Category: Economics

This category will explore how economic systems impact both individual freedom and the ability to create wealth.

The War on Reason

The War on Reason

“The curious task of economics is to demonstrate to men how little they know about what they imagine they can design.” – Friedrich August von Hayek

Jon McDonald is an energy economist in Texas focusing on the international trade of natural gas and natural gas derivatives. He has a master’s degree in energy economics from Rice University. Follow him on Twitter @jonnymack1010.


It is true that history gave us some philosophers who believed, through the power and process of human reason, they could predict the future of mankind as if it were as simple as watching the hands on a clock or the sun rise and fall. They claimed they were granted this power by a higher authority. Through their own arrogance they sought to produce absolute eternal truth. These utopian philosophers prepared schemes for paradise on earth but neglected the fact that what they believed to be eternal truth was just their own hubristic creation. The belief in this divinely awarded position led them to promptly establish absolute moral codes binding on all men. To free themselves from criticism, they raised themselves above fallibility and incorporated the intolerance and violent oppression of those who would dare disagree with their philosophy. Only these philosophers knew what was best for mankind so they sought dictatorship for themselves or for those who would put their ideas into practice. Only their ideas could end suffering. 

History gave us Georg Hegel and Auguste Comte. Hegel from Germany and Comte of French descent. Hegel knew everything in the universe that could be known. His doctrine held that to fully know anything required the knowledge of everything. He said the “truth” was revealed to him by Geist, or “The Absolute Spirit”. Though a brilliant thinker, nobody could interpret his work. Some took it as a reason for the autocratic dictatorship of the Prussian Church while others interpreted it as the reason for atheism and revolution. Comte said he could predict the future and he thought this entitled him to the position of supreme lawmaker. Comte worked to establish a new religion to replace Christianity and picked out a woman to supplant Mary. Comte was insane.1

The war on reason was borne out this line of thinking. It was not the result of careful self-examination, modesty, caution, or humility on behalf of the utopian philosophers nor was it caused by the failures of the natural sciences. The economic freedom which emerged as a by-product of the political freedom obtained in the late 17th and 18th centuries gave rise to the freedom to maximize knowledge towards the application of human needs. The result was the marvelous growth of science which ultimately changed the face of the world. It would be pointless to attack the technological improvements of the human race over the course of history as they speak an undeniable language of great progress and human ingenuity. Those who would wage the war on reason took aim at another target – Economics.2

The war took shape out of the conditions which existed in the 19th century. The classical economists – Say, Smith, Ricardo, and Bastiat among others – had laid socialism in its grave. They were yet to find the solutions to the classical system as drawn by Jevons and Menger, but they had done enough to expose the delusions of the socialist utopians. The communists were finished. There was only one way left open that could resurrect the collectivists ideas. They could attack reason and replace it with magical intuition.

History would choose Karl Marx to propose this solution.

Based on the omniscience granted to Hegel by Geist and the mysticism of Comte, Karl Marx gave himself the ability to predict the future for all of humanity. Karl, being the supreme knower of all things, was better informed than Hegel and Comte on the plans of Geist. In Marx’s vision of the future, the final outcome of humanity’s evolution must be the establishment of the socialist utopia. Socialism will inevitably arrive as time progresses as if it were natural law, he declared. Since every stage of human history improves upon the previous, the ultimate result of mankind’s evolution will be socialism and it will be perfect. Socialism is the highest form of civilization that man could ever achieve. Time is all that is necessary to bring about our socialist destiny and time will arrange everything for the best. There is no reason to listen to the advice of mere mortals. 

Marx still had one more hurdle in his path. The critique of the economists stood in his way, but he had a solution in mind. Human reason, he claimed, was insufficient to find truth. Universal logic and truth do not exist. Marx, replacing Hegel and Comte as the chief exhorter of “truth”, asserted that the different classes of society formulate logic in fundamentally different ways simply because the different classes have different incomes. Proletarian logic is different than bourgeois logic, he claimed. The bourgeois mind cannot produce anything other than an apology for their capitalistic exploitation of the proletariat. Therefore, bourgeois logic is irrelevant, and the proletariat class will soon abolish all classes to convert the earth into a socialist heaven. Marx stated that whatever the mind produces is ideology which can only demonstrate the selfish interests of the theorists own social class. To Marx, universal truth and reason were not available to the human mind. Yet, according to the supposedly higher mind of Marx it was universally true that socialism was mankind’s destiny.

