Today’s Quote of the Day…

…comes from page 38 of Economic Sophisms by Frederic Bastiat (1964 Foundation for Economic Education ed., footnote omitted, original emphasis):

I confess that the wisdom and the beauty of these laws [of trade] evoke my admiration and respect.  In them I see Saint-Simonianism: To each according to his capacity; to each capacity according to its production.  In them I see communism, that is to say, the tendency of goods to become the common heritage of men; but a Saint-Simonianism, a communism, regulated by infinite foresight, and in no way abandoned to the frailty, the passions, and the tyranny of men.

JMM: I love this line because Bastiat is addressing two of his biggest critics in 1850’s France: the Saint-Simonianists (socialists) and the communists.  Is Bastiat saying the goals of the socialists or the communists are ignoble?  No.  What he objects to are their methods (central planning, or leaving economic decisions “abandoned to the frailty, the passions, and the tyranny of men”).

Those of us who argue for freedom, of markets and of people, are often accused by our critics of not caring.  Because we are not socialists, we do not care about the poor.  Because we are not communists, we don’t care about the working man.  Because we are not speech restrictions, we do not care about corruption in politics.  Etc Etc.  But nothing could be further from the truth!  We care about these things; that’s why we argue for freedom.  As Bastiat says, it is in these laws of trade and exchange (the economic laws) do we see the noble goals of communism and socialism accomplished without the ignoble aspects of frailty, passions, and tyranny that comes with socialism or communism.

Today’s Quote of the Day…

…is from page 35 of Economic Sophisms by Frederic Bastiat (1964 Foundation for Economic Education edition):

Moreover, free trade also equalizes the conditions of enjoyment, of satisfaction-in short, of consumption.  People seem never to take this aspect of the matter into consideration; yet it is the crux of the whole discussion, since, after all, consumption is the ultimate goal of all our productive efforts.  Under a system of free trade, we should enjoy the benefits of the Portuguese sun just as Portugal itself does; and the inhabitants of Le Harve would have just as much access to the advantages that Nature has conferred upon Newcastle in the form of mineral resources, and under the same conditions, as the people of London do.

JMM: Free trade is the ultimate sharing of the wealth.  Despite living in Virginia, I can enjoy the same goods as people all over the country and the world.  I needn’t live in Florida to get oranges, or India to get curry, or England to get tea.  I can enjoy these things just as equally as if I lived in Miami, or Bombay, or London (and likewise they can enjoy tobacco, dairy, and soybeans just as they lived in Richmond).

Today’s Quote of the Day…

…is from pages 5-6 of Frederic Bastiat’s 1850 essay The Law (Mises Inst. Edition):

But [man] may live and enjoy, by seizing and appropriating the productions of the faculties of his fellow men.  This is the origin of plunder.

Now, labor being in itself a pain, and man being naturally included to avoid pain, it follows, and history proves it, that wherever plunder is less burdensome than labor, it prevails; and neither religion nor morality can, in this case, prevent it from prevailing.

When does plunder cease, then?  When it becomes more burdensome and more dangerous than labor.

As with anything, people will choose the least-costly option for their actions, in this case in the trade off between labor and plunder (Bastiat uses the phrase “plunder” here meaning the legal appropriation of one’s property by the state to transfer to another person).  As the cost of labor rises (or the cost of plunder drops), the attractiveness of plunder increases.  Things like occupational licenses, tariffs, and even progressive taxation all increase the costs of labor, and thus make plunder more attractive, which in turn leads to more lobbying and resources spent to get a share of the plunder.

Respect for the law cannot long be preserved when the law becomes a tool for plunder rather than preventing it.

Today’s Quote of the Day…

…comes from Armen Alchian’s 1961 RAND Corp. publication Some Economics of Property, as reprinted on page 43 of the Liberty Fund edition of The Collected Works of Armen A. Alchian: Vol 2: Property Rights and Economic Behavior [original footnote]:

I should, I suppose, avow at random intervals that all this is not a condemnation of public ownership any more than certain “deficiencies” of marriage, the human eye, the upright position of the human being, or smoking are to be regarded as condemnations of marriage, eyes, walking on two feet, or smoking.  The “lesser” evils in some institution – and they exist in all – are borne for the greater good in some of them.  We are not arguing that private property even in its purest form is perfect in the cost-bearing sense.  No standard of perfection is available.  All of our statements have been comparative in degrees of cost bearing.

The converse of this “apologia” is that others should not speak of the imperfections of the marketplace, either.  Nor should they assume that in those instances where the marketplace is inferior in certain respects to, say, public ownership or government control, we should switch from the market to the government.*  The presence of one kind of relative deficiency does not simply justify a switch to another agency which has other kinds of deficiencies.  We can’t have either agency without also having all its attributes.  We repeat that this neither justifies nor condemns more private or more public ownership, more market- or more government-directed activity.  All this may help form such decisions, but it is only part of the story.

