21st Century Schizoid Boy

In summary, “The theory of economic calculation shows that in the socialistic community, economic calculation would be impossible. The problem of economic calculation is the fundamental problem of socialism. The problem of economic calculation is a problem which arises in an economy which is perpetually subject to change, an economy which every day is confronted with new problems which have to be solved. Far more important than the transformation of existing raw materials into consumers’ goods, the renewal of capital and the investment of newly formed capital is the central problem of economic calculation.”

In general, humans act only because they are not completely satisfied. Were they always to enjoy complete happiness, they would be without will, without desire, without action. In the land of the lotus-eaters there is no action. Action arises only from need, from dissatisfaction. It is purposeful striving towards something.

Materials are limited so that they have to be used in such a way that the most urgent needs are satisfied first, with the least possible expenditure of materials for each satisfaction.

All rational action is economic. All economic activity is rational action. All rational action is in the first place individual action. Only the individual thinks. Only the individual reasons. Only the individual acts. Society arises from the actions of individuals.

All human action, so far as it is rational, appears as the exchange of one condition for another. Humans apply economic goods and personal time and labor in the direction which, under the given circumstances, promises the highest degree of satisfaction, and they forgo the satisfaction of lesser needs so as to satisfy the more urgent needs. This is the essence of economic activity– the carrying out of acts of exchange.

Every human who, in the course of economic activity, chooses between the satisfaction of two needs, only one of which can be satisfied, makes judgments of value.

Under very simple conditions, a human should have little difficulty in forming a judgment upon the relative significance of the factors of production. When, however, conditions are at all complicated, and the connection between things is harder to detect, we have to make more delicate computations if we are to evaluate such instruments. An isolated human can easily decide whether to extend hunting or cultivation. The processes of production one has to take into account are relatively short. The expenditure they demand and the product they afford can easily be perceived as a whole. But to choose whether we shall use a waterfall to produce electricity or extend coal mining is quite another matter. Here the processes of production are so many and so long, the conditions necessary to the success of the undertaking so multitudinous, that we can never be content with vague ideas. To decide whether an undertaking is sound we must calculate carefully.

But computation demands units. And there can be no unit of the subjective use-value of commodities. Marginal utility provides no unit of value. The worth of two units of a given commodity is not twice as great as one– although it is necessarily greater or smaller than one. Judgments of value do not measure: they arrange, they grade. If a human relies only on subjective valuation, even an isolated human cannot arrive at a decision based on more or less exact computations in cases where the solution is not immediately evident. As a rule the human will not be able to reduce all to a common unit. But he or she may succeed in reducing all elements in the computation to such commodities as can be evaluated immediately, that is to say, to goods ready for consumption and the disutility of labor and then he or she is able to base a decision upon this evidence. It is obvious that even this is possible only in very simple cases. For complicated and long processes of production it would be quite out of the question.

In an exchange economy, the objective exchange value of commodities becomes the unit of calculation. In the first place we are able to take as the basis of calculation the valuation of all individuals participating in trade. The subjective valuation of one individual is not directly comparable with the subjective valuation of others. It only becomes so as an exchange value arising from the interplay of the subjective valuations of all who take part in buying and selling. Secondly, they enable those who desire to calculate the cost of complicated processes of production to see at once whether they are working as economically as others. If they cannot carry through the process at a profit, it is a clear proof that others are better able to turn to good account the instrumental goods in question. Finally, calculations based upon exchange values enable us to reduce values to a common unit. Any commodity desired can be chosen for this purpose. In a money economy, money is the commodity chosen.

Money calculations have their limits. Money is neither a yardstick of value nor of prices. Money does not measure value. Nor are prices measured in money: they are amounts of money. The relation between money and goods perpetually fluctuates not only on the goods side but on the money side also.

