Austrian Theorizing: Recalling The Foundations by Walter Block:

“Indifference,” for the Austrian School is a technical word. We deny that indifference is compatible with human action, the attempt to render the world a more preferable place than would have occurred had no such act taken place. Were a man truly indifferent between state of the world A (the one which would ensue without his intervention) and state of the world B, he would not act so as to make the latter more likely.

We do not deny, however, that “indifference” also has a perfectly reasonable usage in common parlance. In ordinary language, a person could be readily understood to be indifferent between wearing a green or a blue sweater. This means that he doesn’t care much which one he chooses. Given that he will only wear one of them at a time, and chooses the green, he is still reckoned, speaking loosely, to be indifferent between them, because we can readily imagine him picking the other.4

But if we were to “get technical” about the matter, it would be at the very least extremely puzzling for a man to select the green sweater in preference to the blue if he were truly indifferent between them. Indeed, this would be nothing less than a logical contradiction. If indifference were his exact mental state, surely he would select neither article of clothing. As in the case of Buridan’s Ass, who avoided both piles of equidistant hay, he would eschew both sweaters.5 Very much to the contrary, if when presented with both the person selected green instead of blue, we as outside analysts, or economists, would be entitled to infer from this act a preference for green.

People don't get stuck like the donkey who can't choose between two equidistant piles of hay. They do other things. When they are indifferent they can use a tie breaker, even an arbitrary one like a coin flip. Then they can say, "Yes I chose the green sweater, not the blue one. But that doesn't mean I prefer it. I chose it by coin flip."

When people are genuinely indifferent but prefer to make a choice rather than do nothing, they act accordingly – they make the decision somehow, such as with a coin flip or by examining their preferences more carefully and discovering they were only indifferent to some level of precision but not infinitely indifferent.

Coin flips are very well known. Why doesn't Block address this? It's true that the coin flipper preferred the coin flip method over alternatives like sitting there unable to choose. But that is a different preference than preferring a green sweater to a blue sweater.

Block also specifically covers the sweater example:

Our author’s second sally (1999, p. 826) is “One can only observe that I choose a green sweater, but this does not rule out the possibility that I was actually indifferent between a green sweater and a blue sweater.” In common parlance, we are certainly prepared to accept Caplan’s introspection on the matter. Presumably, he has no strong preference for the one color over the other. But as a matter of technical economics, we are hard put, on the basis of indifference, to account for the fact that he did indeed pick up and put on the green sweater, when he could have had the blue. Perhaps the green one was on top of the blue, and some slight additional effort would have been necessary to wear the latter; perhaps they were side by side, but at the last minute, even thinking he was fully indifferent, he veered toward the green based on a very slight, perhaps even unconscious preference. All we know is that he dug into his sweater draw, and came up with the green one. What else are we to infer but that he preferred his color?

Block seems to be missing the point that you could prefer the top sweater which is a different thing than preferring the green sweater. In the last words of the paragraph, Block summarizes a preference for a more convenient sweater as a preference for "his color" (that is, the color he chose). But that's silly. He may not have been choosing a color of sweater, but a proximity of sweater, as Block himself just said. (Caplan, the inferior thinker who Block is arguing with, simply fails to provide any notable analysis of this matter to discuss. But Block, so starved of discussion – after I was ejected, years ago, from the Mises email group (where Block participates) for lacking the authority of credentials – is pleased to have Caplan to talk with, as he says in the introduction.)

As Critical Rationalism explains, actions don't speak for themselves anymore than data does. It takes intellectual interpretation to figure out why a man took a particular action. Block seems to know this when talking about getting into the mind of the economic actor, but seems to forget it in this part about the sweaters. When you get into the mind of the actor and try to understand his purpose, you may discover he wasn't choosing by color.

Did he take that action because he preferred green over blue, or because he preferred a closer sweater? The action of picking up a sweater alone can't tell you on which basis the man made the choice (color, location, something else, or a mix), only that, in that instance, he preferred the green-and-closer-and-many-other-things sweater over the alternatives (he preferred the whole bundle of traits that he chose). The bundle of traits people chose is always infinite, so it takes explanations and critical thinking to determine which traits were important to the person's preference. Such analysis matters because people have preferences which are not unique to each individual choice, but instead allow them to make many choices according to common themes. These ongoing, persistence preferences are key parts of a person's life/personality/thinking which enable him to do any planning regarding the future, and enable him to be understood by others.

I comment on Debate Between E. R. A. Seligman, Affirmative, and Scott Nearing Negative (1921) (free ePub and PDF downloads are available from the gear menu at the top right). This was recommend by Mises in Liberalism: In the Classical Tradition (in the appendix "On the Literature of Liberalism").

The debate topic is That Capitalism has more to offer to the workers of the United States than has Socialism.

The format the debaters each speak three times: to explain their position, a rebuttal, and short closing remarks. The moderator gives a brief introduction first. My comments were written as I read through it, without knowing what's said later.

Moderator's Introduction

The (self-proclaimed) moderate moderator says:

the then Governor of the State [of New York], Alfred Smith, solemnly proposed no less than nine ultra-radical or Socialistic laws, including such things as the ownership, development and operation of all water powers by the state, maternity insurance, the municipal operation of all public utilities, the taking over of the medical and nursing professions to the extent of supply ing doctors and nurses to rural communities now destitute of such aid, the declaration that production and distribution of milk are a public utility subject to the control of the State in all details, and State-owned and operated grain elevators in three cities, precisely after the manner of the Nonpartisan League plans in North Dakota. I have long thought that "Al" Smith was a wonderful man, but I do not know of anything in his career that is more wonderful than the fact that he got away with these proposals without even being denounced as a Socialist by the New York Times. Of course, he did not get what he asked, but the point is that if the Governor of North Dakota were to come out tomorrow and demand these things, the New York Times would shriek with anger and declare that Bolshevising of America was at hand.

I thought it was interesting how different the NYT was then, at least by reputation (he's saying the NYT did not complain about radical socialism, in this case, but he expected them to, in general). It's also notable what sorts of socialist policies were being proposed in the US around 1920.

Al Smith was governor of New York four times, and was the Democrat candidate for president in 1928. Wikipedia says that when he badly lost the presidential election, he carried the Deep South (that's notable in terms of how the electoral map has changed). To think Al Smith "was a wonderful man", while knowing he had made such proposals, is clear partisan bias from this moderator who claims to be a moderate supporter of capitalism.

All of which, I think, proves my case that the Socialistic experiment in greater or less degree is going to be undertaken by the world. In the ardent hope that it may produce a better world than we have been living in, my plea today is, as I have said, not for Socialism, but for a careful examination of this and all other proposals for the betterment of the race which is so badly off, that, for all we know, civilization may not recover from the shock of this war. [emphasis added]

People today don’t take seriously how bad and destructive the world wars were, especially WWI.

The moderator then quotes the (self-proclaimed) conservative, individualist, anti-socialist Hammond Lamont, who thinks debate over socialism may help educate the populace, even though it’s a mistaken idea, as he says debate over free silver coinage did. He's confident in reason winning out in debate. He adds:

For one thing, Socialism is eminently a peace movement; it is steadily opposed to militarism; and it will thus help us to see more clearly the silliness of the huge naval and military expenditures in which we seem bound to rival the groaning nations of Europe.

Foolish! Socialism has so much blood on its hands, and its consequences were always foreseeable. Mises published Economic Calculation in the Socialist Commonwealth (which refutes socialism) in 1920, long before Stalin, Mao, etc. And how can a movement be peaceful when its goal is to take huge amounts of property (all property used in economic production) from its current owners?

Capitalist Argument

The pro-capitalism guy, Seligman, goes first. Notes on what he says:

• Capitalism is private, individual ownership of the means of production (mainly machines).
• Socialism has many varieties. Their theme is group ownership of the means of production.
• The attitudes of capitalist people vary, but the capitalist system itself is progressive. (He thinks even slavery and serfdom were "progressive" institutions because they were different at later times than earlier times. I disagree.)
• We must analyze what wealth each system produces, not just how much it distributes to workers.
• Marx said that under capitalism the rich get richer while the poor get poorer, but factually this is incorrect and both groups have gotten richer. Important socialists recognized Marx was wrong about this.
• Marx thought that capital accumulation caused periodic, worsening crises, but he was wrong. The economic panics of 1818, 1837, 1857 and 1873 got progressively worse, but then the ones in 1884, 1894, and 1907 got progressively less bad.
• Marx thought the most developed capitalist country is where socialism would come, but it came in Russia not USA, so he was mistaken.

