21st Century Schizoid Boy

In 1990, the U.S. government passed the Oil Pollution Act in response to the Exxon Valdez spill. It added regulations and a response authority which have failed for the latest Gulf oil spill, but worse, added a $75 million limit of liability to the companies causing spills. Why did they add this? It’s just another example of corporations using the government to increase their monopolies.

Some say the provision was added to encourage more oil drilling in the Gulf, which means that more companies drilled more recklessly than would have otherwise naturally drilled. This is a classic example of the unintended consequences of the government trying to “encourage” and centrally plan the allocation of resources. There should be no limit of liability on such ecological disasters, which would not only punish the companies for their mistakes, but be a sign to other companies to be safer. If there was any criminal negligence, then the executives and those at fault should also be criminally prosecuted.

The Oil Pollution Act (OPA) was signed into law in August 1990, largely in response to rising public concern following the Exxon Valdez incident. The OPA improved the nation’s ability to prevent and respond to oil spills by establishing provisions that expand the federal government’s ability, and provide the money and resources necessary, to respond to oil spills.

Oil Pollution Act Overview, U.S. Environmental Protection Agency, http://www.epa.gov/oem/content/lawsregs/opaover.htm.

The total of the liability of a responsible party under section 2702 of this title and any removal costs incurred by, or on behalf of, the responsible party, with respect to each incident shall not exceed… for an offshore facility except a deepwater port, the total of all removal costs plus $75,000,000.

Oil Pollution Act, United States Code, Title 33, Chapter 40, Subchapter 1, http://frwebgate.access.gpo.gov/cgi-bin/usc.cgi?ACTION=RETRIEVE&FILE=$$xa$$busc33.wais&start=4683182&SIZE=13816&TYPE=TEXT.

In 1917, Vladimir Lenin led the Bolshevik (or October) revolution in Russia which overthrew, in bloody fashion (about 3 million dead), the land-owning bourgeois and resource owners. It may very well have been the largest human experiment in history (of its kind, to that point), testing the theory of full blown socialism on a population of 180 million Russians. The revolution quickly led to another 2.2 million dead under the “New Economic Plan” or NEP (see also Holodomor). After Lenin’s death in 1924, Stalin took over, and the process of collectivization killed another 11.5 million, thus starting the gulags, or death camps. Ultimately, the U.S.S.R. killed an estimated 61 million of its own people (not including those killed by the Russian armies in wars such as World War II), second only to Maoist China which killed about 76 million in half the time.

In the following quote, Mises argues that the Bolshevik revolution was the ideological conclusion of the intellectual abandonment of the rule of law in Western Europe, and the intellectual acceptance of the bloody tyranny in the Bolshevik revolution ushered in the bloodiest century through Stalin, Hitler, Mussolini, Mao, Pal Pot, and others.

In order to understand the mentality of the Bolshevists we must again refer to the dogmas of Karl Marx. Marx was fully convinced that capitalism is a stage of economic history which is not limited to a few advanced countries only. Capitalism has the tendency to convert all parts of the world into capitalist countries. The bourgeoisie forces all nations to become capitalist nations. When the final hour of capitalism sounds, the whole world will be uniformly in the stage of mature capitalism, ripe for the transition to socialism…

In some countries the bourgeoisie has not yet attained a ruling position and has not yet set the historical stage of capitalism which is the necessary prerequisite of the appearance of socialism. These countries must first accomplish their “bourgeoisie revolution” and must go through all phases of capitalism before there can be any question of transforming them into socialist countries…

But the Russian Marxians did not want to wait. They resorted to a new modification of Marxism according to which it was possible for a nation to skip one of the stages of historical evolution… It was an undisguised return to the pre-Marxian and anti-Marxian socialist teachings according to which men are free to adopt socialism at any time if they consider it as a system more beneficial to the commonwealth than capitalism. It utterly exploded all the mysticism inwrought into dialectical materialism and in the alleged Marxian discovery of the inexorable laws of mankind’s economic evolution…

The Russian Marxists were no longer bothered with economic problems… They had only one task to accomplish, the seizure of the reins of government…

The terms used to signify two groups- Bolshevists (majority) and Mensheviks (minority)- refer to a vote taken in 1903 at a meeting held for the discussion of the tactical issues [of using fast or slow revolution, respectively]…

Lenin did not differentiate between socialism and communism as social systems. The goal which he aimed at was not called communism as opposed to socialism. The official name of the Soviet government is Union of the Socialist (not of the Communist) Soviet Republics. In this regard he did not want to alter the traditional terminology which considered the terms as synonymous. He merely called his partisans, the only sincere and consistent supporters of the revolutionary principles of orthodox Marxism, communists, and their tactical methods communism because he wanted to distinguish them from the “treacherous hirelings of the capitalist exploiters…” The only genuine Marxians were those who rejected the name of socialists, irremediably fallen into disrepute.

Thus the distinction between communists and socialists came into being…

However, the distinction in the use of the terms communists and socialists did not affect the meaning of the terms communism and socialism as applied to the final goal of the policies common to them both. It was only in 1928 that the programme of the Communist International, adopted by the sixth congress of Moscow, began to differentiate between communism and socialism.

According to this new doctrine there is, in the economic evolution of mankind, between the historical stage of capitalism and that of communism, a third stage, namely that of socialism. Socialism is a social system based on public control of the means of production and full management of all processes of production and distribution by a planning central authority. In this regard it is equal to communism. But it differs from communism in so far as there is no equality of the portions allotted to each individual for his own consumption. There are still wages paid to the comrades and these wage rates are graduated according to economic expediency as far as the central authority deems it necessary for securing the greatest possible output of products… Socialism will turn into communism as soon as the increase in wealth to be expected from the operation of the socialist methods of production has raised the lower standard of living of the Russian masses to the higher standard which the distinguished holders of important offices enjoy in present-day Russia.

