“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


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).


Economic Prosperity of South Korea

In this post, I want to summarize the key ideas from two forum threads and two articles that provided answer to the forum question, “Why is South Korea so successful?”  I think the attribution of the primary cause to the “meteoric rise” of the economy of South Korea is the central contention in this question. Is the economic success of South Korea really the product of government’s intervention? Or is it the work of the free market?

Collaboration between the Government and the Chaebol

The initiator of the first forum thread acknowledged the limitation of his knowledge concerning the history and status of Korean economy. He is so concerned about the question for refuting the mainstream story about Korea’s economic miracle due to government intervention would provide a strong defense for the free market.

The first responder identified the vital role of the ties between the “chaebol” and the government explaining Korea’s economic success. Such ties started during the regime of Park Chung Hee (1961-1979) where the government recruited the “chaebol” to boost the national economy through industrialization and giving priority to export industry. The government is capable to provide the necessary huge funds for the “chaebol” to accomplish these economic ends through the nationalization of banks of Korea. The “chaebol” enjoyed special privileges from the government by receiving huge loans with low interest rates. This deprived medium-sized enterprises to avail of necessary capital. All of this was made possible by inflating the money supply.

However, the dominance of the “chaebol” was greatly affected due to two critical changes – the end of Park’s regime and the financial crisis in the late 1990s. South Korea now is looking for economic alternative to “chaebol” system since 1999.

Result of US Intervention on Korea’s Economy

The second thread deals with a difficult subject. It is about the impact of US intervention on Korean economy. One thread contributor recognized the difficulty of the subject for dealing with speculation and alternative history are difficult to avoid.

The dominant sentiment in the thread is that simply describing South Korean economic explosion as the total outcome of US intervention is a distortion of the picture. This is because the story of North Korea is intentionally left out. It appears to me that the picture closer to reality is that US intervention actually results both to economic prosperity of South Korea and economic poverty of North Korea. So basing on this second thread, the answer to our central question about the economic development of South Korea is closely connected to US intervention.

An Experimental Period

The third link is more focused on the situation in North Korea. However, I choose to limit my comment on the data concerning South Korea.

The writer, Tim Swanson, identifies that the situation in South Korea is still under experimental period between two ideological forces – pure socialism and relatively free market. Historically, South Korea “flirted” with dictators, but still the free market has survived for five decades. The economic miracle of South Korea is a product of neither the ideal libertarianism nor pure capitalism. If my understanding is correct, the writer is saying that Korea’s economic miracle is an outcome of the combination of these two forces. Moreover, the writer predicts that the free market will triumph over socialism in the end.

Chaebol Using the Government

The fourth answer came from George Reisman. He refused to buy the mainstream story about the economic success of South Korea attributed to government intervention. To him, accepting the mainstream story is tantamount to biblical miracles like raising the dead person to life or the virgin birth. In his mind, the New York Times actually reported the result of a defiance of an economic law, which is impossible to happen. Instead of uncritically accepting such misleading report, Reisman offered a different story. He saw the real cause of the success of South Korea’s economy from the fact that big businesses used the government for their own ends.

For Reisman, the story of big businesses using the government is not new. This has been happening in the US and similar scenario is also true in South Korea; the “chaebol” dictates the decision of the government. Two quotations from Reisman’s article support this assertion:

“The same principle of businessmen using the government for their own ends undoubtedly applies …to every other case of alleged government responsibility for the economic success of a country.”

“It’s sign of the corruption of our culture that today, businessmen feel the need to hide behind the mantle of corrupt ideology and pretend that what springs from their fundamentally life-giving self-interest comes instead from the government, the agency that can give only destruction and death.”

Answering our central question about the economic prosperity of South Korea, we came up with four different but interrelated answers. The chaebol’s collaboration with the government, American intervention, an outcome of economic experiment between socialism and the free market, and chaebol using the government are the answers we gathered from the two forum threads and two articles taken from Ludwig von Mises Institute.