What are the achievements of capitalism?

• The accumulation of wealth, regardless of owner, has made the worker's life better, e.g. by providing him with railway transportation (including trolleys for commuting to work), libraries and museums.
• Diversification of consumption: bread from North Dakota wheat; meat from the Western US states or Argentina; tea from Cathay; sugar from Cuba or the Far East; tobacco from Sumatra or the Orient; leather shoes from Siberian, Russian or South American hides; wool from Australia; soap from Africa; Pittsburg iron for commuter trolleys, refined from ore from Western states.
• Capitalism brought real democracy. The greeks had sham democracy because they had slaves. England was an aristocracy, not a democracy, in 1776. In 1800, New York was run by great families just like in England. [This point is short and I don't think it's explained well.]
• Liberty of movement, as against serfs bound to the soil.
• Capitalism is the source of education and science. Our public schools are flawed but still amazing compared to human history. The Greeks and Arabs had some science, but capitalism brought us modern science because "the modern business man in order to succeed must know the secrets of nature. He must secure the proof and in order to get the proof he must employ and utilize those forms of organized investigation which we call science."

Weaknesses of capitalism?

Because capitalism is progressive, the weaknesses are being reformed.

A weakness is "unfair competition between businesses and human beings". As explanation, he names Jay Gould and Jim Fiske, who have robber baron reputations today, who he says would be unthinkable today (in 1921). He says the Interstate Commerce Commission is regulating the issue of financial instruments related to railroads and "such things" will be impossible in the future. He concludes this point with:

What President Roosevelt did, among all his many accomplishments, was to so change certain forms of unfair competition as to make them more difficult. Society under modern capitalism, is gradually rendering competition more and more fair.

[It's hard for me to evaluate this without knowing about Gould or Fiske in particular. Some alleged robber barons were great men, but some really were bad. I also don't know enough about 1920's politics to know what sorts of "unfair competition" are being talked about here.]

Second weakness: some unjust privileges and monopolies exist, but when recognized they are counteracted, e.g. by the "trade commission" [presumably government regulation].

In the third place, I should say that modern capitalism does result in exaggerated fortunes. The development of a leisure class has its bad sides at a time when everyone ought to be working.

Ugh, the pro-capitalism guy, recommended by Mises, is so much worse than Mises. He dislikes wealth inequality instead of being more like Mises' student, George Reisman, who wrote: How The 1 Percent Provides The Standard Of Living Of The 99 Percent. (It's only 99¢ and 14 pages.) Continuing the same quote:

A generation ago, I wrote a book on Progressive Taxation and I was attacked on all sides by the reactionary and the standpatter on the ground that I was preaching confiscation. Nowadays, everyone, the capitalist like the others, not only believer in, but argues for, progressive taxation. We have today gone further in this country than in any other—perhaps as some of us think even too far—with a system that takes up to 69-73 per cent of a man's income and in some cases even more. Progressive taxation is a sign of what modern capitalism is doing to restrict some of its own evils.

My question at this point is why did Mises recommend this debate, when the supposed advocate of capitalism is such an awful traitor to capitalism? Mises wrote:

You can learn something from this, sure (from the socialist as well, by seeing what he's like – especially because the equivocations considered necessary were different 100 years ago, so he openly says some things that socialists don't admit today). But it's so sad that Mises didn't have better things to recommend than this ignorant compromiser. If anyone would have known where to find better materials, it would have been Mises, so I'm concerned that they don't exist. (He did recommend other things as part of the literature of liberalism, for people who want to learn more, but this debate made the list, beating out everything not listed.)

Seligman goes on with further counter productive comments about working hours, then about wages:

Wages are by no means what they ought to be. Wages are certainly far less than they should be. But wages have been growing during the last hundred years indubitably, and starting In Australia, going on to England, and now proceeding in this country, we have the great minimum-wage movement which is gradually improving those conditions.

He says capitalism is making this better – including with minimum wage movements (which he apparently doesn't realize are anticapitalist price controls which make everyone less wealthy and especially hurt the poorer and less skilled workers). But his view of the matter is awful compared to Mises himself or Mises' student, George Reisman, as explained in Reisman's Marxism/Socialism, A Sociopathic Philosophy Conceived In Gross Error And Ignorance, Culminating In Economic Chaos, Enslavement, Terror, And Mass Murder: A Contribution To Its Death and my 10 educational videos covering that book.

Seligman goes on to praise government unemployment insurance, which he thinks will improve the capitalist problem that workers fear losing their jobs, and then he states his acceptance of the very nasty belief that working with machines is less enjoyable than previous non-industrial work. His defense, here, is that socialism will need machines too, and that capitalism shouldn't be blamed for the problems of machines, and that we're increasing leisure hours which make up for industrial work being unpleasant.

Seligman says despite his reservations about capitalism, he rejects socialism because:

• Paying everyone equally, instead of paying for efficient production, results in less production. (He says even in Russia they had to have bonuses for good workers, and gave up on the equal pay that Lenin preached.)
• Ricardo (who Mises praises) wrote fallacies (which aren't specified). But, somehow related to that, industrial leaders are rare and are valuable to society, and capitalism handles that better. Socialism would remove the incentive to be an industrial leader, or even to try to produce a little more than your neighbor, and it'd also limit the risks that industrial leaders would take to try to make a profit. Seligman says that under socialism people couldn't "afford" to take those risks, but doesn't explain why. I guess, from the word "afford", that he has in mind that socialism wouldn't let some businessmen get rich enough that they could afford to lose a lot of money without ruining their lives.
• Various (unspecified) socialists have admitted their system would restrict freedom.

Socialist Argument

The moderator introduces and praises Nearing, the socialist debater, but did not introduce or praise Seligman previously. This is biased and unfair. Nearing apparently went to court to defend his free speech rights to argue for socialist ideas, even during war time (World War I).

Nearing agrees about what capitalism and socialism are. Note the mention of no private profits:

He [Seligman] has defined capitalism as that form of industrial organization where the means of production, primarily the machines, are in the control of private individuals. He has defined socialism as the control of capital in the hands of the group and under it there shall be no room for private rent, interest or profit. [emphasis added, and FYI Nearing means economic rent, he's not saying that you couldn't charge rent for an apartment]

I appreciate the clarity from Nearing, even though he's mistaken, and he continues with more clarity:

I want to try to demonstrate to you that under capitalism the worker has to accept, first, intermittent starvation, second, slavery and third, war.…

… Under the present system of society, a little group of people own resources, machines, capital, all of the machinery upon which forty million workers depend for their living. That is, the capitalist owns the job. The capitalist owns the job without which the worker dies of starvation. The worker therefore must go to the capitalist and ask for permission to work.

I would say the businessman created the job which allowed forty million workers to be born and fed, and they wouldn't be alive without the businessman. Without businessmen who saved wealth and invested it in machines, there'd be far fewer people. A low-technology society with large numbers of self-employed persons (mostly farmers) can only feed so many people on a given area of land (who are slaves to Nature – they must work or Nature will starve them to death). The reason there are more workers than can have their own land to farm, or otherwise be self-employed, is because capitalism enabled them to be alive at all. The reason most workers seem bound to seek jobs is because those jobs are the only reason they can be alive at all. They should be grateful for the jobs which gave them life, and that they live in a society where they can improve their life situation, where capitalism has provided upward mobility through many means other than military success.

Besides, the businessmen compete for workers. Wages are set by supply and demand. Workers need jobs, sure, but businesses also need workers. The buyers of labor compete with each other, in the market, just as the sellers of labor do. Nearing is ignorant of how supply and demand set prices. This is covered in Reisman's Marxism/Socialism book linked above (which refutes Marx's iron law of wages), and my videos on it, and in detail in my educational discussion teaching Andy why minimum wage is bad and how the free market determines wages, and of course in the books of Mises and in Reisman's Capitalism: A Treatise on Economics.

