We celebrate in 1976 the bicentennial of two significant events, the signing of the American Declaration of Independence, and the publication of The Wealth of Nations by Adam Smith.

Smith had made a name for himself with an earlier volume entitled Theory of the Moral Sentiments, published in 1759, but he is now remembered mainly for his Wealth of Nations, on which he labored for ten years. The Wealth of Nations sold briskly in the American colonies, some 2,500 copies within five years of publication, even though our people were at war. This is a remarkable fact, for there were only three million people living on these shores two centuries ago, and about one-third of these were Loyalists. In England, as in the colonies, there were two opposed political factions—Whigs and Tories. The Tories favored the King and the old regime; the Whigs worked to increase freedom in society. Adam Smith was a Whig; the men we call Founding Fathers were Whigs. There was a Whig faction in the British Parliament and many Englishmen were bound to the American cause by strong intellectual and emotional ties.

Adam Smith’s book was warmly received here, not only because it was a great work of literature, but also because it provided a philosophical justification for individual freedom in the areas of manufacture and trade. The colonies, of course, were largely agricultural; but of necessity there were also artisans of all sorts. There had to be carpenters and cabinet makers, bricklayers and blacksmiths, weavers and tailors, gunsmiths and bootmakers. These colonial manufacturers and farmers had been practicing economic freedom all along; simply because the Crown was too busy with other matters to interfere seriously. There were numerous laws designed to regulate trade, but the laws were difficult to enforce, and so they were ignored.

Mercantilism

The nations of Europe at this time embraced a theory of economic organization called "Mercantilism." Mercantilism was based upon the idea of national rivalry, and each nation sought to get the better of other nations by exporting merchandise in exchange for gold and silver. The goal of Mercantilism was the enhancement of national prestige by accumulating the precious metals, but the goal was not nearly so significant as the means employed to reach it. Mercantilism was the planned economy par excellence; the nation was trussed up in a strait jacket ofregulations just about as severe as the controls imposed today upon the people of Russia or China. The modern authoritarian state, of course, has more efficient methods of surveillance and control than did the governments of the seventeenth and eighteenth centuries, but the basic idea is similar.

Take the theory of Mercantilism and boil it down. What do you get? You get political control over what you eat. Now, if someone holds the power of decision over you as to whether you eat or starve, he’s acquired considerable leverage over every aspect of your life; you do not bite the hand that feeds you! If someone controls your livelihood, you do his bidding, or people start talking about you in the past tense!

Mercantilism, in short, is the prototype of today’s totalitarian state, where government — by controlling the economy — exerts a commanding influence over people in every sector of their lives.

The major theme of The Wealth of Nations has to do with the interaction between government and the economic order. The theory of Mercantilism held that government must control and manage the economy, else production would be chaotic and the right people would not be properly rewarded. Present-day collectivists concur; they want a national plan which taxes away about 40 per cent of the peoples’ earnings in order to redistribute these billions of tax dollars to politically selected individuals and groups.

Questions of Political Power

The actions of the redistributive state — call it the welfare state if you prefer — are political actions. From ancient times to the present, every political theorist — except the Classical Liberals — tried to frame answers for three questions.

The first question was: Who shall wield power? Whether the structure took the form of a monarchy backed by divine right or a democracy based on the so-called will of the majority, it was essential that power be wielded by the small group thought most fit to exercise rule. The ruler’s job is to program our lives toward the achievement of national goals. But it was never power simply for power’s sake; it was political power for the sake of the economic advantage power bestows.

So the second question is: For whose benefit shall this power be wielded? The court at Versailles is a good example of what I mean. The French nobles favored by royalty lived rather well, although they’d rather be caught dead than working. In virtue of their privileged position in the political structure, they got something for nothing. I daresay that each of you can think of parallel instances operating today, even in our own country. Now, when someone in a society gets something for nothing through political channels, there are others in that society who are forced to accept nothing for something! And the third question, of course, is: At whose expense shall this power be wielded? Somebody must be sacrificed.

Let me repeat these three questions, for they provide an apt key to many political puzzles: Who shall wield power? For whose benefit? At whose expense? One might put this in a formula: Votes and taxes for all; subsidies and privileges for us, our friends, and whoever else happens at the moment to pack a lot of political clout. The American system was to be based upon a different idea. It took seriously the ideas of God, the moral order, and the rights of persons. It discarded the notion of using government to arbitrarily disadvantage a selected segment of society, and instead embraced the ideal of equality before the law. Government, in this scheme, functioned somewhat like an umpire on the baseball field. The umpire does not write the rules for baseball; these have emerged and been inscribed in rule books over the years and they lay down the norms as to how the game shall be played.

If any person is on the field it is to be presumed that he has freely chosen to be there, and in his thoughtful moments he knows that the game cannot go on unless there is an impartial arbiter on the field to interpret and enforce last-resort decisions — such as ball or strike, safe or out at first. Government, similarily, enforces the previously agreed upon rules.

This is the political theory of Classical Liberalism, and it marks a radical departure from all other political theories. It declared that the end of government is justice between persons, and maximum liberty for everyone in society. "Justice is the end of government," wrote Madison in the 51st Federalist Paper; "it is the end of civil society."

Government Is Force

The point to be stressed is that the essential nature of government — its license to resort to force at some point — is not changed by merely altering the warrant under which government acts. Divine right or popular sovereignty — it makes no difference to this point: Government is as government does.

Governmental action is what it is, no matter what sanction might be offered to justify what it does. The nature of goverment remains the same even though its sponsorship be changed from monarchial power to majority rule. Government always acts with power; in the last resort government uses force to back up its decrees. The government of a society is its police power, and the nature of government remains the same, even when office holders are elected by a vote of the people. And when the police power — government — is limited to keeping the peace of the community by curbing those who disturb the peace — criminals —then there is maximum liberty for peaceful citizens.

"The history of liberty," wrote Woodrow Wilson in 1912, "is the history of the limitations placed upon governmental power." The 18th century Whigs achieved a limited monarchy in England, and a constitutional republic for the thirteen colonies. This was a victory for freedom over tyranny. Such battles, however, do not stay won, and in our time many people have lost their freedom.

Twentieth century political despotism is much more extensive and severe than the monarchial rule of Smith’s day, which is why The Wealth of Nations is still a relevant book. Smith demonstrated that a country does not need an overall national plan enforced upon people in order to achieve social harmony. This is not to say that a peaceful, orderly society comes about by accident, or as the result of doing nothing. Certain requirements must be met if people are to live at peace with their neighbors. It is required, first of all, that there be widespread obedience to the moral commandments which forbid murder, theft, misrepresentation, and covetousness. The second requirement is for a legal system which secures equal justice before the law for every person. When these moral and legal requirements are met, then the people will be led into a system of social cooperation under the division of labor "as if by an invisible hand."

Adam Smith liked this metaphor of "an invisible hand" and used it in Theory of the Moral Sentiments as well as in The Wealth of Nations. Every person, Smith writes, employs his time, his talents, his capital, so as to direct "industry that its produce may be of the greatest value…. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it…. He intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intentions." Smith concludes this passage by adding, sardonically, "I have never known much good done by those who affected to trade for the public good."

What is Adam Smith telling us? He is saying that if we operate within the proper moral and legal framework, employing our God-given talents to the limit of our powers, then we will find individual fulfillment directly and get the good society as an unexpected bonus.

Equality, Liberty, Justice

The Wealth of Nations is generally regarded as a work on economics, but Smith did not think of himself as an economist. Smith was a professor of Moral Philosophy at the University of Glasgow, where he lectured on ethics, rhetoric, jurisprudence, and political economy. Ask Adam Smith for a thumbnail description of the system of political economy he believed in, and he’d reply that he advocated "the liberal plan of equality, liberty and justice."

These three virtues together characterize the free society, and in fact they are but three facets of a single truth. Equality, as the term is used in the Declaration of Independence, and here by Adam Smith, means the abolition of privilege — one law for all men alike because all men are one in their essential humanity. Because all people are created equal, it is wrong for government to play favorites and bestow advantages on some at the expense of others. The goal is "equal and exact justice for all men, of whatever state or persuasion" — to quote from Jefferson’s First Inaugural. Justice is equality before the law, and this describes a society where each person may freely pursue his own goals, provided he does not infringe the equal right of all the others to pursue theirs.

You’re all familiar with the division of society into a public sector and a private sector; call the former the governmental, coercive sector, if you prefer, and the latter the voluntary sector. When the governmental sector expands, the voluntary sector contracts, and vice versa. The efforts of the old-fashioned Whigs and the Classical Liberals were directed toward the goal of a government limited to maintaining the peace of the community and assuring justice and fair play among people — the umpire role in society. This expanded the voluntary sector and gave us the ideals of freedom of speech, freedom of the press, and religious liberty. And in 1776, Adam Smith provided a rationale for freedom of economic action.

One of the large questions which every society has to face and resolve is: How shall the economic rewards be allocated? Food, clothing, shelter — as well as things like automobiles, television sets, refrigerators, concerts, and trips to Europe — are in limited supply. How shall we "divvy up" the available quantity of these goods? Who gets what?

