“Every step toward the elimination of profit is progress on the way toward social disintegration.”

“All people, entrepreneurs as well as non-entrepreneurs, look askance upon any profits earned by other people. Envy is a common weakness of men. People are loath to acknowledge the fact that they themselves could have earned profits if they had displayed the same foresight and judgment the successful businessman did. Their resentment is the more violent, the more they are subconsciously aware of this fact. ...

"It is profit and loss that force the capitalists to employ their capital for the best possible service to the consumers. It is profit and loss that make those people supreme in the conduct of business who are best fit to satisfy the public. If profit is abolished, chaos results. ...

“It is precisely the necessity of making profits and avoiding losses that gives to the consumers a firm hold over the entrepreneurs and forces them to comply with the wishes of the people.”

“Huge profits are the proof of good service rendered in supplying the consumers. Losses are the proof of blunders committed, of failure to perform satisfactorily the tasks incumbent upon an entrepreneur. The riches of successful entrepreneurs are not the cause of anybody’s poverty; it is the consequence of the fact that the consumers are better supplied than they would have been in the absence of the entrepreneur’s effort. ...

"The standard of living of the common man is highest in those countries which have the greatest number of wealthy entrepreneurs. It is to the foremost material interest of everybody that control of the factors of production should be concentrated in the hands of those who know how to utilise them in the most efficient way. ...

"There is no reason why capitalists and entrepreneurs should be ashamed of earning profits. It is silly that some people try to defend American capitalism by declaring: ‘The record of American business is good; profits are not too high.’ The function of entrepreneurs is to make profits; high profits are the proof that they have well performed their task of removing maladjustments of production. ...

“Of course, as a rule capitalists and entrepreneurs are not saints excelling in the virtue of self-denial. But neither are their critics saintly. And with all the regard due to the sublime self-effacement of saints, we cannot help stating the fact that the world would be in a rather desolate condition if it were peopled exclusively by men not interested in the pursuit of material well-being. ...

"The elimination of profit, whatever methods may be resorted to for its execution, must transform society into a senseless jumble. It would create poverty for all. ...

“Every step toward the elimination of profit is progress on the way toward social disintegration.”

~ Ludwig von Mises, excerpts from his essay 'Profit and Loss'

"He builds elaborate Keynesian models that treat consumer spending as the engine of prosperity..."

Paul Krugman: "He builds elaborate Keynesian models that treat consumer
spending as the engine of prosperity, ignores the capital structure of
the economy, and then acts surprised when manipulating
aggregate demand produces distortions in real production. 

"Paul Krugman has spent three decades telling you that government spending cures recessions, that deficits don't matter when interest rates are low, and that anyone who warns about inflation is a crank.* 

"Then 2021 happened. 

"The Biden administration pumped $1.9 trillion through the American Rescue Plan in March 2021. Krugman called inflation fears overblown. By June 2022, CPI hit 9.1 percent, the highest since 1981. Krugman's response was to move the goalposts and call it a soft landing when the Fed started hiking rates. [Similarly, here in New Zealand, CPI hit 7.3% in June 2022, a 32-year high, after Grant Robertson's own 'rescue plan' pumped $70 billion into our own small pond.]

"This is the pattern. He builds elaborate Keynesian models that treat consumer spending as the engine of prosperity, ignores the capital structure of the economy, and then acts surprised when manipulating aggregate demand produces distortions in real production. 

"The villain is IS-LM thinking that strips out time, entrepreneurship, and the price signals that actually coordinate economic activity. When you flatten the economy into aggregate demand curves, you produce policy advice that consistently mis-prices risk and encourages central banks to suppress interest rates well below what voluntary savers would accept. 

"Krugman won a Nobel in 2008 for trade theory work that genuinely mattered. But he abandoned rigorous analysis for political performance years before that prize arrived. His New York Times column became a vehicle for justifying whatever the Democratic Party needed justified, with the academic credentials attached as decoration. 

"Ludwig von Mises and Friedrich Hayek built their entire framework on the impossibility of central planners processing dispersed local knowledge. Krugman's worldview requires exactly that kind of central management. The [central bank] sets the price of credit for the entire economy, guided in part by intellectual cover that Krugman provides. 

"You pay for that cover every time your purchasing power erodes. But the man with the Nobel told you it was fine."

~ Handre

* Bernard Hickey put on a similar performance here, but without even the pretence of economic acumen. At least people have the excuse of a Nobel Prize and good work in the past for taking Krugman seriously. Galt knows what Hickey has done to deserve attention.

"In branding profits as excessive, people are injuring themselves."

"In branding profits as excessive and penalising the efficient entrepreneurs by discriminatory taxation, people are injuring themselves. Taxing profits is tantamount to taxing success in best serving the public. The only goal of all production activities is to employ the factors of production in such a way that they render the highest possible output. The smaller the input required for the production of an article becomes, the more of the scarce factors of production is left for the production of other articles. But the better an entrepreneur succeeds in this regard, the more is he vilified and the more is he soaked by taxation. Increasing costs per unit of output, that is, waste, is praised as a virtue. ...

"All people, entrepreneurs as well as non-entrepreneurs, look askance upon any profits earned by other people. Envy is a common weakness of men. People are loath to acknowledge the fact that they themselves could have earned profits if they had displayed the same foresight and judgment the successful businessman did. Their resentment is the more violent, the more they are subconsciously aware of this fact.

"There would not be any profits but for the eagerness of the public to acquire the merchandise offered for sale by the successful entrepreneur. But the same people who scramble for these articles vilify the businessman and call his profit ill-got."

~ Ludwig Von Mises from his 1951 paper 'Profit and Loss'

"Socialism is an alternative to capitalism..."

“A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings. Socialism is an alternative to capitalism as potassium cyanide is an alternative to water.”

~ Ludwig Von Mises from his 1949 book Human Action (ch. 24 sec. 3)

“Once the principle is admitted that it is the duty of the government to protect the individual against his own foolishness, no serious objections can be advanced against further encroachments."