Fittingly, some members of the bourgeois were granted the ability to logic like the proletariat. By the work of some unspecified miracle, Marx was endowed with this special ability. Karl Marx, the son of a wealthy lawyer and married to a Prussian noble, was a member of bourgeoisie awarded the knowledge of the logic of all class’s past, present and future. His collaborator Frederick Engels, a wealthy textile manufacturer, was also granted this special privilege – an obvious coincidence. That Marx and Engels both attained a wealthy status by what they called “capitalistic exploitation” by other members of society was irrelevant. They had the approval to determine absolute truth by Geist and were therefore exempt from their own theory. 

In the Marxian universe, everything revolves around the income of someone else as if it were the gravity that holds that world together. The Marxist doctrine is a false prophecy that attempts to teach the world how to properly covet, envy and despise the position of another. Marx asserted that the logical structure of the mind is dependent on class, or, essentially, income and status. Thus, the Marxists reject the economic concept of scarcity as outlined by Lionel Robbins. They reject it not only because the socialist order cannot account for this reality in its operation, but because Robbins rose from the humble life as the son of a farmer to the ranks of a prestigious professor at the London School of Economics. To a Marxist, an economic theory developed by a member of the bourgeois is spurious. The Aryans reject the theories from economists like Ricardo, Rothbard and Mises because they were Jewish. The logic of a racist differs only from Marxian logic in that it ascribes to each race a different logical structure of the mind and holds that all members of certain races, regardless of class, are endowed with this logical composition. 

Now, it is irrelevant for economics to critique the concepts of class and race as prescribed by the Marxists. It is not the purpose of economics to ask a Marxist when and how the logical structure of the mind changes when a member of the proletariat succeeds in joining the ranks of the bourgeois. It is not necessary to ask a racist to explain the logic of people who are not of a single race.

Economics has more important arguments to put forward. 

The belief that simply discussing the background of an author will suffice in the attempt to illuminate the fallacies of a theory is entirely asinine. What is necessary is to construct a system of logic to counter the contested theory to show why the theory contains invalid logic. Neither the Aryans nor the Marxists have ever been able to design such a system. Nor have they been able to demonstrate precisely in what logic the proletarian logic differs from that of the bourgeoisie or the logic of the Aryans from the non-Aryans. If such a system of counter-logic cannot be constructed, a Marxist or an Aryan would have to consistently maintain that certain ideas are false because the author is not a member of the proper class, nation, or race. However, consistency is not their strength. The Marxists and the Aryans will approve any thinker whose doctrines fit their own ideology. Anybody else is their enemy guilty of treason.

In a free market system where individuals with the natural right to choose the pursuits to which they will direct their labor, either for necessity or desire and unobstructed by the arbitrary powers of another, every change in the market setting will affect the short-run interests of several different groups of people. This dynamic makes it easy to expose every single change in the existing conditions as a change which benefitted the “selfish interests of greedy people.” Many authors today fall victim to this low-hanging fruit and Marx did not discover this procedure. It was known long before his time. It never occurred to the supporters of such dogma that where there are selfish interests in favor of certain changes there must always be selfish interests against such changes. It is completely unsatisfactory to explain any event as an affair that favored a special class. The question that is necessary to answer is why the rest of the populace whose pursuits were injured by such an action failed in challenging the efforts of those who were favored by it.3

Every firm in every sector of a free and competitive economy is interested in a higher quantity of sales for its products or services. In the long run, however, there exists a prevailing tendency towards the equalization of profits in the various sectors of production through the process of competition. If the demand for the products or services of a certain branch of industry increases, prices will rise until sufficient productive capacity can be built to meet the rise in demand. The rise in price signals a shortage and an arbitrage opportunity to a profit maximizing agent. Investors rush into the sector attempting to capture a return on capital. In consequence, more capital flows into the sector increasing the productive capacities of competing firms. The dynamics of new entrants and higher production results in lower prices and the competition of new enterprises brings the height of net returns down to a more equal level.