We know how it was under the old regime: those who wielded political power used it for the economic advantage of themselves and their friends, at the expense of those who lacked political power. There were Haves and Have-nots, and the Haves obtained their wealth by seizing it.

But when men are free, economic rewards are parceled out in a different manner. The free society allocates rewards in the market place; the Haves get that way by pleasing the customers, at which game some are more successful than others.

Consumer Choice

Every one of us in a free society is rewarded in the marketplace by his peers, according to the value willing buyers attach to the goods and services he offers for exchange. This marketplace assessment is made by consumers who are ignorant, venal, biased, stupid; in short, by people very much like us! This does seem to be a clumsy way of deciding how much or how little of this world’s goods shall be put at this or that man’s disposal, and so people of every age look for an alternative.

There is an alternative, and it runs something like this: People are too dumb to know what is good for them, and they fall easy victims of Madison Avenue. Therefore, let’s invite the wise and good to come down from Olympus to sit as a council among men, and we’ll appear before them one by one, to be judged on personal merit and rewarded accordingly. Then we’ll be assured that those who make a million really deserve it, and those who are paupers belong at that level; and we’ll all be contented and happy. What lunacy! The genuinely wise and good would not accept such a role, and I quote the words of the highest authority declining it: "Who made me a judge over you?"

The Alternative Is Worse

The market-place decision that this man shall earn twenty-five thousand, this one ten, and so on, is not, of course, marked by supernal wisdom; no one claims this. But it is infinitely better than the alternative, which is to recast consumers into voters, who will elect a body of politicians, who will appoint bureaucrats, who will "divvy up" the wealth by governmental legerdemain. This mad scheme backs away from the imperfect and crashes into the impossible!

There are no perfect arrangements in human affairs, but the fairest distribution of material rewards attainable by imperfect men is to let a man’s customers decide how much he should earn; this method will distribute economic goods unequally, but nevertheless equitably. Parenthetically, it should be understood that the market does not measure the true worth of a man or a woman. If it did, we would have to rate all who make a lot of money as superior beings — rock music stars, producers of porno films, publishers of dirty books, television commentators, authors of best sellers — and they’re not superior. To the contrary! But such people constitute only a tiny sector of the free economy, and they are a very small price to pay for the blessings of liberty we enjoy.

In a free society, those who earn more than the national average are entitled to enjoy their possessions, for they’ve gained them in a system of voluntary exchange; the well-being the Haves enjoy is matched by the well-being they have bestowed upon other people —as these other people measure it. There is genuine reciprocity in the free society. But opponents of the market are blind to its built-in mutuality. The Left, therefore, will make a determined effort to instill a guilty conscience in everyone who lives above the poverty level. They use Karl Marx’s exploitation theory which alleges that the man who works for wages produces, over and above his wage, a "surplus value" which is garnisheed by his employer. To be employed — they tell us — is to be exploited, and the whole capitalist class should feel guilty for denying the working class its due!

"Surplus Value" Exposed

This naive and vicious notion was demolished even while Marx still lived, by the economist, Böhm-Bawerk — founder of the Austrian School. Bohm-Bawerk did it again in a second book, in 1896, with the result that the exploitation theory is not now promoted even by Communist theoreticians. But the "surplus value" idea does intensify feelings of envy and guilt, so it is still useful as propaganda.

The free economy sounds pretty good in theory, you might say, but what does it do for the poor? Well, it takes most of them out of that category! A free people becomes a properous people. To the extent that the free economy has been allowed to operate in a nation, in like measure has the free economy elevated more people further out of poverty, faster, than any other system.

It is easy to see why this is so. Poverty is a lack of certain things.

A man is poor whose supply of food, clothing, and shelter are meager; he has only one shabby suit, his diet is macaroni and cheese, and he lives in a sparsely furnished room. A man moves out of poverty only as he acquires better clothes, a more varied diet, and then expands into an apartment or a house. People are well off or less well off according as they command more or less of the things which are manufactured or grown. This is axiomatic, and it follows that poverty is overcome by increased productivity and in no other way. America is the world’s most properous nation because America has been the most productive nation; we have more wealth because we produce more wealth.

Who has the biggest stake in the free economy? Who has most to lose if the free economy lapses into the planned state? Not the rich; the poor! The corporate executive type; the shrewd, energetic, hard-driving, far-seeing, imaginative, nimble, smart, tough executive will make a bundle under any system. In Russia he’d be a commissar. It’s the not so smart, not so energetic, not so imaginative, plodder type who has the biggest stake in the free society. This description fits most of us, and there is a place for us in the free society, where we are rewarded quite handsomely. We’d be serfs, or worse, in most other societies — if we survived liquidation!

When people are free, there is no guarantee that they’ll use their freedom wisely. Freedom of speech does not assure witty conversation, eloquent preaching, or lofty utterance. Most talk, as a matter of fact, is banal and shallow and gossipy; but no one on this account suggests we put a political ban on free speech. We have freedom of the press, with the result that we are knee deep in triviality and garbage. But we support freedom of the press anyway, knowing that a governmentally controlled press would be far worse. Freedom of religion opens the door to all kinds of weird cults, as well as to exotic brands of superstition and magic; but no one advocates that we repeal the First Amendment and set up an American National Church!

That is what freedom is all about — putting up with things we don’t like, and living with a lot of people we can barely stand! We must support the processes of freedom even when we cannot endorse every one of the products of freedom. And that goes for freedom of economic enterprise as well —as Adam Smith advised 200 years ago.

Now, neither the free economy nor its business sector can guarantee to every person full realization of his potential talents; this is a matter for individual decision. All the free society can promise is maximum and equal opportunity —and this is all the guarantee we need.

Post from: LibertarianChristians.com

Adam Smith and the Invisible Hand

Man is not simply a spiritual being; he is a spiritual being who feels hunger, needs protection from the cold, and seeks shelter from the elements. In order to feed, house and clothe himself, a person must work. Augmenting his labor with tools and machinery, he converts the raw materials of his natural environment into consumable goods. He learns to cooperate with nature and use her forces to serve his ends. He also learns to cooperate with his fellows, his natural sociability reinforced by the discovery that the division of labor benefits all. "Trade is the great civilizer." There’s an unbroken thread that runs from these primitive beginnings to the complex economic order of our own time: it is the human need to cope with scarcity, to satisfy creaturely needs, to provide for material well-being.

The visible signs of this endeavor are all about us; factories, stores, offices, farms, mines, power plants. These are the locations where work is performed, services rendered, goods exchanged, wages paid, money spent, and so on. This is the economy, and in the free society the economy is not under government control and regulation.

In the free society the law protects life, liberty and property of all men alike, ensuring peaceful conditions within the community. This lays down a framework and a set of rules, enabling people to compete and cooperate as they go about the job of providing for their material well being. When government performs as an impartial umpire who interprets and enforces the agreed upon rules, then the uncoerced economic activities of people display regularity and harmony—as if guided by Adam Smith’s invisible hand!

The Capitalistic Economy

In a society where people are free, the economy is referred to as capitalistic. Some prefer the term free enterprise; others like the private enterprise system, or the private property system, or the market economy. Now, of course, no society has ever been one hundred per cent free, which means that we’ve never had a completely free market economy. Some people have always seized and misused political power to rig the market in their favor. Obviously, it is not the market’s fault if some people choose to break the rules.

The appalling thing is that many intellectuals mistake these deviations from free enterprise for free enterprise itself! And so they condemn "capitalism." But the "capitalism" they condemn is actually the failure of certain people to live up to the rules of capitalism–the system of voluntary exchange among uncoerced people. We’re aware of human frailties and shortcomings; we know that it’s easier to preach than to practice, easier to announce a set of ideals than to live up to them. Economic theory provides us with a description of the way an economy would work among a people who exercise individual liberty and practice voluntary association. It is this theory we seek to understand and explain, and it is the deviations from this ideal that we seek to correct.

Every person of good will wants to see other people better off; better fed, better housed, better clothed, and well provided with the amenities. So everyone wants the economic order to function efficiently. But how important is it that the economic order be free from bureaucratic direction and political controls? Does it do any harm if we allow the economic order to be quarterbacked by government? Let’s examine a concrete example to indicate the serious secondary consequences of government control.

In the economic sector of our society there is a multi-billion dollar industry engaged in the production of newspapers, magazines, and journals of opinion. There is also the book trade. Those who publish and distribute the printed word constitute The Press, and one of the important freedoms cherished in our intellectual heritage is Freedom of the Press. The concept is now extended to cover the media—radio and television—where the same principle applies.

Freedom of the Press means simply that the government does not tell editors what to print and what not to print–nor does it dictate to purveyors of television commentary. Some editors print stuff they think will sell. Some editors are men of strong conviction trying to promote a cause they believe in; others are party hacks thumping the tub for some ideological idiocy like communism, or anarchism, or the New Left, or whatever. But not a single editor in the country is out crusading for government censorship of the press; except indirectly!

Editorial Inconsistency

A large number of editors, writers and commentators who demand freedom for themselves in one breath, demand government regulation of business and industry with the next! If, at the urging of The Press, government continues to extend its controls over one business after another, how can anyone believe that government will respect the editorial room as a privileged sanctuary, and keep its hands off that section of business known as The Press? Socialize the economy and The Press becomes a branch of the government bureaucracy, free no longer.

