How Chicago “Works”: Tax and Graft; Who Benefits?

On October 28, the Chicago City Council passed the largest property-tax hike in modern city history by a vote of 36-14, approving Mayor Rahm Emanuel’s 2016 budget proposal.

Taxpayers will have to fork over another $588 million property-tax hike to be phased in over the next four years.

Some businesses and taxpayers will simply flee, joining what now is best viewed as the “Great Illinois Exodus”.

Taxpayers Lose, Who Wins?

Someone always benefits from these tax-and-spend schemes. Who is it?

The Illinois Policy Institute has the answer in Meet the politicians who stand to get rich off of Chicago’s massive property-tax hike.

The Players

As the tax hikes hit Chicago families and businesses, a who’s who of the state’s political machine will continue to line their pockets off of a property-tax game in which their connections are priced at a premium.

Illinois House Speaker Mike Madigan and Chicago Alderman Ed Burke both run law firms specializing in the lucrative field of Cook County property-tax appeals, one of the most inefficient, corrupt systems in urban politics. Illinois Senate President John Cullerton is a member of a large law firm that handles a range of issues, including property-tax law. The three have held political office in Illinois for a combined 126 years.

The Game

The property-tax-assessment process in Cook County is convoluted by design. But here’s how it works in simple terms:

First, the Cook County Assessor’s Office assesses the value of every property in the county. The value of any given property is reassessed once every three years. This “assessed value” is then used to calculate the property taxes owed by each property owner.

Property owners can then appeal that assessed value in a number of ways. They can file a request with the assessor asking for a reduction, appeal the valuation to the Cook County Board of Review, file a lawsuit in which a judge will decide the value, or the property owner and the Cook County State’s Attorney will enter into a settlement agreement over the value.

Flawed property valuations and the process required to fix them are a cash cow for law firms, including those of Madigan, Burke and Cullerton, which know what strings to pull. These law firms handle the ways in which the assessed value of a property is appealed: the request with the assessor, the appeal to the Cook County Board of Review, and lawsuits.

The Cook County Board of Review – which exists solely to field appeals for assessments by the Cook County Assessor’s Office – processed appeals for more than 400,000 properties in 2013.

What doesn’t add up is nearly two-thirds of those appeals were successful: an astonishing number that reveals a faulty assessment process ripe for savvy attorneys.

Choose not to appeal your assessment and the government pockets the extra money. Choose to hire a politically connected law firm and that law firm typically pockets anywhere from 25 to 50 percent of the “winnings.” And each reduction for a politically connected business means an increase in property taxes for those lacking the right political connections.

Investigative reporting from the Illinois News Network revealed Madigan’s six-person firm, Madigan & Getzendanner, earned close to $10 million in tax refunds for its clients from April 2013 through April 2014. Madigan’s spokesperson Steve Brown has said that the House speakers’ law firm, which services mainly commercial clients, charges a flat fee for its services. The Chicago Sun-Times’ Tim Novak broke the story in 2014 that Madigan’s firm had saved Mesirow Financial Services $1.7 million dollars by slashing the valuation of its River North headquarters by 60 percent. Mesirow manages $300 million in state pension funds and employs Madigan’s son, Andrew.

Every year from 2010 to 2014, Cook County Assessor and Democratic Party Chairman Joseph Berrios declared the building that housed Mesirow was worth at least $330 million. In each of those years, Madigan’s law firm successfully contested that valuation to the tune of $5 million in tax breaks annually, according to Novak’s research.

That’s the game in a nutshell.

Other Winners

In addition to politically connected law firms specializing in tax appeals, the public unions benefit, and corrupt politicians who support tax hikes to buy votes from public unions also win.

The losers are the businesses and taxpayers in Illinois.

Great Illinois Exodus

In increasing numbers, residents and businesses have voted with their feet as noted in Get Me the Hell Out of Here.

For further discussion, please see …


Mike “Mish” Shedlock

Heartland Precious Metals: Reviews and Price-Comparison

I added Heartland Precious Metals to the price-comparison tables this week. Like all the other precious-metal dealers that I index, they also have a customer review page where you can read and write customer reviews. At the moment, Heartland Precious Metals has the best prices on almost every product in the price-comparison tables. So if you’ve made a purchase at Heartland Precious Metals, tell us about it, write a review.

Why Capitalists Are Repeatedly “Fooled” By Business Cycles

According to the Austrian business cycle theory (ABCT) the artificial lowering of interest rates by the central bank leads to a misallocation of resources because businesses undertake various capital projects that — prior to the lowering of interest rates —weren’t considered as viable. This misallocation of resources is commonly described as an economic boom.

As a rule, businessmen discover their error once the central bank — which was instrumental in the artificial lowering of interest rates — reverses its stance, which in turn brings to a halt capital expansion and an ensuing economic bust.

From the ABCT one can infer that the artificial lowering of interest rates sets a trap for businessmen by luring them into unsustainable business activities that are only exposed once the central bank tightens its interest rate stance.

Critics of the ABCT maintain that there is no reason why businessmen should fall prey again and again to an artificial lowering of interest rates.

Businessmen are likely to learn from experience, the critics argue, and not fall into the trap produced by an artificial lowering of interest rates.

Correct expectations will undo or neutralize the whole process of the boom-bust cycle that is set in motion by the artificial lowering of interest rates.

Hence, it is held, the ABCT is not a serious contender in the explanation of modern business cycle phenomena. According to a prominent critic of the ABCT, Gordon Tullock,

One would think that business people might be misled in the first couple of runs of the Rothbard cycle and not anticipate that the low interest rate will later be raised. That they would continue to be unable to figure this out, however, seems unlikely. Normally, Rothbard and other Austrians argue that entrepreneurs are well informed and make correct judgments. At the very least, one would assume that a well-informed businessperson interested in important matters concerned with the business would read Mises and Rothbard and, hence, anticipate the government action.

Even Mises himself had conceded that it is possible that some time in the future businessmen will stop responding to loose monetary policy thereby preventing the setting in motion of the boom-bust cycle. In his reply to Lachmann (Economica, August 1943) Mises wrote,

It may be that businessmen will in the future react to credit expansion in another manner than they did in the past. It may be that they will avoid using for an expansion of their operations the easy money available, because they will keep in mind the inevitable end of the boom. Some signs forebode such a change. But it is too early to make a positive statement.

Do Expectations Matter?

According to the critics then, if businessmen were to anticipate that the artificial lowering of interest rates is likely to be followed some time in the future by a tighter interest rate stance, their conduct in response to this anticipation will neutralize the occurrence of the boom-bust cycle phenomenon. But is it true that businessmen are likely to act on correct expectations as critics are suggesting?

Furthermore, the key to business cycles is not just businessmen’s conduct but also the conduct of consumers in response to the artificial lowering of interest rates — after all, businessmen adjust their activities in accordance with expected consumer demand. So on this ground one could generalize and suggest that correct expectations by people in an economy should prevent the boom-bust cycle phenomenon. But would it?

For instance, if an individual John, as a result of a loose central bank stance, could lower his interest rate payment on his mortgage why would he refuse to do that even if he knows that a lower interest rate leads to boom-bust cycles?

As an individual the only concern John has is his own well being. By paying less interest on his existent debt John’s means have now expanded. He can now afford various ends that previously he couldn’t undertake.

