Mises Daily Articles
Mises in AmericaTags Free MarketsGlobal EconomyWorld HistoryAustrian Economics OverviewPraxeology
[William Peterson was the 2006 Schlarbaum laureate, and here is his acceptance speech, delivered October 8, 2005.]
Gary Schlarbaum, I thank you for this award and high honor from your grand legacy in loving memory of a genius in our time, Ludwig von Mises (1881–1973). But let me say up front, fellow Miseseans, meet me, Mr. Serendipity, Bill Peterson, here by a fluke, a child of fickle fate. For frankly I had never heard of the famous Mises when I took his course for its Monday night 8–10 slot neatly fitting my New York University schedule back in 1950.
Sure, night school's OK for me, an assistant economics prof at Brooklyn Polytech. But why for a genius like Mises? Why would no Ivy League university here nor prestige university in Europe find a chair for him? Good question. Murray Rothbard gave three reasons: (1) Mises was a Jew when in the first half of the 20th century anti-Semitism ran high; (2) Mises was a laissez fairest—for government de minimus to protect person and property only; and (3) Mises was a noncompromiser, a Rock of Gibraltar who would not yield to politically correct Keynesianism, Marxism, Welfarism, funny money, or state hegemony.
But what of academic freedom? Even NYU in offering Mises a "visiting professorship"—he so visited for 24 years—offered no pay. It had to be raised outside. For shame, you lords of Academe here and abroad.
Yet for me happenstance became circumstance, and I soon met like-minded fellow students like Murray Rothbard, George Reisman, Israel Kirzner, Hans Sennholz, Ralph Raico, and Louis Spadaro who, with Mises as a catalyst, made names for themselves in Austrian literature. So synergy blossomed on Washington Square.
But let Mr. Serendipity add proudly: Lu became my mentor, a dear friend and colleague at NYU from 1950 on, until the world lost him in 1973. But not forever—thanks to his sweeping ideas and to this lively working memorial, the Ludwig von Mises Institute, the think tank that keys human action, that sees history as anything but predetermined, that puts to America Hamlet's fateful question, explored here: To be or not to be?
That question bears on basic the Mises Institute's raison d'être and modus operandi, and, in a telling way, on Gertrude Stein's deathbed words to her close friend Alice B. Toklas. For as she lay dying in Paris in 1946, she asked, "What is the answer?" Alice shrugged. "Well then," Gertrude pressed on, "what is the question?" Miseseans, isn't there a lesson here for us? Isn't our job in big part to reject and refute status quo answers piled on us daily, and instead question, question, question the coercive powers that be? Well, Miseseans—contrarians for now, libertarians forever—have you wondered how the Mises Institute came to be?
Some history is in order …
First, let me note how well I remember Lu Mises and his dear wife, Margit. Margit often came with him to class. And, after studying typing and stenography at a Manhattan secretarial school, this glamorous star of the Berlin and Vienna stage came to type every page—and even retype quite a few—in her quite green language of English of all 900 pages of the Mises magnum opus, Human Action (1949). I ask you: Isn't such human action truly a labor of love? The more so with Lu's firm rule (ahem) of having Margit correct a typo by retyping the entire page?
Hail then Margit Mises, a giant in her own right. It was visionary Margit who approved the founding of the Mises Institute in 1981, with that mission accomplished in 1982. Backing the project were other giants such as F. A. Hayek, Lawrence Fertig, Henry Hazlitt, and Murray Rothbard, who led academic programs here until his death in 1995. Think-tank execs of the caliber of Lew Rockwell, Pat Barnett, and Jeff Tucker closed the deal to put this great think tank of hope and root reform on the intellectual front. Look around this room. See dozens of supporters who, like what-a-man Gary, have bet on Mises, on seeing his world of freedom and free enterprise aglimmering. Miseseans, take heart. And …
Let's celebrate the prodigious life of Lu Mises, a life in which he fused crowning insight on how the world tackles the law of scarcity, with lifelong moral courage. He showed that courage in class as a great teacher—I was there—and in academic debate as a great fighter, as Margit tells in her book My Years with Ludwig von Mises. He was also, as F. A. Hayek, his Nobel Prize student, noted, "a great radical, an intelligent and rational radical … a radical on the right lines." Mises a radical, a nonconformist? Yes, as were Aristotle, Newton, Galileo, Adam Smith, and Einstein in their own nonconforming day.
