Category Archive: Entrepreneurship
Comments Off on What America needs most right now is more economic freedom.
The capitalist engine is first and last an engine of mass production which unavoidably also means production for the masses. . . . It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory girls.
Global poverty is radically declining, but most people don’t know it. In 1990, 1.9 billion people — 37 percent of the world’s population, at that time — lived on less than $1.90 per day. This is known as “abject poverty.” Today, fewer than a billion people live in abject poverty — less than 10 percent of the world’s population. It’s a startling and unprecedented decline.
When we extend our view further into history, it seems even more miraculous. Economist Brad Delong estimates world GDP per capita, and he finds that most humans, for most of their history, have lived on the equivalent of $100 per year — or less. It’s not until the seventeenth century that this number changes much at all and not until the twentieth century that growth really accelerates.
We can see the impact of this growth in new inventions and innovations that have made us dramatically better off, and, as wealth grows, those new goods and services become available to ordinary people, like you and me. In 1820, 94 percent of the globe lived in a state of abject poverty; not only are we much richer these days, but we are spending our wealth in ways that would have been literally inconceivable then. Delong estimates that 75 percent of world expenditure today is for goods and services that did not even exist as recently as 1800.
We take for granted the things that are readily available to us — things that our ancestors could not have dreamed of, like indoor plumbing, ovens, and flu shots. In 1800, it was very likely that contracting the flu could kill you; today, that is exceedingly less likely, even in the developing world. The reason is that global trade has unleashed the skills and talents of ordinary people, and when that happens, we have incentives to solve problems. As we solve our biggest problems, we make lifesaving innovations, and we make them cheaper, better, and increasingly accessible to even the poorest among us.
Yet when you present this data, people are shocked. A recent study revealed that 70 percent of British citizens think the world is getting worse, and only five percent of Americans know that global poverty has halved in the past twenty years.
This is concerning: our view of the world informs the kind of policies we will demand as voters. If we believe that the world has been made worse (or at least no better) by the decline of protectionism and the surge in global trade over the past four decades, we might agitate for policies that reduce trade and commerce. But given the facts about global poverty and inequality, we ought to advocate greater economic freedom.
Economic freedom means that people are free to trade with others for what they need and want; that entrepreneurs are free to open businesses without overly burdensome regulations, bribes, or corruption; that the national currency is stable and keeps its value; that the burden of government is small relative to the size of the economy; and that property rights and the rule of law prevail.
Economic freedom is the reason for the astounding acceleration of human progress and the rapid march out of poverty. Charity alone cannot substitute for real growth, and neither can government. If human flourishing is our goal, then we must concern ourselves with the type of political and economic systems that govern our daily choices. We must return to a society where economic freedom is championed.
Just two decades ago, the US was a world leader in economic freedom, but that has been waning and, with it, the freedom to live our own lives and the prosperity that comes from that. In 2000, the US ranked second in the world in economic freedom — at the top and prospering, with lots of opportunities for everyday Americans. Today, we rank sixteenth, and we’re still falling. As we lose the necessary institutional arrangements for a free society, our ability to both contribute to and experience flourishing is diminishing.
America is at a crossroads. For over two centuries, it has been a beacon of freedom and hope, representing a society in which anyone can use their gifts and talents to serve others. It has been a leader for other nations across the globe that aspire to emulate its progress. We can upend this losing streak and make advances toward greater personal freedom to live, work, and trade as we desire, or we can continue the decline and watch our growth vanish with it. The stakes are high, and we all must be at the center of the argument for greater freedom, because lives and futures hang in the balance. We live in amazing times globally, and we must fight to keep that progress moving forward in the US.
Comments Off on Will President Trump kill capitalism?
For those who believe that capitalism has generated dramatic improvements in US living standards over the past two centuries, the first month of Donald Trump’s presidency has been chilling.
President Trump appears incapable of understanding that free trade and immigration are crucial engines of growth and prosperity. Relatedly, the president is obsessed with saving American jobs and “putting America first” rather than fostering policies that promote economic efficiency (which is what actually puts America first). During the presidential campaign, then-candidate Trump ruled out reform of Medicare or Social Security, even though these programs threaten to bankrupt the economy absent major overhauls.
Even worse than his misguided views on specific policies is Trump’s language. He exudes a preference for centralized command and control (“I alone can fix it”) rather than for unfettered competition and the survival of the fittest under true capitalism.
President Trump shows no patience for the rule of law, instead chafing under the constitutional limits on his authority and disparaging judges, threatening elected leaders, and firing civil servants who challenge the legality of his decisions. This imperialist tendency, if not checked by the courts, Congress, and voters, will shove the US economy even farther down the slippery slope of crony capitalism.
To be fair, Trump has called for dramatic reductions in regulation, which if carried out thoughtfully could significantly boost free markets. Obvious targets include licensing restrictions and other barriers to entry; federal labor-market regulations such as minimum wages, overtime laws, and union protections; and some environmental, health, safety, and financial regulation. Yet “deregulation” can easily morph into protection for crony capitalists unless carried out by true advocates of free markets.
Sensible reforms to Dodd-Frank, for example, could rightly reduce barriers to entry for small financial institutions. Repealing the entire set of regulations, however, could end up being a “free pass” for larger banks — believing they would get bailed out again in the next crisis — to resume the risky or speculative activity that helped spark the Great Recession.
Careful reforms to aviation law could make business easier for US airlines, but limiting low-cost foreign carriers from flying to the US under the guise of “protecting American companies” (as many lobbyists have recently argued) would stifle free market competition and consumer choice.
Similarly, President Trump has expressed sympathy for major tax reform, which could strengthen the economy by eliminating misguided deductions, exemptions, and credits while lowering rates in a revenue neutral way. But tax reform could end up being mainly tax reduction; given the projected path of US entitlement spending, such tax cuts would be a double-edged sword because of their impact on the debt.
Thus pessimism about capitalism under President Trump is understandable. The president’s views, should they become policy, would likely expand crony capitalism rather than true capitalism.
The Strength of Capitalism
Yet history allows a more optimistic outlook. Few presidents have been true friends of capitalism, and many have committed “crimes against capitalism” as bad as or worse than those likely to occur under President Trump.