As a result of the central bank’s easy stance the demand for John’s goods and services and other mortgage holders has risen. (Again it must be realized that all this couldn’t have taken place without the support from the central bank, which accommodates the lower interest rate stance.)

Now, the job of a businessman is to cater to consumers’ future requirements. So whenever he observes a lowering in interest rates he knows that this most likely will provide a boost to the demand for various goods and services in the months ahead.

Hence if he wants to make a profit he would have to make the necessary arrangements to meet the future demand.

For instance, if a builder refuses to act on the likely increase in the demand for houses because he believes that this is on account of the loose monetary policy of the central bank and cannot be sustainable, then he will be out of business very quickly.

To be in the building business means that he must be in tune with the demand for housing. Likewise any other businessman in a given field will have to respond to the likely changes in demand in the area of his involvement if he wants to stay in business.

A businessman has only two options — either to be in a particular business or not to be there at all. Once he has decided to be in a given business this means that the businessman is likely to cater for changes in the demand for goods and services in this particular business irrespective of the underlying causes behind changes in demand.

Failing to do so will put him out of business very quickly. Now, regardless of expectations once the central bank tightens its stance most businessmen will “get caught.” A tighter stance will undermine demand for goods and services and this will put pressure on various business activities that sprang up while the interest rate stance was loose. An economic bust emerges.

We can conclude that correct expectations cannot prevent boom-bust cycles once the central bank has eased its interest rate stance. The only way to stop the menace of boom-bust cycles is for the central bank to stop the tampering with financial markets. As a rule however, central banks respond to the bust by again loosening their stance and thereby starting the new boom-bust cycle phase.

Get More Bang for Your Buck

If you missed it, Forbes recently reported that a college ranking organization has named the Mises Institute as the #9 most influential think tank in the United States — out of nearly 2,000 organizations!

All of the other top 10 organizations — among them the neocon American Enterprise Institute, the Fed-loving Brookings Institution, the Heritage Foundation, and the Cato Institute — have budgets and staffs vastly larger than ours. Yet our web traffic, name ID, reputation, and influence rival the biggest Beltway outfits.

Here’s what Forbes had to say:

In addition to the superb collection of scholarly books and studies in the Austrian tradition, especially by Ludwig von Mises, Murray Rothbard, and their disciples, Mises Institute sometimes releases provocative articles, defying political correctness and attracting wide readership. This increases its social media impact, but who is to say that think tanks were only created to influence the academic and policy elites?

As blogger Ryan Griggs puts it:

the Mises Institute is the “top pound for pound — or influence per dollar of revenue — educational and research institution in the country. … Simply put, Mises does more with less than all the rest.”

Of course the Mises Institute is not really a think tank at all. We’re not interested in “public policy,” we don’t provide intellectual cover for dubious legislation, we don’t court one faction or another in Congress, and we surely don’t support parties or candidates.

But if you’re reading this, you’re likely already familiar with the Mises Institute and what we do. That’s why we’re asking for your help. We need you to join us as a member, to consider donating, and to ask as many liberty-minded friends and family to do the same.

With an election year looming, our mission of winning hearts and minds is increasingly urgent. The 2016 presidential race is already a horror show, filled with statist platitudes, divisive rhetoric, warmongering, and mind-numbing repetitions of economic fallacies.

You know there’s a better way. America doesn’t need a central state, it doesn’t need a central bank, it doesn’t need a political class, and in fact it doesn’t need politics at all. It certainly doesn’t need an endless election season. What it needs is the peaceful and cooperative power of an unleashed market economy, coupled with a commitment to nonintervention in the affairs of other nations.

Will you help the Mises Institute stand as an intellectual counter to the political rhetoric and the false Left/Right dichotomy? Is there a single organization better suited to use the 2016 election as a platform to call for the rejection of politics as the means of organizing society?

That’s why we’re asking you to join us as a member if you haven’t already, and to help us enlist as many new members as possible in the coming year. It’s only $60 a year — ($5 a month!) and the benefits are tangible:

Join a Community. Join us and become part of the Austro-libertarian intellectual revolution taking hold around the world. Your membership puts you at the forefront as a radical and uncompromising advocate for Austrian economics and liberty: pro-market, pro-peace, anti-state, anti-Fed, anti-PC. And many of our members make professional contacts and lifelong friends through the Institute.Amplify Your Voice. Our website, live events, and academic conferences reach more than 4 million people every year. By engaging with the Mises Institute, the diffuse voices of libertarians around the world are concentrated, focused, and amplified.Arm Yourself Intellectually. Our daily articles, blog, social media feeds, and videos provide you with a steady source of Austrian and libertarian content to demolish progressive myths and interventionist disinformation. Our online library of foundational books — by giants like Mises, Rothbard, and Hoppe — is the biggest and best source for Austrian and libertarian literature in the world. provides millions of people with a lifetime of free learning at their fingertips.Defy the State. More than anything, the state seeks to dumb us down and force young people into schools that are hostile to liberty and market economics. Mises University, Mises Academy, and our high school seminars teach thousands of students from around the world real economics, real history, and real philosophy. Those students tell us their lives changed forever by attending Mises Institute events, and they’re now deployed in business, academia, Wall Street, and the tech world. There’s nothing like our week-long Mises University available anywhere else, and it’s our most important program.

Thank you for being engaged with the Mises Institute in 2015, and for having the courage to challenge the groupthink and distractions of our day. Every visit to, every new social media follower, every shared link, every person at our events, every new member, and every dollar helps us promote Austrian economics, freedom, and peace.

Please join us!

When Medical Doctors Are Entrepreneurs

In this article, I wish to introduce the reader to the theory of entrepreneurship advanced by Frank Knight (1885–1972), and show that the common, everyday work of the physician could be considered a form of entrepreneurial activity in the Knightian sense.

Knight was an influential American economist. He is best known for his book Risk, Uncertainty, and Profit in which he proposed to distinguish risk and uncertainty as follows: Risk pertains to situations where outcomes occur with a frequency that is quantifiable according to probability distributions.

Risk may be mathematical and a priori knowable, meaning that the probability function that governs the outcome is known with certainty, as in the case of a coin toss (assuming the coin to be well balanced).

Risk may also be statistical, where the outcome can be estimated according to an empirically discoverable probability function. This is the case in situations where we know the set of possible outcomes and can make observations under controlled conditions to determine the probability of occurrence of each outcome.

Uncertainty, on the other hand, pertains to situations where the probability of an outcome cannot be quantified in any meaningful way. The situation is such that we don’t even know the set of all possible outcomes, let alone what numerical probabilities to assign to those outcomes. Knight believed that most situations involving human beings fall under the category of uncertainty.

Knight’s great insight was to recognize that the economic role of the entrepreneur is to shoulder uncertainty. He does so not by calculating risk, but by exercising judgment. And, as Professor Peter Klein has noted, the entrepreneurial judgment is not “contractable,” because the entrepreneur cannot articulate his belief about uncertainty in a way that can be communicated and become subject to market exchange. Instead, the economic entrepreneur must directly invest in material resources and modify them for productive use.