“Once the principle is admitted that it is the duty of the government to protect the individual against his own foolishness, no serious objections can be advanced against further encroachments. ...

"And why limit the government's benevolent providence to the protection of the individual's body only? Is not the harm a man can inflict on his mind and soul even more disastrous than any bodily evils? Why not prevent him from reading bad books and seeing bad plays, from looking at bad paintings and statues and from hearing bad music?”

~ Ludwig Von Mises from his 1949 magnum opus, Human Action: A Treatise on Economics (chapter 27, section 6, 'Direct Government Interference with Consumption')

Super-abundant economic progress

EVER SINCE THE INDUSTRIAL  REVOLUTION in the nineteenth century and ever-increasing global freedom in this one, human progress has been on a roll -- so says author and rational optimist Marian Tupy. He outlined his arguments and data a few nights ago at an enjoyable NZ Initiative presentation.

Tupy is the editor of HumanProgress.org, the world's most comprehensive database tracking improvements in human wellbeing, a senior fellow at the Cato Institute, and co-author of the acclaimed book Superabundance: The Story of Population Growth, Innovation, and Human Flourishing on an Infinitely Bountiful Planet.

He's one of the good guys.

Miserabilist Thomas Malthus famously expressed the idea that while resources would only expand at a linear rate, population will expand exponentially -- a disaster waiting to happen. But Malthus was writing about rabbits, or animals without the brain that humans have; and he was writing before the industrial revolution, when that brain was put to powerful practical use. Malthus was not just wrong, but spectacularly wrong, as Tupy's data abundantly proves.

Take that Malthus!

In just the last four decades alone, commodities across the board have become more abundant thanks to globalisation and increasing freedom. Even in sub-Saharan Africa, long a source of concern, the average calorie intake is now ticking up to 2,500!

Take that Paul Erlich!

THAT FAMOUS PANGLOSSIAN THOMAS BABINGTON Macaulay talked in the nineteenth century about the inevitability of progress: “In every age," said Macaulay, "everybody knows that up to his own time, progressive improvement has been taking place; ... On what principle is it that with nothing but improvement behind us, we are to expect nothing but deterioration before us?” It's still possible to remain optimistic even with the many steps backwards anti-freedom forces insist we take.

I was reminded of Peter Boettke's analogy of the horse race between Smith, Schumpeter, and Stupidity -- the progress of Smith's Division of Labour and Schumpeter's progress in technology (well explained by our presenter) has to continually stay ahead of the various degrees of Stupidity inflicted on us all. It's a tribute to human reason and the power of human freedom to wield it that we have to thank for continuing and ongoing progress.

OUR PRESENTER DID GET A LITTLE  pushback from a questioner who interrogated his concept of abundance. Is abundance always good, asked his questioner? A super-abundance of nuclear weapons, for example, or opioids, is hardly a good thing for human progress, he maintained.

It's a fair point, and it resonates with those who argue that to expect infinite growth on a finite planet you must be either insane or an economist. For both points, I think, economist George Reisman makes a profound point in response: the loss of the concept of economic progress.

Tupy still talks of human progress but of economic growth. Reisman (a student of Von Mises) would suggest he'd be better to combine the two to answer both objections: i.e. to talk of economic progress rather than economic growth.

Growth is a concept that applies to individual living organisms. An organism grows until it reaches maturity. then it declines, and sooner or later dies. The concept of growth is also morally neutral [the point made by our questioner], equally capable of describing a negative as a positive: tumours and cancers can grow. Thus the concept of growth both necessarily implies limits and can easily be applied negatively.

In contrast, the concept of progress applies across succeeding generations of human beings. The individual human beings reach maturity and die. But because they possess the faculty of reason, they can both discover new and additional knowledge and transmit it to the rising generation ... with each succeeding generation receiving a greater inheritance of knowledge than the one before it and making its own fresh contribution to knowledge. This continuously expanding body of knowledge, insofar as it takes the form of continuously increasing scientific and technological knowledge and correspondingly improved capital equipment, is the foundation of continuous economic progress.

Progress is a concept unique to man: it is founded on his possession of reason and thus his ability to accumulate and transmit a growing body of knowledge across the generations. Totally unlike growth, whose essential confines are the limits of a single organism, progress has no practical limit. Only if man could achieve omniscience would progress have to end. But the actual effect of the acquisition of knowledge is always to lay the foundation for the acquisition of still more knowledge. Through applying his reason, man enlarges all of his capacities, and the more he enlarges them, the more he enlarges his capacity to enlarge them.

He notes here that it Ludwig Von Mises who had first alerted him to this vital distinction.

The concept of progress differs radically from the concept of growth in that it also has built into it a positive evaluation: progress is movement in the direction of a higher, better, and more desirable state of affairs. This improving state of affairs is founded on the growing body of knowledge that the possession and application of human reason makes possible. Its foundation is the rising potential for human achievement that is based on growing knowledge.

While it is possible to utter denunciations of too rapid "growth" as being harmful, it would be a contradiction in terms even to utter the thought of too rapid progress, let alone denounce it. The meaning would be that things can get better too quickly -- that things getting better meant they were getting worse. [Capitalism, p.106]

FYI, Professor Reisman has kindly made his book Capitalism: A Treatise on Economics (in which you can read all his arguments) freely available for reading, saving, and printing. Download the link here.

'Nature-al’ Entrepreneurship: Being Green Without the State | Timothy Terrell

If you want to go green, you should do so without the state’s coercion, says Timothy Terrell at the Mises Institute conference in Oklahoma just last week. In this guest post, based in a lightly edited transcript of the talk, he explains how entrepreneurs and property rights can protect forests, wildlife, and open spaces better than bureaucracies, using real-world examples of “enviropreneurs”....

'Nature-al’ Entrepreneurship: Being Green Without the State

by Timothy Terrell

I subtitled my talk being green without the state, but I'm not trying to put some sort of free-market twist on a lecture about how you need to use an electric lawn mower or recycle or something like that. I'm in fact going to try to avoid pushing my preferences about uses of the environment altogether. That's not really my point here. 

