The 2024 Cuban Blackouts

On November 15, 1973, Fidel Castro made a speech to the Cuban Worker’s Congress. Reading over the transcript is very revealing of the fundamental philosophy and motivations of his regime in Cuba, which still exists to this day.

In the speech, he said that Cuba was not yet ready for the “communist principle” as Karl Marx had defined it.  What did Castro mean by this phrase?

This is an essential matter in the construction of socialism and our revolutionary and socialist workers understood that. In discussing that principle we have been discussing an essential and key principle of revolutionary ideology. That every one contribute according to his ability, that each one receive according to his work is a principle, an inexorable law in the construction of socialism. When we learn to understand this principle thoroughly we are penetrating the depths of political thought, we are penetrating the depths of revolutionary thought and we learn to distinguished it from another principle of the communist society established by Karl Marx: from each according to his ability, to each according to his needs.” (Speech by Fidel Castro, at the closing ceremony of the 13th Congress of the Central Organization of Cuban Workers on 15 November, 1973 (“Nov. 15, 1973 Castro Speech”), emphasis added, http://lanic.utexas.edu/project/castro/db/1973/19731116.html)

In essence, Castro distinguished “socialism” from “communism” by distinguishing it from Karl Marx’s statement that communism means: “From each according to his ability, to each according to his needs”:

In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor, and therewith also the antithesis between mental and physical labor, has vanished; after labor has become not only a means of life but life’s prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly – only then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs!” (Karl Marx, “Critique of the Gotha Programme” https://www.marxists.org/archive/marx/works/1875/gotha/ch01.htm)

Castro said that the “principle of socialism”, as contrasted from this “principle of communism” is that “…every one contribute according to his ability, that each one receive according to his work…”(“Nov. 15, 1973 Castro Speech”), emphasis added.)

Why did Castro believe they couldn’t operate under the “principle of communism” in 1973 Cuba? Because the Cuban people were not “ready” for communism:

Many events demonstrate to us that we are not yet prepared to live in communism. Aside from the fact that in order to live in communism it is not only necessary to have a communist consciousness but to have abundant wealth spring from man’s work…” (Nov. 15, 1973 Castro Speech)

Castro says that the people are “ready” to live under “communism” in some areas, such as, supposedly, education and health care. But in other areas, they are not “ready”. An example of an area where the Cuban people were supposedly not “ready” was electrical production:

We can continue and ask how much fuel are we wasting? How much in the way of raw materials are we wasting? How much electricity are we excessively consuming? It is clear that with (?light patrols) and simple appeals to people’s consciences, we are not going to save on electricity. I raise this issue because the electricity problem is an unpleasant one which we will have to face. It is an unpopular problem, but we have to face it. [applause] We substantially reduced the rate of an electric company–I do not exactly recall which. The electrical octopus was using a rate which encouraged the use of electricity. The rate on the first kilowatts was higher and it dropped as you used more.

With our revolutionary inexperience we were improvident. We reduced the company’s rates by half and we were left with the same condition which encouraged more consumption. I say we were improvident because we should have thought of the day when the electric system would not be the property of an electrical octopus but the property of the people. Now the electrical octupus belongs to the people and the people have to pay for the consequences of any electrical waste.” (Nov. 15, 1973 Castro Speech)

In essence Castro said here that Cuba is consuming more electrical power than is produced because the rates charged to people are very low, or even zero. Basic economics teaches that when a price ceiling is set on a good or service, there will be shortages because demand outruns supply. (https://fee.org/resources/price-controls-and-shortages/) This is why you would see breadlines in the old Soviet Union, and grocery stores with empty shelves. The profit motive to produce more is eliminated, and no one is incentivized to produce more. In the case of electrical production, the result of charging insufficient rates for electricity, or giving it away for free, is that people will not economize, and there is no incentive to produce more, so there will be constant blackouts in the power grid.

Castro blamed the Cuban people for not being “ready” for communism:

“…a study of an endless number of facts clearly demonstrates that our society, our people do not have the culture necessary for communist life–aside from the fact that an economy sufficiently developed for communist life is lacking.” (Nov. 15, 1973 Castro Speech, emphasis added.)

In other words, communism, and the goals of communism are noble, but the Cuban people are just not quite “good enough” for it. Someday, the people of Cuba would be “ready” for Communism, so operating under the “socialist principle” was just going to be temporary:

It is a matter of making rectifications because we are socialists [applause] and because we want to be communists [applause–crowd chants Fidel, Fidel and rhythmically applauds for 30 seconds] and because we will never renounce the communist objective or our revolution and the development of our revolutionary consciousness…”(Nov. 15, 1973 Castro Speech, emphasis added.)

What is the “communist objective” it is, as Marx said: “From each according to his ability, to each according to his needs!” (Karl Marx, “Critique of the Gotha Programme”)

Why, according to Castro, is the “communist objective” desirable? Because Castro and his minions “…will continue, above all, to uphold altruism, selflessness and man’s solidary spirit.” (Nov. 15, 1973 Castro Speech, emphasis added.)

Castro went on in his 1973 speech to say, almost paraphrasing Geroge Orwell, that “All animals are equal, but some animals are more equal than others,” at least while it’s necessary to operate under the “socialist phase”, where everyone is not equal, rather than the “communist phase”, in some future paradise, when everyone will be equal.  In particular, Castro said it would be necessary for certain “administrators” to receive more for their, supposedly, “important work” than others:

This is another example of why we should develop a savings policy in all aspects, and especially with regard to fuel. It is here that the workers movement can give us extraordinary help. Wherever fuel is being wasted be it a farm, or a factory, or any place these are realities which our workers have to face. But a study of an endless number of facts clearly demonstrates that our society, our people do not have the culture necessary for communist life–aside from the fact that an economy sufficiently developed for communist life is lacking. Realistically, very realistically, we must implement the formulas which apply to this phase of our revolution, and implement in every aspect–not only in distribution, not only in wages, but also in administrationall the formulas which are applicable to the socialist phase of the revolution. [applause]” (Nov. 15, 1973 Castro Speech, emphasis added.)

In other words, the people involved in “administration”, that is Castro, and his gang of communist thugs in Cuba, would need to receive more money, bigger houses, nicer cars, and more political power, because what is more important than bringing about eventual communism? If everyone must “…contribute according to his ability…” and everyone must temporarily  “…receive according to his work…”, who, according to Castro and his cronies, was doing more valuable work than them? Aren’t they the ones (supposedly) trying to bring about eventual communism, which is everyone’s goal?

Castro’s 1973 speech is more than 50 years old. Surely progress has been made in moving the country towards “true” communism, hasn’t it? Has Cuba come closer to being “ready” to operate under the “communist principle” of from each according to his ability, to each according to his needs?

