The New World of Capitalism

0:00Now I'd like to say a few more things in regard to the Industrial Revolution considering that it is such an important topic. Those of you who have consulted Rosenberg and Virgil, which I urge you to do, sum up the evidence, the historical and statistical evidence as follows. By now it is quite clear that the new factories and towns were a large part of the solution to Europe's problem of employing a rising population outside of agriculture. They were not part of the problem. The assessment of the rise of industrial capitalism as an unprecedented revolution in economic growth is supported by much of the recent work of economic historians and especially and finally, cleometricians as they're called, that is, historians who use sophisticated mathematical methods, although there are disputes over particular sets of statistics and the appropriate analyses.

0:59It's interesting that Marxist historians like Eric Hobsbawm and E. P. Thompson, Thompson is now deceased, have been reduced to a rearguard defense of the older conventional wisdom, mainly by shifting the grounds of the debate from material standards of living to the quality of life. You can take for an example the position of E.P. Thompson in his celebrated work, The Making of the English Working Class. In approaching the old question of living standards, which was a standard question that was supposed to be the decisive question, the criterion of the success or disastrous and the First Failure of the Industrial Revolution, Thompson states, It is quite possible for statistical averages and human experiences to run in opposite directions.

1:50Uh-oh, what's he up to now? A per capita increase in quantitative factors may take place at the same time as a great qualitative disturbance in the people's way of life. People may consume more goods and become less happy This is all by way of Thompson setting up the reader for the concession, the decisive concession that he was about to make. Over the period 1790 to 1840 there was a slight improvement in average material standards. By 1840, by the way, it's also suggestive that one selects the year of 1840 rather than 1850, big changes occur in that decade, but he says by 1840, most people were, quote, better off, unquote, and scare quotes around better off than their forerunners had been 50 years before, but they had suffered and continue to suffer the slight improvement as a catastrophic Experience. Well, that may be as it may be. The most that can be produced in regard to this last statement, that they continue to suffer this slight improvement in material standards of living as a catastrophic experience, tends to be totally anecdotal.

3:22It is safe to say that the old immiseration thesis, it was called, as a celebrated Fabian husband and wife team of J.L. and Barbara Hammond put it, the industrial revolution felt like a war or a plague on the working people of England, is dead. Thus, for instance, to take an example at random, the University of Wisconsin historian, Nero Hamerow, a scholar clearly unsympathetic to the market economy, grants that there was no general amazement in the early stages of the Industrial Revolution, either in Britain or on the continent, while for the later stages, as he says, never before had there been such such a substantial growth in the income of a labor force in such a short period of time.

4:15Even the East German Communist Economic Historian, Kaczynski, even Kaczynski concedes that the income of the working class improved rapidly after the early stages of economic rationalization. The stage of the debate, I want to mention one thing in particular before I forget and And that is the question of women, the labor of women and women in the factories. Women of course, as we all know, sorry, have never really done very much work in the history of the human race. All they did was raise the kids, take care of the house, do all the gardening for fruits The men went out and hunted the mammoths and other wild beasts and had a really great time as a kind of guide thing and dragging the chunks of the mammoth back home.

5:29And as the wife kept with her trivial chores of taking care of the kids and everything else about the family and the household, the guys would sit around and talk about how, yeah, you see the way I killed that man, you killed the man, but I killed the man, and go on like that. So women really have not counted very much in regards to the labor of the human race through history. It was really just the Industrial Revolution that drove them to labor. Before that, they used to have a lot of hobbies, macrame and ceramics and so on, learning enough Italian to read opera libretti and that kind of thing. Well, obviously a big fantasy.

6:16Women have always worked, except for the higher classes and the elite, have always worked The Industrial Revolution allowed women an independent source of income. They didn't have to go from their father's house immediately into the house of their husband and then for the rest of their lives remain under the thumb of their husband, regardless of how he chose for those to behave and conduct themselves for the years to come, they could go out and work in a factory. And that was experienced as an enormous liberation by women.

7:05If you take the example of America, the textile factories of New England, the cigarette factories of the Carolinas and Virginia and so on. And then afterwards when the telephone came in, tens and hundreds of thousands of female telephone operators, This was a liberation from the psychological cage that very often the husband-dominated family was. She was bringing in her own income, so she had a certain place in the family for that reason. Or if it came to that, you know, the hell with the louse, she could go out and make a living on her own. So that, and we see this in third world countries as well.

7:53The factory system and the other accoutrements of industrial capitalism were a liberation for women. And this explains why legislation to limit the work of women, exclude women from certain occupations, exclude women, limit the hours that women could work and so on, were pushed not by women's groups, but by the male-dominated labor union movement to do away with the increasing competition that women presented to them. Well, the stage of the debate on the Industrial Revolution has been reached by this statement from a totally mainstream British historian named E.J. Evans, wrote a textbook on England in this period, critical of the Industrial Revolution in certain respects, on quality of life grounds.

9:00But you know, on the other hand, this was the first time mankind was faced with this, the problem of pollution, for instance, from industrial sources. It's not surprising that they could not have come upon the answers to all of these problems all at once. Now what Evan says is this, judging the Industrial Revolution, it is relevant to mention a counterfactual point, a hypothetical point. What would have happened to Britain's teeming population had industrial growth not rescued from a Malthusian poverty trap. It is difficult to see how a check on an even more catastrophic scale than the Irish famine of 1845 to 47, a check in the sense that Malthus used the term, that is when the population reaches a certain level outgrowing the means of subsistence, then nature provides certain checks and as he says the Irish famine was such a check and now he says hypothetically there could have been a check on the British population on an even more catastrophic level than the Irish famine.

10:15How could that have been avoided? It's difficult to see how that could have been avoided. And to this not considerable extent, the Industrial Revolution brought the benefit of permitting a much larger population to survive and in the long term thrive. T.S. Ashton, one of the major so-called optimist historians that I mentioned before, puts it this way. If you want to see an area, a territory that has undergone a population explosion without industrialization, then go to Calcutta or go to Famine-Torn Ireland. They're one of none of these terrible smokestacks, none of this terrible pollution, none of this awful dreadful industrialization, none of the satanic mills, and we see what happened there.

