Quote of the Day:The Virtue of a Free System: The Consumer’s Plebiscite

The test of an economic system lies in the choices it offers, the alternatives that are open to the people living under it. When choices are limited by coercion of one sort or another, the system must fall short of meeting the test in greater or less degree. The virtue of a free system – i.e., competitive capitalism – is that it allows energy to flow uncoerced into a thousand-and-one different forms, expanding goods, services, and jobs in a myriad, unpredictable ways. Every day, under such a system, a consumer’s plebiscite (the phrase is [Ludwig] von Mises‘) is held, the vote being counted in whatever money unit is the handiest. With his votes the consumer directs production, forcing or luring energy, brains and capital to obey his will.

This excerpt is from John Chamberlain's1959 book, The Roots of Capitalism (page 221 of the 1976 Liberty Fund edition) (source Cafe Hayek)

Do you know that Shanghai was once an Almost Free City-State?

Austrian economist Dr. Richard Ebeling narrates of Shanghai's laissez faire capitalism experience at the Northwood University blog: 

China’s impressive modernization since the death of Mao Zedong in 1976 and the end to the destructive madness of the Cultural Revolution has been epitomized by the dramatic growth of the industrial and port city of Shanghai, with its majestic skyline of impressive futuristic skyscrapers. It is forgotten that Shanghai already was a commercial and industrial center before the Second World War, built on the principles of laissez-faire capitalism.

Following the Chinese-British War of 1842, several ports along the China coast were opened to Western merchants. In these “treaty ports,” portions of the cities were recognized to be under European jurisdiction. Known as “concession” areas, the European powers administered these areas according to Western principles of the “rule of law,” with recognition and protection of property rights, personal freedom and civil liberties.

By the end of the 19th century, Shanghai had become the most important of the treaty ports. Indeed, it was the industrial, commercial and cultural center of modem China until the Japanese occupation of the city in December 1941, following the attack on Pearl Harbor.

Shanghai an Almost Free City-State

The Western-administered portions of Shanghai were divided into two districts: the French Concession and the International Settlement. A Consul-General appointed by Paris administered the French Concession.

But the much larger International Settlement was administered by a Municipal Council composed of fourteen members elected by the permanent foreign residents of the city, with the franchise based on being a “ratepayer,” i.e., a tax-paying property owner within the boundaries of the International Settlement. By the 1930s, around 90,000 Europeans and Americans lived in Shanghai.

Hence, Shanghai’s International Settlement was almost an independent “city-state” based on the nearly unhampered principles of free trade and free enterprise under the protection of the Western Powers (which ended up meaning mostly a British and American military presence).

In general, the economic policies of Shanghai’s International Settlement followed the ideas of Adam Smith’s system of natural liberty and laissez faire. The Municipal Council limited itself primarily to three functions: administration of justice; police protection of individual liberty and property; and the undertaking of a limited number of “public works,” such as construction of roads, traffic control (administered by Sikh policemen brought by the British from India), harbor patrol, and the dredging of the Whangpoo River that connects Shanghai with the mouth of the Yangtze.

Read the rest here

Richard Ebeling: The Case For Freedom and Free markets in the writings of Ludwig von Mises, F.A. Hayek and Ayn Rand

Dr. Richard Ebeling, American libertarian author, former president of the Foundation for Economic Education (FEE) and professor of economics, in a recent speech dealt with the works of Ludwig von Mises, Friedrich von Hayek and Ayn Rand as providing for the intellectual and ethical foundations for the case of Freedom and Free markets.  

From Dr. Ebeling at the Northwood University Blog (bold mine)

Three names are widely associated with the cause of human freedom and economic liberty in the 20^thcentury: Friedrich A. Hayek, Ludwig von Mises, and Ayn Rand. Indeed, it can be argued that Hayek’s The Road to Serfdom (1944) and The Constitution of Liberty (1960), Mises, Socialism ((1936) Human Action(1949), and Rand’s The Fountainhead (1943) and Atlas Shrugged (1957) did more to turn the intellectual tide of opinion away from collectivism in the second half of the twentieth century than any other works that reached out to the informed layman and general public.

Now, in the second decade of the 21st century their enduring influence is seen by the continuing high sales of their books, and the frequency with which all three are referred to in the media and the popular press in the face of the current economic crisis and the concerns about the revival of dangerous statist trends in the United States and other parts of the world.

The Influence of Mises, Hayek, and Rand

In Hayek’s case, his influence has reached inside academia, that bastion of the social engineering mentality in which too many professors, especially in the social sciences, still dream wistfully about society being remade in their own images of “social justice” and political correctness – regardless of the expense in terms of people’s personal and economic liberty.

Hayek’s message of intellectual humility – that there is more to the complexities of the world than any government planning or intervening mind can ever master – has forced some in that academic arena to take seriously the possibility that there may be “limits” to what political paternalism can achieve without undermining the essential institutional foundations of a free and prosperous society.

Mises continues to be recognized as the most original and influential member of the Austrian School of Economics during the greater part of the 20th century. Mises stands out as that unique and original thinker who proved why socialist planning cannot work, that government intervention breeds inescapable distortions and imbalances throughout the market, and how central bank manipulation of money and interest rates sets in motion the booms and busts of the business cycle. The current recession has brought new attention to the Austrian theory of money and economic fluctuations, which was first formulated by Mises in the early decades of the 20th century.

