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Markets Turn Lousy Products Into Great Ones.

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Most people have managed to get through life without ever seeing Texas Chainsaw Massacre: The New Generation. It currently stands at a 16 percent score with critics and an 18 percent score with audiences on Rotten Tomatoes, so most people, we can conclude, have dodged a bullet by not seeing it.

However, this production does have two very interesting features: Matthew McConaughey and Renée Zellweger. That’s right, two of Hollywood’s biggest names are in a movie that not even one in five people think is passable. McConaughey’s net worth currently stands at $150 million, while Zellweger’s stands at $90 million.

So, what is the leap from a direct-to-video flop and multi-award-winning, highly paid actors? Well, it has to do with how capitalism approaches inefficiencies. Markets can take bad products, learn from them, and turn them into great products that give the public what it wants and needs.

To illustrate this best, let’s look at what happens when there are no markets. In command economies, producers don’t learn from bad products and inefficiencies. As a result, the public doesn’t get what it needs. We’ll use an extreme example to illustrate the point clearly: the Lysenko disaster.

For those who don’t know the story, in brief, Trofim Lysenko was a Soviet scientist who was determined to prove that his own pseudoscientific theories on botany were fact. Lysenko’s actions and practices contributed to the famines that killed millions of Soviet people. Eventually his practices had to be outlawed; they were so dangerous and destructive.1

Although evident from the start, Lysenko’s inefficiencies were allowed to continue due to a combination of party loyalty, fear, and idealism. The Soviet leadership liked Lysenko’s ideas so he was able to keep on with his terrible plans for a long time.

A profit motive or price indicator, or even a robust scouring of the data and its results, could have halted this in its tracks, saving millions of lives and allowing the people to adopt actual scientifically proven policies.

When an individual or group is allowed to exist outside of the profit-making and price indicators spectrum then either many costly reviews of their findings will be needed or gross inefficiencies will be made. This is one of the benefits of the “invisible hand” and thus why capitalistic production remains one of the best passive methods we have for rewarding people for good work that is in demand.

Now back to the movies. How can capitalists (who rave about efficiency) justify the production of a film like The New Generation? The answer is in the stars! When Renée Zellweger took to the screen for this picture, it was her first lead role. Although the movie was universally panned, Joe Leydon of Variety magazine lauded Zellweger, calling her “the most formidable scream queen since Jamie Lee Curtis went legit.”

The rest, as they say, is history. McConaughey was coming off the back of the hit Dazed and Confused and so was already on the way to success. But everyone has to pay the bills.

And that’s the point.

The overall product of the movie was, according to critics and audiences, fairly dismal. But the individual performances were noted as being standout at the time. Not to mention that most of the crew were locals trying to make a few dollars, Zellweger’s comment that “[i]t was kamikaze filmmaking” is probably more than true.

However, without all of those combined individual efforts that were monetarily rewarded, the movie may not have happened, and Hollywood would have been deprived of one of its more profitable actors.

This is an example of how skills that are learned, honed, and perfected on a bad project are, within the capitalist mode of production, not wasted. The individual is rewarded and can go on to enjoy the benefits of their hard work in new projects.

Those responsible for the poor quality (producers, directors, etc.) are admonished, and people are wary of hiring them again. Kim Henkel, for example, who directed this movie, would never direct again and went back to writing and producing, which he seems to be pretty good at, remaining in constant work. And more recently, a new iteration of Texas Chainsaw Massacre is due to be released in 2021, with Henkel as producer.

When contrasted with the idealism of Soviet pseudoscience, it’s clear that the damage done to an economy by a centrally planned system is not just shoddy products or bad service, but that people remain working toward inefficient goals long after their results have been shown as faulty.

We need to produce bad movies, in order to make good ones. We don’t know what will be big (Clerks, for example, cost $27,575 to produce and went on to make millions, launching the career of Kevin Smith) or what will flop (Ghostbusters, released in 2016, cost $144 million to make and is estimated to have lost $50 million). But aside from that, we don’t know who will be in those movies ready to be noticed and give the world something great.

This is the same reason we need bad products and services; we don’t expect them to last, and we don’t want them to make profits, but we do want those who have shown individual greatness to be recognized.

A true meritocracy does not rely on party loyalty, idealism, or fear to function. It only needs a system whereby work is rewarded, that no one be coerced into continuing to make bad products, and that those responsible be held to account by the consumer.

We Are Deemed By Our Betters To Be Too Stupid, Too Fat, And Too Unhealthy To Make Our Own Decisions.

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The Centers for Disease Control warned us not to travel or meet in multigenerational gatherings during Thanksgiving. Which is to say: government tried to make Thanksgiving, probably the most iconic of all American holidays, practically disappear from the calendar this year.

They didn’t put it that way exactly. Thanksgiving is not canceled but merely “postponed” — a strange thing to say about a holiday that has a fixed day of the year and surely the one that most means “family” to people.

What they said was you need to go through a 7-point checklist that most everyone would fail. You have to check local cases (never mind that cases aren’t deaths and cases might not even be cases), check hospital capacity as if you will be stricken down like in the movie Contagion and thereby be turned away at the door, observe local quarantine rules that bespot the whole country, do not travel with someone not in your household, make sure no old people will be at the gathering, make sure never to get closer than 6 feet to another human being, and…ok this is all ridiculous. It’s fear porn, distributed by “science.”

And it’s true that our airports are getting scarier by the day with all the convoluted quarantine rules. Imagine showing up back home and knowing that you are barred from even so much as visiting a convenience store. Plus people really do not know the rules because they change by the day and hour.

The governor of Washington State proclaimed that “Gatherings have grave consequences right now.” (He was obsequious and deferential toward mass protests in June: BLM = good; Thanksgiving = bad.)

The governor of Vermont has pledged to interview any student coming back to school about whether they had gatherings outside their home. If so, they get thrown out for two weeks. Probably the track-and-trace machinery will go into place.

In Texas, the health department ran ads all over radio claiming that something as innocent as a small birthday party will spread the coronavirus, based on a now-famous case in which no one was either hospitalized or died but all got immunities.

The ads even deployed the voices of young children (“we feel guilty for gathering”) bemoaning that they got the dreaded disease which in fact has an infinitesimally small to nonexistent risk to children.

And so on it goes, the entire country pounded with anti-Thanksgiving propaganda via every public messaging source. On an 80s-style radio station in Texas, one I heard while driving, the music all proclaimed the glories of parties, dancing, defying authority, standing up against evil, taking big risks, and living large. But the ad breaks hectored people to stay home and stay safe and not have any fun. The contrast was striking, to say the least.

This bureaucratic hydra of federal, state, and local governments tried to delete Thanksgiving. And this is at a time of unprecedented sadness and depression when people are most in need of family and companionship. This is absolutely cruel.

What the heck has become of us? Well, Americans being Americans, they rebelled.

“According to the American Automobile Association,” writes Jason Riley, “there could be as many as 50 million Thanksgiving travelers this year, only 10% less than in 2019.” I saw the same at the two airports I visited. They were about 75% as busy as the old days but still bustling. Rental cars were in high demand. Americans will not be locked down on Thanksgiving.

Riley further writes:

This is a form of mass civil disobedience like nothing the country has seen since the 1960s. Some of it is born of Covid fatigue, to be sure. But the endless parade of politicians flouting their own rules surely has also played a role. It began shortly after the spring lockdowns and if anything has become more commonplace, even farcical.