11:12The democratization of consumption, a term that is used by some historians, was a key feature of the modern capitalist revolution. This has been analyzed especially by a historian named Neil McKendrick of Cambridge University. McKendrick arranges himself solidly on the side of the optimists, he emphasizes the benefits that ordinary people derive from the Industrial Revolution and the accompanying Revolution in Consumption, contrasting the new world that capitalism made with the older world of poverty. After all, what was it that these factories were producing? They were not producing silk and linen fabrics for the elite.

11:59They were producing wool and especially cotton. They were producing cheap ceramics and pottery, cheap cutlery, cheap of everything for mass consumption and consumption by the masses. Now one crucial claim of the pessimist case was that the Industrial Revolution represented a deterioration, but pre-capitalist ages have been increasingly shorn of their Garden of Eden myths, Kendrick believes, by the kind of social history fostered by the Annales group of French scholars. There was a group of French historians connected with the journal called ANAL, ANALS, and their trademark was to investigate as they saw deeper levels of social history, to get a sense of the fabric of life of the people of the time, rather than great historical military political events. One of the most famous of them is Ferdinand And Braudel, died a number of years ago, celebrated historian, and Braudel wrote about France, the poor in the towns and countryside lived in almost complete deprivation.

13:27The average man's income was so low that even a poor man's diet absorbed 60 to 80 percent In pre-industrial Europe, the purchase of a garment or the cloth for a garment remained a luxury that common people could only afford a few times in their lives. McKendrick points out that even the clothes of plague victims were eagerly sought by their relatives in a world marked by low expectation of life, high infant mortality, chronic sickness and Very Few Comforts, that a major revisionist effort is involved in the work of McKendrick and other more recent historians is clear. Among the targets of attack are historians themselves who for generations so assiduously portrayed businessmen as exploiters and parasites.

14:22As McKendrick states, when Napoleon dismissed England as a nation of shopkeepers, he said He little knew how eager English historians would be to try to live down the jibe and to efface from the record of historical significance the efforts of those busy, inventive, profit-seeking men of business whose activities help bring the new world of plenty into existence. So what I've presented here is a quite different view from the one that has been instilled in us, in all of us. I mentioned in connection with the idea that the Middle Ages were simply dark ages, no matter how many facts to the contrary, how many obvious realities to the contrary, one brings up, very hard to erase that idea from your mind.

15:13And similarly, well not to this group, of course, the enlightened people, but similarly to the massive people, it would be hard to imagine how much effort by economic historians and other scholars would be necessary to get rid of this idea so deeply embedded in their minds from Dickens and other authors and movies and everything they were taught in public school that the Industrial Revolution was a Catastrophe. Unfortunately, I don't know whether that will ever be, whether that will ever change. In this connection, I wanted to bring up one thing, and I'm not going to spend too much time with it, but I did want to bring it up, and that is that back in 1830 there was a debate also on the Industrial Revolution, kind of an interesting polemic between two authors. One was Robert Southey, Southey, who was the poet laureate of England at the time, and Southey wrote a book called The Colloquies of Thomas More, and he imagined in his book that the great English statesman

16:27and saint and scholar had come back to the England of his time, early 19th century and looked around and how horrified the 16th century man would be to see what industrialization had done to England. It was just something to cry over, how awful England, merry old England had become. And Southey goes on and on in this, and he's answered by a great A famous historian, a classical liberal historian of the 19th century, who lived in 19th century England, named Thomas Babington Macaulay.

17:14Now Macaulay actually ties in again with how I began this whole discussion, that is the impact of history. Corley was one of a series of British historians who presented their historical accounts with an underlying classical liberal lesson and theme. He was a classical liberal, he wasn't a total libertarian, that's fine, but certainly believed in private property, the rule of law, civil liberties, and so on, and he was the most He was the most popular historian of his time. He was a brilliant historian. He was a brilliant man.

17:59He had photographic memory, which is pretty useful for a historian. So that one time when he was traveling over to Ireland and somehow his books had been left behind and the journey was going to be, I don't know what, some hours anyway, He simply sat down in a deck chair and closed his eyes and repeated Milton's Paradise Lost to himself. As a child even, he showed promise. As a very young child, as a matter of fact, since he hadn't spoken very much at all, people thought that he was somewhat retarded until when he was about four years old, His aunt happened to spill tea on his foot while she was pouring tea for the family.

18:53And they were very worried about the little Tommy. And he said, how are you Tommy? How is it? How do you feel? He said, madam, the pain which at first was very great is now much abated. So, it turned out to be somebody special. Now, remember I mentioned the Edinburgh Review to you as the editor of whom had studied under Google Stewart, who got the classical liberal ideas of Adam Smith in that line of tradition, and they published McCauley's most famous book is A History of England, which we have here. I think we have his essays also. His essays are more manageable, the history of England is in a number of volumes, even for a short period of time that he deals with, and the essays range all around the place.

19:49He was a master of many, many languages, loved literature as much as he loved history, and wrote reviews on many different topics, and really he had a masterful style as far as I'm concerned. So he decided to enter the lists against Southey on behalf of the New England of the Industrial Revolution. And if you don't get a chance to read any of his other essays, you might read this one. And I'm pretty sure we have copies in the library here. In any case, any other library has copies of this. It begins by talking about Southey's background. Southey started as a Jacobin, as a supporter of the worst excesses of the French Revolution. And now, he'd become a total reactionary, not only against the industrial revolution, against civil liberties in favor of the total power of the Church of England and on.

20:42So, McCauley says, Southey has passed from one extreme of political opinion to another. By the way, when I read this, you might think to yourself of the neoconservatives, beginning as proteges of Trotsky, many of them, and winding up now as American hyper-imperialists. Southey has passed from one extreme political opinion to another, as Satan in Milton went Round the globe, contriving constantly to ride with darkness. You can get the astronomical image there. So we see, Southey has in store for him a real hatchet job.

