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Last Knight Live Blog 20 Kraus

January 11, 2008

Economics is a science that studies production of wealth, i.e. material goods to satisfy human needs, in a division of labor society. Behind this simple definition stands the desire to understand factors that are responsible for high and rising productivity of labor. The material comfort, indeed the very survival, of billions of people depends on the knowledge of what to do to maintain the existing relatively high level of productivity of labor and how to raise it even further so as more and more people around the world will be able to enjoy high and rising living standards. Production and distribution of even the simplest goods presupposes the availability of physical means of production such as raw materials, tools, machinery, means of transportation etc and which involve thousands of individual producers in many different parts of the world. At the bottom, it is a process best characterized as the outcome of cooperation of thousands of individual scientists, innovators, investors, bankers, businessmen, workers. Cooperation in production is precisely the element that defines a division of labor society. The great value of economics is that it shows what promotes cooperation and what prevents it from flourishing.

Economics is an abstract system that organizes concepts describing real world economic phenomena and relationships in a logical and integrated manner. Precisely because it is directly involved with practical problems of economic organization by way of description and explanation of real-world economic phenomena, it is in position to provide serious recommendations as to the proper course of actions to undertake and what institutions to establish in order for a society to produce more and better consumers’ goods. Economics thus becomes an extremely powerful intellectual tool that helps us to evaluate certain normative ideals such as individualism and collectivism and the political systems which are inspired by these ideals.

This is how Mises saw and practiced the science of economics and this is that made him one of the greatest economists of all times. The development of this view of economics, which he somewhat ambiguously called utilitarianism, is the subject of chapter 13, A System of Political Philosophy. Mises’s own understanding of the essence of utilitarianism allowed him to ground his comparative analysis of various economic systems into objective facts of economic life. Unlike earlier authors who sought to provide metaphysical arguments for their preferred political ideal, Mises’s greatness consists in the fact that he provided logically coherent and empirically ascertainable answers to the question: will the specific course of actions achieve the goals as envisioned by their proponents.

All political systems are to be evaluated in precisely this way. It thus becomes no longer enough to merely be in favor of a better health care, better education or better housing for masses, in short, higher standard of living for all. A rational evaluation of a political program, or a set of principles that embodies a specific course of action, must ask whether the specific means it proposes to use such as, for instance, total or partial central planning, subsidies, price controls, labor unionism and labor legislation, redistributions, taxes on the rich, inflation etc. will in fact achieve the goal of higher standard of living for all.

The verdict of Mises’s economic analysis on the three major forms of economic organization — socialism, interventionism, and laissez-faire capitalism, and what they actually stand for, is clear: the principles of economic and social organization that define laissez-faire capitalism are the only means to accomplish a high and rising standard of living for all. For example, simple economic reasoning shows that it is impossible for trade unions to continuously improve the standard of living of masses simply by raising money wages at the expense of profits. To be sure, the details of the analysis of the actual process of wage determination are quite complex but this cannot alter the objective fact that only through higher output per worker and lower prices of goods, not forcible redistribution of money incomes, can the living standard of the average worker be improved.

This is what the iron logic of reason dictates us to accept. But, as we learn in the chapter, there still were (and are) those, the so-called “social liberals", who were unwilling to accept the chains of reason and embrace classical liberalism unconditionally. As far as their egalitarian ideals are concerned, the social liberals were indistinguishable from Marxists and all other socialists. Scared by the abject failure of all-around “scientific" government planning, they were forced to abandon the prescriptions of Marxism’s “scientific socialism" but then they found themselves standing without any serious intellectual backing. Already in the twenties of the last century, in his important essay A Critique of Interventionism, Mises recognized the utter intellectual bankruptcy of the “third way" or the so-called model of “social market economy":

Politics does not dare introduce what the prevailing ideology is demanding. Taught by bitter experience, it subconsciously has lost confidence in the prevailing ideology. In this situation, no one, however, is giving thought to replacing the obviously useless ideology with a useful one. No help is expected from reason. Some are taking refuge in mysticism, others are setting their hopes on the coming of the “strong man"— the tyrant who will think for them and care for them.

Interventionism does not work. Like socialism it cannot create, it only destroys. While socialism is actually a crude scheme to enslave producers totally and exterminate those who refuse to become slaves, the essence of interventionism is that of parasitism — it merely attempts to suck off the living energies of producers as long as it can.

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