The apologetic character of this new terminological practice is obvious. Stalin finds it necessary to explain to the vast majority of his subjects why their standard of living is extremely low, much lower than that of the masses in the capitalist countries and even lower than that of the Russian proletarians in the days of the Czarist rule. He wants to justify the fact that salaries and wages are unequal, that a small group of Soviet officials enjoys all the luxuries modern technique can provide, that a second group, more numerous than the first one, but less numerous than the middle class in imperial Russia, lives in “bourgeois” style, while the masses… subsist in congested slums and are poorly fed. He can no longer blame capitalism for this state of affairs. Thus he was compelled to resort to a new ideological makeshift.

Stalin’s problem was the more burning as the Russian communists in the early days of their rule had passionately proclaimed income equality as a principle to be enforced from the first instant of the proletarians’ seizure of power… The main argument advanced by the communists for the support of their thesis that Hitler’s National Socialism was not genuine socialism, but, on the contrary, the worst variety of capitalism, was that there was in Nazi Germany inequality in the standard of living…

The truth is that Trotsky found only one fault with Stalin: that he, Stalin, was the dictator and not himself, Trotsky…

But in all countries there are people who, although themselves fanatically committed to the idea of all-round planning, i.e. public ownership of the means of production, become frightened when they are confronted with the real face of communism. These people are disappointed. They dream of a Garden of Eden. For them communism, or socialism, means an easy life in riches and the full enjoyment of all liberties and pleasures. They fail to realize the contradictions inherent in their image of the communist society. They have uncritically swallowed all the lunatic fantasies of Charles Fourier and all the absurdities of Veblen. They firmly believe in Engel’s assertion that socialism will be a realm of unlimited freedom. They indict capitalism for everything they dislike, and are fully convinced that socialism will deliver them from all evil. They ascribe their own failures and frustrations to the unfairness of this “mad” competitive system and expect that socialism will assign them that eminent position and high income which by right are due to them… The loathing of capitalism and the worship of communism are consolations for them. They help them to disguise to themselves their own inferiority, and to blame the “system” for their own shortcomings.

In advocating dictatorship such people always advocated the dictatorship of their own clique. In asking for planning, what they have in mind is always their own plan, not that of others. They will never admit that a socialist or communist regime is true and genuine socialism or communism, if it does not assign to themselves the most eminent position and the highest income. For them the essential feature of true and genuine communism is that all affairs are precisely conducted according to their own will, and that all those who disagree are beaten into submission.

It is a fact that the majority of our contemporaries are imbued with socialist and communist ideas. However, this does not mean that they are unanimous in their proposals for socialization of the means of production and public control of production and distribution. On the contrary, each socialist coterie is fanatically opposed to the plans of all other socialist groups. The various socialist sects fight one another most bitterly.

If the case of Trotsky and the analogous case of Gregor Strasser in Nazi Germany were isolated cases, there would be no need to deal with them. But they are not casual incidents. They are typical. Study of them reveals the psychological causes both of the popularity of socialism and of its infeasibility.

The history of mankind is the history of ideas. For it is ideas, theories and doctrines that guide human action, determine the ultimate ends men aim at, and the choice of the means employed for the attainment of these ends. The sensational events which stir the emotions and catch the interest of superficial observers are merely the consummation of ideological changes. There are no such things as abrupt sweeping transformations of human affairs. What is called, in rather misleading terms, a “turning point in history” is the coming on the scene of forces which were already for a long time at work behind the scene. New ideologies, which had already long since superseded the old ones, throw off their last veil and even the dullest people become aware of the changes which they did not notice before.

In this sense Lenin’s seizure of power in October 1917 was certainly a turning point. But its meaning was very different from that which communists attribute to it.

The Soviet victory played only a minor role in the evolution towards socialism. The pro-socialist policies of the industrial countries of Central and Western Europe were of much greater consequence in this regard. Bismarck’s social security scheme was a more momentous pioneering on the way towards socialism than was the expropriation of the backward Russian manufacturers. The Prussian National Railways had provided the only instance of a government-operated business which, for some time at least, had avoided manifest financial failure. The British had already before 1914 adopted essential parts of the German social security system. In all industrial countries, the governments were committed to interventionist policies which were bound to result ultimately in socialism. During the war most of them embarked upon what was called war socialism. The German Hindenburg Programme which, of course, could not be executed completely on account of Germany’s defeat, was no less radical but much better designed than the much talked about Russian Five-Year Plans.

For the socialists in predominantly industrial countries of the West, the Russian methods could not be of any use. For these countries, production of manufactures for export was indispensable. They could not adopt the Russian system of economic autarky. Russia had never exported manufactures in quantities worth mentioning. Under the Soviet system it withdrew almost entirely from the world market of cereals and raw materials… It is obvious that the technological achievements in which the Bolshevist gloried were merely clumsy imitations of things accomplished in the West. Lenin defined communism as: “the Soviet power plus electrification.” Now, electrification was certainly not of Russian origin, and the Western nations surpass Russia in the field of electrification no less than in every other branch of industry.

The real significance of the Lenin revolution is to be seen in the fact that it was the bursting forth of the principle of unrestricted violence and oppression. It was the negation of all the political ideals that had for three thousand years guided the evolution of Western civilization…

It is necessary to restrict the power of those in office lest they become absolute despots. Society cannot exist without an apparatus of violent coercion. But neither can it exist if the office holders are irresponsible tyrants free to inflict harm upon those they dislike.

