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Source link: http://archive.mises.org/9706/the-fundamental-obstacles-to-economic-recovery-marxism-and-keynesianism/

The Fundamental Obstacles to Economic Recovery: Marxism and Keynesianism

March 30, 2009 by

Keynes Marx Time magazine covers

While the influence of Marxism stands directly in the path of a fall in wage rates and prices, by blocking its way with laws and threats, Keynesianism aims to prevent any attempt to overcome these obstacles by allegedly demonstrating the futility and harm of doing so. Both doctrines are fundamental obstacles in the way of economic recovery and must be deprived of influence over public opinion in order for economic recovery to take place. The prerequisite of this necessary change in public opinion is the existence of a powerful, demonstration of the utter fallaciousness of these doctrines that at the same time proves that a free market is the foundation both of full employment and of progressively rising real wages. Happily, this demonstration already exists, in full detail. FULL ARTICLE

{ 24 comments }

David Spellman March 30, 2009 at 12:04 pm

An Austrian economist and a Socialist ran for office against each other.

The Austrian economist told the people that the free market would best allocate resources and provide the greatest long term economic prosperity. He meticulously made his case that everyone would be better off overall over the long haul. The people nodded in agreement.

The Socialist told the people, “Yes, but you personally could lose your job, your house, your health insurance, your retirement, and wind up in the poor house! Vote for me and I will make sure you get your fair share of everyone else’s pie!” The people voted for the Socialist and he won.

The present value of theft trumps the future value of free markets.

REPLY FROM REISMAN:
With a free market that included a 100 percent-reserve precious metals monetary system people would no more be in danger of losing their jobs, homes, and life’s savings than they would be in danger of earthquakes or tornados. Under socialism, they don’t have very much in the way of homes or material goods of any kind and are in substantial danger of spending their lives in a slave labor camp.

matt smith March 30, 2009 at 12:53 pm

Demonstrations sadly arnt good enough, because pie-in-the-sky will always win at the ballet box. This is why we have the constitution and the rule of law. Our inability to wrap von mises up with the constitution and the rule of law is the cause of our presant woes.

I Hate Psychiatry March 30, 2009 at 12:56 pm

David Spellman,

By robbing everybody elses pie, thinking they got something for nothing, people don’t realize that what they are really doing is robbing their own future.

Samuel G. March 30, 2009 at 1:57 pm

It’s all slight of hand – illusion. Everyone wants to simultaneously steal and be stolen from. But people psychologically dupe themselves into ignoring this fallacy.

What I’m reminded of is that WWE wrestling. You know, the big muscular dudes who break chairs over each others heads. (Icrack up on the rare occasion that I waste of a few of my precious minutes watching it)

Everyone wants to believe it’s real…Because it’s so outrageous…It’s like a type of modern gladiator sport…now, at the same time it would be illegal to bludgeon people with sledgehammers etc… so in order to take it seriously you have to pretend to yourself that it’s actually real! The analogy isn’t perfect, but I think it somewhat illustrates my point:
self-deception is often desired by the people listening to Marxists and Keynesians.

(my apologies to anyone who enjoys it that wrestling, after all I do get a kick out of it from a comedic point of view) :)

Kevin Hall March 30, 2009 at 3:33 pm

As I see things unfolding, I am far less concerned with Marxism and Keynesianism tag-teaming us into oblivion. The way I see it, the real threat is the new fascist tag-team between Obama/Bush and the bankers. They have completely taken control of the entire economy and Marxism is hardly an afterthought. I think the real threat is the re-creation of a fascist dictatorship between bankers and central government.

Marco Costa March 30, 2009 at 4:03 pm

Well the end of the article was a bit anticlimactic for me since I don’t own the book.

Damn you George Reisman! *shakes fist* :-P

John Rolstead March 30, 2009 at 5:05 pm

I would just like to chime in and add that I have just finished Dr. Reisman’s book and found it to be fantastic! It is very readable, but also very large. But since I enjoy reading economics, that is a good thing. It is definately a value at $80. I must confess though that I obtained my copy from the local library. But if I ever get my hands on a spare $80, I will bring this tome into my personal collection.

Some take aways:
1. The explanation on how the low cost producer sets the price for an industry based on his competition’s marginal costs. This explains why gas prices change at all dealers at once.

2. The explanation that I want the gas price to be what it is so it garauntees me a supply when I want to buy gas. If it was priced cheaper, the dealer would run out before I got there. I am in competition with all other marginal buyers out there.

