The "Market Economy" Game

Can there be any doubt in anyone's mind that we are engaged in the final working out of the petty details of a people's state? Yesterday was a turning point for me as I watched the Senate gear up for the kill, and today the knife started to perform its delicate, subtle dance of death.

The before-lunch finale on CNBC was an interview with DemRep Senator Shelby from Alabama. In the course of the conversation the good Senator managed to say a few things about how we, meaning the government, ought to just let "market forces" play out and if that meant the death of the three remaining US automobile companies, well so be it. At this point the reporter asked about the large number of auto builders in Alabama -- enough to make Alabama the foreign car manufacturing capital of the US. "How did that happen?" the good reporter asked. "Didn't Alabama give the companies a tax break?" "Yes, indeed," said the good Senator Shelby. I am paraphrasing here from my memory, “The states are really competing for companies, and we happen to be good at it. Any industry that'd like to come to Alabama, y'all come on down and talk to the Governor's office."

What does this mean? It means that what the government does to make it easier or harder to start and operate a business is now considered part of the "market economy."

For example, the Big Three Auto Makers were called to task on CNBC for not changing their manufacturing plants to accommodate quick changes from the tooling required for trucks to that needed for vans to that needed for SUVs, as the foreign manufacturers are. Leave aside any difference in quality (for which this inability may account), who would be more likely to have the cash reserves or highly rated credit standing to do that? A company hog tied with US regulations and tax structure, or a company with tax incentives?

And what about the cost of supporting unions? If you look on the UAW site you will see that every automotive product built by a US manufacturer is built by a union member. Toyota is the only non-US manufacturer with union members; they build two of Toyota's models.

The question is this: if, indeed, the US builds an inferior product, is that because the companies don't care? Or is it because they are fighting to stay alive in an atmosphere so hamstrung by regulation and government distortions that they can't do anything else?

"But don't worry, you'll find a way, Mr. Rearden." someone says to Hank Rearden as the economy collapses around them. Rearden's realization that the game is now rigged against him is part of his journey to freedom.

But there are no Hank Reardens in the automobile business, and I know of only one in the banking business -- John Allison (who has retired to study and write on Objectivism) -- that is likely to see what Rearden saw. When the forces of reality are such that blindness makes you wealthy and there is nothing left to do but grab as much as you can for as long as you can, is it any wonder that companies begin to attract the only thing that is available -- a CEO that runs to the government for a handout?

Yes, ladies and gentlemen, I believe that we have gone that far.

Reason? Magazine

One of the biggest pieces of B.S. (bad syllogism) is the following:

  All people who claim to be Objectivists are Objectivists.

Tom claims to be an Objectivist

Tom is an Objectivist.

From this we get:

Tom is an Objectivist

Everything Tom says must, on its face,  be something an Objectivisit would say.

Tom says he won't marry a fat woman who goes to church.

Tom is an idiot (see side syllogism re: Tom's idiocy).

Objectivists are idiots QED

This sort of reasoning was displayed in spades in a New York Magazine column and its comments section just yesterday.  It is then quoted in Reason Magazine's web site without further comment.  Reason is, despite its name, no friend of Ayn Rand or Objectivism.   Had it lived up to its name, it might have pointed out what I just pointed out, that to believe that the people who belong to an organization are uniformly aware of the things they are claiming to believe, is racism at the very least.  But maybe they are more concerned with subscription cancellations than with  speaking up when reason is murdered.

Biden Befuddled

Barbara West of WFTV in Orlando, Florida interviewed the presumptive next VP, Joe Biden over the week end.  See didn't soft ball it either.  She quoted Marx on taking from the able to give to the needy and asked whether that wasn't what Obama was advocating.  Joe's answer?  "Are you joking?  Is this a serious question?"  Clearly ill at ease at the sudden spike in the intellectual level in the room, Biden stumbled through the standard Democratic answer.  But her last question regarding the US becoming the next Sweden and Joe's answer are the highlight. The link is here

While this is bad enough, the Obama organization's blacklisting of WFTV until after the election is evil to the core.  It says, in effect, if you ask us the hard questions we won't talk to you.  Is this censorship? No. But it is close, and it indicates that the Obama organization is prepared to give an Emperor's thumbs down to anyone who crosses them.  Political censorship already exists in the McCain-Feingold legislation, and this move by Obama indicates his willingness to limit political speech if it doesn't conform to his idea of a "valid" question.

I do believe that we should be prepared for that possibility.

Does Anyone Share This Puzzlement?

I keep hearing about the catastrophe that would have happened had we not done all the things that we have done to stop the catastrophe from happening.  Has anybody out there heard anyone describe the might-have-been catastrophe that is worse than the one we have?

Reminds me of the joke about the guy who was throwing watermelon seeds out the window of the bus.  His seatmate asked him, "why?"  "To keep away the elephants," the man answered.  "But there aren't any elephants any where near here," answered the seatmate.   "See how well they work?" said the man.

Just so well have all the things government has done, is doing and will ever do actually worked.