The fact that The Press actively cooperates in its own entrapment makes the end result even more bitter. It is one thing to go down fighting; it is something else to cooperate in your own demise. Political control and regulation of the written and spoken word means excessive influence over the minds and thoughts of people. It means eventually a ministry of Propaganda and Information, and an Office of Censorship.

If you get the impression that I don’t think highly of some of the people involved with The Press, you’d be correct; they are—with notable exceptions—a sorry lot. They, along with their counterparts in the University and in the Church—with notable exceptions—are guilty of that "treason of the intellectuals" denounced by the French writer, Julien Benda, in his 1927 book of that title. The intellectuals’ treason in the modern world, wrote Benda, is to abandon the pursuit of truth and to seek political preferment instead.

Lest you think I am being unduly harsh on some of those who refer to themselves as Intellectuals, I shall quote a few words of C. S. Lewis:

It is an outrage that they should be commonly spoken of as Intellectuals. This gives them the chance to say that he who attacks them attacks Intelligence. It is not so. They are not distinguished from other men by an unusual skill in finding truth nor any virginal ardour to pursue her… It is not excess of thought but defect of fertile and generous emotion that marks them out. Their heads are no bigger than the ordinary; it is the atrophy of the chest beneath that makes them seem so.(1)

A Vital Connection

I use The Press to point up the vital relationship between intellectual freedom and economic freedom. Freedom of thought, bound only by the rules of thought itself; freedom of belief, in terms of the mind’s own energy; freedom of utterance, guided by logic and within reason–these spiritual freedoms are of the very essence of our being. When they are threatened directly all of us rush to their defense. My point is that they are threatened indirectly whenever—and to whatever degree—their material and economic support is straitjacketed by government regulations and controls.

The same analysis would apply to the Academy and to the Church. If the government owns the campus and pays the professor’s salary, the teacher becomes a political flunky, no longer free to research, write, and teach according to his best insights and conscience. And when private property is no longer regarded as the sine qua non of a free people, when private property suffers increasing encroachments by government, then church properties, too, become politicized. And, as taxes increase and disposable individual income diminishes, private voluntary funding of churches correspondingly declines and religious programs suffer. Accept economic controls, and what then becomes of Academic Freedom and Freedom of Worship?

In short, freedom is all of a piece; philosophy is not the same as digging a ditch, but socialize the ditch-digger and the philosopher begins to lose some of his freedom. Freedom of the marketplace and liberties of the mind hang together as one depends on the other.

The great philosopher, George Santayana, reflected sadly that, in this life of ours, the things that matter most are at the mercy of the things which matter least. A bullet, a tiny fragment of common lead, can snuff out the life of a great man; a few grains of thyroxin one way or the other can upset the endocrine balance and alter the personality, and so on. But the more we think about this situation and the more instances of this sort we cite, the more obvious it becomes that the things Santayana declared matter least, actually matter a great deal. They are so tied in with the things which matter most that the things which matter most depend on them!

Economic Liberty Paramount

In precisely the same way, economic liberty matters a great deal because every liberty of the mind is joined to freedom of the market, economic freedom. There’s an old proverb to the effect that whoever controls a man’s subsistence has acquired a leverage over the man himself, which impairs his freedom of thought, speech, and worship. The man who cannot claim ownership over the things he produces has no control over the things on which his life depends; he is a slave, by definition. A man who is not allowed to own becomes the property of whoever controls his means of survival, for "a power over a man’s support is a power over his will," wrote Hamilton in The Federalist. Economic planning implies the power to regulate the noneconomic sectors of life.

F. A. Hayek puts it this way in his influential book, The Road to Serfdom: "Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends."(2)

In a totalitarian country like Russia or China the government acts as a planning board to assign people to jobs and direct the production and distribution of goods. The whole country is, in effect, a gigantic factory. In practice, there is bound to be a lot of leakage—as witness the inevitable black market. But to whatever extent the State does control the economic life of the Russian and Chinese people it directs every other aspect of their lives as well.

The Masses Content to Drift

The masses of people everywhere and at all times are content to drift along with the trend; they pose no problem for the planner. But what happens to the rebels in a planned economy? Suppose you wanted to publish an opposition newspaper in a place like Russia or China. You could not go out and simply buy presses, paper, and a building; you’d have to acquire these from the State. For what purpose? Why, to attack the State! You would have to find workmen willing to risk their necks to work for you; ditto, people to distribute; ditto people willing to be caught buying or reading your paper. A Daily Worker may be published in a capitalist country, but a Daily Capitalist in a communist country is inconceivable!

Or take the orator who wants to protest. Where could he find a platform in a country in which the State owns every stump, street corner, and soap box—not to mention every building?

Suppose you didn’t like your job, where could you go and what could you do? Your job is pretty bad, but it is one notch better than Siberia or starvation, and these are the alternatives. Strike? This is treason against the State, and you’ll be shot. Listen to George Bernard Shaw, defending Socialism, writing in Labor Monthly, October 1921: "Compulsory labor, with death as the final penalty, is the keystone of Socialism." Shaw was a vegetarian because he loved animals; perhaps he was a Socialist because he hated people!

Point One: Economic freedom is important in itself, and it is doubly important because every other freedom is related to it.

To have economic freedom does not, of course, mean that you will be assured the income you think you deserve, nor the job to which you think you may be entitled. Economic freedom does not dispense with the necessity for work. Its only promise is that you may have your pick from among many employment opportunities, or go into business for yourself, and as a bonus the free economy puts a multiplier onto your efforts to enrich you far beyond what the same effort returns you under any alternative system.

Under primitive conditions a family grows its own potatoes, builds its own shelter, shoots its own game, and so on. But we live in a division of labor society where individuals specialize in production and then exchange their surpluses for the surpluses of other people until each person gets what he wants. Most of us work for wages; we produce our specialty, and in return we acquire a pocketful of dollar bills. The dollars are neutral, and thus we can use them to achieve a variety of purposes. We use some of them to satisfy our needs for food, clothing and shelter; we give some to charity; we take a trip; we pay taxes; we go to the theater, and so on. The money we earn is a means we use to satisfy our various ends.

These interlocking events—production, exchange, and consumption—are market phenomena, and the science of economics emerged, as Mises put it, with "the discovery of regularity and sequence in the concatenation of market events."

Economics Concerns the Means to Achieve Human Goals

Economics has often been called a science of means. The economist, speaking as an economist, does not try to instruct people as to the nature and destiny of man, nor does he try to guide them toward the proper human goals. The ends or goals people strive for are, for the economist, part of his given data, and his business is merely to set forth the means by which people may attain their preferences most efficiently and economically. Economics, as Mises says, "is a science of the means to be applied for the attainment of ends chosen." And a "science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."(3)

When people are free to spend their money as they please, they will often spend it foolishly—I mean other people, of course! As consumers they will demand—and producers will obediently supply—goods that glitter but are shoddy; styles that are tasteless; entertainment that bores; and music that drives us nuts. Nobody ever went broke, H. L. Mencken used to say, by underestimating the taste of the American public. But this, of course, is only half the story. The quality product is available in every line for those who seek it out, and many do. The choices men make in the economic sector will be based upon their scales of values; the market is simply a faithful mirror of ourselves and our choices.

Now, man does not live by bread alone, and no matter how much we might increase the quantity of available material goods, nearly everyone will acknowledge that there is more to life than this. Individual human life has a meaning and purpose which transcends the social order; man is a creature of destiny.

As soon as we begin talking in these terms, of human nature and destiny, we move into the field of religion—the realm of ends. A science of means, like economics, needs to be hitched up with a science of ends, for a means all by itself is meaningless; a means cannot be defined except in terms of the ends or goals to which it is related. The more abundant life is not to be had in terms of more automobiles, more bathtubs, more telephones, and the like. The truly human life operates in a dimension other than the realm of things and means; this other dimension is the domain of religion—using the term in its generic sense. Or, call it your philosophy of life, if you prefer.

If we as a people are squared away in this sector of life—if our value system is in good shape so that we can properly order our priorities—then we’ll be able to take economic and political problems in our stride. On the other hand, if there is widespread confusion about what it means to be a human being, so that people are confused as to the proper end and goal of human life—some seeking power, others wealth, fame, publicity, pleasure or chemically induced euphoria—then our economic and political problems overwhelm us.

If economics is a science of means, that is, a tool, we need some discipline to help us decide how to use that tool. The ancient promise of "seek ye first the Kingdom" means that if we put first things first, then second and third things will drop naturally into their proper places. Our actions will then conform to the laws of our being and we’ll get the other things we want as a sort of bonus.

Point Two: Once we understand that economics is a science of means, we realize that economics cannot stand alone—it needs to be hooked up with a discipline which is concerned with ends, which means religion or philosophy.