South Korea and Austrian Economics

It’s a frustrating day! I wrote a draft yesterday for my next post, but as I checked my documents today, I could not find it. You know the experience of rewriting again a paper that took you some time to organize your thoughts. There is no certainty that I could come up with the same form I did yesterday. I simply decided to start anew.

I remember writing yesterday that I decided not to write further about the remaining four news articles from The Korea Herald, which I stated in my earlier post due to irrelevant content. Instead, I replaced them with three links related to “South Korea, Interventionism, and Austrian Economics”. I dropped “It’s time for Japan and South Korea to go nuclear.”

The first link directs to a Spanish blogger and investor who identified himself as jrv. His article’s title is Thoughts about Austrian Economists in the Present Context and Investing. Jrv’s profile and portfolio are impressive.  I could relate to his learning experience, but his investment successes are still very far from me.  I think the most relevant part in his article for my research is the sixth paragraph where he describes the increasing influence of socialism on many countries especially in the US. He excluded South Korea from that tendency. This is his personal opinion, which awaits confirmation from other more reliable sources.

The article of Lawrence W. Reed appears to me a confirmation of the opinion of the above blogger. It is about “Good News from Korea, China, and Vietnam.” I will just focus on Korea where Reed reports about the progress of Austrian way of thinking in South Korea.

Though written on the same year that global economic crisis took place, I really consider it good news to know that an institution was established in the peninsula to advance the cause of the free market. The establishment of Center for Free Enterprise would serve as a stronghold to frustrate South Korea’s socialistic tendency.

I envy South Korea for having free market thinkers like Dr. Byoung-Ho Gong and Dr. Chung-Ho Kim. Dr. Gong is the founder of CFE and Dr. Kim is the current president. They performed great service both for the future of liberty and their country by translating the books of classic Austrian economists into their language. How I wish that such academic labor would be emulated in our country, the Philippines.

The third link is actually a forum thread. It attempts to answer the question about South Korea’s economic prosperity. The first response contains five additional links. I already wrote my summary on the first article. My next writing task will focus on the four remaining links.

Is Warren Buffett a Communist?

Many would laugh at the idea implied by the above question. How could a person in his right mind ask such a question referring to the most successful capitalist investor of our time? But such a question was asked by an informed economics professor to the great billionaire. His name is George Reisman.

George Reisman

In November 26, 2006, Ben Stein of the New York Times reported his interview with Warren Buffet. The billionaire admitted the reality of on-going class warfare initiated by the rich class and claimed that they are winning. George Reisman was worried about the social implications of the billionaire’s statement that prompted him to write an open letter after six years. In the middle of the letter, Reisman asked Warren Buffet, “You’re not a communist, are you?” And in the concluding advice, Reisman stated referring to Warren Buffet and his capitalist friends:

“And, of course, even you and most capitalists are not in fact advocates of capitalism, because you and they have accepted the essentials of Marxism along with almost everyone else.”

Our goal in this article is to introduce the real character of capitalism by presenting the main ideas in the open letter. We hope that this summary would provide an overview of capitalism and clarify common misconception about capitalism as exemplified by Scott Stephens.

The open letter is very educational. The major obstacle reading it is its length. It has 20 pages with 9,206 words. So I doubt if anyone would spend time reading such a long open letter.

Reisman started the letter with direct questions addressed to the billionaire implying that the latter was not really aware about the implication of his statement on class warfare. He then explained class warfare coming from Marx’s exploitation theory where capitalists are perceived as enemies of majority of humanity.

After giving that brief “lecture,” Reisman clearly identified that Warren Buffet’s understanding of capitalism has nothing to do with the real nature of true capitalism. He blatantly said that the billionaire was in fact ignorant about the actual character of capitalism and in terms of understanding “the most fundamental matters of economic theory and economic policy” the economics professor described Warren Buffett as much an “ignoramus” as he is “a ‘genius’ in the field of securities trading.” The professor then admonished the billionaire to correct his misconceptions and to withdraw his statement on class warfare.Warren Buffett

After stating his admonition, George Reisman mentioned that despite of the billionaire’s misunderstanding of capitalism, the latter has actually blessed humanity with better standard of living due to his capitalistic endeavors. Seeing from this perspective, capitalists therefore are not exploiters and enemies of humanity as Marx’s exploitation theory emphasized, but innovators and benefactors. Self-inflicted guilt therefore among Warren Buffett and his friends is unnecessary. If Marx’s theory is correct, no amount of philanthropist acts could atone for the alleged crimes of the capitalists.

