WorldSys – Austrian Home Study Course, Week 12

The World Systems Project is going to begin with a thorough examination of Austrian economics, starting with Robert P. Murphy’s outstanding “Austrian Economics Home Study Course“. The plan is to blog my answers to the weekly questions, with posts and book reviews tossed in as I go along. 

It should go without saying that the following contains ‘spoilers’, and if you intend on doing the home study course on your own you might not want to read further.

READINGS: “Liberty and Property” in Two Essays by Ludwig Von Mises

1 What was liberty in the eyes of ancient Greek and Roman writers?

A privilege granted to an elite few who would rule as an oligarchy.

2 What was a second notion of liberty, held by European princes?

Similarly, the liberty conceived of by European princes was an oligarchic freedom granted solely to a landed aristocracy.

3 What does Mises consider the “characteristic feature of capitalism that distinguishes it from pre-capitalistic methods of production?

Under capitalism it is not enough simply to make products, you must make products with an eye toward satisfying needs. You become wealthy by better serving your fellow human beings. Under most other regimes, including feudalism, monarchy, etc., the road to power is conquest, not production.

Importantly, a capitalist could make a fortune catering to the impoverished masses, whereas most artisans and craftsmen in pre-capitalist eras focused on high-class or aristocratic clientele.

4 In what sense are capitalists, entrepreneurs, and landowners ‘mandataries’ of the consumers?

If you refuse to make things people want they will vote with their dollars to go elsewhere and you will likely go out of business. The factors of production are allocated according to the mandate of the consumer, not a mandate from gods or kings. To continue to be successful you must continue to anticipate, understand, and satisfy consumer needs; it is not enough to have once saved money and invested it.

5 Mises says that representative government may be viewed as an attempt to model political affairs after the market, but that this design can never be fully achieved. Why not?

First, because the market often does cater to ‘minority’ clientele — think of ‘big and wide’ men’s clothing stores that exclusively serve larger men. Second, in the public sphere there is no vehicle by which an individual can defy the will of the majority (except perhaps to simply break laws). In the market anyone who thinks the consensus is wrong is free to open a business and test his presumption.

6 What is the connection between “heretics” such as Kafka, Whitman, and Schopenhauer to private property?

A robust institution of private property made such people possible. If the government owns everything depriving heretics of the means of their survival would’ve been straightforward. As you can imagine, such an arrangement discourages non-conformity.

7 Why are terms such as “chocolate king” inappropriate?

It is literally a non sequitur. A person can only be a ‘chocolate king’ so long as he gives the buying public exactly what they want. He must work tirelessly to improve his production methods, to lower his costs, to expand his offerings, to conduct experiments to see if he can anticipate future demand. he must think about every aspect of his enterprise, from the soil in which coco trees grow, to the color of the wrappers for his confections.

How many kings lay awake at night thinking “would the peasantry prefer I wear a smaller crown? What kind of roads do they want? Have I truly thought of all the possible ways of reducing taxes?”

The answer might not be ‘zero’, but I’d be willing to bet it isn’t many.

8 Why does Mises think the socialist chiefs should have tried to earn a living selling hot dogs?

This alone might be enough to flatly refute their doctrines. Many socialist theorists speak of ‘exploitation’, as though the people in charge are the capitalists, the entrepreneurs, or the businessmen. A few weeks trying to dictate to people what they will buy should be enough to dispel this illusion.

I am inclined to agree with this point. I have met very few working-class socialists who take socialism seriously.

9 Why does Mises think the “one-party principle” is a misnomer?

There is no freedom in being able to choose one single thing. You don’t get a chance in whether or not to fall when you step off of a cliff, and you don’t get a chance to truly vote when there is only one party making every decision (especially when the party makes a habit of liquidating dissenters)

10 How does Mises evaluate the bargain by which Russians gave away their liberty in order to achieve prosperity?

In the communist revolution Russians bargained away liberty in the hope of getting prosperity because communist theory is blind to the connection between the two. In so doing the Russians ensured that they would have neither, as their standard of living under communism was far worse than it was under the freer countries of the west.

11 Why does Mises write, “Government is essentially the negation of liberty?”

Consider a contrast between the ‘chocolate king’ of question #7 and an actual king. The chocolate king, operating in a free market with no barriers to entry, must relentlessly anticipate and serve the needs of his costumers in order to maintain his success as a purveyor of confection. The same is almost never the case with a monarch, whose word is law and whose diktat’s must be obeyed on pain of death.

The chocolate king has no recourse if you choose to disregard him or take up with a competitor. An actual king can throw you in jail or have you killed. The chocolate king faces the ceaseless possibility of a superior competitor arising and better satisfying the market’s needs. Real kings are deposed, of course, but the crown then goes to whoever is better at violence or intrigue, not whoever is better at serving customers.

Government, then, imposes rules through force, and is the negation of liberty. If it subsidizes a school, pays a police officer, or builds a road, it does so with funds taken from someone involuntarily.

12 Does Mises think government is a necessary evil?

No, it is an institution required to prevent warlords or foreign powers from interfering with society. By arrogating the right to use force in a geographic area governments facilitate the smooth functioning of society.

13 Why can’t there be any freedom under a socialist system?

While Mises does not view the government as inherently evil he does see it as inherently an institution that limits freedom. People are free insofar as no one is coercing their decisions, and they are unfree to the extent that another person’s will is dictating their future. Private individuals do sometimes coerce one another, but only government is an institution designed to coerce.

Socialism, therefore, takes the entire sphere of free human choice and subsumes it under the will of the state. It literally permits no freedom at all.

14 Why does Mises say that private property in the material factors of production “is not a restriction of the freedom of all other people to choose what suits them best?”

Those people have a choice in how they use their own time, money, and property. Under a sensible definition of ‘freedom’ the fact that I own a factory or a piece of land does not infringe upon anyone else’s liberty. And if I use these resources to produce a new good or service, everyone else similarly has the right to avail themselves of the fruit of my efforts, or not.

What this means is that it is ultimately the consumer, not the producer, who has final say. An enterprise grows successful by virtue of better meeting a need.

15 What is the “distinctive principle of Western social philosophy,” and what is its connection to liberty and property?

Western social philosophy has had a greater emphasis on individualism than can be found anywhere else. A necessary corollary of endorsing spheres in which individuals are free to make their own choices is the idea of private property — after all, a freedom to speak one’s mind in a society that seizes the property of dissenters is a hollow freedom indeed.

This division of labor and reinvestment of profits in capital goods is what has given rise to the splendor and comfort of the modern world. Individualism and capitalism also gives everyone the greatest chance they have to rise in the world. It is true that some people are born to vastly more favorable circumstances than others, but by and large you’re best bet of making a fortune from scratch is to be born in the freest possible society.

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