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Marxist & Austrian Class Analysis   1 comment


September 7, 2017

[From Chapter 4 of The Economics and Ethics of Private Property by Hans-Hermann Hoppe.]

I will do the following in this chapter: First, I will present a series of theses that constitute the hard-core of the Marxist theory of history. I claim that all of them are essentially correct. Then I will show how these true theses are derived in Marxism from a false starting point. Finally, I want to demonstrate how Austrianism in the Mises-Rothbard tradition can give a correct but categorically different explanation of their validity.

Let me begin with the hard-core of the Marxist belief system:1

(1) “The history of mankind is the history of class struggles.”2 It is the history of struggles between a relatively small ruling class and a larger class of the exploited. The primary form of exploitation is economic: The ruling class expropriates part of the productive output of the exploited or, as Marxists say, “it appropriates a social surplus product and uses it for its own consumptive purposes.”

(2) The ruling class is unified by its common interest in upholding its exploitative position and maximizing its exploitatively appropriated surplus product. It never deliberately gives up power or exploitation income. Instead, any loss in power or income must be wrestled away from it through struggles, whose outcome ultimately depends on the class consciousness of the exploited, i.e., on whether or not and to what extent the exploited are aware of their own status and are consciously united with other class members in common opposition to exploitation.

(3) Class rule manifests itself primarily in specific arrangements regarding the assignment of property rights or, in Marxist terminology, in specific “relations of production.” In order to protect these arrangements or production relations, the ruling class forms and is in command of the state as the apparatus of compulsion and coercion. The state enforces and helps reproduce a given class structure through the administration of a system of “class justice,” and it assists in the creation and the support of an ideological superstructure designed to lend legitimacy to the existence of class rule.

(4) Internally, the process of competition within the ruling class generates a tendency toward increasing concentration and centralization. A multipolar system of exploitation is gradually supplanted by an oligarchic or monopolistic one. Fewer and fewer exploitation centers remain in operation, and those that do are increasingly integrated into a hierarchical order. Externally (i.e., as regards the international system), this centralization process will (and all the more intensively the more advanced it is) lead to imperialist interstate wars and the territorial expansion of exploitative rule.

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(5) Finally, with the centralization and expansion of exploitative rule gradually approaching its ultimate limit of world domination, class rule will increasingly become incompatible with the further development and improvement of “productive forces.” Economic stagnation and crises become more and more characteristic and create the “objective conditions” for the emergence of a revolutionary class consciousness of the exploited. The situation becomes ripe 3 and, as its result, unheard-of economic prosperity.

All of these theses can be given a perfectly good justification, as I will show. Unfortunately, however, it is Marxism, which subscribes to all of them, that has done more than any other ideological system to discredit their validity in deriving them from a patently absurd exploitation theory.

What is this Marxist theory of exploitation? According to Marx, such precapitalist social systems as slavery and feudalism are characterized by exploitation. There is no quarrel with this. For after all, the slave is not a free laborer, and he cannot be said to gain from his being enslaved. Rather, in being enslaved his utility is reduced at the expense of an increase in wealth appropriated by the slave master. The interest of the slave and that of the slave owner are indeed antagonistic. The same is true as regards the interests of the feudal lord who extracts a land rent from a peasant who works on land homesteaded by himself (i.e., the peasant). The lord’s gains are the peasant’s losses. It is also undisputed that slavery as well as feudalism indeed hamper the development of productive forces. Neither slave nor serf will be as productive as they would be without slavery or serfdom.

The genuinely new Marxist idea is that essentially nothing is changed as regards exploitation under capitalism (if the slave becomes a free laborer), or if the peasant decides to farm land homesteaded by someone else and pays rent in exchange for doing so. To be sure, Marx, in the famous chapter 24 of the first volume of his Kapital, titled “The So-called Original Accumulation,” gives a historical account of the emergence of capitalism which makes the point that much or even most of the initial capitalist property is the result of plunder, enclosure, and conquest. Similarly, in chapter 25, on the “Modern Theory of Colonialism,” the role of force and violence in exporting capitalism to the, as we would nowadays say, Third World is heavily emphasized. Admittedly, all this is generally correct, and insofar as it is there can be no quarrel with labeling such capitalism exploitative. Yet one should be aware of the fact that here Marx is engaged in a trick. In engaging in historical investigations and arousing the reader’s indignation regarding the brutalities underlying the formation of many capitalist fortunes, he actually side-steps the issue at hand. He distracts from the fact that his thesis is really an entirely different one: namely, that even if one were to have “clean” capitalism so to speak (one in which the original appropriation of capital were the result of nothing else but homesteading), work and savings, the capitalist who hired labor to be employed with this capital would nonetheless be engaged in exploitation. Indeed, Marx considered the proof of this thesis his most important contribution to economic analysis.

What, then, is his proof of the exploitative character of a clean capitalism?

It consists in the observation that the factor prices, in particular the wages paid to laborers by the capitalist, are lower than the output prices. The laborer, for instance, is paid a wage that represents consumption goods which can be produced in three days, but he actually works five days for his wage and produces an output of consumption goods that exceeds what he receives as remuneration. The output of the two extra days, the surplus value in Marxist terminology, is appropriated by the capitalist. Hence, according to Marx, there is exploitation.4

What is wrong with this analysis?5 The answer becomes obvious, once it is asked why the laborer would possibly agree to such a deal! He agrees because his wage payment represents present goods — while his own labor services represent only future goods — and he values present goods more highly. After all, he could also decide not to sell his labor services to the capitalist and then map the full value of his output himself. But this would of course imply that he would have to wait longer for any consumption goods to become available to him. In selling his labor services he demonstrates that he prefers a smaller amount of consumption goods now over a possibly larger one at some future date. On the other hand, why would the capitalist want to strike a deal with the laborer? Why would he want to advance present goods (money) to the laborer in exchange for services that bear fruit only later? Obviously, he would not want to pay out, for instance, $100 now if he were to receive the same amount in one year’s time. In that case, why not simply hold on to it for one year and receive the extra benefit of having actual command over it during the entire time? Instead, he must expect to receive a larger sum than $100 in the future in order to give up $100 now in the form of wages paid to the laborer. He must expect to be able to earn a profit, or more correctly an interest return. He is also constrained by time preference, i.e., the fact that an actor invariably prefers earlier over later goods, in yet another way. For if one can obtain a larger sum in the future by sacrificing a smaller one in the present, why then is the capitalist not engaged in more saving than he actually is? Why does he not hire more laborers than he does, if each one of them promises an additional interest return? The answer again should be obvious: because the capitalist is a consumer, as well, and cannot help being one. The amount of his savings and investing is restricted by the necessity that he, too, like the laborer, requires a supply of present goods “large enough to secure the satisfaction of all those wants the satisfaction of which during the waiting time is considered more urgent than the advantages which a still greater lengthening of the period of production would provide.”6

What is wrong with Marx’s theory of exploitation, then, is that he does not understand the phenomenon of time preference as a universal category of human action.7 That the laborer does not receive his “full worth” has nothing to do with exploitation but merely reflects the fact that it is impossible for man to exchange future goods against present ones except at a discount. Contrary to the case of slave and slave master where the latter benefits at the expense of the former, the relationship between the free laborer and the capitalist is a mutually beneficial one. The laborer enters the agreement because, given his time preference, he prefers a smaller amount of present goods over a larger future one; and the capitalist enters it because, given his time preference, he has a reverse preference order and ranks a larger future amount of goods more highly than a smaller present one. Their interests are not antagonistic but harmonious. Without the capitalist’s expectation of an interest return, the laborer would be worse off having to wait longer than he wishes to wait; and without the laborer’s preference for present goods the capitalist would be worse off having to resort to less roundabout and less efficient production methods than those which he desires to adopt. Nor can the capitalist wage system be regarded as an impediment to the further development of the forces of production, as Marx claims. If the laborer were not permitted to sell his labor services and the capitalist to buy them, output would not be higher but lower, because production would have to take place with relatively reduced levels of capital accumulation.

