[First published on Free Life]

The world’s political systems today are, generally, neither fully despotic on the one hand nor completely free on the other. Instead, most of us languish under so-called “social democracy”, a curious mixture in which a degree of sovereignty in the form of voting rights reside in the citizenry while political leadership and control remains distinct in the form of various functionaries such as Presidents, Prime Ministers, Congressmen and Members of Parliament.

A libertarian might contend, of course, that such a social democratic system ends up being worse for individual liberty than a dictatorship or monarchy. The important point, however, is that the ideological extremes have been blended into some kind of soup which, at least from the de jure point of view, represent neither total freedom on the one hand nor total despotism on the other.

In exactly the same way, neither do our economic systems represent any ideological purity. We are neither fully capitalist nor are we completely socialised. Instead we have to put up with some kind of “mixed” economy that contains both capitalistic and socialistic elements.

Although the relationship between economic and political systems is one joined at the hip, the justification of social democracy on the one hand and of the mixed economy on the other appears to come from different directions.

Democracy, rightly or wrongly, is believed to a good and noble thing in its own right – a positive and independently justifiable improvement over any other option. The mixed economy, however, appears to be based on little more than the intellectually slothful adage that “the truth lies somewhere in the middle”.

Capitalism will bring us massive economic prosperity and improvement in the standard of living – but, so it is alleged, it leads also to unstable business cycles and encourages greed, selfishness and extensive inequalities in wealth and income. Socialism, on the other hand, may make things “fairer” and more equal; yet, in the face of a hundred years’ worth of evidence, it is difficult not to conclude that it decimates the productive capacity of a nation and the standard of living stagnates or even reverses. The “correct” system “must”, so the argument goes, lie in between these two points so that we can take the best of both systems while avoiding the alleged pitfalls. Hence we end up with the mixed economy.

The first question we might as well ask when tackling this fallacy is that if we adopt a position somewhere in between the two “extremes” then what argument is there to suggest that we will end up with the best aspects of each system rather than the worst? In spite of the socialistic element of our economy income inequality and wealth concentration in the hands of a few elites seems to be worsening, not getting better; and in spite of the capitalistic element we have failed to have any meaningful growth since at least the onset of the global financial crisis ten years ago. May be it is the alleged good parts of each system that are cancelling each other out rather than the bad?

The fundamental flaw, however, is that the assessment of capitalist and socialist economies that identifies their good and bad characteristics is partly wrong. These wrongly diagnosed parts are then exaggerated in making the case for a mixed economic system.

The good aspects of capitalism, private property and free exchange – such as economic progress and marked increases in the standard of living – are, as we know from “Austrian” economics, entirely true; the bad aspects, on the other hand – selfishness, inequality, greed, the business cycle, and so on – are largely false or misstated.

Capitalism does not encourage anyone to be greedy or selfish at all – it just gives you the freedom to be either as greedy or as altruistic as you like, provided that you fulfil those ends through voluntary trade and do not engage in outright theft or fraud. The aspect of capitalism that its opponents do not like is that people, when set free, usually choose to pursue their material welfare as the first priority. However, the resulting increase in productivity confers upon people the wherewithal to be more charitable out of choice. Thus we should not be surprised to learn that many of the great charitable or humanitarian institutions – such as the Salvation Army, the YMCA, the Scout Movement and the Rotary Club – were founded in the nineteenth or early twentieth centuries, the relatively most capitalistic period in history.

Moreover, the business cycle, as we know, is not an inherent feature of a free market economy, but is caused instead by the artificial creation of credit, something that is only sustainable with state central bank sponsorship.

However, in spite of these truths, whenever some justification is made for the “mixed” economy, we will still hear “greed”, “selfishness”, “inequality” and “boom and bust” being cited and emphasised in an attempt to cajole people into accepting a blended economic system.

Turning to socialism, we know that such a system would obliterate all productivity and the standard of living would sink far below that to which we are now accustomed. Its bad aspects are, therefore, all true. Yet the good aspects – greater equality, fairness, and anything that can be categorised under the current, in-vogue term of “social justice” – are all patently false.

Socialism does not create any equality at all; it does not result in every portion of wealth in existence being carved up into equal shares for everyone to then enjoy. Instead, it transfers the power over whole resources from private producers (who must maintain their ability to satisfy consumers in order to retain that privilege) to politicians and bureaucrats. Nationalising an industry does not give you, the average citizen, any greater access to the goods and services tied up in that industry. Rather you are pushed further to the bottom of the heap than before as the political lords and masters decide what that industry will produce, what prices you will pay and what level of service you will receive. You are stuck with whatever they decide to give you – providing that the inefficiency and waste of state run industries has anything left to give.

Nor will you have any greater ability to control how resources are used in a socialised economy compared to in a capitalist economy. The very reason why property rights and exclusive ownership exist is precisely because there is no agreement on how resources should be used. This problem exists under socialism as it does under capitalism and one person’s decision must, at some point, overrule all others. If you are to have any influence in this regard in a socialised system then it will be restricted to a handful of catch-all elections every four or five years or so. In the meantime you have to suffer whatever it is that the electoral victors throw down from their table.

Under capitalism, however, your voting influence is felt all the time in a highly specific manner through your spending habits. If a producer fails to produce what you want at a price that you can pay then he loses you there and then, while resources at his disposal are transferred to other producers who can meet your needs. Not so under socialism where you have to put up with whatever the upper elite, controlling all resources, decides will be produced.