It is the social function of the laws to curb the arbitrariness of the police. The rule of law restricts the arbitrariness of the officers as much as possible. It strictly limits their discretion, and thus assigns to the citizens a sphere in which they are free to act without being frustrated by government interference.

Freedom and liberty always mean freedom from police interference. In nature there are no such things as liberty and freedom. There is only the adamant rigidity of the laws of nature to which man must unconditionally submit if he wants to attain any ends at all. Neither was there liberty in the imaginary paradisaical conditions which, according to the fantastic prattle of many writers, preceded the establishment of societal bonds. Where there is no government, everybody is at the mercy of his stronger neighbor. Liberty can be realized only within an established state ready to prevent a gangster from killing and robbing his weaker fellows. But it is the rule of law alone which hinders the rulers from turning themselves into the worst gangsters.

The laws establish norms of legitimate action. They fix the procedures required for the repeal or alteration of existing laws and for the enactment of new laws. They likewise fix the procedures required for the application of the laws in definite cases, the due process of law. They establish courts and tribunals. Thus they are intent upon avoiding a situation in which individuals are at the mercy of the rulers.

Mortal men are liable to error, and legislators and judges are mortal men… But it is a minor evil when compared with the consequences of unlimited discretionary power on the part of the “benevolent” despot.

It is precisely this point which anti-social individuals fail to see. Such people condemn the formalism of the due process of law. Why should the laws hinder the government from resorting to beneficial measures? Is it not fetishism to make supreme the laws, and not expediency? They advocated the substitution of the welfare state for the state governed by the rule of law. In this welfare state, paternal government should be free to accomplish all things it considers beneficial to the commonwealth. No “scraps of paper” should restrain an enlightened ruler in his endeavors to promote the general welfare. All opponents must be crushed mercilessly lest they frustrate the beneficial action of the government. No empty formalities must protect them any longer against their well-deserved punishment.

It is customary to call the point of view of the advocates of the welfare state the “social” point of view as distinguished from the “individualistic” and “selfish” point of view of the champions of the rule of law. In fact, however, the supporters of the welfare state are utterly anti-social and intolerant zealots. For their ideology tacitly implies that the government will exactly execute what they themselves deem right and beneficial. They entirely disregard the possibility that there could arise disagreement with regard to the question of what is right and expedient and what is not. They advocate enlightened despotism, but they are convinced that the enlightened despot will in every detail comply with their own opinion concerning the measures to be adopted. They favor planning, but what they have in mind is exclusively their own plan, not those of other people… Every advocate of the welfare state and of planning is a potential dictator. What he plans is to deprive all other men of all their rights, and to establish his own and his friends’ unrestricted omnipotence.

The irreconcilable conflict of these two doctrines, rule of law versus welfare state, was at issue in all the struggles which men fought for liberty. It was a long and hard evolution. Again and again the champions of absolutism triumphed. But finally the rule of law predominated in the realm of Western civilization. The rule of laws, or limited government, as safeguarded by constitutions and bills of rights, is the characteristic mark of this civilization. It was the rule of law that brought about the marvelous achievements of modern capitalism and of its superstructure, democracy. It secured for a steadily increasing population unprecedented well-being. The masses in the capitalist countries enjoy today a standard of living far above that of the well-to-do of earlier ages.

All these accomplishments have not restrained the advocates of despotism and planning. However, it would have been preposterous for the champions of totalitarianism to disclose the inextricable dictatorial consequences of their endeavors openly. In the nineteenth century the ideas of liberty and the rule of law had won such a prestige that it seemed crazy to attack them frankly. Public opinion was firmly convinced that despotism was done for and could never be restored…

Thus the socialists resorted to a trick. They continued to discuss the coming dictatorship of the proletariat, i.e., the dictatorship of each socialist author’s own ideas, in their esoteric circles. But to the broad public they spoke in a different way. Socialism, they asserted, will bring true and full liberty and democracy. It will remove all kinds of compulsion and coercion. The state will “wither away.”

But the Bolshevists took off the mask. They were fully convinced that the day of the final and unshakable victory had dawned… The gospel of bloodshed could be preached openly. It found an enthusiastic response among all the degenerate literati and parlor intellectuals who for many years already had raved about the writings of Sorel and Nietzsche. The fruits of the “treason of the intellectuals” mellowed to maturity. The youths who had been fed on the ideas of Carlyle and Ruskin were ready to seize the reins.

Lenin was not the first usurper. Many tyrants had preceded him. But his predecessors were in conflict with the ideas held by their most eminent contemporaries. They were opposed by public opinion because their principles of government were at variance with the accepted principles of right and legality… But Lenin’s usurpation was seen in a different light. He was the brutal superman for whose coming the pseudo-philosophers had yearned. He was the counterfeit savior whom history had elected to bring salvation through bloodshed… All well-intentioned people asked for socialism; science, through the mouths of the infallible professors, recommended it; the churches preached Christian socialism; the workers longed for the abolition of the wage system. Here was the man to fulfill all these wishes. He was judicious enough to know that you cannot make an omelet without breaking eggs.

Half a century ago all civilized people censured Bismarck when he declared that history’s great problems must be solved by blood and iron. Now the majority of quasi-civilized men bowed to the dictator who was prepared to shed much more blood than Bismark ever did.

This was the true meaning of the Lenin revolution. All the traditional ideas of right and legality were overthrown. The rule of unrestrained violence and usurpation was substituted for the rule of law… Henceforth no laws could any longer limit the power of the elect. They were free to kill ad libitum. Man’s innate impulses towards violent extermination of all whom he dislikes, repressed by a long and wearisome evolution, burst forth. The demons were unfettered. A new age, the age of the usurpers, dawned.

