Notes – “Socialism” Chps. I-III (@mises, #socialism, #economics, #sociology, #AustrianEcon)

Notes from Socialism: An Economic and Sociological Analysis by Ludwig von Mises [PDF]
  1. Introduction
  2. Chapter I, Ownership
    1. the nature of ownership
      1. the economic concept of ownership has to do with “having”, that is making use of the benefits of a particular good, whereas the legal concept of ownership has to do with whom the benefits rightfully belong to
      2. consumption goods can only be owned, economically speaking, privately on an individual basis
      3. production goods can have joint ownership in a legal sense, but it is the ultimate consumers of the output of production goods who own them economically because they are the ones who enjoy their benefits, in a division of labor society
      4. in an autarkic society, the user can also be the owner of the production goods because all output serves to benefit him, but in a division of labor society the user of the production goods decisions are guided by the demands of end consumers who have economic ownership of them
    2. violence and contract
      1. all economic ownership derives from occupation and violence
      2. all legal titles followed back in time must originate in appropriation of common goods
      3. law arises when society comes together to recognize current ownership with legal title, thus ending the war of all against all
      4. law and the State can not be traced back to contracts, they came into being in conditions of lawlessness and the absence of contract
      5. “economic action demands stable conditions”; long-term productive processes can not exist in conditions of violence; peace is the aim of law, which allows for long-term economic action
      6. law defends property in the interests of peace-making; all violence is aimed at property of one form or another
      7. “Law cannot have begot itself of itself… in complaining that Law is nothing more or less than legalized injustice, one fails to perceive that it could only be otherwise if it had existed from the very beginning” (consider Proudhon’s “Property is theft”, how can one define theft in the absence of property?)
      8. Law set to formalize a set of conditions which were then existing, and from which standpoint all future actions were to be judged
      9. “Law did not leap into life as something perfect and complete. For thousands of years it has grown and it is still growing. The age of its maturity, the age of impregnable peace, may never arrive.”
      10. three types of law, in order of economic importance
        1. Private Law: regulates behavior between individuals
        2. Public Law: regulates behavior between individuals and community/State
        3. International Law: regulates behavior between communities/States
      11. today, the principle of violence has been completely abandoned in Private Law; violent revolution is slowly being abandoned as a principle of Public Law and International Law is still in large part governed by the principle of arbitrary violence
    3. the theory of violence and the theory of contract
      1. liberalism, the principle of contract/Law dictating human society, takes time to develop and is the realization of a conscious effort guiding social life
      2. “All anti-liberal social theories must necessarily remain fragments or arrive at the most absurd conclusions”
      3. critics charge Liberalism with focusing only on earthly delights; it is an empty charge because Liberalism admits this; Liberalism promises nothing besides abundant material commodities, it doesn’t concern itself with The Greatest Secret of Man
      4. urban settlement is an outgrowth of the division of labor/exchange society promised by Liberalism
      5. Social philosophy must be earned with effort; immigration waves from country to town have often threatened to upset Liberal social order because immigrants are slow to adopt new modes of thinking (country bumpkins)
      6. many Liberal civilizations have been ruined not from without by barbarians, but from within by seeming-citizens
      7. theories based on struggle as the motive power for society deny a role for social cooperation, yet social cooperation is the essence of social theory
      8. the strongest argument of imperialism is the idea that each country should have ownership over the essential means of production (economic nationalism); but if this principle were true, that one can not derive economic benefit from goods one does not legally possess, then why shouldn’t EVERY man possess these essential means of production for himself?
      9. imperialism and socialism agree in their criticism of liberal property rights/ownership, but socialism seeks to divise a closed system of a future social order which imperialism could not
    4. collective ownership of the means of production
      1. the intent of early reforms of property rights was to provide equality in the distribution of wealth
      2. a railway, a rolling mill, a machine factory can not be distributed; equal ownership principle has been abandoned in favor of the idea of social (State) ownership of the means of production
      3. “Our whole civilization rests on the fact that men have always succeeded in beating off the attack of the re-distributors” lest economic regression take hold
      4. this new idea for socialism is shaped by the private property order, it could not have occurred in its absence and it is a compromise of socialist philosophy because it realizes abandoning the social division of labor would totally destroy man’s economic life as we know it
      5. in this sense, socialism IS a consequence of the liberal social order
      6. socialism claims for itself a grandiose enterprise; it can not be thrust aside with one critical word but deserves a full response
    5. theories of the evolution of property
      1. it is an old political trick to try to found your ideal in a “Golden Age” of the long ago, since corrupted
      2. Liberalism stresses the important development and “evolution” of civilization caused by private property in the means of production; Marxism plays to the idea that private property was an evolution, but a corrupt form
      3. the historical record of private and “public” property is mixed and not certain, the idea of founding a theory of property rights on timeless history is flawed and untenable
      4. regardless of the historical question, it is a separate problem to demonstrate that rational agriculture and other forms of economic development could be carried out in the absence of private property as an institution
  3. Chapter II, Socialism
    1. the State and economic activity
      1. “the aim of socialism is to transfer the means of production from private ownership to the ownership or organized society, to the State”
      2. limitation of the rights of owners as well as formal transference is a means of socialization (ie, regulation)
      3. piecemeal socialization via regulation leaves the owner in position of owning an empty title, with true ownership/property rights resting in the State
