Henry Hazlett “On Appeasing Envy.” The Freeman. March 1972. (Irvington-on-Hudson, NY: The Foundation for Economic Education).
Any attempt to equalize wealth or income by forced redistribution must only tend to destroy wealth and income. Historically the best would-be equalizers have ever succeeded in doing is to equalize downward. This has even been caustically described as their intention. “Your levellers,” said Samuel Johnson in the mid-eighteenth century, “wish to level down as far as themselves; but they cannot bear levelling up to themselves.” And in our own day we find even an eminent liberal like the late Mr. Justice Holmes writing: “I have no respect for the passion for equality, which seems to me merely idealizing envy.”
At least a handful of writers have begun to recognize explicitly the all-pervasive role played by envy or the fear of envy in life and in contemporary political thought. In 1966, Helmut Schoeck, professor of sociology at the University of Mainz, devoted a penetrating book to the subject.
There can be little doubt that many egalitarians are motivated at least partly by envy, while still others are motivated, not so much by any envy of their own, as by the fear of it in others, and the wish to appease or satisfy it.
But the latter effort is bound to be futile. Almost no one is completely satisfied with his status in relation to his fellows. In the envious the thirst for social advancement is insatiable. As soon as they have risen one rung in the social or economic ladder, their eyes are fixed upon the next. They envy those who are higher up, no matter by how little. In fact, they are more likely to envy their immediate friends or neighbours, who are just a little bit better off, than celebrities or millionaires who are incomparably better off. The position of the latter seems unattainable, but of the neighbour who has just a minimal advantage they are tempted to think: “I might almost be in his place.”
The Urge to Deprive Others
Moreover, the envious are more likely to be mollified by seeing others deprived of some advantage than by gaining it for themselves. It is not what they lack that chiefly troubles them, but what others have. The envious are not satisfied with equality; they secretly yearn for superiority and revenge. In the French revolution of 1848, a woman coal-heaver is reported to have remarked to a richly dressed lady: “Yes, madam, everything’s going to be equal now; I shall go in silks and you’ll carry coal.”
Envy is implacable. Concessions merely whet its appetite for more concessions. As Schoeck writes: “Man’s envy is at its most intense where all are almost equal; his calls for redistribution are loudest when there is virtually nothing to redistribute.”
(We should, of course, always distinguish that merely negative envy which begrudges others their advantage from the positive ambition that leads men to active emulation, competition, and creative effort of their own.)
But the accusation of envy, or even of the fear of others’ envy, as the dominant motive for any redistribution proposal, is a serious one to make and a difficult if not impossible one to prove. Moreover, the motives for making a proposal, even if ascertainable, are irrelevant to its inherent merits.
We can, nonetheless, apply certain objective tests. Sometimes the motive of appeasing other people’s envy is openly avowed. Socialists will often talk as if some form of superbly equalized destitution were preferable to “maldistributed” plenty. A national income that is rapidly growing in absolute terms for practically everyone will be deplored because it is making the rich richer. An implied and sometimes avowed principle of the British Labour Party leaders after World War II was that “Nobody should have what everybody can’t have.”
Equality, Yes; Abundance, No!
But the main objective test of a social proposal is not merely whether it emphasizes equality more than abundance, but whether it goes further and attempts to promote equality at the expense of abundance. Is the proposed measure intended primarily to help the poor, or to penalize the rich? And would it in fact punish the rich at the cost of also hurting everyone else?
This is the actual effect, as we saw earlier, of steeply progressive income taxes and confiscatory inheritance taxes. These are not only counterproductive fiscally (bringing in less revenue from the higher brackets than lower rates would have brought), but they discourage or confiscate the capital accumulation and investment that would have increased national productivity and real wages.
Most of the confiscated funds are then dissipated by the government in current consumption expenditures. The long-run effect of such tax rates, of course, is to leave the working poor worse off than they would otherwise have been.
There are economists who will admit all this, but will answer that it is nonetheless politically necessary to impose such near confiscatory taxes, or to enact similar redistributive measures, in order to placate the dissatisfied and the envious—in order, even, to prevent actual revolution.
Appeasement Provokes Envy
This argument is the reverse of the truth. The effect of trying to appease envy is to provoke more of it. The most popular theory of the French Revolution is that it came about because the economic condition of the masses was becoming worse and worse, while the king and the aristocracy remained completely blind to it. But Tocqueville, one of the most penetrating social observers and historians of his or any time, put forward an exactly opposite explanation. Let me state it first as summarized by an eminent French commentator in 1899: Here is the theory invented by Tocqueville…. The lighter a yoke, the more it seems insupportable; what exasperates is not the crushing burden but the impediment; what inspires to revolt is not oppression but humiliation. The French of 1789 were incensed against the nobles because they were almost the equals of the nobles; it is the slight difference that can be appreciated, and what can be appreciated that counts. The eighteenth century middle class was rich, in a position to fill almost any employment, almost as powerful as the nobility. It was exasperated by this “almost” and stimulated by the proximity of its goal; impatience is always provoked by the final strides.
I have quoted this passage because I do not find the theory stated in quite this condensed form by Tocqueville himself. Yet this is essentially the theme of his L’Ancien Regime et la Revolution, and he presented impressive factual documentation to support it.
As the prosperity which I have just described began to extend in France, the community nevertheless became more unsettled and uneasy; public discontent grew fierce; hatred against all established institutions increased. The nation was visibly advancing toward a revolution…. It might be said that the French found their position the more intolerable precisely where it had become better. Surprising as this fact is, history is full of such contradictions.
It is not always by going from bad to worse that a country falls into revolution. It happens most frequently that a people, which had supported the most crushing laws without complaint, and apparently as if they were unfelt, throws them off with violence as soon as the burden begins to be diminished. The state of things destroyed by a revolution is almost always somewhat better than that which immediately preceded it; and experience has shown that the most dangerous moment for a bad government is usually that when it enters upon the work of reform. Nothing short of great political genius can save a sovereign who undertakes to relieve his subjects after a long period of oppression.