Under a system of socialized production, quite contrary to Marx’s proclamations, the development of productive forces would not reach new heights but would instead sink dramatically.8 For obviously, capital accumulation must be brought about by definite individuals at definite points in time and space through homesteading, producing and/or saving. In each case it is brought about with the expectation that it will lead to an increase in the output of future goods. The value an actor attaches to his capital reflects the value he attaches to all expected future incomes attributable to its cooperation and discounted by his rate of time preference. If, as in the case of collectively owned factors of production, an actor is no longer granted exclusive control over his accumulated capital and hence over the future income to be derived from its employment, but partial control instead is assigned to nonhomesteaders, nonproducers, and nonsavers, the value for him of the expected income and hence that of the capital goods is reduced. His effective rate of time preference will rise and there will be less homesteading of scarce resources, and less saving for the maintenance of existing resources and the production of new capital goods. The period of production, the roundaboutness of the production structure, will be shortened, and relative impoverishment will result.

If Marx’s theory of capitalist exploitation and his ideas on how to end exploitation and establish universal prosperity are false to the point of being ridiculous, it is clear that any theory of history which can be derived from it must be false, too. Or if it should be correct, it must have been derived incorrectly. Instead of going through the lengthier task of explaining all of the flaws in the Marxist argument as it sets out from its theory of capitalist exploitation and ends with the theory of history which I presented earlier, I will take a shortcut here. I will now outline in the briefest possible way the correct — Austrian, Misesian-Rothbardian — theory of exploitation; give an explanatory sketch of how this theory makes sense out of the class theory of history; and highlight along the way some key differences between this class theory and the Marxist one and also point out some intellectual affinities between Austrianism and Marxism stemming from their common conviction that there does indeed exist something like exploitation and a ruling class.9

The starting point for the Austrian exploitation theory is plain and simple, as it should be. Actually, it has already been established through the analysis of the Marxist theory: Exploitation characterized the relationship between slave and slave master and serf and feudal lord. But no exploitation was found possible under a clean capitalism. What is the principle difference between these two cases? The answer is: the recognition or nonrecognition of the homesteading principle. The peasant under feudalism is exploited because he does not have exclusive control over land that he homesteaded, and the slave because he has no exclusive control over his own homesteaded body. If, contrary to this, everyone has exclusive control over his own body (is a free laborer, that is) and acts in accordance with the homesteading principle, there can be no exploitation. It is logically absurd to claim that a person who homesteads goods not previously homesteaded by anybody else, or who employs such goods in the production of future goods, or who saves presently homesteaded or produced goods in order to increase the future supply of goods, could thereby exploit anybody. Nothing has been taken away from anybody in this process and additional goods have actually been created. And it would be equally absurd to claim that an agreement between different homesteaders, savers and producers regarding their nonexploitatively appropriated goods or services could possibly contain any foul play, then. Instead, exploitation takes place whenever any deviation from the homesteading principle occurs. It is exploitation whenever a person successfully claims partial or full control over scarce resources which he has not homesteaded, saved or produced, and which he has not acquired contractually from a previous producer-owner. Exploitation is the expropriation of homesteaders, producers and savers by late-coming nonhomesteaders, nonproducers, nonsavers and noncontractors; it is the expropriation of people whose property claims are grounded in work and contract by people whose claims are derived from thin air and who disregard others’ work and contracts.10

Needless to say, exploitation thus defined is in fact an integral part of human history. One can acquire and increase wealth either through homesteading, producing, saving, or contracting, or by expropriating homesteaders, producers, savers or contractors. There are no other ways. Both methods are natural to mankind. Alongside homesteading, producing and contracting, there have always been nonproductive and noncontractual property acquisitions. And in the course of economic development, just as producers and contractors can form firms, enterprises and corporations, so can exploiters combine to large-scale exploitation enterprises, governments and states. The ruling class (which may again be internally stratified) is initially composed of the members of such an exploitation firm. And with a ruling class established over a given territory and engaged in the expropriation of economic resources from a class of exploited producers, the center of all history indeed becomes the struggle between exploiters and the exploited. History, then, correctly told, is essentially the history of the victories and defeats of the rulers in their attempt to maximize exploitatively appropriated income and of the ruled in their attempts to resist and reverse this tendency. It is in this assessment of history that Austrians and Marxists agree, and it is why a notable intellectual affinity between Austrian and Marxist historical investigations exists. Both oppose a historiography which recognizes only action or interaction, economically and morally all on a par; and both oppose a historiography that instead of adopting such a value-neutral stand thinks that one’s own arbitrarily introduced subjective value judgments have to provide the foil for one’s historical narratives. Rather, history must be told in terms of freedom and exploitation, parasitism and economic impoverishment, private property and its destruction — otherwise it is told false.11

While productive enterprises come into or go out of existence because of voluntary support or its absence, a ruling class never comes to power because there is a demand for it, nor does it abdicate when abdication is demonstrably demanded. One cannot say by any stretch of the imagination that homesteaders, producers, savers and contractors have demanded their expropriation. They must be coerced into accepting it, and this proves conclusively that the exploitation firm is not in demand at all. Nor can one say that a ruling class can be brought down by abstaining from transactions with it in the same way as one can bring down a productive enterprise. For the ruling class acquires its income through nonproductive and noncontractual transactions and thus is unaffected by boycotts. Rather, what makes the rise of an exploitation firm possible, and what alone can in turn bring it down is a specific state of public opinion or, in Marxist terminology, a specific state of class consciousness.

An exploiter creates victims, and victims are potential enemies. It is possible that this resistance can be lastingly broken down by force in the case of a group of men exploiting another group of roughly the same size. However, more than force is needed to expand exploitation over a population many times its own size. For this to happen, a firm must also have public support. A majority of the population must accept the exploitative actions as legitimate. This acceptance can range from active enthusiasm to passive resignation. But it must be acceptance in the sense that a majority must have given up the idea of actively or passively resisting any attempt to enforce nonproductive and noncontractual property acquisitions. The class consciousness must be low, undeveloped and fuzzy. Only as long as this state of affairs lasts is there still room for an exploitative firm to prosper even if no actual demand for it exists. Only if and insofar as the exploited and expropriated develop a clear idea of their own situation and are united with other members of their class through an ideological movement which gives expression to the idea of a classless society where all exploitation is abolished, can the power of the ruling class be broken. Only if, and insofar as, a majority of the exploited public becomes consciously integrated into such a movement and accordingly displays a common outrage over all nonproductive or noncontractual property acquisitions, shows a contempt for everyone who engages in such acts, and deliberately contributes nothing to help make them successful (not to mention actively trying to obstruct them), can its power be brought to crumble.

