Limits of Limited Government Mercantilism, the Unvanquished Foe of Liberty

0:00The topic of today's conference, the delusion of good government, I think in a way reminds me of my definition of a good meeting, that a good meeting is just a bad meeting that could have been worse. And as we see kind of the history of this country that good government is just bad government that could have been worse. And we've got bars sort of. So my framework in here is that we went through both an intellectual and a physical revolution starting about 1776 to try to abolish absolutism and really the economic policy of absolutism, mercantilism.

0:52and what we really see is one of the big delusions of good government now is just this ubiquitous almost public private partnerships or what I labeled in here is the entanglement of big government, big business, big labor and big charity at the expense really of all of us in here. So, that 1776 just was an incredible, remarkable year that you had the physical revolt, which was the American Revolution, and at the same time you get the publication of Smith's book, An Inquiry into the Nature and Causes of the Wealth of Nations, and I'm going to focus Let's focus a little bit on Smith to start with because I think he does two really remarkable things in that book.

1:56One, he asks the right question rather than too many people ask the wrong question. What is it or how is it that some people started to produce, accumulate and expand wealth? And the first is kind of, if you look in your packet at figure one, which is just some data from Britain from early in the 12th or 13 hundreds on wealth to about 1995 that's in Mark Skousen's. And while this is data on Great Britain, the first part of that data, if you look just so century after century after century Theory of subsistence level production income. And not only subsistent, but you'd see in that society that you really had 90 to 95% of the population was living really in almost Abject Poverty, subsistence-type farming, where you're really one bad harvest away from hunger and two bad harvests away from starvation.

3:21And if you really look at the undeveloped part of the world, that that pattern of human existence has persisted in many ways even to the present state. So what was it that caused the change, that started that acceleration, where not only did you see the standard of living in absolute terms go up, but if you really look at the U.S. economy, we've really almost reversed the situation, where we've got really 90 to 95 percent of the population lives very, very well in material means, particularly compared to historical standards, and we're dealing with this fringe 5% that we now...

4:07What causes poverty? And I would say that one's almost the no-brainer, that what nature provides are not resources until some human figures out how to take what's there and build it into an action plan to to make things better. And then the challenge becomes what kind of institutions, what kinds of environment led to improvement. And one of the dilemmas I'll bring up in the mercantilist system is, well, it's a system of absolutism. And I try to stick with Smith's sort of hidden definition of what mercantilism is.

4:57And it's basically a system of privilege and restraint that you work through the government to get the privilege or the opportunity to take advantage, produce, market, sell goods and services. But often what came with that privilege was restraint on other people from engaging in that same competitive activity. Mercantilism is still with us and one of my criticisms kind of of Rothbard, or not Rothbard, but Hayek and Mises' approach to interventionism, mercantilism, is they view that there's no middle road, no possible feasible economic system, and I follow David Osterfeld here, that mercantilism has been very, very successful. One, because compared to the old feudal or other type of system, it does open up opportunities for some that enhanced wealth creation, but it also locked in the figure two that I point is kind of Osterfeld's kind of topography of economic systems and he's got capitalism and as you move to the right, you'd be moving Moving more towards the anarcho-capitalism of Murray Rothbard, actually left on the diagram,

6:27and then to the right you move into what he classifies as interventionism, heavy government interference in the economy, the middle ground he refers to as mercantilism, and then the far extreme over into socialism, and I just argue if you look around and keep this definition in mind of this system of privileges and restraint is that historically this has been a long enduring type of economic system. And one of the political kind of undug is that whether it's a revolt through an election or revolt against the absolutism in an actual revolution is that the temptation is always once you become the elite is, wait a minute, it's not the system that was so bad, it was who was in charge of it.

7:25And so you see a tendency for the revolution, and I'll pick maybe Alexander Hamilton and The system of the Federalists early on that quickly thought, well, wait a minute, it really wasn't all that bad under the British system. It's just that we weren't in control at the top determining who the beneficiaries would be and who would be less privileged or who would tax. So it's kind of an ongoing in there. So anyway, the second is Smith actually to me also provides the correct answer to how to become wealthy and actually with a couple of quotes in there, he first, about 1755 in a lecture probably to a group at that time equivalent to this type of thing, first sort of made the comment that little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, pardon the spelling on the handout, easy taxes, and a tolerable administration of justice. And to Smith, justice This was the protection of person and property from predators, not the modern social justice

8:51in there. He says, all the rest is being brought about the natural course of things. All governments which thwart the natural course, which force things into channels or which endeavor to arrest the progress of society at a particular point are unnatural and to to support themselves are obliged to be oppressive and tyrannical. Nearly 20 years later when he published The Wealth of Nations in his attack on mercantilism, he writes, it is thus that every system which endeavors either by extraordinary encouragements to draw a particular species of industry a greater share of capital of society than that which would go to it naturally. Sound familiar with green energy policies? That the only thing missing from those policies is any affordable energy in the middle run in here. Or to force from a particular species of industry some of the share of the capital which would otherwise as be employed in it is in reality subversive of the great purpose which it means to promote.

