Everything You Love You Owe to Capitalism

0:00I'm sure that you've all had this experience before or something similar to it. You're sitting at lunch in a nice restaurant or maybe a hotel, waiters are coming and going, the food is fantastic, the conversation about all things is going well. You talk about weather, music, movies, politics, health, trivialities in the news, kids, and so on, but then the topic turns to economics and things change. You're not the aggressive type so you don't immediately proclaim the merits of the free market. You wait and let others talk. Their biases against business appear immediately. In the repetition of the media's latest calumies, such as the gas station owners are causing inflation by jacking up gasoline prices to pad their pockets at our expense, while Walmart Heart is, of course, the worst possible thing that could ever happen to any community.

1:01You begin to offer a corrective, pointing out the other side, then the truth emerges in the form of a naive if definitive announcement from one person, well, I suppose I really am a socialist at heart. Others nod in agreement. On one hand, there really is nothing to say. You're surrounded by the blessings of capitalism. The buffet table, which you and your lunch partners only had to walk into a building to find, has a greater variety of food and quality of food at a cheaper price than that which was available to any living person, king, lord, duke, plutocrat or pope in the vast majority of the history of the world. But even 50 years ago, would this have been imaginable?

1:49All of history has been defined by the struggle for food, and yet that struggle has been abolished not just for the rich, but for everyone living in developed economies. The ancients peering into this scene might have assumed it to be Elysium. Medieval man conjured up such scenes only in visions of utopia. Even in the late 19th century, the most gilded palace of the richest industrialists required of Vast Staff, and immense trouble that come anywhere near approximating it. We owe this scene to capitalism. To put it differently, we owe this scene to centuries of capital accumulation at the hands of people who have put capital to work on behalf of economic innovations at once, competing with others for profit and cooperating with millions upon millions of people in an ever-expanding global network of the division of labor.

2:45The savings, investments, risks, and work of hundreds of years and unaccountable numbers of free people have gone into making this scene possible. Thanks to the ever-remarkable capacity for a society developing under conditions of liberty to achieve the highest aspirations of the society's members. And yet sitting on the other side of the table are well-educated people who imagine that the way to end the world's woes is through socialism. Now people's definitions of socialism differ and these people would probably be quick to say they do not mean the Soviet Union or anything like that. That was socialism in name only. I would be told and yet if socialism doesn't mean anything at all today it imagines that there can be some social improvement resulting from the political movement to take capital out of private hands and put it into the hands of the state.

3:38Other tendencies of socialism include the desire to see labor organized along class lines and given some sort of coercive power over how their employer's property is used. It might be as simple as the desire to put a cap on the salaries of CEOs, or it could be as extreme as the desire to abolish all private property, money, and even marriage. Whatever the specifics of the case in question, socialism always means overriding the free decisions of individuals and replacing the capacity for decision-making with an overarching plan by the state. Taken far enough, this mode of thought won't just spell an end to nice lunches. It will mean the end of all we know as civilization itself.

4:24It would plunge us back into a primitive state of existence living off hunting and gathering in a world with little art, music, leisure or charity, nor was any form of socialism capable of providing for the needs of the world's 6 billion people, so the population would shrink dramatically and quickly and in a manner that would make every human horror ever known seem mild by comparison. Nor is it possible to divorce socialism from totalitarianism, because if you are serious about ending private ownership of the means of production, you have to be serious about ending freedom and creativity too. You will have to make the whole of society, or what is left of it, into a prison.

5:09In short, the wish for socialism is a wish for unparalleled human evil. If we really understood this, no one would express support for an impolite company, who It would be like saying, you know, there really is something to be said for malaria and typhoid. Or perhaps about dropping atom bombs on innocents. Do the people sitting across the table really wish for this? Well, certainly not. So what has gone wrong here? We can see these people, why can these people not see what is obvious? Why can't people sitting amidst market created plenty, enjoying all the fruits of capitalism every minute of life, Not see the merit of the market, but rather wish for something that is a proven disaster. What we have here is a failure of understanding.

5:58That is to say, a failure to connect causes with effects. This is a wholly abstract idea. Knowledge of cause and effect does not come to us by merely looking around a room, living in a certain kind of society, or observing statistics. You can study roomfuls of data, read a thousand treatises on history, or plot international GDP figures on a graph for a living, and yet the truth about cause and effect can still be evasive. You might still miss the point that it is capitalism that gives rise to prosperity and freedom. You might still be tempted by the notion of socialism as savior. Let me take you back to the years 1989 and 1990. Those were the years that most of us remember as the time when socialism collapsed in Eastern Europe and Russia.