The gradual abolition of feudal and absolutist rule and the rise of increasingly capitalist societies in Western Europe and the U.S., and along with this unheard-of economic growth and rising population numbers were the result of an increasing class consciousness among the exploited, who were ideologically molded together through the doctrines of natural rights and liberalism. In this Austrians and Marxists agree.12 They disagree, however, on the next assessment: The reversal of this liberalization process and steadily increased levels of exploitation in these societies since the last third of the nineteenth century, and particularly pronounced since WW I, are the result of a loss in class consciousness. In fact, in the Austrian view Marxism must accept much of the blame for this development by misdirecting attention from the correct exploitation model of the homesteader-producer-saver-contractor vs. the nonhomesteader-producer-saver-contractor to the fallacious model of the wage earner vs. the capitalist, thus muddling things up.13

The establishment of a ruling class over an exploited one many times its size by coercion and the manipulation of public opinion (i.e., a low degree of class consciousness among the exploited), finds its most basic institutional expression in the creation of a system of public law superimposed on private law. The ruling class sets itself apart and protects its position as a ruling class by adopting a constitution for their firm’s operations. On the one hand, by formalizing the internal operations within the state apparatus as well as its relations vis-à-vis the exploited population, a constitution creates some degree of legal stability. The more familiar and popular private law notions are incorporated into constitutional and public law, the more conducive this will be to the creation of favorable public opinion. On the other hand, any constitution and public law also formalizes the exemplary status of the ruling class as regards the homesteading principle. It formalizes the right of the state’s representatives to engage in nonproductive and noncontractual property acquisitions and the ultimate subordination of private to public law.

Class justice, i.e., a dualism of one set of laws for the rulers and another for the ruled, comes to bear in this dualism of public and private law and in the domination and infiltration of public law over and into private law. It is not because private-property rights are recognized by law, as Marxists think, that class justice is established. Rather, class justice comes into being precisely whenever a legal distinction exists between a class of persons acting under and being protected by public law and another class acting under and being protected instead by some subordinate private law. More specifically then, the basic proposition of the Marxist theory of the state in particular is false. The state is not exploitative because it protects the capitalists’ property rights, but because it itself is exempt from the restriction of having to acquire property productively and contractually.14

In spite of this fundamental misconception, however, Marxism, because it correctly interprets the state as exploitative (contrary, for instance, to the Public Choice School, which sees it as a normal firm among others),15 is on to some important insights regarding the logic of state operations. For one thing, it recognizes the strategic function of redistributionist state policies. As an exploitative firm, the state must at all times be interested in a low degree of class consciousness among the ruled. The redistribution of property and income — a policy of divide et impera — is the state’s means with which it can create divisiveness among the public and destroy the formation of a unifying class consciousness of the exploited. Furthermore, the redistribution of state power itself through democratizing the state constitution and opening up every ruling position to everyone and granting everyone the right to participate in the determination of state personnel and policy is a means for reducing the resistance against exploitation as such. Second, the state is indeed, as Marxists see it, the great center of ideological propaganda and mystification: Exploitation is really freedom; taxes are really voluntary contributions; noncontractual relations are really “conceptually” contractual ones; no one is ruled by anyone but we all rule ourselves; without the state neither law nor security would exist; and the poor would perish, etc. All of this is part of the ideological superstructure designed to legitimize an underlying basis of economic exploitation.16 And finally, Marxists are also correct in noticing the close association between the state and business, especially the banking elite — even though their explanation for it is faulty. The reason is not that the bourgeois establishment sees and supports the state as the guarantor of private property rights and contractualism. On the contrary, the establishment correctly perceives the state as the very antithesis to private property that it is and takes a close interest in it for this reason. The more successful a business, the larger the potential danger of governmental exploitation, but the larger also the potential gains that can be achieved if it can come under government’s special protection and is exempt from the full weight of capitalist competition. This is why the business establishment is interested in the state and its infiltration. The ruling elite in turn is interested in close cooperation with the business establishment because of its financial powers. In particular, the banking elite is of interest because as an exploitative firm the state naturally wishes to possess complete autonomy for counterfeiting.

By offering to cut the banking elite in on its own counterfeiting machinations and allowing them to counterfeit on top of its own counterfeited notes under a regime of fractional reserve banking, the state can easily reach this goal and establish a system of state monopolized money and cartelized banking controlled by the central bank. And through this direct counterfeiting connection with the banking system and by extension the banks’ major clients, the ruling class in fact extends far beyond the state apparatus to the very nerve centers of civil society — not that much different, at least in appearance, from the picture that Marxists like to paint of the cooperation between banking, business elites and the state.17

Competition within the ruling class and among different ruling classes brings about a tendency toward increasing concentration. Marxism is right in this. However, its faulty theory of exploitation again leads it to locate the cause for this tendency in the wrong place. Marxism sees such a tendency as inherent in capitalist competition. Yet it is precisely so long as people are engaged in a clean capitalism that competition is not a form of zero-sum interaction. The homesteader, the producer, saver and contractor do not gain at another’s expense. Their gains either leave another’s physical possessions completely unaffected or they actually imply mutual gains (as in the case of all contractual exchanges). Capitalism thus can account for increases in absolute wealth. But under its regime no systematic tendency toward relative concentration can be said to exist.18 Instead, zero-sum interactions characterize not only the relationship between the ruler and the ruled, but also between competing rulers. Exploitation defined as nonproductive and noncontractual property acquisitions is only possible as long as there is anything that can be appropriated. Yet if there were free competition in the business of exploitation, there would obviously be nothing left to expropriate. Thus, exploitation requires monopoly over some given territory and population; and the competition between exploiters is by its very nature eliminative and must bring about a tendency toward relative concentration of exploitative firms as well as a tendency toward centralization within each exploitative firm. The development of states rather than capitalist firms provides the foremost illustration of this tendency: There are now a significantly smaller number of states with exploitative control over much larger territories than in previous centuries. And within each state apparatus there has in fact been a constant tendency toward increasing the powers of the central government at the expense of its regional and local subdivisions. Yet outside the state apparatus a tendency toward relative concentration has also become apparent for the same reason. Not, as should be clear by now, because of any trait inherent in capitalism, but because the ruling class has expanded its rule into the midst of civil society through the creation of a state-banking-business alliance and in particular the establishment of a system of central banking. If a concentration and centralization of state power then takes place, it is only natural that this be accompanied by a parallel process of relative concentration and cartelization of banking and industry. Along with increased state powers, the associated banking and business establishment’s powers of eliminating or putting economic competitors at a disadvantage by means of nonproductive and/or noncontractual expropriations increases. Business concentration is the reflection of a “state-ization” of economic life.19

The primary means for the expansion of state power and the elimination of rival exploitation centers is war and military domination. Interstate competition implies a tendency toward war and imperialism. As centers of exploitation their interests are by nature antagonistic. Moreover, with each of them — internally — in command of the instrument of taxation and absolute counterfeiting powers, it is possible for the ruling classes to let others pay for their wars. Naturally, if one does not have to pay for one’s risky ventures oneself, but can force others to do so, one tends to be a greater risk taker and more trigger happy than one would otherwise be.20 Marxism, contrary to much of the so-called bourgeois social sciences, gets the facts right: there is indeed a tendency toward imperialism operative in history; and the foremost imperialist powers are indeed the most advanced capitalist nations. Yet the explanation is once again faulty. It is the state as an institution exempt from the capitalist rules of property acquisitions that is by nature aggressive. And the historical evidence of a close correlation between capitalism and imperialism only seemingly contradicts this. It finds its explanation, easily enough, in the fact that in order to come out successfully from interstate wars, a state must be in command of sufficient (in relative terms) economic resources. Ceteris paribus, the state with more ample resources will win. As an exploitative firm, a state is by nature destructive of wealth and capital accumulation. Wealth is produced exclusively by civil society; and the weaker the state’s exploitative powers, the more wealth and capital society accumulates. Thus, paradoxical as it may sound at first, the weaker or the more liberal a state is internally, the further developed capitalism is; a developed capitalist economy to extract from makes the state richer; and a richer state then makes for more and more successful expansionist wars. It is this relationship that explains why initially the states of Western Europe, and in particular Great Britain, were the leading imperialist powers, and why in the 20th century this role has been assumed by the U.S.