The Immediate Range of the Moment

I suppose it is possible that someone reading this, if anyone is -- I really am writing for myself this time -- hasn't read Atlas Shrugged and doesn't know that there are passages that so mirror today's headlines that if I didn't reject the whole idea of fortune telling I would be inclined to count the text as prophecy.  

Really remarkable and worthy of note is that it is not prophecy  but a logical projection of what happens in a welfare state even without a John Galt to hurry the process along.

That the results of years of social and economic planning should come home to roost in an election year is something that a fiction writer would not make part of a plot on the grounds  of melodramatic overkill.  That we should be talking openly -- and  in the media, approvingly -- of the turn away from the current state of affairs (astonishingly to some, labelled "capitalism" by the media and economic pundits) to socialism.

Since it appears nearly certain that Obama will win the election,  there are good reasons to abstain from voting this year.  I, however,  believe that he should win by a landslide with the majority in the House and Senate riding on his coattails.   My reason is simple: he needs to feel that he has a mandate to destroy the economy.   Only with an overwhelming mandate will he do openly what every ounce of his being wants him to do -- destroy the good for being the good. 

I am not going to argue the case for this claim here today.   Today my purpose is to point out, before the election, that anything less than a mandate will bring Obama to the left middle.  This will give us time to continue the fight, of course, and that time must be weighed in the balance in making your decision. But I believe, given the underwhelming negative response to his ideas. that a "laboratory demonstration" is necessary if we are going to have a truly free country in the long run.

There is a single reason that I believe that the long run (and thus a mandate) is to be preferred -- the fact that this is a psycho-epistemological and ethical war.  Objectivists are fighting a war against an enemy of which most of the public -- and certainly not the mob of students that is so enthusiastically cheering for Obama -- is unaware.  As Tara Smith points out in her essay"The Menace Of Pragmatism" and as Yaron Brook reiterates in "The Resurgence of Big Government," the dominate philosophy in the US is now pragmatism combined with altruism.  She says:

"[P]ragmatism steadily convinces people that they do not need to take a strong action in order to oppose destructive ideologies.  It dampens the willingness to fight for spreading the belief that fights are never constructive."

If that isn't a description of the culture at work today, I can think of no better.

In addition, using Dr. Peikoff's DIM hypothesis, there are only mis-integrators and dis-integrators in leadership positions. 

In short, we need the time to educate and develop a culture that is psycho-epistemologically long range and ethically egotistical and we need time to produce a statesman that is thoroughly steeped in such a worldview.  Nothing could be worse,in my view, than Sarah Palin leading us into a future we do not understand and which they will not support past the first objection or the first claim that they are "extremists."  

Today's voter should get what he is asking for and everything that it implies in immediately graspable perceptual concrete terms.  

AF

Not to be Missed

This piece by Brandon Byrd at NoodleFood straighened out a lot of my thinking about Greenspan's tenure at the Fed and his often referenced connection to Objectivism.  In addition, Mr. Byrd presents a clear analysis of those who attack Rand without actually knowing what she said.

If your lover sends you letters of goodbye...

Does anyone reading this remember Johnny Ray's hit, named above?  

I've been sitting for long hours every day watching CNBC (Fox Business is not available on basic cable here and we can't afford the upgrade) with tears streaming down my face at "so much that had been possible" which is disappearing rapidly.  I had thought that I would live to see the day when the obvious value of Capitalism would have turned a corner in the publlic's conception of the world.

Obviously the pundits, the commentators, the members of the news media, -- f do not.  And the truth of Ayn Rand's insight into the nature of Capitalism and of compromise with conservatives and Libertarians is unfolding before our eyes.  Capitalism = Bush and McCain and (heaven help us) Palin.   The once Grand Old Party has become the home of folk-wisdom, envy, and power that mirrors the population at large in its willingness to sell its most cherished and important discovery - the nature and requirments of freedom - for a mess of potage.      

So my lover of 50 years is leaving and sending me daily messages of her progress.                                                                                                                                                                                                   And so I cry.                                                          

Where's the Beef?

Sent to CNBC

Show me the lack of money!  It has suddenly occurred to me to do what I wolud do if I were a detective  looking for evidence of the death of available money.

 

First I checked my own history history. When the brokers were trying to maintain the bubble that was making them rich, it was easy to get a loan.  In fact we didn't even have to try.  WE WERE CALLED.  Nobody doing that no more.

 

Now you have to qualify.  You have to call the bank (have you done that?) and ask them if they have money to lend. They will say yes...but you have to  qualify.

 

So here's a news directors assignment for you.  When you find those poor souls whose businesses are in danger of closing because they can't get any more credit ---- ask them how leveraged their business was when they started.  Had they saved enough to keep the business open for a year even if nobody came. Did their business plan include a detailed study of the market, the location and the demographics of the area where they were going to open?.  In other words should they have been granted a loan in the first place?

 

Before you discuss how dire the situation is find out why.

 

I expect to see the copy on my desk tomorrow morning.

 

AF

 

www.atlasfan.org

Weeding the Garden

It suddenly has occurred to me that all the banks in the area where I live are advertising that they have money to lend.  The problem is not the "liquidity of money" it's the lack of real productivity on the part of most of business --indeed most of the world. I don't have time to go into this in great detail today, but I wanted to make note of it here because it is important to know that what you are hearing is not true. 

