Quotation of the Day…

by Don Boudreaux on December 12, 2014

in Property Rights

… is from page 45 of Jim DeLong’s superb 1997 book, Property Matters:

The quality of my decision about a piece of property depends on the quality of the information and attention I bring to bear.  Ownership provides me with incentives to get the right amount of information and to take it seriously.  Should I turn my farm into a coal mine?  How should I know, until I look at the markets for the different types of products, determine the long-term effects on the land and its uses, and consider how all of these will affect the way my family will live?  Ownership gives me the motive to collect the information on these points.

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Slavish Myth

by Don Boudreaux on December 11, 2014

in Books, Growth, History, Myths and Fallacies

Here’s a letter to Slate:

Reviewing Sven Beckert’s Empire of Cotton, Eric Herschthal argues, apparently in line with Beckert, that “slavery was not a hidebound institution that capitalism destroyed, but an integral one that made capitalism possible” (“The Fabric of Our Lives,” Dec. 2).  Herschthal’s evidence for this argument is that much of the cotton used in 18th- and 19th-century British and American textile mills was grown on plantations manned by slaves.

Although it’s true that before the U.S. civil war textile mills on both shores of the Atlantic got most of their cotton from slave plantations in the American south, Herschthal’s argument is built on triply dubious reasoning.

First, as Herschthal himself notes about the mid-19th-century, the percent of its raw cotton that Russia got from America’s slave plantations was higher than was the percent of its cotton that Great Britain got from these plantations.  If slave-grown cotton were a key spur to capitalism, it’s difficult to understand why a booming capitalist revolution never occurred in Russia.

Second, after slavery ended in the U.S. capitalist industrialization in the U.S. accelerated, and in Britain it continued nearly apace, for the rest of the 19th century.  And in the 20th century, both countries - especially the U.S. - continued to witness magnificent capitalist innovations and rates of growth of industrial outputs.

Third and most fundamentally, by the time of the industrial revolution slavery had been around for many millennia without coming close to creating capitalism.  So clearly something else had to occur to spark the emergence of capitalism; slavery wasn’t sufficient.  But was slavery, as Mr. Herschthal asserts, necessary?  Doubtful.  Slavery did, again, produce some inputs used in early capitalist factories.  Yet this fact no more shows that capitalism required slavery than does the fact that Christianity was then the dominant religion of factory owners (and of slaves) show that capitalism required Christianity.

A far more compelling account of the origins of modern capitalism is offered by the economic historian Deirdre McCloskey, who - in addition to debunking the “slavery-made-capitalism possible” assertion - argues that the key change that created capitalism was the growing social admiration of bourgeois pursuits and an increasing toleration of the changes wrought by open, competitive, entrepreneurial markets.*

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* Deirdre N. McCloskey, Bourgeois Dignity (Chicago: University of Chicago Press, 2010).

I thank Alberto Mingardi for the pointer to Herschthal’s review.

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To all faithful patrons of Cafe Hayek:

Each year at this time and in this way I ask you to consider including GMU Economics in your end-of-year giving plans.  A financial contribution to GMU Econ (through the Mercatus Center at GMU) helps not only to maintain, but to strengthen, the great bastion of sound economic thinking, teaching, and scholarship that is uniquely GMU-Econ in partnership with the Mercatus Center.

GMU Econ is decidedly outside of the mainstream of modern economics (despite the fact that two of our faculty members won the Nobel Prize over the past 28 years – the late Jim Buchanan in 1986 and Vernon Smith, now at Chapman University, in 2002).  The reason we are outside of the mainstream is that we refuse to treat economics as a branch of applied mathematics or to assume that the only economic knowledge, or even the best economic knowledge, that is available is that which is gotten through empirical studies.  While our students are trained in appropriate mathematical and econometric methods, we at GMU Econ understand that economics is more – much more – than those techniques.

The typical GMU economist – Arnold Kling calls us “Masonomists” – is a student of society.  He or she knows not only cutting-edge economic research, but also the full tradition of economics dating back to the works of Adam Smith.  (We even have an entire field of specialization in the economics of Adam Smith, in which students and faculty members study carefully a large swathe of Adam Smith’s writings.)  The GMU economist – compared to the typical modern economist – is much more thoroughly steeped in history, jurisprudence, political science, and philosophy.  This broader understanding of society promotes skepticism of the social-engineering schemes that are forever pouring out of capital cities and ivory towers.  Simultaneously, it promotes also a great appreciation of – indeed, a sense of wonder at – the marvelous coordinating and creative powers of free markets and free people.

Economics at George Mason University is intellectually alive and exciting.  The world’s finest students who want to study economics in the rich tradition that is still honored at GMU Econ apply every year to our program; they apply either for entry into our PhD program or our Masters program.  We accommodate many of them, but (resources being scarce!) we can’t accommodate all.