And a similarly straightforward yet once again entirely non-Marxist explanation exists for the observation always pointed out by Marxists, that the banking and business establishment is usually among the most ardent supporters of military strength and imperial expansionism. It is not because the expansion of capitalist markets requires exploitation, but because the expansion of state protected and privileged business requires that such protection be extended also to foreign countries and that foreign competitors be hampered through noncontractual and nonproductive property acquisitions in the same way or more so than internal competition. Specifically, it supports imperialism if this promises to lead to a position of military domination of one’s own allied state over another. For then, from a position of military strength, it becomes possible to establish a system of — as one may call it — monetary imperialism. The dominating state will use its superior power to enforce a policy of internationally coordinated inflation. Its own central bank sets the pace in the process of counterfeiting, and the central banks of the dominated states are ordered to use its currency as their own reserves and inflate on top of them. This way, along with the dominating state and as the earliest receivers of the counterfeit reserve currency its associated banking and business establishment can engage in an almost costless expropriation of foreign property owners and income producers. A double layer of exploitation of a foreign state and a foreign elite on top of a national state and elite is imposed on the exploited class in the dominated territories, causing prolonged economic dependency and relative economic stagnation vis-à-vis the dominant nation. It is this — very uncapitalist — situation that characterizes the status of the United States and the U.S. dollar and that gives rise to the — correct — charge of U.S. economic exploitation and dollar imperialism?21

Finally, the increasing concentration and centralization of exploitative powers leads to economic stagnation and thereby creates the objective conditions for their ultimate demise and the establishment of a classless society capable of producing unheard-of economic prosperity.

Contrary to Marxist claims, this is not the result of any historical laws, however. In fact, no such things as inexorable historical laws as Marxists conceive of them exist.22 Nor is it the result of a tendency for the rate of profit to fall with an increased organic composition of capital (an increase in the proportion of constant to variable capital, that is), as Marx thinks. Just as the labor theory of value is false beyond repair, so is the law of the tendential fall of the profit rate, which is based on it. The source of value, interest and profit is not the expenditure of labor but of acting, i.e., the employment of scarce means in the pursuit of goals by agents who are constrained by time preference and uncertainty (imperfect knowledge). There is no reason to suppose, then, that changes in the organic composition of capital should have any systematic relation to changes in interest and profit.

Instead, the likelihood of crises which stimulate the development of a higher degree of class consciousness (i.e., the subjective conditions for the overthrow of the ruling class) increases because — to use one of Marx’s favorite terms — of the dialectics of exploitation which I have already touched on earlier: Exploitation is destructive of wealth formation. Hence, in the competition of exploitative firms (of states), less exploitative or more liberal ones tend to outcompete more exploitative ones because they are in command of more ample resources. The process of imperialism initially has a relatively liberating effect on societies coming under its control. A relatively more capitalist social model is exported to relatively less capitalist (more exploitative) societies. The development of productive forces is stimulated: economic integration is furthered, division of labor extended, and a genuine world market established. Population figures go up in response, and expectations as regards the economic future rise to unprecedented heights.23 With exploitative domination taking hold, and interstate competition reduced or even eliminated in a process of imperialist expansionism, however, the external constraints on the dominating state’s power of internal exploitation and expropriation gradually disappear. Internal exploitation, taxation and regulation begin to increase the closer the ruling class comes to its ultimate goal of world domination. Economic stagnation sets in and the — worldwide — higher expectations become frustrated. And this — high expectations and an economic reality increasingly falling behind these expectations — is the classical situation for the emergence of a revolutionary potential.24 A desperate need for ideological solutions to the emerging crises arises, along with a more widespread recognition of the fact that state rule, taxation and regulation — far from offering such a solution — actually constitute the very problem that must be overcome. If in this situation of economic stagnation, crises, and ideological disillusion25 a positive solution is offered in the form of a systematic and comprehensive libertarian philosophy coupled with its economic counterpart: Austrian economics; and if this ideology is propagated by an activist movement, then the prospects of igniting the revolutionary potential to activism become overwhelmingly positive and promising. Antistatist pressures will mount and bring about an irresistible tendency toward dismantling the power of the ruling class and the state as its instrument of exploitation.26

If and insofar as this occurs, however, this will not mean social ownership of means of production, contrary to the Marxist model. In fact, social ownership is not only economically inefficient as has already been explained; it is incompatible with the idea that the state is “withering away.”27 For if means of production are owned collectively, and if it is realistically assumed that not everyone’s ideas as to how to employ these means of production happen to coincide (as if by miracle), then it is precisely socially owned factors of production which require continued state actions, i.e., an institution coercively imposing one person’s will on another disagreeing one’s. Instead, the withering away of the state, and with this the end of exploitation and the beginning of liberty and unheard-of economic prosperity, means the establishment of a pure private property society regulated by nothing but private law.