In October of 2024, Cuba experienced a days-long blackout throughout the country. I became aware of this by watching YouTubers in Cuba who were documenting their experiences during the blackout. (This seems to be not without risk. I assume these amateur videographers could be arrested and jailed for bringing the regime there into disrepute. I consider these YouTubers to be quite courageous.) What the blackout shows is that the Cuban people, in general, have probably gotten poorer, not wealthier.  The recent Cuban energy crisis suggests the answer to whether Cuba is more “ready” for communism than it was in 1973 is: No.

Of course, the Cuban regime, and its left-wing apologists have a retort to why Cuba is suffering from blackouts. They’ve had the same scapegoat for the past 50+ years: The United States and its supposed “blockade” on Cuba.

First of all, it’s not a “blockade”. The United States has imposed an embargo on Cuba. A “blockade” is when a country uses its navy to prevent entry or exit from a country, thereby preventing trade and the movement of people by military force. (https://www.merriam-webster.com/dictionary/blockade) An “embargo” is where a country simply prohibits its citizens from trading with a particular country. (https://www.merriam-webster.com/dictionary/embargo)  It does not use military force to prevent other countries from trading with the embargoed country.

The “US is imposing a blockade on Cuba” myth is so prevalent on social media that it was fact checked by a left-leaning organization, and found not to be true:

Cuba can trade with other countries of its choosing — if those countries are willing as well. Some of Cuba’s trading partners include China, Spain, the Netherlands, Canada, Mexico and Brazil, according to the Observatory of Economic Complexity. Venezuela was one of Cuba’s key trade partners until its ability diminished amid its own economic turmoil. Cuba’s main exports include rolled tobacco, raw sugar, nickel, liquor and zinc. Top imports include poultry meat, wheat, soybean meal, corn and concentrated milk.” (https://www.politifact.com/factchecks/2021/jul/19/facebook-posts/cuba-can-trade-other-countries-heres-some-context/)

The United States has simply chosen not to trade with Cuba. (Whether the United States, from the perspective of its own national interest, should impose embargoes is a debate for another time.) An important question to ask these leftist apologists for Cuba is: Why is Cuba’s survival so dependent on trading with the arch-Capitalist enemy, the United States? Shouldn’t socialism make it economically much stronger than the US? Cuba can trade with much of Europe, Latin America, Canada, and China. Can’t it get whatever it needs in trade from China, Iran, and Russia? If not, why not? What is it about these countries that makes them less productive than the United States?

But, the most important question of all is this:  If Cuba can have the material prosperity the United States enjoys, and end the embargo, just by adapting capitalism, why not just do that? Why’d they make the people of Cuba suffer under shortages and blackouts for the past 50+ years?

The regime in Cuba must believe either, or both, of these two things:

(1) Cuba will eventually have even more prosperity in the future by not giving in and adopting some sort of semi-free-market economy here and now, and/or;

(2) Adapting more free markets and individual freedom runs so contrary to their worldview, philosophy, and morality that it is simply unthinkable, even if it means many must suffer and die. In other words, the Cuban regime believes that the only proper system is “…from each according to his ability, to each according to his needs…”, and they will kill every last person in Cuba to achieve it.

The first explanation for why Cuba does not adopt free markets and a free society has pretty much been shown to be false with the fall of the Soviet Union in 1991. The Soviets waited 75 years, suffered terrible hardship, human rights abuses, and deaths, but the prosperity promised by Karl Marx never came. People living under communist regimes could wait 200 years, and prosperity would never arrive because it is a system that is contrary to human nature. It is contrary to what the individual needs to survive and function. Since ‘society’ is nothing but a number of individual human beings, any system that crushes the individual, ultimately disintegrates when it runs out of productive victims.

But, prosperity is not what really matters to the Communist. What matters is that everyone receive equal results for unequal effort. The second motive of the Cuban dictators, “…from each according to his ability, to each according to his needs…”, doesn’t require prosperity. It only requires forced redistribution of the production by the able to the unable. At the end of the day, Cuba is poor not because of any (imaginary) “blockade” or embargo, but because they follow a morality that destroys productiveness. At root, the Cuban regime is committed to a morality that crushes the individual spirit, and prohibits people from furthering their own lives and pursuing personal happiness.

The leadership of the Cuban regime are not looking for prosperity for the people of Cuba. They are only looking to achieve “pure communism”, a system that destroys the individual in favor of “selflessness”, and that will someday, somehow, “work”. Since socialism and communism will never “work”, in practice, it means the leadership of the Cuban regime will continue to cling to power -and use whatever repression of the people is necessary to maintain that power, forever. (Unless the Cuban people someday decide they have had enough, and put an end to it.)

How can Cuba achieve prosperity? Only by rejecting the idea of “…from each according to his ability, to each according to his needs…” In turn, this requires them to reject altruism, that is, they must reject the sacrifice of the individual’s life for some ‘greater good.’ They must recognize that ‘society’ is nothing but a number of individuals, and that each person has an inalienable right to pursue his own happiness. I’m not even saying they have to institute pure capitalism as described by Ayn Rand. (Not even the United States is that good, yet.) It just means they need to depose the current leaders of the Cuban regime, probably by force, and institute a freer government. A government that recognizes basic individual rights, with free and fair elections, rule of law, and, in economics, a generally free market, like the United States.

Only then will Cuba’s periodic blackouts end.

Excellent Article Connecting Rising Prices to Government Regulation

This Business Insider article is a terrific piece of journalism linking rising prices to governmental interference in the economy.

The article notes that babysitters are in high demand. In some areas of the country they are making as much as $35 per hour.  (To put this in perspective, I’ve seen temporary jobs for attorneys paying less than that.)

The problem? Government shutdowns during the COVID-19 pandemic. These shutdowns included daycare centers, many of which closed for good.

The government shutdown of businesses in 2020, combined with the inflation of the money supply by the Federal Reserve, has resulted in the greatest increase in the Consumer Price Index in over 40 years.

It is good to see journalists who seem to get it, and are recognizing the cause of these price increases.

Cryptocurrency: Is It Money?

When I was still in college, I read “Principles of Economics” by Carl Menger, and probably learned more about Economics than I did in my four years as an Econ major. (The book was a hell of a lot cheaper than my college degree, too.) Today, you don’t even have to pay for the book, as it’s available for free online, as an out of copyright work. https://competitionandappropriation.econ.ucla.edu/wp-content/uploads/sites/95/2020/12/Mengerprinciples.pdf

By the end of Menger’s book, you will understand the basic nature of money, and much more.

It is Menger’s book that has served as my touchstone when it comes to studying cryptocurrencies, such as Bitcoin. Before I will believe that Bitcoin is money, I would need an explanation of it that fits within the framework of Menger’s theory of money.

