WEBVTT NOTE 7. Conclusion: Economics and Public Policy 1 00:00:00.000 --> 00:00:07.000 Chapter 7. Conclusion. Economics and Public Policy. 2 00:00:07.000 --> 00:00:12.000 1. Economics. Its nature and its uses. 3 00:00:12.000 --> 00:00:21.000 Economics provides us with true laws of the type if A, then B, then C, etc. 4 00:00:21.000 --> 00:00:29.600 etc. Some of these laws are true all the time, that is, A always holds, the law of diminishing 5 00:00:29.600 --> 00:00:38.120 marginal utility, time preference, etc. Others require A to be established as true before 6 00:00:38.120 --> 00:00:45.000 the consequence can be affirmed in practice. The person who identifies economic laws in 7 00:00:45.000 --> 00:00:52.760 in Practice and uses them to explain complex economic fact is then acting as an economic 8 00:00:52.760 --> 00:00:57.580 historian rather than as an economic theorist. 9 00:00:57.580 --> 00:01:03.480 He is an historian when he seeks the causal explanation of past facts. 10 00:01:03.480 --> 00:01:08.560 He is a forecaster when he attempts to predict future facts. 11 00:01:08.560 --> 00:01:16.400 In either case, he uses absolutely true laws, but must determine when any particular law 12 00:01:16.400 --> 00:01:19.040 applies to a given situation. 13 00:01:19.040 --> 00:01:26.480 Furthermore, the laws are necessarily qualitative, rather than quantitative, and hence, when 14 00:01:26.480 --> 00:01:32.800 the forecaster attempts to make quantitative predictions, he is going beyond the knowledge 15 00:01:32.800 --> 00:01:36.340 provided by economic science. 16 00:01:36.340 --> 00:01:42.340 It has not often been realized that the functions of the economist on the free market differ 17 00:01:42.340 --> 00:01:47.580 sharply from those of the economist on the hampered market. 18 00:01:47.580 --> 00:01:52.080 What can the economist do on the purely free market? 19 00:01:52.080 --> 00:01:58.880 He can explain the workings of the market economy, a vital task, especially since the 20 00:01:58.880 --> 00:02:04.840 The untutored person tends to regard the market economy as sheer chaos. 21 00:02:04.840 --> 00:02:08.640 But he can do little else. 22 00:02:08.640 --> 00:02:14.980 Contrary to the pretensions of many economists, he is of little aid to the businessman. 23 00:02:14.980 --> 00:02:22.100 He cannot forecast future consumer demands and future costs as well as the businessman. 24 00:02:22.100 --> 00:02:26.220 If he could, then he would be the businessman. 25 00:02:26.220 --> 00:02:33.420 The entrepreneur is where he is precisely because of his superior forecasting ability 26 00:02:33.420 --> 00:02:35.260 on the market. 27 00:02:35.260 --> 00:02:42.620 The pretensions of econometricians and other model builders that they can precisely forecast 28 00:02:42.620 --> 00:02:49.820 the economy will always founder on the simple but devastating query, if you can forecast 29 00:02:49.820 --> 00:02:56.940 so well, why are you not doing so on the stock market, where accurate forecasting reaps such 30 00:02:56.940 --> 00:02:58.900 rich rewards? 31 00:02:58.900 --> 00:03:06.660 It is beside the point to dismiss such a query, as many have done, by calling it anti-intellectual, 32 00:03:06.660 --> 00:03:12.580 for this is precisely the acid test of the would-be economic oracle. 33 00:03:12.580 --> 00:03:19.660 Professor Mises has shown the fallacy of the very popular term model building, which has, 34 00:03:19.660 --> 00:03:26.660 with so many other scientific fallacies been taken over misleadingly by analogy from the 35 00:03:26.660 --> 00:03:30.880 physical sciences, in this case, engineering. 36 00:03:30.880 --> 00:03:38.700 The engineering model furnishes the exact quantitative dimensions in proportionate miniature 37 00:03:38.700 --> 00:03:40.580 of the real world. 38 00:03:40.580 --> 00:03:45.780 No economic model can do anything of the kind. 39 00:03:45.780 --> 00:03:52.860 In recent years, new mathematical statistical disciplines have developed, such as operations 40 00:03:52.860 --> 00:03:59.400 research and linear programming, which have professed to help the businessman make his 41 00:03:59.400 --> 00:04:01.640 concrete decisions. 