Of course, Lenin did not mean this… He was the only “legitimate” dictator because– an inner voice had told him so… Yet, within a few years two such men, Mussolini and Hitler, became quite conspicuous.

It is important to realize that Fascism and Nazism were socialist dictatorships…

The problems of society’s economic organization are not suitable for light talk at fashionable cocktail parties. Neither can they be dealt with adequately by demagogues haranguing mass assemblies. They are serious things.

It is not true that the masses are vehemently asking for socialism and that there is no means to resist them. The masses favor socialism because they trust the socialist propaganda of the intellectuals. The intellectuals, not the populace, are molding public opinion… They themselves have generated the socialist ideas and indoctrinated the masses with them. No proletarian or son of a proletarian has contributed to the elaboration of the interventionist and socialist programs. Their authors were all of bourgeois background. The esoteric writings of dialectical materialism, of Hegel, the father both of Marxism and of German aggressive nationalism, the books of Georges Sorel, of Gentile and of Spengler were not read by the average man; they did not move the masses directly. It was the intellectuals who popularized them.

The intellectuals are alone responsible for the mass slaughters which are the characteristic mark of our century. They alone can reverse the trend and pave the way for a resurrection of freedom.

Socialism, An Economic and Sociological Analysis, Ludwig von Mises, 1947, Pages 500-540, http://files.libertyfund.org/files/1060/Mises_0069_EBk_v5.pdf.

How does one achieve eternal bliss? By saying dada. How does one become famous? By saying dada. With a noble gesture and delicate propriety. Till one goes crazy. Till one loses consciousness. How can one get rid of everything that smacks of journalism, worms, everything nice and right, blinkered, moralistic, europeanised, enervated? By saying dada. Dada is the world soul, dada is the pawnshop. Dada is the world’s best lily-milk soap. Dada Mr Rubiner, dada Mr Korrodi. Dada Mr Anastasius Lilienstein. In plain language: the hospitality of the Swiss is something to be profoundly appreciated. And in questions of aesthetics the key is quality…

One shouldn’t let too many words out. A line of poetry is a chance to get rid of all the filth that clings to this accursed language, as if put there by stockbrokers’ hands, hands worn smooth by coins. I want the word where it ends and begins. Dada is the heart of words.

Each thing has its word, but the word has become a thing by itself. Why shouldn’t I find it? Why can’t a tree be called Pluplusch, and Pluplubasch when it has been raining? The word, the word, the word outside your domain, your stuffiness, this laughable impotence, your stupendous smugness, outside all the parrotry of your self-evident limitedness. The word, gentlemen, is a public concern of the first importance.

DaDa Manifesto, Hugo Ball, July 14, 1916, http://fr.wikisource.org/wiki/Manifeste_DaDa?match=en.

Dada:

Lenin lived in Zurich right before going to Russia to lead the bolshevik revolution:

A friend’s house in Baden, and a bar nearby:

Dr. Edward Skidelsky is a professor of Philosophy and Sociology at The University of Exeter in the U.K.

“Denial” is an ordinary English word meaning to assert the untruth of something. Recently, however, it has acquired a further polemical sense. To “deny” in this new sense is to repudiate some commonly professed doctrine. Denial is the secular form of blasphemy; deniers are scorned, ridiculed and sometimes prosecuted.

Where does this new usage come from? There is an old sense of “deny,” akin to “disown,” which no doubt lies in the background. (A traitor denies his country; Peter denied Christ.) But the more immediate source is Freud. Denial in the Freudian sense is the refusal to accept a painful or humiliating truth. Sufferers are said to be in a “state of denial” or simply “in denial.” This last phrase entered general use in the early 1990s and launched “denial” on its modern career. “Holocaust denial” was the first political application, followed closely by “Aids denial,” “global warming denial” and a host of others. An abstract noun, “denialism,” has recently been coined. It is perhaps no accident that denial’s counterpart, affirmation, has meanwhile acquired laudatory overtones. We “affirm” relationships, achievements, values. Ours is a relentlessly positive culture.

An accusation of “denial” is serious, suggesting either deliberate dishonesty or self-deception. The thing being denied is, by implication, so obviously true that the denier must be driven by perversity, malice or wilful blindness… A charge of denial short-circuits this debate by stigmatising as dishonest any deviation from a preordained conclusion. It is a form of the argument ad hominem: the aim is not so much to refute your opponent as to discredit his motives. The extension of the “denier” tag to group after group is a development that should alarm all liberal-minded people. One of the great achievements of the Enlightenment—the liberation of historical and scientific enquiry from dogma—is quietly being reversed.

The tyranny of denial, The Prospect Magazine, Edward Skidelsky, January 27, 2010, http://www.prospectmagazine.co.uk/2010/01/words-that-think-for-us-3/.

A common argument against Capitalism is that industry and wealthy individuals will inevitably concentrate. This was a primary argument of the inevitability of Socialism in the writings of Marx and Engels. In Chapters 22 through 26 of Ludwig von Mises’ Socialism, written in 1922, as part of the broader Part III on “The Alleged Inevitability of Socialism,” Mises argues that these theories– the inevitable concentration of establishments, enterprises, and fortunes– are expounded originally by Marx in Das Kapital, and Engels, later reinterpreted by Kautsky, and unsurprisingly Mises disagrees with them in these three component parts of concentration of establishments, enterprises and fortunes (this part of the book follows Part II which is what the book is most well known for in describing “the economic calculation problem” — Mises is credited for being the first to describe why, in theory, purer forms of Socialism such as Bolshevist Russia would ultimately collapse economically).