21:32He attacks Southey, well, of course, as being a reactionary, but a funny kind of and Reactionary, because this Tory is verging on modern socialism, he carries his hatred of the free market to the point of demanding total government control, better the government than these profit-seeking greedy businessmen, he conceives that the business of the magistrate is not merely to see that the persons and property of the people are secure from attack, but that the magistrate, the state, or to be a jack of all trades, architect, engineer, schoolmaster, merchant, theologian, a lady bountiful in every parish, a pole pry in every house, looking into people's private affairs, a spying, eavesdropping, relieving, admonishing, His principle is that no man can do anything so well for himself as his rulers, be they or whoever they may, that a government approaches nearer and nearer to perfection in proportion as it interferes more and more with the habits and notions of individuals.

22:53You see that there's a not very fine line, not very clear line, between a kind of hyper-conservatism and socialism and tomorrow when I talk about the origins of the socialist movement, I will bring that up again. They were both in the early stages, in the early decades of the 19th century, combined Against the New Liberal Society and Capitalism, and well, this is an example of his flashy style, I think. It says, Southey and his ilk think that the working people of England are so bad off.

23:41It will scarcely be maintained, I hope, that the Lazzaroni who sleep under the porticoes of Naples, Well, the beggars who besiege the convents of Spain are in a happier situation than the English working man. Again, contrasting what the Industrial Revolution is doing for common working people in England with the old static society that's not able to spark economic growth in, for instance, Spain or Naples. History is full of the signs of this natural progress of society in the absence of obstacles set up against it.

24:37We see in almost every part of the annals of mankind how the industry of individuals struggling up against wars, taxes, famines, conflagrations, mischievous prohibitions, and more mischievous protections creates faster than governments can squander and repairs whatever invaders can destroy. You see how in these historical works, because much of this is simply history and not just a presentation of his political principles, within these historical works of the most famous and popular historian of his time, you see embedded a classical liberal philosophy that then is imbibed and absorbed by the people who read him.

25:25And he points out something that I had mentioned before. Yes, he says, things are very distressful in England. What would you expect that we have had over the past 40 years? A war compared with the French and Napoleonic wars, a war compared with which all other wars sink into insignificance, taxation such as the most heavily taxed people of former times could would not have conceived, a debt larger in England than all the public debts that ever existed in the world added together, the food of the people studiously rendered dear to Corn Laws, the currency imprudently debased, going off the gold standard, and imprudently restored, yet there is progress because of the efforts of the people.

26:16I wanted through McCauley to make you, as I did before, through Cobden and Bright to an extent, make you somewhat familiar with some of these actors in the history of classical liberalism. Now, I want to turn my attention to another topic, and that is the role of the intellectuals in society, What has sometimes been called the problem of the intellectuals and the marketplace. Many of you, most of you probably, are familiar with the name of Robert Nozick.

27:00Nozick became a libertarian, which was a big plus for us because he was a Harvard professor and known as a hotshot, one of the universally admitted, one of the brightest young philosophers of his time, and throughout his brief career he died unfortunately too young, regarded as a very important philosopher. In case you're interested on how he became a libertarian, You can look up my archive at www.lewrockwell.com and there's a historical note on Robert Nozick after he had died. Nozick was a brilliant philosopher. His best known work is Anarchy, State and Utopia, which was a turning point because for the first time conventional academic philosophers had to deal with free market and libertarian arguments.

28:05There's a lot of original stuff in the book. On the other hand, there's a lot of stuff in Anarchy, State and Utopia, which won all kinds of prizes, that we'll be familiar with, to any one of us, really. However, to academic philosophers, it came as a revelation. His demolition of the Marxist theory of labor theory of value, and the idea that workers are always at the mercy of their employers, and on and on, Bob deals with these, and philosophers were amazed, wow, we thought it was always a lot more simple than that. In one of his essays, Nozick writes of an experience he often had when he came to reply to criticisms of laissez-faire capitalism.

28:58Bob said that after he refuted some particular charge that laissez-faire leads to monopoly or to systematic overproduction or to pollution or whatever, he said, let's say he's answered that charge, his interlocutor, the other person, drops the point and quickly leaps to another. Well, what about child labor? What about racism? What about advertising, brainwashes people into buying things they don't need? Bob says, point after point is given up. What is not given up, though, is the opposition to capitalism. He concluded that the particular arguments are not important. The particular charges that are brought up are not important.

29:48There is an underlying animus against capitalism, and I think that many of us will find this experience very familiar. That is, you answer one point and they immediately go to another point, and that's the answer to another point. Why? Well, because, as Bob says, there's an animus against capitalism. Another example of this, and this is relevant to the question of the intellectuals in the marketplace because the people that Bob is talking about, the people he habitually would come into contact with, would be other intellectuals. Then there's an example given by Ronald Coase, Nobel Laureate in Economics.

30:38He relates an incident highly revealing of the state of mind of opinion molders in America. It concerns the natural gas shortage of the 1960s, back in the 1960s. An economist at the University of Chicago, Edmund Kitsch, had written a study demonstrating the part that short-sighted federal regulation played in the shortage of natural gas. And he presented his findings in a public lecture in Washington in 1971. This is what Coase wrote. Much of the audience consisted of Washington journalists, members of the staff of congressional committees, and others with similar jobs. They displayed little interest in the findings of the study, Study, but a great deal of interest in discovering who had financed the study.

31:26Many seem to have been convinced that the law and economics program at the University of Chicago had been bought by the gas industry. A large part of the audience seemed to live in a simple world in which anyone who thought prices should rise under certain circumstances was pro-industry, and anyone who wanted prices to be reduced was pro-consumer. I could have explained that the essential of Kitsch's argument had been put forward earlier by Adam Smith, but most of the audience would have assumed that Adam Smith was someone else in the pay of the American Gas Association. In this episode, as in what Nozick reported, we see a microcosm of the world habitually inhabited by anti-market intellectuals.

32:12The continued flourishing of this class remains an enduring puzzle and problem for classical liberals and libertarians. Now, I don't propose to solve this problem to give you the ultimate solution this afternoon, but I will suggest the various theories that have been put forward and try to assist them for the ones that seem to be most plausible. At the 1951 meeting of the Montelloran Society at Beauvaillon, a distinguished panel of scholars discussed the treatment of capitalism by the historians. Their papers were, and some others, were later published in that book that I mentioned to you, edited by Hayek.