42 00:04:01.640 --> 00:04:09.000 If these claims are valid, then such disciplines are not economics at all, but a sort of management 43 00:04:09.000 --> 00:04:10.480 technology. 44 00:04:10.480 --> 00:04:17.040 Fortunately, operations research has developed into a frankly separate discipline with its 45 00:04:17.040 --> 00:04:20.360 own professional society and journal. 46 00:04:20.360 --> 00:04:24.180 We hope that all other such movements will do the same. 47 00:04:24.180 --> 00:04:29.600 The economist is not a business technologist. 48 00:04:29.600 --> 00:04:35.720 The economist's role in a free society, then, is purely educational. 49 00:04:35.720 --> 00:04:43.140 But when government or any other agency using violence intervenes in the market, the usefulness 50 00:04:43.140 --> 00:04:45.920 of the economist expands. 51 00:04:45.920 --> 00:04:53.260 The reason is that no one knows, for example, what future consumer demands in some line 52 00:04:53.260 --> 00:04:54.440 will be. 53 00:04:54.440 --> 00:05:01.320 Here, in the realm of the free market, the economist must give way to the entrepreneurial 54 00:05:01.320 --> 00:05:02.800 forecaster. 55 00:05:02.800 --> 00:05:09.000 But government actions are very different, because the problem now is precisely what 56 00:05:09.000 --> 00:05:13.640 the consequences of governmental acts will be. 57 00:05:13.640 --> 00:05:20.060 In short, the economist may be able to tell what the effects of an increased demand for 58 00:05:20.060 --> 00:05:28.080 butter will be, but this is of little practical use, since the businessman is primarily interested 59 00:05:28.080 --> 00:05:34.640 not in this chain of consequences, which he knows well enough for his purposes, but in 60 00:05:34.640 --> 00:05:40.000 whether or not such an increase will take place. 61 00:05:40.000 --> 00:05:46.480 For a governmental decision, on the other hand, the whether is precisely what the citizenry 62 00:05:46.480 --> 00:05:48.240 must decide. 63 00:05:48.240 --> 00:05:54.680 So here the economist, with his knowledge of the various alternative consequences, comes 64 00:05:54.680 --> 00:05:56.400 into his own. 65 00:05:56.400 --> 00:06:03.360 Furthermore, the consequences of a governmental act being indirect are much more difficult 66 00:06:03.360 --> 00:06:10.080 to analyze than the consequences of an increase in consumer demand for a product. 67 00:06:10.080 --> 00:06:16.920 Longer chains of praxeological reasoning are required, particularly for the needs of the 68 00:06:16.920 --> 00:06:18.240 decision-makers. 69 00:06:18.240 --> 00:06:24.280 The consumer's decision to purchase butter and the entrepreneur's decision about entering 70 00:06:24.280 --> 00:06:30.700 Proceduring into the butter business do not require praxeological reasoning, but rather 71 00:06:30.700 --> 00:06:33.920 insight into the concrete data. 72 00:06:33.920 --> 00:06:41.480 The judging and evaluation of a governmental act, for example, an income tax, however, 73 00:06:41.480 --> 00:06:45.160 require long chains of praxeological reasoning. 74 00:06:45.160 --> 00:06:52.840 Hence, for two reasons, because the initial data are here supplied to him, and because 75 00:06:52.840 --> 00:07:00.800 As the consequences must be analytically explored, the economist is far more useful as a political 76 00:07:00.800 --> 00:07:06.080 economist than as a business advisor or technologist. 77 00:07:06.080 --> 00:07:13.400 In a hampered market economy, indeed, the economist often becomes useful to the businessman, 78 00:07:13.400 --> 00:07:20.080 where chains of economic reasoning become important, for example, in analyzing the effects 79 00:07:20.080 --> 00:07:27.320 of Credit Expansion or an Income Tax and, in many cases, in spreading this knowledge 80 00:07:27.320 --> 00:07:29.920 to the outside world. 81 00:07:29.920 --> 00:07:37.200 The political economist, in fact, is indispensable to any citizen who frames ethical judgments 82 00:07:37.200 --> 00:07:39.600 in politics. 