A potential summary of the quotes:

• Concentration of establishments: This is a feature of the division of labour; however, the size of the unit of production is scoped by the Laws of Diminishing Returns and the Optimal Combination of the Factors of Production (this unit of production being not gauged, and impossible to do so, in historical economic statistics). Therefore, the the number and type of dissimilar productive establishments will tend to increase.
• The Vertical Concentration of Enterprises: Serves no special (and in fact, often superfluous) purpose other than to prop up a weaker enterprise with that of a stronger. However, the modern tendency toward specialization shows that there is a natural move away from vertical concentration.
• The Concentration of Fortunes:
  • Disproven by the number of enterprises that have come up (joint stock company, societas unius acti, etc.) versus the equal decline of individual wealthy merchants. The most large scale concentration of fortune occurs under political or militaristic rule.
  • Mercantile wealth is rarely sustained but through the purchase of land, or through the smart reinvestment of capital. In the rare instances of land wealth, those families fall out of being merchants.
  • Fortunes cannot grow without someone increasing them. Acquired capital cannot produce consumption goods without trade, maintenance, and/or reinvestment. Even in the case of investment, this is purely speculative and can involve complete loss. The more rapid the change in economic conditions, the shorter time in which ever riskier speculation must bear fruit.
• The Theory of Increasing Poverty: Even Marxists concede that Capitalism has shown to be, comparatively, the system that produces the highest overall increase in the standard of living. The more capitalistic, the more the increase. The fact that Capitalism is not Utopia, nor does it give an equal increase in wealth to all members, is a secondary issue to its overall effect to raise the standard of life. Capitalism uniquely maximizes general envy.
• Monopoly (or the Horizontal Concentration of Enterprises): In most cases caused by government, but can occur in specific primary production fields (oil, mining, railroads, electric companies, etc.). However, even if competition is not supported by potential profitability in those fields, or geographic monopoly occurs, these cases are limited and can actually have a beneficial effect of being thrifty with limited resources (e.g. oil), which would not occur in a present-oriented Socialism. Secondly, if the monopolist charges more than a free competition price, (s)he necessarily will limit production (instead of destruction of resources), and although profit will increase, demand will decrease, and excess labour and capital will go into other fields (e.g. alternative energies).

In essence, the opposite of the concentration of resources occurs in capitalism.

Quotes:

1. The Concentration of Establishments:
   1. The concentration of establishments comes automatically with the division of labour.
   2. The more the work is split up, the more must similar processes be concentrated.
   3. Census of the concentration of productive units does not take into account the units (or components) of production.
   4. The higher productivity of the division of labour results, above all, from the specialization of processes which it makes possible.
   5. The size of the productive unit is determined by the complementary quality of the factors of production.
   6. Economic development drives industry to ever greater division of labour, involving at once an increase in the size and a limiting of the scope of the unit of production.
   7. The actual size of the unit is the result of the interaction of these two forces.
   8. The Law of the Optimal Combination of the factors of production indicates the most profitable size of the establishment.
   9. Net profit is greater according to the degree to which it size permits all factors of production to be employed without residue.
   10. It was a mistake to think that enlargement of the industrial establishment must always lead to an economy of costs, a mistake of which Marx and his school have been guilty.
   11. It is merely certain peculiarities of the conditions of agricultural production which cause us to regard the Law of Diminishing Returns as primarily affecting land.
   12. In short, one can see nowhere in primary production any tendency to concentrate productive units. This is equally true of transport.
   13. The economic superiority of the larger productive unit exists only in so far as the Law of the Optimal Combination of Factors of Production demands it and that consequently no advantage is to be gained by enlarging the establishment beyond the point where the instruments are most efficiently utilized.
   14. A Law of the Concentration of Establishments operates therefore only in so far as the division of labour leads to progressive division of production into new branches. This concentration is really nothing more than the reverse side of the division of labour. As a result of the division of labour numerous dissimilar establishments, within which uniformity is the rule, replace numerous similar establishments within which various different processes of production are carried out. It causes the number of similar plants to decrease, whilst the circle of persons, for whose needs they work directly or indirectly, grows. If the production of raw materials was not geographically fixed, a circumstance which acts counter to the process initiated by the division of labour, one single plant would exist for every branch of production.
2. The Vertical Concentration of Enterprises (union of independent enterprise, some of which use the products of the others)
   1. If the amalgamated establishments were individually so efficient that they did not have to shun competition, vertical combination would server no special purpose.
   2. It does not follow that two enterprises, working at different stages of the same branch of production and held by one owner, must necessarily unite in vertical combination. Only when one or other of them shows itself less able to sustain competition does the entrepreneur conceive the idea of supporting it by tying it to the strong one.
   3. Apart from tax remissions and other special advantages, such as those which the mixed works in the German iron industry were able to derive from cartel agreements, union achieves nothing but an apparent profit in one enterprise and an apparent loss in the other.
   4. The number and importance of vertical concentrations is extraordinarily overestimated.
   5. The progressive tendency to specialization in modern industry shows that development is moving away from vertical concentration, which, except where it is demanded by considerations of productive technique, is always an exceptional phenomenon, generally to be explained by regard for the legal and other political conditions of production. But even here the break-up of such unions and the re-establishment of individual enterprise is to be witnessed over and over again.
3. The Concentration of Fortunes
   1. The proof that there is no tendency to concentrate fortunes lies in the number of… enterprises that have come up… while the individual merchant has almost disappeared from large scale industry, mining, and transport.
   2. The history of forms of enterprise, from the societas unius acti to the modern joint stock company, is a wholesale contradiction of the doctrine of the concentration of capital so arbitrarily set up by Marx.
   3. The desire for an increase of wealth can be satisfied through exchange, which is the only method possible in a capitalist economy, or by violence and petition as in a militarist society.
   4. Nowhere and at no time has the large scale ownership of land come into being through the working of economic forces in the market. It is the result of military and political effort. The non-economic origin of landed fortunes is clearly revealed by the fact that, as a rule, the expropriation by which they have been created in no way alters the manner of production. The old owner remains on the soil under a different legal title and continues to carry on production.
   5. Land ownership may be founded also on gifts. It was in this way that the Church acquired its great possessions in the Frankish kingdom. Not later than the eight century, these latifundia fell into the hands of the nobility.
   6. That in a market economy it is difficult even now to uphold the latifundia, is shown by the endeavors to create legislation institutions like the “Fideikommiss” (feoffment in trust) and related legal institutions such as the English “entail.”… to maintain large-scale landed proprietorship, because it could not be kept together otherwise.
   7. Never was the ownership of the means of production more closely concentrated than at the time of Pliny, when half the province of Africa was owned by six people, or in the days of the Merovingians, when the Church possessed the greater part of all French soil. And in no part of the world is there less large-scale land ownership than in capitalist North America.
   8. The assertion that wealth on the one hand and poverty on the other are ever increasing was… influenced by the idea that the sum of wealth in any society is a given quantity, so that if some possess more others must possess less. As, however, in every society the growth of new riches and the coming into existence of new poverty are always to be found in a conspicuous manner whilst the slow decline of ancient fortunes and the slow enrichment of less propertied classes easily escape the eye.
   9. It is quite an unfounded hypothesis that in a society based on the division of labour the wealth of some implies the poverty of others.
   10. We know that Capitalism has not yet abolished all misery in the world.
   11. Attempts to demonstrate by statistical research the progressive increase of the misery of the masses and the growth of the wealth among a numerically diminishing rich class are no better than these mere appeals to emotion. The estimates of money incomes at the disposal of statistical inquiry are unusable because the purchasing power of money alters…. For where it is not possible to reduce to a common denominator the various goods and services of which incomes are composed, one cannot form any series for historical comparison from known statistics of income and capital.
   12. Seldom does mercantile and industrial wealth maintain itself in one family for more than two or three generations, unless, by investment in land, it has ceased to be wealth of this nature.
   13. Fortunes invested in capital do not… represent eternal sources of income. That capital yields a profit, that it even maintains itself at all, is by no means a self-evident fact following a priori from the fact of its existence. The capital goods, of which capital is concretely composed, appear and disappear in production; in their place come other goods, ultimately consumption goods, out of the value of which the value of the capital mass must be reconstituted. This is possible only when the production has been successful, that is when it has produced more value than it absorbed. Not only profits of capital, but the reproduction of capital presupposes a successful process of production. The profits of capital and maintenance of capital are always the result of successful enterprise. If this enterprise fails, the investor loses not only the yield on the capital, but his original capital fund as well.
   14. In agriculture and forestry the original and indestructible factors of the soil are maintained even though production fails, for faulty management cannot dissipate them. They may become valueless through changes in demand, but they cannot lose their inherent capacity to yield produce. This is not so in manufacturing production. There everything can be lost, root and branch. Production must continually replenish capital. The individual capital goods which compose it have a limited life; the existence of capital is prolonged only by the manner in which the owner deliberately reinvests it in production. To own capital one must earn it afresh day by day. In the long run a capital fortune is not a source of income which can be enjoyed in idleness.
   15. Investments must be… the result of successful speculation. Capital investment is attached the risk of a total or partial loss of the original capital sum. This is true not only of the entrepreneur’s investment, but also of the investment the capitalist makes in lending to the entrepreneur. The moneylender too can, and often does, lose his wealth.
