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home | Tea Party Economist | Mises’ Answer to Would-Be Cons . . .

Mises' Answer to Would-Be Conspirators: You Will Lose

Gary North - May 15, 2013
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Reality Check

Over half a century ago, Ludwig von Mises made a crucial observation.

The capitalistic social order, therefore, is an economic democracy in the strictest sense of the word. In the last analysis, all decisions are dependent on the will of the people as consumers. Thus, whenever there is a conflict between the consumers' views and those of the business managers, market pressures assure that the views of the consumers win out eventually.

I have long believed he was correct. Like Mises' disciple Murray Rothbard, I am a student of conspiracies. They all have this in common: the seek leverage through the state. They instinctively know that Mises was correct, that they are the servants of customers in a free market order. So, they seek to rig the markets by means of the state.

Once a person comes to grips with Mises' observation, conspiracies appear less formidable. The state is a weak reed when compared to the long-run effects of liberty. The free market prospers under liberty. It expands its control over production and distribution.

This leads me to the topic at hand.

Alex Jones and Paul Watson wrote a really interesting report on the CEO of Google, Eric Scmidt. He is a big supporter of Obama. They say that he is behind a new organization, Zeitgeist. It is a supplement to the Bilderberg organization. It may be about to absorb Bilderberg.

I have been fascinated for almost half a century with the attempts of various conspiratorial groups to influence the affairs of men. This has been the goal of power-brokers for as long as we have records of human societies. The quest for power, by way of specialized knowledge and behind-the-scenes influence, goes back to the story of the Garden of Eden. Men are always trying to get shortcuts to power. They want to have inside information. They want to be the powers behind the throne, at least in those cases in which they are not convinced that they sit on the throne.


One of the basic themes of writers who specialize in conspiracy historiography is at the people on the thrones are really not the true source of their own power. It becomes difficult to maintain this when you are dealing with somebody like Josef Stalin or Adolf Hitler. When you get a true megalomaniac on the throne of power, and he personally tells everyone what to do, on pain of death, it is difficult to maintain that there are any powers behind the throne. These rulers seem to have a kind of built-in sniffer that enables them to locate people who think they are the powers behind the throne, and those people tend to disappear.

Nevertheless, when it comes to the exercise of power, every person on a throne is dependent on information. The better the information he has access to, the more effectively he can wield power. The difficulty is this: people do not want to tell strongmen on the throne that what they had been told before is a pack of lies, or worse, utter nonsense. That can get you killed. So, the quality of the information that flows upward to the person on the throne is always suspect. So, the man on the throne attempts to have multiple pipelines of information. But the more pipelines of information there are, the more confusing events get.

The flow of accurate information is the crucial resource. The person without accurate information is flying blind. I think that this, more than anything else, is what brought down the Soviet Union in 1991. The more complex that a society gets, the more difficult it is to gain access to reliable information.

Then there is bureaucracy. It is difficult to enforce your decisions, no matter how powerful you are.

It would not surprise me if some of the non-technicians at the top of Google have some vision of a future which they think they are capable of engineering, the way that a technician engineers a circuit. But if you look at the history of the Internet, you see how things get out of control very fast. The Internet was the product of DARPA. DARPA is a military research organization. The reason the Internet was invented in the late 1960s was because of the threat of nuclear war. The military wanted a communication system that would withstand multiple nuclear attacks. It had to be decentralized. So, they invented the Internet to provide this decentralized communication system. But what grew out of that project is vastly beyond anything that anybody could have conceived in the late 1960s. The whole world is being restructured by that project, which now has little to do with nuclear war or military communications.

The same is true of the bright fellows who think that this massive decentralized flow of information can in any way be controlled by a group of technicians at the top of the system. There is no top of the system. That is the whole point. That was why the Internet was invented. It was specifically designed so that there would be no top to the system. In this respect, it is clearly the most ingenious technological invention of all time. It was centrally planned to be totally decentralized.


The ability of any group to identify the crucial piece of information does not exist. A few people may spot it, but they probably have no power. Furthermore, even if they have access to people with power, they are in competition with so many other people, who also claim to have spotted the next big thing. Nobody knows what the next big thing is. Or, at least if somebody out there knows it, he probably does not have any money, and he probably does not have any influence.

We are back to the dilemma that was posed centuries ago by a Scottish philosopher named Adam Ferguson. He discussed society as the product of human action, but not of design. Anyway, it is not of human design. In our day, the premier exponent of that position was F. A. Hayek. Hayek made it clear that the decentralized knowledge that the free market can draw upon is vastly greater than the knowledge possessed by any committee. Centralized knowledge cannot compete effectively with decentralized knowledge, when people who possess this decentralized knowledge seek out ways of profiting from it. The more intensely capitalized the free market is, the better the knowledge available to entrepreneurs.