There is no easy answer to questions about the ends for which life should be lived, or the goals proper for creatures of our species, but neither is the human race altogether lacking in accumulated wisdom in the matter. Let me offer you a suggestion from Albert Jay Nock. Nock used to speak of "man’s five fundamental social instincts," and he listed them as an instinct of expansion and accumulation, of intellect and knowledge, of religion and morals, of beauty and poetry, of social life and manners. He then makes the charge that our civilization, especially during the past two centuries, has given free reign only to the instinct of expansion and accumulation, that is, the urge to make money and exert influence; while the other four instincts have been disallowed and perverted. Our culture is lopsided as a result, and some basic drives of human nature are being thwarted.

Let’s move to the next stage of our inquiry and ask: What is the distinguishing feature of a science, and in what sense is economics a science? Adam Smith entitled his great work The Wealth of Nations (1776); one of Mises’ books is entitled The Free and Prosperous Commonwealth (1927). It is clearly evident that these works deal with national prosperity, with the overall well-being of a society, with upgrading the general welfare. These are works of economic science, insofar as they lay down the general rules which a society must follow if it would be prosperous.

General Principles

The distinguishing feature of a science, any science, is that it deals with the general laws governing the behavior of particular things. Science is not concerned with particular things, except insofar as some particular thing exemplifies a general principle. When we concentrate on a particular flower, like Tennyson’s "flower in the crannied wall," we move into the realm of art and poetry. Should we want the laws of growth for this species of flower, we consult the science of botany. These books by Smith and Mises lay down the rules a society must conform to if it wants to prosper, they do not tell you as an individual how to make a million in real estate, or a killing in the stock market. This is another subject.

The question before the house in economic inquiry is: "How shall we organize the productive activities of man so that society shall attain maximum prosperity?" And the answer given by economic science is: "Remove every impediment that hampers the market and all the obstructions which prevent it from functioning freely. Turn the market loose and the nation’s wealth will be maximized." The economist, in short, establishes the rules which must be followed if we want a society to be prosperous; but no conceivable elaboration of these rules tells John Doe that he ought to follow them.

Economic science can prescribe for the general prosperity, but it cannot tell John Doe that he ought to obey that prescription. That job can be performed, if at all, by the moralist. The problem here is to bridge the gap between the economist’s prescription for national prosperity and John Doe’s adoption of that prescription as a guide for his personal conduct.

A Science of Means

Economics is a science of means. It abstains from judgments of value and does not tell John Doe what goals he should choose. If you want to persuade John Doe to follow the rules of economics for maximizing the general prosperity you must argue that he has a moral obligation to conform his actions to certain norms already established in his society by the traditional ethical code.

This code extols justice, forbids murder, theft, and covetousness, and culminates in love for God and neighbor. This is old stuff, you say; true, but it’s good stuff! It’s the very stuff we need when constructing a proper framework for economic activity.

The market economy is not something which comes out of nothing. But the market economy emerges naturally whenever certain noneconomic conditions are right. There is a realm of life outside the realm of economic calculation, on which the market economy depends. Let me cite Ludwig Mises again, quoting this time from his great work, Socialism. Mises speaks of beauty, health, and honor, calling them moral goods. Then he writes: "For all such moral goods are goods of the first order. We can value them directly; and therefore have no difficulty in taking them into account, even though they lie outside the sphere of monetary computation." In other words, the market economy is generated and sustained within a larger framework consisting of, among other things, the proper ethical ingredients.

Point Three: The free market will not function in a society where the sense of moral obligation is weak or absent.

Nearly everything on this planet is scarce. There are built-in shortages of almost everything people want. For this reason we need a science of scarcity, and this is economics—a science of scarcity. Goods which are needed but not scarce, such as air, are not economic goods. Air is a free good. Economics deals with things which are in short supply, relative to human demand for them, and this includes most everything we need and use. Our basic situation on this planet is an unbalanced equation with man and his expanding wants on one side, and the world of scanty resources on the other.

Human Wants Insatiable

The human being is a creature of insatiable wants, needs, and desires; but he is placed in an environment where there are but limited means for satisfying those wants, needs, and desires. Unlimited wants on one side of this unbalanced equation; limited means for satisfying them on the other. Now, of course, it is true that no man, nor the human race itself, has an unlimited capacity for food, clothing, shelter, or any other item singly or in combination. But human nature is such that if one want is satisfied the ground is prepared for two others to come forward with their demands. A condition of wantlessness is virtually inconceivable, short of death itself.

What does all this mean? The upshot of all this is that the economic equation will never come out right. It’s insoluble. There’s no way of taking a creature with unlimited wants and satisfying him by any organization or reorganization of limited resources. Something’s got to give, and economic calculation is the human effort to achieve the maximum fulfillment of our needs while avoiding waste.

Let me, at this point, offer you a little parable. This story has to do with a bright boy of five whose mother took him to a toy store and asked the proprietor for a challenging toy for the young man. The owner of the shop brought out an elaborate gadget, loaded with levers, buttons, coils of wire, and many movable parts. The mother examined the complicated piece of apparatus and shook her head. "Jack is a bright boy," she said, "but I fear that he is not old enough for a toy like this."

"Madam," said the proprietor, "this toy has been designed by a panel of psychologists to help the growing child of today adjust to the frustrations of the contemporary world. No matter how he puts it together, it won’t come out right."

Relative Scarcity

Economics is indeed the science of scarcity, but it’s important to realize that the scarcity we are talking about in this context is relative. In the economic sense, there is scarcity at every level of prosperity. Whenever we drive in city traffic, or look vainly for a place to park, we are hardly in a mood to accept the economic truism that automobiles are scarce. But of course they are, relative to our wishes. Who would not want to replace his present car with a Rolls Royce if it were available merely for the asking?

These simple facts make hash of the oft repeated remark that "we have solved the problem of production, and now we must organize politically to redistribute our abundance." Economic production involves engineering and technology, in that men, money, and machines are linked to turn out airplanes, or automobiles, or tractors, or typewriters, or what not. But resources are limited, and the men, money, and machines we employ to turn out airplanes are not available for the production of automobiles, or tractors, or anything else. The dollar you spend for a package of cigars is no longer available to you for a hamburger.

The economic equation can never be solved; to the end of time there will be scarce goods and unfulfilled wants. There will never be a moment when everyone will have all he wants. "Economics," in the words of Wilhelm Roepke, "should be an anti-ideological, anti-utopian, disillusioning science,"⁽⁵⁾ and indeed it is. The candid economist is a man who comes before his fellows with the bad news that the human race will never have enough. Organize and reorganize society from now till doomsday and we’ll still be trying to cope with scarcity. This truth does not set well with those who have the perfect solution in hand—and the woods are full of such. No wonder economists are unpopular!

Point Four: Things are scarce, and therefore we need a science of scarcity in order to make the best of an awkward situation.

The modern mind takes the dogma of inevitable progress for granted. Most of our contemporaries assume that day by day, in every way, we are getting better and better, until some day the human race will achieve perfection. The modern mind is passionately utopian, confident that some piece of social machinery, some ideological gadgetry, is about to solve the human equation. Minds fixed in such a cast of thought, minds with this outlook on life, are immune to the truths of economics. The conclusions of economics, in their full significance, are incompatible with the facile notions of automatic human progress which are part of the mental baggage of modern man—including many economists!

I’m not denying that there is genuine progress in certain limited areas of our experience. This year’s color television set certainly gives a better picture than the first set you bought in, say, 1950. The jet planes of today deliver you more rapidly and in better shape than did the old prop jobs—although there’s some truth in the remark of some comedian: "Breakfast in Paris, luncheon in New York, dinner in San Francisco—baggage in Rio de Janeiro!" Automobiles are more luxurious, we have more conveniences around the house, we are better equipped against illness. There is real progress in certain branches of science, technology, and mechanics.

But are the television programs improving year by year? Are the novels of this year so much better than the novels of last year, or last century? Are the playwrights whose offerings we have seen on Broadway this season that much better than Shakespeare? Has the contemporary outpouring of poetry rendered Homer, Dante, Keats and Browning obsolete? Is the latest book on the "new morality" superior to Aristotle’s Ethics?

Are the prevailing economic doctrines of 1979, reflecting the Samuelson text, sounder than those of a generation ago, nourished on Fairchild, Furness and Buck? Are today’s prevailing political doctrines more enlightened than those which elected a Grover Cleveland? Henry Adams in his Education observed that the succession of presidents from Washington, Adams and Jefferson down to Ulysses Grant was enough to disprove the theory of progressive evolution! What would he say if he were able to observe the recent past?

The dogma of inevitable progress does not hold water. Perfect anthills may be within the realm of possibility; but a perfect human society, never! Utopia is a delusion. Man is the kind of a creature for whom complete fulfillment is not possible within history; unlike other organisms, he has a destiny in eternity which takes him beyond biological and social life. This is the world outlook of all serious religion and philosophy. The conclusion of economics—that life holds no perfect solutions—is just what a person who embraces this world view would expect. Economic truths are as acceptable to the religious world view as they are unacceptable to the world view premised on automatic progress into an earthly paradise.

Another Dimension Transcends the Natural Order

If there is another dimension of being which transcends the natural order—the natural order being comprised of the things we can see and touch, weigh and measure—and if man is really a creature of both orders and at home in both, then he has an excellent chance of establishing his earthly priorities in the right sequence. He will not put impossible demands on the economic order, nor will he strive for perfection in the political order. Earth is enough, so he’ll leave heaven where it belongs, beyond the grave! The effort to build a newfangled heaven on earth in countries like Russia and China has resulted in conditions that resemble an old-fashioned hell. Let us strive for a more moderate goal, let us work for a tolerable society —not a perfect one—and we may make it!