6:46Vents of the time flew in the face of all predictions on the right that these were permanent regimes that would never change unless they were bombed back into the Stone Age. On the left, it was why they believed even in these times that these societies were actually doing very well and would eventually pass the United States and Western Europe in prosperity. And by some measures, we were told, they were already better off than we were. And yet it collapsed. Even the Berlin Wall, that symbol of oppression and slavery, was torn down by the people themselves. It was not only glorious to see socialism collapse, it was thrilling from a libertarian point of view to see how states themselves can dissolve. They may have all the guns and all the power, and the people have none of those, and yet when the people themselves decide that they will no longer be governed, the state has few options left. It eventually disappears amidst a society-wide refusal to believe its

7:45lies any longer. When these closed societies suddenly became open, what did we see? We saw lands that time The technology was backward and broken. The food was scarce and disgusting. The medical care was abysmal. The people were unhealthy. It was also striking to see what had happened to the culture under socialism. Many generations had been raised under a system built on power and lies. And so the cultural infrastructure that we take for granted was not secure. Such notions as trust, promise, truth, honesty, planning for the future, all pillars of commercial culture, had been distorted and confused by the ubiquity and the persistence of the socialist curse.

8:32Why am I going through all these details about this period which surely most of you do remember? Simply to say this, that most people did not see what you saw. You saw the failure of socialism. That is what I saw. That is what Rothbard saw. That is what everyone who has been exposed to the teachings of economics, to the elementary rules concerning cause and effect in society, saw. But this is not what the ideological left saw. The headlines in the socialist publications themselves proclaimed have both proclaimed the death of undemocratic Stalinism and look forward to the creation of a new democratic socialism in these countries. As for regular people, neither attached to the socialist idea nor educated in economics, it might have appeared as if nothing more than a glorious vanquishing of America's foreign policy enemies had taken place.

9:24We built more bonds than they did, so they finally gave in, in the way a kid says uncle on the playground. Maybe some saw it as a victory of the U.S. Constitution over weird and foreign systems of despotism. Or perhaps it was a victory of the cause for something like free speech over censorship, or the triumph of ballots over bullets. Now if the proper lesson of the collapse had been conveyed, we would have seen the error of all forms of government planning. We would have seen that a voluntary society will outperform a coerced one anytime. We might see how ultimately artificial and fragile are all systems of statism compared to the robust permanence of a society built on free exchange and capitalist ownership. And there is another point. The militarism of the Cold War had only ended up prolonging the period of socialism by providing these evil governments the chance to stimulate unfortunate nationalist impulses that distracted their domestic populations from the real problem.

10:23It was not the Cold War that killed Socialism. Rather, once the Cold War had exhausted itself, these governments collapsed of their own weight from an internal rather than external pressures. In short, if the world had drawn the lessons that they should have from these events, there would be no more need for economic education, no more need even for the bulk of what the Mises Institute does. In one great moment of history, the contest between capitalism and central planning would have been decided for all time. I must say that it was more of a shock to me and my colleagues than it should have been that the essential economic message was lost on most people.

11:09Indeed, it made very little difference in the political spectrum at all. The contest between capitalism and central planning continued as it always had, and even intensified here at home. The socialists among us, if they experienced any setback at all, bounded right back, strong as ever, if not more so. If you doubt it, consider that it only took a few months for these groups to start convention about the horrible onslaught that was being wrought by the unleash of capitalism in Eastern Europe, Russia and China. We began hearing complaints about the rise of a hideous consumerism in these countries, about the exploitation of workers at the hands of capitalists, and Capitalists about the rise of the garish super-rich. Files and piles of news stories appeared about the sad plight of unemployed state workers who though loyal to the principles of socialism all their lives were now turned out on the streets to fend for themselves.

12:05Not even an event as spectacular as the spontaneous meltdown of a superpower and all its client states was enough to impart the message of economic freedom. The whole of our world is covered with lessons about the merits of economic liberty over central planning. Our everyday lives are dominated by the glorious products of the market, which we all gladly take for granted. We can open up our web browsers and tour an electronic civilization that the market created, and note that government never did anything useful at all by comparison. We are also inundated daily by the failures of the state. We complain constantly that the educational system is broken, that the medical sector is oddly distorted, that the post office is unaccountable, that the police have used their power, that the politicians have lied to us, that tax dollars are stolen, that whatever bureaucracy we have to deal with is inhumanly unresponsive.

13:01We note all this, but far fewer are somehow able to connect the dots and see the myriad are the three ways in which daily life confirms that the market radicals like Mises, Hayek, Haslett and Rothbard were correct in their judgments. What's more, this is not a new phenomenon that we can observe in our lifetimes only. We can look at any country in any period and note that every bit of wealth ever created in the history of mankind has been generated through some kind of market activity and never by governments. Few free people create, states destroy. It was as true in the first millennium after Christ. It was true in the Middle Ages and the Renaissance. And with the birth of complex structures of production and the division of labor in those years, we see how the accumulation of capital led to what may be called a productive miracle.