The evils which were endured with patience so long as they were inevitable seem intolerable as soon as a hope can be entertained of escaping from them. The abuses which are removed seem to lay bare those which remain, and to render the sense of them more acute; the evil has decreased, it is true, but the perception of the evil is more keen….
No one any longer contended in 1780 that France was in a state of decline; there seemed, on the contrary, to be just then no bounds to her progress. Then it was that the theory of the continual and indefinite perfectibility of man took its origin. Twenty years before nothing was to be hoped of the future: then nothing was to be feared. The imagination, grasping at this near and unheard of felicity, caused men to overlook the advantages they already possessed, and hurried them forward to something new.
Aggravated by Sympathy
The expressions of sympathy that came from the privileged class itself only aggravated the situation: The very men who had most to fear from the fury of the people declaimed loudly in their presence on the cruel injustice under which the people had always suffered. They pointed out to each other the monstrous vices of those institutions which had weighed most heavily upon the lower orders: they employed all their powers of rhetoric in depicting the miseries of the common people and their ill-paid labour; and thus they infuriated while they endeavoured to relieve them.
Tocqueville went on to quote at length from the mutual recriminations of the king, the nobles, and the parliament in blaming each other for the wrongs of the people. To read them now is to get the uncanny feeling that they are plagiarizing the rhetoric of the limousine liberals of our own day. All this does not mean that we should refrain from taking any measure truly calculated to relieve hardship and reduce poverty. What it does mean is that we should never take governmental measures merely for the purpose of trying to assuage the envious or appease the agitators, or to buy off a revolution.
Such measures, betraying weakness and a guilty conscience, only lead to more far-reaching and even ruinous demands. A government that pays social blackmail will precipitate the very consequences that it fears.
 The Correspondence of Mr. Justice Holmes and Harold J. Laski (ed. M. De Wolfe Howe, 2 vol. Cambridge, Mass., 1953). From Holmes to Laski, May 12, 1927, p. 942.
 Helmut Schoeck, Envy (English translation, Harcourt, Brace & World, 1969).
 Ibid., p. 303.
 “Should we Divide the Wealth?” in The Freeman, February, 1972, p. 100.
 Emile Faguet, Politicians and Moralists of the Nineteenth Century (Boston: Little, Brown; 1928), p. 93.
 Alexis de Tocqueville, On the State of Society in France before the Revolution of 1789. (London: John Murray, 1856) pp. 321–324. Also available as The Old Regime and the French Revolution in a Doubleday paperback.
 Ibid., pp. 329–330.
By Henry Hazlitt The Freeman. February 1971. (Irvington-on-Hudson, NY: The Foundation for Economic Education). Edited by Hilton Ratcliffe.
From the beginning of history sincere reformers as well as demagogues have sought to abolish or at least to alleviate poverty through state action. In most cases their proposed remedies have only served to make the problem worse. The most frequent and popular of these proposed remedies has been the simple one of seizing from the rich to give to the poor. This remedy has taken a thousand different forms, but they all come down to this. The wealth is to be “shared,” to be “redistributed,” to be “equalized.” In fact, in the minds of many reformers it is not poverty that is the chief evil but inequality.
These direct redistribution schemes (including “land reform” and “the guaranteed income”) are so immediately relevant to the problem of poverty that they warrant separate treatment. Here I must content myself with reminding the reader that all schemes for redistributing or equalizing incomes or wealth must undermine or destroy incentives at both ends of the economic scale. They must reduce or abolish the incentives of the unskilled and shiftless to improve their condition by their own efforts, and even the able and industrious will see little point in earning anything beyond what they are allowed to keep. These redistribution schemes must inevitably reduce the size of the pie to be redistributed. They can only level down. Their long-run effect must be to reduce production and lead toward national impoverishment.
The problem we face here is that the false remedies for poverty are almost infinite in number. An attempt at a thorough refutation of any single one of them would run to disproportionate length. But some of these false remedies are so widely regarded as real cures or mitigations of poverty that if I do not refer to them, I may be accused of having undertaken a comprehensive analysis of the remedies for poverty while ignoring some of the most obvious. What I shall do, as a compromise, is to take up some of the more popular of the alleged remedies for poverty and indicate briefly in each case the nature of their shortcomings or the chief fallacies involved in them.
Unions and Strikes
The most widely practiced “remedy” for low incomes in the last two centuries has been the formation of monopolistic labor unions and the use of the strike threat. In nearly every country today this has been made possible to its present extent by government policies that permit and encourage coercive union tactics and inhibit or restrict counteractions by employers. As a result of union exclusiveness, of deliberate inefficiency, of featherbedding, of disruptive strikes and strike-threats, the long-run effect of customary union policies has been to discourage capital investment and to make the average real wage of the whole body of workers lower, and not higher, than it would otherwise have been.
Nearly all of these customary union policies have been dishearteningly shortsighted. When unions insist on the employment of men that are not necessary to do a job (requiring unneeded firemen on Diesel locomotives; forbidding the gang size of dock workers to be reduced below, say, 20 men no matter what the size of the task; demanding that a newspaper’s own printers must duplicate advertising copy that comes in already set in type, etc.) the result may be to preserve or create a few more jobs for specific men in the short run, but only at the cost of making impossible the creation of an equivalent or greater number of more productive jobs for others.
The same criticism applies to the age-old union policy of opposing the use of labor-saving machinery. Labour-saving machinery is only installed when it promises to reduce production costs. When it does that, it either reduces prices and leads to increased production and sales of the commodity being produced, or it makes more profits available for increased reinvestment in other production. In either case its long-run effect is to substitute more productive jobs for the less productive jobs it eliminates. Yet as late as 1970, a book appeared by a writer who enjoys an exalted reputation as an economist in some quarters, opposing the introduction of labour-saving machines in the underdeveloped countries on the ground that they “decrease the demand for labour”!
The natural conclusion from this would be that the way to maximize jobs is to make all labour as inefficient and unproductive as possible.