My goal here is to explain what I currently believe “money” to be, and then to explain what I would need to see as a feature of Bitcoin before I could believe it was money. (Or, I’d need to be shown how Menger’s theory of money is wrong, or in need of modification.) I will also provide reference to an article that seems to do just that, but the technical/engineering aspects of cryptocurrencies are outside my knowledge base, so I cannot say if the article is right or not.

What is money?

To understand what money is, you need to understand four concepts discussed in Carl Meger’s book: (1) Value, (2) The Marginal Theory of Value, (3) Use Value, and (4) Exchange Value.

Value

All goods where the requirements for their use and enjoyment are greater than the available supply have what Carl Menger called “value”.

If the good existed in amounts greater than the requirements of all the human beings that have access to those goods, then they would have no “value”.

For instance, a single person living in a forest that has thousands upon thousands of acres would likely view no particular tree as having any “value”. This is because there is so much timber available to him, that he needs only a small fraction of it.

Another example would be a small tribe living near a freshwater spring that produces many more gallons of water per day than the entire tribe can use. The “value” of any particular gallon of water for the members of that tribe is zero.

Marginal Theory of Value

The example of the tribe living near a freshwater stream points to another interesting aspect of “value”, which Carl Menger identified. This is the fact that any given unit of a good only has the “value” of the least important use it will be put to by a person.

For instance, a person living in a forest might first build a log cabin with a dozen trees, because shelter is very important to him. He might then use another tree for heat and cooking food. There might be just one tree left, which he can use for building a canoe. This last use of the last tree is the least important to him, since having shelter, heat, and cooked food are more important. But, the value of any one tree to him is the value of that canoe. This is because the canoe is what he would be giving up if he were to lose a tree for some reason.

In Economics, this is what is known as the “marginal theory of value”. It explains why, for instance, gold has a higher price per pound than water, in most contexts. Although water is overall more necessary for living than gold, in most  normal situations, any given pound of water can be dispensed with more easily because water is so much more abundant than gold. (However, there could be a situation in which a pound of water is more valuable, such as to a person dying of thirst in the desert.)

Value Can Be Ornamental

Note that “value” can be entirely ornamental. Menger takes this as a given, but I think it would take a robust understanding of the requirements of human life to really see this.  Seeing things of beauty has some sort of psychological effect on the human mind. We admire pretty paintings and statues because they are aesthetically pleasing to us.

Most men would rather gaze on a beautiful woman than an ugly one. Women wear makeup because it gives them a pleasing appearance. People wear jewelry because it makes them look better. Gold has been used to make jewelry for a very long time. Much of its value derives from this ornamental use.

This is still “value”, just as much as the painting of the Mona Lisa or the statue of David has value. It’s the psychological enjoyment that they seem to engender in people’s minds when they look at them.

“Use Value” and “Exchange Value”

Menger notes that certain goods can have value even when a person is alone. The hypothetical man living alone in a deserted forest might, for instance, have greater requirements for deer than the number of deer available to him, due to a scarcity of the animals. He might want more deer meat to eat, or more deer skins to turn into clothing, than he is able to obtain.

When people enter into trading relationships with one another, a good can have a different type of value. This is the value that the good has for obtaining other things that one might want.

For instance,  the man living alone in the forest might encounter someone who lives near the ocean, and has fish. He might be willing to trade some of his deer meat for fish, in order to have a greater variety in his diet.

Based on these facts, Menger divides the concept of value into two sub-categories: “use value” and “exchange value”

In the case of the man who trades some of his deer meat for fish, it has “exchange value”:

Value, we saw, is the importance a good acquires for us when we are aware of being dependent on command of it for the satisfaction of one of our needs—that is, when we are conscious that a satisfaction would not take place if we did not have command of the good in question. Without the fulfillment of this condition, the existence of value is inconceivable. But value is not tied to the condition of a direct, to the exclusion of an indirect, assurance of our requirements. To have value, a good must assure the satisfaction of needs that would not be provided for if we did not have it at our command. But whether it does so in a direct or in an indirect manner is quite irrelevant when the existence of value in the general sense of the term is in question. The skin of a bear that he has killed has value to an isolated hunter only to the extent to which he would have to forgo the satisfaction of some need if he did not have the skin at his disposal. After he enters into trading relations, the skin has value to him for exactly the same reason…. What lends a special character, in each of the two cases, to the phenomenon of value is the fact that goods acquire the importance, to the economizing individuals commanding them, that we call value by being employed directly in the first case and indirectly in the second. This difference is nevertheless of sufficient importance both in ordinary life and in our science in particular to require specific terms for each of the two forms of the one general value phenomenon. Thus we call value in the first case use value, and in the second case we call it exchange value.” https://competitionandappropriation.econ.ucla.edu/wp-content/uploads/sites/95/2020/12/Mengerprinciples.pdf

Goods that directly satisfy our needs have use value. Goods that indirectly satisfy our needs by means of trade for the goods that directly satisfy our needs have exchange value.

A Definition of Money Based On These Concepts

Something takes on the properties of money when it’s “exchange value” exceeds its “use value”.

From these concepts of “use value” and “exchange value”, Menger develops a theory of money that does not depend on any pre-existing social convention or governmental institution, above and beyond a government that protects private property rights and enforces contracts.

Economizing individuals engaged in barter will find that they are often unable to obtain the goods that they have direct, use value for through trade.

Menger gives the example of a Bronze Age blacksmith who has fashioned a suit of armor and would like to exchange it for raw materials for producing more armor, and also for the purchase of food to eat.

At that particular time, the people who sell copper and food might have no need of armor. But, perhaps there is someone selling some good that wants his armor. In that situation, if he believes he can trade whatever that good is for the food and copper he wants, then it would make sense for him to trade the armor for that good.

What matters to the blacksmith is that the good he obtains for his armor has greater “marketability” than his armor.

In real life, there are certain goods that are almost always in demand. Menger notes that in ancient times, cattle were often that good. A cow does not perish, as long as you can feed and water it. Eventually everyone needs the meat and milk of a cow. So, if the Bronze Age blacksmith trades his suit of armor for a cow, then he is closer to getting the food and copper he needs:

Even if the armorer is already sufficiently provided with cattle for his direct requirements, he would be acting very uneconomically if he did not give his armor for a number of additional cattle. By so doing, he is of course not exchanging his commodities for consumption goods (in the narrow sense in which this term is opposed to “commodities”) but only for goods that also have commodity-character to him. But for his less saleable commodities he is obtaining others of greater marketability. Possession of these more saleable goods clearly multiplies his chances of finding persons on the market who will offer to sell him the goods that he needs. If our armorer correctly recognizes his individual interest, therefore, he will be led naturally, without compulsion or any special agreement, to give his armor for a corresponding number of cattle.”

https://competitionandappropriation.econ.ucla.edu/wp-content/uploads/sites/95/2020/12/Mengerprinciples.pdf

