Michael Hanson
Business in Review


By, 09/07/2011

Books discussed in this Review:

You can’t redistribute wealth, only money. Money is just a signifier. If you transfer money from one highly productive person to someone less productive, the recipient will have the means to buy something more, but that’s it. No ability to create wealth has changed. The highly productive person will still comparatively create more and better things (and thus have more wealth). Thus, such transfer payments—if they have any value at all (since there is inherent ill in forcing money where it otherwise wouldn’t flow)—are temporary and don’t create true economic value. (Remember, economics means literally “economy”—the idea of producing more in the presence of scarcity). And no amount of Keynesian aphorism has proven definitively otherwise.

And this is just one reason, among legion, communism is dumb.

But commies are also utterly fascinating: How does an idea so clearly asinine have such an ability to boggle so many minds? There’s no need to fully critique commies here; it’s been done so much, by this point, most all of it’s tautology—but the issue itself is still of interest.

True, hard line, full-on communism is mostly an anachronism today (arguably, even for China). But like all things political, the ideas just take different shapes and forms (e.g., some in government circles today call taxes “revenues” when they’re still just taxes). So while communism might seem dead today, its pieces continue to survive in various forms worldwide.

Actually, more mainstream economists are quasi-Marxist than I'd realized. Yet I’d wager few have taken the trouble to actually read Marx (Capital is one heck of a long slog). If they did, they might be horrified by the resemblance. To my view, much of demand-side economics’ edifice wears the “bigger government” suit but has socialist underpants beneath.

Even a cursory reading of Marx reveals this. Marx is explicitly communist, but really, he was more of a socialist (as we understand these terms today). He wasn’t Lenin, Mao or Stalin; his ideas were more like what a lot of Europe is today. I spent a good chunk of the summer reading through Capital, the Communist Manifesto and a few other infamous works from Marx and Engels, along with their defenders. What great rhetoricians these guys were! Extremely persuasive and intelligent. Which makes the point: All economic theory, all sorts of world views can have their own internal logic, but it’s a question of practicality and phenomenology (the objects of direct experience). Communism just doesn’t work in the real world.

Actually, one of the 20th century’s great socialist manifestos came from America—Upton Sinclair’s The Jungle. I perused the book and also listened to an excellent audio performance by Casey Affleck (which I highly recommend). Over a century old, The Jungle caught the public’s attention by exposing miserable working conditions and unsanitary food production in turn-of-the-century industrial America’s urban sprawl. (No doubt, some of this was true—and public outcry ultimately led to the Meat Inspection Act and the Pure Food and Drug Act of 1906. But ultimately, much of Sinclair’s work was proven either outright false or highly hyperbolic.) Really, the work was a barely veiled, elaborate advocacy for socialism.

The main character is Jurgis, a strapping if not super-sharp young Lithuanian immigrant in Chicago. The novel starts off happy: Jurgis is wed to his beautiful bride Ona amid much feasting and imbibing with friends and family. But that’s the last happy thing in the book. From there, Jurgis sees his wife and other family members in servitude and reduced to whoring, his family swindled and most of them dead of famine or illness, alcoholism or physical abuse, and is himself jailed, fired, lied to and so on.

This preposterous perpetual-motion-deus-ex-machina of misery is not just an indignity to poor Jurgis, it’s offensive to good literature. True, life was very rough in those days, but to cram every possible ill ever conceived into one young man’s life is farce.

At a certain point, Sinclair not only abandons what little plot there is, but actually just abandons the characters in place of a bunch of pro-socialism speeches. Jurgis is barely even in the last 50 pages or so, and the book abruptly ends with a stumping socialist speech. No reaction from Jurgis, no cap to the story.

Never mind those conditions pretty much no longer exist in any large form in America (the poster child for capitalism), The Jungle, above all, accentuates socialism’s populist appeal. But persistent interest in it as a historical work of very effective political rhetoric should not obscure its triteness as an economic document today.

Speaking of shades of communism, Henry Kissinger’s On China is a ripping good read…for about the first third. Kissinger’s overall thesis: That China is best understood as a traditional Confucian, semi-feudal nation rather than explicitly communist is both provocative and probably right. The isolationist history of China, the view of itself as the jewel of the world and basically everyone else as barbarians, are all as relevant or more as studying Mao’s doctrine of continuous revolution. The latter two-thirds of the book are essentially memoirs of Kissinger’s political exploits with China. Which are sometimes interesting but not particularly enlightening—and often tedious. China continues to look more and more capitalist, but within a feudal, Confucian-style government.

Now, let’s cleanse the palate with about as anti-communist a book as you can find: Hayek’s The Road to Serfdom. This book has been resurgent in popularity lately—even hitting some bestseller lists—on the wings of political stumping from Ron Paul, Michelle Bachmann and the Tea Party extant. It’s become kind of their manifesto (Paul, of course, would probably tend more toward von Mises).

Serfdom is full of aphorisms and reasoning about free market capitalism many will think is unique and relevant to today, but Hayek said it all long ago. It’s full of stumping, thumping, strident prose on the dangers of giving up freedom for security, the basic notions of power corrupting the elite and the consequent need for limited government. This all crashes into Marx like an immovable object meeting an irresistible force.

Marx viewed competition and market pricing as a kind of barbarism; Hayek sees it as near religious epiphany. Marx decries private property; Hayek sees it as foundational to human freedom. Marx lauds central planning; Hayek is not against laws as such, but wants only those protecting competition and private property—shunning today’s commonplace view there's a happy medium or middle way for central planning and competition. Marx believes unfettered capitalism breeds divergence between rich and poor, strong and weak and leads to revolution; Hayek says monopolies through history are ultimately fostered by strong governments, that strong and weak get closer together through time under capitalism. Indeed, capitalism reinvents itself—it is a cycle of destruction and renewal, often violent. But in that chaos, standards of living increase and mobility of wealth generally remains high where capitalism is prevalent.

An interesting feature of the book is the discussion of technology. There was much debate in Hayek’s time about technological developments’ effects. Many believe we live in a special, unique time where technology is “taking all the jobs.” But this anxiety has been around as long as industrialism. We now know pretty definitively tech works against monopoly and for competition, and increasing productivity doesn’t lead to higher unemployment.

Importantly, Marx’s views are underpinned by a kind of “fairness” ethics. But Hayek proclaims there are no universal ethics, and, in fact, their variance proliferates over time, so it is folly to govern by them. Instead, allow people freedom to live as they choose (ironically, itself a kind of ethics). Philosophers of the world will quibble with this, but there is no doubt that, at the very least, cultural values differ across the world.

Hayek’s is not an economics book. It’s a political, social and psychological one, just like much of Marx’s. As was much work of the time, it’s a reaction to Nazi Germany and fascism generally. It's against totalitarianism and the deep creep of social ills starting from governments’ good intent. If there is a flaw in his reasoning, it's everything government does is a hyper-steep slippery slope to him. Even a minor encroachment leads ultimately to serfdom. This is probably overwrought.

Both Hayek and Marx are on far ends of the spectrum, and most folks in this world will fall somewhere in the middle. But it’s worth noting Hayek grounds his views firmly in history, where Marx, particularly in the Manifesto, deals mostly in the conceptual.

In reading such disparate views, one gets a better sense of where they stand within the intersection of politics and economics. It’s been a touchstone of my own career to engage in a continuous thought revolution by often reading material I know I will disagree with. Even communism’s dull thinking can still sharpen the mind.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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