A similar judgment must be passed on all “spread-the-work” schemes. The existing Federal Wage-Hour Law has been on the books for many years. It provides that the employer must pay a 50 per cent penalty overtime rate for all hours that an employee works in excess of 40 a week, no matter how high the employee’s regular hourly rate of pay.
This provision was inserted at the insistence of the unions. Its purpose was to make it so costly for the employer to work men overtime that he would be obliged to take on additional workers. Experience shows that the provision has in fact had the effect of narrowly restricting the length of the working week. In the ten-year period, 1960 to 1969 inclusive, the average annual workweek in manufacturing varied only between a low of 39.7 hours in 1960 and a high of 41.3 hours in 1966.
Even monthly changes do not show much variation. The lowest average working week in manufacturing in the fourteen months from June, 1969 to July, 1970 was 39.7 hours and the highest was 41 hours. But it does not follow that the hour-restriction either created more long-term jobs or yielded higher total payrolls than would have existed without the compulsory 50 per cent overtime rate. No doubt in isolated cases more men have been employed than would otherwise have been. But the chief effect of the overtime law has been to raise production costs. Firms already working full standard time often have to refuse new orders because they cannot afford to pay the penalty overtime necessary to fill those orders. They cannot afford to take on new employees to meet what may be only a temporarily higher demand because they may also have to install an equivalent number of additional machines.
Higher production costs mean higher prices. They must therefore mean narrowed markets and smaller sales. They mean that fewer goods and services are produced. In the long run the interests of the whole body of workers must be adversely affected by compulsory overtime penalties. All this is not to argue that there ought to be a longer workweek, but rather that the length of the work week, and the scale of overtime rates, ought to be left to voluntary agreement between individual workers or unions and their employers. In any case, legal restrictions on the length of the working week cannot in the long run increase the number of jobs. To the extent that they can do that in the short run, it must necessarily be at the expense of production and of the real income of the whole body of workers.
Minimum Wage Laws
This brings us to the subject of minimum-wage laws. It is profoundly discouraging that in the second half of the twentieth century, in what is supposed to be an age of great economic sophistication, the United States should have such laws on its books, and that it should still be necessary to protest against a nostrum so futile and mischievous. It hurts most the very marginal workers it is designed to help.
I can only repeat what I have written in another place. When a law exists that no one is to be paid less than $64 for a 40-hour week, then no one whose services are not worth $64 a week to an employer will be employed at all. We cannot make a man worth a given amount by making it illegal for anyone to offer him less. We merely deprive him of the right to earn the amount that his abilities and opportunities would permit him to earn, while we deprive the community of the moderate services he is capable of rendering. In brief, for a low wage we substitute unemployment.
But I cannot devote more space to this subject here. I refer the reader to the careful reasoning and statistical studies of such eminent economists as Professors Yale Brozen, Arthur Burns, Milton Friedman, Gottfried Haberler, and James Tobin, who have emphasized, for example, how much our continually rising legal minimum wage requirements have increased unemployment in recent years, especially among teen-aged Negroes.
The Mounting Burden of Welfare Plans and Taxes
In the last generation there has been enacted in almost every major country of the world a whole sackful of “social” measures, most of them having the ostensible purpose of “helping the poor” in one respect or another. These include not only direct relief, but unemployment benefits, old-age benefits, sickness benefits, food subsidies, rent subsidies, farm subsidies, veterans’ subsidies—in seemingly endless profusion. Many people receive not only one but many of these subsidies. The programs often overlap and duplicate each other.
What is their net effect? All of them must be paid for by that chronically forgotten man, the taxpayer. In perhaps half the cases, Paul is in effect taxed to pay for his own benefits, and gains nothing on net balance (except that he is forced to spend his earned money in other directions than he himself would have chosen). In the remaining cases, Peter is forced to pay for Paul’s benefits. When any one of these schemes, or a further expansion of it, is being proposed, its political sponsors always dwell on what a generous and compassionate government should pay to Paul; they neglect to mention that this additional money must be seized from Peter. In order that Paul may receive the equivalent of more than he earns, Peter must be allowed to keep less than he earns.
The mounting burden of taxation not only undermines individual incentives to increased work and earnings, but in a score of ways discourages capital accumulation and distorts, un-balances, and shrinks production. Total real wealth and income is made smaller than it would otherwise be. On net balance there is more poverty rather than less.
But increased taxation is so unpopular that most of these “social” handout schemes are originally enacted without enough increased taxation to pay for them. The result is chronic government deficits, paid for by the issuance of additional paper money. And this has led in the last quarter-century to the constant depreciation of the purchasing power of practically every currency in the world. All creditors, including the buyers of government bonds, insurance policy holders, and the depositors in savings banks, are systematically cheated. Once more the chief victims are the working and saving families with moderate incomes. Yet everywhere this monetary inflation, eventually so disruptive and ruinous to orderly balanced production, is rationalized by politicians and even by putative economists as necessary for “full employment” and “economic growth.” The truth is that if this monetary inflation is persisted in, it can only lead to economic disaster.
Price and Wage Controls
Many of the very people who originally advocate inflation (or the policies which inevitably lead to it), when they see its consequences of raising prices and money wages, propose to cure the situation, not by halting the inflation, but by having the government impose price and wage controls. But all such attempts to suppress the symptoms enormously increase the harm done. Price and wage controls, to precisely the extent that they can be made temporarily effective, only distort, disrupt, and reduce production—again leading toward impoverishment.
Yet here again, as with the other false remedies for poverty, it would be an unjustifiable digression to spell out in detail all the fallacies and evil consequences of special subsidies, improvident government spending, deficit financing, monetary inflation, and price-and-wage controls. I have myself dealt with these subjects in two previous books: The Failure of the New Economics and What You Should Know About Inflation; and there is, of course, an extensive literature on the subject. The chief point to be reiterated here is that these policies do not help to cure poverty.
Another false remedy for poverty is the progressive income tax, as well as a very heavy burden of capital-gains taxes, inheritance taxes, and corporate income taxes. All of these have the effect of discouraging production, investment, and capital accumulation. To that extent they must prolong rather than cure poverty.
