We Who Dared to Say No to War

The Administrative State

This summer I taught a course in US Economic History and used the Walton and Rockoff text.

One of the lessons asked students to ponder the debate in the late 19th and early 20th century in our country over the tariff and income tax. Notice, the students were to consider the debate - both pro and con sides.

At the root of the debate was the need for increased government revenue (taxes) and Walton/Rockoff assert that part of the increased need for tax revenue was due to (1) entitlements expanding much faster than anticipated (war pensions from the Civil War) and (2) increased military spending (the "new" and expanded navy was an example of expanding military expenditures).

Neither of these motivations or stimuli would surprise Bob Higgs and other scholars of the period.

But Walton and Rockoff go on to assert that, accompanying this expansion in transfer of income in the form of increasing taxation was an expansive administrative state that had as important an impact on US Economic Change.

The Warfare and Welfare states have to be administered and the acceptance of coercive administration in these two areas of life begins to shape other areas of activity.

A recent article by Virginia Posrtel illustrates the contemporary result of an emergent administrative state that shows little sign of receding. As Bob Higgs points out, this ratchet effect is inherent in the intervention of the state in society.

Need a Light Bulb? Uncle Sam Gets to Choose

If you want to know why so many Americans feel alienated from their government, you need only go to Target and check out the light bulb aisle. Instead of the cheap commodities of yesteryear, you’ll find what looks like evidence of a flourishing, technology-driven economy.

There are “ultrasoft” bulbs promising “softer soft white longer life” light, domed halogens for “bright crisp light” and row upon row of Energy Smart bulbs -- some curled in the by-now- familiar compact fluorescent form, some with translucent shells that reveal only hints of the twisting tubes within.

It seems to be a dazzling profusion of choice. But, at least in California, where I live, this plenitude no longer includes what most shoppers want: an inexpensive, plain-vanilla 100-watt incandescent bulb. Selling them is now illegal here. The rest of the country has until the end of the year to stock up before a federal ban kicks in. (I have a stash in storage.) Over the next two years, most lower-wattage incandescents will also disappear.

Postrel goes on to point out another important component of the administrative state - "scientific" elites who are so much better at planning that to truly "progress" coercion is not only tolerable, but necessary and acceptable. These elites in planning receive support for elites in culture, media and entertainment, as Postrel points out:

It’s a Ban
Now, I realize that by complaining about the bulb ban -- indeed, by calling it a ban -- I am declaring myself an unsophisticated rube, the sort of person who supposedly takes marching orders from Rush Limbaugh. In a New York Times article last month, Penelope Green set people like me straight. The law, she patiently explained, “simply requires that companies make some of their incandescent bulbs work a bit better, meeting a series of rolling deadlines between 2012 and 2014.”

True, the law doesn’t affect all bulbs -- just the vast majority. (It exempts certain special types, like the one in your refrigerator.) The domed halogen bulbs meet the new standards yet are technically incandescents; judging from my personal experiments, they produce light similar to that of old- fashioned bulbs. They do, however, cost twice as much as traditional bulbs and, if the packages are to be believed, don’t last as long.

Washington Knows Best


http://www.bloomberg.com/news/2011-06-10/need-a-light-bulb-uncle-sam-gets-to-choose-virginia-postrel.html

Man, Economy, State - book study 1.1

In the chapter 1 discussion of capital, Rothbard makes a powerful point that is unfortunately not well understood:

Capital is a way station along the road to the enjoyment of consumers’ goods. He who possesses capital is that much fur­ther advanced in time on the road to the desired consumers’ good. . . . Thus, the role of capital is to advance men in time toward their objective in producing consumers’ goods. This is true for both the case where new consumers’ goods are being produced and the case where more old goods are being produced.

I am now coming to an insight that I regret is a long time developing - in order to fully appreciate capitalism it is helpful to have a clear idea of the nature and source of capital and how time impacts this understanding. Rothbard goes on:

Thus, any actor, at any point in time, has the choice of: (a) adding to his capital structure, (b) maintaining his capital in­tact, or (c) consuming his capital. Choices (a) and (b) involve acts of saving. The course adopted will depend on the actor’s weighing his disutility of waiting, as determined by his time preference, against the utility to be provided in the future by the increase in his intake of consumers’ goods.
At this point in the discussion of the wearing out and replace­ment of capital goods we may observe that a capital good rarely retains its full “powers” to aid in production and then suddenly lose all its serviceability. In the words of Professor Benham, “capital goods do not usually remain in perfect technical con­dition and then suddenly collapse, like the wonderful ‘one-hoss shay.’

