WorldSys: Austrian Home Study Course, Week 31

READINGS: “Economic Calculation in the Socialist Commonwealth”, Ludwig Von Mises; Chapter 10 of “Economics for Real People”, by Gene Callahan; Chapters 2 and 3 of Thomas Taylor’s “An Introduction to Austrian Economics”.

1) For Mises, what is the defining characteristic of socialism?

Community ownership of the means of production, that is: factories, capital goods, etc. Of course some special body will have to be set up to exercise the will of the people.

2) Is it possible to have money in a socialist commonwealth?

Yes — even if consumer goods are allotted by awarding individual comrades with coupons those goods will likely be exchanged (a teetotaler could trade his alcohol allotment for tickets to the movies, and so on). To the extent that this is possible money can evolve and play the same role it does anywhere else. But where public ownership prevails this cannot be the case.

3) Does the “calculation problem” involve the difficulty of discovering technological recipes for production?

No. Mises illustrates the difference between ‘recipe for production’ calculations and economic calculations with an example of a bridge. Successfully performing all the calculations required for building a bridge won’t tell us whether, all things considered, the bridge should be built. This latter kind of calculation is the kind that becomes impossible with public ownership of the means of production.

4) Does the calculation problem involve the possibility that the central planners might be selfish and ignore the desires of their subjects?

That is always a possibility, but it’s orthogonal to the calculation problem itself. Even if central planners were every bit as wise, intelligent, and benevolent as they believe themselves to be it wouldn’t blunt the force of the calculation argument; communal ownership of the means of production would still make rational economic calculation impossible.

5) Why doesn’t the capitalist society suffer from the calculation problem?

Because the free market is able to utilize many individuals who are independently doing economic calculations with information which may not be written down anywhere. Prices on capital and consumer goods can respond to these people making value judgements, bidding for resources, taking action in the face of uncertainty, and succeeding or failing. Ultimately this means prices are able to better perform their information-theoretic function, making all calculation efforts more effective.

6) Would Robinson Crusoe be able to “centrally plan” his “economy”?

Crusoe would be able to plan his own behavior and undertake ever more complicated actions to satisfy ever more complicated desires. But, crucially, he wouldn’t be able to foresee all possible production choices in advance. Even when alone Crusoe is still engaged in a kind of exchange, insofar as he trades finite time for this or that good. There is no way he can imagine all that he will desire in the future, nor all the ways in which those desires can be fulfilled, nor the ways in which his preferences will evolve, nor the plenitude of ways in which higher-order goods are to be evaluated one against the other in the service of satisfying his wants.

7) Can’t central planners rely on mainstream economic theory (such as the rule that price should equal marginal cost) to guide them?

No. Quite a lot of mainstream theory relies on assumptions which render their models totally unrealistic. The concept of perfect competition, for example, imagines that all market participants possess perfect knowledge — of the relevant economic data, of each other’s motives, etc. But this sidesteps what Hayek and others considered to be the central problem of economics: resource allocation in the context of imperfect knowledge. Hayek’s great contribution to the Austrian tradition was puzzling out the implications of this fact for the market order. Stipulating perfect knowledge, therefore, begs the question and renders us unable to provide anything like a realistic treatment of actual people’s actual behaviors in actual markets. Centrally planning an economy is therefore even more difficult.

8) Perhaps Mises’s essay contained relevant points when it was first penned, but don’t modern computers offer a way to solve the calculation problem?

The calculation problem remains a problem even with the power of computers, supercomputers, and quantum computers. There is no way to outcompete the market in the absence of prices for capital goods, and no way to establish such prices without a market.

I will say that I have a hard time putting limits on what an artificial superintelligence can do; can I really be certain that the kind of minds existing on a computer the size of Jupiter couldn’t plan a simple economy, even in principle? Perhaps not, but I am comfortable saying that no human, group of humans, or group of humans aided by foreseeable technology will be able to do so.

9) What is “market socialism”?

There doesn’t seem to be much consensus on what exactly market socialism entails, but it appears to be cooperative ownership of the means of production embedded in a framework which still uses a market in capital goods. How exactly this is supposed to work varies enormously from one model to the next.

10) How might the Soviet Union have benefited from world prices established in foreign, capitalist countries?

The heart of the calculation argument is that common ownership of the means of production either distorts or destroys prices altogether, making any semblance of economic calculation in capital goods markets impossible. But a country surrounded by market economies on all sides can still undertake to perform a blunted, ham-handed version of calculation by examining prices in those countries. In the months before starvation a Soviet farmer might’ve been able to approximate the cost of a new piece of equipment by looking at what similar equipment costs in Hungary.

WorldSys: Austrian Home Study Course, Week 30

READINGS: “The Austrian Theory of the Trade Cycle and Other Essays” by Mises et al., Chapter 8 of Thomas Taylor’s “Introduction to Austrian Economics”, Chapter 13 of Gene Callahan’s “Economics For Real People”

1 Is the business cycle a natural feature of the market economy?

No, it is a result of credit expansions from financial institutions. There would be swings and retractions in a regular economy, of course, but not ones of such intensity and duration as are present in a mixed or socialist economy.

2 What is the natural rate of interest?

The rate of interest set by the market, in the absence of meddling by the central bank. Put another way (and quoting Roger Garrison) “[t]he natural rate of interest is the rate that equates saving and investment.”

3 What is the connection between central banking and the business cycle?

The Austrian Theory of the Business Cycle stipulates that it is just the central bank’s expansion of credit which drives the business cycle in the first place. Holding down interest rates and increasing the money supply encourages people to open businesses which are only profitable on paper — with easy credit and prices set to rising by an ever-inflating money supply.

4 How does the Federal Reserve lower market interest rates?

Flooding the market with new cash, which makes more money available for loans and thereby lowers the per-loan interest rate.