We come now to the final false remedy for poverty to be considered in this article—outright socialism. Now the word “socialism” is loosely used to refer to at least two distinct proposals, usually but not necessarily tied together in the minds of the proposers. One of these is the redistribution of wealth or income—if not to make incomes equal, at least to make them much more nearly equal than they are in a market economy. But the majority of those who propose this objective today think that it can be achieved by retaining the mechanisms of private enterprise and then taxing the bigger incomes to subsidize the smaller incomes.
By “outright socialism” I refer to the Marxist proposal for “the public ownership and control of the means of production.”
Now one of the most striking differences between the 1970’s and the 1950’s, or even the 1920’s, is the rise in the political popularity of Socialism Two—the redistribution of income—and the decline in the political popularity of Socialism One—government ownership and management. The reason is that the latter, in the last half-century, has been so widely tried. Particularly in Europe there is now a long history of government ownership and management of such “public utilities” as the railroads, the electric light and power industries, the telegraph and telephone. And everywhere the history has been much the same—deficits practically always, and in the main poor service compared with what private enterprise supplied. The mail service, a government monopoly nearly everywhere, is also nearly everywhere notorious for its deficits, inefficiency, and inertia. (The contrast with the performance of “private” industry is often blurred, however, in the United States, for example, by the slow strangulation of the railroads, telephone, and power companies by government regulation and harassment.)
As a result of this history, most of the socialist parties in Europe find that they can no longer attract votes by promising to nationalize even more industries. But what is still not recognized by the socialists, by the public, or even by more than a small minority of economists, is that present government ownership and management of industries, not only in “capitalist” Europe but even in Soviet Russia, works only as well as it does because it is parasitic for accounting on the world market prices established by private enterprise.
Too Much Taken for Granted
We are so accustomed to the miracle of private enterprise that we habitually take it for granted. But how does private industry solve the incredibly complex problem of turning out tens of thousands of different goods and services in the proportions in which they are wanted by the public? How does it decide how many loaves of bread to produce and how many overcoats, how many hammers and how many houses, how many pins and how many Pontiacs, how many teaspoons and how many telephones? And how does it decide the no less difficult problem of which are the most economical and efficient methods of producing these goods? It solves these problems through the institutions of private property, the free market, and the existence of money—through the interrelations of supply and demand, costs and prices, profits and losses. When shoes are in deficient supply compared with the marginal cost of producing them, their price, and therefore the margin of profit in producing them, will increase in relation to the price and margin of profit in producing other things. Therefore, the existing producers will turn out more shoes, and perhaps new producers will order machinery to make them. When the new supply catches up with existing demand, the price of shoes, and the profit of making them, will fall; the supply will no longer be increased. When hats go out of fashion and fewer are worn, the price will decline, and some may remain unsalable. Fewer hats will be made. Some producers will go out of business, and the previous labor and salvageable capital devoted to producing hats will be forced into other lines. Thus, there will be a constant tendency toward equalization of profit margins (comparative risks considered) in all lines. These yearly, seasonal, or daily changes in supply and demand, cost and price, and comparative profit margins, will tend to maintain a delicate but constantly changing balance in the production of the tens of thousands of different services and commodities in the proportions in which consumers demand them.
The Competitive Role
The same guide of comparative money prices and profits will also decide the kinds and proportions of capital goods that are turned out, as well as which one of hundreds of different possible methods of production is adopted in each case.
In addition, within each industry as well as between industries, competition will be taking place. Each producer will not only be trying to turn out a better product than his competitors, a product more likely to appeal to buyers, but he will also be trying to reduce his cost of production as low as he possibly can in order to increase his margin of profit—or perhaps even, if his costs are already higher than average, to meet his competition and stay in business. This means that competition always tends to bring about the least-cost method of production—in other words, the most economical and efficient method of production.
Those who are most successful in this competition will acquire more capital to increase their production still further; those who are least successful will be forced out of the field. So capitalist production tends constantly to be drawn into the hands of the most efficient.
But how can this appallingly complex problem of supplying goods in the proportions in which consumers want them, and with the most economical production methods, be solved if the institutions of capitalism—private ownership, competition, free markets, money, prices, profits and losses—do not exist?
The Baffling Problem of Economic Calculation
Suppose that all property—at least in the means of production—is taken over by the state, and that banks and money and credit are abolished as vicious capitalist institutions; how is the government to solve the problem of what goods and services to produce, of what qualities, in what proportions, in what localities, and by what technological methods?
There cannot, let us keep in mind, be a hundred or a thousand different decisions by as many different bureaucrats, with each allowed to decide independently how much of one given product must be made. The available amount of land, capital, and labor is always limited. The factors of production needed to make A are therefore not available for B or C; and so on. So there must be a single unified overall decision, with the relative amounts and proportions to be made of each commodity all planned in advance in relation to all the others, and with the factors of production all allocated in the corresponding proportions.
So there must be only one Master Production Plan. This could conceivably be adopted by a series of majority votes in a parliament, but in practice, to stop interminable debate and to get anything done, the broad decisions would be made by a small handful of men, and the detailed execution would probably be turned over to one Master Director who had the final word. How would he go about solving his problem?
We must keep in mind that without free competitive markets, money, and money-prices, he would be helpless. He would know, of course (if the seizure of the means of production has only recently occurred), that people under a capitalist system lived in a certain number of houses of various qualities, wore a certain amount of clothing consisting of such and such items and qualities, ate a certain amount of food consisting of such and such meats, dairy products, grains, vegetables, nuts, fruits, and beverages. The director could simply try to continue this pre-existing mix indefinitely. But then his decisions would be completely parasitic on the previous capitalism, and he would produce and perpetuate a completely stationary or stagnant economy. If such an imitative socialism had been put into effect in, say, the France of 1870, or even of 1770, or 1670, and France had been cut off from foreign contacts, the economy of France would still be producing the same type and per capita quantity of goods and services, and by the same antiquated methods, as those that had existed in 1870, or even in 1770, or 1670, or whatever the initial year of socialization. It is altogether probable that even if such a slavishly imitative production schedule were deliberately adopted it would overlook thousands of miscellaneous small items, many of them essential, because some bureaucrat had neglected to put them into the schedule. This has happened time and again in Soviet Russia.