Point Five: Economics tells us that the Kingdom of God is beyond history.

Economics is a discipline in its own right, but it has some larger meanings and implications. Its very nature demands a framework in which there are religious and ethical ingredients. Establish these necessary conditions—together with their legal and political corollaries —and within this framework the economic activities of men are self-starting, self-operating, and self-regulating. Given the proper framework, the economy does not have to be made to work; it works by itself, and it pays rich dividends in the form of a free and prosperous commonwealth.

⁽¹⁾ The Abolition of Man, pp. 34-35.

⁽²⁾ The Road to Serfdom, p. 92.

⁽³⁾ Human Action, p. 10.

⁽⁴⁾ Socialism, p. 116.

⁽⁵⁾ A Humane Economy, p. 150.

Read more from the Edmund Opitz Archive.

Post from: LibertarianChristians.com

Thinking About Economics: It’s more than just money.

Transaction costs exist for non-material exchanges as well. There is a cost to you of reading this information and a cost for me typing it. There are costs incurred in forming social bonds like friendships or marriage – traveling to the places people meet, taking the time to get to know each other, the effort of putting thoughts into words through speech, trying to decide who is trustworthy, who will think your jokes are funny or who will be offended by them. None of these are insignificant costs, and many times the transaction cost of a social interaction, just like a market exchange, may deter us from engaging in the exchange at all.

The reduction of transaction costs plays an important role in shaping how humans interact with one another and how institutions evolve. Economist Ronald Coase noted that in markets for goods and services people often form cooperative enterprises, or firms, to reduce transaction costs. For example, when an auto mechanic wishes to contract with an accountant there are costs associated with finding an accountant, drawing up the contract, deciding and enforcing the terms, monitoring the activities of the accountant and, if need be, finding a new accountant if the results are unsatisfactory. The accountant incurs the same costs on his end of the exchange. The mechanic and accountant may decide to discontinue the high-cost practice of their contractual arrangement and form a single firm – an auto garage with an in-house finance department.

Firms are not the only mechanism that makes transactions less costly. In market and social arrangements societal norms and beliefs play a major role in reducing transaction costs. People with shared values and language can better communicate, rely on each other to fulfill promises, and behave in predictable ways, which greatly reduces search and information costs when engaging in exchange.

Religion is one of the strongest institutions of shared norms and beliefs. It provides a shortcut to individuals seeking to exchange by providing common terminology and assumptions that reduce the costly process of discovering the foundational beliefs that guide the actions of others. Predictability on the part of a partner in exchange is incredibly valuable, and shared religion provides a large degree of predictability. Thus, those with similar beliefs band together under the umbrella of a religious tradition and enjoy the reduced transaction costs of an easily identifiable brand, specialization within the institution, etc.

We see examples of religion being used to reduce transaction costs in the material sense all the time. Many businesses have the Ichthus symbol in their logo. In my home town there was a car dealership called “The Christian Car Company”. These businesses were attempting to signal potential customers that they had a predictable set of beliefs and would, presumably, conduct their business affairs in a way consistent with Christian values. The intent is to reduce the search cost on the part of customers looking for businesses with a particular ethic.

In non-material transactions religion also serves to reduce transaction costs. When I was on the dating market I spent much of my time involved with a church college group. Not because I was some kind of creepy stalker consciously looking for a wife, but because I sought to form friendships with the kind of girls I may someday want to marry and I thought it unlikely to find them in bars and clubs. I am not opposed to bars and clubs per se, but the transaction cost of forming relationships with people whose values I knew nothing about was much higher than it was for people who had at least somewhat of a shared philosophical and moral foundation. I grew up in church so I knew something about church people. It took me less time and effort to discover compatibility, since I could skip over many foundational beliefs and start with a common language and assumptions.

(I do not intend here to make religion into a purely economic institution. The fact that religion serves an important role in reducing transaction costs need not diminish the other spiritual, emotional, intellectual and physical roles it plays. Indeed, the practical benefits of religion seem to me to make it more, rather than less intriguing and sacred. Any married person can describe the material benefits of their marriage – a division of labor, economies of scale, ease of communication (sometimes) – yet no one I know would claim these material benefits are the only desirable thing about marriage or that they somehow diminish the romantic or emotional benefits.)

It cannot be denied the tremendous impact religion has on reducing transaction costs in our social exchanges, just as a firm does for material exchanges in the marketplace.

Agency Costs

If creating cooperative enterprises reduces transaction costs, why doesn’t the market evolve into one giant firm? There are benefits to creating a firm, but there are also costs.

One of the chief benefits of creating a firm is that each participant is freed up to spend more resources specializing in what they do best (or in economic terms, where their opportunity cost is lowest). This means that one or a few individuals serve in the role of manager, visionary, or entrepreneur, allowing the others to serve in their specialized roles. Not everyone has to create and maintain the goals of the firm, track the long-term outlook and make strategic “big-picture” decisions. Engineers don’t have to worry about branding, marketers can ignore supply chain management, and maintenance personnel need not concern themselves with bookkeeping. But where specialization within a firm reduces some costs, it increases others.

The larger the firm the harder it is for individual agents to hold each other accountable. The gains of reduced transaction costs may be more than offset by the losses from absence of competition. No one in the marketing department is likely to know whether or not the finance department is using the most efficient methods. A shared culture can reduce the risk of bad actors and instill trust, but as firm size increases the ability of culture to keep wayward individuals in check diminishes. These are called agency costs.

Public Choice Economics reveal how agency costs are starkly evident in political institutions. Most governments are so large and voters and taxpayers so many that the cost of a single government program or action is spread very thin over the population. Each individual citizen has very little incentive to spend valuable time and resources monitoring the behavior of a program for which their share of taxes is only a few cents. Those who are supposed to be filling a specific role within the government to benefit all citizens have incentive to stray far from the constraints of that role and serve interests other than those of the citizens.

Firms face these same problems. Shareholders, CEO’s, managers, board members, workers in different departments, contractors and customers often want different things and keeping all of their actions within the optimal range for the firm is impossible. An IT department, for example, may have every incentive to provide less than optimal services, since an increase in computer problems may lead to an increase in the department’s budget.

Small firms or individuals under contract can avoid many of these agency costs by engaging in continual competition and by having personal knowledge of each other. In a firm of just a few people it is much harder to get away with slacking or sub-optimal behavior. Short term contracts which can be bid out to many providers allow competitive pressure to produce better results. But, as we saw earlier, smaller firms or individual contractors also face high transaction costs.

This is why there is no optimal size for a firm. Instead, cooperative arrangements in the marketplace are constantly in flux, always trying to reduce both transaction costs and agency costs as much as possible. Terry Anderson and Peter J. Hill, in their excellent book The Not so Wild, Wild West discuss the ever-changing arrangements for protecting grazing land, mines and scarce water in the American West. Anderson and Hill talk about the “Institutional Entrepreneurs” who innovated and forged new arrangements when transaction costs or agency costs became prohibitive.

Just as religion reduces transaction costs like firms in a market, religious institutions also face the problem of agency costs. As churches or value systems become larger and more inclusive they suffer from rogue agents who use the institution for their individual benefit and to the detriment of the congregation. It becomes increasingly difficult to monitor and reign in those who are behaving in ways that are destructive to the religious mission of the institution as specialization increases and the number of members grows.

The reduced transaction cost of forming relationships with people of the same faith is offset by the increased agency cost when that faith becomes so broadly defined, or that church so large that it is no longer possible to predict what kind of assumptions members will have in common. Hence a person identifying as “religious” or, “Christian” today conveys very little information and does not greatly reduce the search and information costs of discovering what their core beliefs and values are.

Enter the Religious Institutional Entrepreneur. Just as with firms, there is no optimal size or scope for a religious institution. Religion and its sub-groups are constantly in flux. When agency costs are perceived to be too high – corruption, conflicts of vision, confusion of terms – religious entrepreneurs split off and form institutions with tighter bonds and a more defined set of beliefs.

The Great Schism, the Protestant Reformation, and the myriad denominational disputes and church splits of today are examples of the constant search for the most efficient religious arrangement.

I am not claiming that in these instances the actors involved consciously sought to reduce transaction and agency costs and create the most efficient religious institution. The reason for these divisions and innovations is usually theological, emotional, and very complex and messy. But because an outcome is not the product of human design, but merely of human action, does not mean it is any less a part of the search for the optimal institutional arrangement. Individual actors in the marketplace rarely calculate all the transaction and agency costs present in their potential decision, yet over time the market process results in institutions that work to reduce these costs as much as possible. This is the fundamental insight of Adam Smith’s “Wealth of Nations” regarding markets, and of F.A. Hayek’s work regarding social institutions in general.

