Thanks for everybody to come. It's great to be in Houston, and what I'm told is typical weather, so it's, no, but I had the pleasure of, the honor of working for Ron Paul, who I might mention is in fact what he seems to be, unlike all those other guys in Washington, spent a lot of time in Houston, mainly in the summertime, so that was different. And of course the city is entirely different every time I come back, so that's great capitalist enterprise.
James said I'm going to talk today about the state and its five rationales.
If you say that government is too big and truly overweening, you elicit a surprising
degree of agreement among people, even mainstream columnists, economists and nearly everyone.
Even government employees, who famously resent their bosses, might be quick to agree.
If you hang out outside the offices of the IRS in Washington, D.C., in the park at noontime
In a time where its employees routinely take their lunch, you'll get an earful of vitriol against the bureaucracy that you wouldn't hear outside 1990s militia circles.
Incidentally, the government is having a terrible time recruiting employees.
Only 16% of college-educated workers say they have any interest whatsoever in a government job.
Among those without a college degree, there's twice that level of interest.
Among people currently employed, those with managerial or professional occupations show a low interest rate of 17%.
Among those who want their work to be challenging and enjoyable, 9% thought a government job might qualify.
And interestingly, those who say they want to make a contribution to society, 90% said that non-government work in the private sector with for-profit or non-profit organizations is the way to go.
Now what this means is that the smart set avoids government. Government work still might be attractive to people with fewer economic opportunities, but they're entering for reasons that are not ideological.
And for that reason too, they're less loyal to the public sector and glad to bail out if something else becomes available.
Now most people view this as a very bad trend. I would only say it's a very significant trend.
It's always a tragedy to see smart and entrepreneurial men and women be attracted away from productive employment in the private sector towards a position of power in the public sector.
It makes us poorer to have talents drawn away from wealth creation towards wealth destruction.
As for the very few good people in politics, Ron Paul being the shining exception that proves the rule,
they are true public servants only insofar as they work to diminish government power rather than increase it.
So long as government is large and overweening, we're better off with a public sector that cannot attract the best and the brightest.
and the brightest. They should stay put right where they are and continue to expand the range of goods and services offered within the market framework.
It is the market, after all, that provides us the means necessary to improve our standard of living and the tools we need to maintain some degree of independence from the state.
We often rail against incompetence in government, but before we go too far with that language, we need to consider that competence in government may be a far worse fate.
We don't need genuinely competent antitrust enforcers, drug and food regulators, tax collectors,
money manipulators, labor law interventionists, gun grabbers and environmental police.
As H.L. Mencken said, we should be grateful we don't get all the government we pay for.
To be sure, we're paying far more today for government than ever before.
Consider the real annual growth rate of total government outlays by president.
Under Nixon it was 3%, under Carter 4.1%, under Reagan 2.6%, under Bush's dad 1.9%,
but that was because of the cuts in military spending at the end of the Cold War, his domestic
spending soared.
Under Clinton, whom we all denounce as a socialist, it was 1.5%, the lowest rate in the post-war
period.
And under the present Bush, who promised less government, the real annual growth rate of
Total Government Outlays has been 5% which compares to LBJ era spending.
The old rationales for government growth may have been discredited in the public mind but
they're alive in Washington among the special interest groups and among the media and I'd
like to identify the main ones.
Rational number one, the Good Samaritan State.
In this view of government the state should act like the third person to come upon the
poor man who had been beaten and robbed.
They imagine a population of people that is divided among three types. Victims, victimizers,
and those who refuse to help. The victim classes we know all too well because the litany is
set again and again within the structure of labor law. The elderly, the young, ethnic
and racial minorities, religious minorities, sexual minorities, the physically and mentally
disabled, workers, the underpaid, people in rural areas, those who deal with urban overcrowding,
People who breathe dirty air or eat chemically produced products, artists, the manufacturing
industry, people with peanut allergies, the dyslexic, short people, fat people, the leisure
deprived, and I probably left out about a hundred other groups.
Among the victimizers we have a similar list, capitalists, racial and ethnic majorities,
The sexual majorities, the overpaid, managers and CEOs, people who live in gated communities, the well-armed, consumers of cell phones, owners of mines, anyone living off a trust fund, fully abled men and anyone who resents social managers telling them what to do.