Furthermore, providing social safety nets and welfare states in pursuit of some kind of “social justice” does not result in a society that is more caring and sharing. If anything, the adage “from each according to his means to each according to his needs” completely disintegrates any moral fervour. By separating individual productivity from individual reward, wealth creation is no longer an endeavour in which each person tries to better his own life and the lives of his friends and family. Instead, it becomes an exercise in “stockpiling” – the digging of a communal trough to which a person contributes that which he is able according to his “means” and from which he slurps out according to his “needs”. Unsurprisingly, every person seeks to minimise the amount he has to put in through toil and sweat while maximising that which he can take out in goods and services that he can enjoy in return for minimal effort.

The result of this is a population that fails to cultivate its talents towards increasing wealth such as hard work, responsibility and self-reliance and replaces them with characteristics that make them needy and pitiful, with an added layer of laziness, corruption and freeloading. This is precisely the problem faced by our bloated welfare states today and why they are completely bankrupt – demand has swollen to such an extent while supply has been hopelessly dwindled. None of this is exactly the antidote to “greed” and “selfishness” that advocates of the mixed economy might expect.

Moreover, the resulting shortages in a socialist system usually spawn black markets and underground trade, increasing the scope of legally defined criminality and, in worst case scenarios, penalising the population for attempting to acquire what should be every day goods and services – as has happened in the social democratic paradise of Venezuela.

A further fallacy that is often used to justify the mixed economy is the assertion that private enterprise does some things “better” than the state while the state does other things “better” than private enterprise. Thus we are encouraged to look at the “evidence” to decide who can do what better.

The obvious retort to this is by what standard do you conclude that something is being done “better” by either the state or by private enterprise – and, moreover, by what standard do we judge whether a certain activity should be carried on at all?

Private enterprises make this judgment through the profit and loss test; the quantity and quality of resources devoted to production of a good and service is rationed by its ability to make a profit, indicating the relative height of its demand by consumers. If a service is of low quality or unavailable to certain sections of the population it is simply because consumers are not willing to support a more extensive level of production in that particular industry.

For example, the fact that broadband internet was not, in the UK, extended to all rural communities leads our evidence-obsessed policymaker to conclude that this is a case of “market failure” – an instance where the private enterprise has rendered itself unable to provide something that it “should” provide, and so the state must step in.

This is utter nonsense. If the “free market” has failed to provide broadband internet to rural areas then it simply means that the more extensive resources necessary to do so compared to urban areas were required more urgently to produce other goods and services that people wanted to buy. Any “evaluator” who determines from the “evidence” that the state is needed for rural broadband cabling is necessarily substituting his own value judgments for everyone else’s, denying them the goods that they really demand and giving them those that they do not (or, more accurately, denying resources to one set of people who are willing to pay for them in favour of another set who are not).

Nor can we fall back on the assertion that the state should run “essential” industries for there is no such thing as an “essential” industry. Humans do not evaluate goods and services in whole, homogenous concepts such as “fire services”, “health services”, “electricity”, and so on. Rather, each good or service is demanded in specific quantities in specific times and places.

For instance, while we may think of “medicine” as “important” we can easily imagine ourselves in a situation where we would prefer to do something “unimportant” like watching television rather than produce another bottle of penicillin. Moreover, some people may not want penicillin at all if they maintain their health. The difficult task is not, therefore, determining whether penicillin is generally more “important” than television – it is identifying the precise point at which we stop devoting resources to the production of penicillin (and, thus, the point at which continuing to do so would be a waste) and move them instead towards producing television sets. This is something that can be done only by the profit and loss test of the free market. Any other judgment is necessarily arbitrary and at variance with the demands of consumers.

In any case, as libertarians, we might also ask if an industry is really critical then why on earth would you want it in the hands of the state where it can be royally screwed up? And why would it even need to be under state control? If the good or service produced is heavily in demand then profit opportunities will abound and private entities will have no problem in meeting that demand. It is, in fact, the unessential industries with low demand that struggle to stay afloat without state support.

The real reason why we have ended up with the mixed economy is, in fact, pragmatic rather than principled. Capitalism is the goose that has laid the golden egg and any decimation of capitalism would very quickly destroy the standard of living of the citizenry, prompting a swift revolution. Yet the state yearns for power and control and cannot be content with letting things be; it therefore has to paint capitalism as this necessary evil that must be stewarded and supervised – like a dangerous pet which, if managed “correctly”, will cuddle and comfort us instead of biting us on the backside.

Ironically, of course, it is state interference attempting to inject a socialistic element to the economy that brings about the chaos and injustice that is blamed on capitalism. We have boom and bust precisely because of state-sponsored credit creation, while the rich are getting richer and the poor poorer because the government bails out these cronies from the resulting disarray at the expense of the rest of us. Indeed, having a “safety net” against the alleged “sink or swim” nature of capitalism has turned out very well if you are an investment banker. None of this would happen in a genuine, capitalist economy.

The mixed economy is therefore nothing but an unjustifiable charade, built upon alleged weaknesses of capitalism and supposed strengths of socialism that simply do not exist.  Genuine economic prosperity for everyone in a fair and just society populated by morally healthy individuals can come about only through unfettered private property and free exchange – not through the state’s attempt to meddle with it.