Menger notes that during ancient agricultural times, cattle and other domestic animals often served as money. As civilization progressed, and we became more urban, the materials of skilled artisans, specifically, copper, silver, and gold came to have money character:

But rising civilization, and above all the division of labor and its natural consequence, the gradual formation of cities inhabited by a population devoted primarily to industry, must everywhere have had the result of simultaneously diminishing the marketability of cattle and increasing the marketability of many other commodities, especially the metals then in use. The artisan who began to trade with the farmer was seldom in a position to accept cattle as money; for a city dweller, the temporary possession of cattle necessarily involved, not only discomforts, but also considerable economic sacrifices; and the keeping and feeding of cattle imposed no significant economic sacrifice upon the farmer only as long as he had unlimited pasture and was accustomed to keep his cattle in an open field. With the progress of civilization, therefore, cattle lost to
a great extent the broad range of marketability they had previously had with respect to the number of persons to whom, and with respect to the time period within which, they could be sold economically.”

https://competitionandappropriation.econ.ucla.edu/wp-content/uploads/sites/95/2020/12/Mengerprinciples.pdf

What is important to take away from this is that money can be any good whose “exchange value” comes to exceed its “use value” for a given group of people in society. A consumption good can also be money, so long as some portion of a person’s total stock of the item has greater exchange value than use value. For instance, cigarettes in certain WWII POW camps, and in prisons, can serve as money. Even the prisoners who smoke, may acquire some cigarettes not for personal consumption, but for exchange -to serve as money.

Carl Menger On “Imaginary Value”

Carl Menger recognized that things could be regarded by people as valuable despite the fact that they did not, in reality, satisfy any human want or need:

A special situation can be observed whenever things that are incapable of being placed in any kind of causal connection with the satisfaction of human needs are nevertheless treated by men as goods. This occurs (1) when attributes, and therefore capacities, are erroneously ascribed to things that do not really possess them, or (2) when non-existent human needs are mistakenly assumed to exist. In both cases we have to deal with things that do not, in reality, stand in the relationship already described as determining the goods-character of things, but do so only in the opinions of people.” https://competitionandappropriation.econ.ucla.edu/wp-content/uploads/sites/95/2020/12/Mengerprinciples.pdf

For Menger, the first category included things like: “…most cosmetics, all charms, the majority of medicines administered to the sick by peoples of early civilizations and by primitives even today, divining rods, love potions, etc.”

(I’d note that I don’t necessarily agree with some of the things Menger placed in this category. As noted, cosmetics make women more sexually attractive because they mimic sexual vitality. They serve a useful purpose for women looking to find and keep a husband.)

The second category included: “…medicines for diseases that do not actually exist, the implements, statues, buildings, etc., used by pagan people for the worship of idols, instruments of torture, and the like.”

For Menger: “Such things, therefore, as derive their goods-character merely from properties they are imagined to possess or from needs merely imagined by men may appropriately be called imaginary goods.”

It is possible that Bitcoin and other cryptocurrencies fall into the category of “imaginary goods”, and are nothing but a group delusion.

Can Cryptocurrency Like Bitcoin be Money?

Inherent in Carl Menger’s definition of money is that it must have some “use value” to someone. This is because a good only has “exchange value” to someone if it can ultimately be used by some other person willing to trade for it. For instance, cattle, in ancient times were ultimately used for meat and milk. If everyone became vegan overnight, then cows would have no use value. With the loss of that use value, they would lose all exchange value, because those who have no use value for the cattle themselves would not have a market to sell them into. The cattle would lose all marketability, and therefore have no exchange value.

This aspect of the Austrian theory of money means that if Bitcoin is to continue having exchange value over the long run, it must have some use value. (Otherwise, it is an imaginary value, and eventually, people will likely stop wanting to hold it as they realize this fact.)

So, what is the use value of Bitcoin?

I don’t have enough Engineering and Computer Science knowledge to understand Bitcoin, so I have not been able to answer this question to my own satisfaction.

Possible Use Value of Cryptocurrency

The only time I’ve seen anyone try to explain Bitcoin in terms of the Austrian theory of money is this article:

https://seanking.substack.com/p/bitcoin-does-have-intrinsic-value?s=r

I discovered it after I watched this debate: https://www.youtube.com/watch?v=dxzqMNuvHCI

Essentially, as I understand it, the article says that possessing bitcoin gives you the ability to write to a distributed database, which is held on all computers that participate in the blockchain.  (Basically, all the computers engaged in bitcoin mining.)

If that is true, then bitcoin does have some use value. It gives you the ability to store some data on a distributed database of some sort.

But, this article doesn’t explain how bitcoin does this in terms that I can easily understand, so I am still not sure if this is right.

I would like someone who both understands the technology and the Austrian Theory of money to explain this to me in terms that a six-year-old can understand.

Conclusion

I think one of three things is true: (1) Either the Austrian Theory of Money is Wrong, (2) Bitcoin has some use value, or (3) Bitcoin is a group delusion, and will eventually go to zero market value.

I don’t know which is right at this point. I am uncertain.

The Biden Administration Has Begun It’s Search For Inflation Scapegoats

After almost a year of denial, the Federal Reserve has finally acknowledged that inflation is here. In a hearing in Congress in late November, Jerome Powel said it was time to “retire” the word “transitory” when it comes to inflation. https://news.yahoo.com/fed-chairman-jerome-powell-retires-the-word-transitory-in-describing-inflation-162510896.html

In a massive overreaction to COVID-19, the Federal Reserve pumped up M2 money supply by huge amounts in the early months of 2020. https://seekingalpha.com/article/4478065-inflation-and-the-great-supply-lie. This, in fact, is inflation. When most people speak of “inflation”, what they are referring to is a general rise in prices, which is a consequence of inflating the money supply.

The result of Federal Reserve monetary policy, combined with Congressional action like enhanced unemployment benefits and stimulus checks, is the biggest spike in the consumer price index in almost forty years.  https://thehill.com/policy/finance/585263-annual-inflation-rises-to-68-percent-the-highest-rate-since-1982

Unable to address the fundamental problems of government spending more money than it takes in as taxes, and the Federal Reserve’s monetization of the debt, the Biden Administration has found a new (old) scapegoat.

This was a popular scapegoat of politicians back in the 1970s when the United States last faced massive inflation: supposed corporate “profiteering”.

The argument goes something like this: business profits are increasing and prices are increasing, therefore, the reason prices are increasing is because of increased profits. The Biden administration is making this argument with respect to meat prices and meat producers.  As the Wall Street Journal notes:

Prices have climbed 16% at the meat counter in the last year…” (“Carving Up Biden’s Inflation Beef The White House needs a refresher in the law of supply and demand.” Jan. 7, 2022; https://www.wsj.com/articles/carving-up-bidens-inflation-beef-meat-producers-tyson-prices-11641587628?page=1 )

The Wall Street Journal article goes on to say that profits for meat companies are also up:

“The White House targets four large producers that publicly report financial information. It says gross profits at Tyson, JBS, Marfrig and Seaboard Foods have increased more than 120% since before the pandemic while their gross margins are up 50%. Tyson’s last quarter earnings report shows it ‘made record profits while actually selling less beef than before,’ the White House says.” (Id.)