A contribution by you will increase our capacity to teach and mentor more students.  It will also help us to better serve the cause of sound economic education in other ways, such as by enabling us to extend summer funding to more undergrad students who wish to work with our faculty between academic years, and by enabling us to more fruitfully experiment with alternative media as we search for ways to communicate both with other scholars and with the general public about economics.

This last point is especially important.  No other economics program is as active in the public discussion and debate as is GMU Econ; certainly no other program is as staunch a champion of free and depoliticized markets as is GMU Econ.  Our faculty includes some of the world’s top economics bloggers, such as Peter Boettke, Bryan Caplan, Tyler Cowen, Robin Hanson, and Alex Tabarrok.  These and other Masonomists – including, of course, the great Walter Williams – also frequently write in the pages of the New York Times, the Wall Street JournalUSA Today, and other popular outlets.  And we are also often interviewed on radio and television.  It’s our passion not only to better understand the logic and the workings of the economy, but to explain to non-economists the countless unseen or underappreciated ways that free markets coordinate human activities peacefully and productively.

If you like what you read here at Cafe Hayek, please consider helping the larger effort of which this blog is a part – that larger effort is better economic education.  You can do so by making a tax-deductible contribution to GMU Econ through the Mercatus Center.  (Those of you who contribute by mailing in a check might mention Cafe Hayek in a cover note.)

Russ and I thank you all for honoring us by reading our blog.  And we wish you the happiest of holidays and a 2015 that is filled with peace, prosperity, and an invigorated invisible hand.

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Quotation of the Day…

by Don Boudreaux on December 11, 2014

in Property Rights, Taxes

… is from page 105 of Liberty Fund’s 1983 collection of some of the writings of the late, great G. Warren Nutter, entitled Political Economy and Freedom; specifically, it’s from Nutter’s 1978 address, to the Mont Pelerin Society, “Liberty and the Growth of Government” (original emphases):

The question of what rights belong to the individual under the principle of private property is a complicated one, but those complications must not be allowed to becloud the most basic issue of ownership of property.  A free society differs from a controlled one to the extent that the individual is protected against arbitrary seizure of his property by government.  An individual owns property if he has acquired it legitimately, in accord with the principles of a free society.  Taxes represent a claim that government asserts against private property, not a property right of government.  Individuals alone have property rights in a free society.

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Californian Charley Hooper, after reading this letter, sent the following splendid observation to me by e-mail:

California has 3,754 wineries and they provide good wines for customers, jobs for employees, profits for owners, and fun places to visit. Imagine if Prohibition had never ended or if regulations were such that a mere five wineries produced all the wine for the entire country. Who would have known what we would have been missing?

Who would have know that there would have been a winery, Solune, that I could walk to from my house, talk directly to the interesting wine maker, taste his delicious and varied wines, and purchase a few bottles for a reasonable price? Few people have such an imagination of what could be and those who do are often discounted by others.

I think this is further evidence of the awesomeness of the free market. When it is hindered, we don’t know what we’re missing. When it’s present, we get to use amazing things we never dreamed of.

Indeed so.  The invisible – what Bastiat called “the unseen” – includes more than the outputs forgone by using resources in some ways (say, to repair broken windows) rather than in other ways.  The unseen includes also, and more importantly, the greater and better and completely different goods and services, the newer and safer and less-resource-intensive ways of production, and the more full prospects for human flourishing and the heightened hopes and the improved and expanded life-style options that human creativity – unleashed by free markets and governed by open competition and private property rights – makes possible.

Each of us can imagine marginal economic improvements given our knowledge of the existing economy – improvements imaginable today such as faster Internet speed, more options for pizza toppings, continued falling prices for clothing, homes with ceilings more vaulted and dishwashers more quiet, and even driverless cars and pills that cure cancer.  Yet none of us, not even the most wise and visionary entrepreneurs, can imagine the full panoply of goods and services and life’s options that will be created through the different ideas of countless entrepreneurs competing in free markets, with each consumer having the right to choose how to spend his or her money.  The world of 2014 was totally unimaginable to the likes of Josiah Wedgwood, J.D. Rockefeller, Alfred Sloan, and David Sarnoff.  If markets remain reasonably free, the world of 2114 – even of 2034 – is totally unimaginable to anyone of us today.  And whatever is not created because of government interventions is and will forever be unknown and unquantifiable in any detail.  But regardless of what those things are, they will nevertheless be losses for humanity.

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Here’s a holiday book guide from my colleagues at the Mercatus Center!

My GMU Econ colleague – and EconLog’s – Bryan Caplan likes Alex Epstein’s new book, The Moral Case for Fossil Fuels.  I suspect that I’ll like this book just as much as Bryan does.

George Selgin explains the intellectual consistency of free-banking theorists.

Yesterday I was interviewed on a variety of topics by the team at Boom Bust tv.