[First published on Free Life]

The myth that capitalism is exploitative – or rather, that capitalists and entrepreneurs are responsible for the exploitation of both workers and consumers – is almost as old as the history of this political-economic system itself, having been a primary driving force behind the growth of the state and, indeed, of outright socialist and communist revolution. Although much watered down from those early days, the idea that there is some kind of antagonism between the capitalist “class” and the rest of us seems to persist.

As “Austrian” economists we know, of course, that it is absolutely and undeniably true that any free and voluntary exchange, upon which capitalism and private property must rely, only takes place because each party expects to benefit from the transaction. This alone is sufficient scientific proof to dismiss any idea that capitalism exploits one party for the benefit of another. Nevertheless we should, of course, tackle directly the specific incarnations of this myth as they appear today.

The myth has its roots in the Marxian confusion of political castes with economic classes – the idea that the relationship between capitalists and workers, which is free and voluntary, was akin to that of king and subject, or lord and serf, relationships that were involuntary and subjected the masses to servitude. Caste systems were static and designed to keep people in their place; under conditions of free exchange, however, economic classes have a continually changing membership based upon one’s ability to serve consumers.

This ability varies from person to person, of course, but the critical point is that nobody is legally prevented from becoming an entrepreneur and nobody, once they are a successful entrepreneur, has either their wealth or status legally protected. A wealthy capitalist might find his fortune decimated when he loses this crucial ability to serve consumers as the latter turn to other suppliers for their wares; he may have to re-join the ranks of salaried employees if he is to make ends meet. On the other hand, an ordinary worker may see a gap in the market that has been unnoticed by the current entrepreneurs of the day and he may set up a successful business accordingly.

This does not mean say, of course, that political castes do not exist today. We can see quite clearly from bank bailouts and the like that there is a distinct upper caste that is protected from its mistakes and is able to retain its wealth and status at the expense of the rest of us. Indeed all the similar injustices that did occur during the early history of capitalism were not owing to the capitalists’ reliance upon genuine private property and free exchange – rather, they used the power of the state to enforce their illegitimate property interests. The mercantilist Corn Laws, for instance, which artificially propped up the price of corn for the benefit of domestic cereal producers are a good example from the early nineteenth century. Capitalism itself, however, does not produce these injustices.

Moving on to some more contemporary arguments, do businesses exploit the “needs” of consumers for whatever it is that the latter want? Do they withhold “vital” and “necessary” wares releasing them only at extortionate prices thinking only of their selfish greed for profits?

This argument is ridiculous because all trade and exchange relies upon the desires of the trading parties – whether it is for food, housing, cars, computers, or trips to the cinema. The entrepreneurs in business exist to fulfil and satisfy, not exploit these needs. If they are able to charge high prices it is only because the supply, relative to demand, is low and has to be rationed to those who value the goods the most.

This argument regarding exploitation usually surfaces today in one of two situations. The first is during sudden supply shocks or demand spikes that send prices soaring and allows suppliers to book large profits as they obviously paid for the inputs at earlier wholesale prices which were much lower. As these usually occur during times of emergency or crisis, aren’t the businesses exploiting the dire need of the consumers for such staples as water, canned food and fuel?

Such an argument ignores the fact that it is not the businesses driving the demand – it is other people who are willing to pay more to get their hands on the suddenly scarce items. The only options are to a) allow other entrants to be attracted into the marketplace by the higher prices, bringing with them more resources into the production of the scarce goods and thus lower their prices with an increased supply (thus solving the problem); or, b), to fix the prices of the wares below their market clearing level which would lead to guaranteed shortages as the existing supply is simply exhausted. Needless to say, government always opts for the latter.

The second situation that attracts criticism is when the entrepreneur is in the business of providing something “essential” such as energy or healthcare. Yet these businesses are almost always so cripplingly regulated and interfered with by the state that it is impossible to define them as anything approaching free markets.

Britain’s energy market is a case in point. Apart from the vast state bureaucracy that oversees the industry, idiosyncratic interferences such as threats by the government to either freeze or cap energy prices also take their toll upon consumers. One of the criticisms advanced is that firms fail to “pass on” any reduction of wholesale energy prices to consumers in the form of lower retail prices. But apart from the fact that the wholesale cost is not the only factor that suppliers have to consider when setting prices for their consumers, what are the chances of them offering lower retail prices now if they fear that the government will one day lock them into furnishing energy at these low tariffs in a future period when wholesale prices might be rising?

In contrast if you look to any industry that the state tends to leave alone you do not find the same vitriol hurled at the dominant suppliers. Up until now we have seen that supermarkets, although subjected to food standards regulations that no doubt have served to raise prices, have benefited from relatively less state interference. Apart from a few murmurings from food purists and activists promoting local supply and produce, inexpensive food has ensured that they have never been a serious political issue. However, should food prices ever begin to rise, could we expect the state to start poking its nose increasingly into the food industry and blaming the resulting shortages and disarray on “exploitation” by the big supermarkets?

Furthermore, if we follow the logic of the “exploitation” argument, we could also say that, given that trade is always a two-way process, the consumers “exploit” the need of businesses for money. These entities have suppliers and employees to pay and they are often desperate to get their hands on your cash. If some other business offers a lower price they could be left high and dry by your decision to shop elsewhere, threatening the employment and livelihoods of all of those people that work in the business you shun simply because you have the guile to find what you want for less! It is partly for this reason that the supply curve for consumer goods, once they are in stock, is generally vertical, with merchants willing to sell them for any price they can get simply to shift them and bring in at least some cash to meet their future outgoings.