Mises revealed a source of that moral courage in Notes and Recollections, a somber book he did in 1940 after he and Margit narrowly escaped Nazi Europe and landed in New York. In the book Lu cited a Latin verse by Virgil which he had adopted as a young man. As the verse translates into English: "Do not yield to evil but always oppose it with courage." The motto served him well, for all his much-challenged life.
In this light of such courage—yours as well as his—let's discuss some of his big ideas, dwelling on one, to me, very hopeful idea: Lu's widening the definition and application of an overworked and much misunderstood word, democracy. Democracy is, I say, commonly but wrongly equated with freedom, as shown in history, as I will cite.
Yet in the Mises sense of the word, it does equate with freedom beautifully, effectively—getting, for example, not a biennial 50 percent but a 100 percent daily election turnout of Americans and other Westerners. Call it direct democracy, market democracy, above all, voluntary democracy. So why don't we call it as it is, America's True Democracy? I'll get back to it.
Meanwhile, Miseseans, let's salute Lu Mises, the dean, the master builder of Austrian economics in the 20th century—as was Carl Menger in the 19th. Menger, it is well said, founded the Austrian school in 1871 on the intellectual bedrock of subjectivism and marginal utility as keys to value.
Subjectivism and marginal utility? And how, Miseseans. For the central idea of Mises, as I view him, lies in his extending this concept into the very title and theme of Human Action, as well as into his entire economic scheme of things. For here Mises caught the role of the acting individual, so missing in mainstream economics, so utterly persona non grata in mathematical economics. I.e., Mises saw the individual mind, individual spirit, individual personality together as the prime mover in economic theory and practice.
I.e., Mises put individualism and the individual—you, for example—back in the economic picture, in and out of the market. I.e., Mises ruled out as human action reflexive or unconscious action such as breathing, sweating, sleeping, aging, and so on.
Thus what Mises forged intellectually is "praxeology," the vision that purposeful human action, including division of labor, is central to society, social cooperation, human survival—to Western Civilization itself. So, fellow praxeologists, Lu saw human action spring from thinking into individually directed behavior—for example, your own.
Consider this analogy, if you will: Descartes held in 1637: "I think, therefore I am." Held Mises, as I see him: "I think, therefore I act." So thought begets action. Human action is acting consciously, goaded by gain, sometimes after a snap judgment, sometimes after deliberation—from scratching your nose, to getting married, to changing careers, to rethinking economics along Austrian lines. By the way, if every human action hinges on gain, pecuniary or nonpecuniary, doesn't that make every so-called nonprofit organization a contradiction in terms?
Critically, too, Mises saw the market not as a place but as a process, a dynamic process of social cooperation in which the dual-roled consumer-producer individual—such as you—chooses his/her division-of-labor partners directly/indirectly, in a grand, peaceful, choiceful, constructive, spontaneous order. We tag this order variously: community, business, commerce, society. I suspect that, if he had to, Mises might cut economics to one word: choosing or its derivative choices. Recall Lu himself also called them votes.
Miseseans, see then how human action, i.e., conscious choosing or voting in or out of the market, can affect the teaching of, say, Gresham's Law. College kids in Economics 101 learn the law as "bad money drives good money out of circulation." True, as far as it goes. Yet such teaching short-changes the student who should be told of the human action involved: how holders of irredeemable paper money consciously choose to put it back into circulation, so choosing to hold on to their good money such as gold or gold certificates. Or, how such teaching affects the learning of Say's Law as "supply creates demand." True again (in a macro sense), but without the Mises idea of human action, students are unlikely to see why capitalists and entrepreneurs focus so hard on prices, competition, technology, marketing, productivity, etc.—as ordered by you and other sovereign consumers.
Hear then how Mises put such key ideas of consumer sovereignty and market democracy in Human Action. Hear his style as well as substance:
"The direction of all economic affairs is in the market society a task of the entrepreneurs. Theirs is the control of production. They are at the helm and steer the ship. A superficial observer would believe that they are supreme. But they are not. They are bound to obey unconditionally the captain's orders. The captain is the consumer. [My underscoring.] Neither entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that. If a businessman does not strictly obey the orders of the public as they are conveyed to him by the structure of market prices, he suffers losses, he goes bankrupt, and is thus removed from his eminent position at the helm. Other men who did better in satisfying the demand of consumers replace him."
