Economic Policy : Thoughts for Today and Tomorrow
Some quotes selected (and headlined) by IBS - as "reminders" and to motivate you to read the complete lecture:
"[If anybody says,] that he is opposed to capitalism,
there is a wonderful way to answer him:
"You know that the population of this planet is now ten
times greater than it was in the ages preceding capitalism;
you know that all men today enjoy a higher standard of
living than your ancestors did before the age of capitalism.
But how do you know that you are the one out of ten who
would have lived in the absence of capitalism? The mere
fact that you are living today is proof that capitalism has
succeeded, whether or not you consider your own life very valuable.""
"The attacks against capitalism - especially with respect
to the higher wage rates - start from the false assumption
that wages are ultimately paid by people who are different
from those who are employed in the factories."
"There are people in many countries who consider it very unjust that a man who has to support a family with several children will receive the same salary as a man who has only himself to take care of. But the question is not whether the employer should bear greater responsibility for the size of a worker's family.
"The question we must ask in this case is: Are you, as an
individual, prepared to pay more for something, let us say,
a loaf of bread, if you are told that the man who produced
this loaf of bread has six children? The honest man will
certainly answer in the negative and say, In principle I
would, but in fact if it costs less I would rather buy the
bread produced by a man without any children."
"The capitalist system was termed capitalism not by a
friend of the system, but by an individual who considered it
to be the worst of all historical systems, the greatest evil
that had ever befallen mankind. That man was Karl Marx."
"An often unrealized fact about capitalism is this: savings
mean benefits for all those who are anxious to produce or
to earn wages. When a man has accrued a certain amount of
money - let us say, one thousand dollars - and, instead of
spending it, entrusts these dollars to a savings bank or an
insurance company, the money goes into the hands of an
entrepreneur, a businessman, enabling him to go out and
embark on a project which could not have been embarked
on yesterday, because the required capital was unavailable."
"The scornful depiction of capitalism by some people as a
system designed to make the rich become richer and the
poor become poorer is wrong from beginning to end."
"Marx said the belief that labor unions [by asking for higher wage rates and shorter work hours] could improve conditions for the working population was absolutely in error. ... [Marx] suggested that the unions set themselves a new, revolutionary goal: that they do away with the wage system altogether, that they substitute "socialism" - government ownership of the means of production - for the system of private ownership.
"We must refute the doctrines that promote union violence.
We must oppose the confiscation of property, the control of prices, inflation,
and all those evils from which we suffer."
"[T]he 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."
"[T]he notion that a capitalist form of government can
prevent people from hurting themselves by controlling their
consumption is false. The idea of government as a paternal
authority, as a guardian for everybody, is the idea of those who favor socialism."
"If you give the government the right to determine the consumption of the human body, to determine whether one should smoke or not smoke, drink or not drink, there is no good reply you can give to people who say:
- "More important than the body is the mind and
the soul, and man hurts himself much more by reading bad
books, by listening to bad music and looking at bad movies.
Therefore it is the duty of the government to prevent people
from committing these faults."
"There have been [artists] who complained that the public did not acknowledge their
work and caused them to remain poor. The public may
certainly have had poor judgment, but when these artists
said: "The government ought to support great artists,"
they were very much in the wrong. ...
[ed. note: at this place it is explained why this is so, using vanGogh as example.]
[A]ll this enthusiasm in favor of socialism by the rising generation of [artists], is based on an illusion. I mention this because these groups are among the most fanatical supporters of the socialist idea."
Mixed economy not be confused with interventionism:
"[I]f the enterprise does not become profitable ...
the enterprise must come to an end.
But for the government, conditions are different. The government can run at a deficit, because it has the power to tax people. And if the taxpayers are prepared to pay higher taxes in order to make it possible for the government to operate an enterprise at a loss - that is, in a less efficient way than it would be done by a private institution - and if the public will accept this loss, then of course the enterprise will continue [which will inevitably be followed by inflation.]
"Interventionism means that the government does not restrict its activity to the preservation of order, or - as people used to say a hundred years ago - to "the production of security." Interventionism means that the government wants to do more. It wants to interfere with market phenomena. ...
"[A]ll the measures of interventionism by the government are directed toward restricting the supremacy of consumers. One example of interventionism ... in times of inflation ... [is] price control ... [when] people have begun to complain about the resulting rise in prices. ...