13:52The world's population soared. We saw the creation of the middle class. We saw the poor improve their plight and change their own class identification. The empirical truth has never been hard to come by. What matters are the theoretical eyes that see. This is what dictates the lesson we draw from events. Marx and Bastiat were writing at the same time. The former said that capitalism was creating a calamity and that abolition of ownership was the solution. Bastiat saw that statism was creating a calamity and said the abolition of state plunder was the solution. What was the difference between them? They saw the same facts, but they saw them in very different ways. They had a different perception of cause and effect.

14:38I suggest to you that there is an important lesson here as regards the methodology of the social sciences, as well as an agenda and strategy for the future. Concerning method, we need to recognize that Mises was precisely right concerning the relationship between facts and economic truth. If we have a solid theory in mind, the facts on the ground provide excellent illustrative material. They inform us about the application of theory in the world in which we live. They provide excellent anecdotes and revealing stories of how economic theory is confirmed in practice. But absent that theory of economics, facts alone are nothing but facts. They do not convey any information about cause and effectividely. They do not point a way forward.

15:25Think of it this way. Let's say you have a bag of marbles that is turned upside down on the ground and you ask people their impressions. The first one understands what numbers mean, what shapes mean, what colors mean. This person can give a detailed account of what he sees, how many marbles, what kinds, how big they are. This person can explain what he sees in different ways, potentially for hours. But now consider the second person we can Ludwig von Mises has absolutely no understanding of numbers, not even that they exist as abstract ideas. This person has no comprehension of shape or color. He sees the same scene as the other person, but cannot provide anything like an explanation of the patterns. He has very little to say. All he sees is a series of random objects.

16:12Both these people see the same facts, but they understand them in very different ways, owing to the abstract notions of meaning they carry in their minds. This is why positivism as a pure scientific method of assembling a potentially infinite series of data points is a fruitless undertaking. Data points on their own convey no theory, suggest no conclusions, and offer no truths. To arrive at truth requires the most important step that we as human beings can ever take, thinking. Through this thinking, with good teaching and reading, we can put together a coherent theoretical apparatus that helps us understand. Now we have a hard time conjuring up in our minds the likes of a man who has no comprehension of numbers, colors, or shapes.

17:01Yet I suggest to you this is precisely what we are facing when we encounter a person who has never thought about economic theory and never studied the implications of the science at all. The facts of the world look quite random to this person. He sees two societies next to each other, the one free and prosperous, the other unfree and poor. He looks at this and concludes nothing important about economic systems because he has never thought about the relationship between economic systems and prosperity and freedom. He merely accepts the existence of wealth in one place and poverty in the other as a given, the same way the socialists at a lunch table assume that the luxurious surroundings and food just happen to be there. Perhaps they will reach for an explanation of some sort, but absent economic education, it is not likely to be the correct one.

17:53Equally as dangerous as having no theory is having a bad theory that is assembled not by means of logic, but by an incorrect view of cause and effect. This is the case with notions such as the Phillips Curve, which posits a trade-off relationship between inflation and unemployment. The idea is that you can drive unemployment down very low if you're willing to tolerate high inflation. Or it can work the other way around. You can stabilize prices provided you're willing to put up with high unemployment. Of course, this makes no sense on the microeconomic level. When inflation is soaring, businesses don't suddenly say, hey, let's hire a bunch of new people. Nor do they say, you know, the prices we're paying for inventory have not gone up or have even fallen.

18:41Let's fire some workers. This much is true about macroeconomics. It is commonly treated like a subject completely devoid of any connection to microeconomics or even human decision making. It is as if we entered into a video game featuring fearsome creatures called aggregates. And the battle is to the death. So you have one creature called unemployment, one called inflation, one called capital, one called labor, and so on, and you can construct a fun and exciting game that is sheer fantasy. Another example of this came to me just the other day, a recent study claimed that labor unions increase the productivity of firms. How did the researchers discern this? Well, they found that some unionized companies tend to be larger with more overall output than some non-unionized companies.

19:30Well, let's think about this. Is it likely that if you close a labor pool to all competition, give that restrictive labor pool the right to use violence to enforce its cartel, permit that cartel to extract higher than market wages from the company, and to set its own terms concerning work rules and vacations and benefits, is it likely this would be good for the company in the long run? You would have to have taken leave of your senses to believe this. In fact, what we have here is a simple mix-up of cause and effect. Bigger companies tend to be more likely to attract a kind of un-preventable unionization than smaller ones. The unions target them with federal aid. It is no more or less complicated than that. It is for the same reason that developed economies have larger welfare states.