5 Why are low interest rates politically popular?

They’re an immensely easy sell — all you have to do is make it sound like you’re giving more businesses the power to expand and create jobs and the working-class members of your constituency will love you for it.

6 How does an artificially lowered interest rate affect the structure of production?

Investments, expansions, projects, and enterprises which are not actually feasible suddenly look more feasible because it is easy to get credit (a loan) to undertake them. Over time this means that more and more unsustainable businesses are funded, gradually bringing the structure of production into a more fragile and unworkable configuration.

7 What is the boom period?

The exuberant period in which easy credit and an expanding money supply cause people to spend more than they would opening businesses and starting new ventures. Everyone is feeling optimistic.

8 Can the boom be maintained indefinitely?

No. All that is occurring is that an expansion of credit is leading people to attempt ventures which would not look profitable or even possible under stable, sound economic conditions. Since the boom period is giving rise to a structure of production and a series of entrepreneurial bets which cannot all physically be realized it is unsustainable by definition.

9 In what sense is the “bust” good for the economy?

It liquidates bad investments and unsustainable ventures, freeing up those resources for better uses elsewhere.

During the boom period people are incentivized to open businesses they normally wouldn’t because interest rates are artificially low, and to remain in business when they aren’t profitable because an artificial rise in prices makes them look more successful than they actually are.

When it becomes clear that this isn’t going to end well the bust is the equivalent of a brush fire, clearing out the thickets, fertilizing the soil, and making space for new, healthier growth.

This is painful, of course, and we shouldn’t make light of people’s failures. But this self-corrective mechanism is a necessary component of a functioning economy.

While all this is happening people start cutting back, eventually building new capital stores to be invested in enterprises that better conform to the consumer’s pattern of wants.

10 Should the government use the printing press to stimulate the economy if there is widespread unemployment?

Using the printing press to spur anything — unemployment, investment, what have you — reliably leads to mal-investments and distortions in the capital structure as business people work off faulty market signals and fund ventures which only look profitable in the light of low interest rates and rising prices.

So if the Federal Reserve curbs unemployment by inflating credit and allowing a whole bunch of new businesses to open up which shall only last as long as new money is being printed, what’s going to happen when the chickens come home to roost and the contraction begins?

11 What is capital consumption?

The use of capital without replacing it during the boom period.

12 Why do entrepreneurs make bad investments during the boom period? Doesn’t the market weed out those who make poor forecasts?

It does when it’s allowed to function properly, but this can take time. If inflationary practices have systematically distorted almost the entire economy then making sensible economic forecasts becomes extremely difficult, no matter how smart and careful an entrepreneur is.

WorldSys: Austrian Home Study, Week 29

READINGS: Selections from Henry Hazlitt’s Economics in One Lesson; Chapter 12 of Gene Callahan’s Economics for Real People

1 What is a price control?

Some kind of government-mandate change made to a market price. The State may establish a price floor below which a price may not be allowed to fall, a price ceiling above which a price may not climb, or a fixed price at which a price must remain.

2 What is a shortage?

An amount of a good less than what is demanded at a given price.

3 What is a surplus?

An amount of a good greater than what is demanded at a given price.

4 Is a shortage the same thing as scarcity?

Not quite; all economized goods are scarce more or less by definition. But there being a shortage of something means there’s an additional amount of scarcity over and above the normal amount. Automobiles are scarce because there are not an infinite number of them, but there is only a shortage if the president erects enormous tariffs on imported cars, or if a meteor hits a Detroit and America’s ability to produce cars is permanently hindered.

5 What are some of the effects of rent control?

As rent controls are just a form of price controls most of the consequences are the same. Such controls unfairly privilege those already living in apartments at the expense of those who don’t because not everyone has an equal chance to bid for space. There is no incentive to conserve space, so tenants who might be willing to suffer a roommate to split rising rents will have no reason to do so. Rent controls also strongly and increasingly dis-incentivize building new housing because construction costs are rising while potential profit (from rents) is legally frozen in place. Sometimes the State will understand this and only place rent controls on existing buildings, not ones built in the future. If this is the case, people will refuse to move because it will be so much more expensive to live anywhere else.

6 What are the effects of minimum wage laws?

Minimum wage laws price marginally-productive workers out of the market. So if the minimum wage was $10/hr and is being raised to $15/hr, anyone who was just barely worth the old wage will now incur a loss for his employer at the new one.

He will, therefore, most likely be fired. To paraphrase Hazlitt, “you cannot make a man worth a certain amount of money by making it illegal to pay him less”.

The more this happens the more economic sense it makes to begin investing in alternative like automation. There are quite a lot of jobs, like cleaning or taking orders at fast food restaurants which are increasingly falling to AI and robots because minimum wages laws make employing humans for these tasks prohibitively expensive.

So both rising unemployment and rising automation are hallmarks of a rising minimum wage.

7 What are the effects of “price supports” for agricultural products?

A typical price support scenario is artificially restricting the supply of a good like cotton or oranges to ensure that prices remain at a State-mandated level. This means that all growers of cotton and oranges produce below their capacity and prices remain above what the market “wants” them to be.

Now contrast this with an organic price decrease. If demand for agricultural goods drops, prices drop, and only the least-effective farmers go out of business: those that were working bad soil, or using old equipment, or being less efficient than they possibly could be, etc.

The resources being used by these marginal farmers are now freed up, and the most effective farmers might conceivably be able to expand their output, more effectively utilizing the newly available land and equipment.

Now, anyone who buys cotton or oranges gets their goods for less than they did before, the price having dropped and all. That extra money is then made available for saving, investing, or purchasing other goods. Those farmers that were knocked out of business by a drop in the prices of oranges and cotton might well find themselves employed in some adjacent industry, supplying the demand engendered by this surge in economic activity — in fact, it isn’t uncommon for a superior company to buy out a competitor and keep nearly the entire staff in place.

