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Tag Archives: economy

H. L. Mencken on Capitalism

25 Tuesday Nov 2014

Posted by jrbenjamin in Political Philosophy

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Capitalism, democracy, economics, economy, Finances, H. L. Mencken, Macroeconomics, Markets, Minority Report, Regulation

H. L. Mencken

“What we confront is not the failure of capitalism, but simply the failure of democracy.

Capitalism has really been responsible for all the progress of the modern age. Better than any other system ever devised, it provides leisure for large numbers of superior men, and so fosters the arts and sciences. No other system ever heard of is so beneficial to invention. Its fundamental desire for gain may be far from glorious per se, but it at least furthers improvement in all the departments of life. We owe to it every innovation that makes life secure and comfortable.

Unfortunately, like any other human institution (for example, Holy Church), capitalism tends to run amuck when it is not restrained, and democracy provides inadequate means of keeping it in order. There is never any surety that democracy will throw up leaders competent to discern the true dangers of capitalism and able to remedy them in a prudent and rational manner. Thus we have vacillated between letting it run wild and trying to ruin it. Both courses are hazardous and ineffective, and it is hard to say which is more so.”

__________

Entry #310 in H. L. Mencken’s notebooks (collected and printed as Minority Report).

Read on:

  • Calvin Coolidge clearly summarizes when taxes are appropriate and when they’re exploitive
  • Thomas Piketty poses the question Did inequality cause the financial crisis?
  • Mencken’s unforgettable defense of liberty as the primary political ideal

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Calvin Coolidge on Taxes

15 Wednesday Jan 2014

Posted by jrbenjamin in Politics, Speeches

≈ 3 Comments

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America, American History, An Economy in the Interest of All, Budget, Calvin Coolidge, economics, economy, Freedom, Government, politics, Presidential Speeches, Prosperity, Speeches, taxes, U.S. history

Calvin Coolidge

“We are often told that we are a rich country, and we are. We are often reminded that we are in the best financial condition of any of the great powers, and we are. But we must remember that we also have a broader scale of existence and a higher standard of living. We have a freer Government and a more flexible organization of society. Where more is given, more is required…

Our own Constitution requires that revenue bills should originate in the House, because that body is supposed to be more representative of the people. These precautions have been taken because of the full realization that any oppression laid upon the people by excessive taxation, any disregard of their right to hold and enjoy the property which they have rightfully acquired, would be fatal to freedom. A government which lays taxes on the people not required by urgent public necessity and sound public policy is not a protector of liberty, but an instrument of tyranny. It condemns the citizen to servitude.”

__________

From President Calvin Coolidge’s speech “An Economy in the Interest of All”, given on June 30, 1924, just five years before the onset of the Great Depression. Find it in Amity Shlaes’s excellent biography of Coolidge.

Read about another moment in American history where budget negotiations took an urgent tone:

Thomas Jefferson engraving after painting by Rembrandt Peale.

How Jefferson Fostered Compromise on the National Debt

For left-wingers, check out a post which I wrote about how the imperial project threatens our financial standing.

Mideast Iraq One Year On

The Engines of America’s Endless Wars

And for the libertarians/conservatives out there, read one of the best modern formulations of the philosophy that taxation equals tyranny:

Robert Nozick

Robert Nozick on Taxation

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David Ricardo on the Principle of Comparative Advantage

07 Wednesday Aug 2013

Posted by jrbenjamin in Political Philosophy

≈ 2 Comments

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Adam Smith, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, comparative advantage, David Ricardo, economics, economy, free trade, global economy, Ha-Joon Chang, innovation, On the Principles of Political Economy and Taxation, taxation, taxes, The Wealth of Nations, trade

David Ricardo by Thomas Phillips, oil on canvas, circa 1821

“The same rule which regulates the relative value of commodities in one country, does not regulate the relative value of the commodities exchanged between two or more countries.

Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by regarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically: while, by increasing the general mass of productions, it diffuses general benefit, and binds together by one common tie of interest and intercourse, the universal society of nations throughout the civilized world. It is this principle which determines that wine shall be made in France and Portugal, that corn shall be grown in America and Poland, and that hardware and other goods shall be manufactured in England.

In one and the same country, profits are, generally speaking, always on the same level; or differ only as the employment of capital may be more or less secure and agreeable. It is not so between different countries. If the profits of capital employed in Yorkshire, should exceed those of capital employed in London, capital would speedily move from London to Yorkshire, and an equality of profits would be effected; but if in consequence of the diminished rate of production in the lands of England, from the increase of capital and population, wages should rise, and profits fall, it would not follow that capital and population would necessarily move from England to Holland, or Spain, or Russia, where profits might be higher.”

__________

David Ricardo, writing in chapter seven of his seminal 1817 work The Principles of Political Economy and Taxation.

As is the case with many great scientific and philosophical theories, the law of comparative advantage looks so self-evident in retrospect. How did no one come up with this sooner?

