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The Emerging Institutions Of Entrepreneurship:The Rise Of The Digital Hand And The Emerging Class Of Digitalpreneurs.

September 27, 2021/in Articles /by Raushan Gross

This article is part of a series from Professor Raushan Gross on The Emerging Institutions Of Entrepreneurship. Entrepreneurship is a powerful pathway to innovation, growth, prosperity, and a better life for all. Its emergence and thriving are not automatic; it requires enabling institutions. But the institutions of entrepreneurship are not the conventional structures that have nurtured the world of corporatism and administrative bureaucracy. Professor Gross will analyze and explain the institutional supports required for entrepreneurship to play its role in elevating society to the highest levels of achievement.

In An Inquiry Into the Nature and Causes of the Wealth of Nations, Adam Smith described what he called the Invisible Hand – a metaphor to describe the mechanism of the market and the social benefit that individuals who participate in the market in self-interested ways intentionally and unintentionally serve others. The invisible hand guides individuals entrepreneurially to improve their own circumstances, and they unintentionally or unconsciously create social benefits for everyone by serving the ultimate purpose of creating markets, economic growth, trade and prosperity. The invisible hand guides individuals’ purposes to the most needed ends – the benefit that customers value most highly – and they express these purposes by using their skills and resources in market pursuits that benefit the larger society, intended or otherwise.

Alfred Chandler, on the contrary, took the opposite approach and described the visible hand, which he said was a managerial revolution. The visible hand guided the managerial class of large enterprises and replaced the spontaneous order of the invisible Hand with the visible hand of experts managing production, focusing on mass manufacturing and distribution. Alfred Chandler said, “Such internalization permitted the Visible Hand of administrative coordination to make more intensive use of resources invested in these processes of production and distribution than could the Invisible Hand of market coordination.” Chandler sought to replace the implicit guidance of the Invisible Hand with the explicit control of an elite management class and the tools of organizational structure, command-and-control methods and tightly constructed processes.

We are seeing the results of the visible hand today, in the rigid structures of established businesses that struggle to respond to fast-paced change and rapid innovation, and also in the rejection of business by younger generations who see it as elitist and exploitative.

Happily, the visible hand is losing its grip. Today, what I see emerging is the Digital Hand.

As the Table indicates, the digital hand is the enablement of a broad and deep population of new entrepreneurs who have easy access to infrastructure and resources available via the internet and who can connect to every available source of knowledge, expertise and support. The digital hand opens economic opportunities for everyday people who can participate as entrepreneurs in today’s economic marketspaces. Ecommerce and digital marketspaces are giving rise to digitalpreneurs, both nationally and globally. Chandler’s visible hand has made significant improvements in the production of economic goods and mass service offerings, no doubt. However, never in human history has there been a digital hand guiding individuals who offer services, products, and entertainment, with the power of prosperity except in this current time of mass accessibility of eCommerce platforms.

Recent data suggests that social e-platforms, digital stores, and online marketspaces are a $200 billion industry. The cause of this boon is the result of human action and not of human design; the effect is the opportunity for regular people – not Chandler’s elite – to be guided to economic success by the digital hand. Now brick-and-mortar business models can be offered through a digital marketspace or a hybrid of both click-and-mortar. One person startups or small teams or small and medium sized businesses can harness the virtually unlimited resources of the digitally interconnected global economy and serve its digitally interconnected markets.

Is the entrepreneurial participation of everyday people using digital platforms via the digital hand the final, irreversible shift to free and unhampered markets? Is the level of ease for the average person to be involved in the market process the great breakthrough for individual economic freedom, even though their investment in entrepreneurial endeavors is not as consequential as an investment of a high-profile millionaire or billionaire? In the short run, we see more real people – you, your neighbor, and your friend – profitably exercising their talents, serving consumers, using the digital hand. In the long run, an entire emergent class of individuals can realize their positive impact on society using the digital hand.

With a tremendous uptick in digital businesses opportunities within the past decade, there is anticipation that more digitalpreneurs will arise in the future, thereby expanding this class of entrepreneurs. Facebook’s Marketplace has grown to millions of sellers across many countries, providing real people with enormous entrepreneurial and innovative opportunities within just a few years of its formation in the digital space. No matter the division of labor one represents in the eCommerce sphere, there are sufficient and inexpensive marketspaces to enable the expression of entrepreneurship. Poshmark, eBay, Etsy, Shopify, Volusion, and other eCommerce marketspaces have built-in buyer networks serving millions of people. These e-platforms remove arbitrary barriers to the advancement of everyday people who wish to participate in the marketspace. Digitalpreneurs, newcomers, or entrepreneurs transitioning to digital platforms develop entrepreneurial skills and can profit from them.

Not only that, digitalpreneurs have noticeable positive effects on value-creation for customers and motivation for sellers. Value in a subjective sense can exchange for digitalprenuers’ presented value.

Digitalpreneurs provide a subjectively valued service, and in response, the value is immediately returned to the digitalpreneur based on the service obtained by the consumer. The consumer, pays the digitalpreneur according to the value of the service received. The digital hand, like the invisible hand guide, rewards people who are efficient in filling market gaps. Unlike the visible hand, the digital hand uses the knowledge and experiences of many, which is what F. A. Hayek called dispersed knowledge, so that value can only be exchanged for what it is perceived in worth. The upside to the digital hand is that there is always something for somebody in the vast marketspace.

Therefore, the effect of open marketspaces is the emergence of an entrepreneurial class who are nimble and fast-acting by their very nature. The class of digitalpreneurs individualizes marketspace levels of participation across diversified products and services or both.

Ultimately e-platforms and digital marketspaces are creating a process whereby real people with various levels of investment in the economy can do good. How long will this last? While the youngster creating skateboards to sell on social marketspaces and digital apps is not investing at the amounts of an Elon Musk or Daymond John, he or she is nevertheless engaging in entrepreneurship using the digital hand. The retired musician can use the digital hand to stream music lessons to people who live thousands of miles away or someone next door. Up and rising musicians may not sell as many records as Druno Mars, Carrie Underwood, or Rihanna but they can be heard across various countries by listeners and admirers with one swipe across the smartphone screen. The aspiring musician can receive the face value of their streaming services. Using resources, serving consumers while making a profit, saving and reinvesting, and future growth –isn’t this what entrepreneurship is about? With the digital hand, producers can produce more, and consumers can choose far more options from rising producers or artists who choose to use their superior offerings and talents to contribute to society’s workings.