While the academe of philosophers is still not willing to give Ayn Rand the respect and serious attention that others believe she rightly deserves, it is nonetheless true that her novels and non-fiction writings, especially The Virtue of Selfishness (1964) and Capitalism: the Unknown Ideal (1966), continue to capture the interest and imagination of a growing number of students in the halls of higher education in the United States. In other words, her ideas continue to reach out to that potential generation of “new intellectuals” that Rand hoped would emerge to offer a principled and morally grounded defense of individualism and capitalism.

The Common Historical Contexts of Their Time

Hayek, Mises and Rand each made their case for freedom and the political order that accompanies it in their own way. While Mises was born in 1881 and, therefore, was 18 years older than Hayek (who was born in 1899) and nearly a quarter of a century older that Rand (who was born in 1905), there were a number of historical experiences they shared in common, and which clearly helped shape their ideas.

First, they came from a Europe that was deeply shaken by the catastrophic destruction and consequences of the First World War. Both Mises and Hayek saw the horrors of combat and the trauma of military defeat while serving in the Austro-Hungarian Army, as well as experiencing the economic hardships and the threat of socialist revolution in postwar Vienna. Rand lived through the Russian Revolution and Civil War, which ended with the triumph of Lenin’s Bolsheviks and the imposition of a brutal and murderous communist regime; she also experienced “socialism-in-practice” as a student at the University of Petrograd (later Leningrad, now St Petersburg) as the new Marxist order was being imposed on Russian society.

Second, they also experienced the harsh realities of hyperinflation. Rand witnessed the Bolshevik’s intentional destruction of the Russian currency during the Russian Civil War and Lenin’s system of War Communism, which was designed as a conscious attempt to bring about the abolition of the market economy and capitalist “wage-slavery.” In postwar Germany and Austria, Mises and Hayek watched the new socialist-leaning governments in Berlin and Vienna turn the handle of the monetary printing press to fund the welfare statist and interventionist expenditures for instituting their collectivist dreams. In the process, the middle classes of Germany and Austria were decimated and the social fabric of German and Austrian society were radically undermined.

Third, Rand was fortunate enough to escape the living hell of socialism-in-practice in Soviet Russia by being able to come to America in the mid-1920s. But from her new vantage point, she was able to observe the rise and impact of “American-style” collectivism, during the Great Depression and the coming of Franklin Roosevelt’s New Deal in the 1930s. In Europe, Mises and Hayek watched the rise of fascism in Italy in the 1920s and then the triumph of Hitler and National Socialism in Germany in 1933, the same year that FDR’s New Deal was implemented in the United States. For both Mises and Hayek, the Nazi variation on the collectivist theme not only showed it to be one of the most deadly forms that socialism could take on. It represented, as well, a dark and dangerous “revolt against reason” with the Nazi’s call to the superiority of blood and force over the human mind and rational argumentation.

Their Common Premises on Collectivism and the Free Society

What were among the common premises that Mises, Hayek and Rand shared in the context of the statist reality in which they had lived? Firstly, I would suggest that it clarified conceptual errors and political threats resulting from philosophical and political collectivism. The “nations,” “races,” “peoples” to which the totalitarian collectivists appealed resulted in Mises, Hayek and Rand reminding their readers that these do not exist separate or independent from the individual human beings who make up the membership of these short-hand terms for claimed human associations.  Anything to be understood about such “collectives” of peoples can only realistically and logically begin with an analysis of and an understanding into the nature of the individual human being, and the ideas he may hold about his relationships to others in society.

Furthermore, political collectivism was a dangerous tool in the hands of the ideological demagogues who used the notions of the “people’s will,” or the “nation’s purposes,” or the “society’s needs,” or the “race’s interests,” to assert their claim to a higher insight that justified the right for those with this “special intuitive gift” to guide and rule over others.

Secondly, all three rejected positivism’s denial of the human mind as something real, and as source for knowledge about man and his actions. Mises and Rand, especially, emphasized the importance of man’s use of his reasoning ability to understand and master the world in which he lived, and the importance of reasoned reflection for conceiving rational rules and institutions for a peaceful and prosperous society of free men.  Mises and Rand considered the entire political trend of the 20thcentury to be in the direction of a “revolt against reason.”

Even Hayek, who is sometimes classified as an “anti-rationalist” due to his emphasis on the limits of human reason for designing or intentionally constructing the institutions of society, should also be classified as an advocate of man’s proper use of his reasoning powers when reflecting on man and society. While the phrasing of his arguments sometimes created this confusion, in various places Hayek went out of his way to insist that he was never challenging the centrality of man’s reasoning and rational faculty. Rather, he was reminding central planners and social engineers that one of the important uses of man’s reasoning ability is to understand the limits of what man can and cannot know or hope to do in terms of trying to remake society according to some preconceived design.

Thirdly, all three firmly believed that there was no societal arrangement conceivable for free men and human betterment other than free market capitalism. Only a private property order that respects and protects the right of the individual to his life, liberty, and honestly acquired possessions give people control over their own lives. Only the voluntary associative arrangements of the marketplace minimize the use of force in human relationships. Only the market economy allows each individual the institutional means of being free from the power of the government and its historical patterns of plunder and abuse. And only the market economy gives each individual the latitude to live for himself and use his knowledge and abilities to further his own ends as he best sees fit.

And, finally, Mises, Hayek, and Rand all emphasized the importance of the intellectuals in society in influencing the tone and direction of political, economic, and social ideas and trends. These “second-hand” thinkers of ideas were the driving force behind the emerging and then triumphing collectivist ideas of the 19th and 20th centuries. They were the molders of public opinion who have served as the propagandizers and rationalizers for the concentration of political power and the enslavement and deaths of hundreds of millions of people – people who were indoctrinated about the need for their selfless obedience and sacrifice to those in political power for a “greater good” in the name of some faraway utopia.