32:58In one paper, Bertrand de Juvenel, whom Joe Stromberg mentioned before, a distinguished French political philosopher, Describe one of the most striking characteristics of modern intellectuals, their animosity towards the marketplace. Why should this be? The reason cannot lie, as the juvenile argued, in the puritanical disdain for social arrangements that satisfy the hedonistic demands of selfish individuals, because modern welfare democracy is also such an arrangement, and is not subject to the antagonism of the intellectuals. The juvenile claims, somewhat surprising, that the intellectual's hostility to the businessman presents no mystery, as the two have by function wholly different standards.

33:43The businessman's motto is, the customer is always right, the intellectual's task is to preserve the highest standards of his field, even against the weight of popular opinion. But I don't find this very convincing. For instance, in democratic welfare states, politicians and bureaucrats also are supposed to serve the public rather than to struggle to preserve standards of excellence, and yet the intellectuals' enmity is not typically directed against democracy, the welfare state, or its leaders and functionaries. Twenty-one years later, in 1972, there was another panel on intellectuals in the marketplace at the Mont Pelerin Society that kept dealing with the question again and again for obvious reasons.

34:34And R.M. Hartwell, whom I mentioned before, the historian of the Industrial Revolution, spoke on history and ideology. Hartwell had occasion to remark on the widely held aversion to the economic and political system which provided the institutional framework for modern economic growth. As a historian, you naturally stress the crucial role of historical myths concocted and circulated by academic historians in nursing this aversion. Hartwell's lecture is particularly noteworthy for drawing attention to the systematic character of the anti-capitalist onslaught as experienced by the typical educated citizen of a western democracy.

35:24He notes, history is only one element in a battery of self, and consider whether this at all reflects your own educational experience. History is only one element in a battery of self-reinforcing prejudice against private property and the market economy. In literature, economics, philosophy, sociology and other subjects, the student is continually subjected to data and interpretations that converge on a single point, the viciousness of private enterprise and the virtuousness of state intervention and state-supported labor unionism. and Hartwell observes what schools and universities propagate in formal education many other institutions reinforce.

36:10The churches, the creative arts, the mass media. And then, some years later, I presented a paper on the same topic at the Montelloran Society. And I noted to them that the fact that we were coming back to the same old topic, same old question, does not argue with the futility of doing so, but rather the central importance of the question. Not us, not most of the people here, but most of the people there, had lived long enough to understand the truth of Joseph Schumpeter's assertion, Remember I mentioned Schumpeter, the Austrian, but not the economist from Austria, but not Austrian economist, but still a very fine and valuable thinker, his assertion that capitalism stands its trial before judges who have the sentence of death in their pockets.

37:16The only thing that changes, Schumpeter wrote, is the indictment, more or less what Bob Nozick was talking about, that ever-changing indictment is presented over and over and over again by the intellectuals. In earlier times, they indicted capitalism for the immiseration of the proletariat, as we noted, inevitable depressions, the disappearance of the middle classes. Then and a little later for imperialism and the inevitable wars among the imperialist or so-called capitalist powers. In more recent decades, the indictment again changed, as earlier accusations became too blatantly untenable. Capitalism was charged with being unable to compete with socialist societies and technological progress.

38:06Believe it or not, you never experience that, most of the people here, but that was the rage, I went to grad school around 1960. There had just been Sputnik. Statistics showed that in the Soviet Union they were producing three or four times as many engineers a year as we were, so it stood to reason. And also the figures of capital investment were just enormous. Nobody cared whether the capital was going to be used efficiently or not. The figures of the input were enormous. So it was inevitable that they were going to, as Khrushchev said, catch up with us and easily surpass us. So capitalism could not compete with socialism. Capitalism was accused of promoting automation, leading to catastrophic permanent unemployment in the 1960s.

38:54Capitalism was accused of both creating the consumer society in its piggish affluence and with proving incapable of extending such pigishness to the underclass with neocolonialism, with oppressing women and racial and even sexual minorities, with spawning and meretricious popular culture, and now as we know with destroying the earth itself. George Stigler, a famous University of Chicago professor, most of you probably have heard of him, and he was no ideologue, he was no fanatic, as one might say in any sense. But Stigler noted and remarked, a constant stream of new criticism in his time, such as the problem of homeless families, is being invented, discovered and heavily advertised.

39:49This is a presentation of the state of affairs, of the facts. Can there be any doubt about this? The question remains, what is at the root of this ever-changing, never-ending indictment? What accounts for the intellectual's unremitting hostility to the market economy? Well, people on our side have tried to give a number of answers to this question. Hayek was acutely concerned with our problem since he too was firmly convinced of the importance of the intellectuals. However, Hayek's view of the intellectuals is flatteringly benign. Their ideas, he says, are determined by and large by honest convictions and good intentions.

40:38He has an essay called The Intellectuals and Socialism, one of his famous essays and worth reading. He does mention in passing the intellectuals' egalitarian bias. However, his analysis is basically in terms of their scientism. I don't know if Hayek invented this term. I have a feeling he did. In any case, he certainly used it, and it means the inappropriate application of the methods of natural science to social scientific affairs. So he thinks that the intellectuals are basically against the market economy because they have this scientistic prejudice. Actually, he talks about scientism in one of his books that I consider one of his best books called The Counter-Revolution of Science, an older book of his.

41:36Thus, in Hayek's view, the chief influence on the intellectuals has been the example of the natural Social Sciences and their Applications. Basically his idea is this, as man has come to understand and then control the forces of nature, intellectuals have grown infatuated with the idea that an analogous mastery of social forces could produce similar benefits for mankind. Intellectuals are under the sway of such beliefs as that deliberate control or conscious organization is also in social affairs always superior to the results of spontaneous processes which are not directed by a human mind. Even makes the following astonishing, to me astonishing statement.

42:22That with the application of engineering techniques, the direction of all forms of human activity according to a single coherent plan should prove to be as successful in society as it that has been in innumerable engineering tasks is too plausible a conclusion not to seduce most of those who are elated by the achievements of natural science. It must indeed be admitted both that it would require powerful arguments to counter the strong presumption in favor of such a conclusion, that is a conscious overall planning society by a few people according The scientific argument will not lose its force until it has been conclusively shown why what has proved so eminently successful in producing advances in so many fields should should have limits to its usefulness and become positively harmful if extended beyond those limits.