The deficiencies of money calculations arise for the most part, not because they are made in terms of a general medium of exchange, money, but because they are based on exchange values rather than on subjective use-values. For this reason all elements of value which are not the subject of exchange elude such computations. The beauty of a place or of a building, even if it does not enter into exchange relations, is just as much a motive of rational action, provided people think it significant. If we know precisely how much we have to pay for beauty, health, honor, pride, and the like, nothing need hinder us from giving them due consideration. Sensitive people may be pained to have to choose between the ideal and the material. But that is not the fault of a money economy. It is in the nature of things. For even when we can make judgments of value without money computations we cannot avoid this choice. Called upon to choose between bread and honor, if honor cannot be eaten, eating can at least be forgone for honor.

Two things are necessary if computations of value in terms of money are to take place. First, not only goods ready for consumption but also goods of higher order must be exchangeable. If this were not so, a system of exchange relationships could not emerge. No single human, be he or she the greatest genius ever born, has an intellect capable of deciding the relative importance of each one of an infinite number of goods of higher orders. No individual could so discriminate between the infinite number of alternative methods of production that he or she could make direct judgments of their relative value without auxiliary calculations. In societies based on the division of labor, the distribution of property rights effects a kind of mental division of labor, without which neither economy nor systematic production would be possible. In the second place, there must be a general medium of exchange, a money, in use.

In the simple conditions of a closed household, it is possible to survey the whole process of production from beginning to end. It is possible to judge whether one particular process gives more consumption goods than another. But, in the incomparably more complicated conditions of our own day, this is no longer possible. True, a socialist society could say that 1000 litres of wine were better than 900 litres. It could decide whether or not 1000 litres of wine were to be preferred to 500 litres of oil. Such a decision would involve no calculation. The will of some human would decide. But the real business of economic administration, the adaptation of means to ends only begins when such a decision is taken. And only economic calculation makes this adaptation possible. Without such assistance, in the bewildering chaos of alternative materials and processes the human mind would be at a complete loss.

To suppose that a socialist community could substitute calculations in kind for calculations in terms of money is an illusion. In a community that does not practice exchange, calculations in kind can never cover more than consumption goods. They break down completely where goods of higher order are concerned. Once society abandons free pricing of production goods rational production becomes impossible. Every step that leads away from private ownership of the means of production and the use of money is a step away from rational economic activity.

The existence of a surrounding system of free pricing supports State and municipal undertakings to carry out technical improvements, because it is possible to observe the effects of similar improvements in similar private undertakings at home and abroad.

Without calculation, economic activity is impossible. Since under Socialism economic calculation is impossible, under Socialism there can be no economic activity in our sense of the word. In the absence of criteria of rationality, production could not be consciously economical. For some time possibly the accumulated tradition of thousands of years would preserve the art of economic administration from complete disintegration, however, changing conditions would make them irrational. They would become uneconomical as the result of changes brought about by the general decline of economic thought. The command of a supreme authority would govern the business of supply. The wheels would go round, but to no effect.

Under a system based upon private ownership in the means of production, the scale of values is the outcome of the actions of every independent member of society. Everyone plays a two-fold part in its establishment, first as a consumer, secondly as a producer. As consumer, he or she establishes the valuation of goods ready for consumption. As producer, he or she guides production-goods into those uses in which they yield the highest product.

Under Socialism, the economic administration may indeed know exactly what commodities are needed most urgently. But this is only half the problem. The other half, the valuation of the means of production, it cannot solve. It is possible to conceive arrangements permitting the use of money for the exchange of consumer goods. But since the prices of the various factors of production (including labor) could not be expressed in money, money could play no part in economic calculations.

Suppose, for instance, that the socialist commonwealth was contemplating a new railway line. Would a new railway line be a good thing? If so, which of many possible routes should it cover? Under a system of private ownership we could use money calculations to decide these questions. The new line would cheapen the transportation of certain articles, and, on this basis, we could estimate whether the reduction in transport charges would be great enough to counterweigh the expenditure which the building and running of the line would involve. True, money calculations are incomplete. True, they have profound deficiencies. But we have nothing better to put in their place. Under sound monetary conditions they suffice for practical purposes. If we abandon them, economic calculation becomes absolutely impossible.