Riley points out that the politicians themselves do not follow their own ridiculous rules. Like the Soviet apparatchiks of old, they believe that the theater of dictatorial compliance is for the worker and peasants but not for themselves. The “vanguard of the proletariat” has a special exemption from the rules they make for others.

They live well. Everyone else: line up at the food bank.

There is a reason why so many Americans are not buying it anymore. It’s become rather obvious that this is less about health and science than it is about social/economic/political control, regardless of the costs.

This becomes obvious once you see through the incredibly foggy blizzard of data, studies, official pronouncements, and furrowed-browed scientists Skyping into network news shows. The real underlying story here is that lots of people in powerful positions believe that they should be in charge of your life and know better how to make choices over health and safety than you do.

Once you see it this way, you stop being intimidated by their alleged authority and experience and start living your life again. After all, it is not the case that the governments have special access to health wisdom that is denied to you and yours. By now, you have read the risks, seen the problems with the posture of certainty of the supposed experts, and observed the way they utterly fail to consider the downsides of shutting businesses, schools, sports, and the arts.

Consider the following editorial in one of three of the world’s most prestigious medical journals, the Lancet in the UK. The article pits Martin Kulldorff of the Great Barrington Declaration against Massachusetts General Hospital’s Rochelle Walensky. Martin points to the carnage of lockdowns and a more humane solution to the presence of disease. Walensky’s entire argument against basic exercise of public health of the past is as follows:

“The Great Barrington Declaration is predicated on the idea that you know who is going to get sick and you can somehow isolate and protect them, but there is absolutely no evidence that we can do this”, she said. She pointed out that the US Centers for Disease Control and Prevention estimates that up to 40% of Americans have some kind of co-morbidity that makes them vulnerable to the ravages of COVID-19. Identifying all these people is not straightforward. “No-one is suggesting that lockdowns should be the default position. They are a last resort. But if we just let the virus run free without mitigation strategies, such as masking, our hospitals will overflow and that would mean we would no longer be able to take care of the population’s health across the board.”

Notice her insistence that “we” cannot achieve intelligent risk assessment of the population. By we, she means experts such as herself. And she is right! They cannot. And that’s the whole point. That needs to be left to individuals. Central planning does not work for all the reasons that F.A. Hayek explained: the necessary knowledge to make intelligent decisions is decentralized and not available in useful forms for elite overseers or anyone else.

As for lockdowns as a last resort, please: they were used as a first resort in the presence of a virus that turned out to be far less severe than the models predicted. It is barely a disease at all for large swaths of the population. The fatality demographics are overwhelmingly concentrated on a low-life-expectancy population in a world where people are living longer than ever. The average age of death from Covid exceeds average life spans.

Then finally we get the invocation of the overflow problem. Hospitals cannot scale, she alleges. Why? Restaurants, bars, stores, office buildings, and supply and demand for a billion other things scales just fine. It’s a matter of increasing supply to match increased demand – a core economic problem and answer. Why does this not apply to medical services too?

Do you see what is going on here? We have a medical doctor who is pronouncing on economics and she doesn’t even know it. She sums up the problem we have had this entire year. Many health officials have stepped outside their role to become central planners of the entire society and economy. They never explained why people should grant them this power. They just took it for themselves by intimidating fearful and ignorant politicians to do their bidding.

With all due respect to the good doctor, I would translate her statement to the Lancet as follows: “You people out there are too stupid, fat, and unhealthy to be in charge of your lives; that’s where I come in!”

And the carnage is everywhere. I had hoped when I came to Texas to find a society that had long ago gone back to normal. What I find instead is heartbreaking. In this town, half the local businesses seem to be boarded up. The one movie theater for the whole county is bankrupt and closed. Most of the independently owned shops are dead. The shopping mall is barely surviving, and the masked employees are demoralized and seeing their doom.

Who survives? The big-box chain stores in town. Wal-Mart seems fine and so does Home Depot. These companies are well-capitalized enough to survive. I’m glad for them but there is something unjust about all of this. The lockdowns benefited elites at the expense of everyone else.

This small and wonderful town is now sad and broken – thanks to people like Dr. Walensky who undoubtedly had the best of intentions. She lives in Boston. I’m right now in rural Texas. The people who surround me have had their lives shattered by her and her fellow intellectuals who bear no real consequence for being wrong.

So, yes, she is correct that she does not have the capacity to know who is vulnerable and who is not. No one knows that with certainty. The solution is not to lock the whole of society down until the virus magically goes away. That is not public health. That is an unprecedented imposition of top-down brutalism.

The battle over lockdowns and public health is the struggle of our lives, the greatest crisis in generations. But the problems and solutions are not different from the ones that have consumed intellectuals for centuries. What institutions better manage society in good times and in bad: governments (run by experts, with power and resources) or free people acting with intelligence and creativity as best they can? One might have supposed we had the answer to this question already. But human beings forget. Then the tragic lessons have to be learned all over again.

Progressivism

The Progressivism Of The Future Is Really Just The Socialism Of The Past.

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Whenever the Left talks of global goals and programs, they are proposing central planning on a global scale, which requires an end to the entrepreneurial market economy. The language in their documents and publications makes their intentions clear. 

The world is currently in the midst of a newly aggressive drive to bring about a new socialist order through a powerful and “efficient” technocratic state. This new order has been labeled as “progressive,” but it is merely the latest version of the socialist impulse which we have seen before in the form of socialism and communism.

A War on Private Property

Summed up in a single sentence, the plans of the communists aim at the abolition of private property. From there, the other major demands follow, such as abolishing the family, nation, and countries, and finally, as Marx noted, “communism abolishes eternal truths, it abolishes all religion, and all morality.” In as much as the program of liberalism “if condensed into a single word….is private ownership of the means of production” (as described by Ludwig von Mises), the program of the communists is the abolition of private property.

A Promise of Efficiency and Expertise

Yet Marxian socialism—i.e., communism—has not found many followers in the United States. The communist appeal to justice and equality found more resonance in the old world. To have an appeal to the Americans, socialism had to be packaged differently. In the United States, the gospel of socialism appeared under the name of “progressivism” and was preached as bringing society to the highest degree of efficiency.

Under President Woodrow Wilson, progressivism attained its first peak as the dominant philosophy of the state. Society was to these socialists a single organization. The bureaucrats as public administrators found a vivid expression in the political novel Philip Dru: Administrator: A Story of Tomorrow by Edward Mandell House, who was a very close friend of Wilson and who served as the president’s most important political and diplomatic advisor.

This vision of progressivism requires:

  • Government and labor representation on the board of every corporation
  • Sharing the profits of public service companies
  • Government ownership of the means of communication
  • Government ownership of the means of transportation
  • A comprehensive system of old-age pension
  • Government ownership of all healthcare
  • Full labor protection and governmental arbitration of industrial disputes

Beyond that, other demands and programs put forth and realized by the progressive movement have included eugenics, population and birth control, family planning, prohibition, antitrust legislation, public education, central banking, and an income tax.