10:09It retards instead of accelerates the progress of society towards real wealth and greatness and diminishes instead of increasing the real value of the annual produce of the country. Why has the system of privileges and strengths continued, and I think one of it, as Osterfeld points out, is that, or let's say I'll go back, and if you look at my view just from the topology of Osterfeld in there, is Smith's looking at the system that's starting to create well, and if you really look at that chart, how slow that progress has been, so So what insights he really had on what might have been coming is that Smith looked at what was going on, saw the accelerating increase in production and wealth as being generated by the opportunities that were being opened up through some of the privileges and he answered, well if this is beneficial for some, just think how much more beneficial if we just opened it up to everyone else, so he points in the answer that you want to eliminate these

11:28special privileges and these restraints and leave people free following what we now refer to as self-interest or gets misrepresented as selfishness or greed, where in Smith's Framework, actually self-interest fell under the virtue, properly understood, of prudence. Other critics of the system looked at what was going on, and Marx particularly, but many others, and looked at problems that still existed, and inappropriately blamed those was problems on free markets rather than on the system of privilege and restraint.

12:22And their recommendation was the wrong people are benefiting, the wrong people are bearing the burden. So what we need is to achieve the goals we want is move towards more government and more Control, an enlightened government that would more appropriately choose who the beneficiaries would be. And so we perpetuate this system. And the confusion comes in and Osterfeld in the volume Requiem for Marx that was edited by one of our later speakers, Harry Moulson, when you go back into the writings of Marx Marx points out that Marx gives a pretty good definition of capitalism as essentially freedom to produce and exchange, but then when he shifts and starts to criticize the outcomes of that system, he really criticizes mercantilism and the restraints that have been put on and and limited the advancements of capitalism.

13:36So we get the sort of unvanished foe as mercantilism and to see how prevalent this really still People pointing out China, Japan in the 50s, other areas pushing for indicative planning, industrial planning, goals like that, that as you move from a more restrictive system to a Mercantilist System, Do a Pair to Growth, and Monday's Wall Street Journal, A Businessman, some of the worst enemies of free market or business people, is by Jeremy Wison, The U.S.

14:30Needs Its Own Industrial Policy. And he says, the term industrial policy should not be seen It certainly isn't in China, nor should it be anathema for the U.S. government to provide capital and other incentives to keep scientific and entrepreneurial talent at home, should give aggressive trade assistance and incubate new businesses, all of which was done in China. Then he ends it with a comment about maybe businesses should actually do this type of thing. It's just an incredible temptation and someone would also, one of my duties as Dean of the School of Business, as I've said on an advisory board to the Denver Small Business Development Center, Development Center, Small Business, the Heart of America, the Job Creators, those that most need the opportunities to open up.

15:34The number one concern for many of these small businesses is how can they get help on procurements? How do they get onto the government bandwagon to get benefits from that? I've also been participating in the Chamber of Commerce Energy Coalition on the cap and trade issue. While some were rightfully concerned with how this was going to restrict their opportunities, how it would limit their ability to provide affordable energy, the major interest in that group was how do we work through the lobbyist and the legislative process to direct subsidies that we can get in grants that will offset our capital costs? How do we figure out to get involved in the financial rewards that would come from creating new market instruments in Trading Carbon Emissions and or Carbon Offsets. And then there's always lawyers at the table.

17:01So how can we make more money providing you services to help you get on the gravy or the bandwagon in here? And we're now at a real crisis. And if you can see the problem, figure Chapter 3 was in Thursday's Wall Street Journal on an article by John Taylor, Michael Boskin and other sign-amants. Some of the packets may not have that because I didn't have, but it shows a forecast going out to 2015 from the most recent budget that the size The size of the U.S. government relative to the U.S. economy could get up pushing 50 to 60 percent of the total economy, total takeover in here.

17:58So the problem is how do we avoid that? How do we get back to this simple system of liberty and justice? How do we get back to an economic system based on the economics means? Where people get wealthy by producing and exchanging, and they engage in true charity, gifts. It's often forgotten that that's part of a free society. That you can make the resources that you've created available to help society or to help others as a way to solve problems as opposed to the modern political conception of compassion or charity is to help out your less fortunate neighbor by taking resources away from your more fortunate neighbor.

18:51The political means or predatory behavior, so we really face challenges. We have, I think as I point out, the solutions is really, simplest terms, is recognizing what we need is what Osterfeld and really looking at more in the development of the world, is we need to ensure that we have an enabling environment, an environment based on private property, production and exchange. And even some mainstream economists are catching on. Esquire this week has an article by Darren Asmonglow on essentially what makes a nation rich and providing an answer very, very similar to Smith's.