The digital hand in the short run ought to increase individuals’ entrepreneurial freedom, thereby creating an emerging class. In this regard, I think Ludwig von Mises said it best, “The meaning of economic freedom is this: that the individual is in a position to choose the way in which he wants to integrate himself into the totality of society.” There are positive short and long run effects emanating from this digital class of entrepreneurs yet to be seen.

Raushan Gross, Ph.D. is Associate Professor of Business Management at Pfeiffer University.

“The Market” Can Deliver Pho and Spring Rolls. It Can Deliver Vaccines.

January 14, 2021/in Articles /by Hunter Hastings

“Nobody ever saw one animal by its gestures and natural cries signify to another, this is mine, that yours; I am willing to give this for that. When an animal wants to obtain something either of a man or of another animal, it has no other means of persuasion but to gain the favour of those whose service it requires. A puppy fawns upon its dam, and a spaniel endeavours by a thousand attractions to engage the attention of its master who is at dinner, when it wants to be fed by him. Man sometimes uses the same arts with his brethren, and when he has no other means of engaging them to act according to his inclinations, endeavours by every servile and fawning attention to obtain their good will. He has not time, however, to do this upon every occasion. In civilized society he stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons.”

Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations, Book I, Chapter II

The Covid-19 vaccine rollout redefines “debacle.” The Bureaucratic Deal made a mess of things and showed how vaccine production and distribution are too important to be left to the men and women of system or a National Supply Commander. It reminds me of something William Easterly discussed in his excellent 2006 book The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good. For-profit firms can deliver millions of copies of a new Harry Potter book seemingly effortlessly. Nonprofit organizations have trouble moving medications that cost pennies a dose. Channeling his inner Adam Smith, Easterly identifies and explains what he would later call The Tyranny of Experts. The statespeople who think themselves fit to tell private people how to deploy their capitals (or their vaccines or other medications) are saddling themselves with a most unnecessary attention in a fit of folly and presumption.

In Book I, Chapter II of the Wealth of Nations, Smith explores the differences between people and other creatures, noting a distinctly human “propensity to truck, barter, and exchange” that allows us to use others’ labor, talents, and knowledge by letting them use ours. We survive as a species of talkers and traders, able to thrive because exchange engages for us “the cooperation and assistance of great multitudes.”

The problem, Smith points out, is that we have limited abilities to know and help. Your “whole life is scarce sufficient to gain the friendship of a few persons”– people who have the wherewithal to love you as they love themselves. If all we had to rely on were our friends and neighbors’ kindness, life would be solitary, nasty, poor, brutish, and short. We can’t depend on the kindness of strangers, either. We have limitless occasions for the help of our brethren, and it’s hard not to drown in the flood of news about others’ needs and wants. Smith asks, “How do we get the butcher, the baker, and the brewer to help us when they could be doing something else?”

Just think about the barrage of exhortations you get from pulpits, the press corps, and social media. You need to live a life dedicated to others, but you also need to take care of yourself. You should save prudently, but you should give generously. You should help other people in need and serve your community, but you should also make sure you spend plenty of time alone with God or reading great literature. You should work diligently, and you should also pick up a few hobbies. As something my wife and I read when our children were young, new mothers should take care of themselves: “Sleep when the baby sleeps. Clean when the baby cleans.”

You have infinite options but finite time and energy. Enter markets as coordinators of the division of labor and the division of knowledge. We cooperate to mutual advantage and deploy for our purposes expertise and skills we don’t have for purposes other people may not understand. Among other things, exchange collapses the incomprehensibly complex into simple bids and offers whereby people decide whether or not they want and are willing to pay for what is on offer at the requested price.

Our dinner on New Year’s Day illustrates nicely. I had planned to cook that evening and order takeout the next night, but there was a small complication. My beloved Alabama Crimson Tide would be playing the Notre Dame Fighting Irish, and I didn’t want to be busy with meal prep during the game. We decided to switch and do takeout that night and cook the next night, but even then, I didn’t want to have to go and get the food during such an important game. It brings into play the cooperation and assistance of great multitudes who made it happen after a seemingly-simple set of operations.

I pulled out my phone and opened a food delivery app called Waitr. A few flicks of my thumb later, I had scheduled delivery from Saigon Noodle House and paid for everything. At around 6:15, the game was winding down while we were sitting down to a lovely meal of chicken pho and spring rolls.

Think about all the hands and minds involved. Someone had to program the app and make sure it was compatible with Apple’s iOS operating system. Someone in a marketing department somewhere had to bring the app to the attention of the general public. Someone else in a strategy meeting somewhere said something like, “Let’s offer promotional free delivery for New Year’s.” Someone else is in charge of coordinating Waitr’s relationships with the businesses they serve. Others are in charge of payment processing, which is anything but simple. Waitr has to make sure the restaurant gets paid. My credit card company has to make sure Waitr gets paid. My bank has to make sure the credit card company gets paid. Software developers have to keep things running so that the auto-draft from my bank account works. Others make sure transactions are secure. Platoons of lawyers help everyone navigate an ever-changing regulatory environment. The food has to be prepared and then delivered promptly. That doesn’t even begin to get into secondary and tertiary relationships like the restaurant’s relationships with landlords and suppliers. If I’m not satisfied with Waitr, their competitors (Grubhub, DoorDash, Uber Eats, and others) are just a couple of phone taps away.

Thus do I enlist the cooperation and assistance of great multitudes: not by referring to my very exalted status as a noble lord or what have you but by offering the fruit of my labor (reflected in money) in exchange for the fruit of theirs. The winners? Everyone with a right to be consulted. The losers? No one. Exchange is mutual caring for even without mutual caring about. In a decentralized market where people pursue their interests (which might be selfish or benevolent), we can help one another get more of the things we want.

