demands. He is too much of a gentleman to be guilty of such impostures, and insults, and villainies as these. In short, he does not, in addition to robbing you, attempt to make you either his dupe or his slave.1

1Lysander Spooner, No Treason No. 6, The Constitution of No Authority, part 3


The Role of the Libertarian Intellectual

On the Mises Institute boards, somebody asked the question, “Who is the founding father of libertarianism?” Board members responded with an nice mix of usual suspects and surprising ones. My first thought was John Locke. But then I reconsidered, and wrote (basically) the following:

John Locke’s property theory was absolutely essential for libertarianism as an intellectual stance. But, it doesn’t take philosophy to recognize natural property rights on a gut level. Therefore, I nominate the very first human. Such an individual, who, long before the false legitimacy of state theft and murder, knew all he needed to know about libertarianism.

Property-based libertarianism is written in our nature. It’s a moral axiom that is present in the heart of any man who isn’t mixed up by the sophistries of the state. A man doesn’t need to understand the politics of war to know that murder is wrong; neither need he understand how markets work to know that stealing is wrong. If it weren’t for state propaganda, there would be no need for libertarian intellectualism. Unfortunately the state, through its false economics and false political philosophy, has convinced mankind that the world is in a constant state of extremity, such that, without some men being given the power to murder, steal, and enslave with impunity, civilization will descend into chaos. False theory can only be fought effectively with true theory. The role of a libertarian intellectual therefore is not to weave intricate theories to justify justice itself (there is no need for that); rather it is to UNWEAVE the tangled fabric of state lies. That is why we need economics and political philosophy: to show exactly how the state’s purported necessary evils are simply evils, and thereby reveal to people their inner libertarian.


Menger on Foreseeing Requirements

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Effective and Latent Requirements

According to Menger, the first prerequisite of effective planning (which is considering how to satisfy future needs) is foresight regarding requirements (the quantities of goods necessary to satisfy the needs that will arise in the planned-for time period). This, like all economic laws, is universal for all men at all times. Examples of it can be found even in ancient literature. In Works and Days, a didactic poem by Hesiod (circa 700 BC), the exasperated poet/farmer tries to enjoin his wayward brother Perses to plan for his future instead of idling about and leeching off his family and community.1 Hesiod instructed his brother to gather and work wood in the autumn, when wood is least wormy. He went on to exactly enumerate the higher order goods Perses should fashion from the wood (of what kind, of what dimensions, and of what quantity) in order to satisfy the needs that will arise in the coming year. Here is the relevant passage:

When the piercing power and sultry heat of the sun abate, and almighty Zeus sends the autumn rains, and men's flesh comes to feel far easier, -- for then the star Sirius passes over the heads of men, who are born to misery, only a little while by day and takes greater share of night, -- then, when it showers its leaves to the ground and stops sprouting, the wood you cut with your axe is least liable to worm. Then remember to hew your timber: it is the season for that work. Cut a mortar three feet wide and a pestle three cubits long, and an axle of seven feet, for it will do very well so; but if you make it eight feet long, you can cut a beetle from it as well. Cut a felloe three spans across for a waggon of ten palms' width. Hew also many bent timbers, and bring home a plough-tree when you have found it, and look out on the mountain or in the field for one of holm-oak; for this is the strongest for oxen to plough with when one of Athena's handmen has fixed in the share-beam and fastened it to the pole with dowels. Get two ploughs ready work on them at home, one all of a piece, and the other jointed. It is far better to do this, for if you should break one of them, you can put the oxen to the other. Poles of laurel or elm are most free from worms, and a share-beam of oak and a plough-tree of holm-oak.2

1Hesiod was impelled to write the poem after being sued by Perses, who by bribing the presiding judges, managed to seize a portion of Hesiod's inheritance from their father. 2Hesiod, Works and Days, ll. 414-447

Next in this series: Menger on Available Quantities

Menger on Effective and Latent Requirements

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Foresight

Requirements, again, are the quantity of goods necessary for satisfying a man's needs during the time period of his plans. Let's say a man requires 6 cups of lemonade to satisfy his anticipated refreshment needs over the next week. Based on that requirement, he has a further requirements for higher order goods necessary to make the lemonade: 4 cups of water, 1 cup of lemon juice, and 1 cup of sugar. Unfortunately he only has 1/2 cup of lemon juice, and because of a food safety scare, he is unable to obtain any more. Since, with his limited supply of lemon juice he is only capable of making 3 cups of lemonade, he may only effectively require 2 cups of water and 1/2 cup of sugar; thus these quantities are called his effective requirements. His latent requirements of the higher order goods are still the first quantities mentioned, however, because, if possible he still would like his 6 cups of lemonade.