"[Romans] enforced price control [after having debased coinage], but they failed to maintain the society. The result was the disintegration of the Roman Empire and the system of the division of labor [disappeared].
"Then, 1500 years later, the same currency debasement took place during the French Revolution. ... [now using] [very efficient technology of] the printing press ... the result was an unprecedented rise in prices. Despite the guillotine the French also failed with their laws of maximum prices. ...
"[G]overnment's interference with the price of milk will result in less milk ...
"The long lines of people waiting at shops always appear as a familiar phenomenon in a city in which the government has decreed maximum prices for commodities that the government considers as important. This has happened everywhere when the price of milk was controlled.
"Before the government interfered, milk was expensive, ... Therefore, the total consumption of milk drops.
"The next measure to which the government now resorts, is rationing. ...
"Whatever the government does, the fact remains, there is only a smaller amount of milk available. ...
"Before the government interfered, milk and eggs were expensive; after the government interfered they began to disappear from the market. ...
"[I]t will finally arrive at a point where all prices, all wage rates, all interest rates, in short everything in the whole economic system, is determined by the government. And this, clearly, is socialism.
"The idea that there is a third system - between socialism
and capitalism, as its supporters say - a system as far away
from socialism as it is from capitalism but that retains the
advantages and avoids the disadvantages of each - is pure nonsense."
"[I]f the quantity of money is increased, the purchasing power of the monetary unit decreases, and the quantity of goods that can be obtained for one unit of this money decreases also.
"There can be no secret way to the solution of the financial problems of a government; if it needs money, it has to obtain the money by taxing its citizens .... But many governments, we can even say most governments, think there is another method for getting the needed money; simply to print it.
"[I]t is not the way in which the money is spent, it is the way in which the government obtains this money that brings about those consequences we call inflation ...
"[P]rices will tend to go up. This cannot be avoided, no matter what the use of this newly-issued money will be. ...
"When inflation starts, different groups within the population are affected by this inflation in different ways. Those groups who get the new money first gain a temporary benefit. ...
- [ed. note: Mises did not talk about the important consequences of inflation
on the profitability of business, i.e.: that at a certain inflation rate,
companies can longer be profitable after tax.
This is brilliantly explained in The Warren Buffett Way by Robert G. Hagstrom.
So the benefit, Mises is talking about is not lasting, since industry, and with it, the whole society will suffer badly.]
Government conceals the use of the inflation tax:
"The technical methods employed to achieve the inflation are so complicated that the average citizen does not realize inflation has begun. ...
"Today the techniques for inflation are complicated by the fact that there is checkbook money. With the stroke of a pen, the government creates fiat money, thus increasing the quantity of money and credit. ... [T]he certain fact about inflation is that, sooner or later, [it ends] with the [catastrophically] breakdown of the currency. ..."
How long does inflation run?
"[W]hen [people] realize that the government will go on and on without any intention of stopping, then they begin to understand that prices tomorrow will be higher than they are today. Then they begin buying at any price, causing prices to go up to such heights that the monetary system breaks down. ...
"[In contrast to the gold standard] under an inflationary system, nothing is simpler for the
politicians to do than to order the government printing
office to provide as much money as they need for their
projects. ... [U]nder inflationary conditions, people acquire the
habit of looking upon the government as an institution with
limitless means at its disposal: the state, the government, can do anything."
How to attain a raising standard of living for everywhere?
"Not protection, not government interference, not socialism, and certainly not the
violence of the labor unions (euphemistically called collective
bargaining, which, in fact, is bargaining at the point
of a gun). To attain the end, as I see it, there is only one way! ...
[T]here are no short cuts to an earthly paradise. It takes time,
and one has to work ... under good policies."
[Ed. note: If you are still with me, I'm sure you'll now want to read the last of Mises' six lectures: "Politics and Ideas".]
For more lectures see von Mises' The Free Market and Its Enemies : Pseudo-Science, Socialism, and Inflation"
*) Times change. In 2003 Ben Bernanke advised Japan in order to get out of deflation, to create inflation (using price targets to correct the past effects of deflation), where he used the term "inflation a tax:"
- "... from a public finance perspective, increased monetization of government debt simply amounts to replacing other forms of taxes with an inflation tax."