If we can trust the market to deliver relatively unimportant things like pho and spring rolls, we can trust the market to deliver important things like Covid vaccines. As John Cochrane has pointed out, the standard “externality” argument for government involvement is a nonstarter because so much of the debate has been about who deserves to get vaccinated first rather than market failures in pandemic mitigation–who should get the private benefit. As he has argued more recently, “Nothing Matters but the Reproduction Rate.” And yet actual mitigation seems not to be that important, at least politically.

I doubt we would be in this mess if we had left vaccine production and distribution to Walmart, Amazon, Grubhub, and Chick-fil-A. In the middle of a global pandemic, it’s too important not to.

Economics Is Truth And Light, Beauty And Awe, Hope And Compassion.

November 9, 2020/in Articles /by Hunter Hastings

As we survey the damage done by politics, pitting one half of Amerca against the other in a fight over the allocation of what the economy produces, it is instructive to switch attention to another field: economics. His studies in the Austrian school of economics led economist Sanford Ikeda to identify four categories in the teaching of economics: Truth And Light; Beauty And Awe; Hope: and Compassion. Peter J. Boettke summarizes them in his book, The Four Pillars Of Economic Understanding.

Truth And Light

Scarcity is a basic concept in economics. No-one in the world can have everything they want. Boettke writes:

There is certain shock value when you are first taught this idea and the notion that in our world we are constantly confronted with trade-offs.

Learning economics is learning about the consistent application of opportunity cost reasoning to all human affairs. This is where economics brings truth and light, piercing through the fog to make sense of all human endeavors. Trade-offs represent the logic and the underlying governing dynamics of the world around us.

Beauty And Awe

Adam Smith, in The Wealth Of Nations, asks us to contemplate that we depend for our very survival on the co-operation of a great multitude of individuals, whom we will never meet or have the opportunity to make friends with. Therefore we can not rely on their benevolence to help us. We must appeal to their “self-love” as Smith put it. They help us only if doing so helps themselves.

The economy is a system in which individuals generate knowledge, communicate it and utilize it in a complex web of interrelationships and interactions among economic actors near and far. It’s a marvel, as F.A. Hayek put it. Or as Boettke summarizes:

Prices guide us, profits lure us, losses discipline us in our decisions, and property rights provide the institutional infrastructure required for all this to take place.

It’s important for us to appreciate the spontaneous order of the market, which arises through independent but interrelated decision-making. There is beauty and awe in the mundane.

Hope

Economics teaches us that, through the expansion of trade, refinements in the division of labor and the division of knowledge, technological innovations, and adoption of the rules of the economic game that cultivates these developments, humanity was able to escape crushing poverty and raise standards of living all over the planet. Economics teaches us hope in the betterment of the human condition.

Entrepreneurs in the private sector are the economic actors who constantly seek mutual gains for them and their customers, are constantly on the lookout for new technologies to increase productivity or lower costs, and to improve the delivery to consumers of new and better goods and services, thereby better satisfying consumer needs. Hope is in the form of improved living conditions that result from entrepreneurs betting on ideas and bringing those ideas to market.

Compassion

Economics teaches – and demonstrates – that economic progress doesn’t result in gains only for the wealthy, but lifts the least advantaged from their previously precarious situation through material betterment. The goal is to help all economic actors, and economists examine the logic of choice, the structure of incentives and the flow of knowledge to assess and improve the ability of the system to produce the desired results. Economics teaches us great compassion for the least fortunate and focuses energy on institutional remedies to open up opportunities and eradicate barriers. Economic theories co-evolved with the institutions of private property, freedom and the rule of law. Economics recognizes the rights of all.

Morality

The critics of capitalism often claim that markets corrupt our morals. The opposite is the case. Economic society provides the foundation for more learning and improvements in our social relationships with one another.

The Austrian school of economics shines a bright light to illuminate the true subject of the field: the flourishing of human beings and the structure of societies that allow for experimentation, innovation and the emergence of the social order that is possible only via individual liberty.

Pragmatism, Good Intentions, and Proletariat Lives Are All That Matter. To Avoid Death. For Now.

October 5, 2020/in Articles /by Mark Shupe

In week one of our We the Living Study Group, we were introduced to year five of the Soviet Revolution: “the State’s New Economic Policy (NEP) had allowed a temporary compromise.” It is 1922, and in Part 1, Chapter 2 we were also introduced to Kira’s Gen Z cousin, Irina,

A door crashed open and something came flying into the anteroom; something tall, tense, with a storm of hair and eyes like automobile headlights; and Galina recognized Irina, her niece, a young girl of eighteen with the eyes of twenty-eight and the laughter of eight.

Representing Soviet temporary compromises was Irina’s brother Victor, who tells his family,

The days of confiscations are past. The Soviet government has a most progressive policy outlined. The most promising career for a woman is offered by employment in a Soviet office. One has to be practical nowadays – as you ought to know.

Here, Ayn Rand has used an economy of words to illustrate the implied threat in every sentence: there will be future confiscations, ambiguous centralized economic power equals progress, and female careers outside a Soviet office are not promising. Practicality means pragmatism, rational principles be damned.

Irina’s principles were still being developed, yet she knew she wanted to live. More precisely, to learn what it was like to be really alive. Upon seeing her cousin Kira for the first time in four years, she excitedly asks, “Did you eat fresh fruit in the Crimea? I’ve been dreaming, yearning and dying for grapes. Don’t you like grapes? Victor, they’re wearing the funniest things in the south. Did you notice Kira’s wooden sandals?”

While Kira’s dream was to build, and work with steel because it doesn’t tell lies, Irina’s was to work with music and paint because great art reflects her highest values. Victor’s highest aspiration was to conform, to do anything necessary under the fog of Soviet dictates, and volunteer for the dirty work needed to enforce the equality of their social justice.

To attain power, the Soviets preached ‘equality,’ for the ‘goodness of humanity.’ It was a world-wide proletariat lives matter movement after all. In Chapter 2, Kira asks Victor what his “stupendous whole” called society really means,

I don’t understand it. To whom is it that I owe a duty? To your neighbor next door? Or to the militia-man on the corner? Or to the clerk in the cooperative? Or to the man I saw in line, third from the door, with the old basket and the woman’s hat?