What Shall Be Produced?
But let us assume that all these problems are somehow solved. How would the socialist Planners go about trying to improve on capitalist production? Suppose they decided to increase the quantity and quality of family housing. As total production is necessarily limited by existing technological knowledge and capital equipment, they could transfer land, capital, and labor to the production of more such housing only at the cost of producing less food, or less clothing, or fewer hospitals, or schools, or cars, or roads, or less of something else. How could they decide what was to be sacrificed? How would they fix the new commodity proportions?
But putting aside even this formidable problem, how would the Planners decide what machines to design, what capital goods to make, what technological methods to use, and at what localities, to produce the consumers’ goods they wanted and in the proportions they wanted them?
This is not primarily a technological question, but an economic one. The purpose of economic life, the purpose of producing anything, is to increase human satisfactions, to increase human wellbeing. In a capitalist system, if people are not willing to pay at least as much for the consumer goods that have been produced as was paid for the labour, land, capital equipment, and raw materials that were used to produce them, it is a sign that production has been misdirected and that some of these productive factors have been wasted. There has been a net decrease in economic well-being instead of an increase.
There are many feasible methods—crucible, Bessemer, open hearth, electric furnace, basic oxygen process—of making steel from iron. In fact, there are today a thousand technically feasible ways of making almost anything out of almost anything. In a private enterprise system, what decides which method will be used at a given place and time is a comparison of prospective costs.
And this necessarily means costs in terms of money. In order to compare the economic efficiency of one productive method with another the methods must be reduced to some common denominator. Otherwise numerical comparison and calculation are impossible. In a market system this common denominator is achieved by comparisons in terms of money and of prices stated in money. It is only by this means that society can determine whether a given commodity is being produced at a profit or a loss, or at what comparative profits or losses any number of different commodities are being produced.
In recent years even the most doctrinaire communist countries have become aware of this. They are going to be guided hereafter, they say, by profit and loss. An industry must be profitable to justify itself. So they fix money-prices for everything and measure profit and loss in monetary terms. But this is merely “playing” free markets. This is “playing” capitalism. This imitation is the unintended flattery that the communists now pay to the system they still ostensibly reject and denounce.
But the reason why this mock-market system has so far proved so disappointing is that the communist governments do not know how to fix prices. They have achieved whatever success they have had when they have simply used the quotations they found already existing for international commodities in the speculative markets—i.e., in the capitalist markets—in the Western world. But there are a limited number of such grains and raw materials with international markets. In any case, their prices change daily, and are always for specific grades at specific locations.
In trying to fix prices for commodities and the multitudinous objects not quoted on these international markets the communist countries are at sea. The Marxist labor theory of value is false and therefore useless to them. We cannot measure the value of anything by the number of hours of “labour-time” put into it. There are enormous differences in the skill, quality, and productivity of different people’s labour. Nor can we, as suggested by some Soviet economists, base prices on “actual costs of production.” Costs of production are themselves prices—the prices of raw materials, of factories and machinery, rent, interest, the wages of labour, and so on.
Our Differences Guide Us
And nowhere, in a free market, are prices for long exactly equal to costs of production. It is precisely the differences between prices and costs of production that are constantly, in a free market economy, redirecting and changing the balance of production as among thousands of different commodities and services. In industries where prices are well above marginal costs of production, there will be a great incentive to increase output, as well as increased means to do it. In industries where prices fall below marginal costs of production, output must shrink. Everywhere supply will keep adjusting itself to demand.
Where prices have been set arbitrarily, real profits and losses cannot be determined. If I am a commissar in charge of an automobile factory, and do not own the money I pay out, and you are a commissar in charge of a steel plant, and do not own the steel you sell or retain the money you sell it for, and we are each ordered to show a profit, the first thing each of us will do is to appeal to the Central Planning Board to set an advantageous price (to him) for steel and for automobiles. As an automobile commissar, I will want the price of the cars I sell to be set as high as possible, and the price of the steel I buy to be set as low as possible, so that my own “profit” record will look good or my bonus will be fixed high. But as a steel commissar, you will want the selling price of your steel to be fixed as high as possible, and your own cost prices to be fixed low, for the same reason. But when prices are thus fixed blindly, politically, and arbitrarily, who will know what any industry’s real profits or losses (as distinguished from its nominal bookkeeping profits or losses) have been?
The problems of centralized direction of an economy are so insuperable that in socialist countries there are periodically experiments in decentralization. But in an economy only half free—that is, in an economy in which every factory is free to decide how much to produce of what, but in which the basic prices, wages, rents, and interest rates are blindly fixed or guessed at by the sole ultimate owner of the means of production, the state—a decentralized system could quickly become even more chaotic than a centralized one. If finished products m, n, o, p, and so on are made from raw materials a, b, c, d, and so on in various combinations and proportions, how can the individual producers of the raw materials know how much of each to produce, and at what rate, unless they know how much the producers of the finished products plan to produce of the latter, how much raw materials they are going to need, and just when they are going to need them? And how can the individual producer of raw material a or of finished product m know how much of it to produce unless he knows how much of that raw material or finished product others in his line are planning to produce, as well as relatively how much ultimate consumers are going to want or demand?
An economic system without private property and free-market price guides must be chaotic. In a communistic system, centralized or decentralized, there will always be unbalanced and unmatched production, shortages of this and unusable surpluses of that, duplications, bottlenecks, time lags, inefficiency, and appalling waste.
In brief, socialism is incapable of solving the incredibly complicated problem of economic calculation. That problem can be solved only by capitalism.
 I have examined most of these schemes in more detail elsewhere (chiefly in my Economics in One Lesson and in Man vs. the Welfare State) and must refer the interested reader to these and other sources for more extended discussion.
 Gunnar Myrdal, The Challenge of World Poverty (Pantheon Books, 1970), pp. 400–401 and passim.
 Man vs. the Welfare State (Arlington House, 1969), pp. 23–25.