These echo of the planks of the Communist Manifesto, which included demands to

  • Centralize the means of communications and to put the means of transport in the hand of the state
  • Extend the control of the state across the factories and over all land
  • Implement a heavy progressive income tax and abolish the rights of inheritance
  • Centralize credit in the hands of the state and establish a central bank of an exclusive monetary monopoly

Unlike the Communist Manifesto, the progressives did not preach a proletarian revolution but spoke out in the name of efficiency and demanded the bureaucratic rule of expert public administrators. In a specific way, the progressive movement presents an even worse program than Marxism. As Murray Rothbard summarized it, the progressive movement brought about a profound transformation of the American society:

from a roughly free and laissez-faire society of the 19th century, when the economy was free, taxes were low, persons were free in their daily lives, and the government was noninterventionist at home and abroad, the new coalition managed in a short time to transform America into a welfare-warfare imperial State, where people’s daily lives were controlled and regulated to a massive degree.

Socialism in Disguise

Guiding mankind to heaven on earth by transforming society is the quintessential message of socialism, beginning with the “utopian socialism” of the nineteenth century and leading up to our time with the demand for a “concrete utopia.” Yet different from the Marxist mythology that socialism would be the unstoppable successor of capitalism, history shows that the “socialist phenomenon” has appeared time and again throughout history. Instead of being the model of the future, socialism is, de facto, a failed idea of the past.

Socialism is the attempt to create a new social order at will. Yet one cannot construct “order” to one’s wishes. The volitional realization of a socioeconomic system results in establishing society as a single state-dominated organization and as such, it is necessarily hierarchical and must be based on command and obedience instead of the free association of the people as it happens in a spontaneous order.

President Wilson failed in his plan to bring the United States into the League of Nations and establish an organization to promote a new world order in tune with the visions of the progressives. For some time, the Americans resumed the tradition of individualism and isolationism. Yet with the Great Depression and World War II the chance of transforming the society and putting bureaucratic experts at the top came back with a vengeance under the presidency of Franklin Delano Roosevelt. With the end of the world war returned the chance to establish a network of international organizations with the mission of organizing society and the economy under the auspices of bureaucratic experts. This happened with the founding of the United Nations and its several subgroups and sister organizations to become active in finance, education, development, and health.

The International Push

With the launch of the United Nations, progressivism as a program of what James Ostrowski calls “destroying America” has attained a global platform. The main seat of this philosophy has moved into the headquarters of the United Nations Organizations. From its start, the United Nations has been the light bearer of global progressivism.

The protection of the environment and “global health” proved to be the ideal pretexts to move forward the agenda of progressivism. In June 1994, the UN Agenda 2021 was initiated by the United Nations Conference on Environment and Development in Rio de Janeiro and called for the imposition of “sustainable development” on a global scale. While Agenda 2021 was still relatively modest in its demands and nonbinding as to its full execution, the later Agenda 2030 let the cat out of the bag. The new agenda was adopted when the heads of state and government and high representatives met at the United Nations Headquarters in New York in September 2015. At this meeting, they approved the adoption of “Global Sustainable Development Goals” about comprehensive and far-reaching universal and transformative goals and targets.

The new agenda describes a program of comprehensive government takeover of almost all aspects of personal life. With no nods to human freedom and market coordination, the document lists seventeen goals that should be met through a bureaucratic takeover of society on a worldwide scale. Behind popular promises such as the end of poverty and hunger, healthy lives, equitable education, and gender equality lurks the agenda to impose global socialism. Demands such as the reduction of income inequality within and among countries, sustainable consumption and production patterns, and building inclusive societies for sustainable development, are parts of an overriding plan to do away with the market economy and to impose comprehensive state planning.

Claiming the “perpetuation of disparities between and within nations, a worsening of poverty, hunger, ill-health and illiteracy, and the continuing deterioration of the ecosystems on which we depend for our well-being” (chapter 1, preamble), the conference calls of a “global partnership for sustainable development.”

Under the heading of “program areas” the agenda stresses “the links between demographic trends and factors and sustainable development.” The growth of the world population combined with “unsustainable consumption patterns” endangers the planet, as they “affect the use of land, water, air, energy and other resources.” Under point 5.17 of its objective, the conference demands: “Full integration of population concerns into national planning, policy and decision-making processes.” Protecting the environment requires the comprehensive regulation of the world population which in turn makes it necessary to control personal behavior.

In short, the adoption of this “new world order” would mean the abolition of private property, or what Mises regarded as the liberal program—a world based on private property. If enacted, this project will fail in the end, but it will bring immense suffering in the meantime.

Dr. Antony P. Mueller is a German professor of economics who currently teaches in Brazil. See his website and blog.

Politicians Did This. Their Choices To Restructure Society Have Resulted In Desperation For Many Americans.

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How many readers of this piece were demanding Zoom before its software was launched in 2013, or Postmates before drivers in its employ began meal delivery in 2011, or transportation at the touch of a button before Uber began operating in 2009? Traveling further back in time to the mid-1990s, how many readers were demanding books that would arrive at their door after buying them “online” on Amazon, or for that matter, how many were demanding internet services and “websites” to begin with?

It’s worth asking in consideration of Sen. Marco Rubio’s latest emotional outburst in the form of an op-ed in the New York Times. Seemingly still trying to come to terms with how little voters took to him during his 2016 run for the Republican presidential nomination, Rubio continues to search for a policy raison d’etre through cloying opinion pieces that only succeed insofar as they remind us how lucky we are he never came close to the White House. That’s the case not because Rubio’s policy musings are ludicrous, though they are, but because individuals this needy shouldn’t be heading the most self-reliant nation on earth. Rubio writes: “Over the past several decades, our nation’s political and economic leaders, Democratic and Republican, made choices about how to structure our society — choosing to prize economic efficiency over resiliency, financial gains over Main Street investment, individual enrichment over the common good.”

Books could be written….

Oh well, and with brevity somewhat in mind, it should be stressed that the U.S. economy was until recently the world’s most dynamic precisely because emotional puddles like Rubio were not making “choices about how to structure our society.” Some will say it’s because Rubio lacks any real world experience, others will just say he’s bereft of common sense, still others will say Rubio’s ghostwriter lacks any real economic understanding, but the why of Rubio really doesn’t matter. The Times’ piece is in Rubio’s name, and it naively presumes that brilliant economic outcomes that enable employment and living standards that are the envy of the world, can somehow be planned or “structured” by politicians.

In truth, it’s the present economy defined by tens of millions suddenly jobless that has the fingerprints of people like Rubio all over it. Desperate to be seen “doing something,” desperate to be needed, politicians of Rubio’s ilk insulted every American by presuming we all needed to be forced by politicians to avoid potential illness in rare instances, or death under the rarest of circumstances. The “structure” put in place by the political class that Rubio’s a fairly senior part of was to foist mass unemployment and bankruptcy on the people whom Rubio et al deemed a menace to other people. You can’t make this up. Using Rubio’s own words in a different way, “our nation’s political and economic leaders, Democratic and Republican, made choices about how to structure our society” that has resulted in desperation for millions of Americans.

Politicians did this. In response to a virus, the political class foisted economic contraction on the American people, only to then extract trillions more from them so that they could throw money at what they broke.

In short, the Senator has it backwards. Before March of this year, Republicans and Democrats had done very little structuring of the economy. Evidence supporting the previous claim? The economy’s remarkable dynamism, that proved a magnet for investment from around the world.