This is not to say that the socialist community would be entirely at a loss. It would decide for or against the proposed undertaking and issue an edict. But, at best, such a decision would be based on vague valuations. It could not be based on exact calculations of value.

A stationary society could, indeed, dispense with these calculations. If we assume that the socialist system of production were based upon the last state of the system of economic freedom which it superseded, and that no changes were to take place in the future, we could indeed conceive a rational and economic Socialism. But only in theory. A stationary economic system can never exist. Capital goods employed in production are sooner or later used up. This is true, not only of those goods which constitute circulating capital, but also of those which constitute fixed capital. Those, too, sooner or later are consumed in production. In order that capital may be maintained in the same proportions, or that it may be increased, constant effort is necessary. Care must be taken that the capital goods used up in the process of production are replaced; and, beyond that, that new capital is created. Capital does not reproduce itself (177).

Under Socialism all the means of production are the property of the community. The community alone disposes of them and decides how to use them in production. The community produces, the products accrue to the community, and the community decides how those products are to be used.

Modern socialists lay great emphases on designating the socialist community as Society, and therefore on describing the transfer of the means of production to the control of the community as the “Socialization of the means of production.” The word “society,” with its corresponding adjective “social,” has three separate meanings. It implies, first, the abstract idea of social interrelationships, and secondly, the concrete conception of a union of the individuals themselves. Between these two sharply different meanings, a third has been interposed in ordinary speech: the abstract society is conceived as personified in such expressions as “human society, ” “civil society.”

The reason for all this is in order to avoid using the term State or its equivalent, since this word has an unpleasant sound to all those lovers of freedom and democracy. The Marxian social democracy could at one and the same time contemplate the destruction of the existing State machine, fiercely combat all anarchistic movements, and pursue a policy which led directly to an all powerful state.

Now it does not matter in the least what particular name is given to the coercive apparatus of the socialistic community. What is important is the problem of the organization of this socialistic State or community. For the Marxists talk glibly about expressing the will of society, without giving the slightest hint how “society” can proceed to will and act. Yet of course the community can only act through organs which it has created.

Now it follows from the very conception of the socialistic community that the organ of control must be unitary. Of course this organ can be subdivided and there can be subordinate offices to which definite instructions are transmitted. But the unitary expression of the common will, which is the essential object of the socialization of the means of production and of production, necessarily implies that all offices entrusted with the supervision of different affairs shall subordinate to one office. This office must have supreme authority to resolve all variations from the common purpose and unify the executive aim. It does not matter whether this organ is an absolute prince or an assembly of all citizens organized as a direct or indirect democracy. It does not matter how this organ conceives its will and expresses it. That under the unitary direction of the central authority the administration of individual branches of production is entrusted to seemingly independent departments does not alter the fact that only the central authority directs. The relations between the individual departments are settled, not on the market by the competition of buyers and sellers, but the command of authority. The problem is this: that there is no standard by which one may account and calculate the effects of these authoritarian interventions, because the central authority cannot be guided by exchange-relationships formed on a market. The authority may indeed base its calculations on substitution-relationships, which it determines itself. But this decision is arbitrary; it is not based, as are market prices, on the subjective valuations of individuals and imputed to the producers’ goods by the economic operation of all those active in production and trade. Rational economic calculation cannot therefore be based upon it (476).

Some socialists believe that the socialist community could solve the problem of economic calculation by the creation of an artificial market for the means of production. They admit that it was an error on the part of the older socialists to have sought to realize Socialism through the suspension of the market and the abolition of pricing for goods of higher orders. And they contend that Socialism must create a market in which all goods and services may be priced. Unfortunately, the motive force of the whole process which gives rise to market prices for the factors of production is the ceaseless search on the part of the capitalists and the entrepreneurs to maximize their profits by serving the consumers’ wishes. Without the striving of the entrepreneurs for profit, of the landlords for rent, of the capitalists for interest and the laborers for wages, the successful functioning of the whole mechanism is not to be thought of. The prospect of profit is the market’s mainspring by setting it in motion and maintaining it.