What is true is pragmatism (See Tara Smith's insightful article in TOC's fall issue) and altruism (the people who are hurting are the people and businesses that should be) and the fact that the Democrat's and the politicos of both parties need to have an emergency to have anything to do.

I urge you to call your bank -- call five banks in your area -- and ask them if they have money to lend.  I will bet you any amount that they will say yes . . . IF you qualify.  In other words they are no longer calling you on the phone soliciting you with lines like "what would you say if I asked you if there were anyway you could use a little extra cash in your pocket right now?  That line assumes that there is nothing you have to do - no discriminatory qualifications you have to meet -- to re-fi your house and be a consumer and drive the economy.

There is a lot more to this story. But it will have to wait.

AF

The congress is the kind of doctor that we shouldn't trust

To CNBC

The metaphor that contrasts surgery and a patient with cancer with this monetary crisis and the government bailout is totally fallacious. The doctor knows what he is doing, he is doing it with the patients permission, is not doing something just to do something, has a valid scientific basis for it and, hopefully, is speaking plainly to his patient about the fact that this will change his life.  In other words, it's not more of the same poison.  The bailout is the same "pragmatic" range-of-the-moment poison that has caused this mess.  The nation needs to go cold turkey. Period.

Someone needs to tell this patient that the government is no longer going to get in their way or try to help with their problems.  Maybe we'd all grow up.

The doctor who is not willing to tell his patient that he is not doing healthy things is not worth the money he's paid.

Who do you Trust?

Sent to Power Lunch at CNBC

"Yes, the objections stem, in large part, from lack of trust in the banks.  But . . . WHY?  Why don't the people who, like my wife and I did, refinanced their houses with a sub-prime loan trust the banks?   A single sentence says it all.   The banks didn't deliver on the American Dream at little or no cost.  That's what was promised. It wasn't delivered.   The broker who wrote the paper on our house promised that all sorts of nice things would happen as a result of  lowering our interest rate, improving our credit score and thus be it possible to refinance the loan again in  about six months. Nothing like that happened.  When the ARM was about to kick in, we realized that we were not going to be able to pay the bill.  We were wise enough this time to look at the options and do what we should have done a year before.  We declared Bancruptcy, sold the house and moved to a much smaller apartment.  We took the hit.  And we did it with full knowledge of what we had done to cause our plight.  We knew we were lying about our income and ability to pay.  We were encouraged to do it.  BUT THAT DOESN"T EXHONERATE US! We let our emotions -- our desire to have our cake and eat it too -- override our ethics.  We wanted it. We wished for the life we wanted to live and that the loan would make possible, we thought.  That is why some people don't want money sent to wall sreet (i.e. the banks)...they want it sent to them.  

Ask them.  Offer them this plan.  The government will  find out what each person/family who can't pay their mortgage and has a sub prime loan how much they stll owe.  That amount plus 10% for the fact that the government let them down will be sent to them in the form of a direct deposit or a money order in the amount they need .  (Not serious please)

 

They have been taught that they have a right to stay in their homes, live the American Dream and to medical care. They have been told, even though everyone knows it is not so, that they are the driving force, with their unlimited desire for wealth and their pragmatic belief that anything is possible, behind the whole economy.  Now, when they really need it the govenment lets them down.  They already take taxes; now they want to take their home, just like the bank wants to.

 

Can you blame them for being a little mistrustful?

A Note to CNBC

The following was posted this morning as a comment on the bailout:

"Us YAHOOS from the middle of the country, now investors in the west, don't understand how "rational" has come to mean "short term range-of-the-moment." All the game theory in the world does not a chess match make of the economy.

What you are asking us to believe is that assets that nobody wants, or that they do but they are waiting on the government to save them the necessity of taking the risk themselves, are now going to be handed to the government at the cost to the taxpayer of any amount -- it could ultimately cost much more and would undoubtedly be newly printed inflationary paper -- just to do two things, neither of which is in our self-interest: bail out those CEOs etc. that don't want to take the risk, or the home owners who "have to stay in their homes." Why? I have yet to hear a rational answer to that question. "Because we face a financial disaster if we don't" is not one such. We are in a financial disaster and throwing this fiat money at it won't make it go away. Why? because it rewards incompetence and if there is anything we don't need is more of that."

Reason Goes Out with the Trash

Let me get this straight.  We’re in this mess because people who had trouble paying their bills were granted mortgages that were risky on their agreement to pay this bill (lets all cross our fingers and hope for the best) or the bank would retain the right to foreclose on and sell the asset.   Now we’re going to solve this mess by giving banks that are having trouble paying their bills a gift with no strings attached and no agreement to pay the government back on the hope of being able to sell the assets to people that can’t buy them now because the .. how’s that again? … the banks aren’t willing to grant loans to even qualified buyers. Huh?  This is throwing good money after bad.  The idea that “we can make anything work if we try hard enough” is so obviously wrong in this case that it appears that most Americans oppose this bill.  Smarter than the average politician for sure.

AF

PS I Urge you to go to the blog roll to the right and click on Principles in Practice.  This is a fight we can win if enough people let the politicians know that we are outraged. 