43:31I hope you're able to follow that in general anyway. For me it is exceedingly difficult to understand what Hayek's reasoning here. He appears to be saying that because the natural sciences have made great advances and because innumerable particular engineering projects have succeeded, It is quite understandable that many intellectuals should conclude that the direction of all forms of human activity according to a single plan will be similarly successful. But, in the first place, the advances of the natural sciences were not brought about in accordance with an overall central plan. They were rather the product of many separate, decentralized, but coordinated researchers, coordinated through informed mechanisms, produced analogously in some respects to the market process, but there wasn't any central planning in connection with the successes of science to begin with, which is his premise.

44:31Second, from the fact that many particular engineering projects have succeeded, it does not follow that a single vast engineering project, one subsuming all particular projects, is likely to succeed, nor does it seem likely that most people will find such a claim plausible. Why then is it natural or logical or easily comprehensible that intellectuals should reason from the triumphs of decentralized scientific research and of individual engineering projects to the success of a plan by the supreme authority undertaking to direct all forms of human activity? Now it happens that Joseph Schumpeter reviewed Hayek's book The Road to Serfdom when it came and I think it's appropriate here to recite Schumpeter. He remarked that Hayek was polite to a fault towards his opponents in that he hardly ever attributed to them anything beyond intellectual error. But Schumpeter declares not all the points must be made can be made without speaking more plainly. Schumpeter here implies an important distinction. Civility Society in debate, including the formal presumption of good faith on the part of one's adversaries

45:47always in order, that's always called for. But there is also a place for the attempt to explain the attitudes, for instance, of anti-market intellectuals, a kind of form of sociology of knowledge. In this endeavor, it may be suggested politeness is not precisely what is most called for. As regards the positivist intellectuals, as regards the positivist intellectuals who argued from the successes of natural science to the need for central planning, it may well be that this false inference was no simple intellectual error, that it was facilitated by their prejudices, and resentments and perhaps their own will to power.

46:43In any case, Hayek's, I told you he was the head of my dissertation committee and he was a perfect gentleman. Maybe when he talked about these issues and discussed these problems too much of a gentleman, sometimes his attitude towards, you know, he dedicated the rote of serfdom to socialists of all parties. That would be like Ayn Rand dedicating Atlas Shrug to thugs, all the scriptures. It really strikes me as a little off. And to tell you truthfully, I've never heard of anybody ever convinced by Hayek's arguments. I know that some people, some socialists, Trotskyists for instance, were convinced by Mises' arguments and his very hard-hitting and not-too-polite attitude towards his opponents, but, well, that's the way Hayek was.

47:39But then it leads him to make statements that are very strange. This is what he says about intellectuals. Orthodoxy of any kind, any pretense that a system of ideas is final and must be unquestionably accepted as a whole is the one view which of necessity antagonizes all intellectuals, whatever their views on particular issues. This is an amazing statement. This is a statement Hayek makes of a category of persons that in the 20th century was notorious for including thousands upon thousands of prominent intellectuals of all countries, thousands upon thousands of prominent apologists for Soviet communism in all countries, that they opposed any form of orthodoxy, that they had to be convinced in a perfectly logical way.

48:30This is, it seems to me, indeed politeness to a fault. Hayek seemed to think that all intellectuals were sort of like Bertrand Russell, or something like that, like himself. And there were tens and tens of thousands of intellectuals who supported Stalinism. There were thousands of intellectuals who supported fascism and national socialism. A man who was one of the great American poets of the 20th century, Ezra Pound, delivered radio, happened to be in Italy during the war, delivered radio broadcasts on behalf of Mussolini and considered himself a friend and a supporter of Mussolini.

49:17And there'd be many other examples of something like that. So what Hayek is talking about I don't know. I think that that treating intellectuals with kid gloves is not the way to go. Well now we come to Schumpeter and his own theory of the intellectual proletariat. In Charding Hayek, as I quoted above, Schumpeter suggested that he might have learned a useful lesson from Marx. Now what this involves is this, Schumpeter had a lifelong engagement with Marxism, mainly as a critic, but like he had some similarities with Marx as well, like Marx he offered a highly pessimistic prognosis for the capitalist system, although for different reasons.

50:06But while Schumpeter holds that the intellectuals will play a key role in capitalism's demise, he in no way relies on the scenario set forth in the Communist Manifesto. There, Marx and Engels announced that as the final revolution approaches, a section of the bourgeois ideologists will go over to the side of the proletariat. These will be the ideologists, as they say, who have worked their way up to a theoretical understanding of the historical movement as a whole. By the way, note, these are not the people who are going to go over from the middle class where they were born to the communist movement. Note that it's not because they understand that communism is just or that it will bring about a better society.

50:57It is that they understand the theoretical movement. See what's involved there? That's a kind of Hegelianism. They understand how history is inevitably evolving. To be on the other side, to go against the current of history, is to be absurd. Like somebody trying to fly by jumping off a building and waving his arms. When they see the trend of the historical movement, On penalty of being absurd and insane, really, they have to support the proletarian cause. Not out of justice or any idea that communism is superior. Anyway, that's Marx and Engel. But this is such a laughably self-serving description that could not appeal to a skeptic like Schumpeter.

51:50Instead, his Marxism, if you want to call it that, consisted in examining capitalism Capitalism is a system with certain necessarily attendant sociological traits and exposing the class interests of the intellectuals within that system. As Jean-Péter says, compared to previous social orders, capitalism is especially vulnerable to attack. Unlike any other type of society, capitalism inevitably and by virtue of the very logic of its civilization educates and subsidizes a vested interest in social unrest. In particular, to go on, capitalism brings forth and nurtures a class of secular intellectuals, not the sort of intellectuals who existed in most other societies, societies who were connected with their religion, but secular intellectuals who wield the power of the spoken and the written word.

52:48The capitalist wealth machine makes possible cheap books, pamphlets, newspapers, today radio, television, the internet, the ever-widening public, and the ever-widening public that reads them, subsidizes education and literacy. The freedom of speech and of the press enshrined in liberal constitutions entails also, in Schumpeter's words, Freedom to Nibble at the Foundations of Capitalist Society. Let me remind you about Schumpeter. This analysis is contained in a few pages of his famous book, Capitalism, Socialism and Democracy.