People have different ideas about what is good and about what is useful. And I like the many useful things that we can make with the resources we extract from the environment. 

Many people like me also enjoy wilderness land and views of wildlife. I like forests and rivers. I like knowing that some species of antalope or rhinoceros are still with us, even if I'm not actually going out and looking at it myself. 

What I want to do is show that entrepreneurship is compatible with those goals. 

Entrepreneurship and the environment

An entrepreneur is a person who anticipates a future consumer demand and tries to adjust the factors of production to accomplish that, for the consumer, in search of a profit. For many people, this seems just diametrically opposed to the idea of solving problems related to the use of the environment. I'm going to suggest it's not only not incompatible, that it's essential that we think of things this way. 

We tend to think of entrepreneurship as being separate from the natural world, or at least just making goods that require extracting some substances from the world and then manipulating them into some product. What I'd like to do here is make the case that entrepreneurs can do this with nature as well, creating goods in a sense that have nature in its natural state, or at least something close to it. 

Environmental resources have value that is determined by the goals of the customers. The entrepreneur must satisfy those customers to earn a profit. So we say that environmental value is imputed -- that is to say that the value of the resource in the environment is derived from the value of the product that's made from that resource. 

An environmentalist of the anti-capitalistic type however, which is a very common type, might protest. Um, wouldn't we say that elements of the environment have some sort of value apart from whether they can be turned into a toaster or turned into a fur coat? And uh, you know, they might say, well, do we have to make everything uh into some kind of raw material for a factory? And I would say, well, certainly not. We have to think more broadly about what customers really want. 

Entrepreneurs respond not only to people who want goods that are manufactured out of the environment. They respond to people who value the natural world as more than just a source of calories, minerals, or fibre. 

Many people want goods and services that are the products of factories. We all do that to some extent, but we also value goods and services that are best provided by an environment in its natural state. So, people want the same kinds of things I want when I head out to the wilderness, as I like to do and don't get to do as much as I'd like. 

Maybe some people just want the knowledge that there is a place where land and wildlife exist without human contact. Even if that means we're not necessarily going to go and visit that place. Many of us just like knowing that there is such a place and providing those things is not outside the realm of entrepreneurship. 

Value? Whose value?

But I think we need to clear up something first. Some environmentalists want to separate the idea of value from a valuer. And I think that's a that's a serious problem. 

"Economic theory has identified four sources of economic progress"

In January Javier Milei explained to a room of Davos delegates to the WEF forum how the world works, and how economic progress and prosperity happens. This is an excerpt. [Milei's speech was originally in Spanish, and the English version at the WEF website has been transcribed by AI. I have edited slightly it for smoothness and clarity. Emphases mine]

As early as 380 BC, Xenophon pointed out that economics is a form of knowledge that enables men to increase their wealth while arguing that private property is the most beneficial vehicle for the life of individuals.

Xenophon ... [first] highlight[ed] the benefit of private property by stating that the owner's eye fattens his cattle. [Or as the English saying has it: "It's the master's eye that makes the mill go"]... Xenophon then delves into the dynamic realm, noting that efficiency also entails increasing wealth: that is, increasing the available quantity of goods through entrepreneurial creativity, namely through trade, innovation, and recognising opportunity. ...

"[T]he institution of private property deserves a separate chapter. By focussing on it, the Austrian School of Economics from Mises, Hayek, Rothbard, Kirzner and Hoppe to Huerta de Soto has demonstrated the impossibility of socialism, thereby dismantling the illusory idea of John Stuart Mill that postulated independence between production and distribution; a form of academic deafness that led to socialism, and cost the world the lives of 150 million human beings -- while those who managed to survive the terror, did so in absurd poverty.

In line with [those writers'] previous remarks, and consistent with Xenophon's second [point], economic theory has identified four sources of economic progress.

First, there's the division of labour, which was illustrated by Adam Smith through the pin factory example. At its core, this is a mechanism that generates productivity gains, manifested as increasing returns. Although its limit is determined by market size, the size of the market is positively affected by this process. However, it is also worth noting that this virtuous process is not infinite and that its ultimate limit lies in the endowment of initial resources.

Second, there is the accumulation of capital, both physical and human. With regard to physical capital, the interaction between saving and investment is crucial, highlighting the fundamental role of capital markets and of the financial system in carrying out such intermediation. On the human capital side, the focus should not be limited to education alone, but should also include the development of cognitive capacities from birth, as well as nutrition and health, basic elements for gaining access to education and the labour market.

Third, there is technological progress, which consists in being able to produce a greater quantity of goods with the same amount of resources, or to produce the same output using a smaller quantity of inputs.

Finally, there is entrepreneurial spirit, or rather the entrepreneurial function, which, according to Professor Huerta De Soto constitutes the main driver of the economic growth process. Because, although the three factors mentioned are important, without entrepreneurs, there can be no production, and living standards would be extremely precarious.

In fact, the entrepreneurial function is not so much focused on short-term efficiency, but rather on increasing the quality of goods and services, which, in turn, leads to higher standards of living. On this basis, what truly matters is to expand the frontier of production possibilities to the maximum extent possible.

Thus, dynamic efficiency can be understood as an economy's capacity to foster entrepreneurial creativity and coordination.

In turn, the criterion of dynamic efficiency is inseparably linked to the concept of the entrepreneurial function, which is that typically human capacity to perceive profit opportunities that arise in the environment and to act accordingly to take advantage of them. This makes the task of discovering and creating new ends and means fundamental, driving spontaneous coordination to resolve market imbalances.

Moreover, this definition of dynamic efficiency proposed by Huerta de Soto coherently and appropriately combines Schumpeter’s idea of creative destruction with North's concept of adaptive efficiency.

Naturally, given the role of the entrepreneurial function, the institutions under which it develops are of vital importance. In this regard, both Douglass North and Jesús Huerta de Soto consider one of the key functions of institutions to be that of reducing uncertainty.