By “philanthropist acts,” I refer to the giving pledge signed by Buffet and his fellow billionaires and to his idea of raising taxes for highest earners and heaviest investors. According to the professor, these acts would finally result into the reduction of general standard of living due to its impact on production capital. In short, instead of helping society, such measures would actually lead into further economic destruction.

George Reisman then proceeded to explain the role of inflation (increase in money supply) in connection to capital gains. He believes that capital gains should not be taxed for they are not real gains. He then claimed: “The combination of inflation and capital gains taxation is a racket that puts money into the government’s hands at the expense of its citizens.”

The professor believes that the right way “to reduce the burden of taxation in the economic system is to start with the reduction of the taxes that land most heavily on saving and investment.” He further affirms that this type of tax reduction if complemented with similar reduction in government spending and regulations would result to better economy and higher standard of living.

George Reisman is against Warren Buffett’s idea of raising taxes for investors for the funds that would be collected could be utilized to finance more regulations hampering free market. Instead of increasing taxes, the professor advised Mr. Buffett to invest all the more in business capital for that would provide employment and the necessary products and services for the people.

The economics professor sees that socialism is the greatest threat to economic freedom. He mourned that the US Supreme Court has already abandoned its duty to protect people’s economic freedom for the last 75 years. Congressmen have passed laws under the influence of Marxist ideology. The real culprit for the economic woes of our time is the government’s growing intervention to prevent people from exercising their freedom to act concerning their basic economic rights and property. If this growing intervention of the government over the economic freedom of individuals would not be corrected, the future of humanity would be slavery and genocide as history clearly demonstrated to us in the experiences of Nazi Germany, Soviet Russia, and Communist China.


The only way to reverse the widespread influence of Marxism in the academe, the increasing restriction of people’s liberty, and the worsening economic tide is through an intellectual movement. The professor is calling Warren Buffett and his fellow billionaires to educate themselves in the economic theory and political philosophy of capitalism. He then introduced a list of free market thinkers and their books with specific emphasis on Ludwig von Mises and his works. He summoned Warren Buffett to finance this intellectual movement by helping spread those books in colleges and universities. He dreams to see of intellectuals to have deeper exposure in the ideas of best defenders of capitalism. He believes that the success of this intellectual movement would serve as the basis “for a peaceful and ever more prosperous world.” He describes that future dream as follows:

“…a world of respect for property rights and all other actual individual rights. This would mean a world of free trade, freedom of investment, and ultimately the free movement of people from everywhere to everywhere. Such a world would be a world in which no motive would exist for territorial aggrandizement on the part of any country, since its citizens would already be able to gain everything they might wish from the territory of any other country simply by buying its products, investing in it, or living in it.”

Past Facts and Present Evidences for Fascist Existence

Llewellyn Rockwell’s The Fascist Threat speaks about past facts and present evidences for fascist existence. In our time, no one wants to be labeled a “fascist” for it has a derogatory connotation. No one wants to be identified with dictators like Hitler and Mussolini. Llewellyn Rockwell argues that great number of politicians, intellectuals, and political activists are not honest in this regard for if we will just look deeper into the structure and policies of mainstream politics and economics, we could not avoid, but conclude that fascism is very much alive. Rockwell understands fascism as:

…the system of government that cartelizes the private sector, centrally plans the economy to subsidize producers, exalts the police State as the source of order, denies fundamental rights and liberties to individuals, and makes the executive State the unlimited master of society.

With the above understanding of “fascism,” here we can obviously see why the writer concludes that “fascism” does not only exist in the United States, but even in the entire European continent. I suspect that includes countries that pattern themselves after the model set by the west.