Those at the helm of the already high profitable firms have little interest in the preservation of free competition. They are, however, opposed to new entrants expropriating their profits and would rather keep competition at a minimum to ensure higher prices. On the other hand, they are in favor of government measures which prevent new business from challenging their position in the market. Those who fight for free enterprise and free competition do not defend the interests of the rich. They want the opportunity left open to the unknown entrepreneurs and innovators of tomorrow whose ingenuity will make the life of coming generations more agreeable. They want the way left open to further economic improvements. They are the watchtowers of human progress.


*Special attention was given to the work of Ludwig von Mises in the writing of this essay. The majority of what is written here can be found in Human Action – ‘Economics and the Revolt Against Reason’. My hope was to bring this work back into discussion in a condensed version.

[1] Ludwig von Mises, “Human Action”, 1949. Hereafter abbreviated LVM.

[2] LVM

[3] LVM


Did Jesus Despise Money?

Did Jesus Despise Money?

Jesus never turned up his nose at the concept of a medium of exchange, or honestly earning it in productive commerce.

Lawrence W. Reed

Lawrence W. Reed is President Emeritus and Humphreys Family Senior Fellow at FEE, having served for nearly 11 years as FEE’s president (2008-2019). His website is www.lawrencewreed.com.

This article was originally published on FEE.org. Read the original article.

“Jesus Christ regarded money as ‘filthy lucre’ and the root of all evil!” pronounced a student at one of my campus lectures a few months ago. That’s not an uncommon view but it’s also manifestly erroneous—completely and utterly false.

The student was responding to my lecture titled “Was Jesus a Socialist?”, based on a short essay I wrote in 2015.

I greatly expanded that essay into a book by the same title, and it’s available for pre-order now from FEE, Barnes & Noble, ISI Books and Amazon.

The book examines a larger question of which money-related issues are a small part. Daniel Hannan of Great Britain wrote a terrific foreword. Editor/publisher Steve Forbes calls it “a learned and well-argued masterpiece.” Historian Burton Folsom says, “Thanks to this book, progressives will never again be able to claim with any credibility that Jesus would stoop to be a socialist.”

I hope you’ll order a copy for yourself and one for your pastor or priest or other interested party because, on this important topic, there’s nothing on the market as convincing and comprehensive. (Thanks to readers for indulging my advertising).

Money in Jesus’s day and what he said about it are interesting subjects, worthy of attention regardless of one’s faith, denomination or lack of either. Let’s take a look.

Jesus himself never used the phrase, “filthy lucre.” It appears only four times in the entire Bible. In each case, it’s employed by someone else and always in reference to theft or dishonesty, as in “loot” or “ill-gotten gain.”

Theft and dishonesty are targeted for unqualified condemnation throughout both Old and New Testaments, and from numerous prophets and sages. For example: “Don’t take money from anyone by force or accuse anyone falsely,” advised John the Baptist when questioned by a group of soldiers (in Luke 3:14). In Proverbs 11:1, we are told that “A false balance is an abomination to the Lord but a just weight is his delight.”

Jesus never suggested, even remotely, that money per se was an evil. He praised the earning of it through productive work and investment, as in the famous Parable of the Talents. He advised careful stewardship of it in business, as in Luke 14:28-30. He encouraged the private, voluntary giving of it to worthy purposes and charities, as in the Parable of the Good Samaritan. He praised those who supported ministries, missions and the temple by their tithes and offerings, as in the story of the widow’s mites in Mark 12:41-44 and Luke 21:1-4.

On many occasions, he urged people to help each other—including by way of donating money—to meet legitimate needs and improve conditions. You and I have done the same, perhaps on a daily basis at work or at home. Encouraging someone to help a person is one thing but compelling someone to give to help someone is quite another. Jesus called for personal, individual and free will-based generosity, not coercive, state-run redistribution programs.

Why do so many people think that because Jesus endorsed charitable giving, he would also embrace a compulsory welfare state? There’s a world of difference between the two. If I recommend that you read a book, would you assume I would support the state forcing you to read it? When your mother told you to eat your broccoli, did you think she was endorsing a federal Department of Vegetables?

More than once, Jesus cautioned against letting one’s character succumb to the harmful temptations and excesses that often accompany money. Similarly, he favored eating but not gluttony, sleep but not sloth, fasting but not starving, drinking but not inebriation.

