“Enlightened Free Enterprise”

Intending to write a series of articles about various business cycle theories, I encountered a book originally published in 1978 and copyrighted in 1996. The title of the book is “The Austrian Theory of Trade Cycle and Other Essays”. It was edited by Richard M. Ebeling. The book has six essays and the contributors include F. A. Hayek, Ludwig von Mises, Murray Rothbard, Gottfried Haberler, and Roger Garrison.

The six essays are:

• Introduction: The Austrian Theory in Perspective by Roger W. Garrison
• The Austrian Theory of the Trade Cycle by Ludwig von Mises
• Money and the Business Cycle by Gottfried Haberler
• Economic Depressions: Their Cause and Cure by Murray N. Rothbard
• Can We Still Avoid Inflation? By Friedrich A. Hayek
• The Austrian Theory: A Summary by Roger W. Garrison

Let me start with essay number 4, “Economic Depressions: Their Cause and Cure” by Murray N. Rothbard. It has 26 pages.

My strategy is to write about any idea that I personally consider striking and important without regard to the total structure of the essay. Of course, I will do my best to be considerate about the essay’s structure. However, that’s not my primary concern. And here are the ideas I considered important:

• The reality of the world of euphemism
• Socialism’s disguise
• Three economic questions

Euphemism

Reading the first paragraph, I encounter a difficult word – euphemism. Usually, encountering an unfamiliar term, I do not go immediately to the dictionary to look for its meaning. This kind of reading slows down my goal to finish an essay or a book. However, I could not help myself, but look for its meaning for I consider the word central to understand the entire essay. It’s the basic assumption of the writer.

Paraphrasing the definition I encounter in the web, I understand euphemism as a way to make offensive words acceptable. This could be done both negatively and positively. As positive expression, this could be considered polite. However, as negative expression this is a good strategy to hide something and if done using the mainstream avenues of information could be used as a tool of misinformation and social control.

The examples from this site of euphemism are surprising. I will just select few: “passed away” instead of “died”; “correctional facility” instead of “jail”; “ethnic cleansing” instead of “genocide”; “relocation center” instead of “prison camp”; “pregnancy termination” instead of “abortion”, and; “on the streets” instead of “homeless”.

Remember who use and throw these words out there. Think also what the intention behind the replacement of words. Who use those words and for what purpose? This is a relevant question especially in our generation where almost all the things we believe to be true are in reality utilized to control the mind of the majority so that the powers that pull the string could do their own thing unnoticed. This is particularly true in the writing of history.

Murray N. Rothbard used the word “euphemism” in the sense we describe above and this is most evident in the field of economics. The terms “depression” and “recession” are too strong and offensive for the public. Better replace the terms with acceptable ones. In this task, professional economists succeeded. Economic reality is hidden from the public and “the planners” go on with their usual business of planning people’s lives. If you do not believe this to be true, for your children’s sake, take a serious look once again. You do not have any excuse for not knowing for the Internet is before you. Reality is just a click away.

Instead of “depressions” and “recessions”, Murray Rothbard claims that “New Economics” formulated new terms. These are “downturns”, “slowdowns”, and “sidewise movements”. Praise the Lord! We will no longer have depressions and recessions! Professional economists have created wonders!

Keynesian Socialism Disguising as “Enlightened Free Enterprise”

After reading the first few paragraphs of the essay, I encountered familiar and intriguing ideas particularly relevant to our present global economic situation. Karl Marx is the dominant personality that influenced the prevailing perception that business cycle is an inherent flaw within free market capitalism. Most people are unaware that by accepting this thesis, they already embraced the Marxist’s interpretation.

However, economists like David Hume and David Ricardo refused to blame the free market for business cycle. They identify the critical role of commercial banks and government intervention on the economy as the real source of economic depression.

Governments of the world operate on the Keynesian economic framework.  Based on this framework, government intervention is justified to address both inflation and recession.

Based on Keynesian framework, inflation is caused by excessive public spending. It is the solemn duty of the government therefore to find a way to force people to spend less. The strategy of course is difficult to detect and visible only from an Austrian lens.

Moreover, for Keynesian, recession is caused by insufficient private spending. To address this problem, the government has to increase spending.

Except for the above solutions, other Keynesian remedies include bailing out bankrupt firms, inflating credit, propping up prices, and bolstering wage rates above the free-market level.

On the other hand, from Austrian perspective, government interventionism is the primary cause for economic decline. The idea therefore of coming to the government to aid the economy is insane. Rothbard argued that in the recent past this kind of acts on the part of the government was designated as socialism. Most people are not aware that socialism is the air we breath in the name of course of “enlightened free enterprise”.