The Consequentialist Rationale for Freedom

But where they differed was on the philosophical justification for the free society and the rights of individuals within the social order. Both Mises and Hayek were what today might go under the term “rule utilitarians.” Any action, policy or institution must be evaluated and judged on the basis of its “positive” or “negative” consequences for the achievement of human ends.

However, the benchmark for such evaluation and judgment is not the immediate “positive” or “negative” effects from any action or policy. It must, instead, be placed into a longer-run context of theoretical insight and historical experience to determine whether or not the policy or action and its effects are consistent with the sustainability of the overall institutional order that is judged to be most effective in furthering the long-run possible goals and purposes of the members of society, as a whole.

Thus, the rule utilitarian is concerned with the “moral hazard” arising from an action or policy implemented. That is, will it create “perverse incentives” that results in members of society acting in ways inconsistent with the long-run betterment of their circumstances?

Welfare payments may not only involve a transfer of wealth from the productive “Peters” in society to the unproductive “Pauls.” It may also reduce the motives of the productive members of society to work, save and invest as much as they had or might, due to the disincentive created by the higher taxes to pay for the redistribution. At the same time, such wealth transfers may generate an “entitlement” mentality of having a right to income and wealth without working honestly to earn it. Thus, the “work ethic” is weakened, and a growing number in society may become welfare dependents living off the honest labor of others through the paternalistic transfer hands of the State.

The net effect possibly is to make the society poorer than it otherwise might have been, and therefore making everyone potentially worse off in terms of the longer-run consequences of such policies.

Read the rest here.

I would add the great Murray Rothbard, but contra rule utilitarians Mr. Rothbard was a champion of natural rights based libertarianism

Quote of the Day: Selfishness, via Profits, Guides People to Serve the Need of Others More Effectively

making money honestly means creating something other people value, not necessarily what you value. The more money I want, the more I have to think about what other people want, and find better, faster, cheaper ways of delivering it to them. The reason someone is poor – and, yes, I know all the excuses for poverty – is that the poor do not produce more than they consume. Or if they do, they don’t save the surplus…

Selfishness, in the form of the profit motive, guides people to serve the needs of others far more reliably, effectively, and efficiently than any amount of haranguing from priests, poets, or politicians. Those people tend to be profoundly anti-human, actually.

This is from investing guru and philosopher Doug Casey at the Casey Research on the morality of money.

Quote of the Day: The Ethics of Free Enterprise Capitalism is Value Creation

With few exceptions entrepreneurs who start successful businesses don't do so to maximize profits. Of course they want to make money, but that is not what drives most of them. They are inspired to do something that they believe needs doing. The heroic story of free-enterprise capitalism is one of entrepreneurs using their dreams and passion as fuel to create extraordinary value for customers, team members, suppliers, society, and investors…

This is what we know to be true. Business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it lifts people out of poverty and creates prosperity.

This is from Whole Foods co-CEO John Mackey and Raj Sisodia, a marketing professor at Bentley College in their recently launched book Conscious Capitalism: Liberating the Heroic Spirit of Business as excerpted by a Wall Street Journal Book review (hat tip Carpe Diem's Professor Mark Perry)

  

Quote of the Day: To Achieve Liberty, Envy and Intolerance have to be Overcome

To achieve liberty and peace, two powerful human emotions have to be overcome. Number one is "envy" which leads to hate and class warfare. Number two is "intolerance" which leads to bigoted and judgmental policies. These emotions must be replaced with a much better understanding of love, compassion, tolerance, and free market economics. Freedom, when understood, brings people together. When tried, freedom is popular.

The problem we have faced over the years has been that economic interventionists are swayed by envy, whereas social interventionists are swayed by intolerance of habits and lifestyles. The misunderstanding that tolerance is an endorsement of certain activities, motivates many to legislate moral standards which should only be set by individuals making their own choices. Both sides use force to deal with these misplaced emotions. Both are authoritarians. Neither endorses voluntarism. Both views ought to be rejected.

I have come to one firm conviction after these many years of trying to figure out "the plain truth of things." The best chance for achieving peace and prosperity, for the maximum number of people world-wide, is to pursue the cause of LIBERTY.

If you find this to be a worthwhile message, spread it throughout the land.

This excerpt is from the stirring farewell speech by Ron Paul at the US Congress

Video: Miltion Friedman on the Difference Between Pro Free Enterprise from Pro Business

Associating capitalism or free markets with pro-business agenda remains a popular or common misperception, which the late illustrious Nobel awardee Milton Friedman eloquently refutes in the following video. (hat tip AEI Carpe Diem's Prof Mark Perry)

Aside from the above, Mr. Friedman makes an important point in dealing with social problems which plagues mainstream thinking

(3:38) we must separate diagnosis of problems from cure…

Thanksgiving Day: The Triumph of Capitalism

Americans celebrate the traditional Thanksgiving day today.

But many fail to realize that the quintessence of Thanksgiving is the showcase triumph of the experimentation of property rights, division of labor, and voluntary exchange or laissez faire capitalism over collectivism.

From a 2003 article by Bloomberg’s Caroline Baum…

One of the traditions the Pilgrims had brought with them from England was a practice known as ``farming in common.'' Everything they produced was put into a common pool, and the harvest was rationed among them according to need.

