It’s all about economics.

Classical liberalism or modern day “Libertarianism” is intricately tied to an understanding of economics and is in many ways the inevitable result of mankind’s discovery of how the socioeconomic world works. Just like mankind was going to stumble upon the fact that the earth goes around the sun, barring some great disaster, it was also going to stumble upon the proper understanding of how the economy/socioeconomic order is built.

For brevity’s sake, if one has to pick one mind where the proper understanding of the economy coalesced, the best choice might be the great Ludwig von Mises whose book “Socialism: An Economic and Sociological Analysis”, originally published in 1922, then properly educated F.A. Hayek who would go on to win the 1974 Nobel prize in economics and so on. The growth of Libertarianism is simply the mostly inadvertent and inevitable spreading of the economic ideas/truths these and like-minded men stumbled upon.

As I type these words, a bestselling book in numerous economics-related categories on Amazon.com is Danielle DiMartino Booth’s “Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America”, where she shows how utterly clueless, incompetent, politicized, and disastrous the Federal Reserve is, as well as our mainstream economics establishment. Danielle, herself a product of our mainstream economics establishment, eventually realized the utter disaster that it is and understandably wrote this book to warn the world. In the introduction she writes:

“I witnessed the tunnel vision and arrogance of Fed academics who can’t understand that their theoretical models bear little resemblance to real life…Every American must understand this extraordinary powerful institution and how it affects his or her everyday life and fight back”

Had Danielle been familiar with Mises, Hayek, Hazlitt, Rothbard and other members of the so-called ‘Austrian School’ of economics, she would have had a superior understanding of economics and the inevitable disaster that the Federal Reserve is, but then her life would have been different and she would not have reached such heights at the FED. That would have been akin to having an evolutionary biologist try to move up the ranks of the Catholic Church.

Her great insider-tell-all book is not the first of its kind to expose the dangerous disaster that the Federal Reserve and our mainstream economics establishment is. For example, William E. Simon, former Secretary of the Treasury for presidents Richard Nixon and Gerald Ford, fills us in on the incompetence of the nation’s “most prominent economists” during the financial crisis of the 70s. His statements apply just as well to recent (and future) economic troubles and government “experts”:

“The Wall Street Journal interviewed several dozen of the most prominent economists in the United States on the causes of the recession and on ways to prevent a recurrence. They disagreed about virtually everything save this: that there was much economists did not yet understand. The details of the economists’ ignorance are of interest, but I stress here the overriding conclusion to be drawn from their statements: The economists who had been advising our Presidents simply had not known what they were doing…Gerson Green, formerly of the Office of Economic Opportunity, summed up the attitude of many of his colleagues when he observed caustically, “The change I discern is that none of us knows what to do. In those days, we thought we did. The country has taught the social engineers a lesson.”… So who was running the store? The answer is: nobody. Not one human being in the whole vast realm of political control over the American economy has ever known what he was doing. Nobody could know. This is the precise phenomenon described by F.A. Hayek in his Noble lecture called “The Pretense of Knowledge.” For forty years the American ship of state has been lunging erratically toward economic disaster, with no awareness of its direction…” (Simon “A Time for Truth”, pp. 121–123)

Although to many people Libertarianism is a sort of “principle” or “belief” or “philosophy”, the free-market understanding of the economy that powers Libertarianism has little to do with “philosophy” and is thoroughly grounded in a reality that is as irrefutable as that which lets us know that two plus two equals four. Take for example Dr. Ron Paul, who via his presidential runs of 2008/12 and various bite-sized books helped spread familiarity with the free-market economics that underpins Libertarianism. Although he is a pious Christian who sometimes refers to taxation as an immoral theft, what really sets him apart from other politicians is not so much his Christianity or morality, but the fact that he has a profound understanding of economics. Early in his life Dr. Paul read Hayek’s “The Road to Serfdom” and stumbled upon the “Austrian School of Economics”. As Dr. Paul explains in his short pamphlet titled “Mises and Austrian Economics”:

“My introduction to Austrian economics came when I was studying medicine at Duke University and came across a copy of Hayek’s The Road to Serfdom. After devouring this, I was determined to read whatever I could find on what I thought was this new school of economic thought — especially the works of Mises”

To Dr. Paul, the “Austrian School” economists, could properly explain past economic downturns like the Great Depression and make accurate predictions about the future effects of current policies. Dr. Paul could clearly see how our mainstream economics establishment and bureaucrats in D.C. were continually making all the wrong moves based on flawed economic ideas. Alarmed by the path our nation was taking, those familiar with the “Austrian School” like Dr. Paul worked feverishly to educate and take action.