Nobody knows which entrepreneurs will be successful, and which will fail. All we know is that most of them will fail. But the knowledge which they bring to the marketplace benefits specific customers. Customers pay for this knowledge and for the results of this knowledge. There is this massive, decentralized, profit-seeking system that traffics mostly in information. The Soviet Union could not possibly keep up with this. No centralized tyranny can keep up with it. That was Hayek's point, beginning in the mid-1940s.

It may be true, as David Rothkopf argues in his book, Superclass, that there are somewhere between 6,000 and 6,600 people at the top of the world's multiple pyramids of power and money. A portion of them -- not all at once -- get together on a regular basis in an attempt to shape society. They meet at Davos every year. The impression that I got from his book is that these people share a basic worldview, and they clearly have great influence over large corporations.

These people face an inescapable fact: these corporations are successful only to the extent that they serve the demands of customers. They make a lot of money, but they make it only by responding to the demands of the marketplace. So, any attempt by the owners, meaning the largest individual shareholders, to use their corporations to shape the marketplace is ultimately self-defeating. The managers of these corporations do not have sufficient knowledge of all of the decentralized information that is possessed by participants in the marketplace. The more that the participants communicate with each other by means of the Internet, the more these pockets of information and opinion gain access to power.

Google makes an enormous amount of money, but it makes it from individuals who make purchasing decisions. Google is always trying to find out how people search for information, but that does not give Google the power to tell people what to think. If anybody at the top of the pyramid at Google thinks that Google can shape the way people think, and then he attempts to force people to think in that way, will find that Google starts losing money. It is the vast complexity of the Internet which is the great single barrier to the expansion of centralized power. Combined with the complexity of the free market, the Internet will thwart every attempt to run the show from the pinnacles of money. The free market forces the money masters to serve as stewards of the masses.

Never in history has there been such an avalanche of information. It is not coordinated by any central institution. Its lack of coordination is the central fact of modern times. The Internet was designed to produce this, and that is what the Internet has produced. The larger the Internet gets, and the more it penetrates into the lives of people around the world, the less possible it is for any one source of information to influence the thinking of all those people who are connected to the Internet.

We have here an exponential growth of knowledge. It is not simply that this knowledge exists; it is that this knowledge can be shared so inexpensively. It also can be sold. The algorithms that are used by market traders are beyond the ability of the traders to shape pricing. They are price predictors, not price shapers. Nobody is fast enough to beat an algorithm to the punch.

The only markets that can be rigged in such a way that specific market riggers can predictably profit from the decisions are relatively narrow markets. The markets that really matter, such as the price of stocks and bonds, can at best be influenced by monetary policy, but only for relatively brief periods of time. The market effects of such rigging always bring to naught the goals of the planners who thought they would rig the outcomes. People are smarter in the aggregate than committees are. The only way that these market riggers have been able to survive has been by calling upon governments to bail them out. These fellows have been, in the famous British phrase, too clever by half.

Warren Buffett, who really is a genius investor, and probably the greatest investor of all time, has described the progression. First, there are the innovators. Second, there are the imitators. Third, there are the idiots. This progression is inevitable.

There may be power-brokers behind the thrones, but the thrones rest on the equivalent of algorithms. They get more complex. It already takes computer programs to design them. At some point, it will take algorithms to design them. Moore's law shows no sign of ceasing to cut the cost of information by half every year or 18 months. This means power to the people, by way of algorithms. Power is not flowing to Al Gore-isms.


We know the Federal Reserve System is eventually going to fail. Why? Because the Federal Reserve System is premised on the assumption that a relatively small committee of people that Ph.D's in economics are capable of making decisions based on the flow of information that is provided by a lot of other people with Ph.D's in economics. The information that is collected by government agencies is sent up the pipeline, and a small committee at the top is supposed to be able to analyze this information, and then set monetary policy to shape the general outcome of the economy.

The idea that a committee could do this is simply preposterous. It is the essence of Keynesianism. It is the essence of central planning. This is what Mises said was utterly irrational back in 1920. This is what Hayek said cannot possibly produce predictable results, because the committee at the top does not have sufficient information, nor is the combined intellectual firepower of the members of the committee sufficient to match the decentralized knowledge of the free market.

The heart, mind, and soul of Austrian school economics is this: the free market provides better information and better incentives to satisfy customers than any rival system can ever offer. Therefore, the free market will grow at the expense of central planning. The decentralized decisions of people with money -- decisions informed by market pricing -- will be more accurate than the centralized decisions of any committee.


This is why I really do not pay a lot of attention to the Bilderberg, the Council on Foreign Relations, and the Trilateral Commission. Ultimately, they are going to lose, just as their British equivalents and predecessors lost, 1914-1945. The digital genie is out of the bottle. His great gift to mankind is that he keeps selling his services at ever-lower prices. He serves ever-more people by cutting prices. Nobody can get him back in the bottle.

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