Franklin Roosevelt introduced Social Security, tried to fix wages and prices under the NIRA, supported national wage, hours, and union regulation, and even attempted to pack the Supreme Court when it blocked his initiatives. Harry Truman tried to nationalize the steel industry because of a dispute with steel unions over wage increases. Lyndon Johnson created Medicare and Medicaid, Richard Nixon imposed wage and price controls to combat inflation, and George W. Bush endorsed government bailouts of Wall Street banks and auto manufacturers. More broadly, the regulatory state has been growing consistently since the early 1900s and the New Deal.
Calm reflection, therefore, shows that Trump’s proclivity to interfere with America’s economy has a long, depressing precedent.
Yet despite centuries under assault, capitalism has more or less survived, and economic prosperity has continued to increase. The country would plausibly be richer with fewer regulations, less redistribution, a saner tax system, and greater openness to trade and immigration. But so far capitalism’s ability to spur innovation and entrepreneurship has outpaced the damage done by bad policies.
In other words, presidents have been trying to weaken capitalism since the inception of the Republic, and capitalism has withstood the test. This history is no guarantee of future success; autocrats like Hitler, Mussolini, Stalin, and Pol Pot at least temporarily destroyed capitalism in their respective countries. And we may be living in a new regime, where leaders everywhere are hostile towards globalization and economic integration.
Even so, capitalism—stronger than any border wall or immigration ban—remains a resilient and deeply American system. Trump would be wise not to bet against it.
Comments Off on Trump’s proposed wall and tax are folly
As a professional teacher of economics, I wish to go on record about President Trump’s proposal to build a wall to keep people from Latin America out of the United States, and to charge a 20% tax on imports from Mexico to pay for it. The idea is wrongheaded on both counts: they would harm citizens of the US as well as those of Latin America.
The wall would cause harm because human beings are “the ultimate resource,” as Julian Simon taught us in a book by that name. Human ingenuity and creativity are the most valuable and productive forces known. They are at the root of our technology and productive enterprise. As long as people are free to use their ingenuity and creativity, and held responsible for their actions, they produce more than they consume. They generate net wealth which they exchange with one another.
This means that in a free country, the more people the better. Our policy should be open borders for all who wish to live here peaceably and work. The proposed wall would reduce standards of living in America (not to mention those of would-be immigrants seeking a better life).
An aside on jobs: yes, immigrants do take some jobs that people born in America might otherwise hold. But that does not mean fewer jobs for the American born. Why not? Because as long as people have unsatisfied needs and wants – that is, forever – there is work to do. People, the ultimate resource, discover new ways to satisfy unsatisfied wants, and they put themselves and others to work in doing so. Immigration and trade don’t reduce the total number of jobs, they just change the kind of work done.
As for the wall itself, have we no better use for the tons of concrete and steel, the miles of roadway and electrical wire, and the years of human time and effort it would take to build, maintain, and monitor it? We would be dumping precious resources in the desert in order to deny ourselves the ultimate resource. It’s stupefying.
As for the proposed 20% tax on Mexican imports to the US, that would reduce trade between the two countries by making Mexican goods more expensive to Americans (is that good for us?) and thereby reducing Mexicans’ earnings of dollars with which to buy American goods. And nothing is more important to human flourishing than trade. People in modern society produce not for their own consumption but for others’. The world economy is a vast system of cooperation in which everyone seeks to create goods and services for others and trades them for what he or she wants. To obstruct that cooperation by a tax on imports is to weaken the bonds of society. Our policy should be unqualified free trade.
Trump’s proposed wall and tax are folly.
Comments Off on Trade restrictions imperil our standard of living
A recent trip to Cincinnati afforded me the opportunity to check out the well-known Jungle Jim’s International Market just north of the city. As a lover of all kinds of food, I was promised that here I could find everything under the sun in one location. And that promise was largely fulfilled, as Jungle Jim’s is indeed an amazing place.
From its fantastic wine selection to its charcuterie to its tanks of live fish to its exotic and obscure international produce to its international dry goods area with sections containing food from countries across the globe, including some of the smallest in Europe and Central America, Jungle Jim’s is a food lover’s paradise. It is a cornucopia. It is a giant global buffet table. The more time I spent there, however, the more I began to think about the physical space of that market as a metaphor for the globalized economy.
In Human Action, Ludwig von Mises wrote that “The market is not a place, a thing, a collective entity. The market is a process, actuated by the interplay of the actions of the various individuals cooperating under the division of labor.” That process of cooperation, of course, knows no national boundaries. The market, in Mises’s sense, extends across the globe, as exchange by comparative advantage creates a very fine division of labor, which in turn facilitates increased cooperation and prosperity.
Jungle Jim’s is a physical manifestation of that process. The shelves are lined with goods that come from all over the world, and the shoppers are made up of people from all walks of life and from all kinds of geographical locations. We were two hours from home there, and since telling friends I was there, a number have told me that they’ve made it a point to stop there while driving through the Cincinnati area. I’m quite sure that market was economically and geographically diverse.
It was also ethnically diverse. The selection of international foods and fresh meat and seafood attracts a wide range of customers who know they could only find what they wanted at Jungle Jim’s. For example, the seafood section was full of older Asian women who were clearly picking out the fresh items they needed for that night, and being very precise with how they wanted those fish filleted.
Other customers were also clearly immigrants or descendants of immigrants looking for the food from their native lands. The ability to access ingredients or prepared food imported from all over the world makes their lives here in the United States that much better, whether they are newly arrived immigrants or long-standing citizens of any of dozens of ethnicities or nationalities.
Jungle Jim’s is also a model of peaceful, tolerant interaction among diverse humans. Exchange doesn’t just make us better off, it makes us better people.
In addition to the direct consumers who benefit from something like Jungle Jim’s, so do other producers. Although I cannot know for sure, I suspect that a number of the customers there that morning were chefs from local restaurants and catering businesses who know that they can buy the exotic ingredients they need, whether it’s sauces or spices or fresh produce. As consumers, of course, we enjoy our Chinese or Thai or Greek food, or American dishes influenced by those cuisines, but doing so is dependent on the ability of owners of those restaurants, regardless of their ethnicity, nationality, or citizenship status, to acquire those ingredients. For American chefs, the availability of imported ingredients at reasonable prices is crucial to pleasing their American consumers and making their businesses successful.