To be sure the picture isn’t always so rosy, but note that neither this scenario nor anything like it is possible with the State blindly whacking about with prices and production like a six year old at a piñata.

8 Shouldn’t the government outlaw “price gouging” after a natural disaster, at least for essential items such as canned food and bottled water?

Such laws dis-incentivize provisioning these goods. Higher prices for water, gasoline, and food reflect their scarcity. When water goes for $10/bottle people two or three states away will lead their trailers full of bottled water and drive to the disaster site. If we let our good intentions compel us to legally outlaw such behavior the far more likely result is that there will simply be no water at all.

Maybe we’d like to say “well, people should just drive to the disaster site with water anyway, out of the goodness of their hearts”, and maybe that’s true, but our sentiments do not change the reality at all.

9 What function do market prices serve?

Market prices condense and represent information about preferences, the availability of resources, production costs, supply and demand, and so forth which is otherwise spread throughout the economy in an unusable state. With the prices of final goods, the prices of the factors of production, prices for distribution, an entrepreneur is able to make sensible economic calculations. When people want more of a good or service they begin buying whatever quantity of it exists, which makes providing the good or service more profitable, which serves as a signal to entrepreneurs to enter this segment of the market. The reverse process serves as a signal to entrepreneurs to leave this segment of the market.

Thousands, or perhaps millions, of people are able to act as if they are a working together to accomplish all of this, but in fact it’s just individuals making economic decisions moment-to-moment or day-by-day.

The central mechanism making all of this possible is the price system.

10 Shouldn’t the government try to raise the prices of stock shares, in order to promote investment and growth?

No. Doing this won’t help the people who’s stock was trading below the new price, they will simply be booted out of the market. Even if this somehow weren’t the case (because people were mandated to own a certain amount of stock or whatever) the company’s boosted purchasing power would come from stock purchasers who have had their own purchasing power reduced by the same amount.

It’s unlikely that many will be buying the stocks at the new price, which means that for the most part people are just buying those stocks they would’ve bought anyway, only without the option of buying stocks that had been trading at the less-than-mandated price.

11 How do corporate “raiders” promote efficiency when they engage in leveraged buyouts?

They free up assets like labor and equipment which can be used by other firms. The “raider” essentially waits until such time as a company’s assets exceed its share price on a stock exchange, leverage their buying power to raise enough money to purchase the firm, and then auction the company off piecemeal.

This allows the mis-used resources tied up in the company to be better utilized elsewhere. Other firms might bid on the computers, office equipment, etc. of the original firm.

12 Why does Callahan write that “…there is no use crying over spilled milk?”

In the real economy failures happen. Entrepreneurs misjudge the markets, conditions change and old techniques are no longer viable, speculators and investors make bad calls, money is lost.

The free market corrects for this be liquidating the resources tied up in these unprofitable ventures, making them available for use elsewhere. This is a healthy and necessary part of a functioning economy, not a reason to cry and wring our hands and subsidize failing enterprises at the public’s expense.

There is nothing wrong with taking pity on people who have fallen on hard times, economically, but the correct approach is not bailouts, it’s to let the failures happen and new ventures to emerge.

WorldSys: Austrian Home Study Course, Week 28

READINGS: “Middle-of-the-road Policy Leads to Socialism” by Ludwig Von Mises, Chapters 11 and 12 of Gene Callahan’s “Economics for Real People”

1 What is interventionism?

A third-way system meant to stand equidistant between communism and capitalism, retaining the advantages and avoiding the pitfalls of each.

Interventionism essentially calls for having a market and a State, with the latter heavily involved in the operation of the former, issuing orders, controlling prices, wages, and interest rates, and otherwise meddling in the free economic choices made by individuals.

2 How does interventionism differ from full socialism?

Interventionism allows quite a lot of ostensively free economic activity, and lacks anything so nasty as socialism’s full public ownership of the means of production.

For a while, anyway.

3 Name some examples of typical interventions?

Price and wage controls, tariffs on imports to “support” domestic industries, taxes, establishment of governing bodies like the American Medical Association and the Food and Drug Administration, new “there oughta be a law” laws, subsidies…

4 Describe the “dynamics of intervention”.

Some enterprising bureaucrat spots an opportunity to garner public favor by offering to subsidize some industry or erect a tariff to make imports more costly. Then they pass their laws. But these laws have unintended consequences — not allowing inefficient firms in the subsidized industry to fail means higher prices, as do the tariffs. So now, to remedy this mess, more laws are passed fixing prices. Alas, this just moves the problem further afield, and now we must fix prices in more remote industries to forestall further increases in costs.

And this merry-go-round of nightmares continues to spin and spin, crushing everyone as goes.

5 Why does Mises think an initial price control will lead to more such interventions?

Because interventions generally always lead to more intervention to mitigate whatever unforeseen consequences the original intervention caused.

Mises illustrates with the example of a price control on milk. Say the government caps the price of milk at a certain level, the better to make it available to the poor so that their children can have decent nutrition.

The marginal producers of milk, those for whom the venture was just barely profitable, now take their cows, machines, and skills elsewhere and do something that makes more economic sense. This reduces the supply of milk, making it harder for anyone, including the poor who were to be the target of the State’s largesse, to get any.

To avoid this, the State now institutes further price controls on the various factors of milk production so that those marginal producers don’t face a prohibitively steep rise in their business costs.

But the result of this meddling is that the supply of the factors required to produce the factors required to produce milk drops. At this point does the State see the trend and usher in a program of sweeping free-market reforms, drastically cutting itself down to a size consilient with liberty?