The advocates of the artificial market, however, are of the opinion that an artificial market can be created by instructing the controllers of the different industrial units to act as if they were entrepreneurs in a capitalistic state. They argue that even under Capitalism the managers of joint stock companies work not for themselves but for the companies, that is to say, for the shareholders. The only difference would be that under socialism the product of the manager’s labors would go to the community rather than to the shareholders.

However, these controllers of individual industrial units would have to be appointed. Under Capitalism the managers of the joint stock companies are appointed either directly or indirectly by the shareholders. In so far as the shareholders give to the managers power to produce by the means of production of the company’s stock they are risking their own property or a part of their own property. The speculation may succeed and bring profit; it may, however, misfire and bring about the loss of the whole or part of the capital concerned. This committing of one’s own capital to a business whose outcome is uncertain and to men or women whose future ability is still a matter of conjecture whatever one may know of their past, is the essence of joint stock company enterprise.

Capitalist production is that which adopts wise roundabout methods in contrast with a non-capitalistic production which goes directly to its end in a hand to mouth manner. The characteristic feature of the capitalistic method of production is that the producer works to obtain a profit. Capitalistic production is production for profit, socialist production will be, as the socialists say, production for the satisfaction of needs. But to achieve a profit, that is a result greater in value than the costs, must also be the aim of the socialistic community. If economic activity is rationally directed, that is if it satisfies more urgent before less urgent needs, it has already achieved profits, since the cost, i.e. the value of the most important of the unsatisfied needs, is less than the result attained.

An economic action is said to be profitable if in the capitalist system it yields an excess of receipts over costs. An economic action is said to be productive when, seen from the point of view of a hypothetical socialist community, the yield exceeds the cost involved. Some economic acts which are profitable are not productive and, vice versa, some are productive but not profitable. This fact is sufficient to condemn the capitalistic order of society. Whatever a socialist community would do seems to socialists indisputably good and reasonable; that anything different can happen in a capitalistic society is, in their opinion, an abuse which cannot be tolerated. But an examination of the cases in which profitability and productivity are alleged not to coincide will show that this judgment is purely subjective.

For example, speculation in the capitalist system performs a function which must be performed in any economic system however organized: it provides for the adjustment of supply and demand over time and space. If it is eliminated, then some other organization must take over its function: the community itself must become a speculator. Without speculation there can be no economic activity reaching beyond the immediate present.

Far more important than the transformation of existing raw materials into consumers’ goods, the renewal of capital and the investment of newly formed capital is the central problem of economic calculation, not the problem of disposing of the circulating capital already in existence. One cannot base decisions of this sort, which are binding for years and decades ahead, on the momentary demand for consumers’ goods. One must look to the future, that is, one must be “speculative” (477).

Socialism, An Economic and Sociological Analysis, Ludwig von Mises, 1947, Pages 96-130 (473), http://files.libertyfund.org/files/1060/Mises_0069_EBk_v5.pdf.

In an article on “Economic Calculation in a Socialist Community,” which appeared in the spring of 1920, he demonstrated that the possibility of rational calculation in our present economic system was based on the fact that prices expressed in money provided the essential condition that made such reckoning possible. The essential point on which Professor Mises went far beyond anything done by his predecessors was the detailed demonstration that an economic use of the available resources was only possible if this pricing was applied not only to the final product but also to all the intermediate products and factors of production, and that no other process was conceivable that would in the same way take account of all the relevant facts as did the pricing process of the competitive market.