I hope Seligman has a decent rebuttal to this point. He should at least know how supply and demand set the price of labor, I hope.

Nearing continues with details rather than arguing further his claims that workers ask permission to work instead of negotiating. He says the 1918 tax returns showed that only 14 families in 1000 had $10,000+/yr income, which he says isn't very much money. Then he says it's only 4 in 1000 – I think the 4 or the 14 must be a transcription error in the book, not Nearing's fault. He says he unfortunately couldn't get statistics for how much wealth people own, just the income numbers. Nearing says that because a handful of people own the "railroads, the banks, manufactories, mining and other establishments", the workers are slaves. He says that 26% of school children are underfed, while some document that isn't available says that businessmen made hundreds or thousands of percent profit in one year (1917). And he keeps saying Marxist things (refuted by Mises and Reisman) about how the worker has to produce his bread and also produce a surplus profit for the capitalist who doesn't labor for it.

Nearing also says that businessman accumulated too much surplus from the workers, and they wanted to "burn" it and "dispose of it", and World War I gave them a chance to dispose of surplus wealth, and exports gave them a chance, and now without those chances they are firing workers. He doesn't explain this nonsense, he's basically just ranting. Here's a part that's meant to be more of an argument than the smears about WWI:

I got a report from the New York State Industrial Commission this week: 643,000 men and women out of work in New York State. What have they done? Why, they cannot have work. But what have they done? Why, they have produced too much. They have created too great a surplus. They must wait to produce more until this surplus is consumed. Can they consume it? No! Because they did not receive enough wages to buy it back.

But that isn't how economics works. You don't get fired for producing too much. I'd refute it in more detail, but he (so far) doesn't give detail about why he thinks this. Nearing continues with the barrage of claims, including more statistics and factoids, rather than trying to explain reasoning about how he thinks economics works. He's a demagogue, riling up the audience and getting applause and laughter (which are repeatedly mentioned in the text in parentheses). He reminds me of Roman demagogues like Publius Clodius Pulcher, and the role of the mob in Roman life.

Nearing says what socialists want is to own things like coal mines themselves, rather than be poor in the richest country ever to exist, and he wants everything priced with no surplus/profit. But he says he doesn't want to stress that, he wants to focus on the essential issue: accusing capitalism of being a system of slavery.

The employing class owns the Press, the economic power centering in the banks, schools, pulpit, press, movie screen, all the power of wide-spread propaganda now. "When we have something to sell to the American people, we know how to sell it." Slavery—going to the boss and asking for the privilege of a job;—slavery—sending your child to school and having him pumped full of virulent propaganda in favor of the present system (Great applause). Slavery in every phase of life all tied up under this one banker's control. Is it true that no man is good enough to rule another man without that man's consent?

My take: Nearing has complaints about society, some correct, some incorrect. People find his speeches appealing because they agree with some of his complaints. He doesn't know anything about economics (and neither does his audience). Socialism would only make things much worse (giving one employer, the group in charge of the means of production, a monopoly. Today, if one employer doesn't like you, you can find a job elsewhere. A monopoly on all the jobs, as socialism proposes, would only make the employment situation worse.) But I'll have to see what he says when he gets to talking about socialism instead of just criticizing his current society (without paying attention to which thing she doesn't like are due to capitalism, and which have other causes).

The employing class owns the Press, the economic power centering in the banks, schools, pulpit, press, movie screen, all the power of wide-spread propaganda now. "When we have something to sell to the American people, we know how to sell it." Slavery—going to the boss and asking for the privilege of a job;—slavery—sending your child to school and having him pumped full of virulent propaganda in favor of the present system (Great applause). Slavery in every phase of life all tied up under this one banker's control. Is it true that no man is good enough to rule another man without that man's consent?

If you want ownership, then save money and start buying businesses – as a big group, if you wish. People are free to do that. They choose not to – then some of them (the socialists) want to take businesses by force.

People may assume this is unrealistic, but let's glance at the numbers:

The U.S. Stock Market Is Now Worth $30 Trillion (Jan 2018)

So it was $23.4 trillion 14 months ago, and around $10.2 trillion 8 years before that.

Now let's look at total US salaries: 16.5 trillion for 2017 – people get paid the whole value of the stock market in 2 years (and it was more like 1 year back in 2009). Yeah people have to pay taxes and living expenses and stuff, but basically the workers could buy all the stocks in under a generation if they really wanted to – without any of the violence of a socialist revolution. If workers saved 10% of their salary, then currently they could buy all the stocks in around 20 years – not counting any dividends they'd get from owning some of the stocks partway through. Workers as a whole don't do this because they each individually think they're better off buying other things rather than having more ownership of capital – though plenty of workers already do have investments which sum to a large total. (I don't trust this number at all, but Time reported last year that the bottom 90% of the population, in terms of wealth, already own 16% of the stocks. Time's spin was that the rich control everything, but I think 16% ownership is a lot more than the Marxist narrative assumes, which treats the figure as 0%. And I think 10% is a rather large portion of the population to consider the rulers instead of the workers. If the elite capitalists are just the top 1%, then the workers already own 62% of the stock – according to an NPR article with an anti-rich-people narrative, which also mentions that the majority of Americans own stock.)

I didn't research these numbers much because I don't expect them to be super accurate, but I think they're loosely in the right ballpark. If you deny it, I challenge you to find some reasonable numbers that lead to a dramatically different conclusion.

In 1914 Great Britain had a highway to the sea. Germany wanted it. A pistol shot sounds in Central Europe and ten million men go to their graves to decide that Great Britain shall hold Bagdad and that Germany shall pay what she can. (Applause.).

Factually, that is not what happened. See Omnipotent Government by Mises. (The book is more about WWII, not WWI, but it goes back and traces historical events starting well before WWI.) Nearing goes on to incorrectly claim that Germany and Russia (and the rest) were capitalist states in 1914, which needed a "capitalist War" to use up surplus wealth that they wouldn't let workers have. Really? World War I and the Triumph of Illiberal Ideology:

The decline of free trade is not capitalism. Mises' book, Omnipotent Government, explains much more about this.

Oh, that was the end of Nearing's remarks. He never actually got around to giving any positive explanation of how socialism would work (as he said he would when he began). Pathetic! Here’s how he opened:

I do not see capitalism in so rosy a light as does Professor Seligman and I want to try to explain to you in the brief time that I have why not, and what the socialists propose to put in its place

But he didn’t talk about what he wanted to put in place of capitalism.

Capitalist Rebuttal

Mr. Nearing said that he wanted Socialism in order that no surplus shall be produced. That is my objection to Socialism. (Applause). The World has progressed in civilization only because every generation did not consume all that it produced, but that it laid by a surplus. (Applause).

That’s a pretty good start on answering the socialist. I like it as debating rhetoric. It’s not very good as a rational explanation that’ll actually educate the audience, though.

How long would the shareholders of the United States Steel Corporation [live] if that were all they had to live on—how Iong would they continue to enjoy their luxuries if the workmen all stopped work permanently? (Applause). Does the workman need the job giver any more than the job giver needs the workman?

No mention of supply and demand, but at least it’s an answer that brings up the mutual benefits of the employee/employer relationship – employees hire people because they benefit from doing so, and they are worse off if they don’t hire workers.

One point in which Mr. Nearing did not meet me at all, but which I trust he will meet in his rebuttal is this: that while we may be entirely favorable to the aspirations and the hopes and the desires of the great mass of the working population, he must prove that forces are not at work under capitalism which will meet and realize those hopes and those aspirations.

That’s a good point, yes. Nearing didn’t address the ways by which capitalism can improve the current situation, and the ways by which he thinks socialism can, and do a comparative analysis. (He didn’t even try to analyze how socialism could improve the situation, let alone try to point out limits to improvement under capitalism.)