83 00:07:39.600 --> 00:07:46.960 Economics can never by itself supply ethical dicta, but it does furnish existential laws 84 00:07:46.960 --> 00:07:54.960 that cannot be ignored by anyone framing ethical conclusions, just as no one can rationally 85 00:07:54.960 --> 00:08:03.280 decide whether product X is a good or a bad food until its consequences on the human body 86 00:08:03.280 --> 00:08:07.360 are ascertained and taken into account. 87 00:08:07.360 --> 00:08:14.640 2. Implicit Moralizing, The Failures of Welfare Economics 88 00:08:14.640 --> 00:08:21.840 As we have reiterated, economics cannot by itself establish ethical judgments, and it 89 00:08:21.840 --> 00:08:26.280 can and should be developed in a vert-frei manner. 90 00:08:26.280 --> 00:08:33.440 This is true whether we adopt the modern disjunction between fact and value, or whether we adhere 91 00:08:33.440 --> 00:08:39.860 to the classical philosophical tradition that there can be a science of ethics. 92 00:08:39.860 --> 00:08:46.020 Or even if there can be, economics may not by itself establish it. 93 00:08:46.020 --> 00:08:53.940 Yet economics, especially of the modern welfare variety, is filled with implicit moralizing, 94 00:08:53.940 --> 00:09:00.760 with unanalyzed ad hoc ethical statements that are either silently or under elaborate 95 00:09:00.760 --> 00:09:05.220 camouflage slipped into the deductive system. 96 00:09:05.220 --> 00:09:14.100 Elsewhere we have analyzed many of these attempts, for example, the old and the new welfare economics. 97 00:09:14.100 --> 00:09:21.420 Interpersonal utility comparisons, the compensation principle, the social welfare function, are 98 00:09:21.420 --> 00:09:23.420 typical examples. 99 00:09:23.420 --> 00:09:30.860 We have also seen the absurdity of the search for criteria of just taxation, before the 100 00:09:30.860 --> 00:09:35.300 The Justice of Taxation itself has been proven. 101 00:09:35.300 --> 00:09:41.640 Other instances of illegitimate moralizing are the doctrine that product differentiation 102 00:09:41.640 --> 00:09:49.220 harms consumers by raising prices and restricting production, a doctrine based on the false 103 00:09:49.220 --> 00:09:56.980 assumptions that consumers do not want these differences and that costs remain the same, 104 00:09:56.980 --> 00:10:05.200 The spurious proof that, given the total tax bill, the income tax is better for consumers 105 00:10:05.200 --> 00:10:13.940 than excise taxes, and the mythical distinction between social cost and private cost. 106 00:10:13.940 --> 00:10:19.840 Neither can economists legitimately adopt the popular method of maintaining ethical 107 00:10:19.840 --> 00:10:28.200 Ethical Neutrality, while pronouncing on policy, that is, taking not their own, but the community's 108 00:10:28.200 --> 00:10:36.300 values or those they attribute to the community, and simply advising others how to attain these 109 00:10:36.300 --> 00:10:37.300 ends. 110 00:10:37.300 --> 00:10:44.080 An ethical judgment is an ethical judgment, no matter who or how many people make it. 111 00:10:44.080 --> 00:10:51.220 does not relieve the economist of the responsibility for having made ethical judgments to plead 112 00:10:51.220 --> 00:10:54.080 that he has borrowed them from others. 113 00:10:54.080 --> 00:11:01.960 The economist who calls for egalitarian measures because the people want more equality is no 114 00:11:01.960 --> 00:11:04.860 longer strictly an economist. 115 00:11:04.860 --> 00:11:11.760 He has abandoned ethical neutrality, and he abandons it not a whit more if he calls for 116 00:11:11.760 --> 00:11:20.760 for Equality simply because he wants it so. Value judgments remain only value judgments. 117 00:11:20.760 --> 00:11:27.040 They receive no special sanctification by virtue of the number of their adherents, and 118 00:11:27.040 --> 00:11:34.640 uncritically adhering to all the prevailing ethical judgments is simply to engage in apologetics 119 00:11:34.640 --> 00:11:37.080 for the Status Quo. 120 00:11:37.080 --> 00:11:41.920 I do not at all mean to deprecate value judgments. 