My latest Pittsburgh Tribune-Review column compares democracy to individual choice.  Here’s my conclusion:

Decisions on the use of different drugs are best left to each person. My choosing to use a drug does not oblige you to use it. But “The People’s” decision – through a government bureaucracy – to prohibit the use of drugs that the majority of voters believe are too risky prevents those people who have greater tolerances for risk from using such drugs. Such an outcome is unjust. Why should I – with an unusually strong tolerance for risk – be denied the freedom to act on my preferences?

This unjust outcome, like many others, would be avoided if fewer decisions were made democratically and more were made individually.

Richard Rahn says that it’s ‘game over’ for Ukraine.

Diana Furchtgott-Roth is unimpressed with the EPA’s new ozone regulations.

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Quotation of the Day…

by Don Boudreaux on December 10, 2014

in Hubris and humility

… is from page 24 of Marty Mazorra’s superb 2013 volume, Leaving Liberty?:

Whether we’re talking the politician with no business experience or PhD Fed chairman, I’m thinking that the follies of public policy we free-market types like to point out have much to do with the fact that today’s policymakers (so many of them) were reared in an essentially academic environment.  It’s like that immune system study where a group of chickens were grown in an optimally comfortable environment: perfect temperature, plenty of the best feed, no risk or challenges whatsoever.  After a few generations the scientists placed the offspring of these chickens in a normal environment.  They all quickly died.

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Here’s a letter to the Washington Examiner:

Jason Russell nicely summarizes the much-discussed new study that finds that raising the minimum wage destroys jobs for many low-skilled workers (“New evidence that the minimum wage kills jobs,” Dec. 9).  Yet even this careful study underestimates the damage that minimum-wage legislation inflicts on the job prospects of the unskilled.

Employers in the U.S. have now had 76 years to adjust to the existence of this regulation that makes unprofitable the hiring of the lowest-skilled workers.  One result is that business and labor practices that would have employed legions of low-skilled workers in the absence of a minimum wage were either long ago snuffed out or never created.  Empirical studies today, therefore, can at best detect only changes in employment at existing firms that use existing business practices - firms and practices that, having evolved in an economic environment with a minimum wage, were never suited to employ as many low-skilled workers as would be employed by businesses that evolved in an environment without a minimum wage.

Raising the existing minimum wage does indeed destroy some jobs.  But even the most accurate measurements of today’s job destruction offer no clue to the full magnitude of the vast amount of economic opportunities that the minimum wage denies to the poor and unskilled.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

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… is from pages 37 of Lionel Robbins‘s 1934 volume, The Great Depression; here Robbins describes some of the economic consequences of interest rates made artificially low by too-easy monetary policy:

The new money will flow to those parts of the economic system most affected by the rate of interest.  There will be an increased demand for what we have called capital-goods.  There will be a boom in the construction industries and in the industries producing raw materials.  Producers in these industries, on the strength of the new demands, will be able to bid away from other industries factors of production common to both.  The new labour supply will go into these industries rather than elsewhere.  Raw materials, such as coal, pig iron, and timber, will tend to be used in greater proportions in these parts of the economic system.  The production of “producers’ goods” and durable consumption goods, such as houses, will increase.

See this related 2008 paper by my colleague Larry White.

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Coyote Blog’s Warren Meyer beats the drum soundly and appropriately.  (Looks as though austerity, such as it was, might have worked better in the U.S. than was predicted by Paul Krugman and others who march to the Keynesian beat.)

Mike Munger writes wisely and well about police brutality and the criminal-justice system.

Writing in the New York Times, Jonathan Tepper explains why the U.S. government’s taxing requirements have led him to give up his U.S. passport.

Competitive Enterprise Institute president (and sometimes kilt model) Lawson Bader writes about my great colleague Walter Williams.

Why lookee here!  Here’s more empirical evidence to suggest that raising the minimum wage really does destroy jobs for some low-skilled workers.  (HT Tyler Cowen)  (Again: keep in mind that any empirical studies done today on changes in the minimum wage are unavoidably biased against finding the full magnitude of the negative effect of forcibly raising employers’ costs of employing low-skilled workers and the employment prospects of such workers.  Given the long-time existence – along with the almost certain continued existence – of minimum-wage legislation, firms and employment practices over time evolve over time to deal with this reality by creating fewer jobs than otherwise for low-skilled workers.  So any marginal hikes in the minimum wage will not detect the (literally if not figuratively) countless entry-level jobs that were never created to begin with because of the existence of minimum-wage legislation.)

George Will (inspired in part by Joel Kotkin) warns against the hubris of “Progressive” government.

It’s time to abolish the protectionist Jones Act.

Back to police brutality and the criminal-justice system: here’s Tim Carney.  (I disagree, though, with Tim’s claim that “we have no choice” but to use government-funded and organized police.  Private provision of such services is not only widely used – ever hear of private security guards? – but would likely improve matters if such provision completely replaced government-supplied policing.)

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