“I decided to run for Congress because of the disaster of wage and price controls imposed by the Nixon administration in 1971… I decided that someone in politics had to condemn the controls, and offer the alternative that could explain the past and give hope for the future: the Austrian economists’ defense of the free market…Americans need a better understanding of Austrian economics” — Ron Paul

Had Ron Paul not stumbled upon such men’s understanding of economics and the vital role that individual freedom plays in prosperity, he would not have reached the heights that he has and been such a great educator and moral inspiration to many. The important point here is that: It is easier to stand up for freedom when you know how freedom works. Again, the key is a basic understanding of economics, which shows how an extremely simple concept, individual freedom, as opposed to leading to chaos and various ‘social injustices’, is what leads to a productive, prosperous, and bewildering complex social order.

Freedom, the Social Order and Government in 4 minutes

Freedom is the key ingredient in economic competition which is what motivates the creation and spreading of superior knowledge and subsequent order throughout society. For example, power door-locks emerged in the minds of a few, and competition motivated and inevitably forced all auto-manufacturers (competitors) to copy/spread/adopt the superior knowledge/idea. It is the freedom of the consumer to select among competing producers which motivates and inevitably forces them to constantly come up with superior knowledge/ideas and copy them from each other, thus spreading superior knowledge and order throughout society. Email and the web increases productivity, so competition motivated and inevitably forced most of us to learn to use them. It really helps to envision the world as seen from high above with an eye on knowledge and how it moves/spreads to alter and guide the social order. Again, in order for competition to work, people, in their role as producers/entrepreneurs/workers, must be free to attempt what they consider to be superior business ideas. And in their role as customers or consumers, they must be free to spend their money and thus nourish/sustain/judge the best ideas/companies, which is what motivates and inevitably forces everyone else (competitors) to adopt them.

As cost-cutting ideas spread and ripple through the social order via competition, new profitable ideas arise in an endless cycle of knowledge generation. For example, there was a time when computers were very expensive, but thanks to competition, cost-and-thus-price-cutting innovations kept making PCs more powerful and affordable which eventually gave rise to the Internet and all the innovation that flows from it.

The very morals and attitudes of people are knowledge or “ways” of acting that are also shaped and spread by competition. Companies/orders that hire lazy, disrespectful, or corrupt people will be less competitive and inevitably pressured to hire people with better morals which in turn forces everyone to be respectful and hardworking regardless of race, sex, etc. Similarly, it is hard-working, tolerant, courteous people who thanks to competition inevitably force everyone else to be likewise. As F.A. Hayek tells us:

“Competition is, after all, always a process in which a small number makes it necessary for larger numbers to do what they do not like, be it to work harder, to change habits, or to devote a degree of attention, continuous application, or regularity to their work which without competition would not be needed.”

Every social order (person/company) uses profit/loss calculation to ensure that it is producing (sales revenue or pay-check) more than consuming (costs/‘living expenses’) thus being profitable and self-sustaining. Economic competition and profit/loss calculation are perhaps the most important aspects of what economists refer to as ‘the market process’ which is what creates and coordinates the social order.

Unlike voluntary/private sector social orders which are self-sustaining and are constantly morphing and learning from each other via competition, government bureaucracies/orders are monopolies that are immune from competition and get their wealth/nourishment by force/taxes so they inevitably grow more inefficient/bureaucratic/consumptive leading to a shrinking economic pie and eventually socioeconomic chaos, especially when not just a few sectors of the economy are government run and thus ‘socialized’ like education and medicine as is the case in many countries, but when the entire country is, as happens in all Communist/Socialist countries like Lenin’s Russia, Mao’s China, Cuba, and more recently Venezuela.