      4. Socialism and Liberalism have the same ends, but they choose different means for attaining them
    2. the “fundamental rights” of socialist theory
      1. culture is the true safeguard of rights, not legal formalities; numerous nations have legal guarantees of rights but culture is not widespread enough to support their consistent application
      2. most of the time the economic rights dictated by socialism are for sloganeering purposes, or to act as a critique of the existing order; they don’t consider whether institutiing them legally is enough to change the social order and take this idea for granted so far as they believe in it
      3. three fundamental socialist rights:
        1. the right to the full produce of labor
          1. this can only be had in a competitive process of buying and selling which dictates to each element (labor, capital and land) its respective value based off the subjective theory of value
          2. this idea has always come to logical ruin and so the compromise is the idea of abolishing all “unearned” income via means of state control of the means of production
        2. the right to existence
          1. the idea of guaranteeing minimum existence was achieved in most communities by means of charity long ago, and is thus a harmless idea
          2. what socialists actually mean is that every individual have their needs met based on the means available in the community, before  the less urgent wants of others are met
          3. the impossibility of judging the urgency of needs objectively means in practice this is simply a call for equitable distribution of society’s total wealth; “no one should starve while some have more than enough”
          4. it is an idea fundamentally incompatible with the concept of private ownership because it will demand collective ownership in order to be realized
        3. the right to work
          1. the idea here is that people have the right to a job they enjoy that provides them a minimum level of subsistence with regards to their wants
          2. it owes heritage to the idea that Nature was superabundant and everyone could fulfill his needs easily in this primitive state and so to “buy” man’s cooperation with society, which denies him this superabundance, some compensation must be made
          3. it ignores that Nature is full of hardship and man enters into society because it is more productive, not less
          4. unemployment is caused by economic change, and where it is not hindered by regulation it is a transitory affair
          5. socialism, too, would need the ability to move labor to its most highly valued role; the idea of guaranteeing people a minimum income in their chosen work is absurd and ignores the demands of economic change
      4. these 3 rights could be larger or smaller in number and today have been superceded by the idea of socialization of the means of production
    3. collectivism and Socialism
      1. society is only possible to the extent that the individual finds his ego and will stenghtened by participating in the collective; the idea of a combat between the collective and the individual was false and a red herring used by collectivists interested in protecting the interests of various ruling classes
      2. collectivism rests on a teleological problem, that is it purports to explain human action based on a purpose served rather than individual causes
      3. collectivism posits the State as a God directing society toward a higher purpose; it assumes a war of all against all exists in society and individuals must be forced against their better interests to move in the direction of their divine purpose; that no peaceful social organization is possible
      4. science of society begins by removing this dualism and with it the need for gods and heroes; human action in social cooperation can be explained by the simple idea that man sees more benefit in cooperating than he would achieve left on his own
      5. collectivist philosophy is barren in terms of producing economic theory; it wasn’t until the “German mind” was freed of the collectivist philosophy of the State that pathbreakers like Menger, Bohm-Bawerk and Wieser were able to make important contributions to economic science
      6. collectivists refer to the social will but can not consistently explain its origins, which are based on individual political, religious or national convictions
      7. collectivism is political, not scientific; it teaches judgments of value
      8. collectivism tends to be closer to the world philosophy of socialism but even some collectivists have advocated private property in the means of production (socialism != collectivism)
  4. Chapter III, The Social Order and The Political Constitution
    1. the policy of violence and the policy of contract
      1. in a state of nature, “the Law of the Stronger”, the negation of law, exists; no peace, a truce at best
      2. society grew out of the smallest associations agreeing to keep the peace and expanded outward from there
      3. the policy of contract has nearly fully captured questions revolving around property, but political domination is still determined by the ancient means of arms, although this too is beginning to come under a set of rules
      4. in response, the nature of war has come under the influence of “Just Cause”, the policy of naked aggression tending to attract powerful anti-coalitions
      5. Liberal social policy teaches that war is harmful to the conqueror and the conquered; society is built through peace; peace is the father of all things
      6. Liberalism’s aim at protecting property, and avoiding war, are expressions of the same principle of peace
    2. the social function of democracy
      1. the highest political principle of Liberalism is self-determination of people
      2. for Liberalism, democracy performs functions that men are not prepared to do without
      3. many claim the aim of democracy is to select political leaders, but there is no inherent reason why democracy should choose better leaders than any other form of government
      4. the true function of democracy is to make peace, to avoid violent revolutions; persons and systems in the government of non-democratic states can only be changed by violence
      5. democracy attempts to economize on the loss of life and property, the interruption of economic activity, which comes with political revolution by bringing the will of the state in accordance with the will of the majority; it is a policy of internal pacifism to complement external pacifism of the Liberal order
      6. history bears out the truth of this function when looking at the relative stability of the English social order since the 17th century versus the instability and violence of the monarchies of Russia, Prussia, Germany and France
      7. democracy seeks to extirpate revolution; in this sense Marxism is anti-democratic; “Liberalism wants success at the smallest price”
      8. direct democracy is not necessary as long as the principle of the will of the state conforming with the will of the majority is attained
      9. democracy should be carried out by professional politicians so long as they represent the will of the majority