Which brings us to Rubio’s line about politicians allegedly choosing “efficiency over resiliency, financial gains over Main Street investment.” Rubio should fire his ghostwriter, himself, or perhaps both. Indeed, it seems he’s unaware that the financial flows he resents are what make the “resiliency” he prizes possible in the first place. Think about it. And then think about it some more.

Could the political class of 1995 have shut down the economy in the way that Rubio et al did in 2020, and could they have cheered American resiliency in the face of staggering political ineptitude care of politicians? Not on your life. The U.S. economy couldn’t have been shut down simply because the Wall Street that Rubio so childishly disdains hadn’t yet financed the rollout of broad internet access, online shopping, takeout at the touch of smartphone button, and other Main Street comforts that have made the political class’s monumental errors in response to a virus at least somewhat palatable.

Rubio or his ghostwriter laments “offshoring” and “an economy based on finance and service,” but the truth is that that there’s no Senator Rubio without the globalization of production and the financing of that same production. Translated, Americans couldn’t be so careless about whom they elected in the days before “an economy based on finance and service” moved resources to remarkable innovators whose amazing advances made it possible for tens of millions of Americans to work from home amid a braindead lockdown authored by the political class, not to mention that it made it possible for tens of millions more to endure the impressive foolishness of politicians in relative comfort.

Rubio or his ghostwriter then makes the routine (for Rubio) tack toward China, and the lament that copious manufacturing in the former slum has meant Americans have suffered shortages of market goods like ventilators and, try not to laugh, hand sanitizer. Actually, until the political class chose to wrest freedom away from Americans in order to “structure” command-and-control, there were no shortages of anything, including jobs. Rich countries free of politicians prone to panic never worry about shortages simply because their efficient production born of interconnectivity with the whole world, interconnectivity financed by Wall Street, proves a major lure for the abundance produced globally.

It should be added that absent the stupendous wealth in the U.S. that’s a consequence of Wall Street’s unrivaled ability to move capital to its highest use, there aren’t trillions for Rubio and his senators to throw at their constituents in such insulting fashion. In short, the hyper-emotional Senator couldn’t handle the relatively brutal world that would exist without an economy “based on finance and service,” but then again, it should be stressed yet again that absent the wondrous living standards that are a consequence of talent being matched with finance, there’s no way Rubio’s a Senator in the first place. The panicked don’t poll well during times of true want.

John Tamny is editor of RealClearMarkets.

China’s Most Impactful Export Is Not From Wuhan; Their Finest Economist Is From Guanghua

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The first sentence of the Poetic Justice Warrior prologue reads “Poetic justice spontaneously rewards virtue and punishes vice.” This is what free markets do, and for them to exist, a moral code that rewards virtue is essential. As economist and Poetic Justice Warrior Zhang Weiying tells us in his book The Logic of the Market,

The market has never tried to change human nature. Instead, precisely because human nature cannot be changed, the market economy exists, which is also the reason the market economy is necessary: It causes human actions to conform to the requirements of virtue.

As the dean of the Guanghua School of Management at Peking University, Zhang is an operatic voice in a cacophony of endemic Chinese government corruption. To nudge the looters toward doing the right thing, he relies on an old Chinese proverb, “benefit yourself by benefitting others,” and describes the market economy as “humanity’s greatest creation. It provides the best rules of the game for human progress,”

Property, Prices, and Profit

Zhang’s understanding of reality reveals that “enriching oneself at the expense of others cannot be done.” Even if you could it would be immoral, meaning anti-life; yet socialists of all stripes want a piece of the action for themselves, just in case. Equality and shared ownership are central tenets of their collectivist, nihilist doctrine.

A version of this insanity is perpetuated in both Chinese and American academic circles. In what Zhang calls the China Model School, is the belief that authoritarian economic planning allowed China to accomplish in forty years what it took the West two hundred years to achieve. As he explains,

“The West constructed the road China followed. That China walked faster does not mean that its institutions are superior. Private property, unhampered prices, enterprises, entrepreneurs, and profit” are the superior institutions for economic progress.

The differences between the two are stark. China’s presumes that all useful knowledge can be concentrated in the halls of government and academia, the West flourishing in a decentralized society united only by objective law. Zhang is well-schooled in Austrian economics, particularly the individualism of Friedrich Hayek, and told the China Review in 2006, “The more active entrepreneurs are in a particular region, the smaller the social and income gaps.”

In 1999’s Theory and China Enterprise Reform by Qin Xiao, Zhang proposed his “theorem of the impossibility of the entrepreneur in a state-owned economy.” As the Australian publication The China Story reports,

“If we compare different parts of China, areas with a low ratio of government officials to employed population have faster economic growth.” Ever the iconoclast, he suggested that reducing the number of government officials would contribute to economic growth.

Yet despite the overwhelming lessons of philosophy, economics, and history, our Age of Absurdity persists. Intellectual lightweights (aka politicians) like Jeremy Corbyn in the UK and Peter Altmaier in Germany ignore Zhang’s evidence and propositions, and actively promote totalitarian China’s third way – unprincipled compromises between the forest and the fire.

The Audacity of Dopes

During a 2016 debate reported by the Wall Street Journal, Chinese government and former chief economist at the World Bank, Professor Justin Yifu Lin, highlighted the industrial policies of China, including subsidies, tax breaks and financial incentives aimed at specific industries. Zhang replied with a laser, “Industrial policy is just a planned economy in disguise. In the end, both will fail for the same reasons.” From the Logic of Markets he argues,

It was precisely the relaxation of government control that brought about market prices, sole proprietorships, town and village enterprises, private enterprises, foreign enterprises, and other non-state-owned entities.

What the Wuhan virus epidemic teaches is that Chinese authoritarians remain very jealous of their power. Since they produce nothing, control of economic levers is primary to their success. Because they are incompetent, secrecy is necessary to mask their failures. While highly productive Chinese entrepreneurs use money to trade values, government bureaucrats continue to trade people.

The reported arrest and death of the contagion’s whistleblower, doctor Li Wenliang, is an example. According to the Hudson Institute’s Michael Pillsbury, there were seven other physician whistleblowers who were also incarcerated in December, ostensibly to protect China’s racially superior image. What’s more difficult to hide is the government lockdown of cities, shutdown of factories, and cancellation of exports.

Of course, this draconian response wouldn’t be necessary in a free-market society that prizes limited government, right? Its creative minds would anticipate the risk, have a market-driven solution for outlier events, and add to the body of knowledge for continued human progress. In the case of the Wuhan virus, early detection, containment, and rapid mass testing are the essential elements. If you lived in South Korea, you’d be right. However, it’s not always possible to react in time to prevent a highly contagious virus from spreading, and the development of a safe and reliable vaccine becomes imperative. If technology’s greatest innovators operate within your borders, you’d be right, if you lived in Israel.

In America, the Food and Drug Administration has sole authority over test kits, treatments, and vaccines, not Zhang’s entrepreneurs. He describes China’s central planners as “a bunch of smart people doing something really stupid,” and this applies to America’s healthcare mandarins. Regarding European Union bureaucrats, Zhang reveals “They just want to spend and not to produce. They never want to work more.” At the 2012 Davos conference, Zhang warned that Chinese market reforms had stalled, and the country was sliding back into more heavy-handed state control, “What we need is reform-minded leaders and grassroots entrepreneurs, not a loose monetary policy and low interest rates.”