So, while North presents them as a set of humanly devised constraints that structure social interaction in a repetitive manner, Huerta de Soto considers that these institutions, conceived by human beings, emerge spontaneously from a process of social interaction without being designed by any single individual, and that they reduce uncertainty in the market process.

As Roy Cordato points out, the appropriate institutional framework is one that favours entrepreneurial discovery and coordination. Accordingly, within this framework, economic policy should aim to identify and remove all artificial barriers that hinder the entrepreneurial process and voluntary exchanges.

Given the decisive influence of institutions on economic progress, this directs our attention to the importance of ethics, as societies that adhere to stronger moral values and ethical principles in support of institutions will be dynamically more efficient and will therefore enjoy greater prosperity.

Accordingly, the fundamental ethical problem is a search for the best way to foster entrepreneurial coordination and creation.

Therefore, in the field of social ethics, we conclude that conceiving human beings as creative and coordinating actors entails accepting axiomatically the principle that every human being has the right to appropriate the results of their entrepreneurial creativity.

So the private appropriation of the fruits of what entrepreneurs create and discover is a principle of natural law because if an author were unable to appropriate what they create or discover, their capacity to detect profit opportunities would be blocked, and the incentive to carry out their actions would disappear. Ultimately, the ethical principle just stated is the fundamental ethical foundation of the entire market economy.

So, what we've just demonstrated is that free enterprise capitalism is not only just but also efficient and also that it is the one that maximises growth.

[Full speech here]

RELATED: Here's Per Bylund at the latest Ludwig Von Mises conference explaining that it's entrepreneurs, not politicians, who change the world for the better.

What if robots take all the jobs? Hint: They can't.

"People have it all wrong" about AI and robots, says philosopher Harry Binswanger. 

Robots are going to take your job? No doubt.

What if robots take all the jobs?  Hint: They can't.

You may not keep this job. But your next one will pay so much more.  How can we know that?  Because, he argues, "We’re all going to get richer. The more that AI and robots can do for us, the richer we will get."

How so? Because AI and robots makes everyone’s labour far more productive -- and the result will be more goods produced, and hence "more wealth in the whole economy."

More wealth means more savings. More savings means more investment. And "more investment means more goods produced, which means a drop in the cost of living, which means a rise in the standard of living."

But how can he be so sure that if your job is replaced you'll be able to find a new one and "take part in this bonanza?"

The temptation is to answer by finding things robots won’t ever be able to do. “Robots will never be great chefs.” “Robots will never be venture capitalists.” “Robots will never write a first-rate symphony.”

That’s irrelevant. The point is that even if AI and robots could do everything better than any human being, that would enhance, not undermine, the value of human labour.

Why? The explanation comes from applying here an important truth discovered two centuries ago. In 1817, the great English economist David Ricardo identified “The Law of Comparative Advantage.”

Ricardo's Law of Comparative Advantage explains that no matter how poor you country may be at producing stuff, if both you and others specialise in what they each do best then, at the end of the day, we are all better off. It's best, for example, if Scotland trades whisky with France for claret and burgundy, rather than the other way around. ("It is the maxim of every prudent master of a family,"explained Adam Smith, "never to attempt to make at home what it will cost him more to make than to buy.")

Equally, the best way for New Zealanders to get cars and electronics is not to try making cars and electronics ourselves, but to process grass into milk powder, meat and wool so that New Zealanders can trade for those fancy devices. And when we do, we're all better off. ( If you're struggling with the concept, because it is remarkably subtle, PJ O 'Rourke's short explanation is one of the funniest on record, and undoubtedly the only one using Courtney Love to help explain things.)

Recognising that self-same principle of Comparative Advantage applies between people as it does to countries, economist Ludwig Von Mises expanded Ricardo's Law to make it "one of the most beautiful laws of the universe." Calling it the Law of Association he showed that specialisation allows even the less productive to benefit from working with the more productive -- or what his student George Reisman characterises as 'what the productive cleaner gains from the genius inventor.'

Even if the inventor can clean faster than a given cleaner, it still pays him to hire that cleaner because off-loading the cleaning work saves him time. He can then use that saved time in the area of his comparative advantage: inventing and selling more stuff.

Likewise, even if there comes a time when the robots can do everything better and faster than human beings, [even] more wealth will be produced if robots and humans each specialise in what they do best. Super-robots would produce more for us if we save them from having to do things that are less productive [for them].

(Of course we won’t be trading with robots: robots own nothing. Robots are owned by people, and those people will be paid for selling robots or for renting them out, just as you can rent power tools from Home Depot today.)

The Law of Comparative Advantage means humans will never run out of productive work to do. There will always be tasks that you don’t want to waste your rented or owned robots’ time in doing.

If you’ve got a robot building you a swimming pool, you don’t want him to stop to cook you dinner.

A chainsaw is a lot more efficient than a knife at cutting. But you don’t use a chainsaw to slice a loaf of bread. Particularly not if that chainsaw is being used by a robot to clear a place for a tennis court in your backyard.

So, rather than panic over “the rise of the machines,” let’s bear in mind the Law of Comparative Advantage ....

And let's recognise that "even with science-fictional super-robots, there will still be money changing hands and a price-system, just as now. You will still be paid for working in the field of your own comparative advantage.

New kinds of jobs will appear, as they always have when technology advances. Ironically, most of the jobs people are afraid of losing -- such as programming jobs or truck-driving jobs -- were themselves created by technological advances. There used to be an American saying: “Adapt or die.” Having the same kind of job as your father and grandfather did is not the American dream.

What new types of job will be created? I can no more project that than a man in 1956 could have projected that today there would be jobs in something called “social media”; or that money can be made by driving for Uber and by renting out living space through AirBnB.

The robots will make work much easier, more interesting, and much better paid.

Prepare to be enriched.

What is "Neoliberalism" anyway?

A viral video by young lawyer Riana Te Ngahue is doing the rounds purporting to explain (for her aunties) something called Neoliberalism.