A government regulation is essentially a “way” of doing things, it is knowledge. But unlike knowledge that arises in the private sector and is constantly improving due to economic competition, a government regulation is knowledge that arises out of a few brains in government and is then forced upon the social order via the law and can only be changed via a painfully slow monopolistic/bureaucratic apparatus made up of economically ignorant politicians, lawyers, lobbyists and special interest groups who always lack the necessary knowledge and incentives to discover what is the best way to do something. The more the government regulates, the more it paralyzes competitive knowledge discovery. As government regulations have increased in the health care sector, turning it into a sort of island of paralyzed top-down competition-less socialist central planning, so have costs. These increased costs have led the sector to grow from consuming just 1.6% of the American economic pie in 1960 to 4.2% in 1980 to a whopping 16% in 2006 and about 20% by 2017. What a person must learn in order to legally offer medical advice via licensing of doctors, where he must learn it via licensing of medical schools, what chemical compounds can be legally consumed, how to test drugs, how the medical insurance industry should work, and countless other gigantic bodies of knowledge are dictated by monopolistic competition-less bureaucracies like the American Medical Association and the Food And Drug Administration and numerous others. By comparison the Information Technology sector has very few government regulations so competition motivates the creation and spread of superior knowledge at breakneck speed and is obviously transforming our world right before our eyes. There is no American Association of Computer Programmers dictating what a computer programmer must learn, or where to learn it. There is no government monopolistic bureaucracy ensuring the proper functioning of the software that runs PCs, smart-phones, the Internet, or ensuring the lack of malware or viruses in software. Freedom and competition in the Software Development industry is even quickly evolving culture. It is increasingly seen as uncool and backward to have a traditional degree, where one wastes thousands of dollars and time physically attending gigantic temple-like universities, inefficiently (profs. instead of popular online videos you can pause/rewind) learning things that have nothing (English 101, ‘humanities’, etc.) to do with being a productive software/web professional. Economic ignorance leads many to believe that since one has to be seemingly more careful with medicine, such monopolistic regulatory oversight is somehow necessary. This is irrelevant, if it is superior knowledge that is needed, which includes figuring out how careful to be, freedom and competition is the best way to discover it, period.

Without familiarity with the aforementioned concepts which are part of ‘the market process’, and the vital role that economic freedom plays, it makes perfect sense why so many smart and well meaning people inadvertently believe that society needs large government bureaucracies (inefficient monopolies) to do all sorts of things, or improve upon the seemingly incomprehensible and at times ‘unfair’ social order. Economic fallacies like believing that competition is inefficiently redundant and only good at creating many ‘unfairly’ rich businessmen and many other fallacies have so far spread faster than the proper understanding of economics. One of the best examples I can think of is Albert Einstein where he weaves together numerous economic fallacies as he published an article titled ‘Why Socialism?’. Hayek was well aware of this massive intellectual error which gripped mankind:

“It is necessary to realize that the sources of many of the most harmful agents in this world are often not evil men but high-minded idealists, and that in particular the foundations of totalitarian barbarism have been laid by honourable and well-meaning scholars who never recognized the offspring they produced.” (Hayek F. A., 1973, p. 70)

and:

“Most people are still unwilling to face the most alarming lesson of modern history: that the greatest crimes of our time have been committed by governments that had the enthusiastic support of millions of people who were guided by moral impulses. It is simply not true that Hitler or Mussolini, Lenin or Stalin, appealed only to the worst instincts of their people: they also appealed to some of the feelings which also dominate contemporary democracies.” (Hayek F. A., 1976, p. 134)

In many ways a significant portion of libertarians are as wrong as Socialists/Communists or even more so. Communists/Socialists made the great mistake of believing that government or ‘central planning’ could create a superior social order, this is understandable given their ignorance of the workings and evolution of the market process/economics and the vital role that individual freedom plays. Many libertarians blame government, its “power hungry” and “evil” politicians who are “bought and sold”, “the evil corporations”, “the bad guys” etc. without realizing that it is massive economic ignorance by the public and elected politicians which inevitably leads to the government-created “evils” we have. This is an intellectual error, an error which is made even greater when those who make this mistake are well versed in Austrian Economics and then go around insulting politicians and the public for being “sheep”/ “statists”/ “the bad guys”/ “immoral” etc. Don’t they realize that they would be equally clueless had they not had the fortune of stumbling upon the free-market economists?