53:38So, capitalist freedoms entail also what he calls the freedom to nibble at the foundations of a capitalist society. This is a constant gnawing away that is promoted by the critical rationalism inherent in capitalist society. Moreover, in contrast to earlier regimes, a capitalist state finds it difficult to suppress dissident intellectuals. Such a procedure Major would conflict with the general principle of the rule of law and the limits to the police power that are dear to the bourgeoisie itself. The key to the hostility of intellectuals to capitalism, in Schumpeter's view, is the expansion of education, particularly higher education.

54:24This creates in capitalist countries and you see this in developing countries also, an An enormous proportion of the youth of the country go on not only through high school, but now through college and university as well. The aim of the British Labor government is to get every young person into college or university. And that is almost, as in almost, but more than halfway been reached in the United States. One of the results of that, of course, is the dumbing down of higher education. You can't have the whole young population in college and universities and expect colleges and universities to be the same sort of thing that they've been before.

55:11In many cases, there's this enormous increase in higher education. Now this creates unemployment or underemployment of the university schooled classes of people. Many of them become psychically unemployable in manual occupations without necessarily acquiring employability in say professional work. That is beneath them now to work as auto mechanics or in pizza parlors and they're not really Many of them will be very good as lawyers, although that's what they're going to try to get into. Many of them will get into teaching in the public schools.

55:56A large proportion of my own students are future public school teachers and high school teachers also. Just as the worst people in med school, according to their grades and so on, become psychiatrists, The worst people in colleges, according to their grades and so on, become teachers, and this is not to say that they're not good teachers, obviously, but we're talking in terms of averages, but the point is, as Champagne indicates, that they just feel that they're too good to do the sort of thing which in previous generations people in their position would have done.

56:43The tenuous social position of these intellectuals breeds discontent and resentment, which are often rationalized as objective social criticism. And this is what Schumpeter writes, This emotional malaise will much more realistically account for hostility to the capitalist order than could the theory itself a rationalization in the psychological sense, According to which the intellectual's righteous indignation about the wrongs of capitalism simply represents a logical inference from outrageous facts. Remember, Nozick talked about this underlying animus, regardless of, and Stigler also, regardless of what particular accusations are raised and an answer.

57:29And Schumpeter says, ignore those and content yourself with the good answers that you've given to those accusations and then look to see what's behind them, why this constant production of attacks on capitalism. A major merit of Schumpeter's argument is that it elucidates an abiding feature of the sociology of radicalism and revolution, the hunt for government jobs, which I talked about in connection with the industrialist group and their analysis. The interconnection between over-education, a widening reservoir of unemployable intellectuals, the pressure for bureaucratic positions, and political turmoil was a commonplace among European observers of the 19th century.

58:21Later revolutionary movements, whether of the right or the left, can be understood to to a large extent as the ideologically camouflaged raid on the great state employment agency. This would be the case in the 19th century and I give some sources for that. From this perspective, we obtain a deeper understanding of the claim that the welfare state saved capitalism, which maybe you've heard. What the welfare state has actually accomplished is to furnish a never-ending source of state jobs for the mainly middle-class products of what is still referred to as university education without, as in the 19th century, requiring a revolutionary assault.

59:07All of the jobs in the EPA and endless social work of one kind or another, all the other aspects of the welfare state, well these are jobs now and those who cannot find who are While there is doubtless a good deal of truth in Schumpeter's identification of the systemic surplus of intellectuals as a source of anti-capitalism, it also presents certain difficulties, the most important of which is this. It is not so much the unemployed intellectuals who are are the ones who are employed. Intellectuals unable to find suitable jobs may well provide a receptive subculture, as well as occasional cannon fodder for revolutionary movements among communist anarchists in the late 19th century or some third world countries today.

1:00:07In Germany, after the First World War, artists and writers frozen out of the avant-garde and the broad culture of Weimar were prominent among the early national socialists. But Schumpeter's thesis does not hold for many other cases, probably the historically most significant ones. Emile Zola and Anatole France, Gerhard Hauptmann and Berto Brecht, H.G. Wells and Bernard Shaw, John Dewey and Upton Sinclair were scarcely unemployables in the intellectual world. Maybe the stars of the mass news media in all advanced countries, one could mention news persons in America who earn two million dollars a year or more, such being the savage inequalities of capitalism, are typically, these are people that you see all the time, are typically nibblers at the system of private enterprise, just listen to the tone of their voice Well, let's turn our attention to Ludwig von Mises.

1:01:39If some paid a decline to be polite to a fault when it came to anti-market intellectuals, what are we going to say about Hayek's mentor Ludwig von Mises? Mises frequently probed the basis of the anti-capitalistic mentality. Often, and he has a book by that title, that's not his best, often he emphasizes invidious personal motivation, Resentment and Vitter-Envy as a source of this mentality. Replacement of the society of status, the older society of status, by a society of contract. Society of status where whatever you did in life was pretty much determined by the position you were born into.

1:02:25Society of contract, whatever you do in life is to a very large extent depending on your own efforts. The replacement of one society by another aggravated feelings of failure and inferiority among those who did not succeed. With the quality of opportunity and all careers open to talent, lack of financial success became a judgment upon the individual. This is a burden he attempts to shift by scapegoating the social system. Intellectuals, according to Mises, share this weakness perhaps in an accentuated form. On occasion, Mises goes so far as to trace the psychological roots of anti-liberalism to a mental pathology.

1:03:11The scapegoating of the social system by those unable to cope with the reality of their relative failure in life is, Mises claims, a mental disorder which psychiatry has so far neglected to classify. Engaging in a bit of volunteer psychiatric nosology himself, He ventures to label this condition the Fourier Complex after the early French socialist Charles Fourier. Psychiatrists, as far as I'm aware of, have not been eager to accept Mises' volunteer work. Although Mises' focus on envy and resentment is the best known of his attempts to explain this anti-capitalist mentality, I submit that there is a second and different approach of his that may be more fruitful.