While I am tempted to think today of applications of the final statement - both at my place of employment and in a broader sense the infrastructure of our country, a more important rumination is the process by which the individual consumption, savings and investment decisions emerge and . . . I hate to use this term but struggle to find a substitute . . . aggregate in society. This process of intermediation and capital allocation is a vital one as societies evolve in complexity and character.

In our study guide Murphy offers a final study question for chapter 1:

Suppose that a farmer normally sets aside ten percent of his harvest as seed corn. His son says, “That’s silly! We should sell all of our harvest and make as much money as possible.” What would this policy lead to?

This is a great question for it implies a number of important issues that I read beneath the surface of chapter 1. The first is the Hayekian notion of competition as a discovery procedure - that is the discussion of factors of production and capital formation as well as the work v leisure tradeoff imply a process as work by the individual agents in society. So, the farmer has a rule of thumb that has evolved as he "normally" allocates 10 per cent of his crop to capital. This example illustrates a number of elements of capital - its perishability in particular. But more importantly this 10 per cent rule is one that has evolved over time. The development of the rule was based upon experience, trial and error and a reflective consciousness on the part of the producer.

Now the son presents an alternative to the evolved rule. A great opportunity to demonstrate the next issue that came to my mind in this reading - adaptive efficiency. As North uses this concept and the son illustrates, a flexibility and willingness to confront risk and uncertainty is evident in the son's proposal. The trial and error that was certainly at the basis of the 10 per cent rule is found in the son's proposal - he is a chip off the old block. The revenue from the additional 10 per cent of crop he proposes to sell is the opportunity cost of the father's investments. That income could be used for a number of purposes - purchasing insurance, expanding the family farm, diversification in capital investment, emergency savings, hedging. By confronting uncertainty and risk the son is allowing the 10 per cent rule to be tested and the application of freedom in action which is inherent in adaptive efficiency leads to a second test - the test of trial and error. This trial may or may not lead to a higher level outcome than the father's approach - but the family (and we as interested bystanders in society) will never know if the rule is not tested.

Rothbard's analysis in chapter 1 seems to support my reading. He writes:

Any actor will continue to save and invest his resources in various expected future consumers’ goods as long as the utility, considered in the present, of the marginal product of each unit saved and invested is greater than the utility of present con­sumers’ goods which he could obtain by not performing that saving. The latter utility—of present consumers’ goods forgone—is the “disutility of waiting.” Once the latter becomes greater than the utility of obtaining more goods in the future through saving, the actor will cease to save.

Allowing for the relative urgency of wants, man, as has been demonstrated above, tends to invest first in those consumers’ goods with the shortest processes of production.

Following in Rothbard's description - the father and son now have diverging views of the future and that divergence changes the calculus of present value of net marginal utilities between the two. So, this question is a great real world application - this type of divergence is ubiquitous, and doesn't even require multiple agents - how many times have I faced this type of dilemna in my everyday decision making?

So, all actions in the future are subject to both risk and uncertainty. To the extent that the costs and benefits of this risk and uncertainty are internalized the results of the decisions made by the farmer and his son will transmit information through society in a productive and positive way.

However, lurking within Bob's question is the spectre of moral hazard. I hope I am not being overly sensitive, but there is the possibility of social costs and benefits that are not in line with the private costs and benefits. Moreover, the market in which this farmer and his son operate may have been altered in a way that makes this question and speculation about outcomes more interesting and more significant.


I have to wonder if Bob selected this question with a further intent. In the US it is indeed hard to think of farming without immediately thinking of the state. The government is so deeply involved in US agriculture - and Bob did pick corn as the example - a crop profoundly influenced by government policy and action - that a reader is invited to wonder - why did the father set aside 10 per cent in the past, and what change (government or otherwise) has motivated the son to make a significant change in capitalization and investment.

To answer the question Bob asks - What would this policy lead to?