3. The table explaining how a firm in and economy with a fixed money supply can divert money from net consumption to net investment and how this will lead to a continual progression in capital available for future production.

4. The explanation on Say’s law and how price = Demand for consumer’s goods divided by Supply of consumer’s goods.

5. How switching from consumption good production to capital good production should be looked at as a change in time to market. The economy is just switching from producing for today to producing for tomorrow.

6. How Interest is a price like any other and how it should regulate production. How the Fed short-curcuits this price and how this leads to the boom/bust cycle.

Great work Dr. Reisman!

The Oligarchy is the CEO of US's main industry March 30, 2009 at 5:12 pm

The Atlantic Online has an article, “The Quiet Coup,” which was written by an IMF economist. Although the author doesn’t question the usual government solution, he does a great job of laying out the fact that over the past 20-30 years, the US has become an oligarchy and that the US oligarchy will be especially difficult to deal with because resolution always requires someone in the oligarchy to take a loss. Without strong outside influence, which historically has been the US based IMF, there can be no resolution.

While the article only mentions the growth of the financial sector, I think it is important to realize the enormity of that growth. A recent economic report stated that, “By 2005, financial services accounted for 20.4 per cent of US gross domestic product, as against 12 per cent by the manufacturing sector, reversing the relative standings in 1970 when manufacturing’s share stood at 23.8 per cent to 14 per cent by financial services.” This is an astonishing reversal, and explains why all US effort is going into propping up the financial sector.

The financial industry has become the country’s main value industry, but now that the banks are no longer able to wildly inflate asset values for derivative trades, the financial industry will shrink. Unfortunately, American politicians still hate the sight of smokestacks so it will be a long time before we see a correlating return to manufacturing.

newson March 30, 2009 at 10:29 pm

to marco costa:
if you want to climax, it’s downloadable from mises.org “literature”.

Gerry Flaychy March 31, 2009 at 8:08 pm

” … a free market is the foundation both of full employment and of progressively rising real wages.” _George Reisman

What is a free market ?

For Ludwig von Mises ” The market is free; [when] there is no interference of factors, foreign to the market, with prices, wage rates, and interest rates.”
Source

But it is only an imaginary construction , a tool to try to better understand what is going on in the real world.

There is no such thing as a free market in the real world.

Being an imaginary construction, we can then put what we want in it.

REPLY FROM REISMAN:
Freedom is the absence of the initiation of physical force. You can’t turn it into whatever you want. When the government threatens fines or imprisonment for actions other than the initiation of physical force, it’s initiating physical force and thus violating freedom.

Bruce Koerber March 31, 2009 at 8:34 pm

Another very good and complete refutation of Keynesianism and Marxism that annihilates every premise of interventionism is MORE THAN LAISSEZ-FAIRE (2008).

SailDog April 1, 2009 at 6:57 am

Aside from the fact that Reisman doesn’t know up from down, just what is meant by the term “recovery”. The word is derived from recover – which the OED variously defines as to return to “a normal state”.

What the hell is that? Dodgy mortgages, credit cards maxed out, the entire country broke? If he means returning to the situation immediately prior to August 2007, Reisman is even more out of touch than I thought.

The US is about to implode. Once the people could no longer borrow, the government tried valiantly to do it for them. But broke is broke and there are no free lunches. I am amazed it has all lasted this long frankly.

Anyway, supposing there is a “miracle” recovery. Where will the oil come from? There aren’t any Prudhoe Bays or North Sea’s to power us out of this one.

Per-Olof Samuelsson April 1, 2009 at 10:06 am

Well, Mises *does* call the “pure and unhampered market economy” an “imaginary construction”. (There is a section on it in Human Action”, beginning on p. 237.)

This bothers me, since it seems to imply that this state is unobtainable and merely a “theoretical tool”.

With his other “imaginary constructions”, such as the “stationary state” and the “evenly rotating economy”, Mises stresses that those ideas cannot be thought out to their ultimate consequences, because that would lead to internal contradictions. But surely, there is nothing contradictory about a “pure and unhampered market economy”?

Gerry Flaychy April 1, 2009 at 10:31 am
” REPLY FROM REISMAN:
Freedom is the absence of the initiation of physical force.”

For Mises, «free market» is about the absence of
interference from factors foreign to the market, not about the absence of the initiation of physical force. These are two different notions.

Moreover, Mises wrotes:

“The imaginary construction of a pure or unhampered market economy assumes … that the government, the social apparatus of compulsion and coercion, is intent upon preserving the operation of the market system, … , and protects it against encroachments on the part of other people.”

