Hitting Back (2): Why Recovering Austrians Are Wrong

Two: Government Is the Main Problem

An anti-Austrian economics blog, Recovering Austrians, authored a hit piece that covered ten coarse deconstructive statements that alleged fallacies of Austrian economic thought [1]. The following articles will articulate counter orientations on these assertions by explaining their point of view, offering an opposing position and producing evidence of a finer perspective of the subject. This piece will address their second point regarding the perspective of Austrian economists who see government as the main economic problem.

Recovering Austrians claim that Austrian Economics are incredibly ‘naive’ when it comes to private interests controlling markets [1]. Recovering Austrians noted that Austrian Economics alleged that Governments shouldn’t mess with the economy, while Austrian Economists ignore the monopolistic inclination of Capital [1].

As much as an entrepreneur may try to organize and cartelize any sector of the economy, it is improbable that the capital would remain in the hands of any entrepreneur long. Competition requires further investment to meet the perceived future needs of the market and that investment comes with a calculated risk. If a competitor beats that entrepreneur to market with capital, means of production or distribution, the capital investment fails to reach its full potential. This becomes a challenge in the perspective of the free-market proponent when the state is involved because it can direct where investment can go or not go as a result of regulation. This regulation can be direct as in limiting a company with a tax or law that prohibits the sale of their product or service to market. This directness can offer a competitive advantage by offering an opportunity to sell the product at market before a competitor. It can also be indirect by limiting the ability of resources to enter an economy such as raw materials or a competitors product that is made overseas. What happens in this government intervention is that the market is not allowed to determine the winners and losers but defers some of that to an arbiter of intervention such as the state. Those advocating for this intervention see the government laws, regulations and protections as a good thing towards protecting consumers from making poor investment or buying decisions. An example of this advocacy points to regulatory bodies like the FDA who are charged with the protection of the food source from less than scrupulous producers of food stuffs and pharmaceuticals.

Some of these interventions allow producers to control elements of a market because of their privilege given by the state. Contracts are awarded by the state or through regulation limit access of competitive products in the same market-space. Freemarket advocates denote this as a hindrance to real progress in the market. An example of this is noted that when President Reagan deregulated the telephone markets and broke up the telephone monopoly of AT&T, investment spurred development in telecommunications that allowed a digital back bone to be built and the US saw an explosion of internet technology, and communications capabilities across one of the largest IT infrastructures in the world.

When Roland Reagan became president he spoke of government not being the solution to the problems of the age but being the problem in his inaugural address in 1981 [2]. The Knight of Liberalism, Ludwig Von Mises, alleged that governments cannot be against monopolies but are in fact dedicated to monopolistic practices [3]. In free markets the entrepreneurial class controls how capital is invested to meet the needs of the market. This adaptation allows an individual to develop and meet the markets needs or immediately change to meet them. When the state decides to intervene through regulation, taxation or awarding of a contract, it upsets the markets by entering them. Von Mises refers to this as interventionism [4]. In doing so the state inevitably picks winners and losers and by its mere existence as an arbiter of last resort foments cartel-like behavior with its intervention. This inevitably allows market monopolies to form and be sustained by limiting competition in the marketplace. When this happens the state drives competent competitors out of the market which could actually bring better products or services to it. Lellwellyn Rockwell, head of the Von Mises Institute provided an example Stalin’s Russia all the henchmen and secret police were unable despite their best efforts to produce a good crop of wheat [5]. He said, “The process of production is too complicated to be run by anything as stupid as a government bureaucracy,” [5]. The problem was much worse than a critique of a bureaucracy. He noted, “Without profit and loss, there is no way to assess the tradeoffs associated with alternative uses of resources. That means there is no economy in the literal sense of that term,” [6].

In this perspective the control of capital with central banks and governments also holds a hindrance to real leverage in a market. When banking institutions can produce capital out of thin air through fiat currencies they can leverage towards other market manipulations that create these monopolies. The rise of the Rockefeller’s ability in the 19th century is a result of this kind of capitalization[7]. Being able to buy out the competitors not through fair market competition but by manipulation of financial resources via the money supply made some dollars worth more than others. The Austrian school of thought is right to address this as corruption of the state and instruments of debt like those of the IMF are used to support American multinationals in the developing world [8]⁠. John Perkins notes that this is the reason why the US is viewed as supporting dictators around the world using what he calls Economic Hit Men [9].