Vintage Mises, praxeologists, but how come in recent years that much of America has embraced neoconservatism throughout the land? A neocon, famously said its godfather, Irving Kristol, "is a liberal who has been mugged by reality." Yet Kristol, author of Two Cheers for Capitalism (1978) should still be asked: Why but two and not three cheers for capitalism? Doesn't this show a bias for state hegemony over business? Or, to plumb another famous Kristol line: "Democracy does not guarantee equality of conditions; it only guarantees equality of opportunity." Yet doesn't even this guarantee imply opportunities for clever government meddlers to fiddle with the starting if not the finishing line of society?
So no wonder the "Bring 'Em On" neoconned and neoconning White House worships the demigod of political democracy via our media, textbooks, legislatures, even echoing a the 1917 World War I motto of "Make the World Safe for Democracy" to a bemused globe? Democracy? Miseseans, I ask you: To what end? My answer lies in the words of Benjamin Disraeli, then a young novelist, sharp thinker, and back-bench Tory M.P. (later twice becoming Britain's Prime Minister) in the House of Commons on March 31, 1850. Listen and wonder if you're hearing a recitation on America in 2005:
"If you establish a democracy, you must in due time reap the fruits of democracy. You will in due season have great impatience of the public burdens, combined in due season with great increase of public expenditure. You will in due season have wars entered into from passion and not from reason; and you will in due season submit to peace ignominiously sought and ignominiously obtained, which will diminish your authority and perhaps endanger your independence."
Or, Miseseans, hear the corroborative editorial on democracy's venal consort of politics in The London Times not long after, on February 7, 1852. Listen: "Concealment, evasion, factious combinations, the surrender of convictions to party objects, and the systematic pursuit of expediency are things of daily occurrence among men of the highest character, once embarked in the contentions of political life."
" … contentions of political life"? Ah, that consort and curse of politics: timeless, ubiquitous, politics, the contagious corrupter of political democracy and its minions from Ancient Greece to America today, as implied in the title of University of Nevada-Las Vegas economist and Mises Institute Distinguished Scholar Hans-Herman Hoppe's book of 2001: Democracy, the God That Failed. Or as implied by Hamlet standing in a Danish graveyard at night, holding up a skull, and wondering if it had once belonged to a politician whom he identified as "one who would circumvent God."
So let's seek today's political import of Disraeli's prescience and that London Times editorial, noting how akin were some earlier thinkers on democracy. Take Plato, for example, citing democracy in his The Republic (c. 370 B.C.) as "a charming form of government, full of variety and disorder, and dispensing a kind of equality to equals and unequals alike." Or, Aristotle in his Rhetoric (c. 322 B.C.) blaming democracy as "when put to the strain, grows weak, and is supplanted by oligarchy." As did later thinker George Bernard Shaw hitting democracy for opting "election by the incompetent many for appointment by the corrupt few." Or H.L. Mencken famously defining an election as "an advance auction of stolen goods." (Pray, stolen from whom?)
Or, Miseseans, see how America's Founders themselves saw political democracy courting self-ruin for the way many voters join "factions" or special interests which cut into liberty. James Madison spoke for his peers in Federalist Papers No. 10 (1787), seeing democracies as, I quote, "spectacles of turbulence and contention [which] have ever been found incompatible with personal security or the rights of property, and have in general been as short in their lives as they have been violent in their deaths."
No wonder the very word "democracy" is not to be found in the entire Declaration of Independence, Constitution, and Bill of Rights. Indeed, look how sternly anti-democratic are the first five words of the First Amendment on bills abridging religion, speech, press, assembly, and petition: "Congress shall pass no law [my emphasis]…." Or look how the Framers, fearful of democracy, tied up our Constitution with checks and balances from federalism (harmed by the Civil War, the 14th Amendment of 1868, and the 17th Amendment of 1913) to a stop against an income tax (undone by the 16th Amendment also in 1913). Ben Franklin, asked what kind of state the Framers provided, raised a classic proviso: "A republic, if you can keep it." Big if. I think Old Ben was warning us: As political democracy swells, the individual shrinks.
