This talk was delivered at the Mises Circle in Costa Mesa, California, May 6, 2006.
Sometimes I talk to people who think that the Mises Institute is all worked up in a frenzy over nothing. After all, we are free to speak our minds, and no one is arrested for expressing opinions not held by those in charge of the government. You can persuasively argue that the US economy is the most prosperous in the history of the world, and that this prosperity is spread over all sectors of society. The economy is still growing.
We talk of despotism and yet new businesses are started constantly, and there is no evident lack of opportunity. Precisely what do we want to do but are not permitted to do? What is all this talk about the need to free the economy before despotism chokes the life out of it? And what is all this talk about the need to reform the currency, when inflation doesn’t seem to be that bad after all?
Well, a major part of the real estate of our website and publications is taken up with answering these questions, and I won’t attempt a summary of it all in one talk. But I do want to draw your attention to an insight of Frdric Bastiat’s, that there are two kinds of costs to state interference with economic life, one seen and one unseen. It is the unseen ones that are the largest. By unseen he really means the prosperity, innovations, and increases in quality of life that do not come about due to some sort of interference in the ability of the market to make it happen.
This is a hugely important point. The other day, a young economist named Mark Brandly did some speculative calculations on some possible unseen effects. He points out that from 1959 to 2005, the real GDP increased an average of 3.37% annually. Let’s say that America’s massive tax, regulatory, welfare, and warfare state decreased real economic growth by 1% per year — a very conservative estimate. GDP would be 55% higher than it is.
Even if we look at it statically, the median family income would be $68,000 instead of the $44,000 it is today. And if we eliminate the tax bite that takes 35% of income, the real increase would be much higher. What might have been done with that money? How much investment? How much savings? How much in wealth passed from generation to generation? We are talking about incredible amounts of lost wealth — losses in prosperity that we will never see.
Think of the contest between power and market (in Rothbard’s phrase) as two parallel foot races on a track that never ends. One group of runners have worked out rules for how closely they can run to others, which lanes they can stay in, how often they stop for breaks, agreements on what constitutes good behavior and what to do with offenders, and all the rest. Let’s call them market runners.
But none of these rules apply to the motley crew of runners one lane over. These runners represent the state — the power runners. They see their job as productive interference. They run alongside the others — though they are far less fleet of foot — and their activity consists in throwing tacks, banana peels, monkey wrenches, or anything else to hobble the runners. They help some runners and hurt others. They grab food, clothes, and shoes. They set up barriers, require detours and random stops, fiddle with the clock — anything to make their presence known and felt. Of course they desire ever more tools and power, and of course they always claim that they are doing all this for the good of all runners.
Using this metaphor, we gain insight into the difference between systems of government. In relatively free systems, some rules constrain the motley crew of problem runners. They can’t do everything they want to do. In total systems of governance, the power runners have complete discretion. They have the ability to call the race to a complete halt, as they have done under many socialist systems.
Their role is always and everywhere destructive. The only difference between groups of power runners is the degree to which this is true.
Let us return to what is seen and unseen. What is seen is the visible damage the power runners cause in the course of the foot race. We see the bruises, the cuts, the broken bones, the shackles, the barriers, and the detours. What we don’t see is how far the runners might have run had they been unshackled and free to go as fast as they wanted. We don’t see the happiness, creativity, and improved prowess that have been lost. All these are costs, but they are incalculable.
If you want to see tragedy, have a look at the protests that hit France in the spring of this year (2006). An ever-so slight change in the law was proposed that would have permitted employers to terminate employment for people under 25. Now, it takes at least two steps of thought to see why this would be a good change. Right now, unemployment is very high among young people. Once they are hired, they can’t be fired, unless they are hired as temporary employees, in which case they can only be employed twice for a one-year term. Then their termination becomes mandatory. So this change in the law would give more flexibility to the employer and thus liberalize contracts between workers and companies, making it more likely that young people could find jobs.
