“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).

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It is not the free market, but interventionism

“Why is South Korea so successful?” is the title of the forum thread from Ludwig von Mises Institute. The original poster finds it hard to explain the economic success of South Korea from Austrian perspective. John James replied with five links. The first link is about “Asian Tiger or Asian Kitten?” I clicked the link and found what I have been looking for, an explanation closer to reality than the one reported in The Korea Herald yesterday blaming the free market for the country’s economic woes.

There I found the typical Austrian diagnosis that it is actually the government’s intervention of the free market that account for Korea’s present economic situation. Though the article was written prior to 2008 crisis and referring to financial crisis in the late 90’s, I personally think that nothing substantially has changed since then.

Such intervention is seen through the connection between the government and the “chaebols” (Korean Big Business conglomerates), through the control over the bank of Korea, the role of subsidies, and the fact that every government is a chaebol in itself. The government intervention shows through increasing regulation and artificial low interest rates resulting to misallocation of capital. The continuous printing of money by the Bank of Korea caused imbalances in economic growth, structural corruption, and eventually to the collapse of national economy. Government subsidies played a crucial role in the reallocation of funds and protection of the chaebols from outside competition. An alarming example of such reallocation is related to the $24 billion worth of tax revenues designated for broadband projects. Such reallocation would have future repercussions that are yet to be seen.

Here are two relevant quotations from the article about the connection of the government with the chaebols:

“Furthermore, the South Korean government, which itself played an integral part in the Asian financial collapse of 1997–98 still has a heavy hand in innovation by massively subsidizing and favoring the products and services developed by chaebols such as Samsung, LG, SK Telecom, and Hyundai.”

“State-subsidized Daewoo was involved with such poor financial dealings and shoddy business practices that they ultimately went bankrupt; and both Samsung and Hyundai are under fire for bribing government officials for government contracts.”

Free Market’s Failure Justifies Welfare

Reading the fourth article from The Korea Herald issued as of November 6, 2012 convinced me about the influence of mainstream social theme about the alleged “crimes” of free market. The writer identified two among those crimes. These are the increasing socio-economic inequity and the collapse of traditional family values that left both the children and the elderly unattended.  Due to free market failure as the mainstream rhetoric wants us to believe, the entry of government welfare is now justified. And this serves as the rallying point of the three presidential candidates in South Korea: Park Geun-hye, Moon Jae-in, and Ahn Cheol-soo.

Among the three candidates, it was reported that Moon Jae-in is the boldest in his welfare platform and dreams to be “ ‘the first president of South Korea as a welfare state’ ”.  Ahn Cheol-soo’s source of financing for his “reliable welfare” program is commendable. It is similar to the monetary policies advocated by Ron Paul, the Tea Party US Congressman who is passionate to spread the Austrian economics way of thinking. Ahn’s “cut government spending” and “tax exemption measures” are really great ideas that will somehow help ease the existing economic situation in the country due to global crisis.

Listening to the voice of Austrian economists, a different diagnosis would come out concerning the alleged crimes of the free market in South Korea. They identify government’s intervention of the free-market as the primary culprit. Mainstream media and the academic community feed the public with such wrong notion for the government’s interventionist policy to escape public attention.

This fourth article really caused me to think hard. So I searched for other sites to learn how they look at the situation in South Korea. I typed in the search browser two lines of thoughts: South Korea and welfare state and South Korea and Austrian economics. And among numerous links, I chose four:

So in addition to the writing task I mentioned in the previous article, I add the above four. I am also thinking about reflecting on the economic situation in my country, the Philippines.

Pillars of Prosperity – An Assessment of the Condition of US Republic

This is the second sub-section of The Economics of a Free Society. I understand that the central argument under this heading is that in order to grasp the economics of a free society, one must first study the condition of the US Republic. To my mind, the study of the condition of US Republic will also help us understand the situation of the world. And since US economy is central in this study, the present economic situation of the world will also be illumined through a closer assessment of the US Republic.

American Republic

In my brief period of studying Austrian economics, I came to a conclusion that despite the present economic situation of the world, US economy remains closely associated with global economy. And also, despite the reports of the bad refutation of US dollar due to Federal Reserve increasing the money supply, still the US currency remains the reserve currency of the world.

Due to this association, it is vital to the health of global economy to take a closer look at the general condition of the US Republic. The knowledge of this condition must shape public opinion in order to exert pressure on responsible policy makers to address any discovered political and economic fallacies in the land.