121 00:11:41.920 --> 00:11:45.280 Men do and must always make them. 122 00:11:45.280 --> 00:11:52.520 But I do say that the injection of value judgments takes us beyond the bounds of economics per 123 00:11:52.520 --> 00:12:01.200 se and into another realm, the realm of rational ethics or personal whim, depending on one's 124 00:12:01.200 --> 00:12:04.040 philosophic convictions. 125 00:12:04.040 --> 00:12:11.680 The economist, of course, is a technician who explains the consequences of various actions. 126 00:12:11.680 --> 00:12:18.960 But he cannot advise a man on the best route to achieve certain ends without committing 127 00:12:18.960 --> 00:12:22.200 himself to those ends. 128 00:12:22.200 --> 00:12:29.640 An economist hired by a businessman implicitly commits himself to the ethical valuation that 129 00:12:29.640 --> 00:12:31.640 The Theory of Money and Credit 130 00:12:59.640 --> 00:13:14.160 The Utilitarian Economist tries to escape this policy dilemma by assuming that everyone's 131 00:13:14.160 --> 00:13:18.120 ends are really the same, at least ultimately. 132 00:13:18.120 --> 00:13:26.040 If everyone's ends are the same, then an economist, by showing that policy A cannot lead to goal 133 00:13:26.040 --> 00:13:35.040 Rule G is justified in saying that A is a bad policy, since everyone values A in order 134 00:13:35.040 --> 00:13:43.440 to achieve G. Thus, if two groups argue over price controls, the utilitarian tends to assume 135 00:13:43.440 --> 00:13:51.280 that the proven consequences of maximum price controls, shortages, disruptions, etc., will 136 00:13:51.280 --> 00:13:57.920 will make the policy bad from the point of view of the advocates of the legislation. 137 00:13:57.920 --> 00:14:04.400 Yet the advocates may favor price controls anyway for other reasons, love of power, the 138 00:14:04.400 --> 00:14:12.100 building of a political machine and its consequent patronage, desire to injure the masses, etc. 139 00:14:12.100 --> 00:14:18.600 It is certainly overly sanguine to assume that everyone's ends are the same and therefore 140 00:14:18.600 --> 00:14:24.760 Or the utilitarian shortcut to policy conclusions is also inadequate. 141 00:14:24.760 --> 00:14:31.600 It is probably true, of course, that general knowledge of these consequences of price control 142 00:14:31.600 --> 00:14:36.600 would considerably reduce social support for this measure. 143 00:14:36.600 --> 00:14:43.680 But this is a politico-psychological, not a praxeological, statement. 144 00:14:43.680 --> 00:14:52.160 3. Economics and Social Ethics If the economist-quoi-economist must be 145 00:14:52.160 --> 00:14:58.240 Wertfrei, does this leave him any room for significant pronouncements on questions of 146 00:14:58.240 --> 00:15:04.960 public policy? Superficially, it would seem not, but this entire work has been testimony 147 00:15:04.960 --> 00:15:12.960 to the contrary. Briefly, the Wertfrei economist can do two things. 1. He can engage 148 00:15:12.960 --> 00:15:20.080 in a Praxeological Critique of Inconsistent and Meaningless Ethical Programs, as we have 149 00:15:20.080 --> 00:15:28.320 tried to show in the preceding chapter, and two, he can explicate analytically all the myriad 150 00:15:28.320 --> 00:15:34.720 consequences of different political systems and different methods of government intervention. 151 00:15:35.440 --> 00:15:41.600 In the former task, we have seen that many prominent ethical critiques of the market 152 00:15:41.600 --> 00:15:48.920 are inconsistent or meaningless, whereas attempts to prove the same errors in regard to the 153 00:15:48.920 --> 00:15:55.200 ethical underpinnings of a free society are shown to be fallacious. 154 00:15:55.200 --> 00:16:00.120 In the latter role, the economist has an enormous part to play. 155 00:16:00.120 --> 00:16:06.800 He can analyze the consequences of the free market and of various systems of coerced and 156 00:16:06.800 --> 00:16:09.120 hampered exchange. 157 00:16:09.120 --> 00:16:15.520 One of the conclusions of this analysis is that the purely free market maximizes social 158 00:16:15.520 --> 00:16:23.680 utility because every participant in the market benefits from his voluntary participation. 