The wonderful answer that Hayek provides is . . . .

We don't know.

And isn't this wonderful. The ability of individuals to use information for their own ends in the absence of coercion is a indeed at the heart of a free and responsible society.

But Bob pushes the reader with the implications behind this question. I might ask, what motivated the son's proposal? Was it a government action - an increase for example in the subsidy that the government provides to corn farmers? A subsidy or credit to a consumer of corn (ethanol) that may have raised the demand for corn? Actions by another state (foreign government) that increased the demand for corn?

Price is a signifier of great information and the son's action is the result of that information.

Man, Economy, State - book study

As indicated at the end of this post, April will see a study of Rothbard's Man, Economy and State.

A sympathetic review of the book in 1962:

The publication of a standard book on economics raises again an important question, viz., for whom are essays of this consequence written: only for specialists, the students of economics, or for all of the people?


The main virtue of this book is that it is a comprehensive and methodical analysis of all activities commonly called economic. It looks upon these activities as human action, i.e., as conscious striving after chosen ends by resorting to appropriate means. This cognition exposes the fateful efforts of the mathematical treatment of economic problems.

Murray's Study Guide is a wonderful resource and supplement. Of the 10 chapter 1 questions that Murray offers I found two particularly helpful to thinking about my reading.

3. Suppose a man is strumming his guitar while sitting on the sidewalk in a large city, and that his only purpose is to listen to the enjoyable music.

How should the guitar be classified? What if passersby begin giving the man loose change, so that he now views the guitar as a means to earning money? (pp. 8–9)

4. Suppose that a boy, on June 4, is offered the choice of seeing a fireworks show that day, or in exactly one month.

If the boy chooses the show in the future, has he violated the law of time
preference? (pp. 15–16)

In preparing for this study (chapter 1 will be the source for the initial discussion}, I encountered a very useful observation by Rothbard on time preference which, I think anticipates the central role played by interest rates in the Austrian Perspective.

Rothbard's assertion that the present is preferred to the future by consumers of goods seems, in general reasonable. However, I wonder if this gives consumers too little credit for valuing savings. While Rothbard certainly will address this, it seems to me that, based upon my own experience there is a not insignificant set of goods that consumers may value in the future:

1. Leisure in the future. This is retirement and I wonder if a cultural stimuli to retirement has evolved in developed economies that is the inverse of Weber's work ethic. That is, retirement is to be delayed for middle age or later?

2. Learning in the future. This innovative book study exemplifies what I am trying to articulate here. That is, we value higher learning - in the future. I wonder what the average age is of the participants here. In a recent Mises University class (that actually required monetary payment and time as opposed to merely time) there were well over 100 participants and I sensed from the discussion, most were in my age bracket *(mid 50s). Now learning in this sense may merely be a subset of leisure, but is worth breaking out to my way of thinking.

3. Cultural activities such as bris, marriage, leadership in voluntary organizations. All of these would represent, for consumers, goods - yet they tend to be valued in the future.


A fundamental and constant truth about human action is that man prefers his end to be achieved in the shortest possible time. Given the specific satisfaction, the sooner it arrives, the better. This results from the fact that time is always scarce, and a means to be economized. The sooner any end is attained, the better. Thus, with any given end to be attained, the shorter the period of action, i.e., production, the more preferable for the actor. This is the universal fact of time preference. At any point of time, and for any action, the actor most prefers to have his end attained in the immediate present. Next best for him is the immediate future, and the further in the future the attainment of the end appears to be, the less preferable it is. The less waiting time, the more preferable it is for him
( http://mises.org/rothbard/mes/chap1b.asp#_ftn4 )

Rothbard goes on to link develop the role of time and time preference in human action. Rothbard's analysis is one that places exchange at the center of human action. This exchange is, if I am readin correctly, both the cause and result of the inherent drive to improve ones' state of being. If I am on track with this reading it helps to clarify for me Adam Smith's assertion that the drive to truck, barter and exchange is also inherent in human nature. I wonder if this drive developed from evolutionary sources or is in fact genetic. Matt Ridley's work would suggest it is both - that the link between genetics and evolution makes both the source of "inherent" behaviors.