http://mises.org/daily/4590

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Human society rests on a strong individual and flows outward from individual to love, family, friends, neighbors, and finally voluntary cooperation with other humans, in that order. Tribes, nations, governments, and races are unimportant. Unlike other animals, modern humans are rational and understand that voluntary cooperation is more productive than violence. Ideas form the structure of society and greatly impact its quality (e.g. government and its extent or anarchy, moral principles, purpose, etc.). Humans are philanthropists and help each other (the greatest explosion of charity in history occurred voluntarily in the 19th century United States). A human may only use violence in self-defense of body or property, defending that of others, and surviving (e.g. eating). This violence must be proportional and only used as a last resort. Otherwise, the actions of another human are unimportant. Humans must strive to be productive, helpful members of society, and not to take the physical world for granted. Life and humanity are fundamentally good.

The U.S. became the largest economy in the world (total GDP) in the late 1870s and caught up to the U.K. in GDP-per-capita in the 1880s, before the Federal Reserve and the growth of government:

Angus Maddison, Professor of Economics, The University of Groningen, Netherlands, 2006, http://www.ggdc.net/maddison/Historical_Statistics/horizontal-file_02-2010.xls (methodology).

We present a new class of statistical deanonymization attacks against high-dimensional micro-data, such as individual preferences, recommendations, transaction records and so on. Our techniques are robust to perturbation in the data and tolerate some mistakes in the adversary’s background knowledge.

We apply our de-anonymization methodology to the Netflix Prize dataset, which contains anonymous movie ratings of 500,000 subscribers of Netflix, the world’s largest online movie rental service. We demonstrate that an adversary who knows only a little bit about an individual subscriber can easily identify this subscriber’s record in the dataset. Using the Internet Movie Database as the source of background knowledge, we successfully identified the Netflix records of known users, uncovering their apparent political preferences and other potentially sensitive information.

Robust De-anonymization of Large Sparse Datasets, Arvind Narayanan and Vitaly Shmatikov, The University of Texas at Austin, March 8, 2008, http://userweb.cs.utexas.edu/~shmat/shmat_oak08netflix.pdf.

As noted by Paul Krugman, most of the mortgage securitization (subprime, adjustable rate, jumbo, and option ARM) that spawned the collapse of 2008 was led by non-Government entities. However, all of these instruments were a function of low interest rates– i.e. they couldn’t have existed or have been profitable without them. That doesn’t excuse the fraud and banksterism that occurred, but crazy things happen when you flood a market with fake money. Subprime is now back to 20%, this time fully backed by the government and the government now owns or securitizes more than 95% of the whole mortgage market.

Beginning in the middle of 2007… Figure 3 shows dramatic declines during this time in both non-agency securitization and originations of loans retained in the lending institution’s portfolio. In the present day, when Ginnie Mae’s activities are included, the three GSEs are providing unprecedented support to the housing market—owning or guaranteeing almost 95% of the new residential mortgage lending.

This shift in mortgage finance has had a profound impact on the types of borrowers receiving loans. In the fourth quarter of 2006, approximately 10% of originations in our sample were labeled by originators as “subprime.” For the entire universe of mortgages, subprime loans are estimated to have made up about 20% of originations in 2006. By the first quarter of 2008, the subprime share was effectively zero. Since then, increased FHA lending—identified here by Ginnie Mae’s share—has revived this segment of the market. After plummeting in early 2008, the share of borrowers with FICO credit scores lower than 660 has returned to just higher than 20%, the same share as when subprime securitization peaked in 2006.

With the vast majority of current mortgage lending now intermediated in some form by the GSEs, it will be difficult for the housing market to return to normal.

Recent Developments in Mortgage Finance, The Federal Reserve Bank of San Francisco, John Krainer, Senior Economist, October 26, 2009, http://www.frbsf.org/publications/economics/letter/2009/el2009-33.pdf.

Quotes from David Stevens, the head of the U.S. Government’s Federal Housing Administration (FHA/HUD):

This is a market purely on life support, sustained by the federal government…

Having FHA do this much volume is a sign of a very sick system.