It is in this direct involvement with resources that the entrepreneur shoulders the uncertainty and communicates his or her judgment. Of course, some risk calculation may take place and be taken into account if the entrepreneur has some knowledge of the probability of certain outcomes, but the entrepreneurial action is ultimately in the entrepreneur’s direct investment in the resources at hand. A correct exercise of judgment returns an entrepreneurial profit, while an error in judgment incurs a loss.

Medical Uncertainty and the Physician

Are medical situations good examples of Knightian uncertainty? On the one hand, we may all agree that each human being is unique, unpredictable, and unrepeatable. On the other hand, much of medical practice is now guided by predictive analytics, by the examination of risk factors, and by the calculation of probability for certain outcomes, determined through ever more sophisticated epidemiological studies and clinical trials. And the use of predictive analytics is now sanctioned by “pay-for-performance” schemes to entice doctors to treat according to statistically-based algorithms.

Has modern outcomes research conquered Knightian uncertainty and provided clinicians with reliable statistical models with which medical treatment can be determined?

I don’t believe it has. How could it?

George is in my office and I ponder whether he should take a statin drug to manage his cholesterol and future risk of a heart attack. The studies that I should rely upon to make my decision have not enrolled George, of course. At best, they have enrolled someone “like” George: same age, gender, baseline blood cholesterol level, blood pressure, and perhaps a few other traits.

In other words, the claim of “likeness” that should convince me to apply statistical probabilities to George requires me to turn George into a stick figure of risk factors, a “profile,” an abstraction that overlooks everything else about him that makes him George and not someone else.

Perhaps George will respond well to the drug, or perhaps he will not. As far as his personal outcome is concerned, the statistics are meaningless.

And this is not news to statisticians. Richard von Mises (Ludwig von Mises’s younger brother), a renowned mid-twentieth century Harvard statistician, put it in no uncertain terms:

We can say nothing about the probability of death of an individual even if we know his condition of life and health in detail. The phrase “probability of death,” when it refers to a single person, has no meaning at all for us.

Is there no meaning and value, then, in the clinical trials and large epidemiological studies? Of course, there is. Those studies do provide useful information about the frequency at which certain outcomes occur — good or bad. Those outcomes are the ones that the study designers have chosen to record and tally.

But when applied to the patient, such epidemiological information is limited and cannot determine the course of action to take. There is much inherent residual uncertainty.

Are doctors then paralyzed or impotent in the face of the unknowable future? Of course not, and that’s where Knight’s insights may be so valuable. For by analogy with the economic entrepreneur, we may conceive of the physician as a health entrepreneur, shouldering on behalf of the patient the inherent uncertainty associated with an illness.

Like the economic entrepreneur, doctors take into account not only quantifiable knowledge, but also locally obtained, tacit knowledge. This is a concept that we associate with F.A. Hayek, but a similar idea has been validated recently by psychologist Gary Klein in his studies on how experts — including doctors — make decisions. The totality of available knowledge is used, explicit and implicit. And we could push the analogy of the physician as health entrepreneur further if we recognize that, in a praxeological sense, the patient gives up ownership, or cedes control, of his or her body to the doctor.

Like the economic entrepreneur, the physician is now directly invested in the outcome for that body. It is through that investment that the physician communicates his or her clinical judgment, a judgment that, as Knight would think, cannot be properly articulated.

Entrepreneurship and the Healthcare System

Is this understanding of the entrepreneurial nature of medical care an academic exercise? Not if we consider the extent to which the healthcare systems runs counter to it.

For doctors are precisely asked to communicate, for the benefit of third parties, and through endless documentation and arcane coding, an exercise in judgment which is inherently unsuited for linguistic or numerical articulation.

And this demand to articulate the inarticulable is not only a distraction and a drain on the doctor’s time, but also a misleading influence on her thinking, forcing her to translate the uncertainty of medicine into a false representation that soon becomes reality: physicians, patients, and payers all get lured into mistaking the illness experience for its coded description.

We should also be mindful that third-party payers do not bear ultimate responsibility for divorcing medical care from its reality. In fact, third-party payment systems arose precisely because the medical community, in a certain sense, has made the claim that the medical enterprise could be articulated. Third-party payment systems would not have emerged if the medical community did not agree that medical care is “contractable” (a concept that finds its ultimate legal foundation in licensing laws).

A Need for More Research

The idea that medical care has an entrepreneurial nature may seem novel, but that is mostly because our understanding of the entrepreneur is still embryonic. Economic science has neglected Knight’s theory of the entrepreneur for decades, focusing instead on the development of predictive models and econometric tools. Likewise, medical science has strongly favored predictive analysis, and it is no surprise, though still uncanny, that economic systems and healthcare systems share similar dysfunctions.

It is only in recent years that work by Peter Klein and others have rekindled interest in a proper understanding of the entrepreneur and of the entrepreneurial role of the business firm. I hope similar work can also shed light on a proper understanding of the doctor, the doctor-patient relationship, and the entrepreneurial work involved in the restoration of health.

That would really be a disruptive innovation.

Did “Tight” Fed Policy Cause the Financial Crisis?

Recently Senator Ted Cruz aggressively questioned Janet Yellen on the Fed’s possible role in causing the financial crisis and subsequent recession. In particular, he claimed that “in the summer of 2008” the Fed “told markets that it was shifting to a tighter monetary policy,” and that this announcement “set off a scramble for cash, which caused the dollar to soar, asset prices to collapse, and CPI [growth — RPM] to fall below zero, which set the stage for the crisis.” Cruz asked Yellen if she agreed with Bernanke’s view from his new book, in which he says the Fed made a mistake by not cutting rates in September 2008.

In response, Yellen at first seemed befuddled by Cruz’s line of inquiry. She said that without further review she wasn’t going to second-guess Bernanke’s opinion that the Fed should’ve cut rates sooner. But she was quite sure that the Fed’s possibly delayed reaction didn’t cause the financial crisis, and in any event, Yellen reminded Cruz that by December 2008 the Fed had cut the federal funds rates down to 0 percent.

Several prominent “Market Monetarists” (such as Scott Sumner and David Beckworth) applauded Cruz’s position, because it dovetails nicely with their explanation that it was actually the Fed’s incredibly tight monetary policy that was ultimately responsible for the financial crisis and the Great Recession. In their view, “real factors” such as the collapsing housing market may have generated a run-of-the-mill recession, but it was Fed timidity that turned it into the worst economy since the 1930s.

The Market Monetarists chose their name out of deference to their intellectual heritage, namely the monetarism of Milton Friedman. Just as Friedman and Schwartz overturned the traditional Keynesian explanation of the Great Depression, by arguing that it was Fed inaction in the early 1930s that made the depression Great, so too do Sumner et al. in our time say that it was “tight money” that ultimately caused the Great Recession.

The Fed Dunnit, But Through Tight or Easy Money?

Ironically, many fans of the free market are attracted to Friedman’s explanation of the Great Depression, and the modern Market Monetarist explanation of the Great Recession, because these hypotheses still blame government and exonerate capitalism. Yet in the interest of accuracy and intellectual honesty, we have to ask: Do these explanations actually make sense?

The standard Austrian view is arguably the opposite of the Friedmanite/Market Monetarist views. Rather than blaming the Fed for “tight money” in the early 1930s and then again in 2008, the orthodox Austrian says that the Fed caused unsustainable booms through “easy money” in the 1920s and in the 2000s.