159 00:16:23.680 --> 00:16:27.280 On the free market, every man gains. 160 00:16:27.280 --> 00:16:33.960 One man's gain, in fact, is precisely the consequence of his bringing about the gain 161 00:16:33.960 --> 00:16:35.520 of others. 162 00:16:35.520 --> 00:16:42.660 When an exchange is coerced, on the other hand, when criminals or governments intervene, 163 00:16:42.660 --> 00:16:46.960 one group gains at the expense of others. 164 00:16:46.960 --> 00:16:53.960 On the free market, everyone earns according to his productive value in satisfying consumer 165 00:16:53.960 --> 00:16:55.360 desires. 166 00:16:55.360 --> 00:17:01.320 Under status distribution, everyone earns in proportion to the amount he can plunder 167 00:17:01.320 --> 00:17:03.400 from the producers. 168 00:17:03.400 --> 00:17:08.960 The market is an interpersonal relation of peace and harmony. 169 00:17:08.960 --> 00:17:13.840 Statism is a relation of war and caste conflict. 170 00:17:13.840 --> 00:17:21.120 Not only do earnings on the free market correspond to productivity, but freedom also permits 171 00:17:21.120 --> 00:17:28.840 a continually enlarged market with a wider division of labor, investment to satisfy future 172 00:17:28.840 --> 00:17:32.480 wants and increased living standards. 173 00:17:32.480 --> 00:17:39.880 Moreover, the market permits the ingenious device of capitalist calculation, a calculation 174 00:17:39.880 --> 00:17:47.520 necessary to the efficient and productive allocation of the factors of production. 175 00:17:47.520 --> 00:17:54.680 Socialism cannot calculate, and hence must either shift to a market economy or revert 176 00:17:54.680 --> 00:18:00.840 to a barbaric standard of living after its plunder of the pre-existing capital structure 177 00:18:00.840 --> 00:18:03.120 has been exhausted. 178 00:18:03.120 --> 00:18:09.700 And every intermixture of government ownership or interference in the market distorts the 179 00:18:09.700 --> 00:18:18.480 allocation of resources and introduces islands of calculational chaos into the economy. 180 00:18:18.480 --> 00:18:25.280 Government taxation and grants of monopolistic privilege, which take many subtle forms, all 181 00:18:25.280 --> 00:18:30.480 hamper market adjustments and lower general living standards. 182 00:18:30.480 --> 00:18:37.680 Government inflation not only must injure half the population for the benefit of the other half, 183 00:18:37.680 --> 00:18:43.680 but may also lead to a business cycle depression or collapse of the currency. 184 00:18:44.960 --> 00:18:50.080 We cannot outline here the entire analysis of this volume. 185 00:18:50.080 --> 00:18:56.840 Suffice it to say that in addition to the praxeological truth that 1. 186 00:18:56.840 --> 00:19:02.420 Under a regime of freedom everyone gains whereas 2. 187 00:19:02.420 --> 00:19:08.540 Under statism some gain x at the expense of others y. 188 00:19:08.540 --> 00:19:15.960 We can say something else, for in all these cases x is not a pure gainer. 189 00:19:15.960 --> 00:19:23.100 The indirect, long-run consequences of his statist privilege will redound to what he 190 00:19:23.100 --> 00:19:30.080 would generally consider his disadvantage, the lowering of living standards, capital 191 00:19:30.080 --> 00:19:32.120 consumption, etc. 192 00:19:32.120 --> 00:19:39.120 Ex's exploitation gain, in short, is clear and obvious to everyone. 193 00:19:39.120 --> 00:19:46.120 His future loss, however, can be comprehended only by praxeological reasoning. 194 00:19:46.120 --> 00:19:52.920 A prime function of the economist is to make this clear to all the potential Xs of the 195 00:19:52.920 --> 00:19:54.000 world. 196 00:19:54.000 --> 00:20:01.200 I would not join with some utilitarian economists in saying that this settles the matter, and 197 00:20:01.200 --> 00:20:08.060 that since we are all agreed on ultimate ends, X will be bound to change his position and 198 00:20:08.060 --> 00:20:10.660 and Support a Free Society. 