Rockwell narrates both familiar and unfamiliar historical facts about fascism. Several of these facts are:

  • The invisibility of fascism due to absence of great thinker like Marx actually makes it a far more serious threat to free market society
  • Fascism is just one color of socialism among many
  • Fascist’s economy described as “vampire economy” causing gradual death to free market
  • An example of this “vampirism” is the entrance of women into the workforce. It was subtly hailed as fruit of progressive ideas flourished in women’s economic liberation. Unrecognized by the majority, the real cause is the rising standard of living.
  • Origin of fascism associated with Mussolini
  • Fascism as basically nationalist
  • The role of the ideas of John Maynard Keynes for the implementation of centralized planning that basically characterized a fascist state
  • The definitive study of John T. Flynn on fascism in his book, As We Go Marching
  • Fascism as characterized by unusual collaboration between the extreme Right and the extreme Left
  • Fascism as a political compromise between two extreme ideologies actualized in cartelization mechanism to please both laborers and business owners, and
  • The subtlety of fascism for its toleration on private property, unequal salary, and religion

After narrating the above facts, Rockwell enumerates the 8 undeniable evidences for the current existence of fascism. I will just mention here five:

  • The absence of limitation in government’s power. This is totalitarianism. Rockwell writes, “…no matter how much you may believe that you are free, all of us today are but one step away from Guantanamo.” He further believes that US was a “nation conceived in liberty, but has been kidnapped by the fascist State.”
  • The government though not by law, but turns into a dictator in practice on the basis of “leadership principle.” The absence of a single dictator does not mean absence of dictatorship. The executive branch of government grows too powerful that the legislative and the judiciary can no longer provide balance. Related to this mark is the hope of the people for regime change. This is a lie for Rockwell rightly discerns, “The Obama State is the Bush State; the Bush State was the Clinton State; the Clinton State was the Bush State; the Bush State was the Reagan State” and that “rotation in office occurs not because of elections but because of mortality.”
  • The government’s intervention of the free market results to economic stagnation. Expected economic growth is largely missing even after the end of the Cold War and technological advancement. Government bureaucracy is the primary obstacle to economic growth. Quoting Bastiat, Rockwell writes:

The real cost of the State is the prosperity we do not see, the jobs that don’t exist, the technologies to which we do not have access, the businesses that do not come into existence, and the bright future that is stolen from us. The State has looted us just as surely as a robber who enters our home at night and steals all that we love.

  • Organization of producers into cartels with direct knowledge and influence of the government. “Syndicalism” is the favorite term used by Rockwell to describe this kind of economic monopoly. He cites the events of past three years as evidences where “giant banks, pharmaceutical firms, insurers, car companies, Wall Street banks and brokerage houses, and quasi-private mortgage companies enjoying vast privileges” at the expense of the public.
  • The military receives the lion share in the total national budget. This is either rarely or never been seriously discussed in policy debates. The government wants to convince the American public that they are under serious threat from hostile regimes, instead of admitting that American militarism and imperialism as the primary threats to world peace.

Rockwell concludes his piece with a call to fight for liberty and a message of hope. He is confident that victory belongs to those who uphold liberty for it is based on truth and reality. He believes that fascism is ideologically bankrupt and about to collapse. In light of this, there is no reason for libertarians to despair, but to gather its strength and continue its fight for the future belongs to us. Such a movement is already on the rise:

It is not a formal alliance. It is made up of those who protest the Fed, those who refuse to go along with mainstream fascist politics, those who seek decentralization, those who demand lower taxes and free trade, those who seek the right to associate with anyone they want and buy and sell on terms of their own choosing, those who insist they can educate their children on their own, the investors and savers who make economic growth possible, those who do not want to be felt up at airports, and those who have become expatriates…It is also made of the millions of independent entrepreneurs who are discovering that the number one threat to their ability to serve others through the commercial marketplace is the institution that claims to be our biggest benefactor: the government.…The movement is intellectual. It is political. It is cultural. It is technological. They come from all classes, races, countries, and professions. This is no longer a national movement. It is truly global….We can no longer predict whether members consider themselves to be left wing, right wing, independent, libertarian, anarchist, or something else.