For more specifics, the interested reader should consult this lecture at Mises University where I sketch the different approaches to the Great Depression. For a longer treatment here is Murray Rothbard’s book on the causes of the 1929 crash and Hoover’s role in starting the Great Depression.

Regarding the housing bubble of our time, here is Mark Thornton’s prescient 2004 article. And although I certainly have not been Nostradamus at every turn, in the fall of 2007 (a year before the crisis) on these pages I used Austrian business cycle theory to warn that the US was in store for a recession that could be the worst in decades.

Does Cruz’s Story Make Sense?

For a detailed critique of the Market Monetarist approach from an Austrian perspective, see Shawn Ritenour’s 2013 article. For our purposes in the present piece, let me try a different approach to showcase the weakness of the approach.

Remember, Ted Cruz told Janet Yellen that in the summer of 2008, the “Fed told markets that it was shifting to a tighter monetary policy,” and that this is what ultimately caused the financial crisis a few months later. In other words, Cruz is not blaming “real forces” such as an unsustainable capital structure and the need to reallocate resources after the housing bubble. Instead, Cruz is blaming the Fed for shifting expectations in a way that increased the demand for money, and then not providing the market with the money it so desperately wanted.

In order to demonstrate how empty this explanation is, below I will reproduce three different Fed policy statements. Two of the statements had no dramatic effect on markets. However, one of the Fed statements below comes from the summer of 2008, and so (if Cruz is right) is responsible for creating a global financial panic and the worst economy since the 1930s.

So my question for the reader: Can you tell which of the following three Fed statements was the one Cruz is referring to? Which of the below caused global panic, and which two did investors shrug off? I have stripped out the level of interest rates and a few key phrases to keep things ambiguous about the date of the announcement, but not in a way that changes the tone of the three Fed statements as they originally appeared to markets.

Fed Statement #1:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at _____ percent.

Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of ____ _____ ______ and the lagged effects of increases in interest rates and energy prices.

Readings on core inflation have been elevated in recent months, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Fed Statement #2:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at _____ percent.

Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing ______ ______, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.

The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Fed Statement #3:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at _____ percent.

Recent indicators have been mixed and the adjustment in the ______ sector is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters.

Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

In these circumstances, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Scoring the Test

How did you do? I intentionally picked three Fed statements where the initial announcement was that the target interest rate was the same, so that any “signal” about looseness or tightness would have to be inferred from their discussion of the future. Could you tell which two of the above announcements were innocuous, and which one signaled a new tight money stance that caused a global financial crash not seen since the 1930s?

The answers are that Statement 1 was from August 2006, Statement 2 was from June 2008, and Statement 3 was from March 2007. Does it really sound plausible that the middle statement above was provocative enough to cause Lehman Brothers to fail and a major money market fund to “break the buck” a few months later?


It has been said that in Austrian theory “monetary factors cause the cycle but real phenomena constitute it.” In his canonical treatment, Ludwig von Mises certainly admitted that the commercial banks — through their policies of credit contraction and interest rate movements — could influence the precise timing of a crash. However, once an unsustainable boom was underway, a crash was inevitable. It would be foolish to think that a recession was due merely to the unwillingness of banks to continue with monetary inflation and artificially low interest rates.

Ted Cruz and the Market Monetarists are right to blame the Fed for the financial crisis, but they are focusing on the wrong end. The real problem was the Fed’s inflation of the early and mid-2000s that fueled the housing bubble and related malinvestments.

Yes, after a credit-fueled boom, the precise timing of the crash will probably occur when the central bank “tightens.” Yet that hardly means the recession is the fault of timidity. Ultimately, the only way to prevent painful busts is to avoid the pleasurable booms that precede them.

A Will To Peace

[This is an excerpt from John Denson’s book A Century of War: Lincoln, Wilson and Roosevelt.]

The Christmas Truce, which occurred primarily between the British and German soldiers along the Western Front in December 1914, is an event the official histories of the “Great War” leave out, and the Orwellian historians hide from the public. Stanley Weintraub has broken through this barrier of silence and written a moving account of this significant event by compiling letters sent home from the front, as well as diaries of the soldiers involved. His book is entitled Silent Night: The Story of the World War I Christmas Truce. The book contains many pictures of the actual events showing the opposing forces mixing and celebrating together that first Christmas of the war. This remarkable story begins to unfold, according to Weintraub, on the morning of December 19, 1914:

Lieutenant Geoffrey Heinekey, new to the 2nd Queen’s Westminister Rifles, wrote to his mother, “A most extraordinary thing happened. … Some Germans came out and held up their hands and began to take in some of their wounded and so we ourselves immediately got out of our trenches and began bringing in our wounded also. The Germans then beckoned to us and a lot of us went over and talked to them and they helped us to bury our dead. This lasted the whole morning and I talked to several of them and I must say they seemed extraordinarily fine men. … It seemed too ironical for words. There, the night before we had been having a terrific battle and the morning after, there we were smoking their cigarettes and they smoking ours.”

Weintraub reports that the French and Belgians reacted differently to the war and with more emotion than the British in the beginning. The war was occurring on their land and “The French had lived in an atmosphere of revanche since 1870, when Alsace and Lorraine were seized by the Prussians” in a war declared by the French. The British and German soldiers, however, saw little meaning in the war as to them, and, after all, the British King and the German Kaiser were both grandsons of Queen Victoria. Why should the Germans and British be at war, or hating each other, because a royal couple from Austria were killed by an assassin while they were visiting in Bosnia? However, since August when the war started, hundreds of thousands of soldiers had been killed, wounded or missing by December 1914.

It is estimated that over eight thousand young Germans had gone to England before the war to be employed in such jobs as waiters, cooks, and cab drivers and many spoke English very well. It appears that the Germans were the instigators of this move toward a truce. So much interchange had occurred across the lines by the time that Christmas Eve approached that Brigadier General G.T. Forrestier-Walker issued a directive forbidding fraternization:

For it discourages initiative in commanders, and destroys offensive spirit in all ranks. … Friendly intercourse with the enemy, unofficial armistices and exchange of tobacco and other comforts, however tempting and occasionally amusing they may be, are absolutely prohibited.

Later strict orders were issued that any fraternization would result in a court-martial. Most of the seasoned German soldiers had been sent to the Russian front while the youthful and somewhat untrained Germans, who were recruited first, or quickly volunteered, were sent to the Western Front at the beginning of the war. Likewise, in England young men rushed to join in the war for the personal glory they thought they might achieve and many were afraid the war might end before they could get to the front. They had no idea this war would become one of attrition and conscription or that it would set the trend for the whole twentieth century, the bloodiest in history which became known as the War and Welfare Century.

As night fell on Christmas Eve the British soldiers noticed the Germans putting up small Christmas trees along with candles at the top of their trenches and many began to shout in English “We no shoot if you no shoot.” The firing stopped along the many miles of the trenches and the British began to notice that the Germans were coming out of the trenches toward the British who responded by coming out to meet them. They mixed and mingled in No Man’s Land and soon began to exchange chocolates for cigars and various newspaper accounts of the war which contained the propaganda from their respective homelands. Many of the officers on each side attempted to prevent the event from occurring but the soldiers ignored the risk of a court-martial or of being shot.