When needed most, in this unchartered territory of the Wuhan virus pandemic, reform-minded leaders have become isolated, and grass roots entrepreneurs are wading through red tape. Instead, bankers are pushing rates lower, lawmakers are spending lavishly, media nitwits are screaming racism and price gouging, hoarders are clearing store shelves, and all of it avoids reality. Lost in the cacophony of social distancing and retail workers scrambling to serve customers, is the operatic voice of capitalism.

The Supply Side is the Optimists’ Side

Wall Street Journal editorial writer, Abheek Bhattacharya, wrote in 2012 that,

The intellectual tide was going in Zhang’s direction at Peking University. The reforms proved successful, but the reformer was crucified. The old guard revolted, his loyalty was questioned, and Zhang was forced out of his Guanghua post in 2010.

According to philosopher Harry Binswanger, capitalist reforms at the FDA would start with stripping it of authoritarian control for the duration of the pandemic. The FDA’s irrational premise for dominance is to save the life of one American at the cost of one thousand lives that might be saved with experimental treatment.

The second step is property, prices and profits – encourage maximum profits (price gouging for social justice warriors) for reliable test kits and vaccines. This would attract capital, maximize production, reduce costs, and enhance the lives of millions. “This is the way every innovation in history has worked.” Look at the device you’re using to read this. Health care is not different, it must be delivered by other human beings.

As Zhang Weiying reminds us, “We human beings always seek happiness. You make yourself happy by making other people happy, that’s the logic of the market.” And the virtue of the Poetic Justice Warrior.

 

 

 

Why Ayn Rand Laughs – Cuba’s Lost Generation Becomes the Vision for America at South Carolina Debate

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In a 1972 edition of the Ayn Rand Letter, Ms. Rand analyzed the Democratic national convention and urged readers not to vote for McGovern: “The worst thing said about Nixon is that he cannot be trusted, which is true: he cannot be trusted to save this country. But one thing is certain: McGovern can destroy it.”

Today’s leading candidate for the Democratic nomination is a staunch defender of Cuban totalitarianism, and Tuesday night he touted their literacy programs, as if they were illiterate. Yet no other candidate or moderator (so-called Americans) had the knowledge or courage to say that Cubans were forced to read Marxist propaganda, and only Marxist propaganda. Below, reposted from a June 2018 article at the Center for Individualism, are some real-time observations about Cuba today.

“Are you allowed to talk about politics” asked a tourist visiting Old Havana. “Oh yes, we can talk about politics – the right kind,” said the tour guide with a wink. And this began a candid and enlightening exchange between a bus load of cruise ship passengers and their Cuban host. During a brief stop he told the group “I am one of Cuba’s Lost Generation. We were born in a time when we were expected to work and deliver the promise of the revolution. Cuba still had wealth. We did not know of the poverty that was to follow.” He was born in the 1960s.

Of Glasnost and Perestroika

“We can discuss anything you like, but not the source,” was his response to another question aboard the bus. For the purposes of this article his name is Alexis. His glasnost is to be highly respected, as he treated his guests, the way the entrepreneurial way works. Alexis then smiled at another nearby passenger who was fooling with her smartphone and slyly asked, “Are you recording this?” The implication was obvious, yet his demeanor remained loose and friendly. A real pro, as Brittany Hunter describes about the Cuban tourism entrepreneurs and their appreciation of Americans.

And this was the rule. Cruise ship passengers disembarking in Havana must first clear immigration, and then currency exchange. Getting a few thousand people off of two cruise ships arriving in a foreign country at the same time requires patience. And the lines moved. The officers were friendly and the money changers were efficient. There seemed to be a silent affirmation that they were damn glad we were there. The process took about an hour, at least on that day. And while the $75 temporary visa fee is heavy handed, and supports the regime, it also provides the workers a source of earned income. And the opportunity to interact with people who enjoy freedom, even those who are clueless about their dumb luck.

“I learned Russian. When the Russians left in 1990, I learned English. That is when Cuba began to open up. Cuba had been closed to tourism except from allied countries. When they left, the government needed other sources of revenue.” Cuba’s perestroika. Alexis was explaining this to those who weren’t busy marveling at the array of old Baroque and Andalusian architecture during the walking tour. When asked about Cuba’s new president not being a Castro, Alexis replied “that is good, but Raul still runs the Politburo.”

Remnants of Soviet influence also remain, particularly their ugly and pathetic cars. It would make sense for the regime to have them disappear and be rid of a sore reminder of their incompetence and corruption. Instead, they display the reality of socialism by having them travel the streets alongside the beautiful 1950’s American automobiles. Another passenger asked Alexis how these cars have been maintained so well for so long. To Alexis it must have seemed like a rhetorical question, but he replied anyway, “The Cuban people are very creative.”

Cubans’ Mojo Rising

Cuba is well known for its world class cigars, rum, and coffee. And apparently during Havana’s heyday as an international tourist mecca (before darkness fell over the island in 1959) they also offered world class Mojito’s and Daiquiri’s. That hasn’t changed either. Two of Ernest Hemingway’s favorite watering holes have the best ingredients and recipes anywhere. When asked about the Mojito, Alexis explained, “we use a special mint with a mild flavor.” A state secret revealed.

The establishment serving them is La Bodeguita Del Medio. While the group waited outside, Alexis was asked if they sell souvenir cocktail glasses, they could make a lot of money after all. He said “No, it’s not allowed. This place is government owned.” The daiquiri joint was a fine, old restaurant named Floridita. A bronze statue of Hemingway was sitting on a bar stool in the corner under a small bust of Vladimir Lenin. In the opposite corner they were selling souvenir cocktail glasses, coasters, and t-shirts. When a naïve American asked the doorman if this was a privately owned restaurant, with a smirk and a shake of his head he replied “No!” Go figure.

On the other side of town Alexis pointed out the window of the bus to a very long line winding around a building. He told his passengers “they are waiting for permission to emigrate to Spain for a better life.” Alexis ended his walking tour in the courtyard in front of the old stock exchange that has been dormant for 60 years. Nearby was the cruise terminal, recently given new life and breathing hope for the people of Cuba. One working symbol of capitalism had moved in where the previous one had been abandoned.

It was a short walk to the dry goods store recommended by Alexis. It was small, well run, and stocked with two each of the best brands of cigars, coffee, and rum. An average single Monte Cristo or Cohiba was 7 convertible pesos, about equivalent to 7 US dollars, or 17,000 Cuban pesos. A perfect example of  socialist central banks stealing the wealth of their citizens and squandering it by inflating the currency.

The Sun Also Rises

Ayn Rand continued about the 1972 election,

Here is the difference between them: Mr. Nixon, though not a champion of free enterprise, yearns in that direction. It is against statism that we have to vote. It is statism that has to be defeated – and defeated resoundingly.

Upon leaving the fantasy land that is Old Havana’s tourist district, the luxury cruise ship passengers were able to get a glimpse of Cuba’s reality. Ugly low rise and high rise apartment buildings of Soviet realism design filled the shoreline as the ship passed. It was a perfect summer evening, the sun was setting on the Port of Havana, and yet something was missing.