It was a small change in the law and a very imperfect change because it discriminated based on age. It did not create a sustainable situation. But what happened? Mobs of people hit the streets in protest. Day after day they protested the cruel new law that lets capitalists exploit and then fire workers. It was a pathetic display, one that illustrated just how bad the situation is in France, both economically and ideologically.
People who were there report that the protests were mostly instigated by public-sector employees, such as teachers and civil servants. Teachers emptied their classrooms of kids out to protest. Civic employees came out in droves. Labor unions joined in opposition, fearing that the law would be extended to adults and knowing that every bit of liberalization is bad for their interests.
Of course the politicians caved in. The market lost, and power won. But what is the way out for France? The current situation cannot continue. The country is growing poorer all the time, and the capital stock is being depleted. You can choose your metaphor: they are burning the wood of the house to stay warm, or they are eating the seed corn that was going to produce next year’s crop. No matter how you look at it, the power runners are hobbling and corrupting the market runners.
In France as in the old Soviet Union, the parasites are destroying society. They are feeding themselves at everyone else’s expense. This will not change until people become fully aware that this is happening. But the entire system is structured to prevent people from discovering this truth.
In the US, our suffering at the hand of the state is huge as well. From the moment you begin your day to the time you go to bed, your life is changed for the worse by the state. The temperature of the hot water in your shower, the pressure at which it comes out, the quantity of the water flow, the efficiency of the flush in your toilet, the contents of your toothpaste, the country of origin of your clothing, and the price of the gas in your car that you drive, is managed by bureaucrats in Washington.
But most people have no clue. Even the shape of your office is influenced by intervention. Thirty years ago, offices started using cubicles to house workers. Cubicles are still the largest selling office furniture, despite a huge range of management experts who say that they create a bad form of business environment.
Why do they persist? In 1968, the Treasury Department created new depreciation schedules that subsidized cubicles at the expense of separate offices. Companies can depreciate cubicle walls in 7 years, whereas permanent office structures are given a 39.5-year rate. In other words, the costs of cubicles are more quickly recoverable than offices. This one change alone is what turned our workplaces into pictures out of Brave New World instead of the comfortable and humane places that they should be.
To rule is to destroy, sometimes by bombs but mostly by a million small incisions such as this one. These cuts influence our culture in the negative. For example, it is because of state intervention that we believe that productive work need not begin in a person’s life until the age of 22, and it must end at the age of 65. Before and after, the state is to provide. Before the double hit of child labor laws and public schools, alongside the advent of Social Security, life was not so demographically segmented. It has since been broken up such that the only real interaction and socialization that kids get with adults is in the classroom, whereas elderly people are considered to be strange and unfortunate beings that live either in nursing homes or luxury resorts.
We can thank the state for this tragedy. To rule is to destroy.
If we are tempted to dismiss this charge as unwarranted hysteria, I ask you to consider the Bush administration’s plan for dealing with a bird-flu pandemic. The Center for Disease Control has wildly inflated this alleged threat by including among their death statistics anything that is flu related. We keep hearing about how 36,000 have died but the real numbers could be as low as a few people. No one can demonstrate, in fact, that it is a threat at all. If I were going to make a prediction, I would say that this threat will go the way of the Swine Flu from way back when: much ado about nothing.
But the Bush administration has a plan in any case. The government says it needs many billions to handle it, and claims the right to shut down our schools and businesses, and restrict our right to travel, as part of martial law. It even suggests, laughably, that it will produce and distribute food and clothing for the entire country should supply be interrupted. Folks, this is nothing short of Stalinism, and yet I’ve heard hardly any commentary on this.
I also ask you to consider the protests by immigrant groups in this country. This issue is a major concern. It threatens not only to create a kind of permanent division in this country. The way the politics are working themselves out, it can only result in greater degrees of tyranny.