Too often, we talk about international trade as being about the direct benefits to consumers. Those benefits are real. It’s true and important that Walmart can import goods from China and sell them to US consumers at low prices. It makes us, especially the least well-off among us, better off than we would be otherwise.
But what that conversation forgets is that over half of US imports are actually inputs into the production of US-based firms. That’s about 8 percent of US Gross Domestic Product. Plus, many of those importers are also exporters. The firms who buy imported inputs use them to produce final goods here in the US then export some of them to the rest of the world.
When we start to place limits on global trade through tariffs on imports, we are not just harming the producers of those goods in other countries. We are harming US manufacturers who rely on those imports for their production here (and the jobs that go with it). Raising tariffs on imported dry goods or produce makes food produced by American chefs at restaurants that employ Americans more expensive, thereby threatening the viability of those businesses and those jobs.
If we raise the price of imported steel, we don’t just hurt foreign manufacturers, we hurt American firms who rely on that input for their production, including their exports.
Standing in the crossroads of commerce that is Jungle Jim’s, I could not help think about these issues. Under one roof in the Cincinnati suburbs was a microcosm of the global economy: people with a variety of different wants and desires finding ways to mutually satisfy them through exchange. The building is the physical manifestation of the coordinating role of the market process. When we go to Jungle Jim’s, we see it. But when we move beyond a building, it becomes part of Bastiat’s unseen.
The institutional framework of laws, rights, and finance that make exchange possible is the analogue in the market process to how the physical structure of the building makes possible the exchanges at Jungle Jim’s. The institutional framework is harder to see but is, in many ways, far more important. And because it’s harder to see, we don’t always understand how weakening it can destroy global exchange just as weakening a pillar or a beam at Jungle Jim’s could destroy the exchanges there.
In fact, the invisible network of trade-facilitating institutions is what makes it possible for there to be a visible building in which trades take place. They are deeply intertwined.
Every person who goes to Jungle Jim’s and enjoys its bounty should be considering the invisible structures that make the visible structure possible. The global market process, and the institutions such as the admittedly imperfect treaties like NAFTA and organizations like the WTO that facilitate it, are what make the local marketplaces possible.
While you enjoy your French cheese, your Chilean wine, or your Bulgarian pickled mushrooms, consider the invisible network of institutions that make it possible for you to do so, and for your local chef to get them as well. Then consider how that invisible network does the same thing for the imported cars you buy and the imported components US car companies buy to make their cars.
Because the market process of global trade is not a place or thing, it’s easy to forget and to take for granted. But like the marketplace of Jungle Jim’s, it cannot stand without its foundations. When we weaken those institutions and when we place limits on trade, we threaten the livelihoods and well-being of us all.
Comments Off on How processing payments with Bitcoin is different than cash, banks
Arguably, the most interesting feature of the Bitcoin system is the way in which Bitcoin payments are processed. To make it clear why payments must be processed at all and how Bitcoin processes payments differently, I’ll look at processing payments with cash and banks before turning to bitcoin.
Think about a cash transaction. Cash transactions have some desirable properties. If I were to pay you in cash, you’d be able to observe that I have a balance of dollars, and you would know when I’ve transferred the balance to you because you would see the dollars leave my hand and into yours. Moreover, transferring the cash to you prevents me from spending that balance again, because I no longer have the cash to hand over to some future seller. Physical cash limits users to spending balances they actually possess and prevents them from spending that balance more than once.
Electronic payments are somewhat different because, without an appropriate protocol, digital balances can be duplicated. I can send you a file without relinquishing my possession of the file. You have the file. I have the file. We both have the file. There’s no way to ensure that I’m in exclusive possession of a particular balance of digital money. So, with electronic payments, we must find some protocol to prevent double spending.
Processing a block of transactions requires a solution to a complicated cryptography problem. Since the problem is sufficiently difficult, everyone trying to solve the problem essentially has a random chance of being first, equal to his or her share of total computing power. That’s important because some black hat user could make and confirm fraudulent transactions if she controlled a majority of the computing power. In fact, no one has control over a majority of the computing power on the Bitcoin system, so the system provides a sufficient check on double spending.
Processing transactions is costly. Solving the cryptography problem requires sophisticated computing hardware known as a mining rig and energy to run it. Why would someone incur these cost of processing transactions for the Bitcoin community?
The Bitcoin protocol includes an incentive to process transactions. The first person to confirm a batch of transactions is rewarded a prize of new Bitcoin and all of the transaction fees users offer up when making their transaction requests. The Bitcoin prize awarded for processing of a block of transactions is halved roughly every four years, so many suspect that transaction fees will become more important as the prize approaches zero Bitcoin.
Hopefully now you have a better sense of (1) why transactions must be processed and (2) how Bitcoin, a distributed system, processes transactions differently from decentralized physical cash and centralized clearinghouse systems.
Comments Off on What is a cryptocurrency?
Cryptocurrencies are hot right now. Whether you tune into your local news, read The Economist, or scroll through tech sites like Ars Technica, odds are good that you’ve come across a story about Bitcoin, Litecoin, Dogecoin, Ripple, or a host of other cryptocurrencies. So what is a cryptocurrency exactly?
The term “cryptocurrency” is a portmanteau, combining the words crypto and currency. Let’s start with currency. A currency, or money, is a commonly accepted medium of exchange. As a medium of exchange, it’s an item that you accept and exchange, even though you don’t want to consume it, because you believe – and this is important – that you’ll be able to trade that item for some good or service that you would like to consume at some point in the future. That is, a currency acts as a medium through which you can exchange what you have for what you want.
A lot of items might function as a medium of exchange. For example, when I purchased my house, there was an old washer and dryer in the basement. I already had a washer and dryer, so I had no intention of consuming the services provided by the old washer and dryer that came with the place. Still, I accepted these items. Why? Because I was confident I could exchange them at some point in the future for some goods or services that I actually wanted to consume. In this case, I first traded the washer and dryer for dollars and then traded the dollars for a delicious dinner at my favorite restaurant. The washer and dryer, and then the dollars, functioned as a medium of exchange. They were items I had no intention of consuming but that I accepted because they would allow me to acquire goods and services I would like to consume.