This perspective notes that bureaucratization of influence behind the government interventions is the real problem for Austrian Economists. Smedley Butler noted that even Government was at the mercy of corporations and the banksters. He is quoted by Hickey stating, “The government, under the present law, is at the mercy of the rulers of industry and finance,” [10]. It comes not from those who produce but those who curry favors. Francisco D’Aconia’s Money Speech in Ayn Rand’s 1957, Atlas Shrugged noted:

When you see that trading is done, not by consent, but by compulsion–when you see that in order to produce, you need to obtain permission from men who produce nothing–when you see that money is flowing to those who deal, not in goods, but in favors–when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you–when you see corruption being rewarded and honesty becoming a self-sacrifice–you may know that your society is doomed [11].

This is the slippery slope of the state that the Austrians are right on. Intervention of the state causes inflation and benefits only those who are catering favors of the state. The dollar has lost more than 97% of its value since the creation of the Federal Reserve even as Wall Street continues to report record profits. American enterprise has seen a never ending stream of mergers and acquisitions which have the effect of cartelizing markets instead of creating new value. When exceptions have emerged in the market place such as a company like Apple Computer or Microsoft they are heavily invested in through IPO’s and the sale of stocks and bonds and engage in buy outs and mergers of smaller entrepreneurial corporations. This example has limited vertical growth by the entrepreneurial class by requiring these companies to acquire capital in their market-space for additional growth. For those who refuse to play, the interventionists can invest else where in a similar product over seas and re-import that product or become a target of a buy out. When the companies control natural resources, the regulatory agencies can drive the investment elsewhere such as the transfer of wealth to mines in Africa from the US and the developed world. Similarly oil markets developed in Nigeria and Angola are faced with similar challenges in dealing with the cartel mindset of interventionists backed by nation-states like the US.

References:

[1] “Top Ten Austrian Economics Lies and Mistakes.” Recovering Austrians.
[2] R. Regan, “Reagan’s First Inaugural: ‘Government is not the solution to our problem; government is the problem.,’” The Heritage Foundation, 1981. [Online]. Available: http://www.heritage.org/initiatives/first-principles/primary-sources/reagans-first-inaugural-government-is-not-the-solution-to-our-problem-government-is-the-problem. [Accessed: 16-Mar-2015].
[3] L. von Mises, “The Dictatorial Anti-Democratic and Socialist Character of Interventionism,” in Planned Chaos, Kindle., Auburn, Alabama: Von Mises Institute, 2010, pp. 276–278.
[4] L. von Mises, “The Interventionalist State,” in Interventionism, Kindle., B. B. Greaves, Ed. Auburn, Alabama.: The Liberty Fund Library, 1940, pp. 48–51.
[5] L. Rockwell, “The War System,” in Against the State: An Anarcho-Capitalist Manifesto, Kindle., Aubern, Alabama: Ludwig von Mises Institute, 2014, p. 290 of 2679.
[6] L. Rockwell, “The War System: Why Does Socialist Central Planning Not Work?,” in Against the State: An Anarcho-Capitalist Manifesto, Kindle., Aubern, Alabama: Von Mises Institute, 2014, pp. 240–233.
[7] Keith Poole, “The Standard Oil Company: 1870-1882.” American Public Broadcasting Corporation, p. Biography: John D. Rockefeller, Senior, 2014.
[8] J. Perkins, TalkingStickTV – John Perkins – Confessions of an Economic Hit Man – Part I. United States of America: Youtube Video, 2007.
[9] J. Perkins, Confessions of an Economic Hit Man, Kindle. Plume, 2005.
[10] J. Hickey, “Sustainable Business and the Tale of Smedley Butler,” in Smedley Butler: Gansters, Banksters and Empire, Kindle., Amazon Digital Services, 2014, p. 208.
[11] A. Rand, “Francisco D’Aconia’s Money Speech,” in Atlas Shrugged, Kindle Edi., 1957.

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