Virtually all of our problems are simple outgrowths of economic ignorance. For example, the increasing violence and attack on free speech from ‘leftist’ groups like ANTIFA are largely due to the perceived economic damage that various minority groups might suffer due to some form of discrimination. If these groups believed that discrimination based on sex, race, religion, etc. had no economic effect on people, I doubt they would even exist or be making such a big deal about this potential discrimination. But this is obviously NOT the case. The fear that someone might lose his/her job due to discrimination and thus seemingly suffer great hardships, understandably motivates most people to call for action, and if force and punishment is the only thing they can envision, then surely that must be done to prevent great harm and for the cause of “justice”, etc. Those of us who understand freedom and the workings of the free-market know that such discrimination would NOT cause any significant economic hardship, and that the tremendous growth in economic prosperity that everyone would enjoy would ensure that even if such discrimination caused differences in relative prosperity, everyone’s prosperity would be growing so fast as to render such discrimination insignificant. Therefore, not only do many libertarians not fear such discrimination, on the contrary, we welcome the freedom of people to express themselves and fiercely defend their freedom/‘rights’ to be racist/sexist/etc. We get to keep our cool, preach peace, and act like some Jedi who calmly waves a hand and deflects all concerns away. I was recently reminded of this by a video by black libertarian commentator ‘That Guy T’ where he criticized some of his fans for criticizing his great tolerance of white nationalists. He mentions “I don’t care to destroy the idea of white nationalism because I don’t see it as a threat”. Exactly! And what is the real reason for such cool, collected and truly “civilized” behavior? His understanding of the free-market. So we can easily see how an understanding of economics is not only vital for understanding how the world works, it is vital for building a tolerant and truly “civilized” character.

The somewhat unstoppable wave of Libertarianism is created by the ideas themselves. Their truth causes mankind to inevitably stumble upon them, and their paramount importance motivates people to spread them for their own good and salvation from economic ruin, war, and more. It should be no surprise that perhaps the great Mises was also one of the most fervent advocates of the need for everyone to understand economics:

“Economics must not be relegated to classrooms and statistical offices and must not be left to esoteric circles. It is the philosophy of human life and action and concerns everybody and everything. It is the pith of civilization and of man’s human existence…All present-day political issues concern problems commonly called economic. All arguments advanced in contemporary discussion of social and public affairs deal with fundamental matters of…economics. Everybody’s mind is preoccupied with economic doctrines…Everybody thinks of economics whether he is aware of it or not. In joining a political party and in casting his ballot, the citizen implicitly takes a stand upon essential economic theories…As conditions are today, nothing can be more important to every intelligent man than economics. His own fate and that of his progeny is at stake…all reasonable men are called upon to familiarize themselves with the teachings of economics. This is, in our age, the primary civic duty. Whether we like it or not, it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society’s fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen.”[i]

Another inspiring quote from one of Mises’ greatest students, economist George Reisman:

“As should be increasingly clear, economics is a science which can make possible the construction of a social and political system in which human success is a feature of normal, everyday life everywhere. It is truly the humanitarian science, and only those who have studied it well and who are prepared to implement its teachings deserve to be called friends of mankind. The most important charity which true friends of mankind can pursue is to disseminate knowledge of this vital subject as widely and as deeply as they know how.”

These intellectual giants not only showed us how the world works, they even told us where to focus on. On teaching economics, which is really synonymous with showing how freedom works.

These three small articles provide a quick overview of ‘the market process’ and how it creates the social order:

“Production, consumption and economic calculation” (7 mins)

“Economic Competition: knowledge, freedom, and the evolution of superior morals”(4 mins)

“Interest rate coordination and the Austrian Theory of the Business Cycle” (8 mins)

Also same point highlighting the importance of ecomomics. See “Today’s Civil Strife Is Rooted in Economic Frustration and Fallacy” by fee.org’s Dan Sanchez

And visit http://www.marketprocess.org and remember to please like and share if useful.