SIMPLE TRUTHS FOR POLITICIANS

November 19, 2017

[Published in NBR, Aug 11, 2017]

 

1958 was the year of the Black Budget when New Zealanders’ economic freedom, already severely curtailed, was further restricted by massive tax increases. The first National government (1949-1957) had continued the interventions of its predecessor. Crucially, it maintained Labour’s Economic Stabilization Act 1948 which later permitted Robert Muldoon to impose greater government controls without resort to Parliament. The 1984-1987 government repealed it.

 

Meanwhile, about 10,000 km to the east in Argentina, 18-year-old Alberto Benegas Lynch (now Professor of Economics at the University of Buenos Aires and holder or former office holder in the Mont Pelerin Society, Institute of Economic Affairs and Cato Institute) sent an invitation to Ludwig von Mises to present a series of lectures. The lectures were delivered in 1959 at the university’s enormous lecture hall. In two neighbouring rooms his words were simultaneously translated into Spanish for students who listened with earphones.

Mises (1881-1973) was one of the 20th century's foremost economists and a champion of liberty who showed why the free market and liberty go hand in hand. In the last lecture, he said:

 

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. The individual is able to choose his career, he is free to do what he wants to do.

….

In a system where there is no market, where the government directs everything, all those other freedoms [of speech, of thought, of the press, freedom of religion, freedom from imprisonment without trial] are illusory, even if they are made into laws and written up in constitutions

 

Mises spoke in non-technical terms to his audience of business professionals, professors, teachers and students, explaining simple truths in terms of economic principles. He described how capitalism destroyed the hierarchical order of European feudalism where a man’s social status was inherited from his ancestors and continued until his life ended and the primitive processing industries existed almost exclusively for the wealthy.

 

He analyzed the failures of socialism and the welfare state and showed what consumers and workers can accomplish when they are free under capitalism to determine their own destinies.

 

Mises’ widow, Margit, transcribed recordings found after his death and published them as Economic Policy Thoughts for Today and Tomorrow (80 page paperback, Kindle edition US$9.56). She described how the lectures were received.

 

The audience reacted as if a window had been opened and fresh air allowed to breeze through the rooms. He spoke without any notes. As always, his thoughts were guided by just a few words, written on a scrap of paper. He knew exactly what he wanted to say, and by using comparatively simple terms, he succeeded in communicating his ideas to an audience not familiar with his work, so that they could understand exactly what he was saying.

 

At the time, dictator Juan Peron was in exile, having been forced out of the country in 1955. His wife Eva died in 1952. She was immortalized by Andrew Lloyd Webber and Tim Rice’s musical Evita and the hit, Don’t Cry for Me, Argentina, but it is for Argentina that tears should be shed. It has lurched from one authoritarian and interventionist government to another, and from one economic crisis to the next. Had Mises’ teachings been heeded, Argentina’s fate would have been completely different.

 

Bettina Bien Greaves worked as Mises’ assistant for many years. Her Introduction outlines Mises’ message.

 

The ideal economic policy, both for today and tomorrow, is very simple. Government should protect and defend against domestic and foreign aggression the lives and property of the persons under its jurisdiction, settle disputes that arise, and leave the people otherwise free to pursue their various goals and ends in life. This is a radical idea in our interventionist age. Governments today are often asked to regulate and control production, to raise the prices of some goods and services and to lower prices of others, to fix wages, to help some businesses get started and to keep others from failing, to encourage or hamper imports and exports, to care for the sick and the elderly, to support the profligate, and so on, and on, and on.

 

This describes New Zealand today – not as bad as it was prior to 1984, but steadily reverting as political parties scramble to ingratiate themselves with the electorate.

 

Ms Greaves contrasted what happens in a free market.

 

When government protects the rights of individuals to do as they wish, so long as they do not infringe on the equal freedom of others to do the same, they will do what comes naturally — work, cooperate, and trade with one another. They will then have the incentive to save, accumulate capital, innovate, experiment, take advantage of opportunities, and produce. Under these conditions, capitalism will develop. The remarkable economic improvements of the eighteenth and nineteenth centuries and Germany’s post-World War II “economic miracle” were due, as Professor Mises explains, to capitalism:

 

[I]n economic policies, there are no miracles. You have read in many newspapers and speeches, about the so-called German economic miracle — the recovery of Germany after its defeat and destruction in the Second World War. But this was no miracle. It was the application of the principles of the free market economy, of the methods of capitalism, even though they were not applied completely in all respects. Every country can experience the same “miracle” of economic recovery, although I must insist that economic recovery does not come from a miracle; it comes from the adoption of — and is the result of — sound economic policies.