In a genuine free market businesses can never exploit anyone or hold anyone to ransom. A consumer would have the power to take his custom elsewhere if the business failed to meet his needs at an agreeable price. Although businesses as a whole set prices for consumer products and wages, no individual business can do so and each one must be prepared to sell goods for, at most, as much as the next business, and to pay wages at least as high. These boundaries can be crippling if the selling prices are lower or insubstantially higher than the costs that the business must bear. Businesses, unprotected by government privilege, therefore have to be on their toes constantly in case someone comes along with a better offer. The beneficiary of this process is the consumer-employee, who always knows he is paying the lowest price for what he buys and receives the highest wage for his work that can ever be paid.

[First published on Free Life]

One of the elements of a capitalist system that induces purple-faced rage amongst statists and progressives is the existence of profit. This residual – the amount left over once an entity has deducted its costs from its revenue – is said to line the pockets of greedy shareholders while exploiting labourers and consumers.

First, it is important to understand what we mean and what we do not mean by “profit”. Here we will be discussing only profits that an entity may earn purely as a result of voluntary trade and free exchange; we do not mean those “accounting” profits that companies may rake in as a result of favourable state regulations, direct subsidy from the state, or any other kind of residual of a trade relationship based upon force. These profits – including bank bailouts and stimulus funding – are rightly to be condemned as unjust and immoral, sustaining the power base of the incompetent, wealthy elite at the expense of everyone else. But such a condemnation must not be allowed to throw out a very precious baby with repulsively filthy bathwater – for profit is one of the most vital elements that gives life to an economic system that relies upon the division of labour.

For the praxeologist profit is, of course, endemic in any human action and not just those based upon monetary calculation. All actions seek to produce better circumstances than those that would prevail if the action had not occurred. For instance, I “profit” from making a ham sandwich for lunch and satisfying my hunger instead of languishing with an empty stomach. All humans in everything they do seek this kind of psychic profit – making more money than before is only one possible form that profit takes, rather than its definition.

Strictly speaking, therefore, any condemnation of profit would be a performative contradiction as, in the mind of the critic, the satisfaction of disseminating a condemnation of profit would be a better circumstance than not having done so. Although such a technical, theoretical argument is unlikely to appeal to the mass of lay persons who view profits as evil and unjust, it is important to understand these roots of the concept for here we can see the importance of the profit motive – the stimulus for engaging in enterprise in the first place. Without the possibility of earning profit – i.e. a better circumstance than that which prevailed before – no entrepreneur or inventor would ever bother developing and bringing to market all of the wonderful products that make our standard of living so high.

Abandoning for a moment our commitment to wertfrei economics and embracing the belief that anything that benefits the consumer or labourer is “good” while anything that harms him is “bad”, let us examine two or three specific, recurring myths concerning the concept of profit.

First, let us deal with the allegation that businesses are “fleecing” consumers and workers by overcharging for their products and underpaying wages in order to line the pockets of the fat cats. Profits are not, in fact, achieved by “fleecing” anybody. The amount of profit is only ever determinable in retrospect after all of the consumers have purchased their wares and all of the workers have been paid their wages. At the time that the consumers bought the products and the workers negotiated their terms of employment nobody knew what the profit was going to be. Indeed, nobody knew whether there would be any profit at all and whether the business was heading for a loss. Employers do, of course, have an aim for profitability and their initial calculations may form the motivation to engage in a particular enterprise as well as determining the boundaries of their productive action. However, what they cannot do is to force the outcome to agree to their projections. Rather, they must be prepared to be the highest bidder for inputs and the lowest seller for outputs in order to ensure that they can purchase resources on the one hand and then sell the resulting products on the other. This process is fraught with uncertainty, and a certain line of production which may, hitherto, have been profitable may find itself in a sudden state of generating losses. All it may take for this to occur is a marginal increase in costs as a result of competing entrepreneurs bidding away resources to other uses, coupled with no corresponding increase in sales; or, consumer tastes may change and competing products and services become more attractive options.

Therefore, it is difficult to understand how someone feels “fleeced” at the time they purchased a product or took on a job when no one, at that time, has any idea whether the prices and wages paid were contributing to either a profit or a loss. Indeed, if a firm is cheating and stealing from consumers and workers when it ends up with a profit then isn’t it also the case that, if the firm ends up with a loss, the consumers and workers have fleeced the firm? Have they not “underpaid” for its products? Should the firm be able to go back to a customer who may have purchased an item, say, six months ago and take more from him to wipe out the deficit? And let us not forget that we aren’t just talking about big, multinational corporations – it could be the dishevelled, middle aged man struggling to make ends meet through his little corner shop. Aren’t the greedy, heartless consumers exploiting this poor fellow by demanding the lowest possible price for what they want and leaving him with nothing?

Instead of this all of this claptrap, the truth is that profits benefit the worker because they a) provide a fund that permits the worker to be paid before the product is sold so he does not have to wait for his money; and b) consequently serve to insulate him from the risk of loss as he can keep his previously paid wage regardless of the ultimate success of the firm. Profits benefit the consumer by ensuring that scarce productive resources are devoted to their most highly valued ends – industries and production lines where profits are abnormally low will have resources reduced and redirected to areas where they are abnormally high, thus decreasing supply in the former and increasing it in the latter. Ironically, the combined action of entrepreneurs has the ultimate effect of eliminating all profit by balancing resources throughout the economy. It is only because consumers’ tastes and preferences are constantly changing that profit opportunities continue to exist and the deployment of resources must be assessed repetitively and altered accordingly. Ultimately, therefore, it is the consumer who is responsible for the existence of profit, not the capitalist-entrepreneur.