They had thought ``that the taking away of property, and bringing in community into a common wealth, would make them happy and flourishing,'' Bradford recounts.

They were wrong. ``For this community (so far as it was) was found to breed much confusion and discontent, and retard much imployment that would have been to their benefite and comforte,'' Bradford writes.

Young, able-bodied men resented working for others without compensation. Incentives were lacking.

After the Pilgrims had endured near-starvation for three winters, Bradford decided to experiment when it came time to plant in the spring of 1623. He set aside a plot of land for each family, that ``they should set corne every man for his owne particular, and in that regard trust to themselves.''

A New Way

The results were nothing short of miraculous.

Bradford writes: ``This had very good success; for it made all hands very industrious, so as much more corne was planted than other ways would have been by any means the Govr or any other could use, and saved him a great deall of trouble, and gave far better content.''

The women now went willingly into the field, carrying their young children on their backs. Those who previously claimed they were too old or ill to work embraced the idea of private property and enjoyed the fruits of their labor, eventually producing enough to trade their excess corn for furs and other desired commodities.

Given appropriate incentives, the Pilgrims produced and enjoyed a bountiful harvest in the fall of 1623 and set aside ``a day of thanksgiving'' to thank God for their good fortune.

``Any generall wante or famine hath not been amongst them since to this day,'' Bradford writes in an entry from 1647, the last year covered by his History.

With the benefit of hindsight, we know that the Pilgrim's good fortune was not a matter of luck. In 1623, they were responding to the same incentives that have been adopted almost universally four centuries later.

Remember the lessons of Thanksgiving

Happy Thanksgiving Day!

The Informal Economy Drives Latin America’s Middle Class

Experts are puzzled at Latin America’s rapid growth of the middle class.

The Economist writes

But the political implications of Latin America’s growing middle class are not yet clear. Some commentators have argued that the “new middle class” is entrepreneurial, is partly drawn from the informal sector, and will be hostile to statism and high taxes. (In fact, the bank finds that the middle class tend to be salaried employees of private companies.) Some of them send their children to private schools that have sprung up in many once-poor communities.

The mainstream vehemently denies it, but the share of informal economy in Latin America has been substantial.

Notes the Worldwatch Institute

For many poor people in urban areas, the primary means of economic survival is the production or sale of goods or services through semi-legal or illegal ventures, known as the informal economy. Conservatively, informal employment accounts for half to three quarters of all nonagricultural employment in developing countries: 48 percent in North Africa, 51 percent in Latin America, 65 percent in Asia, and 72 percent in sub-Saharan Africa.

You cannot have sustained rising standards of living or a middle class or a broadening of societal wealth without an increase in capital accumulation.

As the late great Professor Ludwig von Mises wrote,

Saving—capital accumulation—is the agency that has transformed step by step the awkward search for food on the part of savage cave dwellers into the modern ways of industry. The pacemakers of this evolution were the ideas that created the institutional framework within which capital accumula­tion was rendered safe by the principle of private ownership of the means of production. Every step forward on the way toward prosperity is the effect of saving. The most ingenious technological inventions would be practically useless if the capital goods required for their utilization had not been accumulated by saving.

So despite the many statist regimes in Latin America, the informal economy has been representative of guerrilla capitalism which has breathed life to the region's middle class.

Quote of the Day: Wealth Drives Evertything

Wealth drives everything. Military might, scientific achievement, medical breakthroughs, and technological advancement are all possible in wealthy societies. 

Of course, nations don’t just become wealthy by accident. National prosperity is built on a foundation of savings, economic freedom, ingenuity, and hard work… all factors that are in terminal decline in the west today.

(bold original) 

This quote is from Sovereign Man's Simon Black discussing the economic power renascence of Asia. 

Survey: China a Marxist Country with Blossoming Capitalist Sentiment

It appears that the average Chinese has been more accommodative to capitalism than Americans.

From Bloomberg, (bold mine)

Survey respondents in the officially Marxist country were slightly more supportive of capitalism than people polled in the U.S. Seventy-four percent of Chinese surveyed said they either completely or mostly agreed with the statement that most people are better off in a free-market economy, compared with 67 percent of Americans.

More proof that the ongoing political struggle in China has been about the emergence of the politics of entrepreneurship or economic freedom.

Arts: How Socialism Sapped Creativity and Innovation

From Humanities Professor Camille Paglia on an OpEd on "How Capitalism Can Save Art" at the Wall Street Journal (hat tip Cato's David Boaz)

Capitalism has its weaknesses. But it is capitalism that ended the stranglehold of the hereditary aristocracies, raised the standard of living for most of the world and enabled the emancipation of women. The routine defamation of capitalism by armchair leftists in academe and the mainstream media has cut young artists and thinkers off from the authentic cultural energies of our time.

Over the past century, industrial design has steadily gained on the fine arts and has now surpassed them in cultural impact. In the age of travel and speed that began just before World War I, machines became smaller and sleeker. Streamlining, developed for race cars, trains, airplanes and ocean liners, was extended in the 1920s to appliances like vacuum cleaners and washing machines. The smooth white towers of electric refrigerators (replacing clunky iceboxes) embodied the elegant new minimalism.

"Form ever follows function," said Louis Sullivan, the visionary Chicago architect who was a forefather of the Bauhaus. That maxim was a rubric for the boom in stylish interior décor, office machines and electronics following World War II: Olivetti typewriters, hi-fi amplifiers, portable transistor radios, space-age TVs, baby-blue Princess telephones. With the digital revolution came miniaturization. The Apple desktop computer bore no resemblance to the gigantic mainframes that once took up whole rooms. Hand-held cellphones became pocket-size. 