 

So we see that the best economic policy is to limit government to creating the conditions which permit individuals to pursue their own goals and live at peace with their neighbours. Government’s obligation is simply to protect life and property and to allow people to enjoy the freedom and opportunity to cooperate and trade with one another. In this way government creates the economic environment that permits capitalism to flourish.

 

In the first lecture, Mises explained that the origin of capitalism was the production of cheaper products for everyone’s needs, the beginning of mass production.

 

This is the fundamental principle of capitalism as it exists today in all of those countries in which there is a highly developed system of mass production. Big business, the target of the most fanatic attacks by the so-called leftists, produces almost exclusively to satisfy the wants of the masses. Enterprises producing luxury goods solely for the well-to-do can never attain the magnitude of big businesses. And today, it is the people who work in large factories who are the main consumers of the products made in those factories. This is the fundamental difference between the capitalistic principles of production and the feudalistic principles of the preceding ages.

 

This is even more obvious in today’s electronic age. For example, through mass production the mobile phone has become universally available. In underdeveloped economies which do not have sophisticated banking systems, it provides a means for storing and transferring money between workers in the city and their families in the countryside. When I was involved in discussions about financial services capacity building in underdeveloped economies, Cambodia provided an example. A phone cost as little as US$12. Even for people earning a dollar a day, mass production of mobiles created the opportunity for a better life.

 

Mises explained how a free economy allows these beneficial outcomes to develop.

 

Freedom of competition does not mean that you can succeed simply by imitating or copying precisely what someone else has done. Freedom of the press does not mean that you have the right to copy what another man has written and thus to acquire the success which this other man has duly merited on account of his achievements. It means that you have the right to write something different….

 

The development of capitalism consists in everyone’s having the right to serve the customer better and/or more cheaply. In this method, this principle, has, within a comparatively short time, transformed the whole world. It has made possible an unprecedented increase in world population….

 

When government taxes it reduces savings which might otherwise be employed for productive purposes. It consumes without producing anything. In these and other interferences with the free market government reduces the productive potential of individuals and the quantity of goods and services which would otherwise be available for consumers.

 

Mises explained that the market is a process.

 

What does this system of economic freedom mean? The answer is simple: it is the market economy, it is the system in which the cooperation of individuals and the social division of labour is achieved by the market. This market is not a place; it is a process, it is the way in which, by selling and buying, by producing and consuming, the individuals contribute to the total workings of society.

 

The free market and capitalism are inextricably linked. You can’t have one without the other. Capitalism is the free market not a system to advantage businesses through government intervention, as its opponents portray. That’s not capitalism, but socialist intervention.

 

Apart from the brief reigns of Ministers of Finance Roger Douglas and Ruth Richardson in the 1980s and early 90s respectively, government addiction to intervention has been and is entrenched.

 

Rob Hosking pointed out in “The end of ‘neo-liberalism’ and advent of the Age of Euphemism” (July 14), that "Santa Claus doesn’t exist: he is really your fellow citizens and taxpayers, and their ability to pay is no more endless than yours is …. But the idea you could, in fact, somehow vote yourself prosperity has died hard …." Almost all politicians cynically pander to the delusion.

 

In the Age of Euphemism, economic freedom is wicked, threatening, and offensive -- not to be spoken of except in denunciation as neo-liberalsm.

 

Good times mask the impact of bad economic policies. We have been having good times, a comparative advantage even over Australia, so the current government has been able to indulge its addiction to intervention. Power and the desire for power means most politicians can’t help themselves. Add the aphrodisiac of political advantage from bribing interest groups and voters and the temptation is irresistible.

 

The system of economic freedom leads to increasing prosperity. It also promotes the free and democratic society we claim to believe in. As Mises explained, the economics of the free market and liberty go hand in hand. We need politicians who practice and preach these simple truths.

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