  • 1.See on the following Karl Marx and Frederic Engels, The Communist Manifesto (1848); Karl Marx, Das Kapital, 3 vols. (1867; 1885; 1894); as contemporary Marxists, Ernest Mandel, Marx’s Economic Theory (London: Merlin, 1962); idem, Late Capitalism (London: New Left Books, 1975); Paul Baran and Paul Sweezy, Monopoly Capital (New York: Monthly Review Press, 1966); from a non-Marxist perspective, Leszek Kolakowski, Main Currents of Marxism (Oxford: Clarendon Press, 1995); G. Wetter, Sovietideologie heute(Frankfurt/M.: Fischer, 1962), vol. 1; W. Leonhard, Sovietideologie heute (Frankfurt/M.: Fischer, 1962), vol. 2.
  • 2.Marx and Engels, The Communist Manifesto (section 1).
  • 3.The Communist Manifesto (section 2, last 2 paragraphs); Frederic Engels, Von tier Autorität, in Karl Marx and Frederic Engels,Ausgewählte Schriften, 2 vols. (East Berlin: Dietz, 1953), vol. I, p. 606; idem, Die Entwicklung des Sozialismus von der Utopie zur Wissenschaft, ibid., vol. 2, p. 139.
  • 4.See Marx, Das Kapital, vol. I; the shortest presentation is his Lohn, Preis, Profit (1865). Actually, in order to prove the more specific Marxist thesis that exclusively the owner of labor services is exploited (but not the owner of the other originary factor of production: land), yet another argument would be needed. For if it were true that the discrepancy between factor and output prices constitutes an exploitative relation, this would only show that the capitalist who rents labor services from an owner of labor, and land services from an owner of land would exploit either labor, or land, or labor and land simultaneously. It is the labor theory of value, of course, which is supposed to provide the missing link here by trying to establish labor as the sole source of value. I will spare myself the task of refuting this theory. Few enough remain today, even among those claiming to be Marxists, who do not recognize the faultiness of the labor theory of value. Rather, I will accept for the sake of argument the suggestion made, for instance, by the self-proclaimed “analytical Marxist” John Roemer (A General Theory of Exploitation and Class [Cambridge, Mass.: Harvard University Press, 1982]; idem, Value, Exploitation and Class [London: Harwood Academic Publishers, 1985]) that the theory of exploitation can be separated analytically from the labor theory of value; and that a “generalized commodity exploitation theory” can be formulated which can be justified regardless of whether or not the labor theory of value is true. I want to demonstrate that the Marxist theory of exploitation is nonsensical even if one were to absolve its proponents from having to prove the labor theory of value and, indeed, even if the labor theory of value were true. Even a generalized commodity exploitation theory provides no escape from the conclusion that the Marxist theory of exploitation is dead wrong.
  • 5.See on the following Eugen von Böhm-Bawerk, The Exploitation Theory of Socialism-Communism (South Holland, Ill.: Libertarian Press, 1975); idem, Shorter Classics of Böhm-Bawerk (South Holland, Ill.: Libertarian Press, 1962).
  • 6.Ludwig von Mises, Human Action (Chicago: Regnery, 1966), p. 407; see also Murray N. Rothbard, Man, Economy, and State (Los Angeles: Nash, 1970), pp. 300–01.
  • 7.See on the time preference theory of interest in addition to the works cited in notes 5 and 6; also Frank Fetter, Capital, Interest and Rent (Kansas City: Sheed Andrews and McMeel, 1977).
  • 8.See on the following Hans-Hermann Hoppe, A Theory of Socialism andCapitalism (Boston: Kluwer Academic Publishers, 1989); idem, “Why SocialismMust Fail,” Free Market (July 1988); idem, “The Economics and Sociology ofTaxation,” Journal des Economistes et des Etudes Humaines (1990); supra chap. 2.
  • 9.Mises’s contributions to the theory of exploitation and class are unsystematic. However, throughout his writings he presents sociological and historical interpretations that are class analyses, if only implicitly. Noteworthy here is in particular his acute analysis of the collaboration between government and banking elite in destroying the gold standard in order to increase their inflationary powers as a means of fraudulent, exploitative income and wealth redistribution in their own favor. See for instance his Monetary Stabilization and Cyclical Policy (1928) in idem, On the Manipulation of Money and Credit, ed. Percy Greaves (Dobbs Ferry, N.Y.: Free Market Books 1978); idem, Socialism (Indianapolis: Liberty Fund, 1981), chap. 20; idem, The Clash of Group Interests and Other Essays(New York: Center for Libertarian Studies, Occasional Paper Series No. 7, 1978). Yet Mises does not give systematic status to class analysis and exploitation theory because he ultimately misconceives of exploitation as merely an intellectual error which correct economic reasoning can dispel. He fails to fully recognize that exploitation is also and probably even more so a moral-motivational problem that exists regardless of all economic reasoning. Rothbard adds his insight to the Misesian structure of Austrian economics and makes the analysis of power and power elites an integral part of economic theory and historical-sociological explanations; and he systematically expands the Austrian case against exploitation to include ethics in addition to economic theory, i.e., a theory of justice next to a theory of efficiency, such that the ruling class can also be attacked as immoral. For Rothbard’s theory of power, class and exploitation, see in particular his Power and Market (Kansas City: Sheed Andrews and McMeel, 1977); idem, For a New Liberty(New York: Macmillan, 1978); idem, The Mystery of Banking (New York: Richardson and Snyder, 1983); idem, America’s Great Depression (Kansas City:Sheed and Ward, 1975). On important nineteenth-century forerunners ofAustrian class analysis, see Leonard Liggio, “Charles Dunoyer and French Classical Liberalism,” Journal of Libertarian Studies 1, no. 3 (1977); Ralph Raico,“Classical Liberal Exploitation Theory,” Journal of Libertarian Studies 1, no. 3 (1977); Mark Weinburg, “The Social Analysis of Three Early 19th Century French Liberals: Say, Comte, and Dunoyer,” Journal of Libertarian Studies 2, no. 1 (1978); Joseph T. Salerno, “Comment on the French Liberal School,” Journal of Libertarian Studies 2, no. 1 (1978); David M. Hart, “Gustave de Molinari and the Anti-Statist Liberal Tradition,” 2 parts, Journal of Libertarian Studies 5, nos. 3 and 4 (1981).
  • 10.See on this also Hoppe, A Theory of Socialism and Capitalism; idem, “The Justice of Economic Efficiency,” Austrian Economics Newsletter 1 (1988); infra chap. 9; idem, “The Ultimate Justification of the Private Property Ethics,” Liberty (September 1988): infra chap. 10.
  • 11.See on this theme also Lord (John) Acton, Essays in the History of Liberty (Indianapolis: Liberty Fund, 1985); Franz Oppenheimer, System der Soziologie, vol. II: Der Staat (Stuttgart: G. Fischer, 1964); Alexander Rüstow, Freedom and Domination (Princeton, N.J.: Princeton University Press, 1986).
  • 12.See on this Murray N. Rothbard, “Left and Right: The Prospects for Liberty,” in idem, Egalitarianism As a Revolt Against Nature and Other Essays (Washington, D.C.: Libertarian Review Press, 1974).
  • 13.All socialist propaganda to the contrary notwithstanding, the falsehood of the Marxist description of capitalists and laborers as antagonistic classes also comes to bear in certain empirical observations: Logically speaking, people can be grouped into classes in infinitely different ways. According to orthodox positivist methodology (which I consider false but am willing to accept here for the sake of argument), that classification system is better which helps us predict better. Yet the classification of people as capitalists or laborers (or as representatives of varying degrees of capitalist- or laborer-ness) is practically useless in predicting what stand a person will take on fundamental political, social and economic issues. Contrary to this, the correct classification of people as tax producers and the regulated vs. tax consumers and the regulators (or as representatives of varying degrees of tax producer- or consumer-ness) is indeed also a powerful predictor. Sociologists have largely overlooked this because of almost universally shared Marxist preconceptions. But everyday experience overwhelmingly corroborates my thesis: Find out whether or not somebody is a public employee (and his rank and salary), and whether or not and to what extent the income and wealth of a person outside of the public sector is determined by public sector purchases and/or regulatory actions; people will systematically differ in their response to fundamental political issues depending on whether they are classified as direct or indirect tax consumers or as tax producers!
  • 14.Franz Oppenheimer, System der Soziologie, vol. II. pp. 322–23, presents the matter thus: The basic norm of the state is power. That is, seen from the side of its origin: violence transformed into might. Violence is one of the most powerful forces shaping society, but is not itself a form of social interaction. It must become law in the positive sense of this term, that is, sociologically speaking, it must permit the development of a system of “subjective reciprocity,” and this is only possible through a system of self-imposed restrictions on the use of violence and the assumption of certain obligations in exchange for its arrogated rights; in this way violence is turned into might, and a relationship of domination emerges which is accepted not only by the rulers, but under not too severely oppressive circumstances by their subjects as well, as expressing a “just reciprocity.” Out of this basic norm secondary and tertiary norms now emerge as implied in it: norms of private law, of inheritance, criminal, obligational and constitutional law, which all bear the mark of the basic norm of power and domination, and which are all designed to influence the structure of the state in such a way as to increase economic exploitation to the maximum level which is compatible with the continuation of legally regulated domination.     The insight is fundamental that “law grows out of two essentially different roots.” On the one hand, out of the law of the association of equals, which can be called a “natural right,” even if it is no natural right, and on the other hand, out of the law of violence transformed into regulated might, the law of unequals.     On the relation between private and public law, see also F.A. Hayek, Law, Legislation and Liberty, 3 vols. (Chicago: University of Chicago Press, 1973–79), esp. vol. I, chap. 6 and vol. II, pp. 85–88.
  • 15.See James Buchanan and Gordon Tullock, The Calculus of Consent (Ann Arbor: University of Michigan Press, 1962), p. 19.
  • 16.See Hans-Hermann Hoppe, Eigentum, Anarchie, und Staat (Opladen: Westdeutscher Verlag, 1987); idem, A Theory of Socialism and Capitalism.
  • 17.See Hans-Hermann Hoppe, “Banking, Nation States and International Politics,” Review of Austrian Economics 4 (1990); supra chap. 3; Rothbard, The Mystery of Banking, chaps. 15–16.
  • 18.See on this in particular Rothbard, Man, Economy, and State, chap. 10, esp. the section “The Problem of One Big Cartel”; also Mises, Socialism, chaps. 22–26.
  • 19.See on this Gabriel Kolko, The Triumph of Conservatism (Chicago: Free Press, 1967); James Weinstein, The Corporate Ideal in the Liberal State (Boston: Beacon Press, 1968); Ronald Radosh and Murray N. Rothbard, eds., A New History of Leviathan (New York: Dutton, 1972); Leonard Liggio and James J. Martin, eds., Watershed of Empire (Colorado Springs, Colo.: Ralph Myles, 1976).
  • 20.On the relationship between state and war see Ekkehart Krippendorff, Staat Und Krieg (Frankfurt/M.: Suhrkamp, 1985); Charles Tilly, “War Making and State Making as Organized Crime,” in Peter Evans et al., eds., Bringing the State Back In (Cambridge: Cambridge University Press, 1985); also Robert Higgs, Crisis and Leviathan (New York: Oxford University Press, 1987).
  • 21.On a further elaborated version of this theory of military and monetary imperialism see Hoppe, Banking, Nation States and International Politics (supra chap. 3).
  • 22.See on this in particular Ludwig von Mises, Theory and History (Auburn, Ala.: Ludwig von Mises institute, 1985), esp. part 2.
  • 23.It may be noted here that Marx and Engels, foremost in their Communist Manifesto, championed the historically progressive character of capitalism and were full of praise for its unprecedented accomplishments. Indeed, reviewing the relevant passages of the Manifesto concludes Joseph A. Schumpeter, Never, I repeat, and in particular by no modern defender of the bourgeois civilization has anything like this been penned, never has a brief been composed on behalf of the business class from so profound and so wide a comprehension of what its achievement is and what it means to humanity. (“The Communist Manifesto in Sociology and Economics,” in idem, Essays of Joseph A. Schumpeter, ed. Richard Clemence [Port Washington, N.Y.: Kennikat Press, 1951], p. 293)    Given this view of capitalism, Marx went so far as to defend the British con-quest of India, for example, as a historically progressive development. See Marx’s contributions to the New York Daily Tribune, of June 25, 1853, July 11, 1853, August 8, 1853 (Marx and Engels, Werke [East Berlin: Dietz, 1960], vol. 9). As a contemporary Marxist taking a similar stand on imperialism see Bill Warren, Imperialism: Pioneer of Capitalism (London: New Left Books, 1981).
  • 24.See on the theory of revolution in particular Charles Tilly, From Mobilization to Revolution (Reading, Mass.: Addison-Wesley, 1978); idem, As Sociology Meets History (New York: Academic Press, 1981).
  • 25.For a neo-Marxist assessment of the present era of “late capitalism” as characterized by “a new ideological disorientation” born out of permanent economic stagnation and the exhaustion of the legitimatory powers of conservatism and social-democratism, (i.e., “liberalism” in American terminology) see Jürgen Habermas, Die Neue Unübersichtlichkeit (Frankfurt/M.: Suhrkamp, 1985); also idem, Legitimation Crisis (Boston: Beacon Press, 1975); C. Offe, Strukurprobleme des kapitalistischen Staates (Frankfurt/M.: Suhrkamp, 1972).
  • 26.For an Austrian-libertarian assessment of the crisis-character of late capitalism and on the prospects for the rise of a revolutionary libertarian class consciousness see Rothbard, “Left and Right”; idem, For a New Liberty, chap. 15; idem, The Ethics of Liberty (Atlantic Highlands, N.J.: Humanities Press, 1982), part V.
  • 27.On the internal inconsistencies of the Marxist theory of the state see also Hans Kelsen, Sozialismus und Staat (Vienna, 1965).