FHA Home-Financing Volume Sign of ‘Very Sick System’, Bloomberg, May 24, 2010, http://www.businessweek.com/news/2010-05-24/fha-home-financing-volume-sign-of-very-sick-system-update2-.html.

John Taylor [stanford.edu] giving the main talk at the 2010 NBER Conference:

One does not need to rely on the Taylor rule to conclude that from the perspective of many of the standard objective functions that monetary policy might seek to optimize, rates were held too low for too long. The real interest rate was negative for a very long period, similar to what happened in the 1970s. The intervention was an intentional departure from a policy approach that was followed in the decades before. The Fed’s statements that interest rates would be low for a “prolonged period” and that interest rates would rise at a “measured pace” is evidence of these intentions.

The low interest rates added fuel to the housing boom, which in turn led to risk taking in housing finance and eventually a sharp increase in delinquencies, foreclosures, and the deterioration of the balance sheets of many financial institutions as toxic assets grew rapidly. To test the connection between the low interest rates and the housing boom I built a simple model relating the federal funds rate to housing construction. My research showed that a higher federal funds rate would have avoided much of the boom and bust.

Macroeconomic Lessons from the Great Deviation, Remarks at the 25th NBER Macro Annual Meeting, John Taylor, Professor of Economics, Stanford University, May, 2010, http://www.stanford.edu/~johntayl/NBERMacroAnnualTalkFinal.pdf.

See also:

• http://www.fdic.gov/news/news/speeches/chairman/spjun1810.html

George Washington, the first president of the United States, gave a farewell address to the people of the nation that shows an amazing amount of forethought and humility. It’s amazing that a military general could have said such things. Generals, and seemingly the whole culture back then, seemed truly different (in general), philosophically.

Hence likewise [all the parts combined] will avoid the necessity of those overgrown military establishments, which under any form of government are inauspicious to liberty, and which are to be regarded as particularly hostile to republican liberty.

The basis of our political systems is the right of the people to make and to alter their constitutions of government. But the Constitution which at any time exists, until changed by an explicit and authentic act of the whole people, is sacredly obligatory upon all.

Liberty itself will find in such a government, with powers properly distributed and adjusted, its surest guardian.

Let me now take a more comprehensive view and warn you in the most solemn manner against the baneful effects of the spirit of party, generally… The alternate domination of one faction over another, sharpened by the spirit of revenge natural to party dissension, which in different ages and countries has perpetrated the most horrid enormities, is itself a frightful despotism. But this leads at length to a more formal and permanent despotism. The disorders and miseries which result gradually incline the minds of men to seek security and repose in the absolute power of an individual; and sooner or later the chief of some prevailing faction, more able or more fortunate than his competitors, turns this disposition to the purposes of his own elevation on the ruins of public liberty… It opens the door to foreign influence and corruption, which find a facilitated access to the government itself through the channels of party passions.

Avoiding likewise the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertions in time of peace to discharge the debts which unavoidable wars may have occasioned, not ungenerously throwing upon posterity the burden which we ourselves ought to bear.

Observe good faith and justice towards all nations; cultivate peace and harmony with all.

The nation, prompted by ill will and resentment, sometimes impels to war the government, contrary to the best calculations of policy. The peace often, sometimes perhaps the liberty, of nations has been the victim.

So likewise, a passionate attachment of one nation for another produces a variety of evils. Sympathy for the favorite nation, facilitating the illusion of an imaginary common interest in cases where no real common interest exists and infusing into one the enmities of the other, betrays the former into a participation in the quarrels and wars of the latter, without adequate inducement or justification.