   16. An eternal capital investment is as non-existent as a secure one. Every capital investment is speculative; its success cannot be foreseen with absolute assurance.
   17. If, then, capital sums do not grow of themselves, if for their maintenance alone, quite apart from their fructification and increase, successful speculation is constantly required, there can be no question whatever of a tendency for fortunes to grow bigger and bigger. Fortunes cannot grow; someone has to increase them. For this the successful activity of the entrepreneur is needed.
   18. The more rapid the change in economic environment the shorter the time in which an investment is to be considered as good.
   19. When rich entrepreneurs wish to perpetuate their wealth in the family they take refuge in land. The descendants of the Fuggers and Welsers live even today in considerable affluence, if not luxury, but they have long ceased to be merchants and have transformed their wealth into landed property. There are no ancient fortunes which thrive in the sense that they continually increase.
4. The Theory of Increasing Poverty
   1. Even Kautsky, during the revisionism quarrel, was reduced to conceding that, according to all the facts, it was precisely in the most advanced capitalist countries that physical misery was on the decline, and that the working classes had a higher stander of life than fifty years ago. The Marxians still cling to the theory of increasing poverty purely on account of its propaganda value.
   2. But intellectually the theory of the relative growth of poverty, developed by Rodbertus, has replaced the theory of absolute growth: “Poverty is a social, that is, a relative concept.”
   3. This thought is derived entirely from the point of view of the State Socialist, which considers a raising of the workers’ claims to be “justified” and assigns them a “higher position” in the social order. Against arbitrary judgments of this kind, no argument is possible.
   4. If Capitalism improves the economic position all around, it is of secondary importance that it does not raise all to the same level. A social order is not bad simply because it helps one more than another. Must one destroy Capitalism which better satisfies from day to day the wants of all people, merely because some individuals become rich and a few of them very rich?
   5. The general striving of improvement of economic position is a peculiarly characteristic mark of capitalist society.
   6. Mandeville and Hume, two of the greatest observers of human nature, have remarked that the intensity of envy depends on the distance between the envier and the envied. If the distance is great one does not compare oneself with the envied, and, in fact, no envy is felt. The smaller the distance, however, the greater the envy.
5. Monopoly
   1. No other part of economic theory has been so much misunderstood as the theory of monopoly. The mere mention of the word monopoly usually stirs up emotions. Even in the United States the controversy raging over the trust problem has supplanted all impartial discussion of the problem of monopoly.
   2. The concept “monopoly”… is that contained in the theory of price monopoly. It does not demand that a monopolized commodity shall be indispensable, unique, and without substitute. It assumes only the absence of perfect competition on the side of supply.
   3. The monopolist cannot ask any price he fancies. The price offers with which he enters the market influence the attitude of the buyers. Demand expands or contracts according to the price he demands,. The one and only peculiarity of monopoly is that, assuming a certain shape of the demand curve, the maximum net profit lies at a higher price than would have been the case in competition between sellers. If we assume these conditions and if the monopolist cannot so discriminate as to exploit the purchasing power of each class of buyers, it pays him better to sell at the higher monopoly price than at the lower competitive price, even though sales are thereby diminished. Therefore, monopoly under such conditions has three results: the market price is higher, the profit is greater, both the quantity sold and the consumption are smaller than they would have been under free competition.
   4. If there is more of the monopolized commodity than can be placed at the monopoly price the monopolist must lock up or destroy so many surplus units that the remainder may attain the price needed. Thus the Dutch East India Company, which monopolized the European coffee market in the seventeenth century, destroyed some of its stock. Other monopolists have done likewise; the Greek Government, for instance, destroyed currants in order to raise the price.
   5. That goods which could have satisfied wants, and foodstuffs which could have stilled the hunger of the many, should be destroyed is a state of things which the outraged populace and the discerning economist unite, for once, in condemning.
   6. Even in monopolistic undertakings, however, destruction of economic goods is rare. The far-sighted monopolist does not produce goods for the incinerator. If he wishes to place fewer goods on the market he takes steps to reduce his output. The problem of monopoly must be considered, not from the point of view of goods destroyed, but from that of production restricted.
   7. Now the result of this restriction is not that less is produced quantitatively. Capital and labour, set free by the restriction of production, must find employment in other production. For in the long run in the free economy there is neither unemployed capital nor unemployed labour. Thus against the smaller production of the monopolized goods one must set the increased production of other goods. But these, of course, are less important goods… this difference represents the loss of welfare which the monopoly has inflicted on the national economy.
   8. Apart from the enjoyment of artificial support… we shall find that a monopoly can, as a rule, maintain itself only by the exclusive power to dispose of certain natural factors of production.
   9. New enterprises may always spring up.
   10. The progressive division of labour tends towards a condition in which, at the highest specialization of production, everyone will be the sole producer of one or several articles. However, the attempts of manufacturers to extract monopoly prices would… be checked by the appearance of new competitors.
   11. Experience of cartels and trusts during the last generation completely confirms this. All enduring monopolistic organizations are built up on the power of the monopoly to dispose of natural resources or of particular land sites. A man who tried to become a monopolist without the control of such resources– and without special legal aids such as tariffs, patents, etc.– had to resort to all sorts of tricks and artifices to secure even a temporary success.
   12. Most cartels and trusts would never have been set up had not the governments created the necessary conditions by protectionist measures. Manufacturing and commercial monopolies owe their origin not to a tendency immanent in capitalist economy but to governmental interventionist policy directed against free trade.
   13. Without the special power to dispose of natural resources, or of advantageously situated land, monopolies could arise only where the capital required to erect a competing enterprise was not able to count on an adequate return. A railway company can achieve a monopoly where it would not pay to build a competing line, the traffic being too small for two lines to be profitable. But while this shows that a few monopolies of this kind are possible it does not reveal a general tendency to their formation.
   14. The effect of such monopolies, e.g. the railway company or the electric power plant, is that the monopolist may be able, according to the circumstances of the case, to absorb a greater or smaller quantity of the ground rents of adjoining properties.
   15. In an economy based on private ownership in the means of production, specific primary production is the only field liable to monopolization without special protection from the State. Mining, in the widest sense of the world, is their true domain… almost exclusively organizations built up on a power to dispose of certain kinds of natural resources. These natural resources must be such as are found in relatively few places, for this alone makes the monopoly possible. A world monopoly of potato farmers or milk producers is unthinkable. Potatoes and milk, or at least substitutes for them, can be produced over the greater part of the earth’s surface. World monopolies of oil, mercury, zinc, nickel, and other materials can occasionally be formed if the owners of the rare places where they exist can combine; examples of this are found in the history of recent years.
   16. When such a monopoly is formed the higher monopoly prices replaces the competitive price. The income of mine owners rises, production and consumption of their product fall. A quantity of capital and labour which would otherwise have been active in this branch of production is diverted to other fields…. monopolies would appear to economize consumption of irreplaceable natural resources. People come to deal more thriftly with these precious resources.
   17. True, a socialist community would have no occasion to restrict production as Capitalism does under monopolies, but this would only mean that Socialism would deal less thriftly with irreplaceable natural treasures, that it would sacrifice the future to the present.
   18. If, then, we consider the effects of monopoly… we can discover nothing which could justify the assertion that growing monopolization makes the capitalist system intolerable. The monopolist’s scope in a capitalist economy free from state interference is much smaller than is commonly assumed; and the consequences of monopoly must be judged by other standards.