Gerry Flaychy April 1, 2009 at 11:24 am
“Per-Olof Samuelsson
Well, Mises *does* call the “pure and unhampered market economy” an “imaginary construction”. …
This bothers me, since it seems to imply that this state is unobtainable and merely a “theoretical tool”.”

It does not imply that it is unobtainable nor that it is obtainable: that is not the question.
An imaginary construction, is only a tool to try to better understand what is going on in the real world and, by after, act on this world, for the better or the worst !

For example, the Newton’s system of forces is an imaginary construction, but it is a powerful tool to understand what is going on in this material world and to act on it. But nothing proves that those forces really exist: it doesn’t matter anyway.

Milton April 1, 2009 at 3:02 pm

Reisman: “Freedom is the absence of the initiation of physical force.”

This sounds rather Randian and needs to be defined. When I think of “physical force,” I think of violence or the threat of it– that is, battery or at least assault. What about burglary or embezzlement? And what about fraud, as in sale of tainted goods, as in melamine-laced milk which is labeled simply “milk”?

If government is to be responsible for stopping fraud of this time, which agency should do it? I believe I read another of Dr. Reisman’s essays where he asserts that a free-market would have no SEC or FTC, and certainly no arms of the USDA or FDA that keep that keep you from getting melamine (or trout) in your milk.

Once you have government involved in truth-in-labeling, you may as well have it as concerned with “AAA securities” which are essentialy worthless mortgage-backed derivatives which everyone knew were worthless when they labeled them. Why is this different from the false label on the tainted milk? There are some situations where “caveat emptor” just isn’t adequate.

REISMAN’S REPLY:
Burglary, embezzlement, and fraud are instances of physical force. They all represent the taking of property against the will of its owner. This is the case even in situations in which the owner appears to voluntarily turn over his property, e.g., to a con man who takes away a television set ostensibly to repair it, but in fact to sell it. Taking the set to sell it is against the will of the owner.

Laws against fraud would be enforced by state and local police and courts.

Gerry Flaychy April 2, 2009 at 5:52 pm
” The imaginary construction of a pure or unhampered market economy assumes … that the government, the social apparatus of compulsion and coercion, is intent upon preserving the operation of the market system, … , and protects it against encroachments on the part of other people. ” _Mises

How the governement can preserve the operation of the market system, protects it against encroachments on the part of other people, without ever using the initiation of physical force ?

REISMAN’S COMMENT:
The “encroachments” of other people, such as murder, rape, robbery, fraud, etc. are acts of the initiation of physical force. The government’s response is the use of force in defense and retaliation. It’s the difference between the force used by a bank holdup man and the force used by a bank guard. The distinction is as clear as that between night and day.

Gerry Flaychy April 2, 2009 at 7:40 pm

If freedom is the absence of the initiation of physical force, and if murder, rape, robbery, fraud, etc. are acts of the initiation of physical force, then, till those acts will continue, we will never have freedom.

And if that freedom is necessary to have a free market, then we will never have a free market, unless we find a way to make disappear those murders, rapes, robberys, frauds, etc. !

REISMAN’S COMMENT:
It is true that so long as there are acts such as murder, robbery, rape, fraud, et al. there are, to that extent, individual instances of the violation of freedom. But if a govenment exists whose exlusive job is to apprehend and punish the perpetrators, and it itself is effectively prohibited from committing such acts, then the extent of the violations of freedom is reduced to the same significance as that of occasional destructive acts of nature. The normal life of the individual is not affected. For practical purposes he lives free of the initiation of physical force. He lives in a free country.

An individual can be said to live in a (substantially) free country even though its government is guilty of numerous violations of freedom, provided that the government’s basic purpose and general character are defined by the upholding of the individual’s freedom. Thus, for its white, male population the United States was a free country, at least in the generations prior to the enactment of the federal income tax. Even now it is a free country in comparison to the Soviet Union and Nazi Germany.

Gerry Flaychy April 3, 2009 at 10:27 am

To REISMAN’S COMMENT of April 2, 2009 7:40 PM:

Then, in the situation that you described in the first paragraph, even if there are initiations of physical force, there is still freedom for the individual living a normal life.

Thus, at least in this situation, we can have freedom even if there is no absence of initiation of physical force.

Is it what you are saying or do I misinterpret it ?