Next in this series: Menger on Foreseeing Requirements

Friday, February 13, 2009

The Lifeboat Lie

There is a moral code written in our nature. When we take up an unused piece of nature and begin to use it, we instinctively think of it as our property. We take instinctive affront when our person or our property is assaulted by others. We feel instinctive outrage when we see the person or property of others assaulted. And we feel instinctive guilt when, or at least after, we assault the person or property of others. This instinctive moral code is only shoved aside when we enter conditions of extremity (known in ethics as "lifeboat situations"), in which circumstances have forced the human community to devolve into a war of all against all. In those cases, we instinctively cast aside our communal moral feelings for the sake of extreme short-term selfishness. We morally allow ourselves “necessary evils”.

The state has deceived the bulk of humanity into believing that society is inherently in constant extremity: a perpetual "lifeboat situation" in which a great many "necessary evils" must be committed by the state, else the "lifeboat" of society will keel over and everybody will drown.. This is a lie. Society does not require for its survival, or even for its flowering, that certain men be above natural morality. The acts of murder, plunder, and enslavement committed by the state are not necessary evils.  They're just plain evils; just as much as if you or I committed them as private individuals.

Menger on Foresight

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Requirements

Man plans for the sake of satisfying his future needs. He may not know which needs he’ll end up having; even if he did, he may not know the exact quantities of goods required to satisfy those needs. Man has foresight, but not divination. 

But still he plans, using his reason and his senses to predict as best he can about his future needs.

Next in this series: Menger on Effective and Latent Requirements

Thursday, February 12, 2009

Menger on Requirements

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Human Drives and Human Nature

A person's requirements, as defined by Menger are

those quantities of goods that are necessary to satisfy his needs within the time period covered by his plans.

This term is somewhat analogous to "demand".

He notes that even savages plan ahead for future needs. If a hunter has enough meat to eat for today, but does not have enough meat salted in store for him to feel sufficiently secure, then he does not have his requirements met.

The more advanced an economy is (that is the longer its chains of production are), the further in advance do producers plan in anticipation of the needs of their consumers. Menger demonstrates with one of his many well-chosen examples:

When we are still wearing our heavy clothes for protection against the cold of winter, not only are ready-made spring clothes already on the way to retail stores, but in factories light cloths are being woven which we will wear next summer, while yarns are being spun for the heavy clothing we will use the following winter.

If an isolated economy has plenty of heavy clothes in its closets and stores for the current winter, but fails to spin yarn for the new coats that might be needed the following winter, then that economy is not meeting its requirements.

Next in this series: Menger on Foresight

Thursday, February 5, 2009

Menger on Human Drives and Human Nature

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 2.

Previously in this series: Menger on Time and Uncertainty

NEEDS ARISE FROM OUR drives and the drives are imbedded in our nature. An imperfect satisfaction of needs leads to the stunting of our nature. Failure to satisfy them brings about our destruction. But to satisfy our needs is to live and prosper. Thus the attempt to provide for the satisfaction of our needs is synonymous with the attempt to provide for our lives and well-being. It is the most important of all human endeavors, since it is the prerequisite and foundation of all others.

Menger's second chapter of his Principles starts with this splendid paragraph. In it, he seems (to my relief) to veer away from his seeming emphasis on objective needs. By saying that needs arise from internal drives, and not from some externally objective notion of what is good for us, it seems that Menger really means "recognition of needs" or "desires" instead of "needs". For how can, for example, the objective need for a body to have water to survive be said to arise from our drives? No, only our recognition of our need for water, and our resultant desire for water can be said to arise from our drives.

In his references to nature, Menger shows his Aristotelean bent. Aristotle argued that all things have a nature, and a thing's nature is to evolve into the state into which it generally tends toward; such a state is the thing's purpose.