Yet—voila—Lu Mises lit up a near unknown yet much safer and surer democracy—a way out of our definitional crisis, if you will. In 1922 in his great book Socialism he saw true democracy at work in market action. See it yourself: voting from the shopping mall to online buying, to getting colas from vending machines, to filling up at the gas pump by credit card, to business consumers ordering supplies for their operations, and so on.
So these and other market voters vote not but every other year but again and again every day. Freely. Directly. In a way, one on one, so you elect your supplier, you get what you order, you are in charge. Great. Yet look: You and I are still under an Ancient Roman edict to consumers of caveat emptor: Let the buyer beware. And let stockholders beware of corrupt leaders such as those heading Enron and WorldCom. But given the human condition, don't we see some inevitable flotsam in business, a tiny minority of wrongdoers, a few weak CEO's often caught and punished? So why the U.S. big gun of the Sarbanes-Oxley Act with its heavy oversight regulation becoming but more costly intervention, more drag on freedom and free enterprise, more burdens on the backs of consumers?
Yet Mises in Socialism gave market democracy a vital political edge today. If we use it. Miseseans, hear and seek to put his brilliant edge, his near-law, into public opinion play: "When we call a capitalist society a consumers' democracy we mean that the power to dispose of the means of production, which belongs to the entrepreneurs and capitalists, can only be acquired by means of the consumers' ballot, held daily in the marketplace."
Mises was right, spending his life seeking limits on loudly trumpeted political democracy. Democracy. Check its Greek roots: rule or kratia, by the people, the demos. But also check how Big Government snares and deludes you today: For example, who really rules whom? How come state hegemony, heavy taxation, deficit finance, intervention galore, burgeoning bureaucracy, and sick public-government schools—i.e., sick from four basic ills: (1) peddling moral relativism, (2) teacher unionization, (3) denial of competition, and (4) its kiss of death, denial of choice?
So ponder: Just how does political democracy cause the state to shine and the free individual to fade? Or how come inflation ever devalues fiat money across the globe in a seemingly endless form of legal larceny? In the U.S., M.D.s charged $2 for an office visit, $3 a home visit in 1930 when I was growing up in Jersey City, but now an office visit can cost $80 or more, when a first-class stamp cost two cents but now 37 cents, when a N.Y.C. subway ride cost a nickel but now $2, when I worked at the A&P for a minimum hourly wage of 25 cents (if today I find the idea of a minimum wage inane, as it disemploys the poor), when a man's haircut cost 25 cents but now I pay $20 or 80 times more at my barber? Or, why do winner-take-all elections split society ("us vs. them")? Or, why endless insurgency violence in Iraq or suicide bombers in New York, Madrid, London, and elsewhere?
Three cheers then for the Mises perception of productive and most peaceful market democracy—and three boos for society's mortal enemy, the state unlimited. Did Mises say peaceful? Look, mindful of terrorists about: Doesn't capitalism/social cooperation across borders say it's dumb to shoot your customers or bomb your investors, thereby harming your very own people? So in current debate on economic policy, I urge you to perceive and work for peaceful productive market democracy, which, if imperfect, could come to be rethought, reinforced, even reborn. As could, it follows, human liberty. Ask yourself: Why?
Well, call it self-power to the people—individual by individual—call it laissez-faire capitalism, call it in this so-called war on terrorism "World Peace Through World Trade," the wise line of IBM founder Thomas J. Watson in the interwar period of the '20s and '30s, call it the market way of the choosy-choosing sovereign individual. Or, why not just call it what it is, again, America's True Democracy?
Yet the rub of our time is the quiet, almost unknown, ideological clash of coercive political democracy vs. voluntary market democracy, the public embrace of Big Government, the confusion of many if not most citizens that our Welfare-Warfare State is on their side, the irony that the modern state, which can still serve a vital function in providing due process and enforcing private property rights, can and most often does get out of hand today to punish the forgotten consumers—thanks but no thanks to rampant state intervention. And not just today's but tomorrow's consumers as our unfunded national debt in the tens of trillions of dollars (a 2003 U.S. Treasury study had it at $44.2 trillion) mounts, so now we praxeologists can say: "Blessed are the children, for they shall inherit the national debt."
Catch 22 of our times is then the neglect of historians and other gatekeepers to police the police, to have us "patriots" yield to the tyranny of the status quo including vast state spending, to what Tony Blair of Britain and Bill Clinton of the U.S. cutely called our mixed system not the sick mixed-up system it is, but "The Third Way," an optimum mix of socialism and capitalism. Optimum? Please, Messrs. Blair and Clinton, don't put us on.