The left considers itself to be pro-immigrant, by which it means that it wants to provide ever more welfare benefits to third-world immigrants. Such benefits not only include direct aid but also free medical services and public schooling, as well as making them the beneficiaries of affirmative action, quotas in hiring, and voting rights. Just as critically, it wants to shout down anyone who disagrees as a racist and a hater, while reminding us all that we are a nation of immigrants.
The man and woman on the street aren’t buying it. The opposition toward immigrant groups is increasing. Many people are disgusted by the sight of tens of thousands of non-English speaking illegals taking to the streets, waving foreign flags, and demanding a range of rights at the expense of Americans. So how does the right respond? By proposing an unwinnable war against immigration, cracking down on employers for their decision to hire cheap labor, and by clamping down on our ability to move about our country without displaying identity cards.
Both solutions lead to more tyranny. Freedom lovers must reject both. But we also must consider how the stakes became so high in this debate. Looking at immigration from the point of view of space and demographics, the US could absorb not only another few million immigrants but tens of millions of them from all over the world. Just looking at a population map of the US, the space between Nevada and Illinois appears to be uninhabited. If people came here with the idea of trading and exchanging and living peacefully, there would not be any problem.
So what makes the difference? Democracy, for one thing, because it gives a special-interest group the right to skew politics toward its interest rather than the common good. The stakes in this process are huge: it means the ability to control schools, labor policy, tax money, and government policy.
These are areas of life that have a huge impact on people.
Let me back up a bit and discuss Mises’s own views on the issue, as he presented them in his 1919 book Nation, State, and Economy. The original title to the book was Imperialism, and what he meant by empire was a unitary democratic state that purported to rule over polyglot territories. Monarchs could do so because they worked to relate to all groups, keep schooling separate, keep the state from attempting to manage the minutiae of life, and otherwise permitted as much local government as they could.
Even bad kings knew this was essential for political stability. But democracies are different. They push themselves into every aspect of life. Everyone plays a part in the affairs of government. And as we’ve seen in Iraq, this is an unviable situation for people who are heterogeneous in terms of language and group affiliation.
Mises didn’t regret the advent of the democratic age and the passing of the age of kings. But he also knew that democracy had to be decentralized. The minimal qualification of a nation is language. Governmental units had to be reflective of the language group.
An ambitious democratic government ruling over a polyglot territory is a prescription for catastrophe. That is precisely what is happening in this country.
What many nations in Europe experienced after World War I was, in effect, an influx of immigrants even though populations never moved. The immigration was due to the emergence of unitary polyglot states. In Mises’s view, in order to maintain peace and free trade, large nation-states had to become small nations based on the will of the people. Otherwise, he said, they would be centers of civil strife, where wars of some against some would perpetuate themselves. He also believed that all groups needed the right to separate from the state and form their own states. This was the only way that democracy could be implemented.
So we have two paths we can take on immigration. We can follow one of the statist paths being offered by Washington, one of which is socialism via immigration legislation and the other which is fascism via immigration legislation. Or we can choose the direction of liberty, which requires devolution, decentralization, and the elimination of tax-paid privileges for immigrants. Never before has the choice for the right and true been so crucial.
By the way, I do think it is time that we start talking honestly and sincerely about an idea that might even shock some people in this room. Is the United States too big? The founders never imagined a unitary state ruling over this vast a territory and this many groups. As Mises saw, secession is a path to peace.
In the meantime, it does no good to keep calling for a crackdown on immigration. It does no good for free-market economists to keep telling Americans that immigrants are great for them. People see demographic upheaval as a threat, not because they are racists or unwelcoming or biased or have some innate fear of non-whites. It is because of the political implications of untrammeled immigration that the issue has become such a hot button.
But most people are unwilling to make these distinctions. They see immigration as the problem or the solution, whereas the real problem is the state and the only solution is freedom.