In the view of those who advocate the Samaritan state, these two classes of victims and victimizers are constantly at war.
There is nothing but conflict between them. The loss of one is the gain of the other.
These categories are fixed and unchanging. The lack of harmony of interests is built into the structure of the social and economic world.
The remedy requires an institution that is relentlessly engaged in reweighing the power relationships between these two groups.
The conflict cannot be finally ended, but justice requires that the victims are given an unending stream of compensation
and that the victimizers are treated with disdain and punished for their very existence.
Social justice thus requires that victimizers are reduced, disabled, denounced and spat upon,
while the victims must be exalted, fed, clothed, funded and made whole.
This is how the left, broadly speaking, thinks the world works and should work.
It doesn't matter whether one considers oneself a hard Marxist or a soft Social Democrat.
The intellectual tie that binds them together is the view that conflict and not cooperation,
and cooperation characterize the work of society in absence of an institution dedicated to bringing about social justice.
The institutional answer is, of course, the state.
The state is the Samaritan, who lifts up and exalts the meek, smites the proud and the powerful,
who would otherwise walk right past the poor person on the street,
who is the very archetype of the victim in the leftist view of how the world works.
But there are many things wrong with this view of society.
In the parable, after all, the victim was beaten and robbed.
He was exploited only in a very narrow and old-fashioned sense.
His person and property were violated.
These are crimes against libertarian ethics,
a system of thought that mirrors what every religious and ethical system has always taught.
Do not kill, do not steal.
In other words, he was not a victim of some hazy notion of social injustice.
He was not discriminated against, exploited by an employer,
made to work long hours or denied a comfy living in his old age.
There's a huge difference between being beaten and robbed
and having to pay high prices for prescription drugs.
The great error of the left is its inability to distinguish the injustice of violence
from the supposed injustice of inequality of material conditions.
As for the Samaritan, he was not acting as an agent of the regime.
He used his own money to help the victim.
He got him back on his feet and paid his bills at the private clinic
The Samaritan did not rob someone else to give money to the man on the street. He presumably
got his money justly by hard work and investment. He had no desire to keep the man dependent
nor to exercise power over him, tax him, regulate him or send him to war.
The state is something very different. It has no income but that which it robs from
someone else. It seeks its own gain at others' expense. It protects itself and promotes itself
before the interest of everyone else. It's beholden to special interests who create and
control this regulatory apparatus. It is not impartial. It sides with its friends over
its perceived enemies. Moreover, the state is an exploiter, a murderer, a violator of
human rights. The typical response of the left is to say that they want a state that
only does good things, such as share and care, and not bad things, such as steal and kill.
But this cannot be. We might as well wish for a lion that only purrs and cuddles, or
The State is a rattlesnake that only provides percussive accompaniment to mariachi music.
The very nature of the State is that it exists only through and for compulsion.
To imagine otherwise is not to face reality.
Rational number two, the Solomonic State.
In the Bible we're told that King Solomon had, quote,
understanding exceeding much and largeness of heart, even as that is sent, excuse me,
even as the sand on the seashore.
His wisdom excelled the wisdom of all the children of the East Country, and all the
wisdom of Egypt. He was wiser than all men, and his fame was in all nations round about.
He spoke three thousand proverbs, and his songs were a thousand and five. He spoke of
trees from the cedar trees that is in Lebanon, even unto the hyssop that springeth out of
the wall. He spoke also of beasts, and of fowls, and of creeping things, and of fishes.
And there came of all people to hear the wisdom of Solomon, from all kings of the earth, who
I'm not here to dispute the Bible's account of Solomon's wisdom, but I would suggest that these traits are not generalizable to the population of rulers.
In fact, it's very dangerous to hope that they may be. If we set out to find such a person and have fantastic power available to him when we believe he has arrived, we've set up a framework for tyranny.
The framers knew that no man can be trusted with power. They attempted to construct a system that presumed that all men were corruptible, and that there would be some means to dislodge them if the corruption were shown.