 (Princeton: D. Van Nostrand, 1959.)
 (Princeton: D. Van Nostrand, 1960, 1965.)
 For a fuller discussion of the problem of economic calculation, see my novel, Time Will Run Back (originally published by Appleton-Century-Crofts in 1951 as The Great Idea, and republished under the new title by Arlington House in 1966). And see especially the discussion by the great seminal thinker who has done more than any other to make other economists aware of the existence, nature, and extent of the problem, Ludwig von Mises, in his Socialism: An Analysis (London: Jonathan Cape, 1936, 1951, 1953, 1969), and in his Human Action (Chicago: Henry Regnery, third revised edition, 1963), pp. 200–231 and 698–715. See also Collectivist Economic Planning, edited by F. A. Hayek (London: George Routledge, 1935), and Economic Calculation in the Socialist Society, by T. J. B. Hoff (London: William Hodge, 1949).
Thomas R. Malthus
Starvation in Recent Times
Industrialization Prevents Famine in Western World
(from chapter 12 of The Righteous Mind by Jonathan Haidt)
GRAND NARRATIVES OF LIBERALISM AND CONSERVATISM
In the book Moral, Believing Animals, the sociologist Christian Smith writes about moral matrices within which human life takes place. He agrees with Durkheim that every social order has at its core something sacred, and he shows how stories, particularly “grand narratives,” identify and reinforce the sacred core of each matrix. Smith is a master at extracting these grand narratives, condensing them into single paragraphs. Each narrative, he says, identifies a beginning (“once upon a time”), a middle (in which a threat or challenge arises), and an end (in which a resolution is achieved). Each narrative is designed to orient listeners morally—to draw their attention to a set of virtues and vices, or good and evil forces—and to impart lessons about what can be done now to protect, recover, or attain the sacred core of the vision.
One such narrative, which Smith calls the “liberal progress narrative,” organises much of the moral matrix of the American academic left. It goes like this:
“Once upon a time, the vast majority of human persons suffered in societies and social institutions that were unjust, unhealthy, repressive, and oppressive. These traditional societies were reprehensible because of their deep-rooted inequality, exploitation, and irrational traditionalism… But the noble human aspiration for autonomy, equality, and prosperity struggled mightily against the forces of misery and oppression, and eventually succeeded in establishing modern, liberal, democratic, welfare societies. While modern social conditions hold the potential to maximise the individual freedom and pleasure of all, there is much work to be done to dismantle the powerful vestiges of inequality, exploitation, and repression. This struggle for the good society in which individuals are equal and free to pursue their self-defined happiness is the one mission truly worth dedicating one’s life to achieving.”
This narrative’s general plotline should be recognisable to leftists everywhere. It’s a heroic liberation narrative. Authority, hierarchy, power, and tradition must be broken to free the “noble aspirations” of the victims.
Smith wrote this narrative before Moral Foundations Theory existed, but you can see that the narrative derives its moral force primarily from the Care/Harm foundation (concern for the suffering of victims), and the Liberty/Oppression foundation (a celebration of liberty as freedom from oppression as well as freedom to pursue self-defined happiness). In this narrative, Fairness is political equality (which is part of opposing oppression); there are only oblique hints of Fairness as proportionality. Authority is mentioned only as an evil, and there is no mention of Loyalty or Sanctity.
Contrast that narrative to one for modern conservatism. The clinical psychologist Drew Westen is another master of narrative analysis, and in his book The Political Brain he extracts the master narrative that was implicit, and sometimes explicit, in the major speeches of Ronald Reagan.
Reagan defeated Democrat Jimmy Carter in 1980, a time when Americans were being held hostage in Iran, the inflation rate was over 10%, and America’s cities, industries, and self-confidence were declining. The Reagan narrative goes like this:
“Once upon a time, America was a shining beacon. Then liberals came along and erected an enormous federal bureaucracy that handcuffed the invisible hand of the free market. They subverted our traditional American values and opposed God and faith at every step of the way… Instead of requiring that people work for a living, they siphoned money from hard-working Americans and gave it to Cadillac-driving drug addicts and welfare queens. Instead of punishing criminals, they tried to ‘understand’ them. Instead of worrying about the victims of crime, they worried about the rights of criminals… Instead of adhering to traditional American values of family, fidelity, and personal responsibility, they preached promiscuity, premarital sex, and the gay lifestyle… and they encouraged a feminist agenda that undermined traditional family roles… Instead of projecting strength to those who would do evil around the world, they cut military budgets, disrespected our soldiers in uniform, burned our flag, and chose negotiation and multilateralism… Then Americans decided to take their country back from those sought to undermine it.”
This narrative’s general plotline should be recognisable to conservatives everywhere. This too is a heroic narrative, but it’s heroism of defence. It’s less suited to being turned into a major motion picture. Rather than the visually striking image of crowds storming the Bastille and freeing prisoners, this narrative looks more like a family reclaiming its home from termites and then repairing the joists.
The Reagan narrative is also visibly conservative in that it relies for its moral force on at least five of the six moral foundations. There’s only a hint of Care (for the victims of crime), but there are very clear references to liberty (as freedom from government restraint), Fairness (as proportionality), Loyalty (soldiers and the flag), Authority (family and traditions), and Sanctity (God versus celebration of promiscuity).
The two narratives are as opposed as could be. Can partisans even understand the story told by the other side? The obstacles to empathy are not symmetrical. If the left builds moral matrices on a smaller number of moral foundations, then there is no foundation used by the left that is not also used by the right. Even though conservatives score slightly lower on measures of empathy, and may therefore be less moved by by a story about suffering and oppression, they can still recognise that it is awful to be kept in chains. And even though many conservatives opposed some of the great liberations of the twentieth century—of women, sweatshop workers, African Americans, and gay people—they have applauded others, such as the liberation of Eastern Europe from communist oppression.
But when liberals try to understand the Reagan narrative, they have a harder time. When I speak to liberal audiences about the three “binding” foundations—Loyalty, Authority, and Sanctity—I find that many in the audience don’t just fail to resonate; they actively reject these concerns as immoral. Loyalty to a group shrinks the moral circle; it is the basis of racism and exclusion, they say. Authority is oppression. Sanctity is religious mumbo-jumbo whose only function is to suppress female sexuality and justify homophobia.