Seligman then shares some recent factual information about Russia in order to give some examples about whether socialism improves or harms liberty. First, in the Petrograd government printing office, workers were made to work 12 hours a day, 7 days a week, with no lenience for women, and a policy of compulsory overtime had recently begun. Here’s his second and third examples:

I have extracts from The Metallurgist, an organ of the metallurgical workers. "At our factory, absolute submission to the administration of the plant has been established. No arguments or interference with its orders on the part of the workers are tolerated. At our factory, failure to report for work without permission is punishable by forfeiture of extra food. The same punishment is meted out for refusal to do compulsory overtime work. For being late on the job, two days food are deducted." And here comes the resolution of all the Petrograd workers on September 5th, as a result of the liberty of Socialism: "We feel as if we were hard labor convicts where everything has been subject to iron rules. We have become lost as human beings and have been turned into slaves." There is your socialistic liberty. (Great applause).

This much was known about Russian socialism, in the US, in 1921, and was quoted by professors in public debates. So much for the later excuses, during the cold war, by the dupes of Russia, who believed Soviet propaganda about the working conditions there.

The next example was about how Russian socialism deals with strikers: they arrest strikers and send them to forced labor camps or shoot them. The last example is horrifying:

the report of the President of the Petrograd Commune to a delegation from the workers of a certain city who complained of being starved and not getting enough to eat. "Yes, we do admit," he says, "that the food allowance is insufficient, but at the same time we also know full well—this has been taught by real life—that as long as the worker or plain citizen is busy obtaining food he takes no interest in politics. Just give the workingman enough to eat today and you will hear him cry tomorrow for civic liberties. Our object," says the socialistic government "is to keep the workers just from dying; and that is what we are doing."

Of course, today, right now, socialism is destroying Venezuela, and we have all sorts of news available online which is full of horrifying examples, and still many people don’t notice or care, and find socialist ideas appealing. These old examples shouldn’t make much difference to any educated modern reader who knows anything about Venezuela or the USSR or many other examples.

Seligman says, factoring in the purchasing power of money, and using the data from Nearing’s own book, the wages of workers under US capitalism went up from $147 in 1850 to $401 in 1910, which shows capitalism is progressive.

When Mr. James J. Hill, the great Empire builder, built one of the trans-continental railroads which have brought about the cheapening of products and the diversification of consumption of which I spoke, did he not contribute to production? When Mr. McCormick invented and finally utilized the reaper and the thresher and the mower, which have revolutionized the work of the farmer and the whole life of the community and built up a fortune, did he not contribute to production? When Mr. Westinghouse invented the air brake and finally reaped a fortune by utilizing it in the uttermost parts of the world, did he not contribute to production? And when our friend Mr. Ford with whose general philosophy perhaps I am not in entire accord, (laughter) when he brought down the price of automobiles, the automobiles that are used by the workmen all over this country in going to and from their daily work (hearty laughter)— I passed by a factory the other day and found that there were 550 automobiles. They did not happen to be all Ford automobiles— and I stepped in and said: "To whom do they belong?" And I was told: "Each one of these belongs to a workman in this factory. They come every morning and go back every evening." Now then, could those fortunate workmen say that Mr. Ford has been able to heap up his millions by simply taking them, niching them, stealing them, from the men in his employ?

Nice examples of how businessmen contributed to production instead of just exploiting workers.

I do not deny that there is robbery. I do not deny that there are bad people as well as good people, but I do say that the essence of the capitalist system today, that the essence of profits today, of legitimate profits is not theft but service and that people in the long run cannot under modern conditions, in the long run and under normal conditions make great profits unless they really do service for their community. [emphasis added]

Pretty good as a debating statement. But he didn’t do much to educate the audience and teach them any economics.

Socialist Rebuttal

Nearing denies credit for the Industrial Revolution to capitalism. He says it happened under capitalism, but the causes were machines and technology, and he suggests we would have seen the same advances under socialism. Nearing is kinda ranting again, then says something I found interesting:

In the early days of capitalism any man could get a job by going out to the frontier and taking a farm. The frontier is gone. Capital is required in large quantities. If you want to open a successful business, it needs tens or hundreds of thousands of dollars. Only a few can start in business. Most of us must remain workers. The old factory was a little two-by-four concern. The modern factory employs you with a thousand or five thousand others.

That factory enables five thousand people to be alive. The frontier enabled some increase in population, and as it filled up we needed factories in order for more people to live.

He sees people living in less than ideal circumstances and fails to see that capitalism has enabled them to live at all.

After some storytelling about visiting Europe, and some quotes of a Seligman article about WWI, and some other non-arguments, Nearing says:

Professor Seligman wants to know what I think of Lenin and Trotsky. Now I will tell him if I can (Laughter), and in a word. I think that when the history of this period comes to be written that there is not a man nor a woman in this hall this afternoon whose name will stand that high (indicating) with the names of Lenin and Trotsky in this period (Great applause). There are not two braver men in the world today, men who have stood up in the face of great opposition and steadily have worked for the end in which they believe. Do I agree with their theories? With some of them I agree, and with some of them I don't. You could not agree with both Lenin and Trotsky because they don't agree with one another (Laughter and applause). But just as I regard the Russian revolution as the greatest event in history since 1676, just as I regard it as the epoch-making event, the dividing line between capitalism and socialism, so I regard these two men as two of those whose names will go down as having played mighty roles in that page—the great page of our modern history.

Well, at least he admitted it clearly.

Nearing’s answer to poor conditions in Russia (the five examples from Seligman) is to blame it on civil war, blockades, hostile trade policies, and Western aggression (contrary to the desires of the workers of Europe who, he tells us based on a visit, approve of Russian socialism and want it for themselves and are unwilling to fight against Russia).

But in Russia they have taken over the resources, they have taken over transportation, machinery, they have taken over the factories, the community owns the means of its own livelihood. And they have appointed a Supreme Council of National Economy, and they are going to organize the nation as an economic unit on economic lines. It is the first time in history that it has ever been attempted. If it does not succeed in Russia it will succeed somewhere else, maybe here

He was wrong. And he didn’t do economic analysis to reach his conclusion. He seemed totally ignorant of supply and demand, and of the writings of the (classical) liberals (especially the economic writings).

Capitalist Closing Remarks

“He who shall not work, neither shall he eat”—a noble sentiment.

Ugh, that’s nasty, not noble. What if he worked in the past and saved? What if she has a husband or parent who works? What counts as work? Is writing philosophy “work” or does everyone have to do manual labor? If intellectual work counts, who gets to be an intellectual and who will be forced to do manual labor by threat of starvation?

It’s bullying to threaten people with starvation if they don’t do things you consider “legitimate” work for them to be doing. I don’t take offense when nature presents us with the possibility of starvation, naturally, but I do take offense when humans make starvation a political threat.

Socialism [in Russia in 1921] is bringing about a situation, the most horrible, the most frightful, the most hideous that the world has ever seen—the disappearance of culture, the disappearance of cities, the disappearance of civilization, and the rapid progression of universal starvation among the workers themselves. That is socialism in practice.

He was right, but many others didn’t figure that out until over 50 years later.

Seligman points out 3 ways Nearing didn’t address the arguments, then gives 7 ideas for social reform. I list them and briefly give my evaluation as liberal or illiberal.

1. “equality of opportunity through increase of education and the disappearance of unjust privileges” – liberal, as long as it isn’t government education.
2. “the raising of the level of competition by law and public opinion” – laws to interfere with the market, and try to somehow increase competition (by making people compete? by subsidies?) are illiberal.
3. “increasing the participation in industry through what is called industrial democracy and what is rapidly going on under representative government today” – the Wikipedia article on “industrial democracy” is “Part of a series on Libertarian socialism”. It’s hostile to the property rights of business owners, which is illiberal.
4. “diminution of the instability of employment through the application of the principle of insurance which we have already applied to accidents and which we are beginning to apply elsewhere” – this would be liberal, except he already said he wanted government unemployment insurance, which makes it illiberal
5. “conservation of national resources in order to prevent the waste which is responsible for much of the present-day trouble” – how is this to be accomplished? By government conservation programs or laws? Vague but sounds illiberal because it seems to envision a “national” authority that controls the use of resources in the nation.
6. “social control of potential monopoly which has been proceeding apace and which has even reached unheard of lengths in some modern countries” – antitrust laws are illiberal, see Capitalism: The Unknown Ideal chapters 3 and 4.
7. “the resumption for the community of swollen and unduly large fortunes through the use of taxation which must go, however, only to that point of not stifling and killing the spirit of enterprise which socialism would bring about” – this is shameful. He wants to go after the rich and take their money. Illiberal.