A currency is a medium of exchange, but it’s not just a medium of exchange. It must also be commonly accepted, which raises an interesting question: How common is common? What fraction of the population must accept an item before we agree it’s a currency? 50%? 75%? 100%? The whole country? The world? We can probably agree that the old washer and dryer I mentioned are not commonly accepted. And we can probably agree that dollars are commonly accepted — certainly in the United States. It isn’t so clear where we should draw the line, and reasonable people might disagree. For our purposes, it is enough to understand that, when economists refer to money or currency, they are talking about a commonly accepted medium of exchange.
Next, let’s consider the crypto part of cryptocurrency. Crypto is short for cryptography, the practice of securing communication in the presence of third parties. In the case of cryptocurrencies, the term “crypto” denotes that the currencies are digital and rely on encryption for secure transactions. Since they’re digital, they might also be programmed to have a host of other features, like a slow and predictable rate of growth, for example.
So, putting the pieces together, what is a cryptocurrency? It’s an item intended for use as a commonly accepted medium of exchange that exists in the digital world and relies on encryption to make transactions secure.
Comments Off on Demystifying Bitcoin
Whether you’re a paranoid libertarian who fears the coming monetary apocalypse or just a regular Joe looking to diversify your portfolio, you may have some interest in learning about Bitcoin. Like something straight out of a Neal Stephenson novel, Bitcoin has cyberpunk sex appeal. It foreshadows a radical change in the social and economic order and is shrouded with a mystique and aura that can be difficult to penetrate. But that’s why I’m here – to demystify Bitcoin for you. You’re welcome.
The Bitcoin protocol was first described in a 2008 paper by Satoshi Nakamoto. “Satoshi Nakamoto” is probably a pseudonym, so it’s not clear whether the protocol was developed by an individual or a group of individuals, and attempts to identify the developer or development team have been unsuccessful. What we do know is how the protocol works. That is, what Bitcoin is.
At the core of the Bitcoin system is the blockchain, a ledger that records the rightful owner of every balance of Bitcoin in existence. When you make a Bitcoin transaction, you effectively announce to the system that you would like to transfer a balance of Bitcoin on the ledger from one owner to another. These transactions are grouped into a block and members on the system then compete to be the first person to confirm that the transactions in the block are legitimate. Once a block is confirmed, the ledger, or blockchain, is updated to reflect the most recent transactions.
Bitcoin owners are not identified by their name or location, but by a string of characters known as a digital address. In other words, bitcoin owners are pseudonymous. You can transfer a balance of Bitcoin from one address to another without revealing your actual identity in the physical world. You only verify that you own the address from which the Bitcoin is being sent.
How do you prove ownership without revealing your identity? To accomplish that, the system relies on public key cryptography. All of that can be a bit confusing, so let’s work through a simple example. Suppose Leah wants to transfer five Bitcoin to Nick. Leah requests that the balance of Bitcoin held at her address on the ledger be reduced by five Bitcoin and that an address owned by Nick be increased by five Bitcoin. Leah doesn’t have to know Nick. She just needs to know his address. On the Bitcoin system, addresses function as public keys – everyone can see them. Leah confirms that she owns her address by generating a digital signature with her private key, which she keeps secret. Anyone else on the system can then use this digital signature to verify that she owns the address, even though they don’t know her private key. That’s the beauty of public key cryptography.
Once the transaction request is made, it’s grouped with other transactions to be processed. Once processed, the public ledger, or blockchain, now reflects that Leah’s address has five fewer Bitcoin and Nick’s address has five more Bitcoin. If Nick then would like to transfer the newly acquired Bitcoin to some other address, he’ll have to generate a new transaction request and use his private key to create a digital signature. That, in a nut shell, is how the Bitcoin system works.
In brief, the Bitcoin system is a public ledger. It denotes who owns each unit of Bitcoin available. Transactions amount to debiting one address and crediting another. And public key cryptography ensures transactions are secure.
Comments Off on This Valentine’s Day, the chocolate supply is in turmoil.
By all means, get your date a box of chocolates for Valentine’s Day. In my opinion, dark chocolate is far superior to other traditional Valentine’s Day trinkets. What good is a stuffed bear (unless it’s holding a box of truffles)?
To really leave an impression, however, you want to give them something new and exciting, such as current insights into the rollercoaster chocolate market.
“Did you know that a series of cocoa bean export contract defaults could seriously disrupt the economy in Ivory Coast?”
“No, but I could talk to you all night!”
See how easy that is? Keep reading to learn how to drop the word “déblocage” into your romantic evening.
Chocolate is made from cocoa beans, and the West African nation of Ivory Coast produces over a third of the world’s cocoa. During the colonial period, governments tightly controlled the cocoa economy, and the markets are still regulated today.
Like any economy that exports a commodity, Ivory Coast is affected when world cocoa prices drop. To try to insulate farmers from fluctuating world prices, a marketing board called the Coffee and Cocoa Council (CCC) made this rule in 2012:
Farmers get paid a minimum price for their cocoa crops. Exporters agree to price contracts with the CCC months before they can ship the cocoa out of Ivory Coast.
The CCC auctions contracts for export permits called déblocage. This policy, even when it was working, likely resulted in lower prices paid to farmers. Today, it is a disaster.
Many exporters wrongly predicted that cocoa prices in February 2017 would be high. In fact, the price just hit a 3-year low!
Purchasers in Europe will not pay high prices for cocoa right now. So, the exporters do not want to go through with the deals they had made with the CCC to pay the farmers a high price. The ports are literally filling up with boats loaded with raw cocoa, but no one wants to ship it out. Instead of getting a guaranteed minimum price, some farmers are getting no sales at all. The CCC will likely need to break their rules and allow people to buy the beans at lower prices that reflect current world market demand.
After Reuters published a story on the crisis, the CCC said the claims were false! Is that as dramatic as The Bachelor or what? Rumors were circulating in the fall, but the CCC tried to deny any problems until recently.
