It did not ask that most crucial of questions, "What is to be done?" Lenin asked it in 1902, parroting an earlier revolutionary, Cherneshevsky, who had asked this four decades earlier.
In 1946, there was not much to be done. When Hazlitt finished his manuscript on March 25, the season had just turned spring. Given the topic of his book, it was economic spring as never before in America's history.
The United States was the economic colossus of the world. Never before in history had one nation attained this degree of economic supremacy. Canada and the United States were almost a single trading zone. They had emerged from World War II physically unscathed.
The managerial transformation caused by the war had not been foreseen in 1941. It had restructured American manufacturing. The mass production techniques of the wartime industries would soon go into full gear to meet demand from the consumer economy.
There was another huge advantage, one unforeseen by most analysts. The mass inflation of the Federal Reserve during World War II had been suppressed by price and wage ceilings. The government adopted rationing as the means of allocation. By the end of the year, most of these ceilings were repealed. Prices adjusted upward. In doing so, the price and wage floors of the 1930's ceased to have any influence. Prices after 1946 were above the old floors. Production adjusted to the new demand. The depression did not reappear, because the conditions that had caused it -- price floors -- no longer functioned.
Meanwhile, the world's economy was in tatters. Western Europe was rubble. Japan was, too. England was close to bankruptcy, a shell of its former financial self. It would soon surrender its empire, which it could no longer afford to police. India and Pakistan gained their independence in 1947. Hong Kong was not yet the powerhouse it was to become. The same was true of South Korea. China was poor, and in 1949 it fell to the Communists, and it soon became much poorer. The Soviet Union was an economic basket case, and it would remain a basket case until it went out of existence in December 1991. It had military power, but nothing else.
The United States could export to any society that had dollars. New lending arrangements, private and federal, began to make available American production to foreign borrowers. America's banks had money to lend, and the Western world was ready to borrow on terms favorable to the American banking system.
This was a new world order. The Great Depression did not return. The recovery was produced by the freeing up of the economy. Most price and wage controls ended the following October. Set free after five years of price and wage ceilings, which followed a decade of price and wage floors, the economy boomed. But from that time on, bright young Keynesians and aging academic defectors took full credit for the recovery. They explained the boom in terms of massive federal wartime debt, which had been funded heavily by Federal Reserve inflation. The Keynesians soon replaced the aging professors, who had come of age before the Great Depression, and who had generally remained mute throughout it. In 1948, Paul Samuelson's Economics textbook announced the coming of this new world order. It became the dominant textbook in higher education for the next three decades.
The Bretton Woods agreement of 1944 went into operation in 1946. This gold exchange standard substituted the dollar for gold. It was a license to print money without suffering a gold run on the Federal Reserve. Hazlitt saw through this bureaucratic substitute for the pre-World War I gold coin standard, and he said so in print. That cost him his job at The New York Times.
When Hazlitt sent his page proofs off to the printer, Leonard E. Read was ready to open the tiny, underfunded Foundation for Economic Education in Irvington-on-Hudson, New York. FEE would become the lone voice for Hazlitt's brand of economics over the next two decades. FEE did not have a monthly magazine for another decade, when it began publishing The Freeman.
Ludwig von Mises had not yet written Human Action, which appeared in 1949. There were only a few newsletters in 1946 that promoted the free market, and their combined subscriber bases were in the low four-figures. The main one was Human Events, which did not focus on economics.
There were three tiny publishing houses: Regnery, Devin-Adair, and Caxton. They did not have mailing lists. They did not have access to bookstores. Their marketing was based on word of mouth.
What was to be done? Keep on writing for the handful of people who might read.
That was then. This is now.
The Keynesian era has led to exactly what anti-Keynesians predicted in Hazlitt's day: massive debt, public and private. This debt cannot be repaid. It was never intended to be repaid by those who issued it. Keynesianism is an economic philosophy based on the idea of ever-growing national government debt, and ever-growing central bank inflation to secure below-market interest rates for this debt. Today, short-term federal debt is essentially free of charge for the government: a fraction of a percent. It has been so ever since 2009.
This too shall pass.
Keynes had predicted this in The General Theory in 1936: capital costs of zero (pp. 220-21). That seemed to be the nuttiest prediction in his book, but here we are: the marginal efficiency of capital -- government capital -- is zero. So is the rate of interest for T-bills. Yet this has created a crisis for Keynesian theory: the fearful "zero bound." Central bank monetary inflation can no longer lure entrepreneurs to borrow, even at zero. The Federal Reserve gets little or no bang for its bucks. Then what can it do if the economy falls into another recession comparable to 2008-9? What happens to central bank anti-recession policy when the only policy in its tool kit is the only one it has ever had: monetary inflation? It is pushing on a string.