1:04:01In an early essay entitled The Psychological Roots of the Resistance to Economics, Mises launches a radical attack on the strand of traditional Western morality that has stigmatized money-making. Citing a famous work by Roman Cicero as an exemplary text, Mises identifies the contempt for money-making as deeply ingrained in Western culture. And this, he says, is the source of the hostility towards capitalists, towards trade, and towards speculation, which he thinks dominates our whole public life, politics, and the written word. This contempt, nurtured and sustained through the centuries under changing regimes, is the natural outgrowth of class morality.

1:04:52By the way, Mises, as you can imagine, given his views, is very distressed by this contempt for money-making, for commerce, for merchants, for business people that permeated our civilization and that permeates our culture, which is one reason that he had such enormous respect for Ayn Rand's Atlas Shrug when it was published. Now this, he says, this cluster of values, is the natural outgrowth of the particular class morality. Specifically, the morality of the classes that are sheltered from the market by the circumstance that they live from taxes. They don't have to worry about the market. They don't have to care about speculation, making a profit. In our own day It is a morality generated, as he says, by priests, bureaucrats, professors and army officers who look with loathing and scorn on entrepreneurs, capitalists and speculators.

1:05:59Insight into the prevalence of this anti-market ethic helps explain, as Mises' other envy-based approach does not, the anti-market attitudes often sound among the economically successful, even in the private sector. Because as Mises says, no one escapes the power of a dominant ideology. Thus, entrepreneurs and capitalists themselves are swayed by the moral outlook that damns their activity. And it's not a rare occurrence that even the business man who made the money, But, very especially, his sons and daughters turn against the capitalist system, as Mises explains, because of the dominant ideology that they are exposed to.

1:06:52They suffer from a bad conscience and feelings of inferiority. As Mises says, this shows itself, among other things, in the support given to socialist movements by millionaires and their sons and daughters. Well, I have a number of other important points to make about this, about the intellectuals in the marketplace, but let's stop here. Talked about the Industrial Revolution again, some further points and maybe some comments or questions are left over from this morning, but now also about this topic that I'm pretty sure you've considered from time to time. Why is it that the intellectuals, many of the people that you come across, your friends, your peers, your teachers, why is it that they seem to have this animus against capitalism?

1:07:42So, any comments or questions about any of the things that have come up? I think that they believe in what they do, and I think that if we don't do it, then we become in fact against that movement, but I don't think they even mean what they do, even if they mean it from the heart, they wouldn't know where to go. Well, no one doubts that they believe it. The question is, why do they believe it? Because that's what? Well, that's the chicken and egg thing. Who is it that teaches them that?

1:08:31And this has been going on for many generations now. Why is it that they have this systematic bias against capitalism? You've never experienced what Nozick talks about, say you're talking to even your teacher or maybe with some friend of yours and they bring up something about the capitalism and then you answer it and pretty successfully the person even says, okay, maybe you're right about that. But then immediately brings up something else. Doesn't it suggest that there's a prejudice involved? I think it's interesting to find out why it started and there are some suggestions of Mises that the whole culture going back a long, long time has been dominated by the ethical A general outlook of a certain class, basically the clerics you might say, actual religious clerics or secular clerics, a certain class that doesn't have to worry about the market, that lives by taxes or endowments.

1:09:50In the case of professors, most of my colleagues, I would say, have not thought very deeply about this, and they have a general attitude. Look, of course you get a check every two weeks. What's the problem? Why can't we have an economic system like that? That makes a lot of sense. You just get a check from the state of New York every couple of weeks, and that works out fine. I was wondering if you think that what you just said about the secondary and post-secondary is against the system in Bismarck's right, and also a comment that puts the answer of growth in social systems as a consequence of technology.

1:10:43Nietzsche. No, Nietzsche was criticizing the educational system.

1:11:03by normal standards compared to a number of other countries, that socialism was a variant of Christianity. Many people have suggested on both sides, that is, people who were in favor of socialism said that all that socialism is is practical Christianity, or Christianity brought up to date. The Sassimonians, as we'll talk tomorrow about, maintain that. Nietzsche was using it in a negative way, because he disliked both Christianity and socialism. But I don't think Nietzsche's political views, frankly, are very interesting or important. There is a passage in the Lusbeck Zarathustra where he talks about the state.

1:11:48You know, you can have your own seminar sometime at the Mises Institute, and no, what he calls the state in fact is the coldest of all cold monsters. And now Mises, Mises works are very valuable, on the other hand they do not contain much humor. There is, from time to time he attempts humor, and he quotes this passage from those pictures of Zarathustra, and he says that the state is neither cold nor warm nor lukewarm, all the state is is an instrument for certain purposes to destroy people who would break up society by killing, stealing and so on.

1:12:35But I didn't laugh either when I first read it. So Nietzsche does have this statement that some people have pointed out about the state. I'm not sure what he really meant by that. He disliked the German state of his own time, the imperial German state, the second right, but I don't know how much politics really can be gleaned from Nietzsche. Maybe other people do have sources for that. Yeah, Marcus. A little louder, please. Why is that? Because of what?

1:13:31Yeah. Well, other... Well, okay. He does talk about ressentiment, which I imagine means basically resentment, as does a German sociologist a few years later, Max Schaehle, more fruitfully I think, but Nietzsche does not mean resentment of the economically successful. My word is no, sir.

1:14:34I'm getting a kind of sense of how to approach your contributions. So let me get close and listen to what you have to say. Mario Vargas Llosa, the Peruvian writer. Yes, the Peruvian writer, yes. of the 50 or 50 right wing intellectuals and people, whether it's light to switch from left to left, left to left, and what I was saying is that the intellectual circle has a very small field of influence in the entire world. So you want to get in the building to be with that. If I would have been a right wing or a broad open market, broad competitive intellectual in those days, I would have never been known around the world.

1:15:23Well, I don't know what to say. The problems are so deep. My last lecture I'll talk about and the Possible Future of Freedom. How to go about changing things would be very hard to say, but I don't think that working within the system of government education at any level, including colleges and universities, is going to help very much.

1:16:12And actually, one hopeful sign is I can't imagine that the system is going to last much for Longer, that is the system of standing in front of a group of people, I mean the system that kids have to go through six hours a day for 15 or 18 years of their lives, sitting listening to somebody in the front of the class go on and on, for one thing it's extremely labor intensive and that's why the cost of education keeps going up and up and up, college Research Education, for instance, and with the modern technology, I cannot see that it's going to last very long, that alternatives based on the homeschooling will become ever more easily available to masses and masses of people.