Second, even if one accepts the necessity of profit for ensuring the correct deployment of resources, what of the allegation that profits are used to “extract” money from the industry to pay shareholders – money that would otherwise be invested back in the business? In other words, that profits line the pockets of the capitalists at the expense of workers and consumers.

This is, of course, complete nonsense. In the first place, profits are the source of funds that enable capitalist-entrepreneurs to invest in further capital equipment, job creation and expand the business, thus increasing supply and lowering prices. To the extent that it is worthwhile to do so then profits will be invested back into the business that generated them. If, on the other hand, a distribution is made to owners or shareholders in the form of dividends or share buybacks it is because the entity has already invested in the business to the extent that is economically viable and any further expansion would, in fact, be wasteful. While the firm may retain some additional earnings as a buffer in anticipation of a poor performing year or for some other kind of insurance, masses of retained earnings are otherwise wasted by lying around in corporate bank accounts. It is better to distribute those funds to the shareholders so that they can be reinvested in other productive enterprises that are still in need of investment. Thus the consumer is benefited by this fresh investment in other products and services that ensures that the supply of these can also be increased and their prices lowered.

This leads us onto our final myth which is that profits exist only in a capitalist system and would otherwise be wiped out if we adopted some kind of socialisation or nationalisation of industry. Profits would not, in fact, disappear in the latter types of economic management. Regardless of the specific economic system adopted, if there is to be any economic progress whatsoever then there must be a surplus of production over consumption. There has to be an excess of funds which can be invested in creating more capital goods that expand production – there is simply no other way. In a socialised economy this surplus must come either from an excess of business revenue over business costs (as in a capitalist economy) or it must come from general taxation (either directly or from borrowing/printing money). If it comes from the former then consumers would still be paying more than costs for the product and workers would still be paid less than revenue for their labour. If the surplus comes from taxation then, obviously, everyone is fleeced in order to prop up inefficient and failing industries. Moreover, as we mentioned earlier, this surplus from a prior round of production must still exist if the workers want to be paid in advance of the products produced today being sold. It is precisely because labourers desire this speedy payment and to be insulated from the risks of business failure that the wage system flourished. All in all, socialisation or any kind of other state control over industry does not eliminate profit – it simply changes the people who have it. Ironically, it is actually a capitalist system that gives ordinary workers and consumers the opportunity to partake in the profit making process by doing something as simple as depositing some money in a savings account which will earn interest by being lent out to productive enterprises. In a socialist system, however, which is devoid of capital markets and all proceeds of production are claimed by the state this opportunity would not exist.

Far from being the embodiment of all evil and exploitation, therefore, profit is, in fact, the very life blood of the economy – lifeblood that is required in any economic system if it is to invest more capital goods, create more jobs and, ultimately, more wealth that enables more products to be produced at lower and lower prices that we can all afford.

The Christmas shopping period – one of the busiest in the year for the retail industry – has begun with a starter pistol on so-called “Black Friday”, with the culmination due in the January sales. The period of celebration, feasting and gift-giving is critical to the annual revenue and profits of hundreds of consumer-facing industries, with the volume of spending increasing by more than 50% according to some estimates.

Against all of this is the charge that capitalism has served to distort and destroy the older traditions and practices of the holiday season. What was once a period of religious observance and a time for more modest celebrations with one’s friends and family has mutated into a mass shopping frenzy in which people care more about what they can buy rather than the meaning and significance of Christmas. Greedy retailers encourage us to spend increasing amounts of money on clothes, furniture, electronics, and entertainment that most of us probably do not need. We guzzle with merriment on tons of sugary and fattening food and alcohol, expanding our waistlines through a myriad of parties and get-togethers. Once we have stuffed ourselves silly, we then “invest” in our new year’s resolutions by forking out on so-called “detox” and exercise regimens, driving money to many of the same peddlers who made us fat in the first place.

Indeed, there can be little doubt that this “consumerism” has changed the traditions of the winter period in the past few generations, as retailers attempt to fill the long void between the end of summer and December 25th. Advent was previously a time of preparation and observance, during which the last of the harvest foods were gathered and preserved ready for the long winter ahead. Christmas, on the other hand, was the beginning of period of feasting and celebration that brought cheer and merriment to the cold, dark winter days which lasted until the arrival of Lent in mid to late February. With the evenings then growing lighter and the temperature warmer, the inducement to “give up” after the previous period of luxuriant consumption was altogether easier.

Today, however, the period of celebration – parties, get-togethers and splashing out – has shifted to December, culminating, rather than commencing, on Christmas Day. Once we have all had our fill of turkey, there is little more to look forward to other than new year’s celebrations, after which – at the darkest, deadest and least conducive period of the year – we are expected to start afresh by lifting weights at the gym and slimming down. It is for this reason that Christmas seems to come earlier every year. Given that so much is now packed into just three or four weeks of what is often still late autumn weather, all of the planning and preparation spills into the earlier months – sometimes, to the discontent of many traditionalists. Indeed, it is possible to spot mince pies and Christmas crackers on supermarket shelves as early as September.

One may be tempted to suggest that Christmas spending this year may be somewhat muted given that we are enduring a cost of living crisis. This, however, could make the general aura of consumerism worse, given that desperate retailers will bend over backwards to attract more reticent consumers. The latter, for their part, may be more willing to dip into debt simply to achieve an expected level of enjoyment.

