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Sins of Businessmen, Crimes of Politicians

Mises Daily: Monday, September 22, 2003 by

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People who are ignorant of the writings of Ludwig von Mises are unaware of the role of credit expansion in creating recessions and depressions. Not knowing the actual cause of such calamities, they turn to false and often absurd explanations, such as the doctrine of a general overproduction, and end up blaming increased production and supply, which is the very essence of greater prosperity, as the cause of impoverishment—allegedly we are poor because we are rich.

Another popular and equally false explanation of the present recession is the fraud and dishonesty of businessmen. To be sure, there are many dishonest businessmen. It would be surprising if there were not. We live in an age in which principles of any kind are widely regarded with contempt. And at least since 1937, when the Supreme Court of the United States abandoned the protection of economic freedom, our government has been free to do almost anything it likes in the economic realm. It is no longer restrained by such principles as having to respect property rights and the freedom of contract. The result has been that the government has gained almost total power both to break and to make businessmen, i.e., either to destroy or enrich them, as it may choose.

This state of affairs compels businessmen, especially large, successful businessmen, to pay regular extortion money to politicians and government officials. They have to pay bribes, in the form of "campaign contributions" and "donations," to various pressure-group organizations in order not to be harmed or altogether destroyed. And because there are now so few restraints on the government in the economic realm, and because few businessmen know anything of moral and political philosophy beyond the doctrines of pragmatism, relativism, and assorted brands of statism that they may have absorbed in today's so-called educational system, the line is easily crossed between bribes that are mere extortion money, paid to avoid being harmed by the government, and bribes that are paid to use the government's apparatus of compulsion and coercion, as Mises called it, in one's own favor—for example, to gain government subsidies or to harm one's competitors, by such means as instigating antitrust proceedings or other regulatory actions against them. Thus, a heavily interventionist economy necessarily seethes with corruption and immorality.

Now add credit expansion to this mix, and an environment is created in which almost every business venture is given the appearance of prosperity, while the underlying reality is one of the massive diversion of capital into malinvestments. It should not be surprising that in many cases efforts are made to sustain the appearance of prosperity by means ranging from questionable to blatantly fraudulent, and that such efforts are encouraged by the conviction that given only a little more time, the apparent general prosperity will make those efforts good and permanently conceal their nature.

But even in this environment, a vital distinction remains between businessmen, on the one side, and politicians and government officials, on the other. And that is that the activity of businessmen qua businessmen, that is, as producers of goods and services for sale in the market, is inherently positive. It is the creation of wealth that sustains and promotes human life and well-being. Indeed, it is the saving and investment and profit motive and competition of businessmen that are responsible for practically all of the wonderful technological advances of the last two hundred years or more, and for the ability of practically everyone in the capitalist countries to afford them.

Acts of dishonesty and fraud have no more essential connection to business activity than they do to the practice of medicine or the performance of music or to any of the arts or sciences. Just as the existence of dishonest physicians, musicians, artists, or scientists has no actual bearing on the nature of those activities as such, so too the existence of dishonest businessmen has no actual bearing on the nature of business activity as such.

In sharpest contrast, the activity of politicians and government officials is always inherently negative—it is always destructive or threatens destruction. This is because the foundation of all law and government activity is physical force or the threat of physical force. This is expressed in the ancient Latin dictum "nulla lege sine poena," which means "no law without punishment." That is, there is no such thing as a law, administrative ruling, edict, decree, or government order of any kind that is not backed by the threat to use physical force to compel obedience to it. In the absence of the government's ability to use physical force to compel obedience, its declarations would be without effect. They could simply be disregarded at will.

The only legitimate use of this negative power is to negate the negative constituted by the private use of physical force, that is, to prohibit and punish such acts as murder, assault, robbery, rape, kidnapping, and fraud. To that strictly limited extent, i.e., the banning of physical force from human relationships, the government can make it possible for the positive activity of the private citizens to then proceed unhindered and achieve all the beneficial effects it is ultimately capable of achieving. However, insofar as the government steps beyond this narrowly circumscribed, strictly delimited domain of legitimate activity, it acts as a destroyer in the same manner as private criminals.

Given the extent and scope of the transgressions of the government today, one must say that while there may be many businessmen engaged in activities ranging from various sharp practices to outright fraud, the government and the politicians who determine its activities are routinely, day in and day out, engaged in massive theft, which is what the income and estate taxes clearly are, and in other massive violations of individual rights, which are inherent across the board in the government's using or threatening to use physical force against individuals who have not themselves resorted to force.

Far more often than businessmen commit fraud, the government and the politicians commit or are accessories to the commission of such criminal acts as extortion, theft, and unjust imprisonment. This last occurs not only when people are incarcerated for crimes they did not commit, which happens as the result of carelessness, and worse, more often than one might think, but when they are incarcerated for acts they did perform, but which are not genuine crimes, such as the commission of so-called victimless crimes and "economic crimes."

And when it imposes a draft, the government is engaged in kidnapping and enslavement on a massive scale, in that it forcibly compels people to be where and do what it wants them to do rather than be where and do what they choose to do. The same characterization may arguably be said to apply in a milder form to public education and compulsory school attendance laws, under which parents are given the choice of surrendering their children's minds or going to jail.

Fortunately, in this country and the other countries whose legal systems are still within the Anglo-Saxon legal tradition, the government and the politicians have not yet gotten around to the commission of murder, though the politicians of many other countries certainly have.

So much for the comparison of the misdeeds of businessmen with the misdeeds of  government and politicians. The fact that it is nevertheless the misdeeds of businessmen that are featured, indeed, blared forth, while the far greater and more fundamental misdeeds of politicians and government officials are for the most part ignored, is the result of the anticapitalistic political philosophy and economic theories that guide the great majority of today's intellectuals, including, of course, the great majority of today's editorial writers and reporters.

This will not change until there is a new generation of intellectuals, who will have read and studied the ideas of Ludwig von Mises and Ayn Rand, and their predecessors and successors, that is, until there is a radical change in the content of education.

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George Reisman is professor of economics at Pepperdine University’s Graziadio School of Business & Management in Los Angeles, and is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996). His book is available through Mises.org or Amazon.com. His web site is www.capitalism.net. You can contact by  MAIL. See his Mises.org Daily Articles Archive, and read his interview in the Austrian Economics Newsletter. This speech is excerpted from a speech at the Mises University 2003. This article is copyrighted by George Reisman.