The Biden Administration’s response to rising prices caused by inflation is to threaten antitrust action on meat companies. But, they haven’t bothered to ask a simple question: If companies could just arbitrarily raise prices and increase their profits like this, why didn’t they do it all along? Why did it just happen now?

Once it is understood that inflation of the money supply, that is printing of money by the Federal Reserve, is the primary culprit for a general rise in prices, then the increased profits can be properly seen as an effect of inflation. Furthermore, it can be seen that such increased profits are temporary, assuming that the Federal Reserve doesn’t continue to inflate the money supply.

Meat producer profits are up because the costs on the goods they are selling are from a time before the Fed’s money printing. As time passes, the costs of raw material and labor will catch up, and will cause those profits to evaporate.

It takes time for a product to be manufactured. A business uses inputs from an earlier time to sell that product at a later time. If the business produces a product at T1 (Time 1), when the value of the dollar is worth more, and then sells that product at T2 (Time 2), when the value of the dollar is now worth half what it was at T1, then the price of the product will get bid up twice as high in T2. This will create a profit on paper, but when the business goes to buy more raw materials and labor in T3, it is going to find that those prices have doubled, so the profit is short lived.

For instance, meat producers raised and grew cattle at a certain cost in T1. Their costs were for things like rental prices for land to graze the cattle on, feed for the cows, water, and labor costs to take care of the cows. Additionally, there are the costs for slaughtering and processing the cattle, which requires plants, laborers, and other equipment. Then there’s the cost of transporting the meat to grocery stores and storing it in refrigerators.

At T2 (Time 2), the Federal reserve then began inflating the money supply. This money was dispersed into the economy through bank loans, stimulus checks, and enhanced employment benefits to consumers. Since the amount of goods in the economy did not increase, this increased demand for goods and services, for things like beef, bid up prices by consumers using the new money. This led to a general rise in prices for goods and services in the economy.

On the meat company’s books, they had incurred costs for the beef already in stores at an earlier time, at T1. The increased consumer demand bid up the sales price of that beef already in stores that was produced in T1. This is then reflected in T2 as increased profits for meat producers.

However, when meat producers go back to produce more beef in T3 (Time 3), they will find that their costs have increased. Employees are demanding higher wages. Landlords are charging more for grazing cattle on land. The feed prices for cattle have increased. Energy costs for slaughtering, shipping, and refrigerating beef have increased. As a result, the profits, in terms of the percentage of their margin between the costs of production and the price of sale of beef, returns to what it was before the Federal Reserve began inflating the money supply.

George Reisman notes this phenomena in his book “Capitalism: A Treatise on Economics”:

“…inflation raises the apparent or, as economists say, the nominal rate of profit that businesses earn….To understand what is involved, it must be realized that the costs which enter into the profit computations of business firms are necessarily “historical”—that is, the outlays of money they represent are made prior to the sale of the products….Now to whatever extent inflation occurs, the sales revenues of business firms are automatically increased: the greater spending that inflation makes possible is simultaneously greater sales revenues to all the business firms that receive it. Since costs reflect the given outlays of earlier periods of time, the increase in sales revenues caused by inflation necessarily adds a corresponding amount to profits….The extra profits are almost all necessary to meet higher replacement costs of inventory and plant and equipment, and the rest are necessary to meet the higher prices of consumers’ goods that the owners of businesses were previously able to buy in their capacity, say, as stockholders receiving dividends.” ( Capitalism: A Treatise on Economics, George Reisman, Kindle Location 10366 to 10389)

This assumes that the Federal Reserve doesn’t continue to inflate the money supply. Additional rounds of inflation will temporarily create more illusory profits for businesses. Furthermore, these businesses are likely to suffer reduced real profits, as opposed to their nominal profits, as they are pushed into higher income tax brackets, causing them to pay additional taxes.

The solution to the problem of a general rise in prices over time is for the Federal Reserve to stop inflating the money supply, and for Congress to reduce governmental spending to levels commensurate with the amount taken in as taxes, not to scapegoat the producers.

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The Ideas In The Communist Manifesto Compared And Contrasted With the Ideas of Ayn Rand

Over a hundred and fifty years later, the ideas of Karl Marx and Friedrich Engels live on, like a cancer that has metastasized throughout academia and intellectual thought. As an economic system political leaders espouse, Marxism may be dead, but the “Marxist mindset” continually pops up in new forms.

The latest incarnation of Marxism appears to be in the realm of race relations. Recently, the Governor of Florida, Ron DeSantis, presented a plan to teach school children “civics”. Essentially, as a conservative, Republican governor, he wants to teach children about what made America a great country. (Unfortunately, as a political conservative, with little understanding of philosophy or history, the Governor of Florida probably doesn’t fully grasp what made America great. I’m also wary of public schools teaching ideology, even when it is pro-American. But, at least his heart is in the right place.)

In the process of explaining about his civics courses, Governor DeSantis emphasized that there would be no funding in public schools for what is commonly called “critical race theory”. De Santis described this ideology as essentially Marxist:

“‘Critical Race Theory is basically teaching people to hate our country, hate each other. It’s divisive, and it’s basically an identity politics version of Marxism. It has no place in the classroom and certainly shouldn’t be funded by taxpayers,’ said the Governor.” (https://hannity.com/media-room/desantis-critical-race-theory-is-teaching-people-to-hate-our-country-and-hate-each-other/)

There is some debate as to whether and to what extent “critical race theory” is influenced by Marxism. (I believe it is.) But, before one could make the case for the intellectual connection between “critical race theory” and Marxism, one must first understand what Karl Marx said. That is the aim of this essay.

Here, I will be comparing and contrasting the ideas of Karl Marx and Friedrich Engels, as expressed in “The Communist Manifesto”, with the ideas of Ayn Rand.

Marx’s Collectivist Method of Thinking In The Social Sciences

Marx, like almost every economist and social scientist before or since, starts with a collectivist vision of mankind. Individual human beings become interchangeable entities. He starts with concepts like “proletariat” and “bourgeoisie”, and never connects that to actual people, living their actual lives. Rand, by contrast starts from the perspective of the individual:

“Mankind is not an entity, not an organism, or a coral bush. The entity involved in production and trade is man. It is with the study of man—not of the loose aggregate known as a “community”—that any science of the humanities has to begin . . . .