Some of the meetings reported in diaries were between Anglo-Saxons and German Saxons and the Germans joked that they should join together and fight the Prussians. The massive amount of fraternization, or maybe just the Christmas spirit, deterred the officers from taking action and many of them began to go out into No Man’s Land and exchange Christmas greetings with their opposing officers. Each side helped bury their dead and remove the wounded so that by Christmas morning there was a large open area about as wide as the size of two football fields separating the opposing trenches. The soldiers emerged again on Christmas morning and began singing Christmas carols, especially “Silent Night.” They recited the 23rd Psalm together and played soccer and football. Again, Christmas gifts were exchanged and meals were prepared openly and attended by the opposing forces. Weintraub quotes one soldier’s observation of the event: “Never … was I so keenly aware of the insanity of war.”

The first official British history of the war came out in 1926 which indicated that the Christmas Truce was a very insignificant matter with only a few people involved. However, Weintraub states:

During a House of Commons debate on March 31, 1930, Sir H. Kingsley Wood, a Cabinet Minister during the next war, and a Major “In the front trenches” at Christmas 1914, recalled that he “took part in what was well known at the time as a truce. We went over in front of the trenches and shook hands with many of our German enemies. A great number of people [now] think we did something that was degrading.” Refusing to presume that, he went on, “The fact is that we did it, and I then came to the conclusion that I have held very firmly ever since, that if we had been left to ourselves there would never have been another shot fired. For a fortnight the truce went on. We were on the most friendly terms, and it was only the fact that we were being controlled by others that made it necessary for us to start trying to shoot one another again.” He blamed the resumption of the war on “the grip of the political system which was bad, and I and others who were there at the time determined there and then never to rest. … Until we had seen whether we could change it.” But they could not.

Beginning with the French Revolution, one of the main ideas coming out of the nineteenth century, which became dominant at the beginning of the twentieth century, was nationalism with unrestrained democracy. In contrast, the ideas which led to the American Revolution were those of a federation of sovereign states joined together under the Constitution which severely limited and separated the powers of the national or central government in order to protect individual liberty. National democracy was restrained by a Bill of Rights. These ideas came into direct conflict with the beginning of the American War Between the States out of which nationalism emerged victorious. A principal idea of nationalism was that the individual owed a duty of self-sacrifice to “The Greater Good” of his nation and that the noblest act a person could do was to give his life for his country during a war, which would, in turn, bring him immortal fame.

Two soldiers, one British and one German, both experienced the horrors of the trench warfare in the Great War and both wrote moving accounts which challenged the idea of the glory of a sacrifice of the individual to the nation in an unnecessary or unjust war. The British soldier, Wilfred Owen, wrote a famous poem before he was killed in the trenches seven days before the Armistice was signed on November 11, 1918. He tells of the horror of the gas warfare which killed many in the trenches and ends with the following lines:

If in some smothering dreams you too could paceBehind the wagon that we flung him in,And watch the white eyes writhing in his face,His hanging face, like a devil’s sick of sin;If you could hear, at every jolt, the bloodCome gargling from the froth-corrupted lungs,Obscene as cancer, bitter as the cudOf vile, incurable sores on innocent tongues—My friend, you would not tell with such high zestTo children ardent for some desperate gloryThe old Lie: Dulce et decorum est Pro patria mori.The Latin phrase is translated roughly as “It is sweet and honorable to die for one’s country,” a line from the Roman poet Horace used to produce patriotic zeal for ancient Roman wars.

The German soldier was Erich M. Remarque who wrote one of the best anti-war novels of all time, entitled All Quiet On The Western Front, which was later made into an American movie that won the 1930 Academy Award for Best Picture. He also attacked the idea of the nobility of dying for your country in an unnecessary war and he describes the suffering in the trenches:

We see men living with their skulls blown open; We see soldiers run with their two feet cut off; They stagger on their splintered stumps into the next shell-hole; A lance corporal crawls a mile and half on his hands dragging his smashed knee after him; Another goes to the dressing station and over his clasped hands bulge his intestines; We see men without mouths, without jaws, without faces; We find one man who has held the artery of his arm in his teeth for two hours in order not to bleed to death.

Thomas Hardy’s poem “The Man He Killed,” was published in 1902 and was inspired by the Boer War but it captures the spirit of the Christmas Truce in 1914:

Had he and I but metBy some old ancient inn,We should have sat us down to wetRight many a nipperkin!But ranged as infantry,And staring face to face,I shot at him as he at me,And killed him in his place.I shot him dead because—Because he was my foe,Just so: my foe of course he was;That’s clear enough; althoughHe thought he’d ‘list, perhaps,Off-hand like—just as I—Was out of work — had sold his traps—No other reason why.Yes, quaint and curious war is!You shoot a fellow downYou’d treat if met where any bar is,Or help to half-a-crown.

The last chapter of Weintraub’s book is entitled “What If— ?” This is counterfactual history at its best and he sets out what he believes the rest of the twentieth century would have been like if the soldiers had been able to cause the Christmas Truce of 1914 to stop the war at that point. Like many other historians, he believes that with an early end of the war in December of 1914, there probably would have been no Russian Revolution, no Communism, no Lenin, and no Stalin. Furthermore, there would have been no vicious peace imposed on Germany by the Versailles Treaty, and therefore, no Hitler, no Nazism, and no World War II. With the early truce there would have been no entry of America into the European War and America might have had a chance to remain, or return, to being a Republic rather than moving toward World War II, the “Cold” War (Korea and Vietnam), and our present status as the world bully.

Weintraub states that:

Franklin D. Roosevelt, only an obscure assistant secretary of the navy — of a fleet going nowhere militarily — would have returned to a boring law practice, and never have been the losing but attractive vice presidential candidate in 1920, a role earned by his war visibility. Wilson, who would not be campaigning for reelection in 1916 on a platform that he kept America out of war, would have lost (he only won narrowly) to a powerful new Republican president, Charles Evans Hughes.

He also suggests another result of the early peace:

Germany in peace rather than war would have become the dominant nation in Europe, possibly in the world, competitor to a more slowly awakening America, and to an increasingly ambitious and militant Japan. No Wilsonian League of Nations would have emerged. … Yet, a relatively benign, German-led, Commonwealth of Europe might have developed decades earlier than the European Community under leaders not destroyed in the war or its aftermath.

Many leaders of the British Empire saw the new nationalistic Germany (since 1870–1871) as a threat to their world trade, especially with Germany’s new navy. The idea that economics played a major role in bringing on the war was confirmed by President Woodrow Wilson after the war in a speech wherein he gave his assessment of the real cause of the war. He was campaigning in St. Louis, Missouri in September of 1919 trying to get the US Senate to approve the Versailles Treaty and he stated:

Why, my fellow-citizens, is there any man here, or any woman — let me say, is there any child here, who does not know that the seed of war in the modern world is industrial and commercial rivalry? … This war, in its inception, was a commercial and industrial war. It was not a political war.The Papers of Woodrow Wilson, Arthur S. Link, ed. (Princeton, N.J.: Princeton University Press, 1990), vol. 63, pp. 45–46.