Mayhap it would in a world like Narnia; not, in fact, in this one.

6 How might a government intervention lead to results that even its proponents consider worse than the initial state of affairs?

See the previous question. In this scenario, if price control schemes are allowed to metastasize eventually you end up with economy-wide shortages in all sorts of things. This is not what the original fixers of milk prices had in mind. In theory, if they had understood where their path would take them they would not embark upon it in the first place.

7 Isn’t it best to adopt a moderate position, which avoids the excesses of pure socialism and pure capitalism?

Mises contends that this cannot be done. Only the poles of socialism and capitalism are stable over the medium term, and only capitalism is stable over the long term (socialism eventually collapsing under the mis-signaling of distorted prices).

8 If interventions fail to achieve their official goals, why do politicians continue to propose them?

They are popular with the electorate, and can gain shallow, immediate results which increase the chances of being re-elected.

9 If interventions fail to achieve their official goals, why do voters continue to support them?

Most people simply don’t understand how the economic consequences play out.

10 What are the “two roads to socialism” described by Mises?

The first is by elevating the proletariat to the status of ruling class and then encroaching by steady degrees into the operation of the market; the second is to let capitalism reach full maturity, at which point it will ineluctably evolve into socialism.

So the first sees a need for the State to take an active role in the development of socialism, but the second takes the view that the natural forces of history will take us to socialism whether we will it or no.

11 Is interventionism a viable economic system?

No, either it is abandoned in favor of capitalism or it continues to expand into socialism.

12 Does the history of the U.S. validate Mises’s views on the trends of interventionism?

Most certainly. Our once stalwart allegiance to individualism and economic freedom has given way to gradually more and more statism, collectivism, and interventionism, as Mises said it would.

WorldSys: Austrian Home Study Course, Week 27

READINGS: Various articles on patent law from Gene Callahan

1 Describe’s patent.

Amazon patented the idea of buying items on the internet with a single mouse click.

2 What did British Telecom announce as its patented innovation?

Hyperlinks (!)

3 Why does Callahan challenge Gleick’s statement that “[patent law] fueled industrial progress in the early United States”?

Because Gleick can’t possibly know that. He can’t go back in time, remove the legal apparatus of the patent office, and observe the effect of this maneuver on industrial progress. Admittedly this is a problem for historical, economic, and sociological hypotheses more generally, so I don’t know if Callahan has a particular reason for rejecting this line of thought in this case.

4 Why does Callahan say that patent law is not grounded in the common law?

He claims that they are a state intervention which came later and ultimately strip the rights of subsequent inventors.

If someone patents an invention a week before me and I independently invent it later, without use of the earlier inventor’s designs, I am open to legal punishments.

5 What is Gleick’s analysis of the specific case of the incentives facing Jeff Bezos?

Without a patent on 1-click ordering Bezos would’ve still invented it, seen it copied by other online distributors to the benefit of consumers, and would’ve prospered to the degree that he could continue to innovate.

6 Describe the typical attitude of Walter Mossberg concerning PC software.

That the software is far too buggy and computers should simply work at all times without issue.

7 Why does Callahan think the partnership for which he worked couldn’t possibly be accused of sacrificing the end user’s needs when it came to software quality?

Because the people who paid for and used the software were the same people — they therefore could not be mis-understanding their own interests.

8 Why was 61 percent accuracy the point at which debugging of Callahan’s program should stop?

Because, on the basis of some fairly simple accounting, that is the point at which the stock-trading program Callahan was working on would be profitable. At 61% good trades the program would be making money on average and any additional advance testing beyond that point would simply be costing the firm money.

9 Is it really true that home appliances besides computers never crash?

No, if they didn’t there wouldn’t be plumbers, dishwasher repairman, or warranties on refrigerators. And even if this were the case it would hardly be decisive — home appliances are much, much simpler than computers.

10 What alternatives do customers have to “buggy” Windows?

They have a choice between two Windows varieties, Windows 98 and Windows NT, as well as all manner of Unix distributions and the OSx family of operating systems.

11 Describe some of the proposed reforms of the software industry, and Callahan’s reaction.

A government mandate regulating how buggy software could be and implementing a licensing scheme for software engineers. The former would make developing new software too expensive for anyone except the likes of Microsoft, and the latter would drive up the costs of entering the software development field while ossifying the high salaries of anyone able to afford licensing.

WorldSys: Austrian Home Study Course, Week 26

READINGS: “Private Security” in Bob Murphy’s Chaos Theory.

1 What is anarcho-capitalism?

The most thorough possible endorsement of private property rights and free markets. Anarcho-capitalists believe that infrastructure, healthcare, police, armies, and everything else should be provided by the private sector.

2 Are all Austrians anarcho-capitalists?

Today, it definitely seems that way, but historically many prominent Austrians, including the likes of Mises and Hayek, were minarchists.

3 How could law be privately provided?

Murphy believes that insurance companies would be incentivized to finance armies in order to protect the lives and property they’re insuring because, in the event of an invasion or similarly destructive event the insurance companies would be obliged to pay out enormous sums.

4 Do anarchists believe that all humans are basically decent and law-abiding?

No. Anarchists generally seem to believe that people are decent enough to have a society without tearing it apart, but they are not committed to any silliness about the angelic qualities of human nature. This is why they spend time thinking about how the private sector could provision courts, police, and armies — because these things will still be required.

5 How are insurance companies involved in [Bob] Murphy’s proposals?

Centrally: it is insurance companies that Murphy believes will pay for armies. Just as insurance companies would be willing to pay to build earthquake shelters and earthquake-proof buildings in a seismically-active region so too would they be willing to fund defensive forces which, in the long run, will result in their having to pay out less.

