Tuesday, June 4, 2013

“Enlightened Free Enterprise”

Intending to write a series of articles about various business cycle theories, I encountered a book originally published in 1978 and copyrighted in 1996. The title of the book is “The Austrian Theory of Trade Cycle and Other Essays”. It was edited by Richard M. Ebeling. The book has six essays and the contributors include F. A. Hayek, Ludwig von Mises, Murray Rothbard, Gottfried Haberler, and Roger Garrison.
The six essays are:
  • Introduction: The Austrian Theory in Perspective by Roger W. Garrison
  • The Austrian Theory of the Trade Cycle by Ludwig von Mises
  • Money and the Business Cycle by Gottfried Haberler
  • Economic Depressions: Their Cause and Cure by Murray N. Rothbard
  • Can We Still Avoid Inflation? By Friedrich A. Hayek
  • The Austrian Theory: A Summary by Roger W. Garrison
Let me start with essay number 4, “Economic Depressions: Their Cause and Cure”by Murray N. Rothbard. It has 26 pages.
My strategy is to write about any idea that I personally consider striking and important without regard to the total structure of the essay. Of course, I will do my best to be considerate about the essay’s structure. However, that’s not my primary concern. And here are the ideas I considered important:
  • The reality of the world of euphemism
  • Socialism’s disguise
  • Three economic questions
Reading the first paragraph, I encounter a difficult word – euphemism. Usually, encountering an unfamiliar term, I do not go immediately to the dictionary to look for its meaning. This kind of reading slows down my goal to finish an essay or a book. However, I could not help myself, but look for its meaning for I consider the word central to understand the entire essay. It’s the basic assumption of the writer.
Paraphrasing the definition I encounter in the web, I understand euphemism as a way to make offensive words acceptable. This could be done both negatively and positively. As positive expression, this could be considered polite. However, as negative expression this is a good strategy to hide something and if done using the mainstream avenues of information could be used as a tool of misinformation and social control.
The examples from this site of euphemism are surprising. I will just select few: “passed away” instead of “died”; “correctional facility” instead of “jail”; “ethnic cleansing” instead of “genocide”; “relocation center” instead of “prison camp”; “pregnancy termination” instead of “abortion”, and; “on the streets” instead of “homeless”.
Remember who use and throw these words out there. Think also what the intention behind the replacement of words. Who use those words and for what purpose? This is a relevant question especially in our generation where almost all the things we believe to be true are in reality utilized to control the mind of the majority so that the powers that pull the string could do their own thing unnoticed. This is particularly true in the writing of history.
Murray N. Rothbard used the word “euphemism” in the sense we describe above and this is most evident in the field of economics. The terms “depression” and “recession” are too strong and offensive for the public. Better replace the terms with acceptable ones. In this task, professional economists succeeded. Economic reality is hidden from the public and “the planners” go on with their usual business of planning people’s lives. If you do not believe this to be true, for your children’s sake, take a serious look once again. You do not have any excuse for not knowing for the Internet is before you. Reality is just a click away.
Instead of “depressions” and “recessions”, Murray Rothbard claims that “New Economics” formulated new terms. These are “downturns”, “slowdowns”, and “sidewise movements”. Praise the Lord! We will no longer have depressions and recessions! Professional economists have created wonders!
Keynesian Socialism Disguising as “Enlightened Free Enterprise”
After reading the first few paragraphs of the essay, I encountered familiar and intriguing ideas particularly relevant to our present global economic situation. Karl Marx is the dominant personality that influenced the prevailing perception that business cycle is an inherent flaw within free market capitalism. Most people are unaware that by accepting this thesis, they already embraced the Marxist’s interpretation.
However, economists like David Hume and David Ricardo refused to blame the free market for business cycle. They identify the critical role of commercial banks and government intervention on the economy as the real source of economic depression.
Governments of the world operate on the Keynesian economic framework.  Based on this framework, government intervention is justified to address both inflation and recession.
Based on Keynesian framework, inflation is caused by excessive public spending. It is the solemn duty of the government therefore to find a way to force people to spend less. The strategy of course is difficult to detect and visible only from an Austrian lens.
Moreover, for Keynesian, recession is caused by insufficient private spending. To address this problem, the government has to increase spending.
Except for the above solutions, other Keynesian remedies include bailing out bankrupt firms, inflating credit, propping up prices, and bolstering wage rates above the free-market level.
On the other hand, from Austrian perspective, government interventionism is the primary cause for economic decline. The idea therefore of coming to the government to aid the economy is insane. Rothbard argued that in the recent past this kind of acts on the part of the government was designated as socialism. Most people are not aware that socialism is the air we breath in the name of course of “enlightened free enterprise”.
Three Critical Problems
Any theory trying to explain economic depression must answer three critical problems:
  • Why business cycle exists?
  • Why all entrepreneurs lose their forecasting ability at the same time during economic recession? What’s the real reason for this sudden widespread of entrepreneurial blindness?
  • Why capital good industries suffer the most in time of depression compared to consumer goods industries? And why the same industries soar in time of economic boom?
Both the Marxist and the Keynesian schools provide insufficient answers to the above problems.  The answer provided by the Austrian school is now considered the most reliable. David Ricardo answered the first question. Ludwig von Mises completed the answer in his book “Theory of Money and Credit” published in 1912. Rothbard still considered this book as the best book on the theory of money and banking.
For Austrian economists, inflation and depression are not inherent flaws within free market capitalism. It is the result of the acts of “enlightened free enterprise” more accurately described as socialism or government interventionism.
For Mises, the proper actions of the government in time of depression can be enumerated as follows: never bail out business firms in trouble, do not intervene with laborers’ wage and price of producers’ goods, do not encourage consumption, do not increase government expenditures, and cut the government budget. It is better if the government encourage more saving rather than more consumption.  But the best act on the part of the government is to do nothing, to take her hands off from the free economy. Let the laissez-faire work. Rothbard wrote: “The Misesian prescription is thus the exact opposite of the Keynesian: It is for the government to keep absolute hands off the economy and to confine itself to stopping its own inflation and to cutting its own budget” (p. 89).
Reading the last paragraph of the essay, I see that the only way not to fall victim into the world of euphemism is to recover the Austrian explanation of the business cycle. Once we see this thing happening, socialism’s real color will be exposed and Rothbard foresaw that the government will certainly withdraw its hand from the free market economy.
Let us hear what Rothbard has to say about this intellectual recovery:
“Once again, the money supply and bank credit are being grudgingly acknowledged to play a leading role in the cycle. The time is ripe for a rediscovery; a renaissance of the Mises theory of the business cycle. It can come none too soon; if it ever does, the whole concept of a Council of Economic Advisors would be swept away; and we would see a massive retreat of government from the economic sphere. But for all this to happen, the world of economics and the public at large, must be made aware of the existence of an explanation of the business cycle that has lain neglected on the shelf for all too many tragic years” (p. 91).