Socialism, An Economic and Sociological Analysis, Ludwig von Mises, 1922, http://files.libertyfund.org/files/1060/Mises_0069_EBk_v5.pdf.

http://www.cato-unbound.org/2008/11/10/roderick-long/corporations-versus-the-market-or-whip-conflation-now/

Every year, the federal government spends about 10% of its outlays on paying the interest of previous debt. This is approaching the total % of federal outlays spent on national defense.

That is to say, the yearly cost of the borrowing of previous generations will be about the same as the cost of two wars and over 700 military bases.

Outlays as a percent of GDP:

The Office of Management and Budget, The White House, FY 2011 Budget, Historical Tables, Table 3.1—Outlays by Superfunction and Function: 1940–2015, http://www.whitehouse.gov/omb/budget/fy2011/assets/hist03z1.xls (descriptions).

Mimics page 37 of http://www.piie.com/publications/papers/ferguson201005.pdf (audio).

A very interesting and sober analysis by a Keynesian economist:

Historians increasingly attribute the [Great] Depression to broad geopolitical upheavals. World War I shattered the existing global economic order. Dominated by Great Britain, it fostered vibrant trade and rested on the gold standard. (Under the gold standard, paper currencies could be converted into gold coins or bullion.) The war also spawned huge international debts, reflecting German war reparations and large U.S. loans to Britain and France. It was impossible to reconstruct the prewar order. Britain was too weak, the gold standard was too constricting, and the debts were too heavy. But countries tried, because the prewar order had delivered prosperity. This futile effort brought on Depression. Only when economic hardship became unbearable were unrealistic goals (keeping the gold standard, repaying debts) abandoned.

There are eerie, if crude, parallels now. The welfare state is today’s equivalent of the gold standard. With aging societies, advanced countries have promised more benefits than their tax bases can support. Hence, high government debt. Greece is merely the canary in the coal mine. But politicians resist cutting popular benefits except under extreme pressure. It takes a crisis. Greece, again. Another unsettling parallel is the global economy. The United States’ leadership since World War II is eroding before China’s ascent. There’s a danger now, as then, of a power vacuum. Witness the long delay in coming to Greece’s aid. No one country acted decisively, even as markets grew nervous…

Three [problems] stand out: first, the weight of the welfare state and aging populations; second, the burden of huge private debts (mortgages and consumer loans in America and elsewhere); and finally, huge imbalances in global trade, with some countries — notably China — running massive surpluses and others — notably the United States — having large deficits…

Everywhere countries face changes of policies, practices and habits that are deeply woven into their social, political and economic fabrics. Can developed countries gradually rein in their welfare states? Will Asia’s relentless export economies shift to domestic-led growth? Will Americans save more and spend less — and the Chinese do the opposite? As after World War I, reverting to what’s familiar, comfortable and understood may be hazardous. It was the inability to see and adapt to change in the 1920s — a process complicated by the war’s animosities — that fundamentally caused the Great Depression, economic historians Barry Eichengreen of the University of California, Berkeley, and Peter Temin of the Massachusetts Institute of Technology have argued…

But there is another more sobering reading of the Great Depression. It is that painful and once unthinkable changes are made only under the pressure of acute crisis. One reason that central banks were so passive is that they clung to the gold standard: Relaxing credit policies too dramatically to rescue banks might lead to a loss of gold; people would demand metal to replace paper money. Gold was abandoned in various countries only after it seemed untenable. Similarly, the post-World War I debt problem wasn’t “solved” until repayment was impossible. As for Britain’s place as global leader, the United States assumed that role only in World War II.

Against that backdrop, today’s unresolved problems — over the welfare state, leadership in the global economy — become more ominous. They suggest that major adjustments won’t be made until they’re compelled by some sort of crisis. This possibility defines the present economic drama. Will the recovery encourage conscious changes? Or is recovery providing a false sense of security? The stakes are, of course, enormous, because — as everyone knows — the economic suffering of the Great Depression transformed many countries’ politics for the worse and led to World War II.

Depression 2010?, Robert Samuelson, Real Clear Politics, May 12, 2010, http://www.realclearpolitics.com/articles/2010/05/12/depression_2010_105530.html.

Nassim Taleb: You can’t solve debt with more debt.

http://www.youtube.com/watch?v=OVxcDgfTzuk

Dr. John Taylor is a well-known and generally main stream economist at Stanford who is famous for the Taylor Rule [bloomberg.com].

… provides further evidence that the stimulus package of 2009 has had a small contribution to the recovery. Most of the recovery has been due to investment—including inventory investment, which was positive in the first quarter after declining for all of last year—and has little to do with discretionary stimulus packages. The two charts show the percentage contribution of investment and government purchases to real GDP growth in the first quarter and in the preceding quarters since 2007. The charts clearly indicate that the changes in real GDP growth have been mostly due to changes in investment and little to changes in government purchases. In fact, government purchases have been a drag (a negative contribution to real GDP growth) in the fourth quarter of 2009 and the first quarter of 2010. I also include similar charts for the other two components of GDP, consumption and net exports. The government purchases chart looks very similar if you exclude defense spending, as I have in previous posts on this subject.

In response to these previous posts, some have argued that government spending might have declined by a larger amount without the stimulus because the stimulus package prevented state and local government from cutting spending. More research is needed to determine what would have happened in the counterfactual of “no discretionary stimulus,” but in the meantime these data at the least suggest that the simple Keynesian model frequently taught to beginning students—in which government spending shifts up the aggregate spending line to counteract an investment-induced downward shift in that line—needs to be reworked.

Latest Data Continue To Show Little Impact of Government Stimulus on GDP, Dr. John Taylor, May 1, 2010, http://johnbtaylorsblog.blogspot.com/2010/05/latest-data-continue-to-show-little.html.

Wow.

See also: cephalopods.