Yet, mindless duty is nearly universally accepted in 2020 America. In Chapter 1 of Part II, Ayn Rand explains that “the people” does not have a mind. In 1776, Adam Smith explained further in his classic treatise on economics, An Inquiry in to the Nature and Causes of the Wealth of Nations,

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk of our own necessities, but of their advantages.

However, in order to rationalize government power, the 1920’s Soviets and 2020 American Democrats chose the 19th century economics and philosophy of Karl Marx,

The less you eat, drink and read books; the less you go to the theatre, the dance hall, the public house; the less you think, love, theorize, sing, paint, the more you save-the greater becomes your treasure. The less you are, the more you have.

This quote from Marx was intended to demonize capital, and capitalists, yet it became the ideal behind Soviet control of every day life in 1920s Russia. In this case, “treasure” belongs to Communist Party insiders and Washington political elites. With the removal of Revolutionary leader Leon Trotsky in 1925, pragmatic five-year New Economic Plans (NEP) became the norm.

Likewise, in Part II, Chapter 8 of We the Living, Victor Dunaev betrays everything he had ever claimed about self-sacrifice being a virtue and self-interest being a vice. He paid his dues by informing the Soviet secret police about his sister Irina’s ‘counter-revolutionary’ behavior. In order to get ahead in Party politics, Victor snitched that Irina was hiding her boyfriend Sasha in their apartment.

Victor’s father-in-law knew betrayal, and the Soviet big secret very well. During the wedding party in the previous chapter, Kira had heard Lavrov’s wife grunting about Leo Kovalensky’s new-found display of wealth, “And they say private traders don’t make no money . . . Dictatorship of the Proletariat, Lavrov growled, and spat loudly.”

Irina, still desperate to learn what it was like to be really alive, was arrested, taken to prison, and sentenced to ten years in a Siberian gulag. Upon being hauled away, she faced Victor,

Her eyes stopped him. They were looking at him fixedly; they looked suddenly like the eyes of Maria Petrovna in the old portrait. She turned and followed the soldiers. Without a word. She went first.

Her life now ended before it had really begun, Irina’s eyes had acquired the consciousness of the living dead, something Ayn Rand had described when Kira noticed a Soviet guard at the Petrograd train station, “His eyes were austere and forbidding like caverns where a single flame burned under cold, gray vaults. The soldier looked at her coldly, indifferently, astonished.”

The soldier’s vision was closed to a future for himself, and he was surprised to see it in another human being. Irina’s father Vasili was finally broken too; not by Maria’s kind of submission to God or Victor’s to Society, but by the 18th century moral philosophy of Immanuel Kant that combined both and dominated Soviet culture,

Many years ago, I felt sure of what I thought. I knew when I was right and I knew when to condemn. I can’t do it now. I don’t know that I can condemn anyone for anything. You’re my son Victor. I love you. I can’t help it, as you can’t help being what you are.

Vasili has submitted to the idea that we can not know what is objectively true, so principles are subjective. We do not possess free will, so good intentions are all that matter. Here, We the Living becomes the ultimate mystery novel. While visiting Irina in prison, before her transport to Siberia, Irina asks Kira,

There’s your life. You begin it, feeling that its something so precious and rare, so beautiful that its like a sacred treasure. Now its over, and it doesn’t make any difference to anyone. But there’s something that should be understood by all of us. Only what is it, Kira? What?

What?

The 1776 Project: Jefferson And Smith. Who Was The Greater Libertarian?

July 2, 2020/in Articles /by Hunter Hastings (Republished)

No American must be reminded that the year 1776 was momentous. But few Americans realize just how momentous it was. That year witnessed the publication not only of Thomas Jefferson’s eloquent Declaration of Independence; it was also the year of Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations.

Jefferson’s document founded a new nation: the United States. Smith’s book founded a new discipline: economics. Both works were inspired by the spirit of liberty.

Jefferson wrote that individuals “are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men.”

Note carefully Jefferson’s words. Our rights aren’t given to us by government. The state is merely an organization for helping us, as individuals, to protect our rights. Attempts by government to act beyond this narrow purpose are violations of the very rights it is instituted to secure.

Freedom equals productivity

Jefferson and America’s other founders understood that individuals who are free to conduct their own affairs as they see fit are far more likely to be productive and to form mutually advantageous social and economic arrangements than if they must run a gamut of government-imposed prohibitions and requirements.

Adam Smith was of the same mind when he celebrated, with an eloquence equal to that of Jefferson, “the obvious and simple system of natural liberty” in which all special privileges and restraints on consensual economic activity are “completely taken away.”

With this liberty, wrote Smith, “Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.”

Founders had confidence in freedom

It’s often said that America’s founders had “faith” in freedom. But because of Smith’s work, a better term is confidence in freedom. Smith explained how private property rights, freedom of contract, economic competition, and market prices peacefully direct each individual who is pursuing his own goals to achieve those goals only by helping countless other individuals to achieve their goals. The result is a beautiful process of mutual assistance.

In one of Smith’s most quoted passages, he observed that “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.” Businesses in free markets prosper only by satisfying consumers – and the more that businesses satisfy consumers, the more those businesses, their workers, and their customers will prosper.

And while Smith was a realist who knew that markets always work imperfectly, he argued that in most cases government intervention makes matters worse. Even if politicians were miraculously to become immune to pressure from special-interest groups, their knowledge of how best to use scarce resources is far too scant to enable them, or the bureaucrats whom they employ, to improve upon market outcomes.

In 2020, alas, this deep wisdom from 1776 is largely lost. Politicians and pundits today, from left to right, see ordinary men and women as hapless victims of forces beyond their control. These pathetic creatures, it is assumed, need not protection of their rights but, instead, provision of their sustenance.

American prosperity at stake

People across the political spectrum increasingly believe that the state must superintend and often override the choices that we individuals make as workers, entrepreneurs, and consumers. Those with this view are blind to the enormous prosperity created by free markets. If you doubt this prosperity, just look around your house and marvel at the appliances, the pantry full of food, and the closets full of clothing that are, for most Americans, commonplace.