The 'Austrian" School on the Crisis

The school of economic theory that was founded in Austria by Boehm-Bawerk and developed most notably by Ludwig von Mises is a mixed bag containing a lot of anarco-capitalists and the variety of Libertarian that believes that you can support a political system without thinking about metaphysics, epistemology and ethics.  So, when they are good they are very, very good...and when they are bad they are horrid (mostly the influence of Kant).   Their demonstration that the so-called 'trade cycle' is not a consequence of Capitalism is first rate, however.

This link will take you to today's Mises Daily Letter where you will find a list of things to read.  If you stick to Mises you'll be reading the best. 

You might also want to look at Economics in One Lesson by Henry Hazlitt. It is an easy read and contains the best demonstration of why it is important to look ahead to the consequences of any economic decision  before making it.

AF

The War Over Capitalism's Carcass

Capitalism has been dying a slow and painful death for as long as I have been aware of the issue. Today, the Democrats have declared their intention to control the remains and bury them in a pauper's grave.  So giddy are they that they don't even listen to the contradictions in their funeral oration.  Senators Harry Reid (NV) and Chris Dodd (CT) have just finished explaining the compromises that must be made in order to get the proposed "fix" delivered in time for the scheduled funeral in November.   One thing is quite clear: The Democrats will control the disbursement of the remains while crediting the Republicans with the kill.  Both of these declarations are evident in Reid's insistence that the Republicans compromise while the Democrats be given carte blanch to have their way with the old bird.  Reid insists that the appearance of the two presidential candidates was a grievous example of politics photo-opting that interfered with and made a circus of the proceedings. In the next sentence he blames the entire mess on Republicans.  This, of course, is not politics but the truth.

    Give me a break.

AF

Proof of the Pudding

If anyone ever doubted that Ludwig von Mises got it right when he said that any form of command economy was doomed to failure because of the impossibility of economic calculation on a large scale, they should look at the results of one more such attempt that are slowly but surely working their way through the economy right now.

No, the Dow, now practically worthless as an indicator, is not at an all-time low. No, the tech and some parts of the retail and transportation sectors are doing OK. But if you believe that all is for the best in the best of all possible worlds what you need is a few hours reading time to make your way through some of the pertinent passages in Socialism, von Mises' seminal book on the subject.

Here is the most pertinent passage, taken from the complete work on line at Mises.org:

3 Economic Calculation

All human action, so far as it is rational, appears as the exchange of one condition for another. Men apply economic goods and personal time and labour in the direction which, under the given circumstances, promises the highest degree of satisfaction, and they forgo the satisfaction of lesser needs so as to satisfy the more urgent needs. This is the essence of economic activity—the carrying out of acts of exchange. [4]

Every man who, in the course of economic activity, chooses between the satisfaction of two needs, only one of which can be satisfied, makes judgments of value.[5] Such judgments concern firstly and directly the satisfactions themselves; it is only from these that they are reflected back upon goods. As a rule anyone in possession of his senses is able at once to evaluate goods which are ready for consumption. Under very simple conditions he should also have little difficulty in forming a judgment upon the relative significance to him of the factors of production. When, however, conditions are at all complicated, and the connection between things is harder to detect, we have to make more delicate computations if we are to evaluate such instruments. Isolated man can easily decide whether to extend his hunting or his cultivation. The processes of production he has to take into account are relatively short. The expenditure they demand and the product they afford can easily be perceived as a whole. But to choose whether we shall use a waterfall to produce electricity or extend coal-mining and better utilize the energy contained in coal, is quite another matter. Here the processes of production are so many and so long, the conditions necessary to the success of the undertaking so multitudinous, that we can never be content with vague ideas. To decide whether an undertaking is sound we must calculate carefully.

But computation demands units. And there can be no unit of the subjective use-value of commodities. Marginal utility provides no unit of value. The worth of two units of a given commodity is not twice as great as one—although it is necessarily greater or smaller than one. Judgments of value do not measure: they arrange, they grade.[6] If he relies only on subjective valuation, even isolated man cannot arrive at a decision based on more or less exact computations in cases where the solution is not immediately evident. To aid his calculations he must assume substitution relations between commodities. As a rule he will not be able to reduce all to a common unit. But he may succeed in reducing all elements in the computation to such commodities as he can evaluate immediately, that is to say, to goods ready for consumption and the disutility of labour and then he is able to base his decision upon this evidence. It is obvious that even this is possible only in very simple cases. For complicated and long processes of production it would be quite out of the question.

In an exchange economy, the objective exchange value of commodities becomes the unit of calculation. This involves a threefold advantage. In the first place we are able to take as the basis of calculation the valuation of all individuals participating in trade. The subjective valuation of one individual is not directly comparable with the subjective valuation of others. It only becomes so as an exchange value arising from the interplay of the subjective valuations of all who take part in buying and selling. Secondly, calculations of this sort provide a control upon the appropriate use of the means of production. They enable those who desire to calculate the cost of complicated processes of production to see at once whether they are working as economically as others. If, under prevailing market prices, they cannot carry through the process at a profit, it is a clear proof that others are better able to turn to good account the instrumental goods in question. Finally, calculations based upon exchange values enable us to reduce values to a common unit. And since the higgling of the market establishes substitution relations between commodities, any commodity desired can be chosen for this purpose. In a money economy, money is the commodity chosen.