If we assume that this type of so-called consumerism is a bad thing and has, indeed, served to distort and ruin treasured seasonal traditions, can we say that this is a downside of the free market? That, having rescued us from a life characterised by mud huts and starvation, modern economies have made us all slaves to materialism with no regard for anything deeper or more meaningful? (We will ignore the fact that capitalism is also blamed for preserving poverty and destitution; critics of capitalism are seldom consistent in their indictments).

The proper retort to such a charge is that capitalism is, in fact, the very opposite of consumerism – or, rather, that consumerism is more likely to be an effect of an anti-capitalist economic order.

First, modern, free market economic orders are distinguished by the fact that, empirically, they have tended towards a higher accumulation of capital. In other words a relatively high percentage of current income is saved and invested in capital goods that will yield a higher production of consumer goods only at a later date.

Consumerism, however, is distinguished by people failing to save and invest, deciding instead to spend a relatively higher proportion of their current incomes on consumer goods. In the lexicon of economics, a capitalist society is one of low time preference and wealth accumulation; a consumerist society, on the other hand, is one of high time preference and wealth destruction. The worst case of consumerism – and one in which we partly live – is where people consume more than their current incomes on consumer goods by borrowing money.

It is true, of course, that capitalism creates the wherewithal to produce a higher number of consumer goods than any other economic order. Hence, those living in a capitalist society will tend to enjoy a higher absolute volume of consumption than those living in a non-capitalist society. However, the charge of anti-consumerism is nothing to do with this absolute volume of consumer goods that are purchased. Rather, the problem is the obsession with (and focus on) consumption at the expense of anything else. Indeed, consumerism, we might say, is a symptom of a previously capitalist-oriented society that has turned its efforts away from saving and capital accumulation and towards the consumption of everything that has thus far been produced – possibly including the consumption of accumulated capital.

From where does the inducement to this consumerism come? It is true, of course, that nothing about capitalism serves categorically to prevent people from turning towards a desire for excessive consumption; but neither, too, is there anything to encourage it. To the extent, therefore, that the phenomenon is widespread there must be some kind of systemic influence towards consumerism other than anything to do with capitalism itself.

This systemic influence is the very opposite of capitalism, or rather, we might say, perversions of capitalist orders – the false economic theories and destructive economic practices of the state. These false economic theories – such as varieties of Keynesianism – promote consumption as the foundation of economic growth, whereas abstinence from consumption and saving are painted as cumulatively destructive practices.

National accounting figures do little more than present the economy as one, giant number which, if rising, represents a good state of affairs and, if falling, represents a perilous state of affairs. These, however, have inbuilt consumption biases which give the illusion that consumption leads to prosperity.

For instance, a large portion of so-called Gross Domestic Product (GDP) consists of both consumption spending and government spending (the latter of which, by its nature, is always consumption spending). Boost these figures and up goes the standard of living, so we are told. Moreover, the obsession with avoiding any kind of “double counting” means that a significant proportion of what is truly the gross annual product – such as investment in early stage capital goods – are simply discounted, further inflating the importance of consumption spending.

Because of this it is possible to have prosperous GDP figures, “moderate” interest rates and what appears to be relatively low price inflation all serving to mask underlying economic distortions. Such was the case in the period leading up to the 2008 financial crisis. These financial crises are themselves, of course, the result of destructive economic practices induced by the state, such as the forced lowering of interest rates and the expansion of the volume of credit. Such acts cause the ill-fated boom phase of the business cycle, but they also encourage our main bugbear of consumerism. When people see their nominal wages and asset prices rising rapidly – something that would not happen in a genuine free market distinguished by increasing real wages – they believe that they are wealthier than they actually are. The result is that they are duped into thinking that they have a greater proportion of their incomes available for consumption spending. If boosting their spending on consumer goods was not bad enough, however, they even begin to secure loans and borrowings against the rising value of their assets in order to further fuel increased consumption.

Indeed, credit expansion in and of itself encourages a debt fuelled society. Apart from actually creating the money to be loaned out, the accompanying price inflation makes debt finance more attractive than funding expenditure out of savings. The illusion that money is cheap, that everything can be bought now, and that we needn’t bother with either prudence or patience simply exacerbates the high time preference, consumerist society.

As we mentioned earlier, nothing about a free society will ever prevent people from becoming consumerist in the same was that it doesn’t stop people from becoming drug users or prostitutes (or from engaging in other non-aggressive but otherwise illicit activities). However, we can make a case for saying that such acts are always likely to be more prevalent in the kind of high time preference society that the state encourages. A high incidence of drug use and prostitution, for example, indicates that people prefer a “quick fix” now and are not willing to wait for good feelings and pleasurable experiences to culminate as a result of longer or more difficult (but ultimately more rewarding) endeavours such as exercise and building strong relationships. Given that wealth in a free society accumulates to those who best serve the needs of consumers, the qualities needed for the fulfilment of that objective are likely to become prevalent. Thus, relatively conservative virtues such as patience, prudence, trustworthiness, reliability, good taste and judgment, are likely to be the hallmarks of a capitalist society rather than substance abuse and casual sex.

If, therefore, consumerism is to be deplored we should focus our ire not at the capitalist system that simply permits us to enjoy the Christmas period however we want (and, moreover, creates the wherewithal for us to do so – plump roast turkeys on almost every dining table is a relatively new phenomenon). Instead, we should direct it at the state whose false prophets and destructive practices turn us from a society of wealth creators to one of wealth destroyers.