So, Miseseans, our bipartisan Welfare-Warfare State—with its pre-Hurricane Katrina 2006 $2.5 trillion federal budget, its initial deficit at $333 billion, its politics, its blatant amorality (Bastiat's "legal plunder")—drags on, bloats, a Frankensteinian monster running amok. Why? In a word, vice.
Per Alexander Pope (1734): "Vice is a monster of so frightful mien/As to be hated, needs but to be seen/But seen too oft, familiar with her face/We first endure, then pity, then embrace." Mae West put such human frailty differently: "I began as Snow White but I drifted."
No wonder that in 1956, or 49 years ago, Mises felt pushed to publish a book, The Anti-capitalistic Mentality. But today anticapitalism is more rife than ever. Indeed, Nobel economist F. A. Hayek, Mises's pupil, felt a duty to publish in 1988, or 32 years later, a book on the lines of The Anti-capitalistic Mentality. Hayek's title was The Fatal Conceit: The Errors of Socialism.
Recall this was the same Hayek who wrote his bestselling The Road to Serfdom in 1944, as we half-serfs today tread that very same road, as new Dr. Panglosses rhapsodize that we live in the best of all possible worlds, as Social Security with IRA's becomes part of our new so-called Ownership Society—with its sticky paternalistic federal control, with that mounting unfunded government lien on your property and heirs in the here-and-now as well as in the hereafter. Oh, how clever are these neoconned and neoconning Compassionate Conservatives—so compassionate with other people's money.
Conservatives? Miseseans, ask a conservative how come Hayek added a postscript, "Why I Am Not a Conservative," to his 1960 book The Constitution of Liberty. To Hayek conservatism is simply too unprincipled, too catch-as-catch-can, too neoconned in today's word.
Our fix reminds me, Miseseans, of that observation of Harvard philosopher George Santayana who remarked: "The world is a perpetual caricature of itself; at every moment it is the mockery and the contradiction of what it is pretending to be."
Pretending is indeed the Washington game. Pretend independence, for instance. Recall House Speaker Sam Rayburn's attributed standard greeting to new Democrat members of Congress, per: "Remember, to get along, go along." Or the like line of Will Rogers, saying: "There is no more independence in politics than there is in jail."
But, Miseseans, what of our independence from the state? Let me reply: For to all state-buffeted Americans awaiting deliverance come Mises, Rothbard, and the rest of us Austrians. Austrian economists and supporters are people of insight and action, not devotees of blind fate.
I'm reminded of the story told by Margit Mises. Once watching her husband play tennis with a coach and seeing her Lu not going for all the balls within his reach, she called out: "Why don't you put a little more effort in the game?" He replied: "Why should I? The fate of the ball does not interest me."
What did interest Lu is the folly of political democracy in state interventionism, or piecemeal socialism, or realization of his phrase of "planned chaos," of the mirage that government officialdom can somehow make man's lot so much better off—selflessly, if not magically.
How? Simple. By meddling with you and society in myriad ways, all counterproductive—from affirmative action to Social Security, to Medicare-Medicaid, "affordable housing," personal and corporate income taxes, gun control, the Food and Drug Administration, the Environmental Protection Agency, tort lawyers driving up malpractice insurance premiums so high as to drive many medical specialists out of business, to trying to stop the vile practice of "outsourcing" or "Exporting America," but of course not noting insourcing such as Toyota causing some 200,000 jobs to take root here.
So Mises saw state intervention ever doling out unintended results, ever boomeranging, ever making intended beneficiaries worse off in the long run.
Take affirmative action. Do we really make women better off by the government forcing employers to pay them equal pay for equal work? Sounds fair to many, but doesn't such gender intervention inhibit women from competing against men by, if need be, cutting their pay demands to win jobs and experience, or inhibit employers from favoring men over women without detection—unless the state resorts to quotas? As it often has.