Adam Smith was the first to roughly outline the notion of comparative advantage in international trade, writing in The Wealth of Nations, “If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.” But Ricardo shaped Smith’s idea into a nuanced and workable economic model.

Using the example of England and Portugal, Ricardo situated the law in a practical context. In Portugal, Ricardo wrote, production of wine and cloth requires less labor than in England; however, clearly the relative cost of producing those two goods differ in each of the two nations. In Portugal, both are possible to produce, and produce with ease. In England, it is extremely difficult if not impossible to produce wine, but not so difficult to produce cloth. Thus while it is easier to produce cloth in Portugal than in England, it is more sensible for Portugal to produce excess wine, and hence trade it for a surplus of English cloth. This becomes a mutually beneficial relationship, given that England benefits from the trade as well. The price it requires to produce cloth has not risen, while it has gained the ability to procure a coveted staple (wine) which cannot grow from Anglo-soil.

The Korean development economist Ha-Joon Chang, in his book Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, explains Ricardo’s brilliance but also how Ricardian-style free trade negatively impacts economies which are, unlike the cases of Portugal and England, underdeveloped or relatively undeveloped in our modern world:

Before Ricardo, people thought foreign trade makes sense only when a country can make something more cheaply than its trading partner. Ricardo, in a brilliant inversion of this commonsensical observation, argued that trade between two countries makes sense even when one country can produce everything more cheaply than another. Although this country is more efficient in producing everything than the other, it can still gain by specializing in things in which it has the greatest cost advantage over its trading partner. Conversely, even a country that has no cost advantage over its trading partner in producing any product can gain from free trade if it specializes in products in which it has the least cost disadvantage. With this theory, Ricardo provided the 19th-century free traders with a simple but powerful tool to argue that free trade benefits every country.

Ricardo’s theory is absolutely right — within its narrow confines. His theory correctly says that, accepting their current levels of technology as given, it is better for some countries to specialize in things that they are relatively better at. One cannot argue with that.

His theory fails when a country wants to acquire more advanced technologies so that it can do more difficult things that few others can do — that is, when it wants to develop its economy. It takes time and experience to absorb new technologies, so technologically backward producers need a period of protection from international competition during this period of learning. Such protection is costly, because the country is giving up the chance to import better and cheaper products. However, it is a price that has to be paid if it wants to develop advanced industries. Ricardo’s theory is, thus seen, for those who want to accept the status quo but not for those who want to change it.

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It Has to Be Earned: Arthur Brooks on Creating Value

25 Thursday Jul 2013

Posted by jrbenjamin in Freedom, Interview, Politics

≈ 3 Comments

Tags

AEI, American Enterprise Institute, Arthur Brooks, charity, economics, economy, free enterprise, Government, happiness, Marvin Olasky, politics, wealth

Arthur Brooks“Financial status is the way we demonstrate to others (and ourselves) that we are successful—hence the fancy watches, the expensive cars, and the bespoke suits. We use these things to show other people not just that we are prosperous, but that we are prosperous because we create value.

There is nothing strange about measuring our success with money; we measure things indirectly all the time. I require my students to take exams not because I believe their scores have any inherent value, but because I know these scores correlate extremely well with how much they have studied and how well they understand the material. Your doctor draws your blood to check your cholesterol not because blood cholesterol is interesting in and of itself, but because it measures your risk of having a heart attack or a stroke. In the same way, we measure our professional success with green pieces of paper called ‘dollars.’

What scholars often portray as an ignoble tendency—wanting to have more than others—is often evidence that we are driven to create value. Wanting to create value is a virtue, not a vice. The fact that it also brings us happiness is a tremendous blessing.

Have you ever wondered why rich entrepreneurs continue to work so hard? Perhaps you’ve said, ‘If I had a billion dollars, I’d retire.’ This is what Mack Metcalf [a forklift driver who won a $65 million Powerball Jackpot, and died 4 years later from cirrhosis of the liver] actually did when he won the lottery. But if he had earned that money doing something creative and productive, things would almost certainly have gone differently for him. People who succeed at what they do tend to keep doing it. The drive to succeed, as opposed to just having more money than others, explains why the super-rich—who already have so much more than virtually everybody—continue to work.

Take the case of billionaire Larry Ellison, founder of Oracle. The world’s 14th-richest man, he would need to spend more than $30 million per week, or $183,000 per hour, just to avoid increasing his wealth. Further, he would have to spend it on items with no investment qualities, meaning that, unless he sets his money on fire, or (better yet) gives it away, he simple cannot not be filthy rich. Yet he continues to slave away, earning billion after billion. Being rich, and having more than the average Joe, simply cannot be driving Larry Ellison. It is the will to succeed and create value at greater and greater heights.

Who enjoys the benefits created from the slaving of Bill Gates, Warren Buffett, and all of America’s other success-addicted, ultra-rich entrepreneurs? We all do: As long as fortunes are earned—as opposed to stolen, squeezed from governments, or otherwise extorted from citizens—this is good for all of us.