Three Critical Problems

Any theory trying to explain economic depression must answer three critical problems:

• Why business cycle exists?
• Why all entrepreneurs lose their forecasting ability at the same time during economic recession? What’s the real reason for this sudden widespread of entrepreneurial blindness?
• Why capital good industries suffer the most in time of depression compared to consumer goods industries? And why the same industries soar in time of economic boom?

Both the Marxist and the Keynesian schools provide insufficient answers to the above problems.  The answer provided by the Austrian school is now considered the most reliable. David Ricardo answered the first question. Ludwig von Mises completed the answer in his book “Theory of Money and Credit” published in 1912. Rothbard still considered this book as the best book on the theory of money and banking.

For Austrian economists, inflation and depression are not inherent flaws within free market capitalism. It is the result of the acts of “enlightened free enterprise” more accurately described as socialism or government interventionism.

For Mises, the proper actions of the government in time of depression can be enumerated as follows: never bail out business firms in trouble, do not intervene with laborers’ wage and price of producers’ goods, do not encourage consumption, do not increase government expenditures, and cut the government budget. It is better if the government encourage more saving rather than more consumption.  But the best act on the part of the government is to do nothing, to take her hands off from the free economy. Let the laissez-faire work. Rothbard wrote: “The Misesian prescription is thus the exact opposite of the Keynesian: It is for the government to keep absolute hands off the economy and to confine itself to stopping its own inflation and to cutting its own budget” (p. 89).

Reading the last paragraph of the essay, I see that the only way not to fall victim into the world of euphemism is to recover the Austrian explanation of the business cycle. Once we see this thing happening, socialism’s real color will be exposed and Rothbard foresaw that the government will certainly withdraw its hand from the free market economy.

Let us hear what Rothbard has to say about this intellectual recovery:

“Once again, the money supply and bank credit are being grudgingly acknowledged to play a leading role in the cycle. The time is ripe for a rediscovery; a renaissance of the Mises theory of the business cycle. It can come none too soon; if it ever does, the whole concept of a Council of Economic Advisors would be swept away; and we would see a massive retreat of government from the economic sphere. But for all this to happen, the world of economics and the public at large, must be made aware of the existence of an explanation of the business cycle that has lain neglected on the shelf for all too many tragic years” (p. 91).

Solution to Economic Crisis

 This is my third reading on Murray Rothbard. I actually attempted to read his book, Man, Economy, and State with Power and Market, but its size is too big for me at present. It is 1,506 pages and the chapter titles do not make sense to me. I still need some preparation.

The first two articles I read on Rothbard are Milton Friedman Unraveled and Six Myths about Libertarianism. The first article exposed the true economic position of Milton Friedman where Rothbard claimed that the former is no real free market advocate, but espousing the government’s version of free market. Friedman’s influence therefore confused most libertarians and dilutes the voice of free market.

The second article is aimed at clarifying the misconceptions about libertarianism. The charges and associations of libertarianism with atheism, materialism, utopianism, etc. are explained and its real character is introduced.

The present article, The Solution is my third reading and I hope that readers would understand that even though I am not a professional economist, I am simply following the advice of Ludwig von Mises that the study of economics is part of the solemn duty of a responsible citizen (Human Action, Chapter 38).

The article was originally written in 1995 when the price of gold according to Rothbard was still $350 per ounce (I checked it and I found a little discrepancy that as of January 3, 1995, the price of gold was actually $380.90). Now, the price of gold per ounce is $ 1,615.00. All throughout the past 17 years, the analysis of the Austrian school concerning gold has been proven correct.

The position of Austrian school concerning gold is contrary to the mainstream, especially influenced by Keynesian and post-Keynesian thinking (the Chicago School). Mainstream economists are repeatedly sending a message to the public that gold as monetary unit is obsolete. And yet we could not understand why history shows us that both the US government and central banking hold unto it. If gold is really not that important, why cling to it?

As a whole, I find the article very informative and yet not easy. Many questions are popping out into my mind and I came up with some tentative answers.

Murray Rothbard claims that the only solution to avoid the collapse of global economy is to restore the money back to the free market from the hands of both the states and financiers. By this proposal, he meant abolition of Federal Reserve by repealing the Federal Reserve Act of 1913 and a return to gold standard. To him, the abolition of central banking and the return to gold standard are the common sense solutions to put an end to inflation and the business cycle. But the problem is, those in power do not want such “unrealistic” solutions for these would restrain the economic and political powers that they have been enjoying so far at the expense of the public.