Still today many people long for the Solomonic state as a means of dispensing justice. Unlike the Samaritan model, the goal here is not charity, but the just wielding of the sword on behalf of the right and true.
Thus we should seek out righteous men of learning and moral character who know what evil is and have the courage to stand up and destroy it. This model is what inspires this mentality.
There are many problems with this model. One man might be very wise, even the wisest of all men, but as F.I. Hayek might remind us, all the accumulated knowledge in the head of one person is still infinitesimal as compared with the wisdom that emerges through social cooperation in the marketplace.
We can consider the price of any good on the market as it stands right now and know that this one price results from the accumulated decisions of millions of people across thousands and thousands of sectors of economic activity spread throughout the world.
The knowledge is dispersed in a million directions and results from small decisions and actions by economic actors.
But the result is a single indicator that assists in allocating resources better than any single mind could ever do.
The model of the Solomonic State also imagines that somehow the social order we see around us cannot possibly have come about without a single will operating in society, some iron hand that has designed the order and keeps it running smoothly.
People who think this way imagine that in the absence of this firm hand there would be nothing but a Hobbesian state of nature, where society would be a war of all against all and life nasty, Buddhist and short.
Our age is notably lacking in the likes of Solomon, and so those who fear the Hobbesian state of nature turn to the managerial state to act wisely in the interest of justice and order at home and abroad.
They might not always like what the rulers do, but they consider the alternative to despotism more fearsome.
They warn about the dread results of anarchism and liberty, where people senselessly kill and rob without consequence.
They fear this liberty more than they fear the abuses of power.
and Power. This, I submit, is the mentality of many conservatives and many on the right.
We see it in the affections for Bush, the Patriot Act, the war on terror, and how quickly
people fall for any leader who uses Manichean rhetoric in defense of the latest nationalistic
crusade. What these people need more than anything else is a familiarity with the insights
of the old liberal tradition, as represented by Jefferson, Bastiat, Mises, Hayek and Rothbard.
They need to come to see how order is not the mother of liberty, but its daughter.
They need to see how society is harmonious, not because of the state, but because of the
prevalence of human cooperation in the marketplace, where people work to trade to their
own mutual betterment.
People who fail to understand this become the unwitting servants of tyranny, particularly
in this modern age, when it is so obviously not wise, but stupid and violent and presumptuous.
They imagine that the state can possess a god-like power and bring justice and order, but they
end up only empowering the worst elements of society, bringing injustice and chaos.
Now, you might say the old liberal view of society is naive. It might be in people's
interest to learn to trade rather than steal, but we live in a fallen world. If it were
not for some overarching controlling force, people would loot each other relentingly and
History is strewn with examples. The question we have to ask ourselves is whether a society
that fails to learn the art of civilization will erect and sustain a state that will impose
civilization on the people. I submit that history also teaches that when a people are
The more brutal and uncivilized the state is even more so.
The state is rarely and maybe never better than the people it rules.
In fact, it is almost always worse.
Rationale number three, log rolling.
Given these two very different conceptions of the state, one favoring the welfare state, the other favoring a warfare state,
why don't the visions cancel each other out?
So intense is the desire of one group to have the state that it wants
that it's willing to put up with another group's desire for its conception of the state.
The two conceptions decide to cooperate. An erectus state purports to behave both like
Solomon and like the Samaritan. That is the origin of the guns and butter state, or the
welfare warfare state, the modern state as we know it, one that purports to meet our
every need.
We see how this log rolling works every day on Capitol Hill. One group wants more money
for Tanks and Weaponry. The other wants more for Medicaid and education. If both agree
that politics is the art of compromise, they will put up with the other groups' priorities
in order that their own vision can be fulfilled.
On the right, we find that the love for the police power is more intense than the hatred
of redistribution. On the left, we find that the love for redistribution is more intense
than the hatred of war and the Leviathan. They therefore work together to erect a massive
of an ever-growing executive. They're similarly unwilling to oppose the state in total. They
fear that in doing so, the state as an institution would be discredited, and their conception
of what the state should do along with it. Neither side particularly loves big government,
but both sides agree that it is better than the alternative of letting people alone. So
their log world will support the public sector, even when it means that they must sleep with
and Their Political Enemies, Rationale No. 4, The Inflationary State.