Money calculations have their limits. Money is neither a yardstick of value nor of prices. Money does not measure value. Nor are prices measured in money: they are amounts of money. And, although those who describe money as a "standard of deferred payments" naively assume it to be so, as a commodity it is not stable in value. The relation between money and goods perpetually fluctuates not only on the "goods side," but on the "money side" also. As a rule, indeed, these fluctuations are not too violent. They do not too much impair the economic calculus, because under a state of continuous change of all economic conditions, this calculus takes in view only comparatively short periods, in which "sound money" at least does not change its purchasing power to any very great extent.

The deficiencies of money calculations arise for the most part, not because they are made in terms of a general medium of exchange, money, but because they are based on exchange values rather than on subjective use-values. For this reason all elements of value which are not the subject of exchange elude such computations. If, for example, we are considering whether a hydraulic power-works would be profitable we cannot include in the computation the damage which will be done to the beauty of the waterfalls unless the fall in values due to a fall in tourist traffic is taken into account. Yet we must certainly take such considerations into account when deciding whether the undertaking shall be carried out.

Considerations such as these are often termed "non-economic." And we may permit the expression for disputes about terminology gain nothing. But not all such considerations should be called irrational. The beauty of a place or of a building, the health of the race, the honour of individuals or nations, even if (because they are not dealt with on the market) they do not enter into exchange relations, are just as much motives of rational action, provided people think them significant, as those normally called economic. That they cannot enter into money calculations arises from the very nature of these calculations. But this does not in the least lessen the value of money calculations in ordinary economic matters. For all such moral goods are goods of the first order. We can value them directly; and therefore have no difficulty in taking them into account, even though they lie outside the sphere of money computations. That they elude such computations does not make it any more difficult to bear them in mind. If we know precisely how much we have to pay for beauty, health, honour, pride, and the like, nothing need hinder us from giving them due consideration. Sensitive people may be pained to have to choose between the ideal and the material. But that is not the fault of a money economy. It is in the nature of things. For even where we can make judgments of value without money computations we cannot avoid this choice. Both isolated man and socialist communities would have to do likewise, and truly sensitive natures will never find it painful. Called upon to choose between bread and honour, they will never be at a loss how to act. If honour cannot be eaten, eating can at least be forgone for honour. Only such as fear the agony of choice because they secretly know that they could not forgo the material, will regard the necessity of choice as a profanation.

Money computations are only significant for purposes of economic calculation. Here they are used in order that the disposal of commodities may conform to the criterion of economy. And such calculations take account of commodities only in the proportions in which, under given conditions, they exchange for money. Every extension of the sphere of money calculation is misleading. It is misleading when in historical researches, it is employed as a measure of past commodity values. It is misleading when it is employed to evaluate the capital or national income of nations. It is misleading when it is employed to estimate the value of things which are not exchangeable as, for instance, when people attempt to estimate the loss due to emigration or war. [7] All these are dilettantisms—even when they are undertaken by the most competent economists.

But within these limits—and in practical life they are not overstepped—money calculation does all that we are entitled to ask of it. It provides a guide amid the bewildering throng of economic possibilities. It enables us to extend judgments of value which apply directly only to consumption goods—or at best to production goods of the lowest order—to all goods of higher orders. Without it, all production by lengthy and roundabout processes would be so many steps in the dark.

Two things are necessary if computations of value in terms of money are to take place. First, not only goods ready for consumption but also goods of higher orders must be exchangeable. If this were not so, a system of exchange relationships could not emerge. It is true that if an isolated man is "exchanging" labour and flour for bread within his own house, the considerations he has to take into account are not different from those which would govern his actions if he were to exchange bread for clothes on the market. And it is, therefore, quite correct to regard all economic activity, even the economic activity of isolated man, as exchange. But no single man, be he the greatest genius ever born, has an intellect capable of deciding the relative importance of each one of an infinite number of goods of higher orders. No individual could so discriminate between the infinite number of alternative methods of production that he could make direct judgments of their relative value without auxiliary calculations. In societies based on the division of labour, the distribution of property rights effects a kind of mental division of labour, without which neither economy nor systematic production would be possible.

In the second place, there must be a general medium of exchange, a money, in use. And this must serve as an intermediary in the exchange of production goods equally with the rest. If this were not so, it would be impossible to reduce all exchange relationships to a common denominator.

Only under very simple conditions is it possible to dispense with money calculations. In the narrow circle of a closed household, where the father is able to supervise everything, he may be able to evaluate alterations in methods of production without having recourse to money reckoning. For, in such circumstances, production is carried on with relatively little capital. Few roundabout methods of production are employed. As a rule production is concerned with consumption goods, or goods of higher orders not too far removed from consumption goods. Division of labour is still in its earliest stages. The labourer carries through the production of a commodity from beginning to end. In an advanced society all this is changed. It is impossible to argue from the experience of primitive societies that under modern conditions we can dispense with money.