6 Wouldn’t Murphy’s system basically be a State run by insurance companies?

No, as alluded to in a previous question set insurance companies simply do not face the same incentives as a state. They do not have a territorial monopoly on violence, they personally own the resources being deployed in various capacities, and they are liable for damages.

7 Give an example of experts or “authorities” from other disciplines where force is definitely not involved.

Murphy cites baseball clubs and French restaurants as examples — one needn’t be a professional athlete or have an encyclopedic knowledge of foreign cuisine to manage establishments devoted to these pursuits, provided one is willing to hire other people to identify the requisite talent.

So if I, as a private-sector general, were allowed to compete with the Pentagon for wartime strategy, the first thing I’d do is start trying to identify and hire experts in logistics, intelligence gathering, and battlefield tactics. I would also look around for a historian who could draw from a reservoir of knowledge to make comparisons between ongoing conflicts and historical ones.

8 How might social/economic pressure persuade disputants to submit to arbitration?

Conflict tends to be expensive and obnoxious. In the majority of cases we can reasonably expect people to be willing to submit to arbitration when conflicts arise because ‘going to war’ with a person — either on a national or individual level — is often simply not worth whatever is to be gained.

9 How does the Misesian calculation argument relate to military defense?

In the same way that it does anywhere else. The calculation argument essentially claims that public ownership of the means of production — factories, lumber, labor — doesn’t allow prices to work, which means that performing rational economic calculations becomes impossible.

How is a given unit of wood or steel to be put to the best use? Without price signals there simply isn’t any way to tell.

Well, this fact doesn’t change when the subject of discussion changes to defense. Every rivet in every tank, every piece of glass in every rifle scope, every hour spent training troops or sending them out on patrol is scarce, and subject to the same economic laws as all scarce goods are.

If you accept this, then you’ll see that Misesian worries over the calculation problem apply to military defense as much as to constructing roads, harvesting wheat, and performing root canals.

10 Why would insurance companies ever pay for military defense?

As discussed in several earlier questions, to reduce long-term payouts. If I’m insuring skyscrapers, bridges, tunnels, roads, and other massive infrastructure projects it damn sure makes sense for me to use some of my profits to pay for a small military able to protect these investments from foreign invaders whose bombs and guns might destroy them.

11 Why does Murphy think that private militaries should have their budgets multiplied by a certain factor before comparing them to government budgets?

Because governments pretty much never underpay for anything, and private sector investors would almost certainly get military equipment for a fraction of the cost. No one is shocked by the $38 million price tag of an F-14 Tomcat because the government’s monopoly on defense has made it impossible to determine how much such a weapon should cost.

12 If the U.S. military is second to none, doesn’t this prove that government is the best way to provide defense?

No, because said military is competing against other state-provisioned armies, not privately-provisioned ones, so at best we can say that it demonstrates that one government (ours) is better than other governments at building enormous war machines.

But the deeper question is whether or not the U.S. military could do a better job of innovating new fighter jet designs and manufacturing existing fighter jet designs than a private firm. On the evidence, I think this is unlikely.

13 Perhaps a draft is detestable for moral reasons, but doesn’t it give a society the best means to defend itself from attack?

The best means of defending from attacks is a volunteer army of willing soldiers who know for what and for whom they are fighting, backed by a robust industrial economy and the high military technology provided thereby.

14 Wouldn’t a private army take over a society?

This would be less likely if there were many competing defense agencies, and it would be a fairly rare situation for conquest to be more profitable than trade.

But I do admit to having less sympathy for the anarchist case on this point. History is replete with examples of precisely this scenario unfolding, and I’m less sanguine about that not happening in a modern anarchy.

15 Would an anarchist society need to develop nuclear weapons in order to deter invasion?

Not necessarily. Plenty of societies exist today without nuclear weapons deterring invasion, and an anarchist society might well be bleeding-edge in the private provision of nuclear defense systems.

It’s also worth remembering that anarchist countries, being poorly suited for conquest, would be harmless neighbors unlikely to provoke a preemptive invasion.

WorldSys: Austrian Home Study Course, Week 25

READINGS: “Education: Free and Compulsory” by Murray Rothbard

1 How does Rothbard describe a person’s education, starting from infancy?

As a process of maturing into the full stature of a human being, which means developing the powers of reason which are our uniquely human endowment. Especially in infancy and early childhood this happens ceaselessly, every waking hour.

Education is not simply time spent in a school.

2 In what sense is everyone “self-educated”?

All the ideas, values, judgments, and tastes a person acquires are formed through their own mental faculty. They must follow the logic, examine the evidence, perceive facts directly, and assimilate it all into a body knowledge with their own memory and their own reason.

They may have access to teachers and institutions, books, the internet, a scholarly friend network, but learning still happens between their ears and nowhere else. Hence they are ‘self-educated’.

3 What is the use of formal instruction?

To help a child develop specifically intellectual faculties. Social education probably isn’t necessary — a child will learn how to relate to others in the process of interacting with their friends and family. But geometry, history, grammar, and things like that are best learned in an institutional setting where the materials can be gathered and errors corrected by a teacher or peer.

4 In what limited sense is “equality among men” beneficial?

Everyone should have the opportunity to develop themselves to the fullest extent possible in the absence of violence. This does not mean everyone will end up in the same place, or ever close to it, for human beings are radically unequal in their character, intelligence, tastes, talents, and ambition. But an ‘equality before the law’ is the only sensible basis for a social order.

5 What is the problem with imposing uniform curricula for all students of a particular age?

Children differ enormously in their educational requirements, and imposing ‘uniform curricula’ on them belies this fact.

6 How does the State infringe on parental authority?

Even private schools and home schools are forced to conform to what the State considers appropriate educational standards. This infringes upon the right of parents to teach their children as they see fit.