Young people today are avidly immersed in this hyper-technological environment, where their primary aesthetic experiences are derived from beautifully engineered industrial design. Personalized hand-held devices are their letters, diaries, telephones and newspapers, as well as their round-the-clock conduits for music, videos and movies. But there is no spiritual dimension to an iPhone, as there is to great works of art.

Thus we live in a strange and contradictory culture, where the most talented college students are ideologically indoctrinated with contempt for the economic system that made their freedom, comforts and privileges possible. In the realm of arts and letters, religion is dismissed as reactionary and unhip. The spiritual language even of major abstract artists like Piet Mondrian, Jackson Pollock and Mark Rothko is ignored or suppressed.

Thus young artists have been betrayed and stunted by their elders before their careers have even begun. Is it any wonder that our fine arts have become a wasteland?

Bottom line: Economic ideology and policies affect people’s behavior, and thereby all attendant actions. It’s only laissez faire capitalism that brings on the ‘pareto optimal’ on creativity and innovation even in the realm of arts.

Laissez Faire Capitalism: Private Jet Gets Bigger, Faster and Cheaper

Ah, the beauty of laissez faire capitalism as revealed by the Private Jet industry.

First, the financial bubble bust which affected the private jet industry, forced the sector to undergo painful adjustments through the market clearing process. 

From CNBC: (bold highlights mine)

The private jet industry is gaining altitude again after its death spiral during the recession. But jet makers, brokers and fractional companies say it will be years before the industry reaches its pre-crisis peak – if it does at all.

Used jets are still selling for half of their 2008 prices, while inventory remains high and jet use remains well below peak levels, as companies and the super-wealthy pare back their flights. As the industry rapidly reinvents itself to adapt to the shifting demand, the price of flying private is falling to record lows.

“It’s been a brutal downturn for this industry, followed by dashed expectations for recovery,” said Richard Aboulafia, analyst at the Teal Group, the aviation-research firm based in Fairfax, Va. “But the features are in place for a recovery and I think we’re already starting to see some slow and steady progress.”

This year, there have been a total of 172 new jets sold in North America – a drop of more than 70 percent from the 658 new jets sold during the same period in 2008, according to JETNET, the Utica, N.Y.-based jet research firm. The volume of used planes sold is about on pace with 2008 and 2009, yet prices for used planes are still down by a third or more from their 2008 peaks.

Price signals has then led to the re-coordination or the reallocation of resources towards areas preferred by the consumers.

Moreover, competition has prompted producers to tailor fit their products to the demand of consumers leading to lower prices, faster, bigger and more efficient planes.

Again from the same CNBC report…

The weak demand and prices has led to a radical restructuring in the private jet business, forcing all segments of the industry to conform to the new realities of flying private.

For jet makers, the future is about emerging markets like China, India, Brazil and the Middle East. Jet manufacturers are ramping up their sales staffs and expanding offices and support teams around the world to capture business from companies and the newly rich in these regions.

The jet makers are also launching products better suited to the new market. The top end of the market – with the biggest, fastest, most expensive planes – has been the most resilient…

In the mid-range and lower end of the market, aircraft builders are aiming for faster, more efficient planes…

For fractional and charter and companies, the new game is providing lower prices, better service and more flexible offerings. The industry has seen a large rotation among jet owners and short-term customers, as those private fliers who used to own planes outright now opt for lower-priced fractional shares or charters.

The surplus of jets in the market has led to a boom in the sales of seats or shares on individual flights. JetSuite, the California-based charter company, is now offering last-minute deals for $499. Travelers this week could charter one of JetSuite's Phenom jets – which seat four people  – from Los Angeles to Las Vegas or from Washington to Boston. The $499 price was valid as long as the customers registered through Facebook.

Many other charter companies are offering larger jet charters for $5,000 or less per flight.

Given this trend to relentlessly satisfy the consumers, one cannot discount that even the middle class, one day, may be able to access private jets.

This invaluable lesson from Joseph A Schumpeter’s classic Capitalism Socialism and Democracy (Google Books preview).

There are no doubt some things available to the modern workman that Louis XIV himself would have been delighted to have—modern dentistry for instance. On the whole, however, a budget on that level had little that really mattered to gain from capitalist achievement. Even speed of traveling may be assumed to have been a minor consideration for so very dignified a gentleman. Electric lighting is no great boon to anyone who has enough money to buy a sufficient number of candles and to pay servants to attend them. It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as rule improvements that would mean much to the rich man.  Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory girls in return for steadily decreasing amounts of effort.

Unfortunately, for governments despite their army of bureaucrats and academic supporters, they all fail to comprehend on such fundamental a lesson.

Laissez faire capitalism or economic freedom is the key solution to the world’s economic woes.

Picture of the Day: Capitalism is for People as They are

From a signboard of a combined Coffee Shop and Bar in Greenwich Village, NYC, as posted by New York University’s Development Research Institute’s Professor William Easterly on their blog.

Capitalism is indeed about real people.

China’s Deepening Capitalism: Mushrooming Self Development Facilities

Self help or self development books, seminars and conferences have been mushrooming over China. Capitalism has been gaining the upper hand.

Reports the BBC

Not long ago, capitalism was a dirty word in communist China - it was impossible to start your own business or think about getting rich.

But all that changed with a series of economic reforms launched three decades ago that unleashed a wave of entrepreneurial spirit.

Many Chinese people now spend much of their free time thinking, reading and learning about how to get ahead.