I am not saying that innovations are always an improvement, or that the innovative process itself (what Joseph Schumpeter called “creative destruction” in the market) is painless or pleasant. In fact, in both the market and society at large, most innovations are not improvements and do not survive. I speak from personal experience when I say that church splits and denominational squabbles can be deeply painful and counter-productive for the individuals involved. As the common economic example illustrates, the automobile was not a welcome change for buggy whip makers, and I do not wish to downplay their pain. But in the long run and for the whole of society, disruptive innovations and the constant evolution towards optimal arrangements is a tremendous blessing.

I have compared religious institutions in society to firms in the marketplace, both in their ability to reduce transaction costs and their propensity to suffer from agency costs. What is the take-away?

Orders Emerge

It is common for religious and non-religious people alike to criticize massive religious institutions for both their material largesse and theological shallowness. Mega-churches, televangelists, and “watered-down” denominations are often mocked and criticized. Many of the criticisms are well-founded no doubt, but if the economic insights of the marketplace teach us anything it is to give pause before judging these institutions.

Large firms and large churches alike exist because of their ability to greatly reduce transaction costs and provide a valuable shortcut to those seeking to contribute to and benefit from their products and services. When a massive firm or institution exists, it exists for a reason and is the result of a dynamic process of seeking optimality. Though it is not permanent, its existence in the present speaks something of its ability to meet the needs of its agents and customers better than other arrangements.

Likewise, when we feel the urge to criticize the lack of unity among religions and denominations, or lament the infighting and sectarianism constantly taking place in the church community we would do well to consider the service such innovations may be providing. Divisions are another part of the dynamic process of seeking to meet our needs with the lowest cost.

Seeking truth, attempting to discover the most fundamental principles of existence and share them with our fellow man, is (ideally at least) the business of religion. We ought not judge too quickly the way that religious institutions form and are reformed, since the process itself is a necessary part of finding the best arrangement to find eternal truths. Finding truth and sharing it is important. So too are the institutions that aid us in the search by reducing the costs involved. And if these institutions are important, so too is the process by which they continually evolve.

In eternal truths, values, beliefs and institutions as in goods and services, the spontaneous order of the competitive market – both when it is creative and when it is destructive – cannot be overlooked. We should not be quick to judge it, or to presume that we know the why’s and how’s of the orders that emerge as a result.

Post from: LibertarianChristians.com

Religion as a Firm

I was so busy last Saturday with the anti-war rally put on by the Austin Alliance for Peace (which one of my students founded) that I had no time to post my weekly news roundup. So today seemed appropriate since all of our offerings to Caesar are due today…

Pastor Jeremy Sarber has an interesting podcast about Biblical politics posted about two weeks ago that he wanted to share with us.

I’m loving the new Laissez Faire Books blog, which my friend Jeff tucker writes for quite frequently. Two articles on the blog have caught my eye recently. Commerce, Our Benefactor is all about the beautiful benefits, complexity, and justice of a the free market. The second more important article is Death by Regulation, which has nearly gone viral. It is a compelling story of how the State completely ruined the life of Andrew  Wordes. You absolutely must read it.

Allan Stevo reminds us that we are only 11 weeks into a 9 month primary cycle. Ron Paul is still a long shot, but we ought to remember that it is less about winning and more about influencing people. There is still a lot more time to use this presidential election season to teach people about liberty.

Now for some taxation news that will really annoy you…

Reason Mag shows us 5 new ways the IRS is screwing America (their words, not mine).

From that same Reason article, I found another link where Bloomberg noted that fatal car crashes tend to increase on Tax Day. Watch out on the road today, people!

Gary North discusses what happens when government safety nets break.

And now for your moment of Zen: the Beatles song “Taxman”:

Have you made it back to LCC lately? Here’s what you missed if you’ve been away:

• The Tax Man Cometh
• Key Elements to a Successful Federal Budget
• Budgeting Leviathan
• Our Marxist Tax Code
• How to Be a Crook
• Download the LCC Interview on the Aaron Barker Program

Have some relevant news and links you want to share? Post in the comments below. I read every comment and respond to almost all of them. Let me know what you’re thinking!

Post from: LibertarianChristians.com

News of the Week: Today is Tax Day

10 Things I Hate About Taxes

1. Lost Productivity
2. Newspeak
3. The Truth About Government Spending
4. Privacy and Personal Income
5. Your Tax Dollars at Work
6. Withholding Taxes
7. Caesar’s Benevolence
8. Living in Fear
9. Taxation is Theft
10. Lost Prosperity

(And there’s an Epilogue as well!)

Post from: LibertarianChristians.com

The Tax Man Cometh

President Obama submitted his bloated budget to Congress in February. House Republicans issued their bloated budget in March. House Democrats then countered with their bloated budget.

Because the Republicans have a majority in the House, it was no surprise that the Republican budget passed by a vote of 228-191 and the Democratic budget failed by a vote of 163-262. It was also no surprise that not a single Democrat voted for the Republican budget and not a single Republican voted for the Democratic budget.

But because it is the Democrats that have a majority in the Senate, the Republican budget passed by the House has virtually no chance of passing in the Senate. Likewise, if the Senate were to pass a budget and send it to the House, it would be just as dead on arrival as the president’s budget was.

The Heritage Foundation, a conservative think tank in Washington D.C. always eager to do the bidding of the Republican Party, has pronounced ("First Reactions to Ryan’s Path to Prosperity Budget") House Budget Committee chairman Paul Ryan’s budget "a serious plan worthy of serious consideration" that "lays out substantive policy choices, cutting spending, reforming entitlements, and avoiding tax hikes." The House Republican budget "represents real progress toward tackling the nation’s fiscal and economic challenges." It not only "cuts spending, in the budget year of 2013 and into the future, from both discretionary accounts and entitlements," but "features strong, substantive, market-based reforms to the health entitlements and a solid, growth-oriented tax plan." Oh, the Ryan budget is not "perfect," but it "substantially advances the serious and necessary conversation about securing America’s future and its great legacy of freedom, opportunity, and self government."

Contrary to the glowing analysis of the Heritage Foundation, the Republican budget of Paul Ryan and the House Committee on the Budget, as I have recently shown, even though it is called "The Path to Prosperity: A Blueprint for American Renewal," is a bloated, unbalanced, fiscally irresponsible, mostly unconstitutional path toward, and blueprint for, the welfare/warfare state.

In their article on the Ryan budget plan, the Heritage coauthors list "six key elements to a successful federal government budget":

The Republican budget fails miserably when it comes to cutting spending sharply and quickly. It actually proposes to increase spending by a trillion dollars over the next ten years. The Ryan plan also fails miserably when it comes to moving swiftly and surely to a balanced budget. Not only does it not foresee balancing the budget anytime in the next ten years, it plans on adding $4.5 trillion to the national debt during this period of time.

The Republican "Path to Prosperity" does include some entitlement reforms. I will let conservatives battle it out over whether they are decisive enough (they aren’t). There are two problems with these entitlement reforms. First, the Republicans propose to spend $517.1 billion on welfare (TANF, refundable EIC, SSI, unemployment, food stamps, housing and energy assistance, school lunch subsidies, etc.) in fiscal year 2013 (not including Social Security, Medicare, Medicaid, SCHIP), "only" $450 billion in fiscal year 2017, and then $511 billion in fiscal year 2022. A few billion less in proposed spending is hardly a decisive entitlement reform. And second, every president and every Congress talks about reforming entitlements and tinkers with them in their budgets. Didn’t Clinton the Democrats "end welfare as we know it"?

The Republican budget does avoid tax hikes, although not completely since it recommends clearing out the burdensome tangle of loopholes and broadening the tax base. And yes, there are some pro-growth tax reforms in the Ryan plan. Thank God the Republicans only want to take 25 percent of the income of successful Americans and American businesses instead of a higher percentage.

Ensuring a strong national defense is about the only thing that the House Republican budget plan does well – if all you look at is the level of defense spending. But is this a good thing? The United States spends about as much on defense as the rest of the world combined. This is because most U.S. defense spending is spent on offense not defense. It is spent on empire, imperialism, occupations, senseless foreign wars, and interventions in other countries. When the Heritage Foundation talks about a budget ensuring a strong national defense, it refers to the defense budget being a gravy train for defense contractors.

But not only is the Republican budget a failure, the Heritage Foundation’s budget elements are faulty as well. From a libertarian, constitutional, limited government perspective, here are six key elements to a successful federal budget:

1. Does it propose only spending authorized by the Constitution?

2. Does it begin to permanently end entitlements instead of just reforming them?

3. Does it cut taxes instead of just avoiding tax hikes?

4. Does it provide millions for defense but not one cent for empire?

5. Does it eliminate taxes instead of just instituting tax reform?

6. Does it balance the budget now, not in five or ten years?

Republican presidential candidate Ron Paul’s plan to cut the budget by a trillion dollars the first year and balance it in the second is the only thing that comes close to being a successful federal budget. All the Republican talk about cutting the budget is, as usual, just a bunch of hot air.

Originally published on LewRockwell.com on April 12, 2012.

Post from: LibertarianChristians.com

Key Elements to a Successful Federal Budget

To plan for these vast expenditures, the president proposes a budget. Then the respective budget committees of the House and Senate propose their own budgets by means of concurrent resolutions that allocate spending among categories known as budget functions. Congress then passes appropriation bills based on and constrained by the discretionary spending allocations in the budget resolutions.