Cocoa beans are a “commodity” cash crop and commodity-based economies are negatively affected by unexpected global price swings. However, attempts to regulate the variability away invariably cause new problems. In the end, the market price determines how much money flows into these economies.
The effect of the fall in cocoa prices can be compared in some ways to the fall in US home prices in 2008. Americans had made promises based on the assumption that home prices could only go up. Predicting how prices will change in the future is difficult because prices move as a result of the separate actions of billions of individuals. When real estate price suddenly fell, those promises were broken. The cocoa exporters say they can no longer buy and export beans because they would have to buy them for a higher (regulated) price than they are able to earn on the world market.
Speaking of promises, will your date promise to call you again? Would that promise be broken if prices unexpectedly change? To make sure he or she wants to see you again, you could also show them some more interesting economics of Valentine’s Day here.
Comments Off on William Graham Sumner Part 4 – Charity, Liberty, and Social Justice
William Graham Sumner, I have argued, was not a social Darwinist. He was a laissez-faire liberal who was a fierce opponent of militarism, protectionism, and plutocracy. Far from being a champion of the strong against the weak, he was a champion of the “Forgotten Man” against both the socialists who would exploit his labor for the benefit of the masses, and the plutocrats who would exploit him for the benefit of the privileged few.
At times, however, Sumner seems to go farther than this. On the issue of poverty relief, for instance, Sumner does not confine himself to the standard classical liberal critique of coercive redistribution. At times, he seems to caution against even charity of the purely voluntary sort. After all, he notes, such charitable giving might divert resources away from productive channels where they would do more good.
The next time that you are tempted to subscribe a dollar to a charity, I do not tell you not to do it, because after you have fairly considered the matter, you may think it right to do it, but I do ask you to stop and remember the Forgotten Man and understand that if you put your dollar in the savings bank it will go to swell the capital of the country which is available for division amongst those who, while they earn it, will reproduce it with increase.
So one problem with charitable giving is that it, like every activity, has an opportunity cost. But this is not all. In some passages, Sumner seems to suggest that the problem with charity is not merely that it relieves suffering at the expense of productive capital investment, but simply that it relieves suffering at all!
Vice is its own curse. If we let nature alone, she cures vice by the most frightful penalties. It may shock you to hear me say it, but when you get over the shock, it will do you good to think of it: a drunkard in the gutter is just where he ought to be. Nature is working away at him to get him out of the way, just as she sets up her processes of dissolution to remove whatever is a failure in its line. Gambling and less mentionable vices all cure themselves by the ruin and dissolution of their victims. Nine-tenths of our measures for preventing vice are really protective towards it, because they ward off the penalty.
Finally, in one of the most damning and controversial passages he ever wrote, Sumner warns of the ultimate consequences for society of listening to the “socialists and sentimentalists” who seek to “regulate in any way the struggle of interests under liberty.”
If we do not like the survival of the fittest, we have only one alternative and that is the survival of the unfittest. If A, the unfittest to survive, is about to perish and somebody interferes to make B, the fittest, carry and preserve A, it is plain that the unfittest is made to survive and that he is maintained at the expense of B, who is curtailed and restrained by just so much. This process, therefore, is a lowering of social development and is working backwards, not forwards.
This last passage is especially problematic, not only for its troubling moral implications, but for its apparent incompatibility with the way Sumner explicitly defined the idea of “the survival of the fittest” elsewhere in his writings. As I noted in an earlier essay, Sumner generally emphasized that the phrase “survival of the fittest” does not mean survival of the best. “Fitness,” in an evolutionary context, simply means “adaptation to environment,” and what is well-suited to one environment might be ill-suited to another. But if this is what Sumner means by the “survival of the fittest,” then how can he consistently claim that socialism would produce the survival of the unfittest? Wouldn’t it be more consistent to say that what counts as “fitness” under socialism is simply different from what counts as “fitness” in a free market? The claim that socialism promotes the survival of the “unfittest” seems to impute an evaluative meaning to “fitness” of precisely the sort Sumner elsewhere properly took pains to deny.
Sumner himself seems to have eventually recognized that the phrase was, at the very least, more trouble than it was worth. After a short period of controversy that went as far as the editorial page of the New York Times, Sumner apparently dropped all talk of “survival of the fittest” and the “unfittest” from his speeches and writings. Neither phrase appears anywhere in his What Social Classes Owe to Each Other, and his use of the especially problematic “survival of the unfittest” phrase seems to be confined to a relatively small number of mostly unpublished pieces between 1879 and 1884.
But more can be said on Sumner’s behalf than this. The passages above are blunt (it was not for nothing that Sumner was known as “Bluff Billy”). But the ideas they express are, extracted from Sumner’s feisty rhetoric and dispassionately examined, relatively uncontroversial. And when they are understood in the broader context of Sumner’s thought on issues of poverty, responsibility, and the state, they form a doctrine that is not without significant attraction.
First, consider Sumner’s remark about the “drunk in the gutter.” The most striking claim in that passage, of course, is that such a person is “just where he ought to be.” And it would be easy to infer from this claim that Sumner is indifferent to the suffering of the drunk, or perhaps that he even approves of it.
But nothing could be further from the truth. Sumner abhors vice, and the suffering it produces for its bearer and for society as a whole. But he is sensitive to the problem of moral hazard. The more we do to relieve the suffering that naturally accompanies vice, the more we chip away at one of the strongest natural disincentives to vicious behavior. The lower the costs of vice, the more vicious people we get, and the more vicious people we get, the more suffering there is (since the suffering vice creates cannot be eliminated altogether, but only transferred from the vicious onto some other innocent person). A concern to avoid moral hazard is thus entirely compatible with a concern to reduce the suffering of others.
Second, Sumner’s writings reflect what he saw to be an important moral difference between suffering that is due to chance and suffering that is due to choice. Sumner’s discussions of poverty are often infused with moralistic language such as “negligent,” “imprudent,” and “incompetent.” And, again, it would be easy—especially for one reading only quotes taken out of context—to come away from such passages thinking that Sumner is attributing these vices to the poor as a class.