Sorting out these causal relationships is the job of economists and libertarians. Understanding the sneaky, nefarious, and deadly role of the state in our daily lives, and urging people to turn against the methods of coercion, are the most important tasks before those of us who are concerned about the future of liberty.
I believe the time is ripe for this message. The well-documented paranoia of the Bush circle has infected the whole regime. The entire government — elected officials, appointed staff, permanent bureaucracy — has shifted in the last decade from pretending to be the people’s servants to admitting that they regard the people as a threat. That’s why we see the stream of legislation permitting ever more power to spy, confiscate, and jail without trial.
Never has Franz Oppenheimer’s view of the state been more clearly on display: it is there to dominate, exploit, and protect itself against any challenges to its power. It clings to power like Gollum holding the ring. And that power is deployed, not for the ostensible purpose of protecting people but for protecting the state and its interests. Its rule is destroying all that is good.
Everyone knows that the federal budget is in ghastly shape. Spending is running at almost $2.7 trillion per year. If today you slashed the budget in half, you would be back to the small-government days of the beginning of Clinton’s first term. If you cut it in half again, you would be taken back to Reagan’s first term, a time to when people date the beginning of budget cuts that never happened.
The same is true for government debt. The debt ceiling now exceeds $8.2 trillion. That’s an incredibly huge number, a debt that would be impossible to sustain if there had not been fundamental monetary change. Since Richard Nixon ended the gold standard of the Bretton Woods age — the last institutional check on out-of-control government that existed — we have lived under a fiat money regime.
Thanks to the monopoly control exercised by the Federal Reserve and granted by the US government, the government has been given a blank check to spend as it wants. The Fed is now the guarantor that the bills will be paid. Actually, no one in the modern age has explained this point with more exuberant satisfaction than Ben Bernanke, the new chairman of the Federal Reserve:
The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.
Somehow Bernanke has confused the regime’s biggest failing with its greatest merit. A government that can spend all it wants is a tyranny in waiting. A government that can destroy a currency on a whim is despotic. This situation must change, and the direction of change should be clear. The Fed should go the way of every government bureaucracy, straight into the landfill of history. What we need is sound money and radical reform, along the lines laid out by Mises, Rothbard, Reisman, and de Soto in his latest massive and indispensable treatise. What we need is private banking, private coinage, and a money as good as gold.
The money machine is also what makes possible the incredibly reckless US foreign policy, which seems constructed to make enemies and destroy rather than enhance prospects for freedom in foreign lands. I meet all sorts of people who think that big government at home is a problem but it’s just great for the US to occupy foreign countries and impose martial law.
This is a contradiction of the first order. It might be possible to have a big government at home without an empire abroad. But it is certainly not possible to run a global empire and expect that same government to behave itself at home. Foreign and domestic policy are linked. They are managed by the same government and by the same means. Peace and freedom go together.
This is another most urgent task: to bring the troops home, trade with the world, and stop this futile attempt to reform other countries by force. It cannot work. The war against terror will not succeed anymore than the war against drugs or the war against poverty has.
If you agree that radical reform is necessary, let me also talk about the means. Mises believed with all his heart that the most powerful weapon we have is not political action or street marches or lobbying but rather what he summed up in a powerful word: education. The state knows the value of education, or else it wouldn’t be so insistent on maintaining its control over the education sector. We too must understand the value of education, and institutions that fight back.
That is the purpose of the Mises Institute: to educate in every conceivable way.
We aspire to be the public-minded source of sound economic ideas that Mises himself created in Vienna in 1927 to study and promote the Austrian theory of money and business cycles.
We aspire to be for Misesian scholars and scholarship the kind of sanctuary that the Geneva-based institute was for Mises himself in 1934, when he took refuge from political turmoil in Vienna and wrote what became his masterwork, Human Action.
And we aspire to be the educational institution that Mises, in the later years of his life, dreamed would be created to educate students and the next generation of professors.