They turn to seminars, self-help books and novels in search of inspiration and to help them understand the rules of this new game.

One firm looking to help - and cash in - on this thirst for knowledge is Hengtaidatong Gold, which tries to persuade people to invest in this precious metal.

Every few weeks it organises glitzy gatherings for Beijing's well-heeled residents to teach them how to make money from this valuable commodity.

Read the rest here

The blooming force of entrepreneurship has also been evident by her growing influence or clout on the political sphere.

Facebook Launches Organ Donation Program

Facebook will use its social networking platform to facilitate a global organ donation program.

From abcnews.go.com

Conversations over the dinner table with his med-student girlfriend helped Mark Zuckerberg formulate his latest big idea — harnessing the power of Facebook to help eliminate the critical shortage of organs for patients desperately in need of life-saving transplants.

And it was his friendship with Apple founder Steve Jobs, whose life was extended by years following a liver transplant, in part, that spurred the 27-year-old Facebook founder and CEO to help put that idea into practice.

“Facebook is really about communicating and telling stories… We think that people can really help spread awareness of organ donation and that they want to participate in this to their friends. And that can be a big part of helping solve the crisis that’s out there,” Zuckerberg told ABC’s Robin Roberts in an exclusive interview at the company’s headquarters.

Starting today, users in the United States and U.K. will be able to add that they’re organ donors to their Timelines, and if they’re not organ donors, they can find links to official organ donation registries and instantly enroll.

This has just been one of the many social benefits that accrue from the information age and from laissez faire capitalism.

Lessons from the Roman Era Socialism

Inflationism had only been part of the financial repression policies that led to the fall of the Roman empire. Surviving the Roman empire’s welfare-warfare state prompted for broader adaption of socialist policies

Writes Simon Black, (bold emphasis mine)

In the terminal collapse of the Roman Empire, there was perhaps no greater burden to the average citizen than the extreme taxes they were forced to pay.

The tax ‘reforms’ of Emperor Diocletian in the 3rd century were so rigid and unwavering that many people were driven to starvation and bankruptcy. The state went so far as to chase around widows and children to collect taxes owed.

By the 4th century, the Roman economy and tax structure were so dismal that many farmers abandoned their lands in order to receive public entitlements.

At this point, the imperial government was spending the majority of the funds it collected on either the military or public entitlements. For a time, according to historian Joseph Tainter, “those who lived off the treasury were more numerous than those paying into it.”

Sound familiar?

In the 5th century, tax riots and all-out rebellion were commonplace in the countryside among the few farmers who remained. The Roman government routinely had to dispatch its legions to stamp out peasant tax revolts.

But this did not stop their taxes from rising.

Valentinian III, who remarked in 444 AD that new taxes on landowners and merchants would be catastrophic, still imposed an additional 4% sales tax… and further decreed that all transactions be conducted in the presence of a tax collector.

Under such a debilitating regime, both rich and poor wished dearly that the barbarian hordes would deliver them from the burden of Roman taxation.

Zosimus, a late 5th century writer, quipped that “as a result of this exaction of taxes, city and countryside were full of laments and complaints, and all… sought the help of the barbarians.”

Many Roman peasants even fought alongside their invaders, as was the case when Balkan miners defected to the Visigoths en masse in 378. Others simply vacated the Empire altogether.

In his book Decadent Societies, historian Robert Adams wrote, “[B]y the fifth century, men were ready to abandon civilization itself in order to escape the fearful load of taxes.”

Perhaps 1,000 years hence, future historians will be writing the same thing about us. It’s not so far-fetched.

In the economic decline of any civilization, political elites routinely call on a very limited playbook: more debt, more regulation, more restriction on freedoms, more debasement of the currency, more taxation, and more insidious enforcement.

Further, the propaganda machine goes into high gear, ensuring the peasant class is too deluded by patriotic fervor to notice they’re being plundered by the state.

The lesson is simple: the loss of freedom leads to a collapse of civilization. Freedom is the essence of humanity.

As the great Ludwig von Mises wrote, (bold emphasis mine)

The establishment of this truth does not amount to a depreciation of the conclusiveness and the convincing power of the antisocialist argument derived from the impairment of productivity to be expected from socialism. The weight of this objection raised to the socialist plans is so overwhelming that no judicious man could hesitate to choose capitalism. Yet this would still be a choice between alternative systems of society's economic organization, preference given to one system as against another. However, such is not the alternative. Socialism cannot be realized because it is beyond human power to establish it as a social system. The choice is between capitalism and chaos. A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings.

Chart of the Day: Capital Accumulation is Key to Economic Prosperity

Professor Steve Landsburg posted on his blog a graph from a textbook of his colleague exhibiting the tight correlations between the increase in capital and economic prosperity.

Professor Landsburg writes,

But the overall picture is clear: More capital per worker means more output per worker, and more output per worker means more income per worker. This relationship — in fact, the nearly linear relationship that you see on the graph — is just what standard economic theory predicts. It’s nice to see that prediction so powerfully confirmed.

Capital here refers to physical capital — the machinery, factory space and office equipment that allows workers to be more productive. A garment worker with a sewing machine produces more blouses per hour than a garment worker with a needle and thread; therefore the garment worker with a sewing machine earns higher wages. (A good rule of thumb is that workers are paid about 2/3 the value of what they produce.) If you want rich garment workers, you need a lot of high-quality sewing machines. If you want rich farm workers, you need a lot of high-quality tractors…

As a caveat, it isn’t just the capital that is important, instead it is the political economic environment which allows the citizenry to accumulate capital that matters most.