We face one economic problem, but generally, there are two proposed solutions, the solutions coming from the free market thinkers and the power elites. The power elites through their professional economists dismissed the solution of free market thinkers as simplistic. We have a complex economic problem that requires complex solution. On the other hand, free market thinkers respond that professional economists are offering complex solution to simple problems. What we need are simple solutions – abolition of Federal Reserve and a return to gold standard.

Which analysis and solution are correct? In fact, the details of the solution offered by Rothbard are not as simple as I think. It requires rigid thinking to fully grasp the entirety of his proposal and that is beyond the comprehension of a neophyte in the field of economics.

Related Article:

Gold is ultimate store of value…

My Personal Take on “Six Myths about Libertarianism”

In 1980, Murray Rothbard wrote an article, Six Myths about Libertarianism claiming that “libertarianism is the fastest growing political creed in America.” However, he was concerned that its growth would be hampered by misconceptions and that’s why he wrote the article to clarify before the public the real character of this movement, and at the same time, educate the conservatives.

Summarizing the false charges against libertarianism, it is associated with individualism, licentiousness, rationalism, atheism, materialism, utopianism, and that it upholds every man’s perfect knowledge concerning his affairs. Let us have an overview of each of these myths:

• False association of libertarianism with a wrong notion of “individualism.”

With this association, libertarianism is said to be against any idea of collaboration and voluntary cooperation. What libertarians oppose according to Rothbard is not collaboration per se, but a counterfeit form of collaboration initiated by the state. Libertarians advocate genuine and voluntary collaboration for this political philosophy upholds that every individual influences each other.

• Identifying libertarianism with licentiousness or libertinism.

Here, Rothbard made a distinction between libertarianism and libertinism. If libertarianism is similar with libertinism as the accusers say, libertarianism then would finally leads to chaos and violence for such is the logical conclusion of a political idea without restraint. For Rothbard, the only legitimate use of violence is for self-defense. Any use of violence beyond self-defense is unlawful and criminal. Furthermore, Rothbard acknowledges the existence of diverse types of libertarianism: hedonist, bourgeois, libertines, and moral or spiritual. This could not be avoided due to the inherent character of liberty.

Personally, though I appreciate the distinction between libertarianism and libertinism, I do not agree with Rothbard’s ultimate idea of liberty. Yes, he accepts the possibility of a moral and spiritual grounding for liberty, but I suspect that basically his idea of liberty is derived from the Scholastics’ concept of natural law. Leonard E. Reed’s concept of liberty is different from Rothbard’s. In Elements of Libertarian Leadership (1962), Reed believes that faith in the Creator is the basic foundation of freedom. The other option is freedom given by the state. The third option does not exist.

• Libertarianism does not believe in moral principles, but focuses exclusively on the rationality of man.

This charge is connected to the second. It is true that there are libertarians who do not acknowledge liberty as a moral principle, but to say that all libertarians do not believe in moral principle is actually a misinterpretation. In fact, libertarians consistently apply moral principles such as murder and theft both to individuals and the government. They do not recognize the existence of a different moral standard between the individual and the government. One moral principle applies to both. The only exception libertarians could not tolerate as Rothbard understood is the use of coercion to force people to be moral. The choice to be moral or immoral is inherent in libertarianism.

• Libertarianism is atheistic and materialistic; consequently, it ignores spiritual reality.

For Rothbard, religion could not be used as a definitive categorization of libertarianism for you can find both atheists and theists embracing this political creed. Furthermore, for Rothbard, though the existence of Creator is a valid ontological question, it is irrelevant when it comes to social or political philosophy. Libertarianism could actually be accessed either through pure natural law as the Scholastics clearly taught us or through religious influence. The charge of materialism could also not stand for in the mind of Rothbard spiritual and material are inseparable.

•  Libertarians are utopians, believe in the inherent goodness of man, and therefore making State unnecessary

Depending on Rothbard’s knowledge, he does not know any libertarian who holds such a view. Libertarians are not utopians for they actually believe that man is a combination of good and evil. And that is the reason why they are against the expanding power of the state for those in power with their criminal nature could use the state to legitimize their abuses. Obviously, that is not utopianism. Moreover, the ideal society for libertarians is not realized through total disappearance of crimes, but lesser crimes. And unlike socialism, libertarians do not have a vision of remolding humanity to achieve its ideal society.

• Libertarians believe that men are perfectly wise and know what’s best for them

Both libertarians and the socialists do not believe this, but the response is different. For socialist, this is a ground for State’s intervention. For libertarians, the emphasis is on man’s freedom to act   concerning his basic rights and property. And instead of claiming for perfect knowledge, libertarians actually employ the experts’ advice for them to succeed in their endeavors.