REISMAN’S QUESTION:
We have freedom when the threat of the initiation of physical force is reduced to insignificant proportions. If, for example, the murder rate were reduced to one in a million, the inidividual would be essentially free of the threat of being murdered. Freedom from the threat of being murdered would be present in 999,999 out of a million cases.
In contrast, you appear to be saying that so long as there is one murderer or pickpocket in a country, or one wrong law, that the country is not free. Do you mean to equate such a country with Nazi Germany or Soviet Russia?

Per-Olof Samuelsson April 3, 2009 at 12:51 pm

“It would be a serious blunder to look for analogies to the imaginary constructions in the field of the natural sciences.” – “Human Action”, p. 237.

Some people ought to read Mises a little more carefully, before they refer to his teachings.

Gerry Flaychy April 4, 2009 at 11:41 am

To REISMAN’S :

At first you wrote that “Freedom is the absence of the initiation of physical force.”.

Now you write that “We have freedom when the threat of the initiation of physical force is reduced to insignificant proportions.”.

In between you wrote that “It is true that so long as there are acts such as murder, robbery, rape, fraud, et al. there are, to that extent, individual instances of the violation of freedom. But if a govenment exists whose exlusive job is to apprehend and punish the perpetrators, and it itself is effectively prohibited from committing such acts, then the extent of the violations of freedom is reduced to the same significance as that of occasional destructive acts of nature.”, wich, for me, means that even if there is a signifiant number of initiations of physical force it does not matter *if* the government apprehend and punish the perpetrators, and doesn’t commit those acts itself.

In other words, you begin by talking of *absence* of initiation of physical force; after you continue in saying that even if there *no absence* of it and even if there is a significant number of them, it does not matter much, at the condition that the government does such and such things; and you finish by saying that it is a question of proportion.

Then what is it, from your point of view, that constitute freedom: is it only the abence of the initiation of physical force; their insignificant proportions; or numerous initiations of physical force *but* all of them, or almost all of them, counteracted, counterbalanced, by appropriate actions from the part of the government ?
This is what is not clear for me in your point of view.

REISMAN’S REPLY:
Freedom is the absence of the initiation of physical force. The characterization of a country as free does not require the existence of zero initiation of physical force in that country. If it did, there could be no such thing as a free country. Even just one isolated initiation of physical force would be sufficient to characterize a country as not free. Such an approach would destroy the concept of freedom and place all countries in the same category, i.e., that of not being free countries. That would be vicious and absurd, a practice of benefit to no one but advocates of dictatorship.
Try to think of the application of the terms freedom and free in a manner analogous to a system of awarding grades to students. Thus, it is common practice that any student whose course average is 95 or greater receives a grade of A, and a grade of A- if his course average is between 90 and 94, and so on.
An A student is an outstanding student; an A- student is an exceptionally good student. Nevertheless both A and A- students commit a more or less substantial number of errors on exams and quizzes in the course of a term. If, for example, there were four exams of 100 questions each, an A student could answer incorrectly as many as twenty times and still be an A student; an A- student could answer incorrectly as many as 40 times and still be an A- student.
So it is with freedom and individual instances of violations of freedom. There can be many such instances and yet the country can still be characterized as enjoying freedom, though not as a completely or perfectly free country.
Essential characteristics of a free country are its recognition and upholding of the principle of private property and private ownership of the means of production, the principle of the individual’s right to life, liberty, and the pursuit of his own happiness, the principle that government exists to secure the rights of the individual, strict Constitutional limitations on the powers of the government, including the existence of an independent judiciary and of trial by jury, and the ability to change the government through free elections.
A country which possessed these characteristics would automatically earn at least some kind of C grade for freedom.
A country such as the United States in the 19th century would probably deserve a grade of A- for the white, male population (though an F for blacks before the Civil War). In that period, apart from the Civil War years, there was no income tax, only a handful of Cabinet Departments, and no or hardly any regulatory agencies. And the government did a fairly good job of combating private criminals, to the point where it was safe to walk the streets of towns and cities at night. Never in the history of the world was the individual more secure against the aggression both of other private individuals and of his government than he was then. From this perspective, the United States of the 19th century was world’s outstanding free country.

Milton April 9, 2009 at 4:06 pm

REISMAN’S REPLY:
Burglary, embezzlement, and fraud are instances of physical force. They all represent the taking of property against the will of its owner. This is the case even in situations in which the owner appears to voluntarily turn over his property, e.g., to a con man who takes away a television set ostensibly to repair it, but in fact to sell it. Taking the set to sell it is against the will of the owner.

Laws against fraud would be enforced by state and local police and courts.