Earlier that afternoon, a passenger on the pool deck expressed admiration for the “the struggle” of the Cuban people against “crass commercialism,” while sipping a frozen margarita. He could not see it. That morning, the economic gurus on the ship’s elevator were complaining about “innovation taking jobs.” They could not see it. Many dining room guests gazing at the harbor could not see it. All of their minds had been dimmed by American socialist literacy programs. Like the passengers on Ayn Rand’s ill-fated train in Atlas Shrugged, they were indirectly contributing to the disaster.

The thousands of windows overlooking the harbor were completely dark. The residents had no electricity, at least not then. Only the headlights of a few cars moving along the shore way exposed signs of life. The reason is obvious, socialist economic planners are in the dark about allocating the resources needed to efficiently operate a complex system. This always leads to a complete breakdown in production. It’s not that the dictators are restricting electricity, it’s that they can’t produce it. This leaves everyone in the dark, literally. However tomorrow’s arriving cruise ships will bring more light, and not just their own. They foretell the approaching light of free markets.

And it turns out Alexis also kept something in the dark. The Lost Generation is a lot more than Cuban children born into a socialist nightmare. The Lost Generation had been made famous in Hemingway’s greatest work, The Sun Also Rises. It described a generation of real people thought to be irreparably damaged by World War I, but proved themselves to be resilient and strong. Creativity and strength also describes Cuba’s Lost Generation, and belies Alexis’ modesty.

AOC Has A Perfectly Good Economics Degree. That Explains Why She Spouts Idiotic Economics.

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It has become something of a tradition in the free market corners of social media to express shock and dismay over the possibility that New York congresswoman Alexandria Ocasio-Cortez (AOC)—an avowed “democratic socialist”—has an economics degree from Boston University.

This is how it works: AOC makes a statement that is notably antimarket, prosocialist, or generally clueless about general concepts from the field of economics.

Her critics then post responses questioning whether she actually has a degree, or saying that she must have not been paying attention in class, etc.

Here are a few examples:

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But why is it so hard to believe that she has a degree in economics? It seems that far too many people have rather inaccurate ideas about what is taught in economics programs nowadays.

The truth is that there is little emphasis on understanding markets in economics programs, and little emphasis on the value of markets. The emphasis is now on using economics to justify state action in the economy. And any bias that may have once existed in favor of unhampered markets in these departments is vanishing.

The idea that economics is the dispassionate study of understanding how hiring is affected by an imposed price floor (i.e., a minimum wage) or how opportunity cost affects consumer choices is rapidly becoming hopelessly outdated.

Sure, twenty years ago that sort of thing could still often be observed. But microeconomics of that sort is now about as fashionable as other relics of that time, such as the Backstreet Boys.

Basic principles that were once a given—i.e., the notion that making labor more expensive means that employers buy less of it—are now out the window.

But this trend didn’t start yesterday. For decades now, economics has been moving further and further away from teaching microeconomics and how firms and households work. Instead, by the late 1990s economics was well down the road of constructing elaborate and purely hypothetical mathematical models that had little bearing on everyday life. These model builders claimed they could predict the future, but of course, they completely missed the huge financial crisis of 2008.

Another trend in recent decades has been toward conducting an enormous number of studies that produce statistical correlations. But as the correlations can be interpreted any number of ways, they often end up being used to support whatever policy the researchers prefer. Out of this has come the drive to make economics into a discipline that depends on tinkering and trial and error. Some now insist we can’t really guess what the results of a policy might be until we “test” it using methods from the physical sciences.

This is now what’s fashionable, and a December article at Quartz tells us, “the new era of big data…has led economists to revisit the wisdom of some long held assumptions.”

Those old “assumptions” are what many people wrongly think is a focus of economics instruction. Last year, for example, Vox happily reported that in a new introductory economics course at Harvard “[t]here’s little discussion of supply and demand curves, of producer or consumer surplus, or other elementary concepts.” Moreover, it’s getting easier to get through an economics program without any knowledge of economics because economists are increasingly less interested in economics proper.

As I noted here at mises.org last year, economists nowadays seem to spend a lot of time ripping off the insights of historians, sociologists, psychologists, and political scientists. They then slap some new labels on the research and give it names like “behavioral economics.”

In the sorts of “economics” classes that focus on such topics, one learns that government planning is what gets a poor country out of poverty. They learn that people can’t be trusted to make decisions for themselves. They learn that bailing out billionaires in the financial sector again and again has no real downside, morally or otherwise.

There’s no reason to believe that a student with an economics degree is going to graduate with a deep understanding of how government intervention distorts markets or impoverishes consumers. The theoretical foundations behind such things are mentioned, of course, but at many institutions they are most certainly not emphasized.

Far more likely, one learns in these programs that central banks can be relied upon to fix almost any economic problem faced in the course of a business cycle. And if a certain problem becomes especially difficult, the answer surely lies in giving the central bank even more power.

Moreover, economics students believe all sorts of fantasies that most normal people would easily identify as obvious nonsense were they not told otherwise by “wise” economists. Only economics students, for example, are naive enough to think that central banks are “independent” and nonpolitical institutions. This is why the most revealing research on the Fed as a political institution is conducted primarily by political scientists. (For example, see John T. Woolley’s “The U.S. Federal Reserve and the Politics of Monetary and Financial Regulatory Policy.”)

So, it’s entirely plausible that AOC took any number of economics courses and came out with good grades after learning virtually nothing accurate about entrepreneurship, wages, money, or consumer choice. What she did learn on these topics was likely built on the premise that the state ought to be intervening in and tinkering with all these things.

AOC appears to have the same beliefs that many economics grads do.

Meanwhile, AOC’s critics make fun of her for being a bartender. But they’re getting things backward. Being a bartender is possibly the best thing on her CV. These snide remarks about “the bartender AOC” seem to assume that bartending is some sort of disreputable line of work that only idiots pursue. It’s not. “Serving” in Congress is much less impressive. Besides, tending bar is likely one of the more instructive things AOC has done as far as understanding markets goes. There’s certainly no reason to assume that the economics faculty at BU was any help in this regard.

American Politicians And Administrators Of All Stripes Are Sounding More And More Like Soviet Central Planners.

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It’s been said by those who know Fred Smith well that when the visionary FedEx founder is asked about the U.S. Post Office, he’s known to say that in a competitive market he could put the government-created monopoly out of business in a matter of months. Smith’s confidence shouldn’t surprise readers, conservative readers least of all.

That’s the case because at least in their rhetoric, conservatives preach the gospel of market discipline. The Post Office would be extraordinarily vulnerable to competition precisely because it’s never faced the kind of competition and investor pressure that conservatives at least rhetorically deem so essential to corporate progress. If funding will always be abundant, and if funding will actually rise the more that mistakes are made, why make the hard decisions that real businesses make every day?

Stating what should be obvious, and has long been obvious to conservatives, the Post Office is a low-quality provider of fourth-rate service, and it’s that way because always-there government funding has shielded it from the market realities that would have otherwise strengthened it over the years; that, or put it out of business. In short, copious government support has weakened the Post Office. No entrepreneur or business would ever consider emulating it since mimicry of what defines bad service in the minds of all too many would repel the very investors necessary for a business to open its doors in the first place.