Those with this expansive vision of state power are blind also to the dangers that power poses to this prosperity. As Adam Smith taught – and as Jefferson understood – markets saddled with tariffs, poisoned with subsidies, and buffeted about by the inevitable arbitrariness of bureaucratic interventions cannot possibly produce as much prosperity for ordinary people as is produced by free markets.

Donald J. Boudreaux is a research fellow at the Independent Institute and a professor at George Mason University. This article appeared at realclearhistory.com

Modern Poetic Justice Warrior Shelby Steele Has Exposed the Secret Weapon of the Progressive Left

June 17, 2020/in Articles /by Mark Shupe

The renowned philosopher and economist Adam Smith is famous for saying “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” For fans of the economic way, this is objective reality. For fans of the political way, this is horribly divisive. In today’s politically religious culture, this is blasphemy.

The Pavlovian response of elected officials and their wannabes, from both the so-called left and right, are continual pleas for unity while denying the reality of free markets. For them, their public schooled audience isn’t supposed to see the division being sown is designed to keep the politicos powerful and wealthy.

Author, documentary filmmaker and Poetic Justice Warrior Shelby Steele has identified these contradictions, and the false premises that support them. In a recent cable television interview with Jeanine Pirro, Steele analyzed the essence of the political division,

The left says that we’re racist, that we need to leave that old, ugly America. The conservatives on the other hand, people on the political right, tend not to make high moral claims. They can’t give society the moral innocence it seems to long for.

He concluded, “it seems to me we’re trying to work that out, but not very well.” And they won’t, so long as both sides of the political debate pander to their crony corporate and foundation donors. However, to the credit of the left, they have successfully seized the moral high ground. This is despite their false premise of a Malevolent Universe – success, happiness, and achievement are not available without our fealty to their collectivist tribe.

To the right’s credit, they seem to hold a benevolent universe creed, but for only pragmatic reasons. Its premise is that our capacity for reason is perfectly human, but the right fails to defend reason as fundamental to lives of purpose and pride. As a result, the conservative argument for free market capitalism is the “common good.” That is the collectivist’s turf.

To further explain those who favor the political way, Steele adds,

What you see makes no sense, except as a power grab. The left is saying this country is shameful. We reserve power because we are innocent of that other past. The right says we want law and order. They are right, yet not claiming the high ground.

To claim that one’s country is shameful, without offering context, is itself shameful. At its core, shame can only belong to individuals who adopt anti-life behavior. When these like-minded souls organize themselves, these groups attain political power, and their influence permeates a large segment of the culture, then we have a problem. In American history, that would be the Democratic party.

In the wake of their handling of the Wuhan virus inspired supply-side economic disaster, the Republican party also deserves scorn. Not the least of which is their pathetic defense of capitalism and its requirement for objective law. In the context described by Shelby Steele, conservative media has failed to make a strong moral case for law and order. Instead, they serve up images of cops as good deed doers, for the common good.

Of course, nearly all of them are, and so are the countless butchers, bakers and brewers whose livelihoods are being wiped out by government and anarchist looters. In reality, these officers would love to protect the business operators, for the sake of their individual productiveness. That is the morally defensible purpose. Regarding the events we are witnessing at the moment, Steele observes,

As we speak, we see the enormous power the left has simply claiming themselves to be more innocent than the rest of us. Political correctness has taken one institution after another, where you are required to express your innocence over America’s past.

Inversion, when vice becomes virtue, manifests itself when mobs demonstrate their innocence with spray paint, ropes and gasoline to deface and destroy monuments. Ironically, many of the statues being desecrated actually glorify Democrats. So it makes sense that when reason and reality are abandoned, this behavior is hailed by partisan Democrats in media and Washington who share the attitudes of their forebears, to this day. Shelby Steele continues,

So if you’re in a position, at a university for example, to exploit that, that’s how you get ahead in American life now – to nurture that innocence. The left more and more claims its innocence, the right more and more is frustrated by that.

Bear in mind, this cabal of politicians, chanting marchers, and thugs have no idea how paint, rope and gasoline are produced, not even a Pencil. Those things just happen. What they do know is how to produce mobs. Malevolent life is good when a mob is confused with legitimate protest. Armed with pedestrian slogans and bricks, they aspire to show the world their clean hands and individuality.

Conformists all of them, if they lived in the 17th or 18th century, the DNC would be the chieftains selling their brothers and sisters, and their media partners would be the merchants transporting them to market under the trademark BLM. The protesters would be buying them, assuming they had the wealth to do so. That is not likely, unless they had the political pull.

However, lacking wealth doesn’t matter when need is virtue, independence and ability are punished, and the coin of the realm is envy and guilt. This is where Steele identifies the looters house of cards,

What people on the right do, you can say in one word. They practice deference. We defer more and more to the moralism of the left. Will that get it? The left comes back with something else for us to prove our innocence. That’s power in American life today.

Deference is defined as humble submission and respect. When questions of morality are involved, to submit requires the acceptance of guilt. However, to accept unearned guilt is the highest moral crime someone can commit against themselves. This is Steele’s achievement, to expose the deference offered by innocent Americans as the left’s only weapon, and weakness. Guilt can, and must be, refused and withdrawn.

Whether the looters are politicians, journalists, social justice warlords, or anarchists, they have nothing if they don’t have the unearned guilt of their victims. Their power over American life would be crushed without it.

The cure to sanctioning one’s own victimhood is reason, individualism, and capitalism. In his book The Content of Our Character, Steele confirms America’s founding principle – the protection of the greatest minority, the individual,

Whites must guarantee a free and fair society. But blacks must be responsible for actualizing their own lives. The barriers to black progress in America today are clearly as much psychological as they are social or economic.

As Poetic Justice Warriors, Frederick Douglass was a self-made man in the era of Democratic slavery, Booker T. Washington taught the virtues of economic independence in the Democratic Jim Crow south, Marva Collins taught children how to create lives of understanding and purpose despite the Democratic Chicago school system, and economist Thomas Sowell demonstrated the rising living standards of two parent African American families before Democratic Great Society dependence and despair took over.

Shelby Steele has shown us that a morally vigorous defense of capitalism must be our campaign. As Poetic Justice would have it, Adam Smith brilliantly wrote The Theory Of Moral Sentiments before publishing The Wealth Of Nations – in 1776.