199 00:20:10.660 --> 00:20:18.060 It is certainly conceivable that X's high time preferences or his love of power or plunder 200 00:20:18.060 --> 00:20:25.780 will lead him to the path of statist exploitation even when he knows all the consequences. 201 00:20:25.780 --> 00:20:32.300 In short, the man who is about to plunder is already familiar with the direct, immediate 202 00:20:32.300 --> 00:20:34.180 consequences. 203 00:20:34.180 --> 00:20:41.300 When praxeology informs him of the longer-run consequences, this information may often count 204 00:20:41.300 --> 00:20:48.740 in the scales against the action, but it may also not be enough to tip the scales. 205 00:20:48.740 --> 00:20:53.420 Furthermore, some may prefer these long-run consequences. 206 00:20:53.420 --> 00:21:02.400 Thus, the OPA director who finds that maximum price controls lead to shortages may, one, 207 00:21:02.400 --> 00:21:09.960 say that shortages are bad and resign, say that shortages are bad but give more weight 208 00:21:09.960 --> 00:21:18.080 to other considerations, for example, love of power or plunder or his high time preference, 209 00:21:18.080 --> 00:21:26.000 or believe that shortages are good, either out of hatred for others or from an ascetic 210 00:21:26.000 --> 00:21:27.340 ethic. 211 00:21:27.340 --> 00:21:33.460 And from the standpoint of praxeology, any of these positions may well be adopted without 212 00:21:33.460 --> 00:21:35.760 saying him nay. 213 00:21:35.760 --> 00:21:37.300 4. 214 00:21:37.300 --> 00:21:46.000 The Market Principle and the Hegemonic Principle Praxeological analysis of comparative politico-economic 215 00:21:46.000 --> 00:21:51.460 systems can be starkly summed up in the following way. 216 00:21:51.460 --> 00:21:59.260 Some consequences of the market principle, individual freedom, general mutual benefit, 217 00:21:59.260 --> 00:22:07.980 maximized social utility, mutual harmony, peace, power of man over nature, most efficient 218 00:22:07.980 --> 00:22:16.180 satisfaction of consumer wants, economic calculation, incentives for production, and advance in 219 00:22:16.180 --> 00:22:18.640 living standards. 220 00:22:18.640 --> 00:22:26.760 and Consequences of the Hegemonic Principle, Coercion, Exploitation, Benefit of One Group 221 00:22:26.760 --> 00:22:36.840 at Expense of Another, Caste Conflict, War of All Against All, War, Power of Man over 222 00:22:36.840 --> 00:22:47.000 Man, Disruption of Want Satisfaction, Calculational Chaos, Destruction of Incentives, Capital Consumption 223 00:22:47.000 --> 00:22:51.040 and Regression of Living Standards. 224 00:22:51.040 --> 00:22:57.760 The listener will undoubtedly ask, how can all the various systems be reduced to such 225 00:22:57.760 --> 00:23:00.760 a simple two-valued schema? 226 00:23:00.760 --> 00:23:06.520 Does not this grossly distort the rich complexity of political systems? 227 00:23:06.520 --> 00:23:11.000 On the contrary, this dichotomy is a crucial one. 228 00:23:11.000 --> 00:23:17.520 No one disputes the fact that historically political systems have differed in degree 229 00:23:17.520 --> 00:23:24.240 that they have never been pure examples of the market or of the hegemonic principle. 230 00:23:24.240 --> 00:23:30.820 But these mixtures can be analyzed only by breaking them down into their components, 231 00:23:30.820 --> 00:23:34.960 their varying blends of the two polar principles. 232 00:23:34.960 --> 00:23:41.440 On Crusoe's and Friday's island, there are basically two types of interpersonal relations 233 00:23:41.440 --> 00:23:48.520 or exchanges, the free or voluntary and the coerced or hegemonic. 234 00:23:48.520 --> 00:23:53.180 There is no other type of social relation. 235 00:23:53.180 --> 00:24:00.920 Every time a free, peaceful unit act of exchange occurs, the market principle has been put 236 00:24:00.920 --> 00:24:03.140 into operation. 237 00:24:03.140 --> 00:24:10.040 Every time a man coerces an exchange by the threat of violence, the hegemonic principle 238 00:24:10.040 --> 00:24:12.140 has been put to work. 239 00:24:12.140 --> 00:24:18.500 All the shadings of society are mixtures of these two primary elements. 