19:42Proper incentives and proper incentives require proper institutions, but to fix or get proper For institutions, you need to fix government. You need to get it back into its limits in here. And the dilemma we face is that there are proposals and the article in the Wall Street Journal by Taylor and them, it's worth looking at because it probably would would be good government in the sense that I used it at the start, is that it's not as bad as what we currently have in there, but one of the guides we have, and the handouts and I won't look at time here, that we should seriously be looking at any reform that eliminates or reduces the use of mercantilist type policies, the use of people relying on privileges to to Create Wealth, and Relying on Restraints, the Activity of Others to Protect and Maintain that Wealth Over Time.

21:10Even this kind of, what are the best recommendations, and maybe 15 years ago I got an email from Walter Block and he asked me, well, we've got a bet down here at Loyola, New Orleans. Are you an anarcho-capitalist or just a run-of-the-mill classical liberal? I wrote back to him, well, the answer would depend on how recently I had just read Rothbard. His arguments are very, very convincing in there, but then I talked about that I probably at that time was leaning more towards the classical liberal because when I taught in in Class, I could make points more in the classical liberal line, and people would listen.

22:05And then you could direct them to Rothbard's argument, and those that are rational would probably be persuaded to move more in that direction. But we really are looking in short run, and I cite a couple of papers in there that I I think, one, we need to get the discussion that goes in the common area here away from the focus on the size of the deficit and the size of the debt. The problem is the size of government. And a couple of those works, Richard Vetter and Galloway from both out of 98 and then Randy Holcomb, James Gortney and Lawson who did some pretty interesting work both on the US and others.

22:55I think their answer comes out too big, but they look at core government, which is kind of consistent, a lot broader than many of us would like, but it's better than that, and some very, very convincing data on how over expansion of government beyond those First Core Means retards growth and prosperity rather than expands it. So we've got one is, and I guess I'll close with that, but at a preferred alternative would be to look at Mises, which I'll quote, and he's got another quote somewhere that he says, you know, government is like gasoline if kept to its appropriate and proper use can be very, very useful within society. Problem like gasoline, if it is misused, it can be quite explosive and quite destructive, and that's really the dilemma or maybe the delusion of limited government is that no matter how much you think you are limiting or setting up government to provide The sort of necessary enabling things that are often pointed out as protection of person and property

24:19and from Smith is from foreign predators and domestic predators. This simple system of liberty and justice in there, very consistent with Mises. You still face the dilemma that how do you finance that without going into immoral means. But it's certainly a better benchmark than what we've got. The core government is a better benchmark than what we've got. How do we scale down? How do we keep this train wreck from happening in there? And then I'll just close that I think there's lots of better economists and economic models that make arguments for free markets is based on the economics, that it's the best system for generating wealth and prosperity, but ultimately the defense of a free society or free markets is moral, and I paraphrase Bastiat that I think should be maybe our ethical guide as you look at proposals, one do they move us in the right direction, but when we look at what goes on in here is how fundamentally Can any law be just, that allows people to do through government, that which would be

25:46considered illegal or immoral if done individually, that if we can avoid the predatory means. And for the business people in here, my handout, there is a, one of the privileges I had as a School of Business Dean is I occasionally could bring in speakers and I saw an article School on Business Ethics by Rich Wilkie who's another adjunct scholar at the University of Louisville that I think should be read by more and more people because ethics are important in a free society in here and schools of business are being pushed through certain channels and stuff to emphasize business ethics, but it really in many cases is the way they left us, philosophers are getting their foot into the business school and getting emphasis on sustainability and businessman's obligation to give back to society in here.

26:54And Rich had a really interesting, as an ethical business person, that you should pledge not to take money from the government, whether through procurement or subsidies or whatever. Because the ethics that drives businesses to fulfill people is that you essentially, In your self-interest, you ask yourself, what is it that other people need as consumers? And as you fulfill that need through your plans and resources in there, where you're successful, where you provide value to other people, your wealth increases and enhanced, as opposed to the modern version of how do I get wealthy, is how do I, through lobbying, to direct the government to direct either revenue forms that can be used as the founding capital, subsidies, or to sell my products into, and then I guess the last thing is a piece I did in, got me in trouble in the academics, a paper I did on separating school and state, privatization, true and false, is I lost a promotion when that came out, and then the next year I advertised it as an

28:21Boucher Paper and did quite well, but one of the points I try to make in there is that as we're looking and what do we need to do in this environment in here is we need to shrink government and where government does exist it needs to be decentralized as much as possible down to the local level. And in that process, we need to privatize resources, but false privatization, where you just have the government collect taxes, pay for the service, and they allow firms occasionally to compete through a bidding process to see who will be. That's not privatization.

29:07Privatization is both the revenue source and the product and service come through voluntary Interactions and Agreements with Citizens in a Free and Open Society.