Note: The views expressed on are not necessarily those of the Mises Institute.


Posted October 19, 2017 by aurorawatcherak in economics

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What Would My Cut Be?   Leave a comment

Poverty is the natural state of the world and the big mystery of human history is not how people become poor, but how people get rich.

Image resultBut let’s imagine that we could magically grab $2.4 trillion in cash from the world’s billionaires and not force them to sell off everything the economy relies on to exist.

My math nerds tell me that if you divided the assets of the 1% amongst the rest of us 99%ers in the United States (about 319,000,000 people), we’d all walk away with a one-time-payment of just $7,500.

$7,500? Yeah, that’s seven thousand, five hundred dollars. That’s less than I pay for housing for a year.

So I asked my math nerds to limit the transfer from the richest 1% to the poorest 20% (about 70 million people). The median salary in the US is $52,000. Each person would get $37,151.70 in a one-time payment and receive less than the average American makes annually at a job..

I’m all for that extra cash in my pocket, but once we’ve done that … if we could do that without crashing the economy, which my last post suggests we can’t … that money would be gone and we would have sent a clear signal to the most successful businessmen & women in the world that the reward for building a company like Google or Apple is to have all your assets taken from you and your business destroyed.

What happens then?

Neither long-term government dependency or wrecking the economy for a short-term payout is the answer.

So what should we do instead?

Posted October 6, 2017 by aurorawatcherak in economics

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Can Rich People Fix Poverty?   2 comments

There’s a belief that the problem of poverty can be solved if only rich people were forced to give their wealth to poorer people. There’s a certain plausibility to that myth until you do some math. I know … I don’t like math either, but I know a few math nerds and when you feed them figures, they do what they do best.

Image result for image of wealth redistributionIf you combine the entire net worth of Forbes’ list of the world’s 400 richest people, you’d come out with about $2.4 trillion. Yes, it’s an enormous number, but it’s about one-quarter of the annual US budget. It’s also not quite what you think.

We’re talking net worth here, which is not money all piled up somewhere for a rich guy to admire. It’s the estimated monetary value of all the assets they own. That means all the office buildings, furniture, computers, telephone lines and other capital infrastructure of their various businesses. It also includes the value of their employee salaries, payroll, and pensions; and the on-paper economic value of the businesses themselves.

Let’s just look at one example.

Amazon reportedly holds $83.4 billion in assets. That includes all their warehouses, trucks, servers, and the actual stuff they keep in stock for people to purchase (stuff like my books). Jeff Bezos himself suppostedly has a personal net worth of $89 billion, but he can’t just cash out all of those billions without liquidating the inventory his company holds, selling all of his buildings, and divesting himself from Amazon entirely. Of course, he wouldn’t find a lot of buyers for his stuff if all the other rich folks were also being forced to sell everything off. Who would buy it? I don’t have a spare $80 billion. Do you?

Thus, that $2.4 trillion isn’t a real number in any sense that can be converted into a transfer of income.


Posted October 5, 2017 by aurorawatcherak in economics

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Poverty Myth   Leave a comment

Twenty-five years before Lyndon Johnson declared America’s  “War on Poverty”, the poverty rate in America was on the decline.

We created numerous federal bureaucracies to eradicate the problem for good. We’ve spent over $22 trillion in prosecuting this war. Yet our poverty rates have flat-lined. Worse, many of the programs designed as a helping hand out of poverty have actually created dependency traps making it nearly impossible for people in impoverished conditions to escape that which entrapped their parents or grandparents.


Clearly, what we’ve been doing didn’t work as well as whatever we were doing before we declared war.