Now we come to the reason the system is able to perpetuate itself.
And there is something of a mystery to explain here.
No people anywhere will put up with a leviathan that grows and grows forever.
At some point, the problem of funding state expansion will result in too much violence against property and people will revolt.
Indeed, I would think if the federal government had to collect all its revenue through a tax of any kind, levied right now against the public, it would spark a tax revolt on a scale never before seen in modern history.
Thus do we have the central bank to create money for the state. Thus do we have paper money that can be created in unlimited quantities.
Thus do we have deposit insurance to make banks failure-proof so the masses will never doubt that the credit pyramid is eternal.
Thus do we have the Feds' power to manipulate interest rates and control the flow of credit to the system.
An economist at Lehman Brothers recently sent us an interesting chart.
It compares the level of price increases across many Fed regimes.
Under the first Fed governor, Charles Hamlin, the dollar declined 8% in value.
Under Thomas B. McCabe from the late 1940s, it declined 7.2%.
On Arthur Burns, wholly owned by President Nixon, the dollar declined 42% in value. Under Volcker, Mr. Tight Money, it fell 40%. And under Greenspan, who has a reputation as a great inflation fighter, the value of the dollar in terms of goods and services fell fully 44%.
Inflation serves the cause of the state by giving it room to run up debts without limit and fund its activities without making the people cough up more revenue.
Indeed, that is the primary purpose of the inflationary state.
People often say to me that a gold standard is impractical.
In fact, that is not the case.
It is very practical.
It is the free market answer.
The state doesn't need to produce money any more than it needs to produce shoes or shirts or clocks.
The problem is that we lack the political will to stop the inflation monster because too many people benefit from it.
Rationale number five, the propaganda state.
In every society, control of the society's educational institutions increases in tandem with the rise of the state.
This is because the state needs these institutions to inculcate the civic religion of loving the public enterprise.
And also because the less people know about the idea of liberty, the more the state is provided room to grow.
Consider the Department of Education.
Ever since its creation, every Republican administration has come to power with promises to abolish it.
But once they get in power, they find that the bureaucracy has its uses.
Instead of cutting or abolishing it, they increase the agency and give it more to do.
The more the state does, the more the state needs to control public opinion by controlling the schools.
Now, there's a point of optimism here. If any state could rule without propaganda, it surely would do so.
Why then do states find educational control and the propagation of the civic religion in its interests?
Because at some level, every state, in all times and in all places, is required to seek the tacit consent of those they govern.
No state can control a society by use of the sword alone and only.
It must also seek some degree of ideological conformity with its own goals.
Otherwise its rule becomes threatened and destabilized.
The other side of the coin is that states can indeed be destabilized by the ultimate counterrevolutionary tactic
tactic, providing alternative sources of education.
As Mises said, all of history is a battle for liberty.
Where the ideas of freedom are triumphant, liberty prevails.
Where the ideas of freedom are buried and suppressed,
despotism prevails.
So our pathway is clear.
It's a choice of the Mises Institute
not to mix in the mire of a political system that
is wholly owned or to attempt to seek favor
from influential opinion makers.
Our path is one of education, pursued with high ideals, advanced using the most modern methods, and animated by the spirit of guerrilla warfare.
There are Misesians and Rothbardians strewn throughout the academic world, the financial and banking houses, law firms, and in every walk of life, not only in this country, but all over the world.
At the Institute we've worked for nearly a quarter of a century on a very radical project of advancing economic science and logic.
We have pushed to keep the fire of freedom burning brightly. We have sought to teach
anyone and everyone about the workings and benefits of liberty. We have come under pressure
from the left, the right and the center, yet the attention given to the body of ideas grows
day by day. We can prevail against the propaganda state. So long as we are free to do so and
have the means available, we will continue to do so. This is our weapon against power.
It is the most effective weapon anyone could ever possess, and if we win this victory,
we win all others.
Thanks to all of you for supporting the ideals, for supporting the Mises Institute with contributions
and moral support, and for being part of a revolutionary vanguard that sees through the
errors of our day and imagines a brighter future of freedom, private property and peace.