A great deal may be learned about society by studying man; but this process cannot be reversed: nothing can be learned about man by studying society—by studying the inter-relationships of entities one has never identified or defined.” (Capitalism: The Unknown Ideal, “What is Capitalism”, Ayn Rand, http://aynrandlexicon.com/lexicon/individualism.html )

An example of Marx’s collectivist method of thinking can be seen when he discusses the “alienation” of the “proletarian”, whatever that is, from his labor brought on by industrialization. Here, Marx conflates a skilled artisan with a “workman”:

“Owing to the extensive use of machinery, and to the division of labour, the work of the proletarians has lost all individual character, and, consequently, all charm for the workman. He becomes an appendage of the machine, and it is only the most simple, most monotonous, and most easily acquired knack, that is required of him.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

Mechanization allows a low-intelligence person to do what would have required a skilled workman before, while the higher-intelligence skilled workman can focus on the design of the technologies and machines. Both parties benefit from this.

This always occurs with technology. The high intelligence and high ambition people develop ways for the lower intelligence and lower ambition people to do part of the work. Think of the difference between a command line operating system and a graphical user interface in a computer. Lower intelligence people, with less inclination to learn DOS or UNIX, can now use a Microsoft Windows machine. I think this example of Windows replacing DOS is an example of what Economists call “comparative advantage”. (https://www.econlib.org/library/Topics/Details/comparativeadvantage.html)

Imagine an Engineer and a high school dropout. There are two jobs that need to be done. The first job is the design of new computers. The second job is issuing commands to a computer to print out letters in an office, for the manager. Only the Engineer can do both of these things because the computer is quite complex, and it has no graphical user interface. It’s using some text-based operating system like DOS or UNIX. The Engineer has an absolute advantage over the high school dropout at both these jobs. In fact, the high school dropout can do neither job. Issuing commands in a text-based operating system is simply beyond his mental capability. The Engineer builds a graphical user interface for the high school dropout. Now, the dropout can issue the “print” command to the computer, by clicking on a visual icon to print out the boss’ letters. The Engineer prefers to let the dropout issue the commands to print the letter for the office boss, allowing him to focus on designing new and better computers.  By designing the graphical user interface, the Engineer has given the high school dropout a comparative advantage in printing letters for the boss as a sort of secretary or office worker.

In the Late Middle Ages, I suspect something similar happened with respect to skilled artisans. (This is more of a hypothesis on my part, that would require historical investigation to confirm.) The craftsman who made shoes, for instance, would both design them, and then also physically manufacture them. The assembly line system allows for splitting up of labor between those with high intelligence and knowledge and those with low intelligence or low knowledge.  The craftsman, who is good at coming up with designs for shoes, specializes in the design of shoes. He became what we would today call an “Engineer” -a designer of machines and products, but not the person who actually physically assembles them.  The manufacture of each shoe is broken down into simple steps that don’t require much intelligence or knowledge. (This process of designing the assembly line is usually done by another, Industrial, Engineer today. This is also an example of comparative advantage and the division of labor.) A single person need only learn how to shape a piece of rubber into the shape of a heel. Another person need only learn how to cut a piece of leather into a sole. Another person only need to learn how to make a shoelace. Etc., etc. These simple steps can be performed by people with relatively low intelligence, and/or who have little education. The Engineer created jobs for low-skilled/low-intelligence people that didn’t exist before, which allows the Engineer to focus on more creative endeavors.

Marx fails to see the phenomena of comparative advantage probably because of his collectivist mindset. He thinks of “workers” as interchangeable. To Marx, the Medieval craftsman is the same person that would then be put on an assembly line doing “mind-numbing” manual labor. In reality, that craftsman is the high-intelligence, high-knowledge person who is more likely to become the Engineer, who has created jobs for many low-intelligence and low-knowledge farm-hands or vagabonds. The Engineer has an absolute advantage over the factory worker – he could do both jobs better. Due to the principle of comparative advantage, however, which is based in the Engineer’s opportunity costs, he prefers to specialize in the design of products like shoes, while letting others physically assemble them.

I think this is what Ayn Rand meant when she spoke of the “pyramid of ability”:

“When you live in a rational society, where men are free to trade, you receive an incalculable bonus: the material value of your work is determined not only by your effort, but by the effort of the best productive minds who exist in the world around you.

When you work in a modern factory, you are paid, not only for your labor, but for all the productive genius which has made that factory possible: for the work of the industrialist who built it, for the work of the investor who saved the money to risk on the untried and the new, for the work of the engineer who designed the machines of which you are pushing the levers, for the work of the inventor who created the product which you spend your time on making, for the work of the scientist who discovered the laws that went into the making of that product, for the work of the philosopher who taught men how to think and whom you spend your time denouncing.

The machine, the frozen form of a living intelligence, is the power that expands the potential of your life by raising the productivity of your time. If you worked as a blacksmith in the mystics’ Middle Ages, the whole of your earning capacity would consist of an iron bar produced by your hands in days and days of effort. How many tons of rail do you produce per day if you work for Hank Rearden [an industrialist and inventor]? Would you dare to claim that the size of your pay check was created solely by your physical labor and that those rails were the product of your muscles? The standard of living of that blacksmith is all that your muscles are worth; the rest is a gift from Hank Rearden.” (Ayn Rand, Atlas Shrugged.)

In the above quoted passage from “The Communist Manifesto”, Marx wants to make it seem like the skilled workman has been “alienated” from his labor -whatever that means. But, the skilled workman of the Middle Ages is the Engineer of today. The Engineer, backed up by the intellect of scientists like Isaac Newton, who were in turn backed up by the intellect of philosophers like Aristotle, created wealth for countless starving Medieval serfs and peasants, living a precarious, near-starvation, and very unfree, existence until the Industrial Revolution. The Engineer presumably gains enormous satisfaction from the design of new products and advancing the boundaries of technology and civilization. He’s hardly “alienated” from his labor. (Whatever “alienated” means in this context.) He derives a sense of purpose and meaning from his work. The assembly line worker making shoe heels, or the office worker using Microsoft Windows, can earn sufficient wealth more quickly, thanks to new technology. This gives some of these workers time to improve their skills by going to school if they are young, intelligent, and ambitious. If an assembly line or office worker is older, and perhaps of lower intelligence, it allows him to earn his daily bread more quickly. Then, he can get home to his wife and children. He may find his meaning and purpose in life through his growing family, rather than through his job. Either way, the assembly line worker and the office worker are better able to find whatever meaning there is to be found in their individual lives, thanks to the likes of Aristotle, Newton, and Thomas Edison.

Given Marx’s Collectivist Method of Thinking About Society, He Develops Poorly-Defined Terms Like “Proletariat” and “Bourgeois”

The Communist Manifesto is based in the assumption of a “class struggle”:

“The history of all hitherto existing society is the history of class struggles.