In the simple conditions of a closed household, it is possible to survey the whole process of production from beginning to end. It is possible to judge whether one particular process gives more consumption goods than another. But, in the incomparably more complicated conditions of our own day, this is no longer possible. True, a socialistic society could see that 1000 litres of wine were better than 800 litres. It could decide whether or not 1000 litres of wine were to be preferred to 500 litres of oil. Such a decision would involve no calculation. The will of some man would decide. But the real business of economic administration, the adaptation of means to ends only begins when such a decision is taken. And only economic calculation makes this adaptation possible. Without such assistance, in the bewildering chaos of alternative materials and processes the human mind would be at a complete loss. Whenever we had to decide between different processes or different centres of production, we would be entirely at sea.[8]

To suppose that a socialist community could substitute calculations in kind for calculations in terms of money is an illusion. In a community that does not practice exchange, calculations in kind can never cover more than consumption goods. They break down completely where goods of higher order are concerned. Once society abandons free pricing of production goods rational production becomes impossible. Every step that leads away from private ownership of the means of production and the use of money is a step away from rational economic activity.

It was possible to overlook all this because such Socialism as we know at first hand exists only, one might say, in socialistic oases in what, for the rest, is a system based upon free exchange and the use of money. To this extent, indeed, we may agree with the otherwise untenable socialist contention—it is only employed for propagandist purposes—that nationalized and municipalized undertakings within an otherwise capitalist system are not Socialism. For the existence of a surrounding system of free pricing supports such concerns in their business affairs to such an extent that in them the essential peculiarity of economic activity under Socialism does not come to light. In State and municipal undertakings it is still possible to carry out technical improvements, because it is possible to observe the effects of similar improvements in similar private undertakings at home and abroad. In such concerns it is still possible to ascertain the advantages of reorganization because they are surrounded by a society which is still based upon private ownership in the means of production and the use of money. It is still possible for them to keep books and make calculations which for similar concerns in a purely socialist environment would be entirely out of the question.

Without calculation, economic activity is impossible. Since under Socialism economic calculation is impossible, under Socialism there can be no economic activity in our sense of the word. In small and insignificant things rational action might still persist. But, for the most part, it would no longer be possible to speak of rational production. In the absence of criteria of rationality, production could not be consciously economical.

For some time possibly the accumulated tradition of thousands of years of economic freedom would preserve the art of economic administration from complete disintegration. Men would preserve the old processes, not because they were rational, but because they were sanctified by tradition. In the meantime, however, changing conditions would make them irrational. They would become uneconomical as the result of changes brought about by the general decline of economic thought. It is true that production would no longer be "anarchical." The command of a supreme authority would govern the business of supply. Instead of the economy of "anarchical" production the senseless order of an irrational machine would be supreme. The wheels would go round, but to no effect.

Let us try to imagine the position of a socialist community. There will be hundreds and thousands of establishments in which work is going on. A minority of these will produce goods ready for use. The majority will produce capital goods and semi-manufactures. All these establishments will be closely connected. Each commodity produced will pass through a whole series of such establishments before it is ready for consumption. Yet in the incessant press of all these processes the economic administration will have no real sense of direction. It will have no means of ascertaining whether a given piece of work is really necessary, whether labour and material are not being wasted in completing it. How would it discover which of two processes was the more satisfactory? At best, it could compare the quantity of ultimate products. But only rarely could it compare the expenditure incurred in their production. It would know exactly—or it would imagine it knew—what it wanted to produce. It ought therefore to set about obtaining the desired results with the smallest possible expenditure. But to do this it would have to be able to make calculations. And such calculations must be calculations of value. They could not be merely "technical," they could not be calculations of the objective use-value of goods and services; this is so obvious that it needs no further demonstration.

Under a system based upon private ownership in the means of production, the scale of values is the outcome of the actions of every independent member of society. Everyone plays a two-fold part in its establishment first as a consumer, secondly as producer. As consumer, he establishes the valuation of goods ready for consumption. As producer, he guides production-goods into those uses in which they yield the highest product. In this way all goods of higher orders also are graded in the way appropriate to them under the existing conditions of production and the demands of society. The interplay of these two processes ensures that the economic principle is observed in both consumption and production. And, in this way, arises the exactly graded system of prices which enables everyone to frame his demand on economic lines.

Under Socialism, all this must necessarily be lacking. The economic administration may indeed know exactly what commodities are needed most urgently. But this is only half the problem. The other half, the valuation of the means of production, it cannot solve. It can ascertain the value of the totality of such instruments. That is obviously equal to the value of the satisfactions they afford. If it calculates the loss that would be incurred by withdrawing them, it can also ascertain the value of single instruments of production. But it cannot assimilate them to a common price denominator, as can be done under a system of economic freedom and money prices.