The guy on the liberal side of the debate advocated 6 illiberal things out of 7 ideas. No wonder liberalism’s influence in world events continues to diminish.

Socialism is a beautiful theory

Said the man opposing socialism in a debate, despite knowing that socialism takes away people’s freedom and starves them.

Capitalism can’t win debates with advocates like this. Yes, Seligman had better arguments. But Seligman admitted weaknesses of capitalism and looked to compromise (even preemptively, before Nearing’s first word), while the socialist Nearing gave no ground and made no concessions. (Nearing didn’t even talk about what socialism is or how it would work, let alone any weaknesses of it. He only went on the attack and pointed out flaws in the current world, some true and some false, and blamed them all on capitalism without analysis of their actual causes.)

You aren’t going to persuade people to oppose socialism by calling it beautiful and then saying that your own system may have a lot of flaws but has reformed some and can be reformed more in the future. Seligman wasn’t actually willing to make a principled defense of capitalism.

I maintain, ladies and gentlemen, that socialism is not practicable

And if it were practicable, would it be beautiful? Is the difference between Seligman and a socialist simply that Selgiman is a pessimist who thinks there can be no solution to make socialism practicable, while the socialist is an optimist who seeks to find a solution?

Seligman says socialism is not desirable because it will lead to tyranny or, if not that, at least inefficient production. These arguments won’t convince people – they will still want to find a solution to socialism which keeps the parts they like about it while avoiding tyranny or major reductions in production.

Seligman goes on to say socialism is idealistic, but we have to be moderate, practical, and conservatively build on tradition. Why doesn’t he know how wonderful and idealistic liberalism is?

Socialist Closing Remarks

Nearing says economic panics got progressively worse because the number of business panics increased. An audience member corrects him, saying he should consider proportions (100 out of 200 businesses failing is worse than 200 out of 5000, even though 100 failures is fewer than 200 failures). Nearing grants the point but then moves on without any attempt at valid comparisons.

Nearing says Russia’s problems are due to war, not socialism. Europe still hasn’t recovered from WWI, including in non-socialist countries. This isn’t an honest answer to Seligman, who didn’t just say conditions in Russia were economically poor, but also gave examples of Russian authorities stamping down on liberty. Nearing asks people to wait 20 years (until 1941), and see how the socialist countries do, before passing judgment.

Really, however, the issue between Professor Seligman and myself is very simple. He don't think the people can handle their own economic affairs, and I do (Laughter).

This is pretty much meaningless since Nearing never explained what system he’s proposing. It sounds like Nearing doesn’t want central planners handling everyone’s economic affairs, but then what does he want? And capitalism does have people handle their own economic affairs – under capitalism, individuals are free to decide what to buy and what to sell, and at what prices.

Nearing ends with idealism. He says even if Russia fails he’ll be glad they tried, and that scientists always have failures but keep trying anyway. And, finally, to close, he smears Seligman as favoring “plutocracy”.

My Conclusions

The debate is instructive if you read it as Ayn Rand would have, by seeing how the compromiser cannot win despite having all the facts and logic on his side. It’s a good example of how capitalism lost the public debate, despite being true, because its own advocates didn’t understand it and thought socialism was beautiful but impractical. You don’t win hearts and minds by saying, “Their idea is ideal, but settle for my idea because it’s more pragmatic.” Even if people agree that current socialist approaches are flawed, they’ll react by wanting to fix that, not by giving up on dreaming of a better world.

The arguments that can beat socialism are the ones that explain how it consists of nothing but the violent destruction of an ideal, moral system. It is capitalism, not socialism, which is a rational system that serves the masses and uses their brains in economic planning, is fair, offers liberty, offers hope of peace and prosperity, and can create a better world. (If that interests you, read some of the links above, particularly books by Ludwig von Mises, Ayn Rand, and George Reisman.)

I know some bad things about Murray Rothbard (like his view that abortion is justified by the property rights of the mother against a trespasser, his belief that children are property and that parents are not obligated to feed their children, his attack on Objectivism, and his anti-semitism). But I've seen some merit in his work on economics, and I've begun reading his book An Austrian Perspective on the History of Economic Thought. I mostly like it so far, but one must be careful not to trust everything. A particularly interesting part, to me, was the discussion of Aristotle, which I thought was good. It was a lot like what Objectivists say about Aristotle. I don't know how much this is because of Rothbard's knowledge of Objectivism, and how much it's a standard non-Objectivist view. Reading about Aristotle on the Stanford Encyclopedia of Philosophy, Encyclopaedia Britannica, or Wikipedia is rather different than the Objectivist or Rothbardian interpretation. I tried to google for material on Aristotle similar to the Objectivist view, and found this page ... but I checked and the authors are Objectivists.

Here are some new Rothbard errors I've discovered (italics in quotes are added by me, unless noted):

The continual progress, onward-and-upward approach was demolished for me, and should have been for everyone, by Thomas Kuhn's famed Structure of Scientific Revolutions.[5] [italics in original]

See the replies to Kuhn by Karl Popper and by David Deutsch. (Deutsch's writing on this subject is more accessible and more general, so it's what I'd recommend first if you're interested.)

Related to Kuhn (a critic of Popper) is Rothbard's completely false hostility to Popper in The Present State of Austrian Economics:

For my purposes, I am ignoring the allegedly wide gulf between the earlier positivists with their “verifiability” criterion and the Popperites and their emphasis on “falsifiability.” For those far outside the logical empiricist camp, this dispute has more of the appearance of a family feud than of a fundamental split in epistemology. The only point of interest here is that the Popperites are more nihilistic and therefore even less satisfactory than the original positivists, who at least are allowed to “verify” rather than merely “not falsify.”

Popper is not a positivist, nor similar to one. This is totally ignorant, yet he writes about it professionally (rather than being aware of his ignorance and leaving this matter to others).

Going back to An Austrian Perspective on the History of Economic Thought, I searched it for discussion of Godwin and Burke, who are thinkers where I could readily judge the quality of Rothbard's work, offhand, from my own expertise. Burke isn't mentioned at all, which is an error in a detailed book which gives attention to many lesser known figures. (Burke is fairly well known in general, but not for his comments on economics, even though he made many of them.) Rothbard did very extensive research for this book, but somehow omitted Burke. An example of Burke's relevance, from an 1800 biography of Burke, which has been quoted in many more recent books:

Adam Smith is a major focus of Rothbard's attention, so Burke was worth discussing at least a little.

Rothbard's treatment of Godwin was much worse. He brings up Godwin briefly in relation to Malthus and makes egregious errors:

In his Utopian belief in the perfectibility of man

The "perfectibility" of man is not a Utopian belief, it means that man can be improved without limit (without reaching an end to progress), not that man can or will reach perfection. The improvement includes both improvement of ideas and of technology. This is a major theme of Deutsch's The Beginning of Infinity, which is titled for this theme and includes Godwin in the bibliography.

William Godwin, on the other hand, was the world's first anarcho-communist, or rather, voluntary anarcho-communist. For Godwin, while a bitter critic of the coercive state, was an equally hostile critic of private property.

That's just not what Godwin says in his material on property in Political Justice.

Godwin believed, not that private property should be expropriated by force, but that individuals, fully using their reason, should voluntarily and altruistically divest themselves of all private property to any passer-by.

Rothbard doesn't provide any quote or citation for this false claim. I will, nevertheless, offer some quotes from Political Justice to refute it, from book 8 (of 8), Of Property.

Godwin didn't think people should give away their property to random people, he thought they should have property rights but sometimes, due to rational argument, give some property, as a gift, to someone who had a better use for it. I think trade should be emphasized over gifts and that Godwin wasn't a great economist, but Godwin did support private property and the free market, and was an individualist.

Note the anti-communism.