      10. there is no difference between the unlimited will of the democratic state and the unlimited will of the autocrat; both rest on the notion of a state based in pure political might
      11. it is a formal mistake with grand consequences when a legislator believes he is free from material considerations because all law emanates from his will; he is not above the natural conditions of social life
      12. “Democracy without liberalism is a hollow form”
    3. the ideal of equality
      1. it is said that socialism necessarily grows out of democracy because democracy requires equality to function
      2. the principle of equality of all before the Law is an essential peacemaking principle because without it people have common interest in subverting the law and ending the peace to get what they want
      3. another reason for equality before the law is to ensure that the ablest producers are ably legally to come to possess the means of production, which has outstanding benefits for all of society
      4. all democracies have foundered on the spirit of pitting the poor against the rich, people who are unequal in material means despite being equal in legal means (supposedly)
      5. the idea of equality arising from a pro rata distribution of the national income is not inherently democratic and should be judged on the basis of its own effects, not as a principle of democracy
    4. Democracy and social-democracy
      1. the idea of democracy and socialism being wedded intellectually comes from the followers of Hegel who believed in the idea of social evolution; because democracy and socialism both were arrived at thorough political and economic “progress”, they were deemed to be compatible
      2. “Democracy is the means toward the realization of socialism, and socialism is the means toward the realization of democracy”
      3. the other idea was that socialism would bring paradise on earth, so it seemed odd if this paradise offered anything less than the “best” political circumstances as well
      4. people ultimately diverged on whether or not it was okay to deviate from the principles of democracy on the way to socialism, ie, the dictatorship of the proletariat
      5. Marxism as word fetishism: revolution meaning development, destroying the contrast between evolution and revolution
      6. Marxism does not offer liberal political rights once it is in power, it only asks of them when it is out of power, as a propaganda tool
      7. Liberalism demands democracy always and at once because it is the only means of peaceful political development in society
      8. The Bolshevist revolution revealed the inherent violence of the socialist program, unintentionally
    5. the political constitution of socialist communities
      1. if the socialist paradise is given, the question remains as to who shall govern “the will of the people” and direct the productive process
      2. the history of socialist communities — Pharoahic Egypt, the Inca, Jesuit State of Paraguay, and the writings of Plato and St. Simon — are all distinctly authoritarian in nature
      3. socialism foresees a social peace made through a permanent regime with unchanging rules and policies; the peace of the graveyard (same with the economic system!)
      4. Liberalism seeks a peace which is maintained with respect to man’s yearning for change
  5. The Social Order and The Family
    1. Socialism and the sexual problem
      1. socialism promises universal happiness in love by doing away with private property in relationships
      2. socialism’s critique of “capitalist” sexual relations starts from the premise that a Utopian Golden Age existed in history and sexual relations have degenerated from that point to the current capitalist paradigm
    2. man and woman in the age of violence
      1. “unlimited rule of the male characterizes family relations where the principle of violence dominates” (see: Mafia families)
      2. in this situation, woman is an economic good that man has and makes use of; she is the servant of man because man has the power and and thus the rights
      3. the man can divorce the woman, but she can not do the same to him
      4. love is the anti-thesis of this system because it involves “overvaluing” the object, woman is a queen, rather than a slave
      5. love creates conflicts in this system only from the point of view of the man, who can not stand his property (woman) being possessed by another
    3. marriage under the influence of the idea of contract
      1. capitalism is blamed for bringing money marriages and prostitution and sexual excess; before this love was pure
      2. polygamy tends to accompany the principle of violence because women are property and men wish to acquire as many as they can defend
      3. as women came to possess property and wealth and marriage with them granted access to that property, clear delineation between legitimate and illegitimate connection and succession developed, that is, contract
      4. the idea of contract breaks the rule of the male and makes the wife a partner with equal rights
      5. women were freed from men for the first time when their rights were legally enforceable as contracts
    4. the problems of married life
      1. modern contractual marriage involves conditions by which marriage and love are united; it is morally justified only when love is involved
      2. most of the problems of married life come from the fact that it is a contract for life yet biological passions and even philosophical love may be of limited duration
      3. these problems are internal in nature, not external; they’re due to individual psychology, not the capitalist social order
      4. the feminist movement claimed that marriage forced women to sacrifice their personality and the only solution was abolition of the institution
      5. women are faced with a unique choice: to spend the best years of their lives as mothers, or pursuing their personalities, but rarely both
      6. so long as feminism desires for woman the legal freedom to develop according to her own will, it is a partner of Liberalism
      7. to the extent feminism seeks to reform institutions in an attempt to reform unalterable facts of nature, it is a child of Socialism
    5. free love
      1. socialism aims for free love by abolishing economic necessity and social institutions which previously hampered relations between the sexes
      2. sex is less of a burden for man because the nature of the act for him is less demanding; for women it brings with it the risk of child birth which can be a sincere distraction from her inner development
    6. prostitution
      1. prostitution goes back to ancient society and is a vestige of old morals, not new
      2. women prostitute themselves for different reasons, only one of which is money
      3. capitalism loves peace, yet militarism is one of the primary “patrons” of prostitution
      4. in a society of equal means the economic motives for prostitution may dwindle, but there is no reason to believe other new social sources would not arise in their place