It is not necessary that Socialism should dispense altogether with money. It is possible to conceive arrangements permitting the use of money for the exchange of consumers goods. But since the prices of the various factors of production (including labour) could not be expressed in money, money could play no part in economic calculations. [9]

Suppose, for instance, that the socialist commonwealth was contemplating a new railway line. Would a new railway line be a good thing? If so, which of many possible routes should it cover? Under a system of private ownership we could use money calculations to decide these questions. The new line would cheapen the transportation of certain articles, and, on this basis, we could estimate whether the reduction in transport charges would be great enough to counterweigh the expenditure which the building and running of the line would involve. Such a calculation could be made only in money. We could not do it by comparing various classes of expenditure and savings in kind. If it is out of the question to reduce to a common unit the quantities of various kinds of skilled and unskilled labour, iron, coal, building materials of different kinds, machinery and the other things which the building and upkeep of railways necessitate, then it is impossible to make them the subject of economic calculation. We can make systematic economic plans only when all the commodities which we have to take into account can be assimilated to money. True, money calculations are incomplete. True, they have profound deficiencies. But we have nothing better to put in their place. And under sound monetary conditions they suffice for practical purposes. If we abandon them, economic calculation becomes absolutely impossible.

This is not to say that the socialist community would be entirely at a loss. It would decide for or against the proposed undertaking and issue an edict. But, at best, such a decision would be based on vague valuations. It could not be based on exact calculations of value.

A stationary society could, indeed, dispense with these calculations. For there, economic operations merely repeat themselves. So that, if we assume that the socialist system of production were based upon the last state of the system of economic freedom which it superseded, and that no changes were to take place in the future, we could indeed conceive a rational and economic Socialism. But only in theory. A stationary economic system can never exist. Things are continually changing, and the stationary state, although necessary as an aid to speculation, is a theoretical assumption to which there is no counterpart in reality. And, quite apart from this, the maintenance of such a connection with the last state of the exchange economy would be out of the question, since the transition to Socialism with its equalization of incomes would necessarily transform the whole "set" of consumption and production. And then we have a socialist community which must cross the whole ocean of possible and imaginable economic permutations without the compass of economic calculation.

All economic change, therefore, would involve operations the value of which could neither be predicted beforehand nor ascertained after they had taken place. Everything would be a leap in the dark. Socialism is the renunciation of rational economy.

We have been taking leaps in the dark for at least a century, starting small and getting larger of necessity. Now we are explicitly talking about 5-year plans and 10-year plans just as the Soviet Union did and Germany did and every command economy in the world has done for centuries. And the collapse of the economy will come unless we undergo a real change. Is there an honest politician in the house?

Lest we forget

Non-ObjectiBlog

The Bromide Sensor alarm woke me from a sound sleep this morning with a post at this blog.  Here’s my reply.

I think it is important to remember Rand's fundamental argument here -- something that the folks at ARCHN consistently fail to do. The argument starts, not with a discussion of altruism and egoism but with a question: Why do human beings need a morality in the first place? In the context of that question, Rand argues that man's nature as a rational being who does not act automatically, requires that he make choices between actions that will further his life (as a rational animal) and acts which will not.

Under normal conditions a person acts morally by pursuing values that are not a threat to other humans in a society that is not faced with emergencies. An emergency removes that possibility, so, as Rand clearly states in VOS, the first rational task is to get things back to normal. Since normal means a state in which people are able to pursue their values once more, it is in one's self interest to help people who are, because of the emergency, not able to do so. This is not an obligation that comes from some rule, it is not required by morality, it is only if it is in one's power, and it is not the standard by which one lives on a daily basis or decides what acts are moral. To set one's moral code with reference to what one does in an emergency is to live as if life were a constant emergency. That is the Christian view, it is not Objectivism's.

As for organized charity, the general principle is that if one can afford to send money or spend time working to pursue a value (a cure for cancer, a political or philosophical movement) it is not a sacrifice (altruistic) to do so.
Altruism means sacrifice for the sake of others, not "support deserving people in the pursuit of their goals." 'Sacrifice' means SACRIFICE' which means it's gotta hurt to count. Put it this way: Rand is out to destroy the reputations of not only Robin Hood but the Biblical story of the Widow's Mite

AF

Booing Boeing Strikers

Today the workers at Boeing, a local mainstay of the economy, are starting their strike.  Wages and "working conditions" are the issues.  the workers are walking despite the word from management that they have made the best offer possible and a strike will not change that.

I always wonder, of course, whether the company's final offer is like the ones on Deal Or No Deal -- a small pittance to keep the workers from taking home enough cash to buy their jobs.  But even more I wonder that anyone takes the workers seriously at all.  Particularly Boeing workers, who have, from my understanding one of the most valuable positions in the country -- great wages, lots of time off with pay, and on-site benefits.  On top of what they already get, the latest and final offer from Boeing represents an average increase in pay and benefits of $34,000 a year.

Clearly this is a game of chicken, with both sides standing to loose big-time if the strike drags past two weeks.  But what do the sides loose if the strike is settled on Boeing's terms?  The union members loose next to nothing but bragging rights of the "we brought Boeing to its knees" variety.

Boeing, on the other hand, stands to loose $926,500,000 (27250 affected workers times $34,000 per worker) per year that the contract is in force.

Where will Boeing make up the difference?  Higher prices for the people who buy the aircraft and ultimately just plain higher prices for everything that is any number of degrees of separation from Boeing.

The thought occurs that we are getting closer to the day when Boeing management walks off the job and tells the workers "you want it?  It's yours."