Browsing through a single day’s worth of articles on the libertarian website lewrockwell.com is enough to confront one with a smorgasbord of despair:

The website – amongst the best read of all libertarian websites in the world – is almost unique in its unfailing commitment to draw attention to many of these important aspects. But it is difficult to quell a swelling of pessimism when faced with this kind of line up.

Nevertheless, it is vital not to lose optimism in the face of such adversity. And while it may seem that the noose of retrogression into tyranny and oppression is tightening its stranglehold on the average citizen, there are several key reasons for us to remain optimistic.

The first is that – in spite of the increased efforts of censorship and “cancel culture” – it is far easier to disseminate alternative ideas and information today than it was just a generation ago. True enough, the dominance of “big tech” and traditional media outlets may mean that such ideas seldom come to the direct attention of the masses. But they can can be obtained within seconds from any corner of the globe by those who are prepared to look for them.

We must remember, of course, that technological development is not the be all and end all. After all, digitisation and instant communication in particular are in the process of being deployed in the service of regimentation and control as much as freedom. Moreover, a specific problem with the internet is that people can go looking for the answers they want rather than for the truth. Ultimately, whether technology is beneficial depends upon whether the people that use it are motivated towards good or towards ill.

Nevertheless, now that it is out of the bag, it is unlikely that the relative increase in the freedom of information will ever be brought entirely back under the thumb of the establishment/mainstream in quite the same way as it was before. Indeed, the very reason that the state and its big tech minions have had to resort to beavering efforts at censorship is because the truth is now something that they are struggling to keep a lid on. In fact, these efforts often have the opposite effect from that intended. For instance, anything debunked by a comical “fact checker” is fast becoming a marker for something that the state doesn’t want you to know.

The second and more important reason, however, is that – in spite of an accelerating cost of living crisis – we are still enjoying an extraordinarily high standard of living. In spite of the plunder and pillage of more than a century of marching statism, we are clearly not living in the Stone Age. Indeed, it is reasonable to characterise the relative descent of Western civilisation as being one into a state of “luxury barbarism” – cultural and spiritual depravity in a milieu of relative, material prosperity.

The achievement of this level of prosperity is unique in human history. Whereas pre-industrial generations could only accept their meagre lot in life, it is difficult to comprehend how this attitude could be repeated today. For the average Western citizen in 2022 lives far more luxuriantly than did a king of the Middle Ages. Not only is our time that of the PC, the iPhone, and other gadgets but also of such "humbler" wonders such as cars, refrigerators, supermarkets stacked full of food, clothes shops, and an almost endless array of products that can be bought from some outlet somewhere for a relatively modest (if now increasing) price. Critically, however, these items are not viewed as luxuries. Rather, they appear to us almost as a phenomenon of nature, a given. Indeed, the common suggestion that people should have “rights” to food, housing, healthcare, clean drinking water and so on is, however misguided, a demonstration of this attitude.

This standard of living requires the maintenance and growth of its underlying capital structure – all of the machines, tools and factories that are used to produce everything that we want to a buy at a high enough volume to make them affordable. As we know from "Austrian" economics, this structure can be produced and nurtured only under a regime of private property and free exchange. In spite of an assault from all sides, both practically and ideologically, it is because this order has remained relatively intact that its productive tendency has often been able to mask much of the statist rot. During the 1920s, for instance, productivity was so high that prices still managed to decline in the face of excessive increases of the money supply. And even today the fact that the world still holds together suggests that capitalism and freedom are, for the most part, still working as best as they can.

The upshot of this is that the elites’ room to manoeuvre in effecting grand, societal transformations towards some kind of different order may be altogether rather limited.

For one thing, it is doubtful that building and maintaining the infrastructure required to run their own digital gulag could be accomplished without leaving the productive capacity of the economy relatively intact.

Second, their own standards of living are now dependent on goods and services which, in turn, rely on a high degree of capital accumulation stretching back through many stages of production. Corporate jets aren’t assembled out of nowhere (Leonard Read’s I, Pencil shows how even the simplest of goods relies upon a fiendishly complex chain of production). It cannot simply be the case that they could achieve a transition to a more centrally controlled economy while guaranteeing that their own luxuries would remain easily available. Indeed, one of the reasons why socialism has always been born out of capitalism is because it is only when free individuals are able to become so productive that the state has a source of wealth for it to confiscate. Once that wealth runs out, even the state’s apparatchiks can become disillusioned with the system.

And finally, when people have become accustomed to living as they do, then it is difficult for the power hungry to tread a path that would severely diminish that standard of living. This does not mean to say that such a policy will be not be pursued, nor does it suggest that people will not clamour to the existing elites for “solutions”. But it is an extremely risky path to tread, not because people will necessarily storm the parliament buildings with pitchforks and torches, but because it makes people receptive to other ideas that could solve the problem. As such, the elite control over the narrative becomes vulnerable, particular if people are willing to search for other answers. Indeed, we have seen this happen twice already before the present crises even got going: with the vote for Brexit and the election of Donald Trump as US President.[1]

In fact, it is each of these events that likely led to elite panic, waking them up to the fact that they are not as in control as they thought they were. There is no reason why, as things get worse, these kinds of victory cannot be repeated. It may be the case that these elites have a stranglehold over the top echelons of government, industry and commerce so as to ossify the official business of public policy making. But in the long run, every regime, at any time and place, cannot survive without at least the passive acceptance of the majority of the population it claims to rule.