7 Are State schools benign so long as private schools exist as alternatives?

The existence of a private-school alternative does nothing for the children in State schools, and at any rate all the private schools I’m aware of still have to conform to the State-mandate standards. All in all private schools don’t do much to ensure parental sovereignty or justice.

8 What was the role of Luther in European State education?

Luther was one of the driving forces in early efforts to establish compulsory public schools. Because of letters he wrote and arguments he made the first modern public schools were established in Germany in 1524, becoming the model for later such institutions. Luther went on to create the “Saxony School Plan”, which became a kind of blueprint for state schools throughout Protestant Germany and bore many of the hallmarks of their modern ancestors: compulsory attendance, vast records kept on pupils, fines against truancy, etc.

9 Which European State was the first to have compulsory education?

Gotha, in Germany, though Prussia was the first to have a national public education system (NOTE: there is great historical overlap between Prussia and Germany, so perhaps Gotha was in Prussia; I’m not sure, and the text isn’t specific)

10 Did Napoleon favor State control of Education?

He did, and worked to institute a State-wide public schooling system.

11 Why do totalitarian governments wish to control education?

It should be obvious: one could scarcely endeavor to contrive a mechanism of control more total than having a citizen delivered into one’s hands by law as a child and then having near-daily access to them until they reach adulthood.

In my experience the hardest sort of people to reach are not those who have thought deeply about communism, democracy, and capitalism before deciding against the market order; it’s those incredible products of public schooling which are completely, utterly incapable of even beginning to take the first step towards conceiving of a truth besides the one taught them in high school and reinforced on the news. It is passing unlikely that you could even get such a person to consider the possibility that, say, roads could be provisioned by the private sector or that the FDA is a net social and economic negative.

More often than not the words of my thorough, exhaustively-cited arguments have literally not even registered in their minds.

12 Was education always a compulsory affair in the American colonies?

Most of the American colonies embraced a model of private, parental education in the English tradition. The exception was New England; the Massachusetts Bay Colony adopted the compulsory Calvinist school model for the express purpose of breeding good Calvinists. With the passage of a 1642 law that colony made it permissible for the State to seize children whom it judged to not be receiving the education which, in its eyes, they ought to be receiving.

This is the same absolutist government which made church attendance mandatory and church membership a prerequisite for enfranchisement. That such a place furnished the template for future compulsory public schools in the other colonies should give one pause.

13 What was Thomas Jefferson’s (mixed) position on government schooling?

Jefferson believed in having free public schooling provided by the government for the poor but squarely rejected compulsion.

14 Which two groups were the major forces behind compulsory education in the U.S.?

A network of professional societies and advocacy groups coupled to a number of journals pushing compulsory public schooling. In point of fact both were powered by individuals like Calvin Stowe and Horace Mann who constituted a tightly knit group of educationists working towards placing responsibility for instructing children squarely in the hands of the State.

15 What was the role of Horace Mann?

He began as the editor of an educationist journal called “Common School” and went on to become secretary of the Massachusetts Board of Education, where his annual reports began to have more and more influence. He was a prominent figure among advocates for public schooling; though this group did not endorse compulsory schooling they went to great lengths to encourage public schools as the prime equalizing force of Republican society while deliberately disparaging private ones.

16 How could a free market provide effective education for poor children?

It’s important to bear in mind before grappling with this question that, as with all things, schooling on the market would be much cheaper than a public alternative. With that having been said, poor families could take out loans for their children’s educations, investors might back especially promising children in exchange for some percentage of future earnings, there would probably be scholarship programs in place, successful private schools might offer education to poor families at steeply-discounted or even waived rates, or there might be free schools offered in the same way that many hospitals offer free clinics.

WorldSys: Austrian Home Study Course, week 24

READINGS: Walter Block’s “Free Market Transportation: Denationalizing the Roads”.

1 What is the lethal menace that Block describes in the beginning of his article?

The nationalized roadway system.

2 Describe the record of government road management in terms of fatalities?

Abysmal. Block walks through some statistics: 46,700 killed on public roads annually, over half a million in a decade, 960 on each year on Thanksgiving, 2,077 children each year under the age of five, and the macabre record goes back to about 1925.

3 Why has the government escaped opprobrium in spite of this performance?

People blame the statistics on everything except government management. I think the wider problem is a failure of imagination. In all the years I’ve spent advocating the cause of liberty, and in all the times I’ve heard people inveigh against the possibility of private infrastructure, I don’t think I’ve ever met anyone who’d given the matter 100 consecutive seconds of thought.

It simply never occurs to most people to seriously think of non-public alternatives, and when pushed on the matter they confabulate a response on the spot.

4 Aren’t road accidents really the fault of bad drivers?

They certainly bear some responsibility, but if people are routinely murdered at a restaurant we blame both the criminal and the lax security of the establishment’s owners.

5 Why should we expect private owners of roads to act more responsibly than government officials?

Because there is a profit and loss system at play in the market which is absent in government. Though there are plenty of able and intelligent bureaucrats and plenty of incompetent and foolish business people, basic economics operates on the latter in a way in which it doesn’t on the former; namely, if you run your business poorly you go out of business.

So the McRoad company must pass the same tests as every other successful enterprise, giving the consumer what is desired better than the alternative. Governments, being almost by definition a monopoly, do not have to meet this standard.

6 What incentives for safety would exist in a private road system?

The same that exist for parking lots or apartment complexes. Having people die using your product is not only bad because you’re losing paying customers but also bad because of the tremendous damage done to your reputation.

7 Wouldn’t private roads involve thousands of toll booths?

No. This objection seems to assume that sections of road would be owned by different people, each of whom would charge for using their particular section of road. But more than likely there would be road companies, just as there are parking lot companies, which would own miles of roadways and charge at some market-optimal rate.