Weintraub alludes to a play by William Douglas Home entitled A Christmas Truce wherein characters representing British and German soldiers have just finished a soccer game in No Man’s Land on Christmas day and are engaged in a conversation which very well could represent the feelings of the soldiers on that day. The German lieutenant concedes the impossibility of the war ending as the soccer game had just done, with no bad consequences — “Because the Kaiser and the generals and the politicians in my country order us that we fight.”

“So do ours,” agrees Andrew Wilson (the British soldier).“Then what can we do?”“The answer’s ‘nothing.’ But if we do nothing … like we’re doing now, and go on doing it, there’ll be nothing they can do but send us home.”“Or shoot us.”

The Great War killed over ten million soldiers and Weintraub states, “Following the final Armistice came an imposed peace in 1919 that created new instabilities ensuring another war.” This next war killed more than fifty million people, over half of whom were civilians. Weintruab writes:

To many, the end of the war and the failure of the peace would validate the Christmas ceasefire as the only meaningful episode in the apocalypse. It belied the bellicose slogans and suggested that the men fighting and often dying were, as usual, proxies for governments and issues that had little to do with their everyday lives. A candle lit in the darkness of Flanders, the truce flickered briefly and survives only in memoirs, letters, song, drama and story.

Weintraub concludes his remarkable book with the following:

A celebration of the human spirit, the Christmas Truce remains a moving manifestation of the absurdities of war. A very minor Scottish poet of Great War vintage, Frederick Niven, may have got it right in his “A Carol from Flanders,” which closed,

O ye who read this truthful rime From Flanders, kneel and say:God speed the time when every dayShall be as Christmas Day.

Technology and Government Shouldn’t Mix

We live in a time like never before in human history. Our scientific knowledge and technological capabilities are rapidly advancing, affecting nearly every aspect of human life. Examples are rife, from smart phones and robotics, to thought-controlled prosthetics, wireless power, even force fields. Countless others that sounded like science fiction a few years ago don’t even deserve mention today as they have become so commonplace.

In the nineteenth century, the Industrial Revolution marked the beginning of the process we see at work, when (mostly) free market capitalism unshackled society’s productive imagination. The key was that it allowed individuals to reap the fruits of their labor, providing incentives for workers and entrepreneurs by allowing them to accumulate capital. Capital accumulation is the prerequisite for a prosperous society, without it there can be no sustainable investment or economic growth.

Privately-Owned Technology Is Not a Problem

Yet many are beginning to worry that our technology could soon turn on us and actually bring about our demise. The renowned physicist Stephen Hawking speculated earlier this year that robots will eventually take over the world, but has since revised his stance, now suggesting that capitalist-technology is a greater threat and will bring about unsustainable inequality and poverty as automated production techniques displace human labor. Such fears display an ignorance of history and economic science.

First, economists have for centuries pinpointed labor and land (i.e., natural resources) as permanent factors of production, with capital goods (in this case machines) being ultimately produced out of them. As Murray Rothbard explains in chapter 9 of Man, Economy, and State, there has always been a scarcity of labor, meaning that machines don’t make labor obsolete, but are rather labor-saving devices that make goods drastically cheaper for consumers, enable more leisure time for everyone, and simply redirect labor to other ends. Human labor is always required in some capacity for all production processes — such as the maintenance of machines — thus it’s inconceivable that every single industry could possibly be automated, not to mention the new industries that emerge as labor is freed up from its previous areas of employment. (For a complete demolition of this argument, see here.)

Second, the chilling irony of modern technology isn’t the menace of an AI takeover, where our creations turn against us in an apocalyptic scenario (although it’s impossible to completely rule this out). More to the point is that for all the ways technology is drastically improving the quality of life for people everywhere, the ability to inflict death, harm, and destruction is also unprecedented; and these technologies are being harnessed virtually entirely by states.

State Ownership of Technology Is a Problem

Coercive governments, for as long as they’ve existed, have been abusive of individual rights and the integrity of human beings everywhere, from the torture devices of Medieval Europe, to the cannons of the Civil War. However, the State in its proclivity to inflict violence upon humanity has always been restrained by the technology available to it, whether it was the axe, the sword, or the club in ancient times.

Yet as productive society has advanced in its ability to satisfy human needs and wants, the regimes of the day have used new technologies to expand their weaponry arsenals. The twentieth century will be remembered twofold: for its incredible increase in wealth and prosperity on the one hand, but also for its terrible wars. Indeed, more people were killed by state-governments in the twentieth century than in the previous nineteen combined.

Today in the twenty-first century, the world is embroiled in warfare and disaster wrought by the State, while the glories of the market economy surround us everywhere we turn. Market-societies build us up, while states tear us down.

Despite the sadistic few among us, there’s no question that the overwhelming majority of people prefer peace and prosperity and use technology as a means toward these ideals. On the other hand, it bears repeating that the primary culprit in turning technology toward nefarious purposes is the State.

So perhaps the most profound question of our time is, going forward, how we will use our increasingly powerful technology: as a progressive force to the benefit of humanity by relieving our ailments, extending our life spans, and increasing our worldly comforts beyond our wildest dreams — or as a retrogressive force that acts to our detriment by inflicting pain and suffering and death upon people everywhere?

Mises: An Audacious Champion of Freedom

Ideas are all-important. Indeed, they are more powerful than armies, as Victor Hugo noted. But ideas are advanced by specific individuals, and inculcated in them, and historically tied to them.

How blessed are we that we have not a criminal like Marx nor a monster, like Keynes to follow, but Ludwig von Mises, a hero as well as a genius.

Mises was not only a dazzling economist and champion of liberty, but no Communist, nor Nazi, nor central banker could pressure him into doing the wrong thing.

Born in 1871 in the city of Lemberg, then part of the Austro-Hungarian empire, he moved with his family to Vienna as a young man. Mises’s father was a high executive in the Austro-Hungarian railways.

The grammar schools and gymnasiums he attended—super high schools in our terms—still have his records. He was recognized as extraordinary from the first.

Mises excelled as a student at the University of Vienna, earning a doctorate in economics and law. He wrote a book on housing policy before encountering Menger’s Principles and becoming an Austrian economist.

Mises clerked for judges and practiced law before getting a job as an economist at the professional housing association. While there, he demonstrated that high real estate taxes were hindering new construction, a serious problem in housing-short Vienna. Through his papers and lectures, that is, the pure power of his mind, he brought about a cut in taxes, leading to more investment in housing, exactly as he had predicted.

Mises was denied a paid position at the university, despite publishing his astounding Theory of Money and Credit. Before the founding of the Fed, he demonstrated that such a central bank would harm business and people to aid the government and its cronies, as well as bring on the business cycle of artificial booms followed by busts.

Mises was an army officer during the war, and we are privileged to have his medals at the Institute. At first, Mises was an economic advisor to the general staff. Then he was sent to the most dangerous duty in the war and almost killed. Guido Hülsmann, author of the great Mises biography, discovered that the power of Mises’s free-market analysis led to his corrupt and statist opponents hoping to kill him. There was a lot of money at stake. Still, the wounded Mises was decorated for bravery under fire, and as a great leader of men under brutal attack.