But this, again, would be a mistake. Language such as this is easy to come across in Sumner’s arguments against redistribution, not because he identifies poverty with vice, but because he is limiting his argument to that poverty which is the result of vice. Sumner doesn’t think that those who are poor because of their own laziness, imprudence, or incompetence have any claim of justice to the assistance of those who were more cautious and successful. And it is for precisely this reason that he finds it less than helpful to talk about “the poor” as a class.
Under the names of the poor and the weak, the negligent, shiftless, inefficient, silly, and imprudent are fastened upon the industrious and prudent as a responsibility and a duty. On the one side, the terms are extended to cover the idle, intemperate, and vicious, who, by the combination, gain credit which they do not deserve, and which they could not get if they stood alone. On the other hand, the terms are extended to include wage-receivers of the humblest rank, who are degraded by the combination.
Thus, the problem isn’t that all poor people are negligent and imprudent. The problem is that some of them are, and lumping together “the poor and the weak” as a class obscures the important moral differences between them and those who are poor despite their industriousness and prudence.
When our fellow men do the best they can and nevertheless suffer because of bad luck, Sumner thinks, we have a moral (if limited and not legally enforceable) obligation to come to their aid. Indeed, in the final chapter of What Social Classes Owe to Each Other, titled, “Wherefore We Should Love One Another,” Sumner goes even further and claims—surprisingly!—that this obligation sometimes extends even to individuals who suffer because of their own bad choices.
We may philosophize as coolly and correctly as we choose about our duties and about the laws of right living; no one of us lives up to what he knows. The man struck by the falling tree has, perhaps, been careless. We are all careless. Environed as we are by risks and perils, which befall us as misfortunes, no man of us is in a position to say, “I know all the laws, and am sure to obey them all; therefore I shall never need aid and sympathy.” At the very best, one of us fails in one way and another in another, if we do not fail altogether. Therefore the man under the tree is the one of us who for the moment is smitten. It may be you tomorrow, and I next day. It is the common frailty in the midst of a common peril which gives us a kind of solidarity of interest to rescue the one for whom the chances of life have turned out badly just now. Probably the victim is to blame. He almost always is so. A lecture to that effect in the crisis of his peril would be out of place, because it would not fit the need of the moment; but it would be very much in place at another time, when the need was to avert the repetition of such an accident to somebody else. Men, therefore, owe to men, in the chances and perils of this life, aid and sympathy, on account of the common participation in human frailty and folly.
Sumner goes on to say that this obligation is based in a “law of sympathy” that cannot be made the basis of any “mechanical and impersonal schemes,” thus relegating it to the realm of private virtue rather than public law.
But a handout is not really what the poor need from the state anyway, on Sumner’s view. What the poor need—especially the prudent and industrious poor—is for the state to get its foot off their necks. What the poor need is liberty. And those of us who are in a position to demand it on their behalf have an obligation to do so. Taxes, regulations, and restrictions upon the poor, in Sumner’s words,
represent the bitterest and basest social injustice. Every honest citizen of a free state owes it to himself, to the community, and especially to those who are at once weak and wronged, to go to their assistance and to help redress their wrongs. Whenever a law or social arrangement acts so as to injure any one, and that one the humblest, then there is a duty on those who are stronger, or who know better, to demand and fight for redress and correction. When generalized this means that it is the duty of All-of-us (that is, the State) to establish justice for all, from the least to the greatest, and in all matters.
This is a vision of social justice—or, at least, the minimum requirements of social justice—on which all of us should be able to agree.
Comments Off on William Graham Sumner Part 2—The Rejection of Social Darwinism
William Graham Sumner, to the extent that he is remembered at all today, is remembered mostly as a “social Darwinist.” As I explained in my last essay, this charge is almost entirely the creation of Richard Hofstadter, whose 1944 book Social Darwinism in American Thought applied the label both to Sumner and to his contemporary Herbert Spencer. Both of these men shared a commitment to a laissez-faire economics that Hofstadter loathed, and an opposition to the kind of “scientific” progressive reform that he championed. And both men incorporated ideas from the new science of evolution within their social thought, Spencer of course having made a significant theoretical contribution to the development of that science himself.
But a principled commitment to laissez-faire does not make one a social Darwinist. Indeed, depending upon how that latter vague term is defined, a commitment to laissez-faire is not even compatible with social Darwinism. As applied to Herbert Spencer, the charge of social Darwinism has already been repeatedly refuted. In the remainder of this essay, I will show why it fails as applied to Sumner too.
The first and most significant problem hinges on the correct understanding of key evolutionary terms in Sumner’s thought, such as “the struggle for existence” and “the survival of the fittest.” There is a natural temptation—sometimes bolstered by Sumner’s own infelicitous phrasing—to read these phrases as expressing a normative goal, as though the survival of the fittest was something that we should strive to achieve, and arrange our social institutions to facilitate. But this is not how Sumner understood the idea. “Fitness,” for Sumner, was not a normative evaluation but a descriptive claim. To be “fit” is not necessarily to be “better” or “more virtuous” than one who is unfit. All that fitness means, in the evolutionary sense, is adaptation to environment. Thus, in Sumner’s “colorful” words, “rattlesnakes may survive where horses perish…or highly cultivated white men may die where Hottentots flourish.” The point is easily missed in the face of Sumner’s unfortunate racism, but even racism is not the same as social Darwinism, and the substance of Sumner’s point here is clearly at odds with the popular interpretation of that idea. The fact that a rattlesnake will outlive a horse in a desert doesn’t make the rattlesnake morally better than the horse. It just means that the rattlesnake is better adapted to surviving in the desert. That is all.
Thus, the survival of the fittest is a constraint within which men and laws must operate, not a goal to be pursued. And it is an inescapable constraint. We could not avoid it if we wanted to. So it is not as though there is anything particularly Darwinist about capitalism, as opposed to other forms of social organization. Switching from a capitalist economy to a socialist one would not render evolutionary pressures defunct. It would only alter the context in which they operate, and the effects they produce.