240 00:24:18.500 --> 00:24:24.160 The more the market principle prevails in a society, therefore, the greater will be 241 00:24:24.160 --> 00:24:28.220 that society's freedom and its prosperity. 242 00:24:28.220 --> 00:24:34.140 The more the hegemonic principle abounds, the greater will be the extent of slavery 243 00:24:34.140 --> 00:24:36.300 and poverty. 244 00:24:36.300 --> 00:24:42.700 There is a further reason for the aptness of this polar analysis, for it is a peculiarity 245 00:24:42.700 --> 00:24:50.560 of hegemony that every coercive intervention in human affairs brings about further problems 246 00:24:50.560 --> 00:24:57.340 that call for the choice, repeal the initial intervention, or add another one. 247 00:24:57.340 --> 00:25:04.900 It is this feature that makes any mixed economy inherently unstable, tending always toward 248 00:25:04.900 --> 00:25:11.460 one or the other polar opposite, pure freedom or total statism. 249 00:25:11.460 --> 00:25:17.820 It does not suffice to reply that the world has always been in the middle anyway, so why 250 00:25:17.820 --> 00:25:18.820 worry? 251 00:25:18.820 --> 00:25:26.620 The point is that no zone in the middle is stable because of its own self-created problems, 252 00:25:26.620 --> 00:25:38.620 and its own inner contradictions, as a Marxist would say, and the result of these problems is to push the society inexorably in one direction or the other. 253 00:25:38.620 --> 00:25:49.620 The problems, in fact, are recognized by everyone, regardless of his value system or the means he proposes for meeting the situation. 254 00:25:49.620 --> 00:25:53.620 What happens if socialism is established? 255 00:25:53.620 --> 00:26:03.620 Stability is not reached there either, because of the poverty, calculational chaos, etc. which socialism brings about. 256 00:26:03.620 --> 00:26:13.620 Socialism may continue a long time if, as under a primitive caste system, the people believe that the system is divinely ordained, 257 00:26:13.620 --> 00:26:23.620 or if partial and incomplete socialism in one or a few countries can rely on the foreign market for calculation. 258 00:26:23.620 --> 00:26:29.620 Does all this mean that the purely free economy is the only stable system? 259 00:26:29.620 --> 00:26:34.620 Praxeologically, yes. Psychologically, the issue is in doubt. 260 00:26:34.620 --> 00:26:40.620 The unhampered market is free of self-created economic problems. 261 00:26:40.620 --> 00:27:06.620 It furnishes the greatest abundance consistent with man's command over nature at any given time, but those who yearn for power over their fellows, or who wish to plunder others, as well as those who fail to comprehend the praxeological stability of the free market, may well push the society back on the hegemonic road. 262 00:27:06.620 --> 00:27:15.620 To return to the cumulative nature of intervention, we may cite as a classic example the modern American farm program. 263 00:27:15.620 --> 00:27:25.620 In 1929, the government began to support artificially the prices of some farm commodities above their market price. 264 00:27:25.620 --> 00:27:30.620 This, of course, brought about unsold surpluses of these commodities, 265 00:27:30.620 --> 00:27:41.620 Surpluses aggravated by the fact that farmers shifted production out of other lines to enter the now guaranteed high-price fields. 266 00:27:41.620 --> 00:27:53.620 Thus, the consumer paid four ways, once in taxes to subsidize the farmers, a second time in the higher prices of farm products, 267 00:27:53.620 --> 00:28:05.620 A third time in the wasted surpluses, and a fourth time in the deprivation of foregone products in the unsupported lines of production. 268 00:28:05.620 --> 00:28:15.620 But the farm surplus was a problem, recognized as such by people with all manner of value systems. What to do about it? 269 00:28:15.620 --> 00:28:27.620 The farm program could have been repealed, but such a course would hardly have been compatible with the status doctrines that had brought about the support program in the first place. 270 00:28:27.620 --> 00:28:36.620 So, the next step was to clamp maximum production controls on the farmers who produced the supported products. 