Godwin supports the protection of property.

No one should interfere with anyone's property rights, and people who try to should be stopped.

What more does Rothbard want from property rights than that men use their minds in order to use their property in the way they see fit? If Godwin had his way, the result would be a capitalist dream, not a communist society.

Godwin, an early anarchist of sorts, who hated violence, was still willing to recommend that the government use violence in defense of property rights, even for unjust types of property that were in existence at the time (think of feudalism and serfdom kinda stuff), let alone for property rights to the product of one's industry.

Godwin defends inheritance of property, too.

The view of property as being implied from the right of private judgment is the best and most correct view of the matter. Godwin is a great liberal thinker, who Rothbard doesn't appreciate. Godwin is, in this respect, more (classical) liberal than Rothbard, and closer to Objectivism which also emphasizes reason in its defense of man's rights. (Objectivism says men have one fundamental right, the right to life, and this implies "the freedom to take all the actions required by the nature of a rational being". Property rights are the implementation of this.)

And let me repeat what that last sentence says, in more modern words (palladium means source of protection, safety or preservation): Property rights should always be approached with awe and veneration, because property rights are what protect everything good. Rothbard majorly failed at scholarship.

[Godwin] was, after all, not a scholar of population theory, and he had no immediately effective reply. It took Godwin all of two decades to study the problem thoroughly and come to an effective refutation of his nemesis. In On Population (1820), Godwin came to the cogent and sensible conclusion that population growth is not a bogey, because over the decades the food supply would increase and the birth rate would fall. Science and technology, along with rational limitation of birth, would solve the problem. ["On Population" is in italics in the original]

This falsehood about Godwin needing 20 years to figure out a reply to Malthus is refuted in Godwin's book, Of Population (Rothbard got the title wrong), in the preface:

Godwin didn't reply immediately because he thought he'd done enough by writing Political Justice, and that someone else could handle the much easier task of refuting Malthus' bad ideas. This had nothing to do with Godwin needing 20 years of thought or research. Godwin underestimated how influential Malthus would turn out to be, and overestimated the ability of other thinkers to address the issue.

I will keep reading Rothbard anyway. I don't think there's a superior alternative, and I do think he's better about other thinkers that he researched more, especially when their focus is more on economics (Rothbard doesn't adquately understand Godwin's thinking about reason).

This is a critical response to Alexander Tabarrok regarding his debate with George Reisman regarding the merits of Reisman’s book Capitalism: A Treatise on Economics. As context: it’s an internal debate between Austrian economists from 1997-8, and Reisman is an Objectivist as well.

The debate began with Review of Capitalism: A Complete and Integrated Understanding of the Nature and Value of Human Economic Life. It’s a critical, negative review by Tabarrok (who denies it’s negative because he praised some ideas, but he also claimed e.g. that one of Reisman’s main themes throughout the book is “fundamentally misguided”).

Reisman replied in Reisman on Capitalism. I regard this article as refuting Tabarrok's review. Reisman's concluding paragraph summarizes:

In this response, I have dealt with five instances of misrepresentation in the review: its claim that I ignore the essential theme of support for businessmen and capitalists, its misrepresentation of my use of classical economics' concept of demand and supply, its distortion of my definition of economics, its misrepresentation of my views on time preference as a determinant of the rate of profit and interest, and finally, its denial of my contributions to aggregate economic accounting and "macroeconomics." These five instances are merely a good sample. [...]

Tabarrok replied briefly in Response to Reisman on Capitalism. That concludes the original debate.

I’ll now respond by pointing out major errors in Tabarrok’s response, thereby vindicating Reisman’s response and his Capitalism. Here’s Tabarrok’s first paragraph:

Reisman's Capitalism is longer than either Mises's Human Action or Rothbard's Man, Economy, and State. It thus seems unreasonable to object to my review because it ignores major portions of his work. Reisman's other objections are similarly weak.

Reisman didn’t make that objection. Rather than criticizing Tabarrok for ignoring (omitting) some topics in the original review, Reisman criticized Tabarrok for misrepresentation. Tabarrok didn’t just fail to discuss some parts of the book; he made incorrect claims about the contents of the book.

Tabarrok repeats one of his misrepresentations in his next sentence:

Capitalism has surprisingly little to say on entrepreneurship or other typically Austrian and Objectivist themes.

Tabarrok made that claim in his first review, too. The problems are that it’s incorrect and that Reisman already refuted it in his response. Nevertheless, Tabarrok repeats the point without engaging with Reisman’s arguments.

Tabarrok’s original argument was that “there is no index entry for entrepreneurship”, plus he didn’t find those themes when reading Capitalism. It’s true that Reisman didn’t say much about the word “entrepreneurship”, but that’s because he used synonyms. He used the words “businessmen” and “businessman” a combined 678 times, and he talked extensively about capitalists. Reisman had already informed Tabarrok of this, but somehow Tabarrok didn’t reconsider.

To show Reisman really did cover this theme, I’ll list some of the section titles found in the table of contents of Capitalism. I think they're adequate to make the point, but if you have doubts about which side of this debate is correct, read some of these sections and see for yourself.

• The Benefit from Geniuses

• The General Benefit from Reducing Taxes on the “Rich”

• The Pyramid-of-Ability Principle

• Productive Activity and Moneymaking

• The Productive Role Of Businessmen And Capitalists

  • 1. The Productive Functions of Businessmen and Capitalists
    • Creation of Division of Labor
    • Coordination of the Division of Labor
    • Improvements in the Efficiency of the Division of Labor
  • 2. The Productive Role of Financial Markets and Financial Institutions
    • The Specific Productive Role of the Stock Market
  • 3. The Productive Role of Retailing and Wholesaling
  • 4. The Productive Role of Advertising

• Smith’s Failure to See the Productive Role of Businessmen and Capitalists and of the Private Ownership of Land

• A Rebuttal to Smith and Marx Based on Classical Economics: Profits, Not Wages, as the Original and Primary Form of Income

• Further Rebuttal: Profits Attributable to the Labor of Businessmen and Capitalists Despite Their Variation With the Size of the Capital Invested

• The “Macroeconomic” Dependence of the Consumers on Business

My conclusions are that Tabarrok is mistaken, that Reisman’s Capitalism is a great book, and that no major criticisms of Capitalism exist.

Reisman may be mistaken, as every author may be, but no one has discovered Reisman’s errors and written down explanations of them. Along with the writings of his teacher, Ludwig von Mises, Reisman’s Capitalism constitutes some of the best existing economics knowledge.

See also my Review of Kirzner Reviewing Reisman and Criticism of Bagus Criticizing Reisman on Deflation.

Deflation: When Austrians Become Interventionists by Philipp Bagus criticizes George Reisman and five other Austrian economists regarding their views on deflation. This post will respond to the criticism of Reisman. My goal here is just to point out a few errors, not to discuss Bagus' overall view of deflation. All italics in quotes are my emphasis.

Yet, Reisman’s plan of monetary reform is not the direct abolition of government interventions into the monetary system, which would bring about deflation, but it is a new intervention, guaranteeing the results of past interventions. He proposes a new government intervention into the economic system, i.e., according to his own standards, a violation of freedom, in order to bail out the unsound banking system.

In Capitalism: A Treatise on Economics, Reisman explained why the results of past interventions and injustices should be guaranteed and left alone, in general, after a time limit passes. Property rights must be made secure, as quickly as possible, so that people are in a position to work to improve their property and to plan for the future.

If claims about past injustices can result in new redistributions of property, then my property isn’t secure. Whatever I think I own, I can’t count on it.

Reisman explains this regarding land reform and it applies to all types of property:

The issue also comes up in the section From Socialism to Capitalism: How to Privatize Communist Countries:

Let’s move on to a second point by Bagus:

At one point, [Reisman] stresses the practical difficulties of mass bankruptcies during a deflation:

[M]ass bankruptcies, which, given the inability of today's judicial system to keep pace even with its current case load, would probably take a decade or more to get sorted out. That would mean that in the interval the economy would be largely paralyzed, because no one would know just who owned what. (1996, p. 961)

The ability of the present-day judicial system to handle cases of mass bankruptcy is not, of course, a theoretical argument against deflation. For Reisman's argument deals with the practical difficulties a severe deflation might have to face in today's judicial system. Yet there is no theoretical reason why there could not be a judicial system that could settle the lawsuits quickly. But let us deal with this practical argument.