Against the insidious wiles of foreign influence (I conjure you to believe me, fellow citizens) the jealousy of a free people ought to be constantly awake, since history and experience prove that foreign influence is one of the most baneful foes of republican government. But that jealousy to be useful must be impartial; else it becomes the instrument of the very influence to be avoided, instead of a defense against it. Excessive partiality for one foreign nation and excessive dislike of another cause those whom they actuate to see danger only on one side, and serve to veil and even second the arts of influence on the other. Real patriots, who may resist the intrigues of the favorite, are liable to become suspected and odious, while its tools and dupes usurp the applause and confidence of the people to surrender their interests.

The great rule of conduct for us in regard to foreign nations is, in extending our commercial relations, to have with them as little political connection as possible. So far as we have already formed engagements, let them be fulfilled with perfect good faith. Here let us stop.

Europe has a set of primary interests, which to us have none or a very remote relation. Hence she must be engaged in frequent controversies, the causes of which are essentially foreign to our concerns. Hence therefore it must be unwise in us to implicate ourselves, by artificial ties, in the ordinary vicissitudes of her politics or the ordinary combinations and collisions of her friendships or enmities. Our detached and distant situation invites and enables us to pursue a different course.

Why forgo the advantages of so peculiar a situation? Why quit our own to stand upon foreign ground? Why, by interweaving our destiny with that of any part of Europe, entangle our peace and prosperity in the toils of European ambition, rivalship, interest, humor, or caprice?

It is our true policy to steer clear of permanent alliances with any portion of the foreign world—so far, I mean, as we are now at liberty to do it, for let me not be understood as capable of patronizing infidelity to existing engagements (I hold the maxim no less applicable to public than to private affairs, that honesty is always the best policy)—I repeat it therefore, let those engagements be observed in their genuine sense. But in my opinion it is unnecessary and would be unwise to extend them. Taking care always to keep ourselves, by suitable establishments, on a respectably defensive posture, we may safely trust to temporary alliances for extraordinary emergencies.

Harmony, liberal intercourse with all nations, are recommended by policy, humanity, and interest. But even our commercial policy should hold an equal and impartial hand: neither seeking nor granting exclusive favors or preferences; consulting the natural course of things; diffusing and diversifying by gentle means the streams of commerce but forcing nothing; establishing with powers so disposed—in order to give to trade a stable course, to define the rights of our merchants, and to enable the government to support them—conventional rules of intercourse, the best that present circumstances and mutual opinion will permit, but temporary, and liable to be from time to time abandoned or varied, as experience and circumstances shall dictate; constantly keeping in view, that it is folly in one nation to look for disinterested favors from another— that it must pay with a portion of its independence for whatever it may accept under that character—that by such acceptance it may place itself in the condition of having given equivalents for nominal favors and yet of being reproached with ingratitude for not giving more. There can be no greater error than to expect or calculate upon real favors from nation to nation. It is an illusion which experience must cure, which a just pride ought to discard.

In offering to you, my countrymen, these counsels of an old and affectionate friend, I dare not hope they will make the strong and lasting impression I could wish—that they will control the usual current of the passions or prevent our nation from running the course which has hitherto marked the destiny of nations. But if I may even flatter myself that they may be productive of some partial benefit, some occasional good, that they may now and then recur to moderate the fury of party spirit, to warn against the mischiefs of foreign intrigue, to guard against the impostures of pretended patriotism— this hope will be a full recompense for the solicitude for your welfare by which they have been dictated.

Though in reviewing the incidents of my administration I am unconscious of intentional error, I am nevertheless too sensible of my defects not to think it probable that I may have committed many errors. Whatever they may be, I fervently beseech the Almighty to avert or mitigate the evils to which they may tend. I shall also carry with me the hope that my country will never cease to view them with indulgence and that, after forty-five years of my life dedicated to its service with an upright zeal, the faults of incompetent abilities will be consigned to oblivion, as myself must soon be to the mansions of rest.

Washington’s Farewell Address to the People of the United States, September 19, 1796, The Philadelphia Daily American Advertiser, http://www.access.gpo.gov/congress/senate/farewell/sd106-21.pdf

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.