After the war, Mises secured a position as an economic advisor to the government for the Vienna Chamber of Commerce. He had been blocked from a position at the university by powerful socialists, and instead worked as a privatdozent and later a prestigious associate professor at the university, both unpaid positions. Unpaid or not, he used it to teach students and host his famous private seminar, which attracted top intellectuals from all over Europe. They remembered it as the most intense, rigorous, and fun experience of their academic lives.

Though working in effect two full-time jobs, Mises threw himself into his work as an economic advisor to call for a fully redeemable gold standard. The central bank was furious. It turned out that the then-current system allowed officials to have a secret slush fund for themselves and friendly economic journalists. The vice president of the central bank even hinted at a bribe for Mises if only he would be more accommodating to compromise. Of course, then and throughout his life, he never would.

The power of Mises’s influence as an economic advisor was shown in two more important ways. Austria threatened to follow Germany into hyperinflation. Almost singlehandedly his persuasion prevented a repeat in his country, if not of all inflation, of the speed and depth of the German catastrophe.

After the war, a coalition government, in part Marxist, came to power in Austria. Otto Bauer, a leader of the Austrian Social Democratic party and foreign minister, intended to introduce Bolshevism in Austria, but he listened to his old school chum Mises, something Bauer resented bitterly in later years.

Evening after evening, Mises persuaded Bauer and his equally Marxist wife that Bolshevism would mean mass starvation. Bauer was convinced.

All this time, Mises was also trying to do his scholarly work. And he did, while also paying full attention to his day job. In what would normally be his leisure time, for example, he wrote first his world historic article and then his book on Socialism. Just after the establishment of Bolshevism in Russia, he proved that with no private property in the means of production, socialism would be a chaotic and poverty-producing disaster. No planning board could substitute for property and market. Tragically for the world, it took decades before socialists would admit, after his death, “Mises was right.”

But the evil of statism also grew from another direction, and Mises was the first to see what was in store for Austria with the National Socialists. Many colleagues credited him with saving their lives, because they left in time. In 1934, Mises secured the first and only paid professorship of his life, at the International Graduate School in Geneva. It was a happy time for Mises, who lectured in accentless French and wrote in German. But by 1940, it was getting very uncomfortable in Switzerland.

Already in 1938, the invading Nazis had ransacked his Vienna apartment, and stolen his library and papers. Mises and his wife Margit—later first chairman of the Mises Institute—decided to go to America.

They crossed France barely in front of advancing German troops, just making it into neutral Portugal and a ship to New York. Once here, in an academic community offering professorships to all the European Marxists and Keynesians, there was nothing for the “Neanderthal,” “reactionary,” and “caveman” Mises. The intellectual climate of the New Deal was bitterly hostile. Even when the libertarian Volker Fund offered to pay his entire university salary, Mises was shunned for defending freedom and capitalism.

Finally, businessman Lawrence Fertig, later a benefactor of the Mises Institute, was able to persuade NYU, where he was on the board, to allow Mises to be an unpaid, permanent “visiting professor.” Even so, Keynesian deans gave him the worst offices and class hours, and tried to persuade students not to take his courses.

Yet, though in a new country at almost sixty, of whose language he had only a reading and writing knowledge to begin with, Mises was undefeated. He restarted his weekly seminar, attracting such participants as Henry Hazlitt, Ayn Rand, and Murray Rothbard. Important business leaders, journalists, and financiers audited his classes. This drove other professors, said Robert Nozick, wild with envy.

But Mises, never compromising his principles, just moved ahead, uncomplaining, undismayed, and unhindered. And it was in the 1940s that Mises completed his monumental treatise Human Action, in which he reconstructed all of economic analysis on a sound individualistic foundation.

Any of the books I’ve mentioned—and he wrote many more—would be a significant lone achievement for a lifetime. It was one of the great moments of my life to have dinner with Mises and his wife while serving as his editorial assistant. He was eighty-six, and magnificent. I can testify that Rothbard was right: he was trailing clouds of glory from a lost and better civilization: pre-WWI Vienna. In looks, speech, dress, bearing, and manners, he was a great European gentleman.

Because Mises was intransigent on matters of principle, some of his critics have denounced him as “obnoxious”! He might have had reason, but as Rothbard, Hazlitt, Hayek, Fertig, Leonard Read, and so many others confirmed to me, he was kind, funny, and generous, no matter what he was put through. He was especially good with students. Or to a twenty-three-year-old kid helping bring some of his books back into print, as well as to publish a new paper.

In the years after he died in 1973, I worried that his scholarly work was being neglected, as well as his moral stature, and the Austrian school was shrinking. We all need heroes, and he was a great one. So in 1982, I asked his widow for her blessing to start a Mises institute, and asked her to serve as our chairman. She was already a “one-woman Mises industry,” in Murray’s words, and she was thrilled.

Thanks to you and all our donors, our scholars and students, our supporters and readers, my fears have not come true. Today, the Austrian school is worldwide and growing in influence. Mises is increasingly recognized for the creator and hero that he was.

As we carry the banner of Mises and the Austrian school, there is increasing interest in socialism. Keynesianism remains the official ideology of the regime. We have our work cut out for us. But despite everything, we are making great progress with young people here and around the world.

They know they are being fed honeyed lies. They don’t trust the professors who might as well be White House propagandists. And the political correctness on campus and social media repels every person of taste, intelligence, and judgment. Our young people, and our faculty, will not be silenced, and with your help, neither will we.

We not only honor Mises, and the greatest Misesian, Rothbard, we try to emulate the men they were, and the example of lives well and truly lived, no matter what the obstacles.

Won’t you help us to do so? Your most generous and tax-deductible donation would be magnificent. We have young people to teach, scholars to encourage, books and journals to publish, a great library and archives to maintain, and ideals to advance. How the world needs them. How the future needs them.

The Dreary Utopia of the Socialists

Jason Brennan, a remarkably prolific libertarian political philosopher, has a good eye for the essence of an argument. He puts this ability to effective use in Why Not Capitalism? In the book he challenges the defense of socialism in Why Not Socialism? by G.A. Cohen, whom Brennan rightly considers “the leading Marxist philosopher — and one of the leading political philosophers, period — of the past 100 years.”

At first, one might think that arguments in political philosophy over the merits of socialism and capitalism have no importance. If by socialism one means collective ownership or control of the means of production in a large-scale economy, there is nothing to debate. Mises and Hayek showed with the socialist calculation argument that socialist planning “cannot work, even if people were motivated to make it work, because planners do not have a workable substitute for prices.” If socialism cannot work, what is the point of comparing its ethical merits with its capitalist rival? Unless we desire economic chaos, socialism must be rejected and the free market affirmed.

Mises viewed matters in exactly this way. Before his calculation argument, the most effective challenge to socialism appealed to incentives. If people were not allowed to profit from their productive endeavors but were instead subjected to egalitarian imperatives, they would lack motivation to work. Socialism was incompatible with human nature. Mises thought that socialists could answer that the limits of current human nature might be overcome. They could not respond in this way, he thought, to the calculation argument. Once we grasp that socialism is impossible, there is no further room for philosophical discussion.

Cohen recognized the force of the economic argument that socialism cannot work, though he implausibly hoped that future developments in technology might alter the situation. He did not agree, though, that this renders otiose comparison of the ethical merits of socialism and capitalism. We can ask, “If socialism is unrealizable, is this a matter for regret? Is socialism ethically better than capitalism?” Cohen says that it is, and this is what in Why Not Socialism? he endeavors to show. Cohen believes that “even if socialism were infeasible, it would remain intrinsically desirable and the best way for us to live together.”

