The Key to the Twentieth Century

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The key to understanding the twentieth century is: an increase in the social rate of time preference, the aggregation of compensatory time-rates expected for foregoing present enjoyment of future goods, did take place in the developed economies. The other, more popular, characterizations of the twentieth century can be folded into this one.

We’re accustomed to thinking of the twentieth century as a century of socialism, but socialism as a political force was the implementation of an ideology that is at heart nineteenth-century. It was formed in the nineteenth century, and the heart of it, the labor theory of value, was refuted at the end of the nineteenth century. Eugen von Böhm-Bawerk’s Karl Marx and the Close of His System was published in 1898.

The same is true of social democracy. State policies from its ideological program were first implemented by Bismarck, and the early twentieth-century "reforms" put in place in the rest of the developed economies were largely adaptations of Bismarck’s. Both lost steam in the twentieth century, socialism in the early part of it and social democracy in the middle of it. Ludwig von Mises’ own refutation, Socialism, came out in 1922, and the heart of it has proven to be correct. Ever since 1920 or so for socialism, and 1949 or so for social democracy, "progress" has resulted only from military conquest, international bribes, or political inertia.

Socialism casts people as opportunists, who would violate moral standards in order to make a profit if they were free to. This economic amoralism, which socialism imputes to people, also includes hurting others, whether through recklessness or cruelty. In order to contain this dark side, the State needs to prohibit many, if not all, forms of economic activity to keep that dark side of ourselves from being unleashed. This element is contained, whether explicitly or implicitly, in every variant of socialism, including social democracy. The worker is deemed to be a cut above the entrepreneur because working people only earn wages; they are not profit-seekers. Because the workers are good-hearted and somewhat gullible, they need to be protected from a free marketplace through various kinds of social legislation. These include forced-savings plans run by the State, so that any profit which can be had from such plans winds up in the government’s hands. As can be seen from this description, socialism is an answer to the old-Tory categorization of the working class as "feckless by nature," but not a transcendence of it.

More characteristic of the twentieth century is Keynesianism. According to Keynes, the saver is a dead load on the economy; the borrower is what keeps the economy moving. Given a specified interest rate, borrowers have higher time preferences than savers, by definition. Because of the Keynesian mist, we are often accustomed to thinking of entrepreneurs as frenetic deal-cutters who ride tall when on the rise, and often fall on their face when their business outgrows them. At that point, they need to be rescued by a staff of professional managers and accountants. This impression is almost the opposite of the nineteenth-century view of entrepreneurship. A person from that time would remark that the low-time-preference attribute of the typical businessman has clearly been taken over by those managers and accountants. Because twentieth-century culture, especially late twentieth-century culture, has been a high-time-preference one, this insight has been largely lost to us.

This century’s predilection for war is very much part of this phenomenon. As Lew Rockwell observed back in 1997, soldiers tend to be present-centered, and are thus inclined to have a high-time preference. The glamour of war in the mid-twentieth century has helped spread a high-time-preference culture throughout society — during the last decade, it even reached the management circuit, in books such as Tom Peters’ Liberation Management.

Given these cultural trends, it’s surprising that real interest rates aren’t higher than they are. The mid-twentieth-century cultural block to a high-time-preference lifestyle, which saw it as an adolescent phase to be put aside when of job age, has been eroded, thanks to the debunking of its observers as "stuffed shirts." Had it not been for the institutionalization of low-time-preference habits in those big corporations, whose executives are poked fun at (if not demonized) in high-time-preference culture, real rates would have been higher than they are now.

High-time preference culture is, of course, one that the State thrives on. In addition to legitimating massive government borrowing, a high-time-preference culture also promotes the passage of a flurry of laws and regulations whenever a burning issue hits the headlines. The pace at which this is done brings up the question of whether or not the legislators have read what they’re voting on.

The most secure hook, though, comes from the vulnerabilities that come with habituation to a high-time-preference lifestyle. We face many long-term dangers that aren’t apparent in the short term. Before recent times, present-centered people were found predominantly in the lower classes, which were seldom listened to because they had little clout. As a result, a high-time-preference lifestyle, and fatalism with regard to the long-term consequences of it, traditionally went together, as explained in Edward C. Banfield’s The Unheavenly City. Once a high-time-preference lifestyle entered the middle class, though, the fatalism associated with it disappeared, as middle-class complaints tend to be taken seriously. Glancing though all the laws and regulations passed in the last forty years will show that there have been lots of complaints.

The trend towards high-time-preference behavior has begun to change, though. Financial planning is "in," and there are quite a few twentysomethings who are already taking steps to prepare for their eventual retirement. There is also more attention paid to the long-term consequences of the foods we eat and the activities we pursue. Environmentalism, despite its adherents’ fondness for scare stories, does have a low-time-preference mindset. It’s even becoming stylish to be cautious and careful, through using up-to-the-minute gadgets, as well as to be well-mannered.

Unsurprisingly, the State has its hand right in this trend, particularly in environmental policy but also in surveillance. It may seem that this return to future-oriented, low-time-preference habits is little more than a statist-promoted sham, yet another example of how the intrusive State has got us coming and going.

There’s more cause for optimism than surface appearances may indicate, though. People stuck in a high-time-preference lifestyle tend to become dependants upon the State and stay dependants. People who are more future-oriented have the inner resources to govern themselves, and thus to free themselves from State dependency.

Is the current spate of green legislation going to be the climax of twentieth-century statism? Will middle-class dependency upon the government self-reverse? The answer to both of these questions might very well be "yes." Mega-government may turn out to be a mighty oak that’s subtly hollowing out.

Daniel M. Ryan [send him mail] is a Canadian with a past. He’s currently keeping an eye on the trial of Conrad M. Black.

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