Or take Prohibition, the "Noble Experiment" (1920–1933), the U.S. ban on production of alcoholic drink. It touched off a national epidemic of black markets and gangsters a la Legs Diamond and Lucky Luciano, making headlines with their street warfare. Luckily if incongruously Congress reversed its lax ways, permitting the 21st Amendment to repeal the 18th Amendment. But that repeal left intact the then nascent but now virulent War on Drugs with deadly implications for U.S. domestic policy today in terms of renewed street warfare and for foreign policy involving the U.S. in a war on drug traffic from Colombia to Afghanistan. But brilliant Lu would have had none of it. Hear him in Human Action:
"Opium and morphine are certainly dangerous habit-forming drugs. But once the principle is admitted that it is the duty of government to protect the individual against his own foolishness, no serious objections can be advanced against further encroachments…. Is not the harm a man can inflict on his mind and soul even more disastrous than any bodily evils? Why not prevent him from reading bad books and seeing bad plays…? If one abolishes man's freedom to determine his own consumption, one takes all freedoms away."
More Mises. Leonard Read, then top manager of the L.A. Chamber of Commerce, told the story of his guest speaker, Mises, who spoke in 1943 of the plight of the U.S. war effort with Washington slapping on wage and price controls, setting priorities or allocations of commodities, rationing gas and meat to consumers, allowing local authorities to install rent control, etc., or what Mises tagged "war socialism." After the talk, a member of the audience asked the speaker: "It is a depressing prospect you have outlined, Dr. Mises. Considering the program the politicians have adopted and its inevitable terrible consequences, what would you do, if by chance, you were made dictator of this country. What first step would you take?" Mises's eyes lit up and quick as a flash, he replied with a grin, "I would abdicate."
Whither then in 2005 our berated, underrated, far over-regulated, and deeply misread capitalistic order? Yet isn't it still, per our Founders (though the word capitalism had yet to be coined), a royal road to social cooperation, a vast vital network of private governments of the people, by the people, for the people, all blessed with individual assent—highly-used switchable assent?
Switchable? And how. So see in our society countless private governments, such as Harvard, New York Times, New York Stock Exchange, Microsoft, Southern Baptists, Salvation Army, Wal-Mart, the Mises Institute, and some 30 million other private firms, farms and organizations of all varieties; yet all rely on switchable individual assent. So you're free to switch from Ford to Toyota, from Yale to MIT, from Wendy's to McDonald's. And vice versa. Talk about true private democracy.
Democracy? But isn't this our political shield for a global Pax Americana to chastise a sinful, quite undemocratic world, with the focus now on the turbulent Middle East? And doesn't this serve up Juvenal's classic conundrum (74 AD): "But who is to guard the guards themselves?" Or, Miseseans, note how Thomas Paine saw government in his Common Sense (1776) as "a necessary evil." On which Mises commented, a government properly restrained wouldn't be evil. Its only duty would be to seek to provide security to person and property. So the Mises perception of self-government waxes into individualistic government based on self-ownership.
Still, Bismarck likened the legislative process to the unsightly change of pigs into sausages. Or said Churchill, democracy is the least awful way to effect a peaceful change of political power. Or, as Swiss thinker Felix Somary put it in his Democracy at Bay (Knopf, 1952): Political democracy blends two "fictions," one the idea that "an entire people can assume sovereignty," and the other the idea of "the innate goodness of man." Fictions? Oh yes.
So, Miseseans, let's juxtapose America's forceful Political Democracy with Lu's insight of voluntary Consumers/Market Democracy to see which is which and why. As I ask you: With both in need of reform, which needs the most drastic by far?
Look. In one democracy you vote but every other year for candidates (who may not win) to "represent" you and many others indirectly on myriad issues. In the other, you vote daily, often, directly, for specific vendors, goods, or services, an endless plebiscite going on every minute of every day, with dollars as ballots.
Yes, some get more ballots than others. Yet Mises saw this result as logical and moral as some are more productive than others. He also saw this outcome as often transient, as consumers vote "poor people rich and rich people poor," per his Human Action. Yes, one democracy is public, the other private. One veers socialistic and pro-state as it funds failing programs and public schools; the other veers capitalistic and pro-consumer as it lets failing firms and private schools fail. One is coercive and centralized, the other voluntary and decentralized.
One runs, inadvertently, a growth-impeding win-lose zero-sum game with neither a guiding market system nor economic calculation (to be spelled out in a minute); the other runs, also inadvertently, a pro-growth win-win positive-sum game, with a guiding market system and economic calculation. Miseseans, this difference alone sets America's future for better or worse, for richer or poorer.