The real misery of mankind is the struggle for existence; why not “declare” that there ought not to be any struggle for existence, and that there shall not be any more? Let it be decreed that existence is a natural right, and let it be secured in that way. If we attempt to execute this plan, it is plain that we shall not abolish the struggle for existence; we shall only bring it about that some men must fight that struggle for others. (“Some Natural Rights”)
This point about the misinterpretation of key evolutionary terms counts as much against the charge of social Darwinism as applied to Spencer as it does to the charge applied to Sumner. But the charge of social Darwinism is especially difficult to sustain against Sumner, given his consistent praise and support of common working people against the economic and political “elite.” As I shall discuss in more detail in my next essay, Sumner’s hero was not the visionary entrepreneur or the capitalist captain of enterprise. It was the ordinary working person, the productive force who supports not only himself and his family, but by doing solid work well and paying his taxes faithfully, supports the nation as a whole. It is the person who does his job, meets his obligations, and otherwise keeps to himself. It is the “Forgotten Man.”
Sumner saw the Forgotten Man as threatened on all sides. He is threatened by the socialist, of course, whose promise of equality for all can be met only by placing an even greater burden on the backs of the responsible and prudent. But Sumner saw an even more immediate threat to the Forgotten Man in plutocracy, the system in which wealth controls politics, and in which “money buys whatever the owner of money wants.”
The threat of plutocracy—which Sumner described as “the most sordid and debasing form of political energy known to us”—comes precisely from the rich, the powerful, and the successful. And Sumner’s passionate condemnation of these persons and the system they produce shows once again that he did not regard social or economic success as anything like sufficient for moral virtue. Wealth and power can be a product of virtuous traits of character such as industry, thrift, and self-mastery. But not necessarily. And so we need to draw a distinction between different means by which wealth can be acquired.
A great capitalist is no more necessarily a plutocrat than a great general is a tyrant. A plutocrat is a man who, having the possession of capital, and having the power of it at his disposal, uses it, not industrially, but politically; instead of employing laborers, he enlists lobbyists. Instead of applying capital to land, he operates upon the market by legislation, by artificial monopoly, by legislative privileges; he creates jobs, and erects combinations, which are half political and half industrial; he practises upon the industrial vices, makes an engine of venality, expends his ingenuity, not on processes of production, but on “knowledge of men,” and on the tactics of the lobby. The modem industrial system gives him a magnificent field, one far more profitable, very often, than that of legitimate industry. (“The Conflict of Democracy and Plutocracy”)
Sumner recognized that plutocracy would be a problem as long as the economy was under political control. And so his proposed solution was “to minimize to the utmost the relations of the state to industry.” In this way, far from viewing it a means by which the strong prosper at the expense the weak, Sumner saw a policy of laissez-faire as being the only reliable way to prevent such exploitation.
This leads directly to the third and final point, which is that it is the very essence of a system of laissez-faire to prohibit the violence and plunder that characterize the Darwinian “law of the jungle.” For Sumner, as for his contemporaries Herbert Spencer and Gustave de Molinari, the peaceful economic competition that exists within industrial society is an evolutionary advance from earlier forms of more violent competition. As culture and commerce advance, they tend to ameliorate the effects of the struggle for existence, even going so far as to replace it with a more benign process that Sumner referred to as “the competition of life.” That latter process replaces the zero-sum conflict of violence with what Spencer referred to as “antagonistic cooperation,” a process distinguished by its in-group cooperation and mutually beneficial exchange.
Nowhere is Sumner’s distinction between these two forms of competition more clear than in his condemnation of militarism, a force that he charged with “combating the grand efforts of science and art to ameliorate the struggle for existence.” War, Sumner made clear, “is not to be relied to finish the work of selection between states.” In some cases, it is true that war “destroys social rubbish.” But in others, “it destroys things which are societally, politically, and ethically good. It belongs to primitive and natural evolution,” not to society in its civilized state.
Particularly abhorrent to Sumner was militant imperialism and colonialism, in which supposedly “superior” cultures would set themselves up to rule by force over “inferior” ones. Sumner’s contempt for such policy led him to produce one of his most powerful essays, “The Conquest of the United States by Spain,” in which he argued that America was losing the Spanish-American war by sacrificing its principles and traditions of liberty and taking on those of Spanish imperialism. In particular, Sumner recoiled at the imperialist rejection of the basic moral equality of persons, an equality that Sumner saw as sometimes stretched too broadly by those who sought to extend it into economic equality, but which nevertheless in its core meaning was central to the classical liberal vision of liberty for which he stood.
There are plenty of people in the United States today who regard Negroes as human beings, perhaps, but of a different order from white men, so that the ideas and social arrangements of white men cannot be applied to them with propriety. Others feel the same way about Indians. This attitude of mind, wherever you meet with it, is what causes tyranny and cruelty. It is this disposition to decide off-hand that some people are not fit for liberty and self-government which gives relative truth to the doctrine that all men are equal, and inasmuch as the history of mankind has been one long story of the abuse of some by others, who, of course, smoothed over their tyranny by some beautiful doctrines of religion, or ethics, or political philosophy, which proved that it was all for the best good of the oppressed, therefore the doctrine that all men are equal has come to stand as one of the corner-stones of the temple of justice and truth. It was set up as a bar to just this notion that we are so much better than others that it is liberty for them to be governed by us.
In this essay, I have tried to shed some corrective light on an all-too-common misinterpretation of Sumner’s thought. That misinterpretation stemmed from a critic who was overtly hostile to the laissez-faire principles for which Sumner stood, and who arguably (and inexcusably) confused those principles with what in many ways was their very opposite.
Still, I do not wish to correct a hostile misreading of Sumner by straying too far in the opposite direction. Sumner was not a social Darwinist. But, as his racist remark about “Hottentots” makes clear, we don’t need to make things up in order to find offensive elements in Sumner’s thought. Even if he was not a social Darwinist, there are still elements in Sumner’s ideas and—especially—his language about the poor that are likely to make modern readers cringe. I will explore some of those elements in the concluding essay of this series. For now, however, I put them on hold to turn to a closer examination of Sumner’s most memorable essay, “The Forgotten Man.”
Comments Off on “America First!” and Anti-Social Communitarianism
The problem with communitarianism is that many communitarians make for bad community members. Many of them are “society first, individual second!” to the point of being anti-social. They aren’t the kind of people you’d want to live near.