Since our founding 24 years ago, we have stayed on track with these goals, thanks to the brilliant contribution of Murray Rothbard, who was there from the beginning until he died in 1995, and thanks also to the 250 faculty members we have working with us all over the world.
It’s not that we have a large staff. Actually our on-site staff is small — the most dedicated, talented, and hardest working group of people you have ever met. If you come to our Supporters Summit in October, you can meet them and find out just what makes the Institute tick.
Neither do we have a large budget. Careful stewardship of every resource is the watchword of our management.
We can’t claim friends in high places, contacts with powerful people, access to movers and shakers, nor supporters among the mighty and great. We get no White House briefings. Politicians and bureaucrats don’t call us for advice. No spot on the New York Times editorial page is reserved for our work.
As our faculty and students can tell you, there are no great career advantages that come with being associated with Austrian economics and Rothbardian libertarianism. To be attached to this body of ideas necessarily means making some sacrifices and taking some risks. It could mean a lower income. It could mean a lower rung on the career ladder. It certainly means giving up a chance to grab the brass ring of power.
So why are people drawn to the work of liberty as embodied in the Mises Institute?
What makes the Institute so incredible are the vast range and quality of our activities, the intellectuals all over the world that contribute to our work, our Members who have dedicated themselves to the flourishing of human liberty in our times and in the future, and, above all else, the ideas that are the driving force behind all our activities.
Ludwig von Mises believed that the cause of freedom has one great hope: victory in the world of ideas. Note that he did not believe that we can win short-term political battles, that we would succeed through lobbying efforts, or that we could achieve final victory through propaganda. He believed that the answer can only come from research, teaching, and public persuasion.
Is this because there are no other options? No. It is because, in Mises’s view, the real battle for the future takes place not by force of arms but in the minds of men. No government, no matter how powerful, can be victorious over the ideas of liberty if those ideas burn brightly in the home, in the academy, in the house of worship, and in the culture at large.
A decade and a half ago, many of us witnessed what was widely believed to be an impossible event: totalitarian governments in Russia and its satellites melted like butter on a griddle. From all appearances, it seemed to be nearly an overnight event, but in retrospect we can see that the underlying decay of the communist system had been worsening through the decades. No one really believed in the system any more. And when consent was withdrawn, the powerful and mighty toppled from their perches of power.
Mises had written back in 1920 that communism was a system that would end by implosion. The academic establishment rejected his analytics and his prediction. Now, however, his insights are considered prophetic.
Mises’s theory was based on a larger conviction that no social system is stable unless it comes to terms with economic law and the impossibility of government planning. This is a broad critique that applies to far more than just totalitarian systems. It applies to attempts by the US government to manage industrial organization, monetary policy, income distribution, education, health care, labor relations, foreign relations, or any other sector of society and economic life.
Government planning not only fails; it tends to produce outcomes that are the opposite of what its proponents say that they favor. The only stable and productive social system is one that embraces human liberty in its totality, and defends the market economy, private property, sound money, and peaceful international relations, while opposing government intervention as economically and socially destructive.
This is what the Mises Institute seeks to do with all its educational programs, teaching conferences, books, journals, opinion pieces, and podcasts. We seek not only to make the ideas of liberty compelling and intellectually robust; we hope also to make the work of liberty engaging and fun. We hope to become, in the Rothbardian model, happy warriors in this cause.
The Members of the Mises Institute are a remarkable group of people. They are readers, thinkers, and visionaries in their own right. They have taken upon themselves the task of being responsible stewards of a great cause. They are fighting not only for themselves and their interests, but also that of future generations. They are all heroes in my eyes.
Friends, I fear that hard times may be coming. We must prepare for battle. We have no time to waste. DC is considering price controls, more crackdowns on political dissidents, more inflation, more spending, and more wars. We aren’t battling for nothing; we are battling for the future of civilization. We have a choice: we can accept the fate they give us, or we can take the future into our hands. Let us make the right choice.