For this reason, therefore, I remain a relative, if cautious, optimist for the cause of freedom and prosperity in the long term. Cautious because, even though any plans for global socialism will not succeed in the long run, the attempt to make them work can cause a terrifying amount of damage in its own right. But I am optimistic in that the capitalistic structure of the Western world is still mostly all there, and that - fingers crossed - our "leaders" will be forced to abandon plans for any radical transformation long before any major collapse.

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Notes

[1] Such a search is not limited to alternative economic ideas. It is quite possible that the entirety of secular liberalism will be brought into question, prompting something of a religious or spiritual revival. Indeed, such a revival may be essential to secure a firmer foundation towards the rejuvenation of a freer world.

When perusing much public discourse concerning those in government and those who, say, are businessmen and entrepreneurs, one of the more striking aspects is how their economic roles and motivations are viewed as the complete opposite for what they really are.

Even though their achievements may, from time to time, be lauded, the businessman, entrepreneur or capitalist is almost universally despised for what appear to be his motives of greed, selfishness and exploitation. Central to this is the profit-motive, a factor that seems to receive exclusive attention at the expense of any other. Yes, it is true that people are in business to make money, usually as much of it as possible. But this completely overlooks the fact that no businessman, in a genuinely free market, is in a position to force anyone to contribute to his income. He can earn a return on his investment only if he is able to devote, with accuracy, the scarce resources available to the most highly valued ends of consumers. Even if he is devoid of any charitable motivation or any emotive feeling towards the people whom he serves, at the very least he is required to have a superior empathetic understanding of their tastes and desires. If he fails in this regard then the result is not a bumper profit but an eye-watering loss. In a free market, all transactions between businesses, their customers and their employees are entirely voluntary. People enter voluntary transactions because they expect to be better off as a result of them. Nobody is therefore put into a worse position through his interaction with a business, or at least they do not expect to be.

Counter this with the view of the politician. Perusing any list of supposed motivations for state office, one would think that only those with an angelic disposition need apply. Not only are they expected to be selfless and altruistic, thinking only of their "people" and of their "nation", they are also supposed to be utterly devoid of any kind of personal ambition. Asked whether he/she has any eye for high office, one is normally rebuffed with the rhetoric of “public service” and the apparent fact that the budding statesman is just there to “do his job”. In short, the implication is that government employment produces universally good and wonderful things that apparently require some kind of sacrifice for which there is very little reward. [1]

Nothing could be farther from the truth. The state receives its revenue from taxation, and taxes are paid compulsorily. Whereas the entrepreneur has to risk the entirety of his wealth in order to persuade his consumers that what he produces is a worth the price he asks, a politician faces no such restraint. They can charge as much as they like, deliver services that are despicably dire while commanding a personal income that often exceeds what they, personally, would be able to obtain on the free market. Furthermore, because the funds for all of their boondoggles have been levied by the threat of force, there is a very real loss experienced by the taxpayers, even if the resulting service seems relatively "good" in the abstract. For none of them would need to be forced to pay up if the state’s services were truly what people wanted to purchase with their money. Whereas an entrepreneur makes everyone – himself and his customers – better off, the politician only makes himself and the recipients of his tax loot better off. Those who have been forced to pay are left substantially worse off.

The failure to appreciate how entrepreneurs make everyone better off often reveals itself in the debates concerning taxes and tax avoidance. The wealthy and successful, by definition, will have raked in large revenues and profits that somehow requires them to “give something back” to “society”. Yet what is forgotten is that they have only been able to obtain these revenues and profits because they have created employment opportunities, and served the needs of customers by providing them with products that they want to buy. Yet for some reason we think it is just for us to charge them for this “privilege” of serving our needs. Further, is there not something incongruous about the whole rhetoric of “giving back”? If I wish to purchase a coffee from a café then I give them the money and they give me coffee; the café has already given in the form of a product that meets my needs. If the café has to “give back” some of its profit in taxation then why don’t I have to “give back” their coffee?

A related fallacy is that anyone who “owns resources” (i.e. land and capital goods) effectively just has to sit back and earn a perpetual income by virtue of this ownership. Although space precludes a detailed examination of the economics, a net return can only be earned from such ownership if the good is directed to a use more highly valued than that anticipated by other entrepreneurs. Failure to do this will simply result in losses. Try telling the former owners of Blockbuster or Woolworths that ownership of resources is a path to perpetual wealth and income. If anything, it is the government that yields a perpetual income from resources. For it can confiscate anything it wants by force, and display zero entrepreneurial talent with its use by spending it on any wasteful project it deems desirable to itself and its cronies. The only say we have in the matter is an “election” between approved and screened candidates once every four to five years.

It is true of course that, today, many of the largest corporations and businesses are in bed with the state, leading to a distinct merger between the political and the private sphere that tends to degrade our opinions of the latter. Indeed, many private billionaires and CEOs of large firms are likely to owe their wealth at least as much to their political skill as to their entrepreneurial efforts. But that makes it all the more important for us to state that the fulfilment of corporate greed through the state is not emblematic of a truly free market system. In the latter, it is the entrepreneurs, not the politicians, who are the true public servants.

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Notes

[1] It is true, of course, that our current crop of politicians are not exactly beloved. It is still the case, however, that the qualities we mentioned are attributable, in principle, to public office.