Barack Obama submitted his proposed fiscal year 2013 budget to Congress at the end of February. With its tax increases and built-in trillion-dollar deficit, it was dead on arrival.

At the end of March, the Republican-controlled House Committee on the Budget submitted its own budget plan. Then the Democratic minority on the House Committee on the Budget introduced their own budget plan in the form of an amendment to the Republican plan, H. CON. RES. 112.

Because of the Republican majority in the House, it is no surprise that, on party-line votes, the Democratic plan was rejected and the Republican plan passed. However, 10 House Republicans bucked the House leadership and voted against the Republican budget.

Two concurrent resolutions on the budget have been introduced by Republicans in the Senate, but they have no chance of passing in the Democrat-controlled Senate. Senate Democrats filed a “deeming resolution” establishing the Senate’s discretionary spending limits according to the levels enacted in the Budget Control Act of 2011.

A brief look at the respective budgets proposed by the Democrats and Republicans in the House shows that all of the Democrats and the overwhelming majority of the Republicans are firmly committed to budgeting leviathan.

For fiscal year 2013, House Democrats propose to spend $3.704 trillion (and run a deficit of $964 billion). House Republicans propose to spend $3.53 trillion (and run a deficit of $796 billion). That is a difference in spending outlays of only 4.81 percent.

That couldn’t possibly be true, I thought. Didn’t Sen. Jim DeMint just say in his book Now or Never: Saving America from Economic Collapse that there are “irreconcilable differences” between Democrats and Republicans and that Democrats “always expand government and spending”? Didn’t the Texas governor and former Republican presidential candidate Rick Perry also say in his book Fed Up! Our Fight to Save America from Washington that, in general, Republicans believe in “low taxes,” “low regulation,” and “less spending,” while Democrats believe in “higher taxes,” “more regulations,” and “more spending”?

To give the Republicans the benefit of the doubt, I tried looking at the figures in other ways, but the results were not much different. We could say that Democrats want to spend 4.92 percent more than Republicans. Or we could say that Republicans want to spend 4.69 percent less than Democrats. But it is apparent that no matter how you look at it, Democrats and Republicans are within 5 percent of each other. It looks like George Wallace was right when he quipped that there wasn’t a dime’s worth of difference between the Republicans and Democrats.

One way to decisively determine whether there is any difference between Republicans and Democrats is to look at the spending they each propose on certain specific budget functions.

On budget function 050, National Defense, Republicans want new budget authority of $562.2 billion, while Democrats want $553.9 billion. That is a difference of 1.48 percent.

On budget function 350, Agriculture, Republicans want new budget authority of $21.7 billion, while Democrats want $21.8 billion. That is a difference of .46 percent.

On budget function 500, Education, Republicans want new budget authority of $57.6 billion, while Democrats want $85 billion. That is a difference of 38.42 percent.

On budget function 550, Health, Republicans want new budget authority of $363.6 billion, while Democrats want $370.7 billion. That is a difference of 1.93 percent.

On budget function 570, Medicare, Republicans want new budget authority of $510.1 billion, while Democrats want $515.1 billion. That is a difference of .97 percent.

On budget function 600, Income Security, Republicans want new budget authority of $517 billion, while Democrats want $538 billion. That is a difference of 3.96 percent.

On budget function 650, Social Security, both Republicans and Democrats want new budget authority of $822.2 billion.

On budget function 970, Global War on Terror (Republicans) or Overseas Contingency Operations (Democrats), both Republicans and Democrats want new budget authority of $96.7 billion.

Because the majority of U.S. military spending goes to maintaining an empire and intervening in other countries, both the first and last categories relate to the warfare state. The difference in spending proposed by Republicans and Democrats is negligible. It is a myth that Democrats want to “slash military spending,” “leave the country defenseless,” “turn their back on the troops,” and other nonsense spewed by Republican warmongers. Both parties are firmly committed to maintaining the warfare state.

The other budget functions relate to the welfare state.

Spending on agriculture includes funds for direct assistance, export assistance, loans to food and fiber producers, agricultural research, commodity programs, crop insurance, and disaster assistance.

Spending on education includes not only the expenditures of the Department of Education, but also training, employment, and social services of the departments of Labor and of Health and Human Services.

Spending on health includes mainly funding for Medicaid (70 percent), but also the State Children’s Health Insurance Program (SCHIP), health research and training, and substance-abuse programs.

Spending on Medicare — national health care for older Americans — includes the Part A Hospital Insurance Program, Part B Supplementary Medical Insurance Program, Part C Medicare Advantage Program, and Part D Prescription Drug Benefit.

Spending on income security includes what is traditionally classified as entitlement or welfare: unemployment compensation, housing assistance, energy assistance, food stamps, school-lunch subsidies, Temporary Assistance to Needy Families (TANF), Supplemental Security Income (SSI), and the refundable portion of the Earned Income Credit (EIC).

Spending on Social Security — the crown jewel of the welfare state — includes benefits for retirement, disability, survivorship, and death to about 55 million Americans.

Both parties are firmly committed to maintaining every aspect of the welfare state. Only when it comes to spending on education do Republicans want to spend significantly less than Democrats — this year. It was just a few short years ago under a Republican president, a Republican House, and a Republican Senate that Republicans ballooned the education budget up to $100 billion. But regardless of how much less than the Democrats the Republicans want the federal government to spend on education, since the Constitution authorizes absolutely nothing to be spent on education, $57.6 billion is $57.6 billion too much.

When it comes to the welfare state, Republicans talk a lot about reforms, block grants, and cutting waste, fraud, and abuse. They chatter endlessly about streamlining agencies, consolidating departments, and making government programs more efficient. They wax eloquent about strengthening particular programs, making them sustainable, protecting them, and saving them. But they talk very little about eliminating, repealing, or abolishing anything. And, of course, their performance is even worse than their promises. Republicans have fully accepted the New Deal and the Great Society.

In spite of all their rhetoric about limited government and fiscal responsibility; in spite of their all their contracts, pledges, paths, and blueprints; in spite of all their talk about the Constitution; in spite of all their attacks on the evil Democrats; in spite of all their warnings about the dangers of socialism and collectivism; and in spite of all their endless and empty promises, the only government the Republicans want to limit is a government controlled by Democrats.

The budget numbers can’t be explained away. Both parties are firmly committed to the warfare/welfare state.

George Wallace may have been wrong about some things or many things, but he certainly got one thing right: There is not a dime’s worth of difference between the Republicans and Democrats. America is a sinking ship. The only thing the Republicans and Democrats in Congress are determining is whether the ship lists to the right or left as it goes down.

Originally published on The Future of Freedom Foundation on April 10, 2012.

Post from: LibertarianChristians.com

Budgeting Leviathan

Tax season is winding down once again, but the progressivity of the tax code is still with us. Most Americans who had more taxes withheld from their paychecks than they owe in taxes have already filed for their refunds. But not only did many Americans have no tax liability, some of them who didn’t owe any taxes to begin with still received a refund, all thanks to our Marxist tax code.

At the end of section two of Marx’s Communist Manifesto, in addition to calling for the abolition of private property and the centralization of the means of production in the hands of the state, he petitioned for “a heavy progressive or graduated income tax.”

This is based on the Marxist dictum (that many Americans think appears in the Constitution): “From each according to his ability, to each according to his needs,” and on Marx’s mistaken notion of the result of the inequality of wealth, as we see in his Das Kapital: “In proportion as capital accumulates, the lot of the labourer, be his payment high or low, must grow worse…. Accumulation of wealth at one pole is at the same time accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation at the opposite pole.”

Yet, from its very beginning, the U.S. tax code has sought to soak “the rich” with “a heavy progressive or graduated income tax.”

The income tax began with a 1 percent tax on taxable income above $3,000 followed by a series of surcharges of up to 6 percent applied to higher incomes. The maximum rate of 7 percent was applied to taxable income over $500,000. In addition, there was an exemption of $3,000 for a single person and $4,000 for a married couple.

The tax rate in the highest tax bracket rapidly increased, up to 67 percent in 1917 and 77 percent in 1918, and then rose to 81 percent in 1940, 88 percent in 1942, and a whopping 94 percent in 1944. In 1942, the top rate began applying to all incomes over $200,000 instead of $5 million as it had previously. After dropping briefly, the top rate stayed near or above 90 percent between 1950 and 1963.

Under President Reagan, the top marginal tax rate fell from 70 down to 50 percent, and then down to 38.5 before stopping at 28 percent. The tax brackets were also eventually reduced to just two. This doesn’t mean that the government cut spending and balanced its budgets during the 1980s like it should have, or that it didn’t raise other taxes like it shouldn’t have, but the fact remains that the highest tax bracket fell to under 30 percent for the first time since 1931.

After both rates and brackets increased during the Bush Sr. and Clinton years, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) gave us our current system of six brackets of 10, 15, 25, 28, 33, and 35 percent. The lowest bracket was scheduled to be eliminated, and four of the other rates were scheduled to rise, giving us five brackets of 15, 28, 31, 26, and 39.6 percent, were it not for the two-year extension of the Bush tax cuts enacted at the end of 2010.