20:19The parasites prefer bigger hosts. We would be making a big mistake to assume that the welfare state causes the developed Economy. That would be as much of a fallacy as to believe that wearing $2,000 suits causes people to become rich. I'm convinced that Mises was right. The most important step economists or economic institutions can take is in the direction of public education and economic logic. There is another important factor here. The state thrives on an economically ignorant Republic. This is the only way we can get away with blaming inflation or recession on consumers or claiming that the government's fiscal problems are due to us paying too little taxes. It is economic ignorance that permits the regulatory agencies to claim that they are protecting us as versus denying us choice. It is only by keeping us all in the dark that it can continue to start war after war, violating rights abroad and smashing liberties at home in the name of spreading freedom.

21:23There is only one force that can put an end to the successes of the state, and that is an economically and morally informed public. Otherwise, the state can continue to spread its malicious and destructive policies. Do you remember the first time you began to grasp economic fundamentals? It is a very exciting time. It is as if people with poor eyesight had put on eyeglasses for the first time. It can consume us for weeks, for months, for years. We read a book like Economics in One Lesson and pore over the pages of human action for the first time we realize that so much of what other people take for granted is not true and that there are exciting truths about the world that desperately need to be spread. To consider just one example, look at the concept of inflation. For most people it is seen in the way primitive societies might see the onset of a disease. It is something Banking that sweeps through to cause every kind of wreckage.

22:21The damage is obvious enough, is obvious enough, but the source is not. Everyone blames everyone else, and no solution seems to work. But once you understand economics, you begin to see that the value of the money is more directly related to its quantity, and that only one institution possesses the power to create money out of thin air without limit, the government-connected central bank. This effect causes us to broaden our minds to look at the commerce of society from many different points of view. Instead of just looking at events and phenomena from the perspective of a single consumer or producer, we begin to see the interests of all consumers and all producers. Instead of thinking only about the short-term effects of certain policies, we think about the long run and the spin-off effects of government policies.

23:09This, of course, is the essence of Hazlitt's first lesson in his famous book. For a person who has read in economics, and I might just mention it's long been a dream of ours to be able to bring out a decent, well-priced, handsome version of economics in one lesson, and we've finally been able to arrange that. We have a huge shipment of books coming in from China, from a private publishing company For a person who has read in economics and absorbed its essential lessons, the world around us becomes vivid and clear, and certain moral imperatives strike us.

23:56We know now that commerce deserves defense. We see entrepreneurs as great heroes. We sympathize with the plight of producers. We see unions not as defenders of rights but as privileged cartels that exclude people who need work. We see regulation not as consumer protection but rather cost-raising rackets lobbied for by some producers to hurt other producers. We see antitrust not as a safeguard against corporate excess but as a bludgeon used by big players against smarter competitors. Detroit Economics helps us see the world as it is, and its contribution lies not in the direction of the assembly of ever more facts, but in helping those facts fit a coherent theory of the world.

24:43And here we see the essence of our job at the Mises Institute. It is to educate and instill a systematic method for understanding the world as it is. Our battleground is not the courts, not the election polls, not the executive branch, not the legislature, and certainly not the wicked arena of political payoffs. Our battleground concerns a domain of existence that is more powerful in the long run, concerns the ideas that individuals hold about the way the world works. As we get older and see ever more young generations coming up behind us, we are often struck by the great truth that knowledge in this world is not cumulative over time. What one generation has learned and absorbed is not somehow passed on to the next one through genetics or osmosis.

25:33Each generation must be taught anew. Economic theory, I'm sorry to report, is not written on our hearts. It was a very long process of being discovered, but now that we know it must be passed on, and in this way it is like the ability to read or to understand great literature, it is the obligation of our generation to teach the next generation. And here we are not merely talking about knowledge for knowledge's sake. What is at stake is our prosperity. It is our standard of living. It is the well-being of our children and all of society. It is freedom and the flourishing of civilization that stands in the balance. Whether we grow and thrive and create and flourish, or wither and die and lose all that we have inherited ultimately depends on the abstract ideas we hold concerning cause and effect in society.

26:34These ideas do not usually come to us by pure observation. They must be taught and explained. But who or what will teach and explain them? This is the crucial role of the Mises Institute, and not only to teach but to expand the base of knowledge, to make new discoveries, to broaden the reach of the literature and to add ever more abundantly to the corpus of freedom. We need to expand its proponents in all walks of life, not only in academia but in all sectors of society. This is an ambitious agenda, one that Mises himself charged his descendants with. You are helping us to to take up this task, and for this we are very, very grateful.