If you don’t see that Reagan is pursuing Loyalty, Authority, and Sanctity, you almost have to conclude that Republicans see no positive value in Care and Fairness. You might even go as far as Michael Feingold, a theatre critic for the liberal newspaper the Village Voice, when he wrote:
“Republicans don’t believe in the imagination, partly because so few of them have one, but mostly because it gets in the way of their chosen work, which is to destry the human race and the planet. Human beings, who have imaginations, can see a recipe for disaster in the making; Republicans, whose goal in life is to profit from disaster, and who don’t give a hoot about human beings, either can’t or won’t. Which is why I personally think they should be exterminated before they cause any more harm.”
One of the many ironies in this quotation is that it shows the inability of a theatre critic—who skilfully enters fantastical imaginary worlds for a living—to imagine that Republicans act within a moral matrix that differs from his own.
Morality binds and blinds.
COMPETING MODELS from Capitalism: The Deregulation of Pressure
“…it is easy and satisfying…to fall for tales of an oppressive and greedy ‘1 per cent’ of wealthy capitalists—the Occupy Wall Street Effect—rather than coming to grips with the counterintuitive fact that it is only in the process of the 1 per cent becoming rich that much of the economic good for the 99 per cent is generated.” — Peter Foster, Why We Bite the Invisible Hand.
The left is back, and it’s the only path we have to get out of the spot to which the right has sunken us. Socialism builds and capitalism destroys. – Hugo Chavez
They talk about the failure of socialism but where is the success of capitalism in Africa, Asia and Latin America? — Fidel Castro
The recent change in wealth creation in China is remarkable and eye-opening. Up to twenty years ago, high net-worth individuals became rich by political connection, mostly in real estate; by buying up land at below market values and re-selling it at artificially inflated profit, friends of the state had the privilege of unnatural personal riches. The economic miracle of the last decade or so has been made possible only by permitting entrepreneurs to play the market with capital. The “communist” state has managed to create an environment where individual flair flourishes, resulting in more than a million Chinese with net worth exceeding $10 million, and well over a thousand dollar billionaires. The principle of human equality upon which communism rests has been abandoned.
This was achieved in short order by liberating the populace from restrictive socialist constraints on ownership of property and the means of production, and allowing those with initiative to participate in a competitive marketplace for their own benefit. The Ali Baba explosion rewrote the rule book. It is a classic, textbook case study in the effectiveness of free market capitalism in liberating people from prior economic drudgery so that they can prosper by their own hand and energy.
The euphoria of liberation carries its own particular dangers, though, and we need to heed them. The inherent work ethic, creativeness, and competitive spirit of the population that had been cowed by the yoke of socialism apply commensurate pressure on the champagne cork as it pops. The result has been described, here and elsewhere, as a miracle. There is no such thing of course, but the changes wrought by market access in societies for whom it had previously been politically denied are certainly startling and comprehensive. The liberation of East Germany is a prime example. I predict that we’ll see the same sort of “miracle” in Cuba in due course, and also in Venezuela if they can overcome militarily enforced socialism.
The “yoke of capitalism” and “economic slavery” are buzz words of a socially oppressive system that has no moral defence, no rational argument against the success of market capitalism in invigorating depressed economies, and no workable means of giving the broad mass of people what they really want. The data from competing models in the real world give socialism no quarter. They show that the real beneficiaries of socialism are the rulers; the people they are supposed to serve are worse off than they might otherwise have been, and given the choice, would no doubt quickly opt out. It’s there on the news every day: Economic refugees don’t head for socialist states. They make a bee line for countries where they are free to use their initiative to make a living. Do the maths…
The human influence on the biosphere is a bipartisan battleground. We could characterise it as competition between free-market capitalism and big-government socialism. Those, like me, who have come here via the University of Socks would generalise it even further–it is the old fight between instinct and free will.
Trade involves the voluntary exchange of ownership of goods or services from one party to another, based upon perceived relative values. It consequently includes barter and haggling so that the transaction is mutually beneficial. An environment that facilitates trade is called a market. Trading originally comprised the direct exchange of goods and services for other goods and services. The market evolved in time so one side of the barter started to involve precious metals, which gained symbolic as well as practical importance. Essentially, this was the origin of money as a convenient medium of exchange, and as a result, buying could be separated from selling, or earning. The invention of money greatly simplified and encouraged trade.
It derives directly from the specialisation of labour, where specific tasks in a production process are performed by workers who have acquired the particular discrete skills required to manufacture complex goods. Trade allows widely dispersed people and regions to co-operate in a mutually beneficial way, although the parties may not be related or even know each other. In fact, commerce can be traced to the very beginning of communication in prehistoric times.
It is a global phenomenon, known in economics as the “extended order.” Peaceful cooperation beyond the bounds of clan and kinship is the socio-political backbone of our planet. It allows individuals and nations unequal in resources and resourcefulness to maintain their independence. Despite the laws and military might dominating geopolitics, people, in their own right, can find common ground and personal satisfaction in the marketplace, no matter with whom they bargain. Opinions and ideologies are put aside when the wellbeing of one’s family is at stake. We’ll strike a bargain with black, blue, or green to let Johnnie and Jilly go to school with a full stomach and shoes on their feet. The free market is egalitarian to a degree that even the most liberal of us could only dream of, yet it is a prime manifestation of the virtue of selfishness.
Excerpt from my book, Capitalism: The Deregulation of Pressure –
The primary weakness of democracy in practice is the absence of upward control. There appears therefore to be a pressing need for a democratic structure wherein the rank and file of citizenry can express themselves without fear or inhibition. In our view, such a system already exists. It is the option to purchase–and the freer the market, the freer the choice. People tell us directly and with negligible political nuance what they want from life when they give over their hard earned cash. The ballot is cast at the point of payment, and the government has practically no influence. Where the market is not free, the ballot is still cast, but it is a choice constrained by regulations from the top down. It is generally with astonishment that we discover just how comprehensive the market ballot actually is. It’s not just an indication of the purchaser’s material desires, it can and does reflect that person’s morality too.