1:17:05What? Well, not just the internet. All of modern technology, you know, DVDs with CDs that contain each one, let's say, 10% of the Library of Congress. And well, look, I mean, how long What's been going on now? A few years? What's it going to be like in 20, 30, 40, 50 years from now? Yes? You're asking why... Yeah. I'm not just asking, everybody asks this. The fact of the matter is that constant critics in every liberal arts department, not in engineering, you know, Hayek is wrong about this.

1:18:00Not in engineering, not in agricultural science, not in chemistry and biology so much, but in the liberal arts. They're systematic enemies of the capitalist system. System. Q. Isn't it largely responsible for this? Isn't it so that it's all part of the public administration? A. Well, you raise an important point. I wouldn't say it's the only cause, but it certainly helped the socialist cause along. Well, you raise an important point. I wouldn't say it's the only cause, but it certainly helped the socialist cause along. If we take an example that I know something about France.

1:18:46The French public education system is what made the French public, first of all, Republican, considered the monarchist, talking about the France of the villages and the towns, thousands and thousands of villages and towns out there, not Paris, made France a Republican, made it secular, that is, deprived the French of their Catholic traditions, and in time, in The short amount of time by the early 20th century made a great part of the French public socialist. The public school teachers were the agents of these ideologies that entered the interstices of the French society. To an extent, yeah, to an extent.

1:19:34Less when American public education was under local control, and now with the federalization of education, sky's the limit. These Republicans remind me of what Benjamin Constant, whom I've mentioned before, said about the reactionaries and the monarchists and the theocrats who are in power. He said, you're in power and now you're willing to use all the elements of the state to indoctrinate the public and indoctrinate the youth with your ideas. But once you've set up all those agencies for indoctrination, what do you think is going to happen when the radicals take over? They're going to use those same methods to indoctrinate, as the Jacobins had, to indoctrinate the public with their ideas.

1:20:22Why not get rid of those instruments altogether? And so what the Republican Party is doing in America, nationalizing education, thinking that they're going to be in control, they're going to set up conservative so-called standards and so on, they're not going to be in power forever. I mean, can you imagine 20 years from now just talking about 9-11 and just going on and on, the same stuff. The other side is going to come in sooner or later, and they're pretty good at using these instruments to serve their own ideology. Daniel? It seems to me that the many companies are trying to justify this, but they also have this larger and more critical role, with the attention of, for example, financial raising models and things like that.

1:21:16I was wondering if you could go into a bit of a general development of the economic, because in the economic it seems to me that that is a kind of a dangerous one, because it doesn't the world is back to its constitutional order. Oh yes, yes I was going to say that the opposition to commerce and moneymaking and so on is one thing and the opposition, the general opposition to the foundations and values of your society is another thing. That's a very good point because the second is a more modern phenomenon and I think it is basically traceable to the time of the Enlightenment Well, one thing that's involved is that the intellectuals were no longer supported by the church and by the nobility, which they had typically been before.

1:22:06There was now a general public who'd buy their books and they could live by selling their books, so that they were not beholden to the mainstays of society. And they found in many cases that the public was interested in this adversarial, in this criticism of society, this undermining of society, which is typical of what happened in the Enlightenment. Of course you could say the liberals were also undermining certain foundations of society, and this is something Schumpeter is pointing to. The classical liberals started it. Maybe they didn't know that it wasn't going to stop with them. Maybe they hoped it would stop with them, but it doesn't. It goes on, and then other aspects of society come under attack.

1:23:00Tocqueville said, okay, the French Revolution did establish certain liberal reforms. did away with the privileges that attached to what remained a feudalism and the nobility. However, then what happened was that there was only one privilege perceived by everybody else, and that was property. And then property started to come under attack. The people who thought that they could get rid of all the other privileges or all the other distinctions and Leave Property, Tocqueville said that was an error. Dan.

1:23:44Well, how does that work?

1:24:01Well, that's an interesting point. If you look on socialism as an attempt to create one vast human family, then you can say that our early experience seems to predispose us to that, because we all grow up and become human beings through the family. And then, suddenly, to go from the family to a world that's individualized, from the family where everybody does get according to their need, as much as possible, to a world where there's a price on everything and you have to pay for everything that you ever get, that's traumatic.

1:24:50I don't know how far to go with that, though, or how to assess the validity of that, Society of that. But it's an interesting idea. And as you say, sociobiology would tell us that, or it doesn't even have to be sociobiology, it could be the book of Genesis that tells us that we all come from families, families are natural. And so then the contrast between the larger individualist and profit-oriented society versus the family, the warm nurturing in Family, maybe you could say that that's behind some efforts to achieve socialism. You want to say something about that? Well, just in response to that, the things I've read about human development in the family is that we're actually leading the others with jobs because we're the national community that they found development.

1:25:47It is because of the family and the identity of the community that we're in that kids find

1:26:21When they reflect upon certain ideas, like economic economy, it is an application that you need to set with yourself. But people first begin to notice that, wow, it seems to be a regular concatenation of events and sequences. When they reflect upon that, the natural answer is to say, how is this designed and planned? And if people don't go through and learn from the right sources, then it would make sense that they would maybe assume that they were quite behind. and I think a lot of alienation, like I look at my own family, my father's oldest sister, they all came from a middle class rural family, but she wanted to become an educator.

1:27:15I've heard that my cousin, you were all taught that hard work was important, even though we had sort of social excuses in the early days, we were taught that hard work was important, and a lot of my friends showed us that. But my cousin on the other hand, he's just a little brat in the lecture, he's totally alienated. Yeah, okay. Listen, don't come 1,500 miles to Auburn, Alabama to badmouth your relatives, okay? I don't think that's really very nice. You could have just said I knew some persons and people and such and such. Well, we're going to, I still have a few things to say about the intellectuals in the marketplace, which we'll deal with tomorrow morning, and then basically tomorrow I'm going to be dealing with early and later socialism, the utopian social, Rousseau, the utopian socialists, Marx, and then the history of Soviet communism. Thank you.