'A' for effort. 'F' for content. As libertarian Alberto Mingardi observes, very few who use the term have actually taken the time to define it correctly and to trace back its origins. She does take the time, but just like the folk she notes in her video (Tamitha Paul, Chloe Swarbrick, et al) Ms Te Ngahue fails to either define or understand where it came from. 

To be fair, it's not clear. Neoliberalism is like "trickle-down" in economics, or "austerity" in political economy: a term used almost exclusively by critics to characterise and critique a whole ill-defined whole cluster of policies and people, none of whom actually exist. (Take a look at Phil Magness for example explaining 'Why I Am Not a Neoliberal.') "Capitalism" of course was famously one of those words too -- used initially by French socialist Louis Blanc and anarchist Pierre-Joseph Proudhon -- before being taken up by capitalism's supporters. A bit like "queer."

But (apart from Scott Sumner, who thinks it's "awesome") there's no sign of that happening with "neoliberalism."

As Jeffrey Tucker explained way back in 2016, "We need a fix on what this term means. Is there a founding thinker, book, or meeting?" Or, in other words:

What is "Neoliberalism" anyway?

by Jeffrey Tucker

The term “neoliberalism” is being flung around everywhere these days, usually with a haughty sense of “everyone knows what this is.” But do we really? You may think you know, but there’s very little agreement among everyone else.

Is there a founding thinker, book, or meeting? The most common search phrases on Google are these: “definition neoliberalism,” “what is neoliberalism,” and “define neoliberalism.”

The confusion is understandable. Sometimes the term is used approvingly by the mainstream press, as for example to describe France’s Emmanuel Macron. Or Javier Milei. (As if there were much in common between the two.)

More often the term is used as a pejorative by the far left and the alt-right. Here it is said with a sneer to be a synonym for capitalism, globalism, elite rule, ruling-class privilege, and the administrative state.

It's true that there's more doubt around these days about cradle-to-grave government.

What are the reasons for this change?

First, there is the rather obvious fact that government management has failed to live up to its promise. People are far more likely to dread than appreciate any real-world contact with the state. Where would you rather be: the DMV or McDonald’s? The school-district office or a local bar? A military base or a car plant? The courthouse or the shopping mall? Want to deal with a government cop or a private security guard?

Second, private enterprise has turned out to produce far more amazing improvements in our lives; health, prosperity, education, transportation, security, and all the other “commanding heights” of life have been well-served by innovation stemming from entrepreneurship and commercial exchange. Pick your example, but a favourite one is how much transportation alone has improved with ride-sharing technology.

Third, a quiet intellectual revolution has been taking place in the postwar period, with generations of outstanding scholars having rediscovered, then improved, then propagated the insights of classical economics. To be sure, it is now conventional wisdom on the Left that this “neoliberal” intellectual shift is a result of an elite conspiracy dreamed up by billionaires and pushed by well-funded institutions and public intellectuals.

But there is a simpler explanation: the ideas of classical liberalism explain the world better than any alternative. Whether the intellectual change is the prime cause of the shift or incidental to it is unknowable. But this much is true: the shift in ideas is both real and necessary for a change in the paradigm.

Still, a classical liberal is not a neoliberal. We need a firmer fix on what this term "neoliberal" means. Is there a founding thinker, book, or meeting?

Liberalism Needed a Champion

The answer is yes. The thinker is the American journalist Walter Lippmann (1889-1974). He is often called the founder of modern American journalism. Also, if any writer/thinker can be called the founding father of neoliberalism, it is he. His life and times roughly overlap with both Mises and Hayek, the twentieth century’s two most prominent proponents of the classical idea of liberalism. Unlike Lippmann, there was nothing particularly “neo” about either of them. 

In fact, Mises himself had already written the definitive book to champion liberalism in the classical form in 1929. But it was published in Austria, in German. Lippman, as a New Yorker, would never have seen it.

Lippmann was not a professor, though he had an elite education and his brilliance was unmistakable. He was one of the most famous public intellectuals of his time, and a paragon of what was called liberalism in the Progressive Era and through the New Deal. As a founding editor of the New Republic, he was a defender of civil liberties, a proponent of peace, and opponent of socialism and fascism. No one would call him a dissident intellectual but he did resist the totalitarian winds of his time.

The Ideological Crisis

In the interwar period, this class of intellectuals had a sincere concern for the preservation of all the gains of liberty in the past, and sought to find a way to protect them in the future. The situation they faced was grim both in the United States and Europe. Two main extremist factions were struggling for control: the communists/socialists and the fascists/Nazis, which, Lippman realised, were two sides of the same authoritarian coin. The New Deal seemed to be borrowing from both while trying to hold on to certain liberal ideals. It was an unstable mix.

Where was the opposition? In Europe, the U.S., and the U.K, there was also a rise of what might be generally called Toryism or conservatism (or, in the American South, agrarianism). This was not a positive program but rather a reactionary or revanchist pose, a longing for the order of days gone by. In Europe, there were waves of nostalgia for the old monarchies and, with it, the desire to roll back the legitimate gains of liberalism in the 19th century. And with this pose comes a series of demands that are absolutely incompatible with modern life and contemporary human aspirations. 

Lippman knew that some form of liberalism had to be the way forward. But not the old liberalism, which he believed had failed (it led to economic depression and social instability, in his view). His goal was a renovated liberalism. He never used the term neoliberalism (that was invented by a colleague), but that is what it came to be called.

The Good Society

Lippmann’s great book – and it truly is a great book and very much worth a read – appeared in 1937: The Good Society. The book celebrated liberalism and thus rejected socialism, fascism, and Toryism. However, it also rejected laissez faire with equal passion, although you have to get pretty deep into the book to discover this. Lippmann had very casually accepted the bulk of the Keynesian criticism of free markets. He tried to thread the needle: opposing statism, loving liberty, but innovating what he regarded as liberal ends through quasi-statist means.