271 00:28:36.620 --> 00:28:44.620 The Controls had to be set up as quotas for each farm, grounded on production in some 272 00:28:44.620 --> 00:28:52.620 past base period, which, of course, cast farm production in a rapidly obsolescing mold. 273 00:28:52.620 --> 00:28:59.620 The quota system bolstered the inefficient farmers and shackled the efficient ones, paid 274 00:28:59.620 --> 00:29:08.140 made, in effect, not to produce certain products, and, ironically, these have invariably been 275 00:29:08.140 --> 00:29:12.340 what the government considers the essential products. 276 00:29:12.340 --> 00:29:17.180 The farmers naturally shifted to producing other products. 277 00:29:17.180 --> 00:29:24.700 The lower prices of the non-supported products set up the same clamor for support there. 278 00:29:24.700 --> 00:29:32.220 The next plan, again a consequence of statist logic at work, was to avoid these embarrassing 279 00:29:32.220 --> 00:29:39.740 shifts of production by creating a soil bank, whereby the government paid the farmer to 280 00:29:39.740 --> 00:29:44.500 make sure that the land remained completely idle. 281 00:29:44.500 --> 00:29:50.580 This policy deprived the consumers of even the substitute farm products. 282 00:29:50.580 --> 00:29:55.060 The result of the soil bank was readily predictable. 283 00:29:55.060 --> 00:30:02.740 Farmers put into the soil bank their poorest lands and tilled the remaining ones more intensively, 284 00:30:02.740 --> 00:30:09.640 thus greatly increasing their output on the better lands and continuing the surplus problem 285 00:30:09.640 --> 00:30:11.380 as much as ever. 286 00:30:11.380 --> 00:30:17.780 The main difference was that the farmers then received government checks for not producing 287 00:30:17.780 --> 00:30:19.540 anything. 288 00:30:19.540 --> 00:30:25.480 The cumulative logic of intervention is demonstrated in many other areas. 289 00:30:25.480 --> 00:30:31.860 For instance, government subsidization of poverty increases poverty and unemployment 290 00:30:31.860 --> 00:30:38.440 and encourages the beneficiaries to multiply their offspring, thus further intensifying 291 00:30:38.440 --> 00:30:43.360 the problem that the government set out to cure. 292 00:30:43.360 --> 00:30:49.880 Government outlawing of narcotics addiction greatly raises the price of narcotics, driving 293 00:30:49.880 --> 00:30:54.260 addicts to crime to obtain the money. 294 00:30:54.260 --> 00:30:57.580 There is no need to multiply examples. 295 00:30:57.580 --> 00:31:01.900 They can be found in all phases of government intervention. 296 00:31:01.900 --> 00:31:08.740 The point is that the free market economy forms a kind of natural order, so that any 297 00:31:08.740 --> 00:31:16.300 Any interventionary disruption creates not only disorder, but the necessity for repeal 298 00:31:16.300 --> 00:31:21.520 or for cumulative disorder in attempting to combat it. 299 00:31:21.520 --> 00:31:29.540 In short, Proudhon wrote wisely when he called liberty the mother, not the daughter, of order. 300 00:31:29.540 --> 00:31:35.540 Hegemonic intervention substitutes chaos for that order. 301 00:31:35.540 --> 00:31:40.280 Such are the laws that praxeology presents to the human race. 302 00:31:40.280 --> 00:31:46.900 They are a binary set of consequences, the workings of the market principle and of the 303 00:31:46.900 --> 00:31:49.140 hegemonic principle. 304 00:31:49.140 --> 00:31:54.320 The former breeds harmony, freedom, prosperity and order. 305 00:31:54.320 --> 00:32:00.520 The latter produces conflict, coercion, poverty and chaos. 306 00:32:00.520 --> 00:32:05.920 Such are the consequences between which mankind must choose. 307 00:32:05.920 --> 00:32:13.820 In effect, it must choose between the society of contract and the society of status. 308 00:32:13.820 --> 00:32:19.640 At this point, the praxeologist as such retires from the scene. 309 00:32:19.640 --> 00:32:26.220 The citizen, the ethicist, must now choose according to the set of values or ethical 310 00:32:26.220 --> 00:32:28.620 All Principles He Holds Dear.