And Paul, Jesus’s most famous and prolific apostle of the 1st Century, warned against the love of money but not money itself. In fact, to argue that a medium of exchange is somehow inherently evil would be one of the dumbest things for anybody to claim. Any economist will tell you that money—especially honest money that isn’t adulterated by fiat, fraud or false weights—facilitates a level of trade and standards of living that neither a primitive barter system nor a state-run allocation scheme could ever hope to produce. Biblical censure of dishonest money issued by inflating governments is at least as old as Isaiah’s excoriation of the Israelites, “Thy silver has become dross, thy wine mixed with water.”

Paper money made its first appearance a thousand years after Jesus’s time. Money in his day consisted exclusively of metallic coin. Judea being a Roman province when Jesus lived, its money was officially that of the regime of imperial Rome’s first emperor, Augustus, who ruled from 30 BC to 14 AD and that of his successor Tiberius, in power from 14 AD to 37 AD They issued a gold aureus and a silver denarius in a bimetallic regime whereby 1 aureus was equal to 25 denarii. When Jesus asked the Pharisees whose image was on the denarius (Mark 12:15), the reply was “Caesar’s.” It was probably that of Augustus.

Jerusalem was a center of international commerce at the time, so citizens of the area likely saw coins from many places and composed of other metals as well, giving rise to a thriving business of money changing. Jesus famously drove some of those money changers from the main temple (and never from a bank or a market) because it was not an appropriate activity for such a holy place. Certainly there was no reason to tolerate any disruption of services or harassment of worshippers. Ancient coinage expert David Hendin tells us:

Money changers and animal merchants were ubiquitous around the temple, even in the outer Court of the Gentiles. The money changers and sellers of livestock were forced to operate outside of the temple. Indeed, archaeological excavations along the Western Wall of the Temple Mount in Jerusalem have revealed a street and a row of small shops that likely housed money changers, sellers of small animals, and souvenir merchants.

Theirs was a good business, especially during the pilgrimage holidays. It’s easy to imagine how money changers and other merchants could become rowdy while competing for business (“Change here! Our commissions are lower!”). This competition must have reached a point of offensiveness when Jesus upended their tables…

Once, a man approached Jesus and asked him to use his power and influence to redistribute the wealth from an inheritance (Luke 12:13-15). The man claimed his brother received more than he should have, so Jesus should see to it that some of his brother’s money be taken away and given to him. Jesus’s response was to rebuke the man for his envy. “Who made me a judge or divider over you?” Jesus asked. Clearly, Jesus didn’t see money as a convenient instrument by which we can rob one to pay another to achieve wealth redistribution.

Frequently misunderstood is this important admonition from Matthew 6:24, repeated in Luke 16:13. Jesus said:

No one can serve two masters, for either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve God and money.

Some readers interpret these words as a blanket repudiation of money. If the choice is starkly defined as God or money, one or the other and no in-between, then of course a believer should opt for the former. But note the context: Jesus was not talking here about a consumer in a physical marketplace. You wouldn’t get very far if you said to the clerk in a department store, “Instead of cash for that shirt, let me give you a sermon.” When Jesus made this statement, he was speaking to a group of Pharisees, who were notable for their love of money above everything.

The key words are “serve” and “masters.” Jesus was referring to a reverential relationship. What do you worship? Which “master” do you listen to when their directives contradict one another? In other words, prioritize properly. Money has its place in economic life but should never be one’s most important focus. Don’t allow it or its associated temptations to rule you.

Bottom line: Whatever your faith may be (or even if you presently possess none), don’t make claims about Jesus and money that can’t be supported by his words and historical context. He never turned up his nose at the concept of a medium of exchange, or honestly earning it in productive commerce. He never suggested there was some magical limit to the material wealth a person should earn through peaceful trade. He did, however, advise against allowing money to run your life and rule your relationships.

Econ 101: An Austrian Economist’s Dream

Econ 101: An Austrian Economist’s Dream

Human Beings Behave Purposefully

Arthur Foulkes

Arthur Foulkes writes for a daily newspaper in Indiana.

This article was originally published on FEE.org. Read the original article.

On the first day in an economics class the instructor tells us that “resources are scarce,” but human “wants are unlimited”—hence the eternal “economic problem.” How do we know resources are scarce? We can observe this fact with our senses; we can see that nothing is available in unlimited quantities everywhere and at all times. And how do we know human wants are unlimited? Again, we can observe this fact; as an economics professor of mine once explained, even a billionaire would probably not refuse another million dollars. Thus human wants must be unlimited.