Our Economic Recovery Will Be A Race Between Smith (Adam), Schumpeter (Joseph) And Stupidity (Government).

April 24, 2020/in Articles /by Hunter Hastings (Republished)

Economists have been the object of ridicule for centuries. We supposedly know the price of everything and the value of nothing. The stress on scarcity and choice within constraints is seen as raining on the hope and aspirations for a better world.

In The Four Pillars of Economic Understanding, I try to counter these criticisms by pointing out that the message of basic economics not only provides truth and light to the uninitiated would-be students of society by capturing the beauty of the complex coordination of commercial society. It conveys the hope that entrepreneurship offers for the discovery of new and fascinating products and the implementation of new rules of social interaction which enable productive specialization and peaceful social cooperation.It does so with a sense of deep compassion for the least advantaged, who most benefit from the unleashing of economic forces to alleviate extreme poverty, and raises the material standards of living of people. Economic freedom brings with it progress and peace.

Unfortunately, economics is often taught as an abstract discipline with abstract examples to illustrate. Don’t get me wrong, abstraction is a necessary intellectual tool. Our theories must be logically sound, and as such must be empirically relevant. That requires discipline of thought and expression. Economics is not poetry, and neither is moral philosophy and political economy. We must practice these distinct but related disciplines with the utmost of intellectual care.

Why must we do that, you ask? Wouldn’t it be so much more inspiring to spin fanciful tales of better worlds to inspire the youth?

I want to say NO. James Buchanan, my teacher, argued that what we needed was to articulate a vision in political economy of a “workable utopia”. Hayek earlier had argued that we need a vision of a “liberal utopia,” and that we had to excite the imaginations of the best and the brightest to explore the workings of a free society — a true radical liberalism. But in both Hayek and Buchanan, the idea was to have these “utopias” firmly grounded in the teachings of basic economic reasoning.

As Hayek argued in his 1945 essay “Individualism: True and False,” the idea was to find a social system that relied not on individuals becoming better versions of themselves for its operation, but which made use of individuals as they are — sometimes smart, more often stupid; sometimes good, but capable of being bad. In fact, the idea was to have a system not where the best and the brightest could rule over others, but where bad men if they were to find themselves in charge could do least harm. In this way, freedom could be granted to all, and not restricted to only a few.

This is why Adam Smith’s critical idea of the invisible hand is so vital to our understanding of commercial life. It is not from the benevolence of the butcher, the baker and the brewer that we can expect our dinner, but from appealing to their self-interest. We cannot rely on friendship and fellow feelings to secure for us the material progress required to lift us from the Malthusian trap of subsistence. We escape that Malthusian trap through expansions of the trade and technological innovations spurred by the gains realized from turning scientific knowledge into commercially useful knowledge as the great economic historian Joel Mokyr has so convincingly argued throughout his career. To put it another way, borrowing from Mokyr, there are always headwinds that resist the forces of progress, and tailwinds that push progress forward, and the economic history of humanity is made up of the story of this battle between headwinds and tailwinds.

That metaphor is a useful one to keep in mind when thinking about our current situation, and where the primary winds are coming from — public sector, private sector, independent sector, or some combination. What are the headwinds that seem to block the timely and honest communication of knowledge about public health issues to us, what are the headwinds that delay testing and medical innovations; what are the headwinds that keep the allocation of scarce yet critical medical resources from being allocated to their most urgent use?

On the other hand, where are the tailwinds coming from that will cut against those headwinds and push us forward to make progress against the reality of the current situation? When the history of 2020 comes to be written, obviously a serious accounting of the headwinds and tailwinds will need to take place.

After 2008, in my effort to try to communicate basic economic reasoning to make sense of the reality we were collectively experiencing, I started to utilize my own metaphors and analogies. One was to look at Michael Phelps, the great Olympic swimmer, and to ask my readers to imagine what would happen to his ability to swim across a pool if we first just tied his hands together.

Well it turns out that Phelps gets across the pool in a slower time using the breaststroke than he does freestyle, but still at amazing speed. How about if we tied his feet together as well? Well, again, Phelps is one of the best butterfly swimmers that the world has ever seen, so that dolphin kick would not be impeded by tying his feet together. But again, much slower than his freestyle. How about if we added a 250-pound weight to his waist?

At that point, he would sink to the bottom of the pool. The point I am trying to make however is that you would never say that under those circumstances Phelps’s failure to get across the pool represents swimmer failure. The failure is clearly due to the obstructions placed on his ability to swim. That, I argue, is the error we make when, in the context of highly regulated market economies, we continue as economic educators in discussing “market failure.”

Adam Smith long ago recognized that individuals can find workarounds and ingenious ways to realize gains from trade and gains from innovation even in the presence of what he identified as hundreds of impertinent obstructions which human folly may put in the way.

This led me to articulate another example in hopes of communicating an important economic lesson. To capture the idea of gains from trade and gains from innovation in the face of those impertinent obstructions, I asked readers to envision a horse race between three horses — one named Smith (for gains from trade), a second one named Schumpeter (for gains from innovation), and a third one named Stupidity (for those government-imposed obstructions).

My basic ideas was, following Smith, that as long as the Smith and the Schumpeter horses were running ahead of the Stupid horse, tomorrow will be better than today. The counter-factual is this: what if the Smith and Schumpeter horses were able to run freely, without that Stupid horse biting at their heels and bumping into them rather than staying in their lane.

What I think is important to get from this illustration that is relevant for today is that we aren’t letting the Smith and Schumpeter horse run! They are currently locked in the barn, or trapped behind the start gate. This is why I don’t think the usual Business Cycle story of a cluster of errors being revealed in the bust, and thus a recalculation of ensuing labor and capital is applicable to our understanding of the current situation. It is important for students of economics to remember that in the Austrian theory of the business cycle, the recession is the correction, and the reason is that during the bust phase there is a recalculation of labor and capital to reflect better the preferences and savings and investment trade-offs that individuals are willing to make.

This is decidedly not what is going on at the moment if for no other reason than that the capital and labor is locked up in that barn with Smith and Schumpeter. Don’t misunderstand me, there are serious financial fragilities in the global capitalist system due to policy errors and the manipulation of money and credit combined with fiscal irresponsibility, but that isn’t what is going on right at this precise moment in my humble opinion.