The book made such an impact that it inspired the calling of a hugely important scholarly colloquium held in Paris in August 1938, in the midst of a growing conflict in Europe and the world. Six months later came the German annexation of Austria, and one year before the Nazi invasion of Poland. These were extremely volatile times, and these intellectuals believed they had a responsibility to do something about righting what was going wrong in the world.

The “Walter Lippmann Colloquium” was organized by French liberal philosopher and logical positivist Louis Rougier. It was attended by Lippmann, and included several other leading French intellectuals, including the great monetary theorist Jacques Rueff. Also in attendance Michael Polanyi from the UK, as well as Germans Wilhelm Röpke and Alexander Rüstow. Most notably Friedrich Hayek came from London, and Ludwig von Mises arrived from Geneva where he was then living in sanctuary after having fled the Nazi invasion of Vienna. 

In short, this was a high-powered group, consisting of the world’s most important liberal intellectuals in the year 1938. It was at this event that Alexander Rüstow coined the term "neoliberalism" to label what they favoured. It was intended to apply only to Lippmann’s vision.

Hayek: neither neoliberal, nor conservative

Again, this was a new way of thinking about liberalism. It was democratic, tolerated a wide degree of regulation, plus welfare states, public education, and public provision of healthcare and infrastructure. But it maintained the core competitive processes of the market economy. The hope was to come up with some stable mix of policies that would lead to rising prosperity and bring about a general public contentment with the social order such that the demand for extremist ideologies like fascism and socialism would be kept at bay. The rising progress and demand for new technologies among the public would similarly outcompete revanchist and conservative sentiments in the political marketplace.

That was the hope in any case. I’m not aware of a report of precisely what took place in this Colloquium but one can imagine that both Mises and Hayek were alternatively pleased and unhappy about being pressed to agree with this view.

Hayek was emerging as the main opponent to John Maynard Keynes, while the other participants had made their peace with Keynes. For his part, Mises held the view that any mixture of state management into the market mix only diminishes the individual’s range of choice, slows economic growth, and introduces distortions that cry out for some political fix at a later date. Neither were believers in the great new Lippmann/Rüstow vision.

The Ur Text

To really understand this vision, let’s take a look at Lippmann’s treatise. It is not shabby. In fact, it is an excellent tutorial in the history of liberty. If only it had stuck with that. Still, the rhetoric is powerful and inspiring. You get a flavour from this passage:

Everywhere the movements which bid for men’s allegiance are hostile to the movements in which men struggled to be free. The programmes of reform are everywhere at odds with the liberal tradition. Men are asked to choose between security and liberty. To improve their fortunes they are told that they must renounced their rights. To escape from want they must enter a prison. To regularise their work they must be regimented. To obtain great equality they must have less freedom. To have national solidarity they must oppress the dissenters. To enhance their dignity they must lick the boots of tyrants. To realize the promise of science they must destroy free inquiry. To promote the truth they must not let it be examined. The choices are intolerable. 

Absolutely wonderful! And for the most part, the book continues in this lovely spirit, enough to feed the soul of the most radical libertarian. You have to get pretty far into the book to discover the “neo” part of neoliberalism. He believed that “liberalism must seek to change laws and greatly to modify property and contract” in a way that rejects laissez faire, a term and a system he completely counterposes to his own.

Neoliberalism includes public provision of education, health care, environmental protection, financial regulation, fiscal policy management, monetary control, and more. In fact, “the purpose of liberal reform is to accommodate the social order to the new economy; that end can be achieved only by continual and far-reaching reform of the social order.”

What Lippmann wanted was a new constitution for a “free state.” What he was rejecting was a state that is neutral to social outcomes – the “nightwatchman state” that the old liberals believed in.

Whereas the original liberals wanted law to be stable and general, pursuing only the most limited functions, the neoliberal vision is of a state that is an active part of the guarding, maintaining, and promoting liberty itself, as understood by a particular vision of what should be. It asserted that liberalism is so important that it must be the primary goal of the state to see it realised. 

In practice, there are no limits to how far this can go.

As an example of a state neutral to outcomes, consider the US Constitution. It is a framework for government and law. It specifies what various branches can do and why, and spells out what they cannot do and why. It contains no great aspiration for how society should look (well, perhaps the “general welfare” clause might apply) but mostly sticks to creating a framework and letting the people take it from there.

Neoliberalism instead wants a living state that is not only adaptive but even aspirational. It should take an active role in the lives of people with the expressed purpose of helping them live freer, flourishing, more fulfilling lives. The state must never lord it over the population but rather be the people’s partner in building prosperity and living out the promise of liberalism.

Where Lippmann Goes Wrong

All of this is interesting, but mostly fantasy. In his many chapters on the liberal state, Lippmann lays out all the ways in which his vision of an expansive state does not trend authoritarian. The official and the citizen are just people and there are no royal prerogatives. Bureaucracies aren’t issuing commands such much as behaving like publicly held corporations, always responsive to the public. There are all kind of intermediate institutions between the individual and the state. The public sector is humane, hospitable, adaptive, creative, and why? Because their power comes from the people, not the dictator or king.

All of this is interesting, but it is mostly fantasy.

Lippman, writing in 1938, was blind to important developments that took place in liberal theory, mostly in response to his vision.

The first is that crucial Hayekian point concerning epistemic humility. Lippmann writes as if he knows for sure how to achieve and judge social results that accord with his vision. It is a normal presumption of most intellectuals. Hayek’s innovation was to see that the knowledge necessary for the right ordering society is not accessible in whole to intellectuals and much less to presidents, legislators, or bureaucrats. It is deeply embedded in social processes themselves, and, in turn, in the minds of individuals making the choices that constitute the driving parts of that process.

The second point completely overlooked by Lippmann is that the players within the state itself have their own interests and designs, just as market actors do. They pursue their own interests. They seek to maximise their welfare. They look for more power, more funding, more prerogatives, and those they serve are the interest groups who can bring them more of it.

The idea that a public bureaucracy can be consistently much less permanently directly toward serving the genuine public interest is lacking in evidence. In other words, Lippman was blind to how the truths that would later be associated with the Public Choice school of economics might impact his vision of liberty.