For Aristotle, man's purpose was the polis. Menger, in this paragraph, however, took Aristotle's teleological view of man, and turned it toward his individualist and subjectivist view. Instead of a political animal, whose nature is to live in and for a polis, man is an economizing animal, whose nature is to pursue the satisfaction of his needs/desires.

Next in this series: Menger on Requirements

Wednesday, February 4, 2009

Higher Ground via Higher Orders

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 1.

Previously in this series: Menger on Complementary Goods

After establishing the nature of goods and the causal mechanism of their production in society, Menger makes the case that the progress of human welfare throughout history- everything that each generation has to be grateful to the previous one for- has been due to extending the chain of production by adding to it goods of increasingly higher order. The very definition of a gatherer society entails that it deals predominantly with low order goods; it gathers plant-life as food (a first order good). A more advanced society puts potential food into the ground to use it as seed (a higher order good), and thereby increases its prosperity. The building of a plow extends the production chain further. This progression has continued to the present day, when a bowl of cereal on my breakfast table is the end of a chain comprising several hundred orders of goods, each one making the process more productive. Thus the upward march of technique and technology for the benefit of mankind has been the story of adding ever higher orders of goods to the chain of production.

Next in this series: Menger on Time and Uncertainty

Tuesday, February 3, 2009

Menger on Time and Uncertainty

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 1.

Previously in this series: Higher Ground via Higher Orders

Adding higher orders to a production process necessarily requires more time to spent in that process. Technological improvements can shorten that time, but it can never eliminate it entirely; it will always take time to go from one order of production to another. A necessary result of adding time to the production process is to add uncertainty. Grain intended for the mill is a higher order good. But grain set for the field is of a higher order still. The grain intended for the mill will most likely end up producing a certain amount of bread: not too much more, and not too much less. There is a chance rats will get to it, or the granary will catch on fire: but these chances may be small. The seed-grain however will take more time before it will result in bread: time to be sowed, to germinate; time for its crop to grow and be harvested. At every step of the way, there are additional chances for the seed and its crop to be destroyed. However, there is also an upside to the risk: the seed could yield a bountiful crop. As Menger puts it:

A person with consumption goods directly at his disposal is certain of their quantity and quality. But a person who has only indirect command of them, through possession of the corresponding goods of higher order, cannot determine with the same certainty the quantity and quality of the goods of first order that will be at his disposal at the end of the production process.

Next in this series: Menger on Human Drives and Human Nature

Monday, February 2, 2009

Menger on Complementary Goods

This post is part of a series exploring Principles of Economics by Carl Menger.  The following explores content from chapter 1.

Previously in this series: Menger on Orders of Goods

Let's say you are out camping, and you would like a fried egg. The fried egg would be a consumer's good, or good of the first order. But in order to get a fried egg, you'd need the following second-order goods: a raw egg, some oil, a pan, and a fire. These second-order goods are "complementary" to each other. Since they are all needed to create the first-order good: there are "complementary goods". If any one of those complementary goods were unavailable, the other three would lose their goods-character regarding the creation of the fried egg; you'd end up with either hot oil, a charred egg stuck to the pan, completely incinerated egg and oil, or a raw egg stewing in oil. Unless there is an alternate use for these complementary goods, they would stop being goods altogether. For example, the fire and the pan might retain its goods-character if they could be used to cook other things. If there's no other food you want to fry, then the oil would lose its goods-character entirely. And course the raw egg would no longer be a good, unless you were starving (or a body builder).

As Menger puts it, "the goods-character of goods of higher order depends on our being able to command their complementary goods".

Of course, you need wood to make the fire, as well as a match (let's assume you don't know how to start a fire without one). The wood and the match, then, are goods of the third order; and they are complementary goods to each other. In the third order, just as in the second order, the two complementary goods depend on each other for their goods-character regarding the fried egg. But now there is a new type of condition. The third-order match and wood also depend on the second order pan for their goods-character regarding the fried egg. If the fried egg is the match's and the wood's economic purpose, and the fried egg is impossible for want of the pan, then the match and the wood loses all its purpose. Even though the pan is in a different order than the match and the wood, it is still a complementary good to those two.

Next in this series: Higher Ground via Higher Orders