More Banking Confusion: Liquidity Versus Solvency (@EconTalker, #banking, #liquidity)

Here is a choice quote from the recent EconTalk podcast with Anat Admati of Stanford University:

Well, they have fancy ways to talk about banks, and we try to unpack those. They talk about maturity transformation, liquidity transformation. What that means is really that the depositor, the people who lend to the banks, often time want their money quickly, especially demand deposits. But when they invest it, they kind of invest it longer term and in less liquid things. So there is a sort of imbalance between the money that they use to fund and their investment in the sense of the length of time until something has to happen and also the speed with which they have to pay versus get paid. And so that mismatch creates fragility by itself, which also means for example if all of us run to the bank at the same time then the bank may not be able to cover all of that. Even if it technically would be solvent, it has everything, that’s kind of an inefficient run that you could have, in principle. So basically the banks tend to run a little bit more than other people into liquidity problems. You could say that, just, I have the money but I didn’t go to the ATM kind of thing–I can pay you back but we’re going to have to find a liquidity solution, sort of a rolling back my debt. Their funding is kind of fragile almost by definition because of the way it comes and the way people can come back for their money on short notice or any time they want. So that’s part of the funding. And the investments are not as liquid or longer term than that. (emphasis added)

This is an utter confusion. This is not a “liquidity problem”, it’s a solvency problem.

Money-in-an-ATM is not the same economic good as money-in-my-hand. That is, money-five-minutes-from-now is not the same as money-right-now.

They are separate economic goods due to the time value of money. What Admati has done is create an arbitrary distinction between a future money good and a present money good, by projecting her preference/judgment onto an exchange involving two other parties of which she is not one.

If party A demanding “liquidity” from the bank B truly saw no difference between money-right-now and money-a-few-days-from-now, for example, then a bank run would never happen and these items would trade at the same price, which they do not.

This is a fundamental error of economic reasoning. I expect a professor of finance and economics to understand something like this and as a result I find myself disappointed to see that she does not.

Economists and politicians only let banks get away with this. If anyone else were to be so arbitrary and haughty toward contracts they’d be thrown in prison, but for banks insolvency never comes so long as you can contort logic to the point that you convince yourself that all that’s missing is a bit of liquidity.

This is more free lunch thinking.