Response to A Lesson in Self-Control


In some ways I quite agree with you. Human behavior is not reducible to a collection of equations and charts. It is not always rational or informed. This is the problem with Keynesian Economics, and why I think it is little better than alchemy. Why, after all that has happened, anyone bothers listening to a word they say anymore is beyond comprehension.

I do believe you have misunderstood Austrian Economics, though. In many Austrian texts, you will not find a single chart or equation. Austrian Economics is dedicated to logical principles of natural law as revealed through the study of human action and objective reality (for instance, increasing the supply of money will inevitably cause prices to rise more than they would have without the supply increase). Nor are Austrians terribly concerned with efficiency as espoused by the Chicago School. Their focus is on freedom and justice.

I am terribly confused by your assertions. You claim that free markets are inherently unstable and do not self correct, but you then go on to criticize the brutal market manipulations of government that cause instability, impede corrections, and ultimately cause collapse. This is a contradiction. If markets cannot self correct then they need government guidance. If government guidance is the cause of distortions, though, then it interferes with the market’s ability to self correct.

Look back over history at the collapse of economies and you will not find market failures. You will see government interference acting as cancerous tumors in economies. For a wonderful Austrian view, read Murray Rothbard’s essay, “Economic Depressions: Their Cause and Cure.” Another work which, while not entirely Austrian, correctly identifies the causes of collapse is Manias, Panics, and Crashes: A History of Financial Crises by Charles P. Kindleberger. What are these collapses, though? They are the violent and painful expulsions of the hardened tumors. The market, even if it is a black market, will reassert itself.

Your example of the Jaguar automobile illustrates this perfectly. If the state controlled the means of production, could it possibly anticipate the demand for such a thing? If, by some chance, it managed to procure an oracle who could accurately channel all of human desire (and I guarantee you this oracle is not to be found anywhere near our government), how could it possibly know how best to produce it? Knowing nothing about cars, let us say there is another sudden bursting of the dykes in New Orleans, placing a sudden demand on steel supports. However, the government, which controls production, and has divorced itself from the medium of exchange, has declared that a set amount of steel shall be set aside to make Jaguars while dykes, which have already been built, get no steel allocation. It is possible that a savvy agent will push through a change in the ponderous government agencies before New Orleans is flooded again, diverting all steel away from cars and into dykes. This inevitably causes other problems.

In a free market, the demand for steel in the dykes would push prices up. Fewer jaguars would be made because fewer people would be willing to pay the higher prices. New Orleans, which needs it urgently, though, would pay. They would get the steel they needed. Some, however, would remain behind to build expensive luxury cars. Other auto manufacturers would begin to use cheaper and lighter metals. The market self-corrects because thousands of people are acting on their goals given the reality they are faced with. These thousands of actions cannot be matched by a government overseer even in this one instance, much less an entire economy. All it could manage in its ponderous way would be to respond too slowly to the dykes while causing massive shortages in automobiles.

Taking another example I like from Thomas E. Woods, after the 9/11 disaster, government stepped in to limit hotel prices to prevent what it called gouging. It froze hotel prices. As such, there were hundreds of people with no place to stay. Those who had hotel rooms in NY City obtained them simply by being first in line. Had government not stepped in to interfere, prices for rooms would have risen quickly. A family of four, instead of taking two rooms with double beds, may have taken only one with double beds. Business people traveling together may have chosen to share a room. People who could have driven a little further to stay with family or friends would have done so, rather than paying the higher prices. People who had nowhere else to go, though, and needed a room, would have been able to get one—at the higher price. As a result, fewer people would have been left without lodging while suffering a government imposed race to hotels at prices which do not reflect reality.

The market does not solve all problems. However, it is the best system with which people can make choices given the reality they face and the resources available. On the other hand, socialism and government control of production is quite simply a poison.

The healthcare debate is no different. Although I am no expert in health policy, it is not hard to see that the bill Congress is debating represents nothing but financial ruin. It is an absurdity that they claim that this, the largest expansion of entitlement programs in history, will actually decrease the deficit. It is even more absurd that, after seeing how all our other entitlement programs go bankrupt and cause financial chaos, or just by looking at U.S. finances right now, anyone actually believes their claim. The human effects are perhaps even more terrifying than the financial ones when you consider the inevitable rationing and shortages that will flow from this horror.

That does not mean there is nothing government can do, though. I recognize that it is easy, really easy, to point at the health care bill and cry that it is a monstrosity. People don’t want to be told, “No,” they want to hear solutions. Dr. Ron Paul, a congressman from Texas, is a medical doctor, a staunch adherent to the Austrian School, and a tireless defender of the Constitution and our individual liberties. I have been impressed with his solutions, which clearly and simply address the problem, remain within the bounds of the Constitution, and preserve free market and individual liberties. They also cost us very little as they do not rely on government solutions.

Lowering the Cost of Health Care
Healthcare & Big Government: A Marriage Made In Hell
How to Solve the Healthcare Crisis

At a time when national bankruptcy and total collapse of the dollar is a real possibility, it seems insane to me that we would not try these free market solutions before leaping off the socialist cliff to commit national suicide.

Julian Dunraven.

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