Posted October 3, 2017 by aurorawatcherak in economics

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Socialism = Many-Headed Hydra   Leave a comment

I got into a kerfuffle with some socialists (Bernie supporters) on Twitter recently because I know what Bernie is advocating and they are so enamored of all the free stuff he’s offering that they are blind to the economic, social and political realities of socialism.

As the New Republic’s John Judis explains:

In the early 1970s, I was a founding member of the New American Movement, a socialist group… Five years later, I was finished with…socialist organizing. …nobody seemed to know how socialism—which meant, to me, democratic ownership and control of the “means of production”—would actually work… Would it mean total nationalization of the economy? …wouldn’t that put too much political power in the state? The realization that a nationalized economy might also be profoundly inefficient, and disastrously slow to keep up with global markets, only surfaced later with the Soviet Union’s collapse. But even then, by the mid-1970s, I was wondering what being a socialist really meant in the United States.

He then noted that socialism is making a comeback and he’s pleased that socialism seems to have a future in American politics once again.  He hopes Sanders can make socialism relevant to Americans in the 21st century.

The old nostrums about ownership and control of the means of production simply don’t resonate in 2017. …In the 2016 campaign, however, Sanders began to define a socialism that could grow… I think there is an important place for the kind of democratic socialism that Sanders espoused.

In analyzing the many flavors of socialism, Judis ultimately distilled them into two camps – Marxist Socialism with its apocalyptic abolition of capitalism and Keynes’s Liberal Socialism, which works more gradually toward the incorporation of public power and economic equality within something that pretends to be capitalism. Most of the leftists I know believe in “liberal democracy” and “liberal socialism”, which are both good when you compare them to Marxist socialism which requires totalitarianism to work, but what Obama and Clinton want is still bad compared to small-government capitalism.

American leftists are content to allow capitalism so long as they can impose high taxes on “economic surplus” to finance lots of redistribution. They are certain such policies will have no significant negative economic impacts. Punishing success and subsiding dependence doesn’t encourage long-term prosperity and demographic trends make their policies increasingly unsustainable, but at least these folks don’t want to enforce their ideals through totalitarianism … yet. They’ll leave that to a later generation, I suppose.

Judis suggested that there is no definitive definition of “socialism”, but throughout the 19th century and much of the 20th century, all socialists condemned and called for the abolition of private ownership of the means of production and imagined it replaced with some form of socialist central planning directed by the government in the name of “the people.” The only great debate among socialists and communists in the 19th & 20th centuries was over how the socialist utopia would be brought about … whether by violent revolution or the democratic ballot box. The Russian Marxists insisted only revolution and the “dictatorship of the proliteriat” would bring “the workers” to power and assure their permanent triumph over the “exploitive” capitalist class, while the German democratic socialists opted for democratic means to power and rejected dictatorship. Well into the post-World War II period, the dispute was over political means and not ideological ends. The goal was, for both ends of the spectrum, the abolition of capitalism and the imposition of socialist central planning. How they got there differed, but both ended up with centralized government direction of economic affairs and social change.

By mid-century, “democratic” socialists in Western Europe grudging accepted the failure of socialist central planning in the Soviet bloc, Asia, Africa and Latin America. The brutal tyranny of Soviet-style socialism made it ethically indefensible. They changed their message to a “social justice” message without mentioning the nationalization of the means of production or centrally planning all economic activity.

With the opening of Cuba to tourism, leftist social justice warriors are planning to go and study what worked there. Of course, they won’t tour La Cabana prison where Che Guevara acted as unrestrained judge, jury and executioner.  They probably won’t tour the forced labor camps or talk to anyone who spent 20 years in one of them for holding ideas that weren’t allowed. No, they prefer to bask in the moral satisfaction that the few remaining communist regimes are still trying to make the “better world” they promised. Censorship of ideas, music, political views and imprisonment of “the people” who don’t have the “right” ideology will mostly not be spoken of. And, note, the social justice warriors who so admire the murderer Che prefer to live in Western countries where the rule of law has thus far protected them from their “liberal socialist” dream.

So, what do my not-so-friendly leftist friends on Twitter want from this “Liberal Socialism” they fervently advocate for? It’s the same “utopia” that Western countries have been pursuing since the end of World War II, though it has different degrees in different places.

Mr. Judis wants the government to intensively regulate, command, restrict and direct various aspects of private enterprise in society while ensuring that American society can still take advantage of the self-interested incentives and innovations that work to improve the material conditions of life. He just wants the direction, form and extent to which private businesspeople are allowed to innovate and produce to be confined and constrained by “non-market” values to conform to the purposes of “society.”

Matching the regulatory and interventionist state will, of course, be the redistributive welfare state. Excessive and unnecessary income held by businesses and investors must be heavily taxed to assure greater material egalitarianism, to fund all manners of social safety nets, and bring benefit to ordinary Americans. They use that word “economic security” a lot.

I’m not really certain what differentiates Mr. Judis’ “liberal socialism” from what already exists in the United States. It appears it’s a fine line involving intentions and the recipients of the goodies. Modern liberals like Bill and Hillary Clinton lost their way and started sleeping with the enemy (Wall Street et al). What is needed, according to Mr. Judis, is for modern American liberals to take a giant step to the left and use the Democratic Party to propagandize and persuade more in society to believe that socialism is best for them.

Just move the existing welfare state to the ‘right’ elected hands and watching things change.

Of course, what we really have in the United States is not a free market “neo-liberal” capitalism. It’s more of a “bourgeois socialism” where a system of government regulation, redistribution, favors and privileges benefit many in the private enterprise sectors of society … what we now call “crony capitalism.” What Judis is calling for is “proletarian socialism” where government more directly takes from the “rich” to give to “the workers” and “the poor.”

How likely is this to come about? Well, the call for “participatory democracy” is telling. Politics in an unrestrained democracy always becomes a tug-of-war among special interest groups capable of gaining concentrated benefits from State intervention and redistributation at the diffused expense of the rest of society. Think about special interest groups who succeed in offering campaign donations and votes to politicians who then fulfill their campaign promises to those groups once in power. The “classless” Soviets used a hierarchial system of privilege that beguiled one of the most intricate social webs of power, privilege favoritism and plunder ever seen in human society. Turned out that the notion of “the people” owning, controlling, regulating and overseeing the collective direction of an economy was pure illusion.

What far too many peole who share Mr. Judis’ views about capitalism and socialism fail to comprehend is that ANY and ALL forms of planning, regulation and political redistribution takes power and decision-making away from “the people” and gives it to government administrators who then use it for their own benefit.

What do you want to be when you grow up, little boy? You can be an engineer or an engineer. Soviet Era Joke

Only in the open, competitive market economy does each and every individual exercise liberty over his own personal affairs. The market enables us to make our own choices concern the professional, occupation and productive calling we wish to pursue. It leaves us free to make our own choices on how to earn income and spend that income on what we value or desire or believe will bring meaning and happiness to our own lives. In a free society where individual liberty and voluntary association are protected, we have true opportunities to form groups of almost any type to make our lives outside of the market materially, socially, culturally and spiritually better in our estimation.


Posted September 19, 2017 by aurorawatcherak in economics, Uncategorized

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Horizon Air Feels the Pressure   Leave a comment

I posted a while back about how Horizon Air was stupidly ignoring economic reality and damaging its brand by canceling flights due to an ongoing pilot shortage caused, primarily, by a refusal to raise wages or offer better benefits.

Image result for image of horizon airlinesThis week, I met a former Horizon Air pilot who was sheepish because he quit Horizon in 2008 when the airline trimmed positions and asked for a modest pay cut because of rising fuel costs in a recessionary environment. He eventually found another piloting job (after nearly 18 months of unemployment), but at a much steeper pay cut than what Horizon had been offering. Still, he remains friends with some Horizon pilots and he says they are frustrated that profits are — or were until recently — healthy, but they haven’t benefited from that.