Professor Landsburg explains further, (bold emphasis mine)

Do not, however, jump to the conclusion that if, say, Nigerians had access to Japanese levels of capital, then Nigerian wages would rise to Japanese levels. Part of the reason Nigerians have so little capital is that capital is used less efficiently in Nigeria, so people choose to accumulate less of it. To move up this ladder, you need to do more than just accumulate capital — you’ve got to be the sort of country where capital is worth accumulating. What that entails will be a topic for a future post.

As the great Ludwig von Mises wrote in 1955, (bold emphasis mine)

It is the insufficient supply of capital that prevents the rest of the world from adjusting its industries to the most efficient ways of production. Technological "know how" and the "passion for productivity" are useless if the capital required for the acquisition of new equipment and the inauguration of new methods is lacking.

What made modern capitalism possible and enabled the nations, first of Western Europe and later of central Europe and North America, to eclipse the rest of mankind in productivity was the fact that they created the political, legal, and institutional conditions that made capital accumulation safe. What prevents India, for example, from replacing its host of inefficient cobblers with shoe factories is only the lack of capital. As the Indian government virtually expropriates foreign capitalists and obstructs capital formation by natives, there is no way to remedy this situation. The result is that millions are barefoot in India while the average American buys several pairs of shoes every year.

America's present economic supremacy is due to the plentiful supply of capital. The allegedly "progressive" policies that slow down saving and capital accumulation, or even bring about dissaving and capital decumulation, came later to the United States than to most European countries. While Europe was being impoverished by excessive armaments, colonial adventures, anticapitalistic policies, and finally by wars and revolutions, the United States was committed to a free enterprise policy. At that time Europeans used to stigmatize American economic policies as socially backward. But it was precisely this alleged social backwardness that accounted for an amount of capital accumulation that surpassed by far the amount of capital available in other countries. When later the New Deal began to imitate the anticapitalistic policies of Europe, America had already acquired an advantage that it still retains today.

Wealth does not consist, as Marx said, in a collection of commodities, but in a collection of capital goods. Such a collection is the result of previous saving. The anti-saving doctrines of what is, paradoxically enough, called New Economics, first developed by Messrs. Foster and Catchings and then reshaped by Lord Keynes, are untenable.

If one wants to improve economic conditions, to raise the productivity of labor, wage rates and the peoples' standard of living, one must accumulate more capital goods in order to invest more and more. There is no other way to increase the amount of capital available than to expand saving by doing away with all ideological and institutional factors that hinder saving or even directly make for dissaving and capital decumulation. This is what the "underdeveloped nations" need to learn.

Bottom line, economic prosperity can only be attained through a market economy (economic freedom or laissez faire capitalism). Interventionism or politicization of the allocation of scarce resources can only result to the opposite—capital consumption.

Shale Oil Revolution: (Laissez Faire) Capitalism Deals Peak Oil a Fatal Blow

I used to believe in peak oil. That all changed when I got immersed in Austrian school of economics. I have come to realize that we are dynamic, and not static, beings whose actions are driven by time and value scale based incentives in response to the changes in the environment and to social developments. In other words, human action is what drives economic values of goods or services.

And given the opportunity or the right environment or a society tolerant for experimentation that rewards success and penalizes failure, people will find ways and means to employ resources in a more efficient manner in order to improve on our current unsatisfactory conditions.

“Peak oil” as a social phenomenon, and not in the engineering sense, is about to be vanquished [unless socialists cloaked as environmentalists succeeds to put a political kibosh on this sunshine industry].

The phenomenal pace of advances in engineering technology has been intensifying the Shale Oil Revolution

From the New York Times Green Blog, (bold emphasis mine) [hat tip Professor Mark Perry]

The revolution in production in Texas and across the country is partly tied to the rising price of oil over much of the last decade, which propelled aggressive technological experimentation and development. (Government encouragement over the last several administrations helped as well.)

Horizontal drilling and hydraulic fracturing have been around for years, but over the last five years, engineers have fine-tuned these and other techniques, even as many environmentalists worry about their impact on water and air.

Computer programs have been developed to simulate wells before they are even drilled. Advanced fiber optics permit senior engineers at company headquarters to keep track of drillers on the well pad, telling them when necessary where to direct the drill bit and what pressure to use in injecting fracking fluids. Seismic work has become far more sophisticated, with drillers dropping microphones down adjacent wells to measure seismic events resulting from a fracking job so they can more accurately determine the porosity and permeability of rocks when they drill nearby in the future.

Just a decade ago, complete wells were fracked at the same time with millions of gallons of water, sand and chemical gels. Now the wells are fracked in stages, with various kinds of plugs and balls used to isolate the bursting of rock one section at a time, allowing for longer-reaching, more productive horizontal wells. A well that once took two days to drill can now be drilled in seven hours.

For instance, when the Apache Corporation began drilling in the 100,000-acre Deadwood field in the West Texas Permian basin in 2010, there had only been a trickle of production there. The deep shale, limestone and other hard rocks had potential, but for years they had not been considered economically viable. The rocks were so hard, they would have likely sheared off the usual diamond cutters on the blade of any drill bit attempting to cut through.

But new adhesives and harder alloys have made diamond cutters and drill bits tougher in recent years. Meanwhile, Apache experimented with powerful underground motors to rotate drilling bits at a faster rate. Now, a well that might have taken 30 days to drill can be drilled in just 10, for a savings of $500,000 a well.