What we are witnessing right now is macroeconomic volatility caused by an exogenous shock due to a public health crisis combined with a policy response that has shut down the economy. Back to my metaphor, while Smith and Schumpeter are trapped in the barn, or at least stuck at the starting gate, the Stupid horse is running freely and getting a lap lead.

Thankfully, those Smith and Schumpeterian horses are younger, fitter, faster and more nimble. Once they are unleashed, it is my sincere hope that they will burst out and catch up quickly to that dumb old hag of a horse Stupidity. They will leave Stupidity in its wake, the accumulated surplus fund will be replenished, and tomorrow will be better than today.

So, let’s get those tailwinds blowing harder than the headwinds, stop tying down our entrepreneurs, and let those Smith and Schumpeter horses run freely. We have to solve a public health crisis, one that requires creative ingenuity and innovation.

We have to restart a stalled economic system; that requires creative and imaginative entrepreneurs. In both cases, our greatest reason for hope is to be found not in bumbling bureaucrats who attempt to lead from ossified institutions of authority, but in the erring entrepreneurs who have their judgements constantly contested by others and only the most nimble and creative are able to negotiate the turbulent times to provide the solution to our woes.

Peter J. Boettke is a Senior Fellow with the American Institute for Economic Research, and this article first appeared at aier.org. He is a University Professor of Economics and Philosophy at George Mason University, as well as the Director of the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics, and BB&T Professor for the Study of Capitalism at the Mercatus Center at George Mason University.

Government Bureaucrats Screw Up Our Dishwashers And Our Showerheads, To Name Just Two Ways They Worsen Our Lives.

January 18, 2020/in Articles /by Hunter Hastings (Republished)

The left had another apoplectic fit when President Donald Trump started talking about dishwashers at his Milwaukee rally this week. How dare he focus on something so trivial when House Democrats are busy trying to remove him from office.

But Trump is on to something, and the fact that the liberal elites can’t understand what it is says more about them than it does about Trump.

“Anybody have a new dishwasher?” Trump asked the audience on Tuesday. “I’m sorry for that, it’s worthless. They give you so little water. … So what happens? You end up using it 10 times … then you take them out and do them the old fashioned way, right?”

Trump said that he’s “approving new dishwashers that give you more water so you can actually wash and rinse your dishes without having to do it 10 times.”

“It’s inelegant to talk about it, right? Right? Isn’t it inelegant? I’m talking about dishwashers.”

This isn’t the first time Trump has brought up the impact government energy efficiency mandates have had on dishwashers. But this time, the pundit class responded as if he’d just committed another impeachable offense.

“Donald Trump zeroed in on one of the great issues of our times: dry dishwashers,” says one. “Trump was impeached, but dishwashers that go ‘boom’ are on his mind,” says another.

Vox.com “explanatory” journalist Aaron Rupar tweeted that Trump’s dishwasher complaints “are nuts and suggest he’s never used one in his life.”

But the exuberant cheers at the rally suggest this issue resonates with those who do use this appliance every day. And for good reason.

Despite the sniffing of the left, dishwashers today don’t work well, making them a source of constant frustration for middle-class families who probably don’t know why they take hours to do a fairly poor job of washing dishes.

The Competitive Enterprise Institute compiled data on dishwasher cycle times since 1983, using numbers from Consumer Reports product tests. Back then, the average cycle time was a little more than one hour. By 2018, the average was close to three hours.

The chart CEI produced shows that with every new federal efficiency mandate since 1983, cycle times jumped. Why? Because the mandates increasingly limit how much water and electricity dishwashers can use, so manufacturers have had to make them run longer “to help compensate for the negative impact on cleaning performance associated with decreasing water use and water temperature,” according to a 2016 Department of Energy report.

CEI petitioned the DOE for relief from this madness, and in November the agency said it is working on a new rule that would let manufacturers make faster-cleaning dishwashers that don’t have to comply with the pile of federal mandates.

Imagine that. Consumers will then get to decide whether they value quality and convenience over relatively minor energy savings

Still, why does this matter to Trump?

Politically, it matters because it’s a way for Trump to connect with middle-class families. He comes across as a regular guy. Philosophically, it matters because it lets him expose what the out-of-control federal regulatory state is doing to the country in a way that directly connects with families. That’s why Trump touts his blocking of a federal ban on low-cost incandescent light bulbs, and why he attacks low-flow shower heads and toilets. (It’s worth noting that attorneys general from every deep blue state oppose Trump’s dishwasher rule.)

Not everybody understands that these annoyances are the result of mandates handed down by a few unelected bureaucrats sitting in cubicles in Washington, D.C. By exposing the link, Trump has a better chance of creating legions of small-government advocates than he would by lecturing audiences about Adam Smith.

Just as important, Trump’s dishwasher diatribe exposes just how out of touch today’s liberal elites are with middle America. The more they sneer about how nuts Trump is to bring dishwashers and lightbulbs up, the better Trump looks to the voters who will determine the outcome of the 2020 election.

Written by John Merline. This article first appeared at Issues and Insights (https://issuesinsights.com)

Our Natural Behavior Is Virtuous, Sympathetic and Kind, Despite What Economists Say.

January 17, 2020/in Articles /by Hunter Hastings (Republished)

I went downtown today on the Metro to meet Dan Klein for an EconTalk episode at the DC Hoover Institution offices to record with Dan. I park my car in the Metro lot and get on the parking garage elevator with a rolling suitcase that has my recording equipment. A woman is on the elevator absorbed in her phone and steps out as I step in, thinking she’s on the floor for exiting to the trains. But the elevator has only stopped for me on the 4th floor so she steps back on. When we reach the exit floor she heads out quickly.

There’s a very heavy glass door to get outside. It never works well. And I’m wondering because I’m wheeling this case that’s pretty heavy whether she will hold the door for me, given that she seems to be in a hurry. Indeed she does hold the door, gives me a quick smile and then literally begins to run toward the platform where the trains are. She is wearing some kind of heels and doing the best she can to make time. I roll along as she races ahead of me. When I get to the platform, maybe a three minute walk, she is still there. Her speed ended up buying her nothing as it turned out.