One democracy runs by politics, monopoly, winner-take-all, much hoop-la, unmindful of H.L. Mencken's line that democracy amounts to the "worship of jackals by jackasses," or of Henry David Thoreau's Civil Disobedience of 1849 when he saw "little virtue in the action of masses of men," voting as "a sort of gaming." The other runs a market society by cooperation and competition. One forgets the individual, per Yale's William Graham Sumner's "The Forgotten Man" lecture in 1883; the other focuses on him/her, if imperfectly per spam in your PC and junk mail in your mail-box.
Too, one democracy plays incumbency tricks: gerrymandering, logrolling, warmongering, free-lunch guises such as big federal "grants"—bribes in effect—to states and localities (est. $365 billion 2005); the other is ever cleansed by competition, cost-cutting, and demonstrated market deeds for choosy-choosing sovereign consumers. One democracy veers to a Machiavellian amoral short run—for example, resorting to credit expansion aimed at winning elections if courting inflation and recession. The other veers to moral contracts and the longer run.
One, with coercive power, yields to Acton's law that power tends to corrupt and absolute power corrupts absolutely, as seen in fratricidal partisanship edging into mutually assured destruction (MAD), or in what House Speaker Jim Wright called "mindless cannibalism," or in Frank Chodorov's view of Washington's work as "the rape of society," or in Harry Truman's truism that "if you ever need a friend in Washington, buy a dog," or in the no-brainer that the Welfare-Warfare State will wise up some day and swear off its misdeeds. Sure. Or, as Gertrude Stein said of Oakland, California, so we Austrians say of bankrupt state interventionism: "There is no there there."
Yet market democracy, Miseseans, if gloriously voluntary, if the very wellspring of our wellbeing, if our escape route to sanity and safety, can and does slip into flotsamesque personal and corporate misdeeds such as money-grasping or getting into bed with political power to win subsidies, import quotas, and other mischief via special interests. All this, despite President Dwight Eisenhower's 1961 farewell warning of a "military-industrial complex," of an unholy alliance of Big Government and Big Business. See how catching is the Washington disease of legal kleptocracy to all comers, high and low. Recall that a kleptomaniac is a fellow who helps himself because he can't help himself. The looters in New Orleans and Baghdad are not alone.
One democracy can glorify war, including class warfare, the other glorifies peaceful trade in a virtual global concordance on private property rights (if widely knocked as "globalization"). One entered World War I, naïvely, as "The War to End War" and, again, "Make the World Safe for Democracy," only to reap—how's this for a cast of characters?—Lenin and Stalin in Russia, Hitler in Germany, Mussolini in Italy, Franco in Spain, Tojo in Japan, Tito in Yugoslavia, Mao in China, Perón in Argentina, Castro in Cuba, Allende in Chile, Pol Pot in Cambodia, Chavez in Venezuela, Mugabe in Zimbabwe—almost all of whom played or play charade democracy to get and hold power, as have lesser imitators over the world. Now President Bush seeks democracy in the Middle East if not the whole world, while counting Germany and Japan as post-World War II "wins" for democracy, but he is silent on outright failures such as North Korea, Bosnia, Somalia, Iran, and Haiti (this Clinton invasion was gamely tagged as "Operation Democracy").
One democracy rues income disparity and, like Robin Hood, blithely "transfers" wealth from the Haves to the Have-Nots, the other lifts all boats, including those of the poor. One denies itself key market feedback data or what Mises called that aforementioned market-driven "economic calculation." In 1920 he brilliantly saw its absence as the key in the certain failure of socialism, a thesis he expanded in his 1922 book Socialism. Witness then in the second half of the 20th century socialism collapse or misfire in the USSR, Eastern Europe, China, and in state welfare and other interventions everywhere. Witness American interventionism in spades. For its part, market democracy uses market figures such as prices and profit-and-loss to move scarce resources to their perceived highest-yielding uses.
Hear Mises in his 1944 classic Bureaucracy: "There are two methods for the conduct of human affairs within the frame of human society. One is bureaucratic management, the other is profit management." Miseseans, note how bureaucratic management, denied market prices and economic calculation, flies blind. So it saps capital and talent (human capital) in a vast tragedy of the commons as special interests horn in on each other to grab all they can, while profit management saves and invests capital, the very fuel of economic growth.