Of course, benefits like medical insurance have increased substantially since 2008 and many of the raises we might wish to have received are tied up in the ever-expanding benefits we demand. Most of us don’t realize that for every dollar an employer pays us in wages, they lay out a dollar or two for benefits like workman’s comp, retirement, medical insurance and paid leave. It’s no wonder we aren’t seeing an increase in our paychecks when the cost of providing benefits keeps increasing rapidly.

So, Horizon Air’s CEO is “disheartened” because regional carrier SkyWest Airlines said Wednesday it will increase the number of jets it operates next year for Alaska Airlines, the parent of Horizon.

SkyWest said it has ordered an extra 10 Embraer E175 jets that it will operate for Alaska Airlines next year — five more jets than was previously announced by Alaska in June. The order adds to the 20 E175s SkyWest is already operating for Alaska.

The five-jet bump in the order is spurred by the capacity shortfall left by Horizon Air’s near-term shortage of pilots, which has caused it to defer deliveries of six E175s previously scheduled for delivery this fall and next spring. SkyWest’s order will fill the gap.

SkyWest is an external contractor that competes directly with Horizon to operate Alaska Airlines regional routes to smaller airports. So the expansion of SkyWest’s role takes business that Horizon might have had.

In an internal message to Horizon employees, Chief Executive Dave Campbell acknowledged that “this news is disheartening,” yet reiterated that the deferrals represent only a pause in Horizon’s growth.

He said the airline’s firm order for a total of 33 Embraer E175s will all be delivered, with the first 30 of those flying by 2020.

The deferral of the six jets last week prompted anxiety among employees and rumors that parent company Alaska Air Group would take the jets from Horizon and lease them to SkyWest.

I’m not at all surprised Teamsters union Local 1224, representing Horizon’s pilots, filed a lawsuit Friday alleging a breach of its contract and seeking a federal court injunction to ensure only Horizon pilots can fly the aircraft. Labor unions always seem not to recognize their own culpability in making their members less attractive in the job market as unions demand ever-increasing wages and benefits without regard to profits or infrastructure. It’s like they think money grows on trees.

Campbell insists that the SkyWest order is separate from Horizon’s jet order, and will not affect it. Meanwhile, Alaska Air Group spokesman Bryan Zidar said Wednesday that “SkyWest is buying these extra planes to take care of the needs of the people who fly with Alaska,” but that the number of E175s Horizon will take by 2020 is unchanged.

Campbell told employees that the jet deferrals will “give us the time we need to catch up on pilot hiring and training.” Of course, recruiting will now require an increase in wages and possibly benefits because the economy is healthier and Horizon has dragged its feet in adjusting to that new economic condition.

Posted September 7, 2017 by aurorawatcherak in economics

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How Middle-Class Europeans Fare Under the Welfare State | Daniel J. Mitchell   Leave a comment

According to progressives like Bernie Sanders, European nations have wonderfully generous welfare states financed by high tax rates on the rich.


Source: How Middle-Class Europeans Fare Under the Welfare State | Daniel J. Mitchell


They’re partly right. There are very large welfare states in Europe (though I wouldn’t use “wonderfully” and “generous” to describe systems that have caused economic stagnation and high levels of unemployment).

But they’re wrong about how those welfare states are financed. Yes, tax rates on the rich are onerous, but not that much higher than in the United States. Instead, the big difference between America and Europe is that ordinary people pay much higher taxes on the other side of the Atlantic.

The US Has the Most “Progressive” Tax System

Indeed, I’ve previously cited Tax Foundation data showing that the United States arguably has the most “progressive” tax system in the developed world. Not because we tax the rich more, but simply because we impose comparatively modest burdens on everyone else.

And now we have some new evidence making the same point. Joseph Sternberg of the Wall Street Journal has some very sobering data on how the German tax system imposes a heavy weight on poor and middle-income taxpayers.

Europeans believe their tax codes are highly progressive, giving lower earners a break while levying significant proportions of the income of higher earners and corporations to fund generous social benefits. But that progressivity holds true only for direct taxes on personal and corporate income. Indirect taxes, such as the value-added tax on consumption and social-security taxes (disguised as “contributions”), are a different matter. The VAT disproportionately affects lower earners, who spend a higher proportion of their incomes. And social taxes tend to kick in at lower income levels than income taxes, and extract a higher and more uniform proportion of income. …if you look at the proportion of gross household income paid in all forms of tax, the rate varies by only 25 points. The lowest-earning 5% of households pay roughly 27% of their income in various taxes—mainly VAT—while a household in the 85th income percentile pays total taxes of around 52%, mostly in social-security taxes that amount to nearly double the income-tax bill.

Here’s a chart the WSJ included with the editorial.

As you can see, high payroll taxes and the value-added tax are a very costly combination.

And the rest of Europe is similar to Germany.

…Germany is not unique. The way German total revenues are split among income taxes, social taxes and the consumption tax is in line with the rest of Western Europe, as are its tax rates, according to OECD data. If other countries are more progressive than Germany, it’s only because Germany applies its second-highest marginal income-tax rate of 42% at a lower level of income than most.

Percent of Economic Output

Speaking of the OECD, here’s the bureaucracy’s data on the burden of government spending.

Germany is in the middle of the pack, with the public sector consuming 44 percent of economic output (Finland edges out France and Greece for the dubious honor of having the most expensive government).

The overall burden of the public sector is far too high in the United States, but we’re actually on the “low” side by OECD standards.

According to the data, total government spending “only” consumes 37.7 percent of America’s GDP. Only Ireland, Switzerland, and Latvia have better numbers (though my friend Constantin Gurdgiev explains we should be cautious about Irish economic data).

But I’m digressing. The point I want to emphasize is that punitive taxes on poor and middle-income taxpayers are unavoidable once politicians decide to impose a large welfare state.

Which is why I’m so inflexibly hostile to any tax increase, especially a value-added tax(or anything close to a VAT, such as the BAT) that would vacuum up huge amounts of money from the general population. Simply stated, politicians in Washington will have a hard time financing a bigger burden of government if they can only target the rich.

Sternberg makes the same point in his column.

Tax cuts have emerged as an issue ahead of Germany’s national election next month, with both major parties promising various timid tinkers… Not gonna happen. The VAT and social taxes are too important to the modern welfare state. The great lie is that there are a) enough “rich people,” b) who are rich enough, that c) taxing their incomes heavily enough can pay for generous health benefits and an old-age pension at 65. None of those propositions are true, and the third is especially wrong in an era of globally mobile capital and labor. That leaves the lower and middle classes, and taxes concealed in price tags or dolled up as “insurance contributions” to obscure exactly how much voters are paying for the privilege of their welfare states. …reform of the indirect taxes that impose such a drag on European economies awaits a more serious discussion about the proper role of the state overall.


There’s no feasible way to ease the burden on ordinary German taxpayers (or regular people in other European nations) unless there are sweeping reforms to reduce the welfare state.

And the moral of the story for Americans is that we better enact genuine entitlement reform if we don’t want to suffer the same fate.

P.S. If you don’t like German data, for whatever reason, I wrote last year about Belgium and made the same point about how a big welfare state necessarily means a bad tax system.

P.P.S. By the way, even the OECD admitted that European nations would grow faster if the burden of government was reduced.

Reprinted from International Liberty.

Posted September 5, 2017 by aurorawatcherak in economics, Uncategorized

Tagged with , , ,

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