But although the tax brackets have fallen in number and amount since their height in the 1960s, this does not mean that “the rich” have stopped paying their “fair share.”

According to the most recently released IRS data, in tax year 2009, the top 1 percent of taxpayers (in terms of adjusted gross income) paid 36.73 percent of all federal income taxes. The top 5 percent of taxpayers paid 58.66 percent. The top 10 percent of taxpayers paid 70.47. The top 25 percent of taxpayers paid 87.3 percent of the taxes, and the top 50 percent paid a whopping 97.75 percent.

There are a number of ways in which the tax code is designed to punish “the rich”; that is, punish success and reward those who do nothing but have children.

Consider the example of a typical American family with two children. Because of the progressive nature of the tax code, for tax year 2011, this family could make $45,399 and still pay nothing in federal income taxes. This is because the $11,600 standard deduction and $14,800 deduction for personal exemptions reduces this family’s taxable income to $18,999. This leaves a tax liability of $1,996, which is reduced to zero thanks to a $1,000 per child tax credit.

But it’s not just the progressive tax brackets that punish “the rich” and favor “the poor.” A tax credit is a dollar-for-dollar reduction of the amount of income tax owed. It may reduce the tax owed to zero, but if there is no taxable income to begin with, then no credit can be taken.

However, some tax credits are refundable; that is, you still get the credit even if you don’t have any tax liability. These refundable credits include the adoption credit (up to $13,360 per child), the first-time homebuyer credit (up to $4,000 or $8,000 if married filing jointly), the additional child tax credit (up to $1,000 per child), the American Opportunity credit (up to $1,000 per student, with 40 percent of the credit being refundable), and the earned income credit (up to $5,751 for three children).

Refundable tax credits can amount to a significant part of a family’s income. Consider once again a typical American family with two children. For tax year 2011, they can make up to $16,699 and not only owe nothing in taxes, but get a $5,112 earned income credit plus a $1,000 per child additional tax credit refunded to them. This effectively gives them an income of $24,111.

This artificial income of $24,111 is much better than a real income of $24,111, and for three reasons. First, the family’s income is still $16,699 when qualifying for public assistance. Second, no income tax is due on income from refundable tax credits. And three, the taxable wages for Social Security and Medicare are only $16,699.

Another way “the rich” are targeted is through the phase-out of tax deductions and credits. This means that the value of the credit is reduced as income rises. And in some cases, the credit is disallowed altogether.

The $1,000 child tax credit is reduced by 5 percent for each $1,000, or part of that amount, above the phase-out amount of $75,000 ($110,000 if married filing jointly).

The child and dependent care credit is 35 percent of expenses up to a maximum credit amount of $3,000 for one child and $6,000 for two or more children. But this is only if you make up to $15,000. The percentage is reduced by 1 percent (down to a minimum of 20 percent) for each $2,000, or part of that amount, of income above $15,000.

The retirement savings contributions credit (up to $1,000 or $2,000 if married filing jointly) cannot be claimed once adjusted gross income exceeds $28,250 ($56,500 if married filing jointly).

If you itemize deductions and your adjusted gross income is more than $109,000, you cannot deduct your mortgage insurance premiums.

IRA contributions for those covered by a retirement plan are reduced when modified adjusted gross income goes over $56,000 ($66,000 for married filing jointly) and not deductible at all once their modified adjusted gross income reaches $66,000 ($110,000 if married filing jointly).

Education credits and deductions take a hit as well.

Up to $2,500 of student loan interest is tax deductible. However, this deduction begins to be phased out once your modified adjusted gross income reaches $60,000 ($120,000 if married filing jointly) and is not allowed once your income reaches $75,000 ($150,000 if married filing jointly).

No American opportunity credit (maximum of $2,500 for each student) for qualified educational expenses can be claimed if your modified adjusted gross income reaches $90,000 ($180,000 if married filing jointly). And a phase-out of the credit begins at $80,000 ($160,000 if married filing jointly).

No lifetime learning credit (maximum of $2,000) for qualified educational expenses can be claimed if your modified adjusted gross income reaches $61,000 ($122,000 if married filing jointly). And a phase-out of the credit begins at $51,000 ($102,000 if married filing jointly).

The tuition and fees deduction of up to $4,000 per tax return for qualified educational expenses is lowered to a maximum of $2,000 once your modified adjusted gross income exceeds $65,000 ($130,000 if married filing jointly) and eliminated if your income exceeds $80,000 ($160,000 if married filing jointly).

The phase-outs also apply to the strictly refundable tax credits.

If you have three or more children and make over $43,997 ($49,077 if married filing jointly), two children and make over $40,963 ($46,043 if married filing jointly), or one child and make over $36,051 ($41,131 if married filing jointly), you are not eligible to claim the earned income credit. And the maximum amount of the credit drops steadily once your income exceeds $21,800.

To take the adoption credit, your modified adjusted gross income cannot exceed $225,210. And the amount of your credit is reduced once your income reaches $185,210.

To take the first-time homebuyer credit, your modified adjusted gross income cannot equal $145,000 or more ($245,000 if married filing jointly).

The income phase-out for the additional child tax credit begins, like the child tax credit, at $75,000 ($110,000 if married filing jointly).

No wonder the top 10 percent of income earners in America pay over 70 percent of the taxes! The brackets punish them, the phase-outs penalize them, and the refundable tax credits add insult to the injury of “a heavy progressive or graduated income tax.” There is nothing American about the U.S. tax code. It is straight out of the Communist Manifesto.

According to a recent report by the Heritage Foundation: “The percentage of people who do not pay federal income taxes, and who are not claimed as dependents by someone who does pay them, jumped from 14.8 percent in 1984 to 49.5 percent in 2009.” This means that about half of all Americans don’t pay any income taxes.

But the emphasis placed by some conservatives on the lack of taxes paid by some Americans is getting the whole issue backward. The solution is not a national sales tax or flat tax that forces all Americans to pay some arbitrary “fair share” and actually perpetuates the progressivity of the tax code. And neither is it to eliminate all the deductions and credits in order to punish those with low incomes by increasing their taxes.

The solution is to decrease the tax burden of those who are paying the taxes now by eliminating the income tax altogether. This is the Ron Paul approach. In a recent NPR interview, congressman and Republican presidential candidate Paul put the emphasis where it belongs — keeping as much tax revenue out of the hands of the federal government as possible. In reply to the question, “Do you believe that income derived from dividends interest or capital gains should be taxed at a lower rate than income earned from a salary or commissions?,” Dr. Paul said:

Well, I’d like to have everybody taxed at the same rate, and of course, my goal is to get as close to zero as possible, because there was a time in our history when we didn’t have income taxes. But when government takes it upon themselves to do so much, you have to have a tax code. But if you’re going to be the policemen of the world and run all these wars, you have to have a tax code. But as far as what the rates should be, I think it should be as low as possible for — for everybody.

The only reason it appears that we can’t do without an income tax is that Congress has an insatiable desire to spend money. But if the functions of the federal government were strictly limited to only those authorized by the Constitution, the government could be funded by user fees, land sales, excise taxes, and revenue tariffs (like it was from 1789 to 1913), or these things in combination with a lottery or donations. Don’t laugh, in fiscal year 2011, $3,277,369.23 was given by Americans to the federal government for the purpose of debt reduction. A small amount, yes, but only alongside the gargantuan trillion-dollar budgets of the last twenty years.

Post from: LibertarianChristians.com

Our Marxist Tax Code

It is incredibly important to have some knowledge of economics in today’s world. Understanding econ will help you to have a much better vantage point on the current crises we are all facing today. In fact, I am even now currently preparing a series of articles on basic econ for LCC readers to reference in the future. Stay tuned for more!

Post from: LibertarianChristians.com

How to Be a Crook

Anthony Gregory asks, “You call this a war? I’ll show you a war.” He contends that we are prone to forget the atrocities of today’s wars because they are so distant to our daily lives. This is the most important link you can read from this weekly news post.

David Theroux, President of the Independent Institute, did an interview this week with To the Source about C.S. Lewis and the State.

One of my heroes, Stephan Kinsella, did an amazing interview with The Daily Bell this week on libertarianism and intellectual property. It is a superb read with a great many further links and resources for the interested reader.

In other IP news, Summit Entertainment is apparently claiming to own the date “November 20, 2009” and issued a DMCA takedown on art created on that day. No kidding.

Have you heard that Tide is now being used like money on the black market? Talk about money laundering…

I’m a science fiction fan, so here’s something for other SF lovers out there: Top 10 Best Retorts in Science Fiction and Fantasy.

Remember Kony 2012, or is that old news at this point? Here is another perspective on Kony and the White Savior Industrial Complex.

Are you involved in the Ron Paul 2012 presidential campaign in some way? Here is a new book you can download for free that might interest you.

There was a lot going on at home this week (in particular, my wife was in town!) so posting time was scarce. But if you didn’t visit LCC this week, here is what you missed:

• Time for a Drink

Have some relevant news and links you want to share? Post in the comments below. I read every comment and respond to almost all of them. Let me know what you’re thinking!

Post from: LibertarianChristians.com

News of the Week: You Call this a War?