*We are mindful that rabbits have greater skin-healing power (even for some especially large [100cm^2] sizes of skin injury) than do human beings.  Should we deduce that rabbits should be used as soldiers?

Alchian’s point is an important one, but one oft-lost, even among economists: there are no solutions, only trade-offs.  Everything is subject to the question “as compared to what?”  There are no silver bullets and institutions form in response to their surroundings (and their surroundings respond to the institutions).  The mere fact a given institution has deficiencies is not a reason to replace it; its replacement will also have deficiencies.

Quote of the Day

Today’s Quote of the Day is from page 77 from the 1973 reissue of Richard Schlatter’s 1951 book Property Rights: The History of an Idea (link unavailable):

It is a commonplace of intellectual history that each age must find new arguments to justify and defend its interests even though the interests themselves remain the same.

Indeed so.  You won’t read anything particularly groundbreaking in this blog, or many other economic books and blogs.  You’ll see economic analysis applied to new problems (or old problems), but the conversations are very much the same the ancient Greeks had.  Since Day 1, humans have faced the economic problem and have developed with varying institutions to deal with the problem, but century after century, age after age, the institutions have been attacked and defended.

The words I say here are not much different from the men who have come before me, men like Milton Friedman, Adam Smith, David Ricardo, Harold Demsetz, Armen Alchian, Walter Williams, Frederic Bastiat, or John Locke.  That is because, in many ways, we are still having the same conversations as they did.  And I imagine these conversations will persist long after I am dead.

Quote of the Day

Today’s Quotation of the Day comes from Armen Alchian and Harold Demsetz 1973 article in the Journal of Economic History, The Property Right Paradigm (Original emphasis):

Economics textbooks invariably describe the important economic choices that all societies must make by the following three questions: What goods are to be produced?  How are these goods to be produced?  Who is to get what is produced?  This way of stating social choice problems is misleading.  Economic organizations necessarily do resolve these issues in one fashion or another, but even the most centralized societies do not and cannot specify the answer to these questions in advance and in detail.  It is more useful and nearer to the truth to view a social system as relying on techniques, rules, or customs to resolve conflicts that arise in the use of scarce resources rather than imagining that societies specify the particular uses to which resources will be put.

Since the same resources cannot simultaneously be used to satisfy competing demands, conflicts of interest will be resolved one way or the other.  The arrangements for doing this run the full gamut of human experience and include war, strikes, elections, religious authority, legal arbitration, exchange, and gambling.  Each society employs a mix of such devices, and the difference between social organizations consists largely in the emphasis they give to particular methods for resolving the social problems associated with resource scarcity.

These two paragraphs, which begin their relatively short but interesting article on property rights, are an important discussion of the economic problem: when faced with scarcity, how are resources allocated?  The three questions they discuss as leading off economic textbooks are ways of addressing the economic question, but can be misleading to the young economist or layman since they imply that the answers are conscientiously chosen can be known.  However, as Hayek teaches us, that sort of information is highly decentralized and extraordinarily context-dependent.  So, the real question is what techniques are used to allocate these resources.

Some techniques are better than others in differing contexts, and in a near-future post (inspired, in part, by this article) I will be expanding on one particular technique, the allocation of property rights.

Quote of the Day

Today’s Quote of the Day comes from page 73 of my GMU professor Chris Coyne’s 2013 book Doing Bad By Doing Good: Why Humanitarian Action Fails:

Indeed, foreign assistance is often presented in terms of contributing to countrywide economic progress…but in reality the best it can accomplish, owning to the planner’s problem, is to increase predetermined outputs.

Dr Coyne’s point is not limited to just foreign aid.  Indeed, it applies to all top-down economic plans.  By focusing on a predetermined output, all one is guaranteeing is increasing that output, not addressing the underlying problem.  For example, Obamacare’s focus (the predetermined output) was increasing the number of people insured.  By using both a carrot (subsidies) and stick (uninsured fines), it was able to accomplish this goal.  However, Obamacare has not addressed the underlying issues in medical care.  Indeed, by some measures, health care has gotten worse in the US because of Obamacare.

I used Obamacare as an example, but there are many others: education (higher test scores but no change necessarily in the quality of graduates), trade (higher exports but no change necessarily in the quality of living), and so on.  Whenever any kind of growth plan (or “national industrial policy” to use the more modern jargon) is implemented, it is easy to achieve growth in the variable(s) measured.  Achieving true economic growth (as opposed to a series of bubbles) is another thing all together.