In February 7, 2001, Dr. Ron Paul, the Tea Party Congressman, delivered a speech at the US House of Representatives assessing the condition of the US Republic. In this speech, he explored numerous critical issues that remain relevant up to the present time. He mentioned about the “Third Way,” the difficulty to spread the principles of genuine freedom, international military interventionism, inflation, social conflicts, illusory wealth, and basic morality.

The “Third Way”

Concerning the “Third Way,” Dr. Paul argued that it was actually a subtle propaganda to expand the power of the government by presenting before the public a “compromise” between the liberals and the conservatives. But as Dr. Paul correctly analyzed, in reality, the “Third Way” is not a compromise, but serves as propaganda to advance the agenda of the government at the expense of freedom and free market. It was in this regard that the Tea Party Congressman argued that no substantial philosophical difference exists between the Republicans and Democrats. Both parties never questioned the role of government and the impact of its expanding power on personal liberty and capitalism.

As popularly claimed, the “Third Way” is a bipartisan compromise that is less threatening and more acceptable to the people. But from a libertarian perspective, the “Third Way” is a more dangerous threat to personal freedom and free market.  Dr. Paul claims that available alternatives offered to the public including the “Third Way” are no real alternatives. All the provided three alternatives are basically similar. They are simply three different versions of state interventionism.

The Difficulties in Propagating Freedom

It is ironic that a society built on the principles of freedom is now having difficulty to propagate personal liberty. Two major obstacles include the elites who benefit from state policies and the beneficiaries of welfare program. The recipients of welfare program may give a lip service to personal liberty, but will certainly oppose ideas that propose the removal of such government program. Most people think that both welfare and personal liberty can be maintained at the same time. The welfare program in this sense serves as a diversion from the real political and economic issues that confront not only the US but other parts of the world as well.

International Military Interventionism

International military interventionism is another distinguishing mark of the present condition of US Republic. A long list of just causes is used to justify foreign military intervention. In the old days, it was a campaign against communism. Now, the causes are multiplied and they include protection of oil supply, war on drugs, preserving global peace and order, and securing the objectives of foreign aid.

Commercial interests of the powerful few behind military interventionism remain unnoticed and never reported in mainstream media. What they feed us is the necessity of military interventionism to protect freedom and promote prosperity. But in reality, military interventionism undermines personal liberty, global peace, and economic prosperity.

Financial resources and lives are sacrificed on the altar of military aggression. This is a subtle contradiction that describes the present condition of US foreign military relation. Reality contradicts political rhetoric. The promised freedom and prosperity are actually deprived from the citizens while the powers that be reap the political and economic harvest.

Among the many just causes promoting military interventionism, the economic consequences of distributing foreign aid under the campaign of helping the poor of developing countries are almost invisible. In reality, foreign aid does not help the poor of developing countries. It only serves the interests of powerful foreign leaders. Add to it the fact that providing foreign aid is actually a process “of taking money from poor Americans and giving it to rich foreign leaders, with kickbacks to international corporations” like the WB, the IMF, the WTO, and the ICC (p.30). This is an invisible attack on the economic liberty of American taxpayers for such decision does not come from them, but always from global elites.

Inflation

Among the many features of the US Republic, none of them threatens its very foundation than inflation. As long as the US government has a legal control to increase its own money supply through the Federal Reserve, the welfare and warfare programs of the government will continue to increase. The only solution to the increasing power of the government and threat to personal liberty is to stop its control over the money supply and restore it back to the free market. Without this action, booms and busts, wealth transfer, and social conflicts will remain as ugly features of the socio-economic condition not only of the US, but of the world.

Basing on his economic insights, Dr. Paul reports that the decision of President Nixon in 1971 to separate the US dollar from gold was a great mistake in monetary history and unleashed financial chaos since that time. The combined efforts of all central banks of the world cannot prevent the coming economic catastrophe resulting from that great mistake.

Together with other Austrian economists, Congressman Paul describes inflation as an act of “counterfeiting” sound money. The law allows this act of “fraud” and “theft.” It is a legal way of robbing the people of the purchasing power of their money. Savers and laborers depending on fixed salaries are the real losers in this kind of financial system.

 Social Conflicts

Inflation is a serious threat to the stability of society. Various types of social conflicts are inescapable consequences of inflation. Recession, unemployment, erosion of standard of living, and rising prices of both production and consumption goods are all connected to inflation. Dr. Paul even predicted that in severe inflation, the middle class would be wiped out.