Cohen carried out his ambitious project by telling a story. It portrays people on a camping trip, who view their excursion as a common enterprise. They share in the work of the trip according to their abilities and do not demand extra benefits because of greater talent. Equality and community are their governing values. “The principle of socialist equality of opportunity eliminates all inequalities resulting from undeserved advantages or disadvantages … the campers also abide by a socialist principle of community. The campers care about one another, and care that they care about one another.”

Not so under capitalism. Here self-interest rules: people produce for the market in order to earn a profit, and the more profit the better. The drive to accumulate, not equality and community, governs society. Cohen would apply to capitalism Wordsworth’s familiar lines: “The world is too much with us, late and soon; Getting and spending, we lay waste our powers. … We have given our hearts away, a sordid boon!”

Brennan accepts the ground on which Cohen has laid out his challenge. Ideal theory, i.e., asking what is best without regard to feasibility, is indeed relevant, and Cohen’s question is a good one that does not go away when one accepts that socialism cannot be put into practice.

Precisely in the domain of ideal theory, though, Cohen has fallen into error. He compares socialism as an ideal with actually existing capitalism. Community and equality are more valuable than greed; hence the superiority of socialism to capitalism. This will not do, counters Brennan. Ideal socialism must be compared with ideal capitalism, not actually existing capitalism. “The problem is that Cohen is not comparing like to like. … It’s not that interesting if an idealized version of one type of regime ends up being better than a non-idealized, realistic version of another type of regime.”

To bring home the force of his objection, Brennan ingeniously parodies Cohen’s argument. He constructs a capitalist utopia, which he calls the Mickey Mouse Clubhouse Village. The residents of the village pursue creative projects, which often involve the use of private productive property, as they see fit. If, as a result of these projects, some are wealthier than others, this arouses no envy. The villagers are not selfish, but devoted to one another’s welfare. If someone is in need, his neighbors will rush to his assistance. He contrasts his utopia with actually existing socialism, characterized by mass murder and brutal dictatorship. Is not capitalism far better than socialism?

This, it needs to be said, is not Brennan’s actual argument for capitalism; it is, as already mentioned, a parody. It brings out very well the flaw in Cohen’s argument; to compare an ideal system with a non-ideal system is fallacious. Ideal must be compared with ideal, and real system with its counterpart real system.

What is the result of such comparison? Brennan holds that capitalism wins on both counts: its ideal is better than the ideal of socialism; and, to descend to the real world, the issue does not admit of doubt at all.

I think that Brennan is right: his village is indeed better than Cohen’s camping trip. But why should we think so? It may be that he wants us to take it as intuitively obvious that his ideal is better. One has only to consider the two ideals carefully to see which one gains the victory. If this is his line of thought, I should certainly assent to its conclusion; though Cohen would no doubt demur.

I suspect, though, that Brennan wishes to go beyond an appeal to moral intuitions; and, if I have correctly understood what he has in mind, I am not sure he is right. He may be arguing in this way: “My utopia includes the good features of Cohen’s and other goods as well. Just as in Cohen’s camping trip, the residents of my village care about one another and value community. But to altruism, creativity is added: the residents are devoted to their individual projects and pursue them without let or hindrance. On the principle that more goods are better than fewer, so long as the goods do not interfere with each other, is not my utopia better?”

Here Cohen would likely respond that Brennan’s utopia does not include all the values he deems of supreme importance. True enough, the residents of the village are devoted to each other; but they do not insist on equality. To the contrary, they willingly accept inequality, if such be the outcome of their various creative projects. For Cohen, though, the value of creative work is subordinate to the goods of equality and community, as he makes clear in his discussion of choice of jobs in his magnum opus, Rescuing Justice and Equality. If you are really committed to equality, he thinks, you may not always be able to engage in the work you like best. Again, I much prefer Brennan’s values to Cohen’s; but the argument from inclusion does not show that Brennan is right.

I suspect, though, that Brennan would give more weight to another argument. He has been much influenced by the third part of Robert Nozick’s great work Anarchy, State, and Utopia; and like Nozick, he stresses that the free market utopia is a “‘framework’ in which many different utopias could co-exist in peace and mutual respect.” Within this framework, groups of people are free to organize as they wish, so long as they commit no rights violations. If so, then a different version of the argument from inclusion shows the superiority of Brennan’s utopia. In it, those who agree with Cohen on the place of solidarity and equality in the hierarchy of values would be free to form a community as they deem best. Those who do not accept Cohen’s values would form communities of their own, in multifarious ways. Once more, then, does not the capitalist utopia include all the goods of Cohen’s, as well as others?

But again Cohen would not be satisfied. He does not think people should be forced to accept his egalitarian values; but, if they do not, he thinks that they will have chosen wrongly. Faced with the meta-utopia of Nozick and Brennan, he would say that all those not resident in an egalitarian community should forthwith join one.

Those of us who do not share Cohen’s intuitions will of course disagree; and I think that we can go further. Is Cohen’s ideal egalitarian system better than capitalism in the actual world? The latter should be characterized not as totally driven by the desire to accumulate, as Cohen’s Marxist myth has it, but rather by a mix of motives. The question will not here be pursued, but I am convinced the answer is that it is not. Cohen’s utopia strikes me as a most unpleasant place in which to live, with people constantly looking over their shoulders, lest they surpass others in wealth; but readers must judge for themselves.

Not content with one argument against Cohen, Brennan offers another; here he follows the political theorist Sharon Krause. Why should we think that the ideal system Cohen depicts has anything to do with socialism? In socialism, the means of production are centrally owned; but this tells us nothing about the values that prevail under this arrangement. In particular, socialism must not be equated with “moral virtue or community spirit.” (Brennan’s utopia escapes a parallel observation, because in it, individuals are explicitly allowed to own productive resources.) If so, Cohen has not succeeded in showing that, from the viewpoint of ideal theory, socialism is better than capitalism. He has not compared capitalism with an alternative economic system, whether ideal or actual. If this is right, Cohen has failed to show the moral superiority of socialism to its capitalist rival; but neither has Brennan shown, by his comparison of the Mickey Mouse Clubhouse Village to Cohen’s camping trip, that ideal capitalism is better than ideal socialism. Brennan has described an ideal capitalist system, but it has not been compared to a socialist alternative. On this construal, Brennan’s portrayal of the village is best taken as a challenge to practitioners of socialist ideal theory to construct an ideal that is both better than the village and recognizably socialist.

Finally, it is worth pointing out that Cohen has wrongly converted an advantage of capitalism into its prime defect. In a famous passage from The Wealth of Nations, quoted by Brennan, Adam Smith says that “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.” Smith’s point was that the free market does not depend on benevolent behavior. Altruism is a scarce resource, and the market can function well even if it is in short supply. In trying to make a profit, capitalists produce what people want. Cohen unfathomably is repelled by this, wrongly taking it to be an endorsement of greed.

Why Not Capitalism? is an outstanding contribution to political philosophy. It will delight libertarians and will instruct socialists willing to read it with an open mind, though I fear that their number will be few.