Yes, self-interestedly. Yet, with private property rights, it does so creatively, spontaneously, harmoniously, constructively. Hayek called this remarkable self-guiding market process of economization-productivity-economic growth a "marvel."
So, Miseseans, see how market democracy explains the success of the West, how Adam Smith's vivid metaphor for self-interest as the "invisible hand" fits into his system of "natural liberty," of winning self-help by helping others. Recall a famed line in his The Wealth of Nations: "It is not from the benevolence of the butcher, or the brewer, or the baker that we expect our dinner, but from their regard of their own interest." No question then that capitalism—Lu's politically-wise idea of market democracy—is America's true democracy, that its opposite: the bipartisan Welfare-Warfare State via coercive winner-take-all "democracy," is a case of planned chaos, of a nation chasing its tail or an end-of-rainbow pot-of-gold. Or, to quote Chicago School economist Herbert Stein's hopeful "law": "If something can't go on forever, it will stop."
Or, if I may transform Lu into a modern-day Moses pleading with Egypt's Pharaoh, meaning today's myopic statists: Let my people [the consumers] go!
Three challenges remain, as I see it: First is need of steady insight. Or, in Lu's words: "The issue is always the same: the government or the market. There is no third solution."
The second challenge is: How can we use market democracy and other means to help tame political democracy as our Founding Fathers did in 1776, or will we willy-nilly let it slowly but surely snuff our civilization, our future, our very well-being?
And the third challenge is the need for tying the free market idea to a moral code based on virtue, honor, dignity, and wisdom, or on the Ten Commandments, which, by the way, is depicted on the Mises Institute seal. Yes, the free market is super, as real an ideal as we'll ever see, yet given human imperfection, it's no Nirvana. Or, as has been said for healthy living, Miseseans: Eat well, stay fit, die anyway.
These challenges are made tougher by brainy if adaptable economists like Fritz Machlup, a Mises student who won prestigious university chairs and indeed the presidency of the American Economic Association. Why then did Mises have a three-year falling-out with Fritz? I was, in a way, in the middle of it. Fritz and his wife Mitzi were our friends and neighbors in Princeton where we lived while Mary and I remained of course close to Lu and Margit Mises in New York. I heard both sides.
Imagine, the rift was over gold.
Hear Fritz in a paper he gave at Hillsdale College in 1981 (in a centenary seminar commemorating Lu's birth) on his rift with his mentor. Hear its Keynesian overtones: "As long as governments, politicians, and voters believe that monetary policy should be used to secure more employment or faster growth, it is not feasible to maintain fixed exchange rates or a fixed price of gold." Not feasible? But of course, Fritz.
So Machlup turns out to be a successful pragmatist, Mises—what else?—a lifelong classical liberal, an indomitable genius, ever a liberator. First, good news: Thanks to Margit reaching Lu, the tiff ended. And Fritz was helpful in getting the American Economic Association to name Lu as Distinguished Fellow. The bad news: Keynesianism and political democracy bloat on—the Nanny State, or by Austrian lights, America's Magnificent Failure: Wherein Worshipped Government Itself Is the Problem, Not the Solution.
All this, as Lu's market democracy remains largely unappreciated, unloved, unexplained, even much unexploited, so harming society. But for how long? Ah, back to that Hamlet-like question for America: To be or not to be? Yet recall what follows right on in Hamlet's soliloquy is yet another big question: "Whether 'tis nobler in the mind to suffer/The slings and arrows of outrageous fortune/Or, to take arms against a sea of troubles/And by opposing end them?"
Let me tackle both questions: First, Miseseans, Let us be. Meaning: You—alive, active, able, alert. And, second, let us intellectually oppose the hypocrisy and expediency of an increasingly unlimited, adversarial, anti-consumer Leviathan. Yet doesn't Leviathan itself boil down to One Big Bad Idea? Recall, Miseseans, per dear Lu, ideas rule the world and ideas change.
So I enlist each and every one of you to personally scour and plug Austrian ideas, to stay tuned, stay strategic, stay innovative, stay responsive, stay responsible, stay entrepreneurial, stay optimistic, stay resolute, stay profitable, increasingly so, if you can, so to serve society all the more. And, stay strong and true for the Ludwig von Mises Institute, its people, its programs and, above all, its ideas. Bear in mind, ideas have consequences, good and bad. Miseseans, fight then the good fight. Thank you, my dear fellow Miseseans.