Resulting from the disappearance of the middle class, social and political conflicts will appear as common. The Congressman already described in 2001 the appearance of “conflicts between classes, races, ethnic groups, and even generations” (p.33). Blaming will be rampant, but the general public as usual will be unable to identify the real culprit unless Austrian economics becomes part of mainstream consciousness.

Illusory Wealth

Another noticeable facet of the US Republic is the inability of the people to distinguish the difference between real and illusory wealth. I understand illusory wealth as a result of increasing the money supply at the expense of the free market, personal liberty, and economic freedom of the people. The fixed salary workers and savers are deprived of their monies’ worth through legal means.

Yes, it cannot be denied that the increase in the supply of money brings temporary prosperity. However, in reality, this temporal prosperity is but a dream for it is neither a result of entrepreneurial creativity nor an outcome of increase in production. Instead, it is built on the money supply injected by the Fed into the economy. Dr. Paul describes this illusory wealth.

“Yes, the Fed does help to finance the welfare state. Yes, the Fed does come to the rescue when funds are needed to fight wars and for us to pay the cost of maintaining our empire. Yes, the Fed is able to stimulate the economy and help create what appear to be good times. But it’s all built on an illusion. Wealth cannot come from a printing press. Empires crumble and a price is eventually paid for arrogance toward others. And booms inevitably turn into busts” (pp. 26-27).

Basic Morality

It is alarming to observe that with the introduction of legal counterfeit in monetary system, a corresponding decline in basic morality is also taking place. Ron Paul was describing not only the widespread acceptance of abortion, but the legal use of taxpayers’ money to fund abortion. To him, such moral decline was considered preparatory to euthanasia. He accepts that in a free society, issues like these do not disappear. But instead of the state participating in undermining the value of life, it actually protects life.

Conclusion and Summary

There is a need to reverse the identified trends that describe the US Republic if the Americans do not wish to end with a fascist government. The increasing expansion of government’s power is contrary to the principles of a free society. The paragraph below offers a good summary:

“Our economic, military, and political power, second to none, has perpetuated a system of government no longer dependent on the principles that brought our Republic to greatness. Private property rights, sound money, and self-reliance have been eroded, and they have been replaced with welfarism, paper money, and collective management of property. The new system condones special-interest cronyism and rejects individualism, profits, and voluntary contracts. Concern for the future is real, because it’s unreasonable to believe that the prosperity and relative tranquility can be maintained with the current system. Not being concerned means that one must be content with the status quo and that current conditions can be maintained with no negative consequences. That, I maintain, is a dream” (p. 39).

A genuine alternative badly needed in our time includes the return to basic morality, space for the free market, restoration of honest money, living within the parameters of the Constitution, and the recovery of personal liberty.

Personal Prayer

Creator of heaven and earth, our Redeemer, we acknowledge that you are the King of kings and the Lord and lords and you hold governments and rulers in your mighty hand. We also acknowledge that you established human authorities.

In this critical time in human history, we pray for the United States of America. You know what is going on. You know about the Federal Reserve, the Occupy Movement, the Tea Party Movement, and the present status of the US Republic.

Enlighten the people to see that the answer to the present crisis lies beyond the solutions offered both by liberals and conservatives, by Republicans and Democrats.

Forgive America and the world for abusing freedom; for thinking that our freedom is absolute; and for failing to distinguish among our libertine excesses, our self-proclaimed freedom, and the freedom granted to us by Christianity.

Forgive those in power for making numerous excuses to justify militarism. Forgive USA for her inconsistencies between her message and her action; forgive her for declaring herself as defender of liberty, promoter of prosperity, and preserver of peace; but in her action, destroys freedom, breeds poverty and sows terror. Forgive her for corporatism, greed, and lust for power.

Forgive those responsible for inflating the money supply, for taking the wealth of the middle class, the saving of the savers, and the hard-earned salary of the workers. Let them know that they cannot hide their theft from your eyes behind sophisticated monetary and economic systems.

Forgive those addicted to illusory wealth, those who live beyond their means, those who depended on credit, and those who sold their future.

Forgive us all for undermining the value of life.

Source: Paul, Ron. (2008). Pillars of Prosperity: Free Markets, Honest Money, Private Property. Auburn, Alabama: Ludwig von Mises Institute.