A third problem is the one Mises identified: neoliberalism chooses the wrong means to realise its ends. Legislating higher wages does not actually raise wages; it throws people out of work. Regulating to protect the environment doesn’t end in doing so; it only devalues property which leaves it to be ravaged by irresponsible stewards. Instituting single-payer health care guts the sector of its signaling systems, its incentives for innovation, and its capacity to be rolled out to ever broader sectors of the population. And because intervention doesn’t achieve its stated ends, it becomes the pretext for ever more meddling in the market process.

These problems doom his system to be as much a fantasy as the authoritarian ideologies he opposed.

The Dangers of Neoliberalism

It was in response to Lippmann that both Hayek and Mises crafted many of their arguments over the coming years. Mises never stopped pointing out that laissez faire does not mean “let soulless forces operate,” as Lippmann seems to suggest. It means letting individuals make the choice over what kinds of lives they want to live, and let those choices drive forward the path of social evolution. Mises’s book Human Action was as much a response to Lippmann as it was to Keynes, Marx, and all the other anti-liberals.

Let’s just posit that we have a state that is determined to advance the cause of liberty – not a state neutral to outcomes but one directed at a certain end. Where will this lead us? It could lead to another form of top-down planning. It can result in practices such as social insurance schemes, heavy regulation in zoning and the environment, taxes and redistribution with the aim of bringing more effective liberty to ever more people. In an imperial state, it can lead to the imposition of planning on foreign nations: the IMF, the World Bank, the so-called Washington Consensus, and the United Nations Declaration on the Rights of Indigenous Peoples. 

It can be the excuse for wars for “spreading democracy” and nation building abroad.

You can say that all these policies are well intentioned. In fact, neoliberalism is the very embodiment of good intentions: we shall free all people! In the best case, neoliberalism gives us a post-war German economic miracle. But it could just easily land in Pinochet’s Chile, often cited as a neoliberal state. In foreign policy, neoliberalism can inspire beautiful reform (Japan after the war), or create a destructive terror state that seethes in resentment (see Libya, Iraq, and Afghanistan).

All of which is to say: the neoliberal can quickly become the anti-liberal state. There is no institutional reason why it would not be so. A state with a social mandate is a roaming beast: you might hope for it not to do bad things but you wouldn’t want to be alone with it in a dark alley.

To be sure, the world owes a debt to neoliberalism. It was this formulation that inspired many countries to liberalise their economies, and even been a reason for many of the loosening of controls in the United States. It led to the reforms in Latin America, China, and even Eastern Europe after the collapse of socialism. Neoliberal ideology is partially responsible for the liberation of billions of people from suffering, poverty, and tyranny.

The downside is also present: the continuation of colonialism by other means, the spread of global bureaucracy, the entrenchment of the welfare state, and the rise of deep-state control over culture, society, and the economy. It is also not politically stable. These institutions feed public resentment and fuel populist extremism, which is the very opposite of what Lippmann wanted. 

At the same time, genuine liberals (often called libertarians today) absolutely need to understand: we are not neoliberals. The great part about neoliberalism is the noun not the modifier. Its primary value is not in what it innovated but what it recaptured. To the extent that it diverges from the beautiful system of liberty itself, it can be the source of the opposite.

Neoliberalism Today

That the term is strewn throughout viral videos and public discourse today is a tribute to the power of an idea. This little seed planted in 1938 has grown into a massive global presence, mostly embodied in international bodies, public bureaucracies, political establishments, media voices, and pretexts for every manner of foreign, domestic, and global action. 

And what has been the result? Some good but a vast amount of highly conspicuous bad. Huge public sectors have held back economic growth. Large bureaucracies have compromised human freedom. It gave life to what is called "crony capitalism" today. Global control has bred nationalist blowback, while corporate monopoly has fed socialist longings.

We are again faced with the same problem today that confronted Lippmann in 1938. Everywhere there are ideologies that seek to put men in chains. We do need an alternative to socialism, fascism, and Toryism. We need to get it right this time. Let’s take the neo out of liberalism and accept nothing less than the real thing.

Freedom is not the correct implementation of a public policy plan. It is not the condition of appointing high-minded and intelligent social and economic managers. It is not the result of sound intentions from a fleet of ruling class intellectuals and major economic stakeholders.

Freedom exists when a people, an economy, and a culture, undirected and unmolested by administrative elites with power, are permitted to live and evolve in peace according to the principle of human choice in all areas of life.

* * * * * 

Jeffrey Tucker is the founder and president of the Brownstone Institute, organiser of the Great Barrington Declaration, and a former Director of Content for the Foundation for Economic Education, where his post first appeared. 

“The champions of socialism call themselves progressives..."

“The champions of socialism call themselves progressives, but they recommend a system which is characterised by rigid observance of routine and by a resistance to every kind of improvement.

"They call themselves liberals, but they are intent upon abolishing liberty.”

They call themselves democrats, but they yearn for dictatorship.

"They call themselves revolutionaries, but they want to make the government omnipotent.

"They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office. Every man but one a subordinate clerk in a bureau.”

~ Ludwig Von Mises from his 1944 book Bureaucracy

Marx's inner contradictions explained

Today's guest post from Students for Liberty explains that Ludwig von Mises and other Austrian economists didn't just refute Marx's economics, they exposed contradictions in Marx's thinking so devastating that the entire system collapsed. ...

Marx built his system on "historical materialism." Socialism [he claimed] would arrive with "the inexorability of a law of nature." Material forces determine everything, he said: History has a predetermined path; human agency is an illusion.
Mises saw the fatal flaw immediately: Marx's philosophy refutes itself. His actions contradict his theory. His method destroys his conclusions. ... 

1. The Activist Paradox
Marx declared that socialism must arrive through inevitable material forces. Nothing can stop it. History has already decided. So Mises asked the obvious question:

If socialism is inevitable, why did Marx spend his entire life writing manifestos, organising workers, and agitating for revolution?
If material forces determine everything, why does human action matter?