All action is an attempt to exchange a less satisfactory state of affairs for a more satisfactory one. The actor finds himself (or ex­pects to find himself) in a nonperfect state, and, by attempting to attain his most urgently desired ends, expects to be in a better state. He cannot measure the gain in satisfaction, but he does know which of his wants are more urgent than others, and he does know when his condition has improved. Therefore, all action in­volves exchange—an exchange of one state of affairs, X, for Y, which the actor anticipates will be a more satisfactory one (and therefore higher on his value scale). If his expectation turns out to be correct, the value of Y on his preference scale will be higher than the value of X, and he has made a net gain in his state of satisfaction or utility. If he has been in error, and the value of the state that he has given up—X—is higher than the value of Y, he has suffered a net loss. This psychic gain (or profit) and loss can­not be measured in terms of units, but the actor always knows whether he has experienced psychic profit or psychic loss as a result of an action-exchange.[18]


"Starting the first week of April, this group will read a few chapters weekly from Murray Rothbards "Man Economy and State with Power and Market" (MESwPM), then review and discuss them. The study guide by Robert Murphy contains clarifications and small quizzes which we will answer individually then select a "best answer".

I'm going to set up two or three sets of "office hours" throughout the week so we can meet in the "group chat" and help answer questions or clarify the weeks readings.

I'll be live blogging my thoughts on the book, and the study group process at JimObject.com I have done this before and it's a great way to increase your understanding of economics, liberty and the world around you.

Please invite or suggest any friends who are interested in Austrian or free market economics, libertarian political theory, or Murray Rothbard. Feel free to send me a private message or leave any questions, concerns, or comments on the group wall,\.

The book is available free here

http://mises.org/rothbard/mes.asp

The study guide here http://mises.org/books/messtudy.pdf."

The 1962 review outlines the rationale and underlying purpose for Rothbard's book. In reflecting on the assertion below I wonder first how true this remains today. The reviewer is recalling Hayek's description of the role of intellectuals in society and anticipates Sowell's recent polemic on the topic. Clearly intellectuals represent an elite faction and, while the intelligensia is not homogeneous Klein and others have research that suggests the majority of elite are interventionists if not full on statists. The review -

It is quite different in the field of economics. The fact that the majority of our contemporaries, the masses of semi-barbarians led by self-styled intellectuals, entirely ignore everything that economics has brought forward, is the main political problem of our age. There is no use in deceiving ourselves. American public opinion rejects the market economy, the capitalistic free-enterprise system that provided the nation with the highest standard of living ever attained. Full government control of all activities of the individual is virtually the goal of both national parties. The individual is to be deprived of his moral, political, and economic responsibility and autonomy, and to be converted into a pawn in the schemes of a supreme authority aiming at a "national" purpose. His "affluence" is to be cut down for the benefit of what is called the "public sector," i.e., the machine operated by the party in power. Hosts of authors, writers, and professors are busy denouncing alleged shortcomings of capitalism and exalting the virtues of "planning." Full of a quasi-religious ardor, the immense majority is advocating measures that step by step lead to the methods of administration practiced in Moscow and in Peking.

My replies to the study guide questions

3. Guitar - first situation a first order capital good, the second situation a second order capital good.

4. Time preference - great question. I'd love to know how old the boy is. My 10 year old son would not wait, I would. In general this is marginal thinking coupled with a view of shared rather than individual utility. The shared benefit of a 4th of July fireworks for some (many?) would exceed the individual benefit of a 4th of June fireworks display. This question asks us to think about methological individualism and the subjective nature of utility. Moreover, this situation integrates individual planning and decision making within the context of society. I wonder how many of you also pondered the role of the state - in shaping the 4th of July as the preferred fireworks date through direct (national holiday) and indirect (education) means.

Finally, a major benefit of this first set of readings is a thoughtful foundation to distinguish free decision making from centralized:

. . . we must distinguish between "free-market capitalism" on the one hand, and "state capitalism" on the other. The two are as different as day and night in their nature and consequences. Free-market capitalism is a network of free and voluntary exchanges in which producers work, produce, and exchange their products for the products of others through prices voluntarily arrived at. State capitalism consists of one or more groups making use of the coercive apparatus of the government — the State — to accumulate capital for themselves by expropriating the production of others by force and violence.