Even if hundreds of people did own roads piecemeal it surely wouldn’t make sense for them all to try and charge for their little bit, because the road would become unusable in short order. Some entrepreneur would see the opportunity to buy tolling rights from everyone and set up a more sensible, orderly toll system which pays out dividends.

But here in 2018 we needn’t worry about this so much. Electronic payment equipment, installed on all vehicles, would make even the problem of hundreds of toll booths less troublesome, automatically charging $.00001 every time we passed one. The same profit and less mechanisms would be at play here as they are elsewhere, driving prices down.

8 Don’t we need the government tool of “eminent domain” for an orderly road network?

No. It’s worth pointing out that even with eminent domain there are limits to where roads can be built, so it isn’t as though this is a panacea. But this objection seems to hinge on there being a necessity to build a totally straight road through some piece of property. This is almost never the case, and it will usually be possible to build around the homestead of a holdout.

The fact that at some price point it will be cheaper to simply blast a path through the nearby mountains puts an upper bound on how unreasonably high a property owner’s asking price can be. This is especially true when there are several plots of land which are suitable for road-building and the owners must compete with each other for the payout from the road company.

Suppose that someone does in fact own an absolutely essential plot of land and refuses to sell. No matter, build a tunnel underneath or a bridge over the parcel; property rights don’t extend to the stratosphere, or to the center of the Earth.

9 What is Block’s answer to the charge that a road owner could hold a family hostage in their home by blocking the exit?

This isn’t an issue with various analogous situations — landlords don’t blockade tenants’ doors and demand a fee to let them leave. Flea markets don’t rent out table space and then form a barrier around a seller’s wares.

Under a free market system ‘road access’ would be a provision within any property contract, and everyone would know that comes standard when purchasing land or a home.

10 Who would decide the rules of the road?

Whoever owned the road, most likely. Questions of this sort aren’t answerable with any degree of precision beforehand.

11 How would a private system deal with traffic snarls?

As with the previous question, it’s hard to say exactly what solutions would be evolved in advance. What we can say is that private companies have a strong incentive to develop rules which allow the smooth functioning of the system and will go bankrupt if they fail, whereas the public sector does not and will not.

Under the current regime vehicles routinely get stuck in intersections and hold up traffic. Perhaps on a private road the computer monitoring system would simply bill any such infraction to encourage obedience to the rules.

12 How would “green light time” be distributed?

Likely through a bidding/auction system in which roads pay for green light time in proportion to their traffic. If they refused to do so it wouldn’t take long before motorists began to patronize competitor roads. Today something like this could probably be handled by a computer system which optimized green light times behind the scenes, charging the various intersecting roads accordingly.

13 Could road owners compete with each other?

Sure. It is sometimes presumed that they can’t because the conditions of ’perfect competition’ do not and could not prevail in infrastructure. But this is hardly a problem, because those conditions — firms small enough to not be capable of moving the price around, homogeneous and indistinguishable products, perfect information — do not and could not prevail anywhere.

14 What is “double decking”?

Building one road above another road. In various situations such a technique could prove useful.

15 Is it Block’s responsibility to completely predict the features of a private market in roads?

No, nor can it be done. One of the central claims of Libertarians and other free-market sorts is that it is not possible for an individual or a group of individuals to form plans, rules, and schedules which outperform the market. It is inconceivable, therefore, that someone could predict the exact contours of an industry which doesn’t even exist yet.

WorldSys: Austrian Home Study Course, Week 23

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.

As with week 7 I found these questions especially difficult and beg more than the usual amount of pardon for any inaccuracies and errors. Perhaps some day I’ll return with a fuller understanding and amend what’s written here.

READINGS: “On Certainty and Uncertainty, Or: How Rational Can Our Expectations Be?”, Hans-Herman Hoppe.

1 Would people act if they had perfect certainty?

Probably not, for what would be the point?

2 Why is the notion of perfect uncertainty a contradiction?

Because we must be certain of total uncertainty, which can’t be the case.

3 Why is our knowledge of the physical world ultimately uncertain?

While we can say certain highly abstract things are true — such as that there are objects with properties — learning any of the specifics requires experience, which must necessarily always be imperfect, open to amendment or abandonment.

4 What is the difference between class and case probability?

When an airplane crashes, a glass shatters, or an earthquake destroys a house we may be shocked by the specific case, but as a class of phenomena these events are governed by an often thoroughly-studied probability. So we cannot say “this airplane will crash today”, but we can say that taken as a class a given percentage of airplanes crash every year, and so taken as a case this particular vessel has a given percent chance of crashing.

5 In developing these concepts, Ludwig Von Mises relied upon which mathematician?

Frank Knight and his brother, Richard Von Mises.

6 Under which conditions is insurance feasible?

It must be that the insurer is dealing with a class of physical phenomena which are predictable in the aggregate and over the long term, and it must be the case that there are enough insured to allow the insurer to make money — for there will surely be people who file claims long before their premiums have amounted to the payout for their policy, and this must be offset by people who pay premiums in excess of the payout for their policy.

7 Describe some practical difficulties in implementing this theory of insurance.

There are situations in which disasters occur which are so enormous insurance claims pour in all at once and threaten to bankrupt the insurance company.

We can also turn to the controversy surrounding ‘pre-existing conditions’ to see more examples of the thorny quality of insurance markets. People who suspect they might have some genetic malady which is detectable through testing are likely to be strongly dis-incentivized from taking the test for fear that it will cause their insurance premiums to go up, even though this is information almost anyone would want to have.

8 Can human actions be considered insurable risks?

No, only physical events like tornados or water heater explosions can be subjected to the kind of statistical analysis that makes insurance feasible.