Oracle has not made Larry Ellison a rich man without any benefit to society. The firm currently has tens of thousands of employees, people with well-paying jobs to support their families. The company has introduced technology that has benefited all parts of the economy, and it has paid billions to its shareholders. And we can’t forget that Oracle has rendered generously unto Caesar, year after year: In 2007 alone, it paid $1.2 billion in corporate taxes, totally apart from the personal taxes paid by Ellison and his employees.

Money is a measure of success, and a handy one at that. But there is a dark side to this fact: People tend to forget that money is only a measure. Some people focus on money for its own sake, forgetting what really brings the happiness…

In 1978, for example, researchers presented a sample of adults with a list of 24 big-ticket consumer items (a car, a house, international travel, a swimming pool, and so on). They were asked how many of these items they currently possessed; they were also asked, ‘When you think of the good life—the life you’d like to have—which of the things on this list, if any, are part of the good life as far as you are personally concerned?’

Inevitably, people felt that the ‘good life’ required more things than they currently possessed. Among the people between 30 and 44 years old, the average number of items owned was 2.5, while the ideal number was 4.3. The same people were interviewed 16 years later, in 1994, and presented with the same list. Naturally, most people had more items; the ones formerly in their 30s and early 40s (now in the next age category, 45 to 59 years old) had 3.2 items, on average. They were closer to the good life, right? Wrong. Their requirements for the good life had now shifted, to 5.4 items. In other words, after 16 years and lots of work, the ‘good life’ deficit had stayed almost exactly the same. The more stuff you have, the more you want.”

__________

From Arthur Brooks’s article Can Money Buy Happiness?.

Tomorrow is my last day working at the American Enterprise Institute, of which Arthur Brooks is the current president.

Following his graduation from high school and a brief stint at the Annapolis Brass Quintet in Baltimore, Brooks moved by himself to Spain to become the principal French hornist of the City Orchestra of Barcelona. While eating lunch in the AEI dining room the other day, I overheard Brooks recount this personal story too improbable for any novel, which he capped off by saying he was leaving the table to head to catch a flight — to western India to meet with the Dalai Lama. Needless to say, he’s a pretty compelling case.

Below is an excerpt from Marvin Olasky’s recent interview with Arthur Brooks:

How many French hornists have become presidents of the American Enterprise Institute? One.

What are the similarities between playing the French horn and being president of AEI? Creativity… the working out of ideas that are of interest to other people… and the privilege of having audiences enjoy your work. The only barriers in front of you are those put in place by your own imagination.

Why did you decide to move from a prestigious orchestra position to academic work? Things were going well … and I wasn’t happy. What I wanted to be was an economist. I wanted to do that analysis of how the gears turn in society. I hadn’t even gone to college, so at 28 I had to go to college and get a graduate degree.

When you told your dad about your new plan, what did he say? I said, “Dad, I want to become an economist.” After a silence he said, “Why would you want to do that? You’re at the top of your career.” I said, “Because I’m not happy.” He said, “What makes you so special?”

A Harvard economist once told me he did not plan to have any children because he figured that every child would cost him a book, and he wanted to publish books rather than have children. You have three children, and you’ve published lots of books. Does having children inspire you to publish more? I do believe the world will benefit more from my children than it will from my books, but there is a connection. My wife and I had had our two sons biologically. I was writing this book about charity and finding that when people give to charities their lives improve dramatically. I wrote a chapter on it, and everything I write my wife Esther reads.

That’s wise. For sure. She’s spiked a lot of my stuff. Susan probably spikes your stuff too sometimes, right?

Yeah. A couple times that she hasn’t I wish she had. Exactly. So I brought home this chapter that shows charitable actions make you happy and healthy. Esther ruminated on it for a while, then said, ‘We ought to use the information in this book to change our lives a little bit. I think we should give more.’ I said, ‘OK, I’ll write a check.’ And she said, ‘I think we should adopt a baby.’ I said, ‘It’s only a book!’ Then of course I had no argument, so we did. We adopted our daughter from China. She’s now 8 years old.

Two questions: First, how should we define fairness? Seventy percent of Americans believe that true fairness means rewarding merit and creating an opportunity society, which is exactly what the free enterprise system is designed to do. The fairest system is one in which people have an opportunity to rise. That doesn’t mean they shouldn’t have a safety net, but a safety net is not middle-class welfare. It’s not spreading the wealth and getting rid of risk: It’s simply making sure that people don’t have the most abysmal poverty and starve.

Second question: “Earned success” is a key concept in your book. What does that mean? Earned success is the idea that you’re creating value with your life and value in the lives of other people. It’s not money per se: It’s the value you create with your life. You can denominate it with souls saved, or neighborhoods that are habitable, or clean drinking water in Africa, or lots of money, or beautiful works of art, or having children who are honest and have good values, or whatever. People who say they’ve earned their success are the happiest people. It has to be earned. 

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