Marx lived as if ideas could change history, while writing that ideas are powerless against material forces.
His life contradicted his philosophy. 

2. The Polylogism Trap
Marx claimed all ideas are products of class interests. 
Bourgeois thinkers produce bourgeois ideology. Proletarian thinkers produce proletarian truth.
Mises called this "polylogism." Different classes have different logics.
The problem? First, Marx couldn't even define the term! And second, this principle applies to Marx himself. 

If all thought is class-determined, then Marx's theory is just bourgeois ideology. He was, after all, a wealthy intellectual, not a factory worker.

You cannot claim "all ideas are ideological" while exempting your own theory from that rule.
The system refutes itself. 

3. The Origin Problem
Marx said "material productive forces" determine everything. That tools, machines, and technology create society. Law, culture, and ideas all flow from the means of production.
But Mises identified a fatal circularity:

Tools and machines don't fall from heaven. They are themselves products of ideas.

Before you can build a steam engine, someone must think of a steam engine.
Marx tried to explain ideas through tools. But tools only exist because of prior ideas.
You cannot explain the origin of society by pointing to things that can only exist within a society built on prior ideas.
Cause and effect, inverted. 

 

4. The Blueprint That Doesn't Exist
Marx spent decades critiquing capitalism. He preached its inevitable collapse. He promised a socialist paradise.
But he refused to describe how socialism would actually work. He called detailed planning "utopian."
Ludwig Von Mises exposed the consequences: Marx advocated destroying the most productive economic system in history to replace it with a system whose institutions he never analysed.
When Mises later proved that socialist calculation was impossible, Marxists had no answer.
Because Marx never thought about how his system would actually function.
He tore down without building up. He promised without planning. He diagnosed without prescribing.

This is what they don't teach in your political philosophy class:
The entire Marxist edifice rests on self-refuting contradictions that were exposed over a century ago.
Mises didn't just win on economics. He showed that Marx's philosophy itself was intellectually bankrupt.
Historical determinism makes activism pointless. Polylogism that invalidates its own claims. Material explanation that requires immaterial origins. A revolutionary program with no coherent plan.
One economist dismantled the entire system.
And many academics still pretend it never happened.
Every libertarian learns about Mises, the economist.
Few learn about Mises, the philosopher, who exposed the contradictions at the heart of the most influential ideology of the modern age.
These aren't obscure academic quibbles. These are fundamental logical errors.
Once you understand them, you can dismantle Marxist arguments at their foundation. Not with emotion, but with cold, clear logic.

This is the intellectual ammunition they don't want you to have. 

Pay no attention to the (mad) men behind the curtain [updated]

Readers here might remember I got some stick for calling John Key a fucking moron a while back. A fucking moron, specifically, for repeated calls for the Reserve Bank to juice up house prices again, just so home-owning voters will feel better again. Feel better again, and then vote National.

"The guts of what’s wrong," explained the moron, "is that the housing market is going down, not up" — and "then you have a negative wealth effect," and voters feel bad. And when they feel bad, they vote for the other team.

Classic short-termism.  Stuff rocket fuel into the economy, and then all things will be jake for the governing political parties. This, by the way, was Key's "one simple trick" while Prime Minister: ensure massive house-price inflation, no matter the economic and social dislocation, and then sit back and watch home-owners fooled into feeling better off, and borrowing and consuming more, regardless of the economic consequences. (Consequences for which we're all still paying, by the way.)

In the US, the discredited "wealth effect" — "a gussied-up version of Keynesian stimulus, only targeted at the prosperous classes rather than the government’s client classes" — is generally felt in the stock market. Pundits there are starting to get nervous about a soaring stock market with anaemic growth in the economic system itself, with "important implications for the path of America’s stockmarket boom and its economy."

The good times could continue, at least for a bit longer [says 'The Economist']. ... [But] might a wealthier society also take a harder fall? Bears would point to the bursting of the dotcom bubble in 2000, when a brutal stockmarket slump pushed America into recession. ... The stockmarket might be more of the economy. It still is not all of it.

It's not. And nor is the housing market. We can't get rich just by selling each other houses. (And kudos to one National minister at least who understands that.)

Yet David Stockman is concerned that nothing has been learned from the last major crash. 

Roughly 15 years ago it was reasonably well understood that the Great Financial Crisis of 2008-2009 had been case of speculation run amuck on both Wall Street and main street alike. These credit and housing bubbles, in turn, had been fuelled by the massive money-printing sprees of the Greenspan and Bernanke Fed.

It might have been presumed, therefore, that the mad money-printers [at the US central bank] would have had second thoughts about the underlying cause of these great economic disasters—that is, the dubious Greenspan policy known as the “wealth effects” doctrine. In simple terms the latter held that if people felt richer owing to soaring home prices and their stock market winnings, they would spend more freely and fulsomely, thereby goosing the Keynesian cycle of ever more spending-sales-production-income-and spending, which was to be rinsed and repeated in an endless round of rising prosperity.

At the end of the day, of course, Greenspan and his heirs and assigns at the Fed turned out to be unreconstructed Keynesians and the wealth effects doctrine a monumental economic con job. The latter did not make society richer; it just made the rich richer. Or stated more directly, main street got inflation at the grocery store, gas pump and doctor’s office—even as the asset-holding class experienced unspeakable windfalls in their brokerage accounts.

Let's not repeat the same mistake again here — especially when local interest rates are already below our trading partners, with no noticeable effect on genuine economic progress. Please: pay no attention to the mad men behind the curtain.

UPDATE:

"The advocates of annual increases in the quantity of money never mention the fact that for all those who do not get a share of the newly created additional quantity of money, the government's action means a drop in their purchasing power which forces them to restrict their consumption. It is ignorance of this fundamental fact that induces various authors of economic books and articles to suggest a yearly increase of money without realising that such a measure necessarily brings about an undesirable impoverishment of a great part, even the majority, of the population."

~ Ludwig von Mises from an interview 'On Current Monetary Problems'