“By saving that money, you can spend more on fracking, which translates into more sand and more stages and better productivity,” said John J. Christmann, the Apache vice president in charge of Permian basin operations.

All these serves as empirical evidence of how the price signaling channel sets in motion entrepreneur’s incentives to fulfill market demands through the employment of savings or capital accumulation in shaping the fantastic advances in technology (in spite of the numerous government interventions) in a market economy.

As the great Professor Ludwig von Mises wrote,

What distinguishes modern industrial conditions in the capitalistic countries from those of the precapitalistic ages as well as from those prevailing today in the so‑called underdeveloped countries is the amount of the supply of capital. No technological improvement can be put to work if the capital required has not previously been accumulated by saving.

Saving—capital accumulation—is the agency that has transformed step by step the awkward search for food on the part of savage cave dwellers into the modern ways of industry. The pacemakers of this evolution were the ideas that created the institutional framework within which capital accumula­tion was rendered safe by the principle of private ownership of the means of production. Every step forward on the way toward prosperity is the effect of saving. The most ingenious technological inventions would be practically useless if the capital goods required for their utilization had not been accumulated by saving.

The entrepreneurs employ the capital goods made available by the savers for the most economical satisfaction of the most urgent among the not-yet-satisfied wants of the consumers. Together with the technologists, intent upon perfecting the methods of processing, they play, next to the savers themselves, an active part in the course of events that is called economic progress. The rest of mankind profit from the activities of these three classes of pioneers. But whatever their own doings may be, they are only beneficiaries of changes to the emergence of which they did not contribute anything.

The characteristic feature of the market economy is the fact that it allots the greater part of the improvements brought about by the endeavors of the three progressive classes—those saving, those investing the capital goods, and those elaborating new methods for the employment of capital goods—to the nonprogressive majority of people. Capital accumulation exceeding the increase in population raises, on the one hand, the marginal productivity of labor and, on the other hand, cheapens the products. The market process provides the common man with the opportunity to enjoy the fruits of other peoples’ achievements. It forces the three progressive classes to serve the nonprogressive majority in the best possible way.

As seen from the shale oil revolution, the illustrious economist Julian Simon has been right anew, human beings have indeed been the ultimate resource.

Laissez Faire Capitalism and City Competitiveness

The Economist devised a new measure of competitiveness applied to cities.

They write

The 120 cities in the index are home to some 750m people and $20.2 trillion worth of GDP, 29% of the world's total. High concentrations of skilled residents, infrastructure and institutions mean that the top of the index is dominated by America and western Europe, with 24 cities in the top 30. Comparing the index to the EIU's cost of living data (a measure of western-style living expenses), identifies those cities which also represent good value for money for the ambitious expatriate.

Explaining their findings, they add

Well over half of the world’s population now lives in cities, generating more than 80% of global GDP. Already, global business is beginning to plan strategy from a city, rather than a country, perspective.

Given the rapid growth and development of many cities, particularly in emerging markets such as China and India, competition between them for business, investment and talent will only get fiercer.

Size alone does not determine a city’s growth potential. While some megacities, such as New York and Tokyo, are immensely influential, there are smaller ones, such as Hong Kong and Singapore, which have established themselves as globally competitive centres in recent years. Meanwhile, emerging market cities such as Ahmedabad and Tianjin are witnessing double-digit economic growth and have the potential to grow even faster.

Competitiveness, however, is a holistic concept. While economic size and growth are important and necessary, several other factors determine a city’s overall competitiveness, including its business and regulatory environment, the quality of human capital and indeed the quality of life. These factors not only help a city sustain a high economic growth rate, but also create a stable and harmonious business and social environment.

The scatter plot diagram has a substantially significant message: the state of competitiveness is highly correlated with the standards of living. The more competitive a city is, the higher standards of living and vice versa. Given the above, the US and the west has, at present, the highest level of competitiveness, which similarly extrapolates to the highest ranking of standard of living. Meanwhile, Africa and Latin America has lagged.

And what has been the causal link which drives the correlation between competitiveness and quality of living?

The answer is capital accumulation via laissez faire capitalism

The great Professor Ludwig von Mises already explained this more than half a century ago or that the city competitiveness index merely validates Professor von Mises. (bold emphasis mine)

The truth is that the accumulation of capital and its in­vest­ment in machines, the source of the comparatively greater wealth of the Western peoples, are due exclusively to laissez-faire capi­talism which the same document of the churches passionately misrepresents and rejects on moral grounds. It is not the fault of the capitalists that the Asiatics and Afri­cans did not adopt those ideologies and policies which would have made the evolution of autochthonous capitalism possi­ble. Neither is it the fault of the capitalists that the policies of these nations thwarted the attempts of foreign investors to give them “the benefits of more machine production.” No one contests that what makes hundreds of mil­lions in Asia and Africa destitute is that they cling to primitive methods of production and miss the benefits which the employ­ment of better tools and up-to-date technological designs could be­stow upon them. But there is only one means to relieve their distress—namely, the full adoption of laissez-faire capitalism. What they need is private enterprise and the accumulation of new capital, capitalists and entrepreneurs. It is nonsensical to blame capitalism and the capitalistic nations of the West for the plight the backward peoples have brought upon themselves. The remedy indicated is not “justice” but the substitution of sound, i.e., laissez-faire, policies for unsound policies.

Of course times have been changing. Globalization has been prompting for the laggards (like Africa) to embrace more capitalism therefore becoming more competitive. Whereas debt plagued welfare states of West has led to a diminishing competitiveness. This should lead to a wealth convergence.