AF

Remembering Frank O’Connor

This is Diminishing Returns by Frank O'Connor, Ayn Rand's husband. A copy of it hangs in my home writing space. It is a joyous painting and it brings to mind many thoughts and memories.

First, it reminds me of the man I had the good fortune to meet and briefly converse with on two occasions. My impression of him was of a self-assured gentleman of the old school, almost aristocratic in manner, who could have stepped out of a Noel Coward play and dealt with any circumstance in his life with humor, grace and fully rational, first-hand judgment. He was quiet as Gary Cooper was quiet. And I saw, I like to think, what Ayn Rand saw in him – a man of quiet strength touched by what Leonard Peikoff has called 'laughter let loose in the universe." We had a lot of those men in Ohio where I was born and where my grandfather ran a farm and worked the factories, and Frank O'Connor came from that mold.

Both of the occasions were in the early '60s, when I was in New York attending Juilliard as a piano performance major. The first was at Columbia University after Ayn Rand had given her talk "America's Persecuted Minority: Big Business" to an initially hostile crowd that gave her a standing ovation at the end. Afterward the Brandens and Miss Rand sat in the large anteroom outside the hall and answered questions while Mr. O'Connor stood at the back of the room conversing with friends. My best friend from high school, an actor, and I wandered around listening to the answers to questions in a state of hero-worshipping awe. Suddenly, one of us looked down and saw a small, square, white box with a gold dollar sign stamped on the cover. Opening the cover we found shards of tobacco. Could it be? Surely this meant there really were Dollar Sign Cigarettes! And we could buy them! And smoke them! And just be righteously cool. We walked around the room, as cool as we could manage, and found a group of people standing quietly, talking. They were obviously not students and why we thought to ask them, Aristotle only knows. But we did. We displayed the box, asked if we were right as to the nature of its contents, and asked where we could get them. Frank O'Connor, we were only later to learn, answered, a friendly, amused smile on his face, that we could get them at the tobacconist whose name and address in the Village were on the back of the box. He added that they came in flavors, like milk shakes. "Just tell them what flavor you want and they'll whip you up a tasty batch" he said. The following Monday we did just that and came home with the most God-awful tasting batch of English Ovals I could imagine. Only later when I tried Gauloises, did I experience anything worse. But I still have the box.

The second encounter was after my friend sent Ayn Rand a gift of a painting he had done. A somewhat abstract representation of a train headlight heading toward the viewer, it was returned. My friend, wondering why, and thinking that perhaps Miss Rand had been offended or didn't care for the painting, asked Mr. O'Connor if this was the case. "Oh no," he said. "We return everything. You'd be amazed at the number of gifts we receive. Paintings, photographs, even fish. And she's allergic to fish. We decided early on that she would only accept gifts from friends." As to the abstract nature of the painting, he said, "As long as you know what you're doing and can explain it, anything goes."

This painting is a joy-filled reminder that the only rule is thought and that exaltation is possible only to those who live life on the level. First, its subject matter is Christmas, Ayn Rand's favorite holiday. The Christmas tree ornaments are being tossed in the air with gay abandon by a wooden artist's model who is a drummer resting on a high lonely pinnacle, kicking up its heels in a vast wasteland but with an unlimited horizon of water suitable for calm voyages. Some of the balls are caught up in the clouds, others are under control, and still others have crashed to the ground. The manikin's arm is extended to maintain balance and to catch the greenish blue ball just above it, which from our viewpoint appears unlikely. The stages of the painting process are depicted as self-portraits reflected in three balls, starting with the red ball on the left, continuing with the greenish blue ball, and ending with the yellow ball under the manikin's foot, which shows the door open to the world outside. The painter has left the building. The painting is dated 1964. This is, indeed, laughter let loose in the universe. It is "not having to take any of it seriously." It is "not even getting a pork chop in return."

Finally, there is the inspiration that comes, for me, from someone who found his career late in life and simply was not afraid to be seen.

Yes, no one sticks around that doesn't live life on the level. There are no rules but there are principles. Frank O'Connor was Ayn Rand's kind of guy.

A Real Life

A few months ago I posted the following comment at Ann C.'s blog, Creative Life. It will give you the reason's for my strong recommendation.

As I continue to read your blog I am struck by the differences between it and other Objectivist blogs. Yours is a living demonstration of what it means to live as a valuer every day at a very basic level-- the level at which one says simply "this is a fine meal," "what a beautiful sunset!" "Isn't Ayn Rand the best?"
I am reminded of a passage from her journals which I hold as a kind of motto for my life:

"This may sound naive. But--is our life ever to have reality? Are we ever going to live on the level? Or is life always to be something else, something different from what it should be? A real life, simple and sincere, and even naive, is the only life where all the potential grandeur and beauty of human existence can really be found."

Yes, everyone needs philosophy, and it is important to deal with it technically and in the context of what is happening in the culture, as many Objectivist blogs do. But it is all for naught if it remains in its ivory tower or focused only on the whole. Your blog makes it real in the life of one human being.

Brava! 

AF

P. S. Ann is the Artistic Director of the Austin Shakespeare Festival