Here is a real world example of what I mean. Free range eggs are more expensive than battery produced eggs, and sell in far lower quantities than the mass-produced equivalent. Immediately, we are shown a clear ballot on the morality of chicken batteries. Most customers simply don’t care, or don’t care enough to pay more to contribute to the happiness and wellbeing of chickens. A small minority does show compassion however, and is prepared to make financial sacrifices for its ethics. That is the power, integrity, and depth of the marketplace ballot. If enough of the market population adopts the morality of those few, it will effectively change the whole way that we farm with chickens. If no one buys battery eggs, no one will produce them. The problem would be solved by supply and demand, and voting with our wallets.
In my local grocery supermarket, free range eggs and battery produced eggs are offered side by side on the shelf. The will of the people is expressed by how much of each are sold. The ethical, moral decision is to purchase free range and boycott battery. That’s what you and I would do, but the broad mass of people doesn’t agree. They shop on price rather than ethics. The split between battery and free range is roughly 90 – 10 as a percentage.
The people have spoken. That’s the purity of supply and demand in reflecting the true will of the people. It has nothing, or nearly nothing, to do with what we can afford (the difference in price is cents rather than dollars) but what we really care about. The poorest of these customers could purchase a dollar less air time, or a dollar less vanity hair products, and spend that instead on upgrading to free range eggs. When more people vote for free range by exercising the ballot of purchase, two things will happen–one, the chicken batteries will go out of business (YAY!), and two, the price of free range eggs will drop. It is a beautiful model, because it’s natural. It’s not manufactured by some cunning individual to rip people off; it’s simply a consequence of production being in the hands of people whose wellbeing depends on satisfying their customers.
The vitally important conclusion to be drawn from the ballot-by-purchase model is that it can exist only in a market driven economy. It is entirely absent in economies where production is planned and controlled by the state, because there is no competition to keep production honest. Free competition is a moral watchdog that doesn’t charge for its services. In fact, it saves us money. Socialism removes free competition and encourages lower productivity, and thereby runs counter to human nature, with the net result that wherever it has been tried, it has by any objective measure failed to meet human aspirations. Ballot by purchase, if only the voters would fully realise it, is the way that common folk can properly express their will and their ethics, and it has the power to change the world.
Extrapolate that very real example to the four corners of the globe, and to any aspect of our economic lives. If no one bought rhino horns, we wouldn’t have rhino poaching; if there were no addicts, we would have no drug dealers; if farmers didn’t preferentially use GMO seed, Monsanto wouldn’t bother producing it; when people like you and me desist from asking for credit so that we can get things before we can afford them, banks will stop putting us into debt. The consumers are masters of their own destinies in all these matters; the suppliers are just their obedient servants.
Free markets evolved naturally as humans matured as a species. They do not have to be enforced from the top down as regulated markets do. The free market is as natural a part of Homo sapiens’ evolution as trade, barter, and the division of labour. The great problem we face now is how much we ought to interfere with what is intrinsically natural to people, and in any case, why we would want to do that. If it is just to impose our own personal morality upon broader society, it’s time we paused to think again.
But we are used to this sort of dilemma; it’s called soul searching.
1. The Virtue of Heresy – Confessions of a Dissident Astronomer (AuthorHouse, 2006). The mission of this book was to make the conflicting results in science accessible to the average enquiring reader. Written in a conversational style, employing a fictional space taxi driver named Haquar as a guide, my Heresy takes the reader on a journey from the basics of natural philosophy, through cosmology and Big Bang theory, and on to the structure of the Solar System, the wonders of chemistry and the basic elements, electric universe theory, mathematical philosophy, Einstein’s Relativity, Quantum Mechanics, and String theory – all in ordinary English with no mathematics at all! It’s a must read for anyone seeking the big answers. The Virtue of Heresy was nominated for the London School of Economics’ prestigious Lakatos Award for literature of outstanding service to the understanding of science.
2. The Static Universe – Exploding the Myth of Universal Expansion (C. Roy Keys, Montreal, 2008). Following on the success of Heresy, and a glowing review by BBC’s Sky at Night, I visited Sir Patrick Moore at his home in Sussex, and as one of his nurses put it, I became “part of the family”. During one of my visits, Sir Patrick insisted that I write a book called The Static Universe, which was to expose the lack of real evidence favouring the prevailing Big Bang theory. He could see the situation more clearly than I, and I am now very glad I listened to him (not that I had much choice, mind you!). Although the style is still fairly conversational with very little mathematics, The Static Universe is written for a more qualified readership. I assumed that readers interested in universal expansion would have a fairly good grasp of astronomy, astrophysics, and cosmology, and even though the jargon is kept constrained, there is a glossary of terms at the back to help readers that might stick on some the terms being used. This book was very well received by both amateurs and professionals in space science, and led to my being invited to guest lecture on astrophysics at Trinity College in Dublin, Ireland, one of the world’s finest universities.
3. Stephen Hawking Smoked My Socks – How Beliefs Contaminate Our Opinions: An Astrophysicist’s Perspective Muse Harbor Publishing (MHP), 2014). Socks, as it is affectionately referred to, is my magnum opus, quite likely the last book I’ll write. With that sobering thought in mind, and with the persistent encouragement from my good friend Ian Campbell-Gillies, I fought through debilitating illness and misfortune to put my all into this book. I realised that it had to be written in everyday language to reach as wide a readership as possible, yet I had to achieve that without dumbing it down. From the reviews I’ve received so far, I seem to have achieved that goal. This is a how-to book that is applicable to every single rational person on planet Earth, so the target of 160,000 sales is not hopelessly optimistic. Socks has had not one bad review so far, so why not give it a whirl? :)http://smile.amazon.com/l/B001JS1GJQ/ref=smi_www_rco2_go_smi_2072677762?ie=UTF8&%252AVersion%252A=1&%252Aentries%252A=0