In the next recession, there will be a scramble for liquidity. Lenders will search for a government-guaranteed return of capital. They will sacrifice the return on capital. They are doing this with T-bills now. The quest for guaranteed returns will become a mania. In 2016, all Swiss government bonds had negative interest rates. German bonds were negative except for 30-year binds. This was also true of Japanese government bonds.
What will happen to entrepreneurship then? What happens to Keynesian capitalism? What happens to economic growth when the federal government absorbs the bulk of the available capital of the nation?
What Is to Be Done?
I ask the Keynesians: What is to be done?
The deficit of the U.S. government in fiscal 2015 is above $400 billion. This is in the sixth year of an economic recovery. In a recession it will more than double. What is to be done?
The present value of the unfunded liabilities of Social Security and Medicare is now in the range of $200 trillion. What is to be done?
The Keynesian prescription of federal deficits and monetary debasement is barely sustaining the American economy. Western Europe, Japan, and China have adopted the same prescription. They are all struggling.
What is to be done?
Keynesians are the ones with the blueprints. They are the ones who proclaim the efficacy of central planning through federal deficits and central bank inflation. They are the ones who exercise faith in grand designs.
Defenders of the free market do not offer blueprints that will get us from here to there. They do not trust in central planning. They have faith in the general blueprint: private ownership, monetary voluntarism, the abolition of central banking, low taxes, the abolition of government guarantees, free trade, freedom of entry into banking, and the reduction of the federal deficit to zero, as it was in 1835 for one magnificent fiscal year.
What is to be done? Bide our time. We do not need a grand plan to shrink the federal government. The Keynesians are laying the foundations for the Great Default -- all over the world. It is their responsibility to tell us what is to be done. They control the educational institutions. They are in charge in the Congress. They sit at the controls of the Federal Reserve System. Power and responsibility cannot be separated.
Hazlitt offered no blueprint in 1946. I offer no blueprint today. I offer only a series of slogans, directed at Keynsians, who do not know what is to be done.
The Politics of PlunderWe told you so.
We told you why.
You hold the bag.
"Thou shalt not steal."
This is an ethical message. It does not require long chains of reasoning. It does not ask people to follow the money, either backwards or forwards. It just asks them to get their hands out of their neighbors' wallets corporately, by means of state coercion, as well as individually.
There is an aspect of all this that Hazlitt chose to ignore: bad morals produce bad policies, which in turn produce bad results. The metaphor of the broken window is a great tool of analysis. But Hazlitt did not focus on this: the state has not adopted its policies of breaking windows because politicians read Keynes' unreadable General Theory of Employment, Interest, and Money. The politicians have adopted what Bastiat called the politics of plunder.
Bastiat's broken window metaphor was an extension of his analysis of the politics of plunder in The Law (1850). He was not content with providing a superb tool of economic analysis. He also provided the ethical context of the broken window: theft by the ballot box. The broken window metaphor allows us to trace the implications of state intervention. But his concept of the politics of plunder gets at the root of the matter: "Thou shalt not steal, except by majority vote."
The masses have demanded that the state use power to redistribute other people's wealth. The masses have voted for politicians who vote for the politics of plunder. The masses have consented to being sheared by the state on this basis: "The rich will be sheared far worse." But the rich hire lawyers and accountants. They avoid the worst of the shearing. They use the politics of plunder to feather their nests at the expense of the masses.
There is ethical cause and effect in life. Morally bad policies produce economically bad results. By placing this fact front and center, my book is different from Hazlitt's. He focused on the broken window. I focus on why the state broke all those windows, and far more -- the chapters that Hazlitt did not write, but could have.
The voters have become dependent on the politics of plunder, especially Social Security, which Hazlitt prudently ignored, and above all Medicare, which arrived in 1965. At some point, these welfare programs will bankrupt the federal government. At some point, Washington's checks will stop coming. That will be the day of reckoning -- the day of accounting. That will be the day when the politics of plunder will finally break the windows of those who have voted in terms of this principle: "Thou shalt not steal, except by majority vote."
We are closer to this day of reckoning than Hazlitt was in 1946.
Today, we can get this message out. We have book publishing options with Amazon. We can use free blog sites, such as WordPress.com. We can post free videos on YouTube. We have websites galore to read and write for. This is not 1946.
We do not need to provide a master plan for getting from the politics of plunder to the politics of property protection. The free market will make hash of all such master plans. When Washington's checks stop coming, individuals will respond in terms of the available incentives. Our task is to persuade others not to adopt another round of the politics of plunder locally after the federal government has run out of sheep to shear, as well as funds to break more windows.
Meanwhile, we need to explain to people the implication of these four words: His. Yours. Mine. Don't. People do this with their children, but they are severely tempted to forget this when they hear the siren song: "Thou shalt not steal, except by majority vote."
The rest of my book is here: http://bit.ly/CEIOL
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