The quote starts mid paragraph, leaving out a sentence by Reisman which reads:

Bagus agrees with Reisman that that's reprehensible. Omitting that part of Reisman's view was misleading. Bagus presents Reisman as defending inflation using a weak argument (a mere practical point rather than a theoretical argument). But Reisman wasn't trying to defend inflation, he was just bringing up an important practical consideration about not destroying civilization.

Bagus continues:

It must be stressed that an increased demand for judicial services on the free market brings about an increased supply of those services. Yet, Reisman could contend that we face a government monopoly of judicial services. However, politicians would likely come up with emergency measures if deflation caused bankruptcies which overstrained the judicial system.[35] For politicians are eager to search and find problems they can fix. Also the judicial system itself could come up with solutions for this problem.

The basic theme of Bagus’ article is that six Austrian economics aren’t, in his opinion, radical enough, not even Rothbard. Bagus wants full 100% capitalism and freedom no matter what. I read him as such an anti-government libertarian that I think he’s an anarchist. With that context in mind:

Why is Bagus expressing his confidence in the government to come up with some emergency measures to fix a problem? Why does he think this is something politicians can fix effectively? I don’t get it. Here Bagus is objecting from a perspective of trusting government competence much more than Reisman does, contrary to the general themes of Bagus’ other comments.

Bagus provides no arguments about why government would be able to succeed at improving the judicial system. We've seen historically that the importance or urgency of an issue, such as war, education or healthcare, does not automatically make governments wise or competent.

Of course some entrepreneurs can have difficulties in the sense, that other entrepreneurs who anticipated the price drop and held their money back, can bid resources away from them. Entrepreneurs who anticipate price changes can always profit relative to the entrepreneurs who did not anticipate them.

Is the job of the entrepreneur to anticipate market conditions, anticipate government policies that affect market conditions, or both? Bagus seems to find it acceptable that businessmen lose money, including going bankrupt, for not anticipating new government policies that cause deflation.

I think a businessman's job should be focused on his industry, not on understanding politicians, lobbying for policies (being a cause of government policy makes it easier to anticipate), getting friends in high places to give him tips about the balance of power, etc. I want businessmen to be separate from government. See Atlas Shrugged for further discussion of political pull – it was men like James Taggart, not Hank Rearden, who were better able to anticipate new government policies.

This tree documents the state of the debate for Austrian Economics. Click the image to expand. The PDF has clickable links to sources (everything underlined) and selectable text.

The goal of the tree is not perfection, nor to comprehensively document every argument anyone ever made. It’s to cover important issues (as I see them) in an organized way and thereby enable someone to learn from me and/or critically engage with my position.

In Capitalism: A Treatise on Economics, George Reisman wrote:

Contemporary economics, in contrast, continually ignores the vital connection of income and cost with the receipt and outlay of money. It does so insofar as it propounds the doctrines of “imputed income” and “opportunity cost.”

Reisman is one of the best living Austrian economists. He studied under Ludwig von Mises personally. He covers opportunity costs at much more length in his book.

But, ignoring Reisman while offering no rebuttal, the Mises Institute is putting out confused claims about opportunity costs. In 2023 they tweeted a short video with the text:

The proper way to think about costs is not simply to consider the money we're spending on a certain item, but all of the other possibilities we're giving up in order to obtain that item. http://BeginEconomics.org

Their Begin Economics website (released in 2020) says:

When we think about “cost,” we often think about prices, such as comparing the prices of cars. But the proper way to think about costs is not simply to consider the money we're spending on a certain item, but all of the other possibilities we're giving up in order to obtain that item.

...

What Hazlitt described is called opportunity cost. The money spent on the new window is not simply the dollar price of his purchase, but of all the goods and services he could have purchased with that money.

They call an opportunity cost “money spent”. From a literal-factual perspective, it isn’t. They also seem to suggest summing every foregone alternative. And they put Hazlitt’s name all over their errors.

They also link to Per Bylund (a Senior Fellow of the Mises Institute) writing in 2019:

The concept of economic cost seems to confuse people. It is not the price you pay for a good, but the reason you pay it.

The cost of one action is the value you could otherwise have gained from taking another action.... The cost of it is not the $100, which you give up to purchase it, but the value of the other good, which you can no longer purchase. That other good is the opportunity foregone by your action, the true cost of your action —the economic cost.

This doesn’t make sense. The reason you’re willing to pay a price for a good because of the benefits the good provides, not due to the cost.

And when you trade $100 for a good, then the $100 is the cost. It’s the thing you gave up in exchange for the good.

When trying to understand how useful $100 is (and therefore better understanding the cost), it helps to consider alternatives that you could buy with $100. But that doesn’t mean those alternatives are the cost. The cost you paid was the money.

The Mises Institute made no effort to give counter-arguments to Reisman’s criticism of opportunity cost. Nor will they listen to my criticism, nor do they have any organized debating policies so that I or anyone else could debate them and correct their error (or, in the alternative, learn why they’re actually right).

Also, the wordings they use differ every time and are sloppy and confusing. Even if they were right about the main point, they’re so imprecise it’s problematic. Most scholars and institutions are like that, and it’s a huge problem.

Also, the Mises Institute seems to be influenced by mainstream, conventional economics, rather than advocating for something different and separate. It’s sad to see the Austrian school of thought embracing mainstream errors. The loss in intellectual diversity, and lack of critical outsiders, is bad.

Quoting from Capitalism again regarding opportunity costs:

The treatment of the subject by [popular, mainstream economics textbook authors] Samuelson and Nordhaus is typical:

. . . the economist generally includes more items in cost than do accountants or businesspeople. Economists include all costs—whether they reflect monetary transactions or not; business accounts generally exclude nonmonetary transactions. We have already encountered . . . examples of true economic costs that do not show up in business accounts. The return to an owner’s effort, the normal return on contributed capital to a firm, a risk premium on highly leveraged owner’s equity—these are all elements that should figure into a broadly conceived set of economic costs but do not enter business accounts. . . . The notion that can help us understand this distinction between money costs and true economic costs is the concept of opportunity cost. The opportunity cost of a decision consists of the things that are given up by taking that particular decision rather than taking an alternative decision.[30]

Note that the “true cost” wording was repeated by Per Bylund. Capitalism continues:

The opportunity cost of a decision is subsequently described as “the value of the best available alternative.”[31]

That’s what I thought the Mises institute meant but didn’t say. They said to consider the cost of all alternatives, not just the best one.

And this opportunity cost stuff is included in a 30 minute beginner lesson. This is one of the highest priority things they want to say. Why? Is it useful? Or does it seem “mind blowing” to people precisely because it’s clever/confusing/counter-intuitive? Unfortunately, a lot of the lesson is actually even worse, because it’s tribalist politics. They say the site is an educational effort that respects your time but then they actually focus on their own agendas.

The Mises Institute put out a bad Economics for Beginners resource. Rather than focusing on criticizing it, I decided to make something better. I wrote my own alternative answers for their prompts. You might find it interesting to compare my answers with theirs. Note that theirs took a long time and received a bunch of editing and polishing, and had a budget from a donor, while mine didn’t. I also share a few criticisms at the end.

What Is Economics?

Economics is a field of study. Topics include prices, money, wealth, production, trade, markets, division of labor, scarcity, supply, demand, profit, cost and capital. Economists use rationality and math to do calculation and planning.

Economics is primarily about how multiple people can cooperate for mutual benefit. Some concepts would be useful to a man alone on an island, but most economic study is oriented towards groups of people or whole societies. Typical economics topics include buying and selling goods and hiring people for jobs, which involve multiple people.

A good economic system is good at creating wealth – material prosperity for society. Economists study big picture issues like which policies increase or decrease wealth. They also study detail issues like the nature of a single trade and they try to connect the big and little issues into a unified understanding.

What Is Cost?