Smith’s opinion of the Post Office has routinely come to mind amid the odd conservative crack-up over Chinese communications giant Huawei. Republicans and conservatives inside and outside the Trump administration were very disappointed recently when British Prime Minister Boris Johnson announced that Huawei, a corporation so valued by its customers that it operates in 177 countries around the world, would “allow” the company’s “equipment to be used in Britain’s 5G wireless network.”

GOP hand wringing is puzzling. Long the Party that’s striven to properly associate itself with keeping government out of the rollout of anything commerce or market related, when it comes to what’s expected to be “next generation” in communications, Republicans find themselves parroting the very wording that animates the rhetoric of their ideological foes on the left, and in the extreme, the rhetoric of central planners from the 20th century. Don’t Republicans remember how horridly and murderously central planning failed, and don’t they remember how very much their political hero (with good reason) in Ronald Reagan confidently predicted the failure of statist regimes precisely because politicians, not market-disciplined businesses, were calling the commercial shots?

Yet when it comes to 5G, it’s as though state planners have entered the bodies and minds of conservatives and Republicans. Out of one side of their mouth they talk of the enormous potential of 5G to “transform” how business is done for the much, much better, only for them to proclaim out of the mouth’s other side the genius of a public/private 5G partnership. As the Wall Street Journal’s Bob Davis and Drew FitzGerald recently reported, “the White House is working with U.S. technology companies to create advanced software for next-generation 5G telecommunications networks.” Yes, you read that right. Conservatives believe that which is anti-innovation, and that which is where innovation routinely goes to die, is necessary to build up that which is billed as a revolutionary driver of technological advancement. No less than the great free-market champion Larry Kudlow confirmed to Davis and FitzGerald that “The big picture concept is to have all of the U.S. 5G architecture and infrastructure done by American firms.” Say it ain’t so!

Thinking about this, readers would be wise to stop and marvel for a second or two. It wasn’t too many years ago that conservatives figuratively trampled on one another as they raced to TV cameras and computers to mock the Obama White House and Democrats for the Solyndra bust-up, and that was just solar. Back then the very notion of public/private anything was anathema to conservatives, yet now they’re championing it for 5G. The technological future is coming, and it will be planned by conservatives in government!

Fear not, it gets weirder. Indeed, their support for government investment grows by the day. Hudson Institute senior fellow Thomas Duestenberg is the latest (but surely not the last) conservative to call for government planning in the development of 5G, along with government finance. Duestenberg et al want tens of billions of taxpayer dollars to allegedly bolster the 21st century equivalent of putting a man on the moon first. Funny here is that conservatives were up in arms back in 2011 when it was revealed that Solyndra had been the “beneficiary” of $535 million in government loan guarantees…

Needless to say, the previous number is chump change to the overnight planners on the right. Duestenberg laments that Huawei allegedly has received $75 billion from the Chinese government (as though the feds don’t wastefully shower all manner of taxpayer dollars on U.S. firms – TARP comes to mind, so does ExIm…), so he’s cheering bipartisan legislation and funding from Congress meant to “encourage development of open-architecture systems to promote Western competition to Huawei and ZTE.” Stranger still is that Duestenberg’s op-ed was hosted prominently by the Wall Street Journal’s editorial page, long the Holy Grail of free market opinion. Needless to say, the Obama White House’s partnership with the solar industry amid lefty alarmism about global warming wasn’t cheered by conservatives in the way that they now cheer government investment in that which alarms them.

Which brings us to a basic question: just what are conservatives so afraid of? If Huawei is truly a tool of the state as they want to believe, and as they keep telling us, then it’s a safe bet that its efforts to lead the world toward an amazing 5G-enhanced future will fall very short. What’s innovative and has major market applications of the technological variety is never hatched by government. So let the Chinese government spend enormous sums weakening Huawei as it produces something that consumers will reject.

On the other hand, and with Huawei’s seminal role in rapidly advancing global communications top of mind, let’s consider the possibility that conservative scholars and politicians have well overstated the Huawei threat (haven’t they overstated other threats before?). As in, let’s consider the very real possibility that Huawei is actually a great company, and that it thrives despite state investment. If so, what’s there to be afraid of? Most of us don’t live in Cupertino, Mountain View or Seattle, but open markets make it seem as though Apple, Google and Amazon are right next door.

When markets are open, location of business doesn’t matter. If Huawei can bring 5G to market the quickest, brilliant. Just as the Chinese aren’t hurt by Apple selling 1/5th of its iPhones in China, and just as Los Angelenos aren’t hurt because Microsoft is in Seattle, New Yorkers won’t be harmed by technological advances that happen in Shenzhen.

The main thing is that conservatives need to act like conservatives again. State planning fails. Always. If Huawei is truly a creation of the state, then conservatives needn’t worry about it growing so rapidly in the U.S. such that it can “spy” on us, and do other scary things. If not, conservatives might reacquaint themselves with their support of the open markets that similarly always succeed when it comes to lifting everyone up.

John Tamny is editor of RealClearMarkets

Economics For Individuals:An Old Banana As Artwork Explains The Economic Concept Of Subjective Value.

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Recently, Miami art gallery Art Basel sold, for $120,000, a piece of art composed of a banana duct taped to a wall. At least one other identical piece sold for a similar amount. A third piece was priced at $150,000. The banana used in the display is a real banana, and on Saturday, a performance artist named David Datuna ate some of it.

Datuna’s stunt merely illustrated what everyone should have already known: the value of the artwork had almost nothing to do with the banana itself. Its value came not from the amount of labor that went into it or from the cost of the physical materials involved. A spokeswoman for the museum summed up the real source of the item’s value, noting, “He [Datuna] did not destroy the artwork. The banana is the idea.”

In other words, the people who purchased the art weren’t actually purchasing a banana and tape. The person who purchased the art was buying the opportunity to communicate to peers that he or she was rich enough to throw around $120,000 on a work of art that would soon cease to exist. This was a transaction that involved purchasing status in exchange for money. The banana was only a tiny part of the exchange.

Moreover, the transaction offered the opportunity for the gallery, the art seller, and the art buyer to all further increase their status by being the topic of discussion in countless news articles and discussions in social media. As was surely anticipated by the artists and everyone else in the banana sale, the media could be counted on to act as if this art was something new, outrageous, or exciting. “Art world gone mad,” the New York Post announced on its front page. Hundreds of thousands of commentators in various social media forums chimed in to comment on the matter.

One wonders, however, how many times this shtick can be repeated over and over until people lose interest. Apparently: many times. After all, this sort of art is not a new thing. For decades, avant-garde artists have been using garbage and other found objects to create art. And people with a lot of disposable income have been willing to pay a lot of money for it. It’s all basically an inside joke among rich people. And regular people have the same reaction over and over again.

But there’s absolutely nothing at all that’s shocking, confusing, or incomprehensible from the point of view of sound economics. Transactions like these should only surprise us if we’re still in the thrall of faulty theories of value, such as the idea that goods and services are valued based on how much labor and materials went into them. That’s not true of any good or service. And it’s certainly not true of art.

Is It Garbage or Is It Art?

In fact, two identical items can be valued in two completely different ways simply if the context and description of the objects changes.

According to the Daily Mail, a 2016 study suggests that people value ordinary objects differently depending on what they are told about the objects: “According to the new research, being told that something is art automatically changes our response to it, both on a neural and a behavioural level.”

In this case, researchers in Rotterdam, the Netherlands, told subjects to rate how they valued objects in photographs. When told that those objects were “art” people valued them differently.