I thanked her again for holding the door and then I asked her why she had done so. She looked puzzled. “I always hold the door,” she said. “But you were in a hurry,” I said. She again looked puzzled. “Did you think about it,” I asked? And of course she said no. I thanked her again and then noticed a tear slowly falling down her cheek. It was cold on the platform. My wife’s eyes can tear up in the cold. Or maybe my door-woman was just struggling to deal with something that was the source of her need to get downtown quickly.

I don’t think she was touched by my gratitude. But I was touched by her very very small act of kindness and loveliness–a small sacrifice of peace of mind to do what she presumed was the right thing to do. A small act of kindness that ended up not delaying her trip, as it turned out. And I was reminded of the Adam Smith virtue of propriety–that sometimes we do the right thing simply because it is the right thing. Economists tend to see the entire world as a giant cost-benefit analysis. And sure, you could treat the opening of a door for a stranger as a selfish act, an act where the cost of delay is worth paying because it outweighs the cost of feeling guilty or some other way of framing kindness. In this view, there is no altruism. Everything is self-interested.

I think this is the wrong way to think about it. Not all behavior is maximizing in this way. Sometimes we just do the right thing because we think it’s good to be a mensch, a person who does what is proper and kind. And yes, I understand you can say that someone who is a mensch is self-interested because feeling like a mensch makes you feel good. But I think that misses what actually happened.

That woman who did the small act of kindness didn’t do a calculation. She did what she thought was right. Period. Sure you can model her behavior as a form of self-interested calculus, but I think that actually misses what happened. She has a rule that she keeps. She opens the door for people who have stuff to roll or carry. And yes, if her hurry had been desperate enough she might not have done it. I get that. But that too would have been impulsive. We are not just calculating machines. Sometimes, we do what we think is lovely and ignore the cost and do it anyway, just for the sake of loveliness.

Ironically, in the conversation with Dan Klein, he returned a number of times to a fascinating point- the idea that being ethical is partly about making being virtuous a form of self-interest. What did he mean? I need to think about it some more but I think he was saying that as we grow as human beings, we can make habits out of virtue so that they become, essentially a form of self-interest. There was much to think about in this idea and I will be chewing on it for a while. You’ll be able to hear it yourself on EconTalk soon. Meanwhile, I hope that woman with the tear on her cheek was just cold. Her small act of kindness warmed my trip downtown.

Russ Roberts is the host of EconTalk, and a Center For Individualism Poetic Justice Warrior.

A Walmart In The Neighborhood Does More For Affordable Food Distribution Than Food Baskets From Charity.

December 27, 2019/in Articles /by Hunter Hastings (Republished)

Among economists’ insights over the last almost 250 years, one of the keenest is that one can do good while doing well. The idea traces to Adam Smith. It means capitalists’/entrepreneurs’ pursuit of profit can have favorable consequences for the community at large—and not just for capitalists and entrepreneurs. It applies equally to landowners and workers pursuing their own interests.

The following are two of Smith’s statements of the “doing good while doing well” proposition. The first is from The Wealth of Nations and the latter from Smith’s 1759 Theory of Moral Sentiments.

“It is not from the benevolence of the Butcher, the Brewer or the Baker that we expect our dinner, but from their regard to their own interest.”

“Every individual… neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

What Doing Good While Doing Well Is Not

One frequently hears about capitalists/entrepreneurs making substantial gifts either before or after their deaths to colleges/universities and other non-profit organizations. Many say it is an opportunity for them to “give back,” which suggests, at least to me, that the wealth making the gifts possible was obtained in less than noble ways. Regardless, the benefits the community at large reaps from these gifts are not what the doing good while doing well proposition is about.

The doing good while doing well proposition does not describe government officials’ actions.

Rather, the proposition refers to the process by which the capitalists/entrepreneurs earn their wealth. It’s not what they do with their accrued wealth. It’s the benefit the community realizes as this wealth is accrued. To paraphrase Smith, people enjoy the benefits of meat, beer, and bread as a result of their respective producers’ efforts to earn a profit. What these producers do with their wealth is a different question.

It should also be noted that the doing good while doing well proposition does not describe government officials’ actions. For these officials, making personal monetary profits from their jobs is illegal. The result when government officials pursue their own interests, given this illegality, is the topic of the public choice economics. The results do not parallel those of Adam Smith.

The Case of Wal-Mart

The coming of Thanksgiving and Christmas each year brings with it churches and benevolent groups organizing distributions of food baskets. I have participated in these efforts, though probably with less enthusiasm than others.

Americans are surrounded 24/7 by a process (Smith’s invisible hand) that is wealth-producing for all, thereby making these charitable acts possible.

Always in the back of my mind was the doing good while doing well proposition. That is, how do the effects of the proposition compare with the distributions by churches and benevolent groups? To repeat a previous cautioning, how does the process by which capitalists/entrepreneurs pursue profit affect the community at large?

My mind went to the case of Wal-Mart. No one would deny that Wal-Mart is a profit-pursuing entity. At the same time, there is credible evidence that Wal-Mart’s presence in a community reduces food prices between 10 and 15 percent. Put on an annual basis, this is equivalent to food shoppers receiving 5.2 to 7.8 weeks of additional food shopping per year. It follows that Wal-Mart spreads far more holiday food cheer than churches and public service groups do.

Food basket distributions presumably trace to noble intentions, while pursuit of profit is widely held to be ignoble. Noble trumps ignoble. That’s why the doing good while doing well proposition has always been a tough sell for economists. For many, good things only happen when people intend to do good things.

None of the above is meant to trivialize church food baskets during the Thanksgiving and Christmas holidays. Nor is it meant to disparage those making end-of-life or after-life contributions to colleges/universities or not-for-profit institutions. These acts of charity have long played a vital role in American life. Moreover, they are voluntary, and I would be the last to put them down.

Instead, my purpose is to point out that Americans are surrounded 24/7 by a process (Smith’s invisible hand) that is wealth-producing for all, thereby making these charitable acts possible.

T. Norman Van Cott, is a professor of economics at Ball State. This article first appeared at FEE.org