Although I suppose it’s possible to insure against human actions like ‘burglary’, so I’m not sure what to make of this claim.

9 How does rational expectations theory differ from orthodox general equilibrium theory?

The operative model of a human being is that of a machine with perfect knowledge of the probabilities of future classes of action and which periodically breaks down by committing random errors.

10 List three flaws with the rational expectations approach?

It cannot account for the fact that humans learn and thus that their behavior changes; it assumes we can list out all possible actions we might take in the same way that we can list out all possible poker hands, then generating a relative frequency table; in order for the approach to make sense we must assume everyone has the same knowledge, because otherwise someone’s predictions could be better than another’s (but if this were true there’d be no need to point it out because everyone would already know).

11 Why can’t the positivist method be applied to predicting one’s own future actions?

On the Austrian view positivism is shot through with logical contradictions, so of course it wouldn’t be useful in predicting one’s own future actions.

12 Why does Hoppe compare Lachmann to the German historicists?

Hoppe claims that Lachmann is making a similar kind of argument with similar sorts of flaws. In essence Lachmann is saying that because human beings learn from their experience there is no way for us to make sensible statements about the future, because every episode — every bank failure, every episode of hyperinflation, every bad investment — teaches us something such that we don’t behave the same way afterwards.

13 Why are the propositions of praxeology counterexamples to Lachmann’s views?

Hoppe responds with a litany of praxeological propositions which refute this view. Because humans learn can we really not say that voluntary transactions are beneficial for all parties involved, that an overnight doubling of the money supply would lead to spectacular decreases in purchasing power, or that a minimum wage of $1,000 per hour without a concomitant increase in the money supply would engender massive unemployment?

14 Do a priori propositions provide us knowledge of the “real” world?

Sure. If we take a priorism seriously and arrive at a deductively valid claim about money (see the examples in the previous question) then, because every economy on Earth uses some form of currency we have come to understand something about the “real” world.

15 What is Mises’s approach to the singular events of human history?

To treat them as subject to case (not class) probabilities for which we understand some of the factors involved. Each event, being singular, can usefully be distinguished from similar events

WorldSys: Austrian Home Study Course, Week 22

READINGS: “The Environmentalist Threat” in Lew Rockwell’s The Economics of Liberty

1 How is the environmentalist movement similar to Marxism?

It’s a utopian, absolutist constellation of ideas nestled firmly within Leftism and perfectly comfortable with outrageous violations of basic civil liberties.

2 Whom does Rockwell consider the father of environmentalism?

Jean-Jacques Rosseau.

3 Aren’t extreme environmentalists just a harmless fringe group?

If they bought some territory in Montana and didn’t bother anyone, they might be, but as it stands they aim to use the coercive might of the State to force the rest of us to behave in the manner they deem fit.

This is far from harmless.

4 How is environmentalism a type of religion?

Quite a lot of environmentalism is explicitly religious, conceiving of the biosphere as a kind of integrated system which is Holy in an important way and worth preserving even at significant human cost.

5 What are the alleged sins of Christianity, according to some ecologists?

It provided the foundations for capitalism and industrialism, which you may recall as being two of the most profound forces for material advancement in the history of Earth.

6 What is the acceptable standard of living for humans, according to some ecologists?

Only barely above subsistence.

7 What was Albert J. Nock’s view of Nature?

As a dangerous adversary to be tamed. Most of nature is either inhospitable or actively dangerous to human beings, which might account for why humans have been changing their environments for something like a quarter of a million years.

8 Describe the dangerous legal trends illustrated in the Exxon case.

It suggests a return to the feudal policy of holding the ‘master’ (in this case, Exxon Mobile) responsible for the actions of subordinates (in this case, an employee that violated company policy by getting drunk on the job).

This will put a significant legal onus on companies and make it far easier to go after them in court, even when they have taken all the safety precautions required under any sensible set of rules.

9 Is wetlands policy moderate at least under Republican administrations?

No. Rockwell describes a case in which a Hungarian immigrant bought an old junkyard, improved it by cleaning away the refuse and putting down a layer of topsoil, and was slapped with steep legal penalties as a result because his property was technically classified as ‘wetlands’ under the clean water act.

10 Describe some of the environmentalist warnings that are based on dubious scientific claims.

Environmentalists would have us believe we’re a few years away from living amidst garbage piles towering over us as far as the eye can see. Needless to say, this has never proven true in the many decades since they’ve begun issuing this dire proclamation.

John Holdren, a physicist, claimed in the mid ’80’s that by 2020 climate-change-driven famines would kill as many as a billion people. We’re part of the way through 2018 and nothing remotely like such a calamity appears forthcoming.

11 Which U.S. president does Rockwell associate with the rise of the modern environmentalist movement?

Theodore Roosevelt.

12 How does environmentalism promote world government?

The terrestrial environment is not neatly delineated at the same places national boundaries are; there is simply no way to take seriously the policy proposals of even moderate environmentalists without realizing that their implementation would require something like a powerful world government enforcing supranational standards.

13 How would a free market address environmentalist concerns?

Any number of ways. Steven Cheung’s pioneering work on externalities demonstrated that orchard owners and beekeepers had done rather a nifty job of arranging mutually-beneficial pollination services between themselves, and there’s no reason to think similar such policies couldn’t obtain in the economy more generally.

One of the best ways to protect the environment is with a robust private-property regime. In the 19th century American courts frequently ruled against plaintiffs in cases wherein damages were sought for air or water pollution because it was believed that a healthy manufacturing sector was ‘in the public interest’. Had this precedent not been established it might be easier to sue factory owners when they foul the environment in ways deleterious to the public’s health, and such enterprises might be less inclined to due so.

Better yet, sell the rivers and make them private property. It’s always easier to pollute a thing that no one legally owns.