Freeman and slave, patrician and plebeian, lord and serf, guild-master(3) and journeyman, in a word, oppressor and oppressed, stood in constant opposition to one another, carried on an uninterrupted, now hidden, now open fight, a fight that each time ended, either in a revolutionary reconstitution of society at large, or in the common ruin of the contending classes.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

Marx says that “in a word” society that has existed until now has always been one of “class struggles” between “oppressor” and “oppressed”.

Marx and Engels speak of “oppressor and oppressed”, which forms the basis of the “class struggle”, which in turn is the history of all “hitherto existing society”, but what does it mean, “to oppress”?

Ayn Rand doesn’t speak of “oppression”, per se, but of concepts of “justice” and “individual rights”. For Rand, rights are violated by means of the initiation of physical force:

“Man’s rights can be violated only by the use of physical force. It is only by means of physical force that one man can deprive another of his life, or enslave him, or rob him, or prevent him from pursuing his own goals, or compel him to act against his own rational judgment.” (The Virtue of Selfishness, “The Nature of Government”, Ayn Rand.)

“Oppression” implies the use of physical force in an unjust manner, or at least action in an unjust manner. What is Marx/Engels’ theory of justice? What does the term “justice” mean to them?  As will be discussed later, the logical implication of Marxism is that “justice” is nothing but a “tool” of the ruling class, and has no objective connection to the facts of reality or man’s life. The concept of “objectivity”, of true and false, would be considered a “bourgeoisie prejudice” by anyone following Marx and Engels’ ideas to their logical conclusion.

The Communist Manifesto assumes an inherent and inevitable conflict between different groups of people. Class relations are always class conflict. Force is the only means of conflict resolution. One side or the other will be destroyed:

“…the collisions between individual workmen and individual bourgeois take more and more the character of collisions between two classes.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

“Here and there, the contest breaks out into riots.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

“…every class struggle is a political struggle.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

“In depicting the most general phases of the development of the proletariat, we traced the more or less veiled civil war, raging within existing society, up to the point where that war breaks out into open revolution, and where the violent overthrow of the bourgeoisie lays the foundation for the sway of the proletariat.”  (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

Rand, by contrast, says that there are no conflicts of interest amongst rational men, in the ordinary course of life. (Possibly leaving aside “lifeboat emergencies”):

“The Objectivist ethics holds that human good does not require human sacrifices and cannot be achieved by the sacrifice of anyone to anyone. It holds that the rational interests of men do not clash—that there is no conflict of interests among men who do not desire the unearned, who do not make sacrifices nor accept them, who deal with one another as traders, giving value for value.” (The Virtue of Selfishness, “The Objectivist Ethics”, Ayn Rand)

Instead of poorly defined terms like “proletariat” and “bourgeoisie”, Rand describes the “producer” and the “looter” as two groups of people fundamentally at odds:

“With very rare and brief exceptions, pre-capitalist societies had no place for the creative power of man’s mind, neither in the creation of ideas nor in the creation of wealth. Reason and its practical expression -free trade- were forbidden as a sin and a crime, or were tolerated, usually as ignoble activities, under the control of authorities who could revoke the tolerance at whim. Such societies were ruled by faith and its practical expression: force. There were no makers of knowledge and no makers of wealth; there were only witch doctors and tribal chiefs. These two figures dominate every anti-rational period of history, whether one calls them tribal chief and witch doctor -or absolute monarch and religious leader…” (For The New Intellectual, Ayn Rand.)

“You stand in the midst of the greatest achievement of the greatest productive civilization [The United States of America] and you wonder why it’s crumbling around you, while you’re damning its life-blood -money….Throughout men’s history, money was always seized by looters of one brand or another, whose names changed, but whose method remained the same: to seize wealth by force and to keep the producers bound, demeaned, defamed, deprived of honor. That phrase about the evil of money, which you mouth with such righteous recklessness, comes from a time when wealth was produced by the labor of slaves -slaves who repeated the motions once discovered by somebody’s mind and left unimproved for centuries. So long as production was ruled by force, and wealth was obtained by conquest, there was little to conquer. Yet through all the centuries of stagnation and starvation, men exalted the looters, as aristocrats of the sword, as aristocrats of birth, as aristocrats of the bureau, and despised the producers, as slaves, as traders, as shopkeepers -as industrialists.” (Atlas Shrugged, Ayn Rand)

Marx failed to distinguish between those who achieve wealth through production, and those who seize it by means of the initiation of physical force. To him, the Medieval nobility that held people in virtual slavery as serfs, and by force of arms, was no different from the voluntary relationship between the owner of a factory and one of his employees. But, one uses whips and weapons, while the other uses dollars and persuasion.

Marx on the Origin of the “Bourgeoise” and “Proletariat”

Although it is not a well-defined term, Marx describes the “bourgeoise” as having started out as medieval serfs, who formed independent towns in the European Middle Ages, then eventually displaced the Nobility and Monarchy altogether, to form the “modern state”:

“From the serfs of the Middle Ages sprang the chartered burghers of the earliest towns. From these burgesses the first elements of the bourgeoisie were developed. “(Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

“Each step in the development of the bourgeoisie was accompanied by a corresponding political advance of that class. An oppressed class under the sway of the feudal nobility…or the absolute monarchy as a counterpoise against the nobility…in the modern representative State, exclusive political sway. The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

This is a fairly accurate description of how medieval towns formed. Historians have described the rise of the “burgers” and the “bourgeois”, who were often escaped serfs that had run away from the manor they were legally tied to:

“The term bourgeois originated in medieval France, where it denoted an inhabitant of a walled town.” ( https://www.britannica.com/topic/bourgeoisie )

These towns did form the social and economic basis on which Europe moved from its medieval social and economic organization to modern society:

“While the manor remained the principal unit of European society until the eighteenth century, the seeds of ‘modern’ civilization were being nourished as early as the eleventh. With the reopening of trade routes and the appearance of new marketing centers came the emergence of the towns that were destined to convert Europe from a rural to an urban society. The lords and peasants who remained on the manorial estates played a negligible role in the growth of these towns. An expanded cast of characters gradually appeared there, consisting of merchants, entrpeneurs, bankers, lawyers, artisans, and unskilled laborers. In the thirteenth century these groups made up but a fraction of Europe’s population (less than 10 percent), but their numbers were destined to grow until, by the twentieth century, they would be a majority….

…The mideval towns were essentially trading posts where local produce could be sold and foreign merchandise purchased…

The new towns presented an avenue of escape to men and women who were seeking release from the drudgery and routine of the manorial village. This was especially true for serfs who longed to cast off their inferior status. They could, if they grew desparate enough, run away from the manor and lose themselves in a distant town. According to custom of the period, they were legally free if the lord failed to recapture them within a ‘year and a day.’ (Later in the Middle Ages serfs could gain their freedom by making a cash payment to their lord.)” (A Brief History of Western Man, 3d Ed., Chapter 5, The Creation of Europe: Political and Social Foundations, by Thomas H. Greer)

Marx/Engels show ambivalence on whether the bourgeoise destruction of the old medieval order was a positive change. In fact, they seem to regard many aspects of pre-modern times as superior to the present, capitalist order:

“The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. … It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom – Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation….

