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Saturday, 21 December 2013

Thought Experiment

Pythagorus and his lot worked by thought experiments alone. That’s what mathematicians do. What they tell us is true. That’s how Austrian economists work.

Here’s a thought experiment. It should help you to discriminate between policies.

Imagine an island. Fish and fruit keep the population alive. The population grows. It becomes harder to feed everyone. An island-wide conversation takes place. There are two parties: One group is desperate to ensure that fish and fruit should be divided equally; the other group has ideas about how to catch more fish and how to grow more fruit. Which group will you join? Are you insane?

We are insane. Our political parties vie with each other about how best to divide stuff. On the sidelines are people saying, “Division isn’t the issue! Production is the issue!”

They are shouted down.

One group wants division to be “equitable”; the other wants greater production. Which group will you join? Are you sane?

Just in case you are not, be aware that “free markets” give us vastly greater productivity than statist “equitable” distribution.

Since 1970 the number of people living in abject poverty (who do not know where their next meal is coming from, who expect a substantial proportion of their children to die before the age of five) has fallen by 80%. Eighty percent! Free markets have done this – including “free markets” in China, Vietnam and much else of Asia.

Opposing free markets is wicked.

Let’s distribute our production equally. Absolutely not! Let’s free the creativity of mankind to increase production.

Monday, 9 December 2013

Wouldn’t it be Nice if...?

 I confess that this phrase comes to me all too frequently – and yet I now think that it is the beginning of Wisdom.

Imagine yourself in conversation with an intelligent child, not only intelligent but filled with good will towards mankind. He or she perceives that the world is far from perfect. Some people have lots of good things; others don’t. “Wouldn’t it be nice if everybody had enough?” he opines. Of course it would. The innocent child supposes that a benevolent government could pass a law which mandated a sufficiency for everybody. We are now into questions of policy. As the conversation proceeds the policy hardens into the idea that the government should take some good things from those who have lots and give some to those who don’t. This immediately introduces the concept of Justice. Taking things away from people against their will is known as theft. So a benevolent impulse has led you, in a very few steps, to advocating stealing.

How well did it use to be said that anyone under the age of thirty who was not a socialist had no heart, whereas anyone over the age of thirty who was a socialist had no head.

This is a tricky world, in which benevolent impulses lead to pernicious results. And if you doubt the perniciousness of socialism, count the corpses of those deliberately murdered in the name of socialism in the 20th century (about 81 million) add to this number the count of those who died because of the incompetence of socialist planners. You will get a very big number indeed.

In spite of this, socialists have claimed the high moral ground and have denigrated capitalism as being based on greed. This is a lie.

What is a capitalist?

A capitalist is someone who either by saving (deferring gratification) or by borrowing (demonstrating his credit-worthiness) creates an enterprise with a view to satisfying his own needs. Satisfying our own needs is not wicked and greedy. Indeed, we do so every time we eat a nourishing meal, having washed our hands before doing so. Some entrepreneurs merely scrape by. Some are highly successful. A shopkeeper may employ only himself in his enterprise; an industrialist may employ thousands, agreeing (in effect) with each employee a payment which is mutually advantageous. No evil has been committed. Indeed, much good is often the result: worthwhile products for consumers and worthwhile employment for the workers.

This is extraordinary paradox which Adam Smith delineated: the “invisible hand” which creates wealth out of the desire for our own wellbeing.

So, instead of sighing, “Wouldn’t it be nice if...?”, we should rejoice: “Even in this fallen world good can come of self-regard.”

Are some entrepreneurs greedy? Of course! All burglars and muggers are! The essence of entrepreneurship is risk taking and hard work.

It is a tragedy that in our far from free market system many succeed not by thrift, hard work and honest dealings but by gaming the system, by using political means to rig markets. This is not “market failure”; it is simple corruption.