A cost is something you give up. Costs are most commonly stated in terms of money, e.g. $3 for a loaf of bread. But costs can be stated in terms of any resource, e.g. reading a book could cost you 5 hours. The cost of an action should be compared to the benefit, and you should avoid it if you consider the benefit lower than the cost.

What Is Money?

Money is the standard means of exchange (trade).

It’s inconvenient to trade shoes for bread or accounting services for massages. The person selling bread might not currently want shoes. So I trade shoes for money then trade money for bread. Money is the most generically desirable and easily tradable good. It makes trading more convenient.

Trading something for money is called “selling”. Trading money for something else is called “buying”. Trades that don’t involve money are called “barter”.

A good money can be saved for later. A perishable good like milk wouldn’t work well as money. It’s also beneficial for money to be small, light, divisible and hard to counterfeit. Gold and silver worked well as money before the switch to paper money.

What Is Profit?

Profit is the amount of benefit you get minus the cost. If profit is negative, it’s a loss rather than a profit.

Profits are most commonly calculated in dollars. For example, a business buys (or rents) raw materials, tools, land and buildings, and hires workers. All of those are costs in money. It produces and sells some goods. The income from those sales is called revenue, which is also in money. The revenue minus the costs is the profit (or loss).

What Is Capitalism?

Capitalism is an economic system in which individuals are free to choose what economic activities to do. Each person does his own planning and decision making, although he’s welcome to listen to the advice of others. It’s called a free market because each individual can freely make his own choices. Other people may be involved in your business only by their voluntary consent. If you want business partners or workers, you must offer good enough deals that they choose to deal with you instead of others.

According to capitalism, the government’s job is to protect men from force. That includes policing violence, theft, fraud and breach of contract. Put another way, the government’s job is to make sure that producing a lot of wealth is the only way to become wealthy (or receiving wealth as a gift).

The more people invest their wealth in increasing future production, the wealthier society as a whole can become. This is called capital accumulation. Under capitalism, individuals are incentivized to reduce consumption, and contribute to capital accumulation, because the more they do that the wealthier they can become.

Capitalism also incentivizes specialization. If I focus on making shoes, and you do computer programming, we can get way better at our jobs than if we each had to do every job ourselves. If I can skip learning some things, and trade, then I can benefit from other people’s knowledge and focus on being great at only a few things. If many people do this, then the average skill that people use to do things is a lot higher, so we all end up better off. Capitalism doesn’t force anyone to specialize, but it enables the division of labor. Most people voluntarily participate because the more skillfully you do things, the more money you can make, so specializing is a way to increase your income.

What is Cronyism?

Cronyism is when people get special privileges from the government, instead of the government treating everyone equally and fairly. Cronyism is a way to get rich without producing a corresponding amount of wealth.

If someone gets rich by being especially productive, there’s no harm to society. He made our total wealth bigger and kept a significant chunk of what he created. Society is more wealthy than before, not less.

But a cronyist becomes rich without producing enough. He becomes rich at the expense of others, not in a way that offers some positive benefit to others. He has the government use taxpayer money to pay too much for his products, or to give him subsidies. Or he uses laws and police to suppress competition or otherwise unfairly benefit himself, e.g. by charging extra taxes on competing products or making regulations which fit what he’s already doing and prevent competitors from using different approaches. Instead of just trading on a free market, he gets some kind of special privilege from the government.

Price controls (government-dictated minimum or maximum prices for some good or services) are a type of government policy which benefits or privileges some people while harming others.

The cronyism problem involves the government having powers it shouldn’t and anti-social men exploiting the situation for personal gain at the cost of harming society.

What Is Socialism?

Socialism is collective ownership of the means of production. The means of production include factories, tools and natural resources. They exclude consumption or consumer goods, like food and clothes, which we use in our homes. The distinction is approximate, not exact.

Socialism often involves government central planners who try to run the economy instead of letting individuals make their own decisions. It could also involve voting on policies.

If people were allowed to buy and sell ownership of the means of production, that would just be capitalism with a stock market. Then some workers might sell off all their ownership of the means of production, and someone else might buy full, individual ownership of a whole factory. To ensure collective ownership, the means of production can’t be traded.

What Is Progressivism?

“Progressive” is a vague political term often used by socialists or other left-of-center people who at least partially oppose free market capitalism. They generally want government power to be used to solve economic problems. They tend to favor a less limited government. This enables cronyism.

Why Experts Can't Predict the Future

Reality and our civilization are really, really, really complicated.

There’s nothing inherently wrong with experts. The problem is using expertise as a justification for power over the lives of others. If an expert is mistaken, but he has no power over me, then I can ignore him. But if he can make laws or tell the police what to do, then his mistakes can ruin my life. If I have the freedom to control my own life, then experts aren’t a threat to me even when they’re wrong.

Why Economics Matters

We want to know what individual actions and economic systems will lead to material prosperity and better satisfaction of people’s wants. We need ways of deciding which goods and services to produce and which not to. We need ways of deciding what manufacturing processes are efficient. We often face tradeoffs. Is it better to use up this or that raw material? Is a more labor intensive process better or worse than putting a bunch of resources into automation? Economics helps us make good decisions.

Money, buying, selling, jobs, business, property, consumption and government economic policies are important parts of our lives. It’s good to have some understanding of how these things work. Mistakes can lead to debt, being able to afford fewer things you want, or to national or global problems like recessions, inflation and mass unemployment.

Learn More

I wrote an essay called Liberalism: Reason, Peace and Property. For more, I recommend the books of Ludwig von Mises, Henry Hazlitt and George Reisman. They all have free ebooks which are easy to find online.

Elliot’s Criticisms

The prompts weren’t very good. They seemed oriented towards political debates against socialists and advocates of government power, rather than focusing on teaching economics concepts like how money and trade work or what freedom, force and voluntary interaction are. The Mises Institute seems more interested in fighting against rival tribes than educating people about useful economics ideas.

I also noticed that the answers kept failing to answer the questions. For example:

What Is Money?

It is common to hear that “money is the root of all evil.”

We are told that money is synonymous with greed, and that desiring it is somehow inherently bad.

This is not true. Money is perhaps the single most important creation in the history of mankind. Just take a moment to consider a world without it.

This is more interested in praising money than defining it. It’s about a political agenda, not teaching economics.

What Is Profit?

It is common to hear profit attacked as exploitation and greed. How many supervillains have appeared in TV shows, books, or movies with the diabolical plot of putting “profits over people”?

In reality, profit is a powerful mechanism for human cooperation, and serves to make sure that the earth’s resources are maximized to serve the best interests of humanity.

Why?

Think of profit as the reward for making good decisions.

Profit doesn’t have to be only about money…

This talks about profit but doesn’t tell you what profit is. And it purposefully politicizes the issue.

Similarly, their first sentence answering “What Is Economics?” says “Economics often is considered a dry or “dismal” science.”

Their answer to “What Is Cronyism?” begins “Activists blame “capitalism” for the world’s biggest problems, like the high costs of healthcare.” It gives a definition of “cronyism” in the middle of the second paragraph – and then continues with more political talking points. Also the high cost of healthcare is a U.S. issue, not one of the world’s biggest problems. Many other wealthy countries have government-provided healthcare, which has different problems. And many less wealthy countries have cheaper but lower quality healthcare.

Besides not caring about defining terms and giving direct answers to its own questions, the site gets opportunity cost wrong.

Overall, the site presents itself as basic, introductory economics education, but it’s more focused on a political agenda. Propaganda mislabelled as education makes it harder for people to find genuine educational resources. Sites like this result in people giving up on learning or being indoctrinated.

And this site is much more likely to alienate, rather than persuade, someone who already has an anti-capitalist opinion. It’s then harder to persuade anti-capitalists that actually capitalism is a good idea. If they know that prominent capitalists, like the Mises Institute, have poor arguments and integrity, they will assume capitalism doesn’t actually have good arguments (or else the Mises Institute would have known about and used those arguments instead of putting out propaganda). This kind of site makes the political tribalism problem worse and harms the world. (And they’re doing it in the name of Ludwig von Mises, and trashing his reputation after his death, and discouraging people from reading his great books.)