Next our instructors inform us that it is the goal of economics to help society determine how best to allocate its scarce resources to meet the most human wants in the most efficient way. Soon they escort us to the concepts of goods and services, supply and demand, production, utility, and so on. We are introduced to models of human behavior—based on the idea of “maximizing utility”and soon we are drawing “production possibility frontiers” and demand and supply curves, and writing sophisticated mathematical equations.

But what if economics courses started differently? What if on the first day of the course we were told that economics is about human action and “the regularity of phenomena with regard to the interconnectedness of means and ends.”1 In other words, economics is about the laws of human behavior, which is associated with pursuing goals.

You might say, “I’ll take the first definition!” Indeed, economics as the study of allocating tangible goods and services to tangible people with quantifiable “utility” functions seems, at first, much more . . . well . . . tangible. Pretty soon we can forget we are talking about actual human beings with unfathomable minds and values. We can begin to quantify everything and presto, our “economics” has become a kind of applied mathematics.2 Certainly the math we use can become very advanced and difficult, but at least we are dealing with quantifiable concepts and actual numbers.

But what does this approach tell us about economics itself? It fosters the notion that economists are training to become either social engineers whose jobs involve finding the “optimum” level of consumption, for instance, or fortune tellers calculating next year’s demand for apples or the future price of coffee.

Economics in the second sense, on the other hand, leads to the view of the economist as someone working to understand unalterable laws of human economic behavior, the knowledge of which helps us achieve our goals. This approach does not start with empirical observations about reality but rather with the incontestable proposition that human beings act purposefully. From there we deduce other incontestable truths about real human behavior.

This deductive approach is the defining characteristic of the Austrian school of economics. It is what separates it from the mainstream neoclassical school, the Keynesian school, monetarism, Marxism, and the others.3

The empirical approach associated with mainstream and other economic schools reflects the reigning positivist tradition in virtually every contemporary science. According to this philosophy, nothing is knowable if not observable and quantifiable. Lord Kelvin spoke for the entire tradition when he explained, “When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind.”4

But, of course, this very proposition, which claims to make a definite statement about reality and our ability to understand it, cannot itself be expressed in numbers. Therefore by Kelvin’s own standards his contention represents “meagre and unsatisfactory” knowledge at best. And this is the problem with the entire empiricist method.5

Action Axiom

The Austrian approach, by contrast, begins with the simple proposition that human beings behave purposefully. Yet Austrians do not attempt to “prove” this proposition by observation, experimental testing, intuition, or even “common sense”; rather, the proposition is established as incontestably true because it is self-contradictory to deny it. Any attempt to disprove it would itself be a purposeful action.6

How much better economics education would be if, on the first day of Economics 101, students were introduced to this axiom of purposeful action. Then, over the next several days and weeks they could be shown how it implies the economic categories of choice, ends, means, costs, profits, and loss, and further how economic laws are also derived from this starting point, including the law of marginal utility or the law of demand. This would not necessarily make studying economics less difficult than the present highly mathematical approach (because the conceptualization and logical rigor is highly demanding). But it would certainly bring it back in touch with real human behavior and dispel the popular notion that wise economists can reshape the world according to their sophisticated mathematical designs.


Notes

  1. Ludwig von Mises, Human Action, 4th rev. ed. (San Francisco: Fox & Wilkes, 1996 [1949]), p. 885.
  2. This term, “applied mathematics” is often used to describe the methods of mainstream economics. The earliest such use I could find is from Lawrence White, “The Methodology of the Austrian School Economists,” rev. ed., Ludwig von Mises Institute, 2003; www.mises.org/mofase/methfinb.pdf.
  3. Hans-Herman Hoppe, Economic Science and the Aus- trian Method (Ludwig von Mises Institute, Auburn Ala., 1995) pp. 7–9.
  4. Lord William Thomson Kelvin, “Electrical Units of Measurement” in Popular Lectures and Addresses, vol. 1 (New York, Macmillan, 1889), pp. 73–74.
  5. Mises, Ultimate Foundations of Economic Science (Foundation for Economic Education, Irvington-on-Hudson, N.Y., 2002 [1962]), p. 5; Hoppe, pp. 33–34; 51–53.
  6. Hoppe, p. 61.