COMMENT:

Fine, I’m glad to have your definition. But you still did not address my comment about truth-in-labeling. Is it not just as much “fraud” if I sell you a bottle labeled “penicillin” when it’s really just sugar? What government agency exists to prevent mislabeling by wieghts and measures (perhaps it doesn’t have the stated amount of penicillin) or purity (perhaps the penicillin is impure or contains lead) or promised effect? Who judges if a promised effect is fraudulent? This Lipitor will lower blood cholesterol and help prevent heart attacks. This niacin will lower cholesterol and help prevent heart attacks. This octacosanol will lower cholesterol and prevent heart attacks. This homeopathic Phytolacca decandra 30 x and Cholesterium 30C will lower your cholesterol and prevent heart attack…

Again, a major part of what the alphabet consumer protection agencies like FDA, USDA, SEC, and FTC do, is prevent mislabeling and fraud by deception that way. As with melamine in milk. Please be specific about why you think this is a philosophically illegitimate practice, and where you draw the line. Are state and local courts to determine what mislabeling constitutes “fraud”? Why so, if interstate shipping of mislabeled goods is routine?

Milton

REISMAN’S RESPONSE:

Dear Milton,

Material mislabeling is a species of fraud.

While I am not an attorney, I believe that if a fraud is committed by a citizen of one state against a citizen of another state, the Federal Courts would have jurisdiction. It may be that it should be the Department of Justice that should prosecute such cases, rather than local officials.

But this does not make any case for the alphabet agencies. Their operations are not limited to those of a specialized body of prosecutors. They also enact the equivalent of laws, without having to be elected. Their actions are substantially unchecked, and are often very harmful. For example, they can arbitrarily prohibit the production of products that are of major benefit to many people, such as the drug Vioxx, which many arthritis sufferers were greatly helped by.

By what right does any body of officials dare to prohibit citizens from choosing their own experts and taking their own risks? What are the qualifications of those officials? That they were appointed to their positions by politicians and confirmed by legislators who do not even read the laws they enact and could not possibly do so, given the sheer volume of the laws passed?

Why, for example, must my physician, whom I know and trust, and whom I wish to prescribe my treatment, be made subordinate to some government appointee whom I do not know and certainly do not trust?

If I am intelligent enough to vote in elections, the outcome of which determines all of our country’s major foreign and domestic policies, surely I should be free to decide whether or not I will consume cyclamates, trans fats, salt, or whatever.

Special reverence for government officials and their judgment depends on a philosophy that views government officials as coming from a different and superior race of men than those whom they ostensibly serve.

You make a special point of wanting to know who judges the truth or falsity of this or that claim. The answer is, each and every individual, with the help and guidance of experts of his own choosing, whose qualifications he has previously judged for himself. If there is no simple clear-cut answer acceptable to practically everybody, such as 2+2 = 4, then there is no demonstrable fraud involved by making one claim rather than another—a fraud charge wouldn’t get past a jury in such a case. Selling sugar as penicillin would be an obvious case of fraud. Claiming that Lipitor et al. lowers cholestoral and reduces heart attacks is not fraudulent even it does not work in all cases. There are important differences among individuals that affect the way drugs act on them. One of the shortcomings of the FDA is that it seems to proceed on the assumption that if something has bad effects on some people, it shouldn’t be allowed for anyone. This procedure is very harmful, as I pointed out in the case of Vioxx, above.

Let individual freedom reign!

George Reisman

Gerry Flaychy April 9, 2009 at 7:10 pm

Gerry Flaychy to REISMAN’S REPLY of my last post.

Concerning your example of the students, it’s ok with me. But, in this case, I would talk of the degrees of freedom instead of freedom, leaving your definition of freedom as it is, with this definition serving as a way to evaluate each country relatively to each other one.

This said, I still don’t like this definition !

Concerning the security of individuals in the history of the world in a specific territory, I would suggest the territory ruled by Gengis Khan during the time he was the ruler, for the first place on the podium.

And I will terminate by saying that you seem to relate very much freedom with security. But it’s only an impression of mine.

Tim February 21, 2011 at 11:07 am

I think the problem is that when we try to see the world through a particular ideology, it just doesn’t work. See Russia under what it considered to be a socialist government. Not pretty. But get the same country and try to govern it with an obsession with pure market forces, and the alternative does not seem much more attractive.
My point is that when we get hung-up on ideologies, whether or not they are well-meant at the time, we always start to lose track of what actually works. I still believe that the most workable solution to economics is to have a free market economy, but it needs checks and balances, as if it is completely unfettered you end up with a system that has no conscience.

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