Look, I get why people like community. I live in a fairly tight-knit community myself. We have little parades and fun runs. Various civics groups throw get-togethers all year long. The PTA works miracles. People know their neighbors. We have block parties. People come out to watch the various dad bands (and even the occasional mom band) play at the pool club. It’s nice.
But “American First!” isn’t just a plea to put America first or to treat our co-nationals as members of a giant community. Rather, it’s quite literally a threat, backed up with violence.
Suppose you have a group of friends in high school. One of your friends starts to hang out with people in a different clique. You don’t like that–you think your friend isn’t taking your friendship seriously. So, you talk among yourselves and come up with a solution: You decide you’ll beat up your friend next time he tries to hang out with the other kids. (Or, alternatively, you decide you’ll let him hang out with the other kinds, but only if he first pays you $3000. Otherwise you’ll beat him up.)
In this case, this doesn’t show that you really are loving, good friends who care a lot about community. Rather, it shows you are contemptible pieces of crap. You’re using anti-social methods to force people to maintain the kind of community you want. No reasonable person would want to be friends with you.
Nothing changes when it comes to how we spend our money rather than whom we befriend:
Random American: “Hmmm. I think I’m going to splurge on an entry-level luxury car. While Cadillac has made great strides over the past seven years, I’m going to go with a BMW 3-series instead of the Caddy ATS.”
America First! Guy: “Are you kidding? Don’t you think you should buy American?”
Random American: “Well, I considered it, but the 3-series better suits my needs and wants. I mean, I believe there is a time and place for charity, but I don’t buy cars out of a sense of charity.”
America First! Guy: “You know what, bub? If you aren’t gonna buy American voluntarily, I’m going to make you do it. This here gun says you better buy that GM car, or otherwise I’m going to take $3000 out of your bank account to spend on whatever I damn well please. And you better hire an American to clean your house. And you better not rent your other house to some Haitian or Dominican. You put America first, or I’ll make you put it first.”
Even if you think Random American should buy a GM car (a questionable claim at best), the America First! guy is a piece of garbage.
If you think American First! justifies economic protectionism, then you aren’t worthy of being in community with anyone. You’re like a teenager who beats up your friends when they find new friends. You’re like a priest who beats up people when they convert to a different sect. You’re like an abusive boyfriend who threatens to beat up his girlfriend when she wants to see other guys. In short: You’re an abusive member of the community. You’ve shown your true colors. The louder you make your threats and the more America is filled with people like you, the less reason I have to care about America or want to put it first.
Comments Off on Learn Liberty Turns 6
It’s safe to say that six years ago, we had no idea what we were doing.
Learn Liberty started with a pretty simple idea: let’s take the amazing faculty who teach at our in-person programs, and give them a larger platform.
Our organization, the Institute for Humane Studies (IHS), has been running educational programs about classical liberal/libertarian ideas since the early ‘70s. Hundreds of college students attend our weeklong seminars each summer, where they immerse themselves in lectures from a multi-disciplinary lineup of faculty and engage in discussion with their peers throughout the week. The goal is to introduce students to new ideas and provide a space for conversation and debate.
The professors who teach at our programs come from different universities and backgrounds, but they share a passion for teaching, a deep interest in ideas, and a concern about human freedom. Students rave about their lectures, and often express the wish that they had professors like this at their own schools. Indeed, that’s the reason we offer these free seminars to begin with: to give students the opportunity to learn about ideas they might not otherwise encounter in the classroom.
But there’s a limit to how many students we can pack inside a physical classroom. In 2010, we looked around at all the new opportunities for online education, and wondered how we could adapt our programs to reach a lot more people online.
Trial and Error (and Success!)
We had big ideas, and years of expertise in teaching students, but no experience with making videos. In late 2010, my colleague Scott Barton and I were tasked with launching an initial experiment by February 2011. Our challenge: “what if we could reach 10,000 students with a single video?” That sounded impressive back then.
In retrospect, it’s a wonderfully freeing thing to have no idea what you’re doing and very low expectations, because then there are no bad ideas. We tried it all — short and long videos, scripted and unscripted, animated and live-action.
Someone came up with the name Learn Liberty and stuck the word “beta” in the masthead, trying to embrace the Silicon Valley spirit of rapid experimentation and improvement.
In those busy days as the two of us rushed to make as many videos as possible, we were extremely fortunate in two things:
- The professors we worked with were phenomenal. They already knew how to teach concepts and make them engaging.
- We found talented filmmakers who were willing to take on contract work.
That combination produced some terrific videos, even in those early days. Which is not to say that all the videos turned out well — our inexperience also produced a number of quite boring and cringe-worthy videos — but we had far more successes than we expected.
Launch Day and Beyond
Less than a day before our launch, we tried our first upload to YouTube and discovered that the Internet connection in our office was too slow. The uploads kept timing out.
We scrambled to relocate to a friend’s apartment nearby, and for the next several days worked largely from his couch, uploading video after video, watching the little upload bars creep towards completion, generally just winging it.
On the day we launched, February 11, 2011, we didn’t know whether anyone would watch the videos. I was constantly watching the YouTube comments and view count, hungry for any kind of feedback. We were thrilled when views started climbing into the hundreds — bigger than any seminar audience we had ever reached.
In the first week, one of the videos we released on our first day ended up blowing away our expectations. “How Big is the U.S. Debt?” featuring Professor Antony Davies racked up more than 70,000 views in the first week, and more in the weeks thereafter. And suddenly our little experiment looked like it might be capable of big things.
In the years since then, our team has grown and Learn Liberty has released over 500 videos. We’ve reached millions of people on YouTube, Facebook, and other outlets. We’ve heard from students around the world who say the videos have made a huge impact on them. And we’ve continued to experiment, making some fantastic videos and some flops as well, and learning along the way.
For our 5th birthday last year, we made an updated version of our “How Big is the U.S. Debt?” video, and this year for our birthday we’ve created one in 360˚! Last year we also debuted the Learn Liberty blog and now reach 90,000 readers each month with written content.
I hope that in the past 6 years we’ve contributed meaningfully to the exploration of important ideas and, in doing so, made a difference in the world. It’s work that the team here at Learn Liberty plans to continue for many years to come.