In other words, the perceived value of objects could change without any additional labor being added to them, and without any physical changes at all.

The value, it seems, is determined by the viewer, and we’re reminded of Carl Menger’s trailblazing observations about value:

Value is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men.

One moment the viewer may think he’s looking at garbage, which he has likely learned is of little value. When told that said junk is really “art,” the entire situation changes. (Of course, we would need to see their preferences put into real action via economic exchange to know their preferences for sure.)

The change, as both Menger and Mises understood it, is brought about not by changes to the object itself, but by changes in context and in the subjective valuation of the viewer.

A glass of water’s value in a parched desert is different from that of a glass next to a clean river. Indeed, a glass of water displayed in a museum as art — as in the case of Michael Craig-Martin’s “An Oak Tree” — is different from water found in both deserts and along rivers. Similarly, the value of a urinal displayed in a museum as art — as with Marcel Duchamp’s “Fountain” — is different from a physically identical urinal in a restroom.

The Daily Mail article attempts to tie the researchers’ observations to the theories of Immanuel Kant on aesthetics. But, one need know nothing about aesthetics at all to see how this study simply shows us something about economic value: it is, to paraphrase Menger, found in the “consciousness of men.”

And it is largely due to this fact that centrally planning an economy is so impossible. How can a central planner account for enormous changes in perceived value based on little more than being told something is art?

Is a glass of water best utilized on a shelf in a museum, or is it best used for drinking? Maybe water is best used for hydroelectric power? Exactly how much should be used for each purpose?

When discussing the problems of economic calculation in socialism, Mises observed that without the price system, there simply is no way to say that a specific amount of water is best used for drinking instead of being used for modern-art displays. Nor is the fact that people need water for drinking the key to determining the value of water. (See the diamond-water paradox.)

In a functioning market, consumers will engage in exchanges involving water in a way that reflects how much they prefer each use of water to other uses. At some moments, some consumers may prefer to drink it. At other moments, they may prefer to water plants with it. At still other moments, they may want to contemplate an art display composed of little more than a glass of water. The price of water at each time and place will reflect these activities.

Without these price signals, attempting to create a central plan for how each ounce of water should be used is an impossible task.

Do we need to know why people change their views of an object when told they are art? We do not. Indeed, were he here, Mises would perhaps be among the first to remind us that economics need not tell us the mental processes that lead to people preferring different uses for different objects, although we can certainly hazard a guess. It’s unlikely that the buyer of the taped banana bought it because he or she planned to eat it.

But even if we are wrong about the buyer’s motivation, the fact remains that the buyer valued the banana at $120,000 for some reason — and the value was subjective to the buyer.

Similarly, we can’t know for sure why each individual values water for drinking over “art water” or vice versa. And a government planner or regulator — it should be noted — can’t know this either.

Road To Serfdom

This 75-Year-Old Book – Celebrating Individualism And Warning Against Expanding Government Power – Is As Important Now As It Ever Was.

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While much of Friedrich Hayek’s The Road to Serfdom focused on correcting erroneous ideas and sloppy thinking that misled (and still mislead) many to support socialistic expansions of government power, that is not all it did. It also reiterated the case for individualism and its economic manifestation—free markets. Since convincing careful thinkers requires such an affirmative case as well as defensive debunking, the book’s diamond 75th anniversary is a propitious time for Americans to remember what only individualism provides, so that we will not continue to follow a path of “replacing what works with what sounds good,” as Thomas Sowell described it.

  • The essential features of…individualism…are the respect for the individual man qua man…the recognition of his own views and tastes as supreme in his own sphere…and the belief that it is desirable that men should develop their own individual gifts and bents.
  • The attitude of the liberal toward society is like that of the gardener who tends a plant and, in order to create the conditions most favorable to its growth, must know as much as possible about its structure and the way it functions.
  • The holder of coercive power should confine himself in general to creating conditions under which the knowledge and initiative of individuals are given the best scope so that they can plan most successfully.
  • The successful use of competition as the principle of social organization precludes certain types of coercive interference with economic life.
  • Planning and competition can be combined only by planning for competition but not…planning which is to be substituted for competition.
  • It is the very complexity of the division of labor under modern conditions which makes competition the only method by which such coordination can be adequately brought about.
  • Nobody can consciously balance all the considerations bearing on the decisions of so many individuals…coordination can clearly be effective only by… arrangements which convey to each agent the information he must possess in order effectively to adjust his decisions to those of others…This is precisely what the price system does under competition and what no other system even promises to accomplish.
  • The economist…His plea is for a method which effects such co-ordination without the need for an omniscient dictator.
  • The various kinds of collectivism…[refuse] to recognize autonomous spheres in which the ends of the individuals are supreme.
  • Recognition of the individual as the ultimate judge of his ends…that as far as possible his own views ought to govern his actions…forms the essence of the individualist position.
  • What are called “social ends” are…merely identical ends of many individuals…to the achievement of which individuals are willing to contribute…Common action is thus limited to the fields where people agree on common ends.
  • The clash between planning and democracy arises simply from the fact that the latter is an obstacle to the suppression of freedom which the direction of economic activity requires.
  • The more the state “plans,” the more difficult planning becomes for the individual.
  • The important question is whether the individual can foresee the action of the state…that the individual knows precisely how far he will be protected against interference from others, or whether the state is in a position to frustrate individual efforts.
  • In a planned society the Rule of Law cannot hold…the use of the government’s coercive powers will no longer be limited and determined by pre-established rules.
  • Economic control is not merely control of a sector of human life…it is the control of the means for all our ends.
  • To believe that the power which is thus conferred on the state is merely transferred to it from others is erroneous. It is a power which is newly created and which in a competitive society nobody possesses. So long as property is divided among many owners, none of them acting independently has exclusive power to determine the income and position of particular people.
  • The power which a multiple millionaire…has over me is very much less than that which the smallest fonctionnaire possesses who wields the coercive power of the state on…whether and how I am to be allowed to live or to work.
  • Contrast…two types of security: the limited one, which can be achieved for all, and which is therefore no privilege but a legitimate object of desire; and absolute security, which…if it is provided for some, it becomes a privilege at the expense of others.
  • Individualism is thus an attitude of humility…the exact opposite of that intellectual hubris which is at the root of the demand for comprehensive direction of the social process.
  • It was men’s submission to the impersonal forces of the market that…has made possible the growth of a civilization without which this could not have developed; it is by thus submitting that we are every day helping to build something that is greater than any one of us can fully comprehend.
  • If the democracies themselves abandon the supreme ideal of the freedom and the happiness of the individual…they implicitly admit that their civilization is not worth preserving.
  • It is more important to clear away the obstacles with which human folly has encumbered our path and to release the creative energy of individuals than to devise further machinery for “guiding” and “directing” them—to create conditions favorable to progress rather than to “plan progress.”

Friedrich Hayek’s The Road to Serfdom defended the individual—the only ultimate locus of choice, responsibility and morality—as the appropriate focus of efforts toward human improvement, at a time when failing to keep that focus threatened the entire world. That is a lesson we need to remember now as well, when many do not remember the horrors that can lead to, and so support constantly expanding government powers over its citizens, which is in precisely the opposite direction of what once created America as a unique beacon of hope for the world.

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