The bourgeoisie has torn away from the family its sentimental veil, and has reduced the family relation to a mere money relation….

The bourgeoisie has disclosed how it came to pass that the brutal display of vigour in the Middle Ages, which reactionaries so much admire, found its fitting complement in the most slothful indolence.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto; emphasis added.)

These above passages seem strange in light of Marx/Engels’ belief that all of history is the history of oppressor and oppressed. It also seems odd because of their belief that the bourgeoisie had their origins in runaway serfs who went to the towns and formed armed associations for mutual protection.

Marx/Engels, at least implicitly, seem to prefer the social organization of the Middle Ages to social relations existing since the Industrial Revolution and Capitalism.

Other Randian intellectuals have noted that socialists are often “closet medievalists”. While he was still associated with Ayn Rand’s philosophy, Nathaniel Brandon made this observation about psychologist Erich Fromm:

Scratch a collectivist and you will usually find a medievalist. Fromm is not an exception. Like so many socialists, he is a glamorizer of the Middle Ages. He [Erich Fromm] perfunctorily acknowledges the faults of that historical period—but in contrasting it with the capitalism that succeeded it, he is enchanted by what he regards as its virtues….

… It is not uncommon to encounter this sort of perspective on the Middle Ages, among writers on alienation…. The complete lack of control over any aspect of one’s existence, the ruthless suppression of intellectual freedom, the paralyzing restrictions on any form of individual initiative and independence—these are cardinal characteristics of the Middle Ages…. all of this is swept aside, so entranced is Fromm by the vision of a world in which men did not have to invent and compete, they had only to submit and obey.” (Capitalism: The Unknown Ideal, “Alienation”, Nathaniel Brandon, emphasis added.)

Additionally, Marx/Engels certainly prefer the tribal pre-historical past of mankind, which they regard as a sort of “lost golden age” of communism. The Communist Manifesto hints at a distant past in which there was no class struggle:

“That is, all written history. In 1847, the pre-history of society, the social organisation existing previous to recorded history, all but unknown. Since then, August von Haxthausen (1792–1866) discovered common ownership of land in Russia, Georg Ludwig von Maurer proved it to be the social foundation from which all Teutonic races started in history, and, by and by, village communities were found to be, or to have been, the primitive form of society everywhere from India to Ireland. The inner organisation of this primitive communistic society was laid bare, in its typical form, by Lewis Henry Morgan’s (1818–1861) crowning discovery of the true nature of the gens and its relation to the tribe. With the dissolution of the primeval communities, society begins to be differentiated into separate and finally antagonistic classes. I have attempted to retrace this dissolution in The Origin of the Family, Private Property, and the State, second edition, Stuttgart, 1886. [Engels, 1888 English Edition and 1890 German Edition (with the last sentence omitted)] “ (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

“The “Manifesto” being our joint production, I consider myself bound to state that the fundamental proposition which forms its nucleus, belongs to Marx. That proposition is: that in every historical epoch, the prevailing mode of economic production and exchange, and the social organization necessarily following from it, form the basis upon which is built up, and from which alone can be explained, the political and intellectual history of that epoch; that consequently the whole history of mankind (since the dissolution of primitive tribal society, holding land in common ownership) has been a history of class struggles, contests between exploiting and exploited, ruling and oppressed classes” (Engles, Preface to Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

This is significant today, given the “multicultural” turn of modern leftism, in which primitive, “indigenous societies”, are viewed as “pure” and “good” while Modern, Western Civilization is viewed as always bad. There is textual support in The Communist Manifesto for this viewpoint held by the modern left.

Rand agrees that primitive tribes were fundamentally collectivist in organization. Unlike Marx and Engels, she recognizes that the modern move away from primitive tribes promotes and enhances the life of any person who wants to flourish. The “morality of altruism”, for Rand, is a “tribal phenomenon”:

“It is obvious why the morality of altruism is a tribal phenomenon. Prehistorical men were physically unable to survive without clinging to a tribe for leadership and protection against other tribes. The cause of altruism’s perpetuation into civilized eras is not physical, but psycho-epistemological: the men of self-arrested, perceptual mentality are unable to survive without tribal leadership and “protection” against reality. The doctrine of self-sacrifice does not offend them: they have no sense of self or of personal value—they do not know what it is that they are asked to sacrifice—they have no firsthand inkling of such things as intellectual integrity, love of truth, personally chosen values, or a passionate dedication to an idea.” (Philosophy: Who Needs It, “Selfishness Without A Self”, Ayn Rand.)

The Communist Manifesto seems to say the “proletariat” was inadvertently created by the “bourgeoisie”:

“But not only has the bourgeoisie forged the weapons that bring death to itself; it has also called into existence the men who are to wield those weapons – the modern working class – the proletarians. “ (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

What is this “proletariat”?

“In proportion as the bourgeoisie, i.e., capital, is developed, in the same proportion is the proletariat, the modern working class, developed – a class of labourers, who live only so long as they find work, and who find work only so long as their labour increases capital. These labourers, who must sell themselves piecemeal, are a commodity, like every other article of commerce, and are consequently exposed to all the vicissitudes of competition, to all the fluctuations of the market. “ (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

As already discussed, Marx’s description of those who own no property and live solely by being paid a wage is simply not an accurate description of reality under capitalism. Marx and Engels apparently had no concept of the economic concept of comparative advantage. They also had not even the slightest inkling of the “pyramid of ability” Ayn Rand has described. Capitalism and technological progress often create new jobs for people who have low skills or low intelligence. The example of the movement from text-based operating systems to graphical user interfaces, already discussed, is an example of this. Software engineers and entrepreneurs have made it possible for people with minimal computer skills to operate a computer by clicking on a series of “icons” on a computer screen. (Which was another invention -at one time all input and output on a computer was nothing but punched cards, requiring highly specialized knowledge and great intelligence to understand.) Every person working for wages in an office today has capitalism, and the technological inventiveness it unlocks, to thank for their increased productivity, which makes their higher standard of living possible:

“In proportion to the mental energy he spent, the man who creates a new invention receives but a small percentage of his value in terms of material payment, no matter what fortune he makes, no matter what millions he earns. But the man who works as a janitor in the factory producing that invention, receives an enormous payment in proportion to the mental effort that his job requires of him. And the same is true of all men between, on all levels of ambition and ability. The man at the top of the intellectual pyramid contributes the most to all those below him, but gets nothing except his material payment, receiving no intellectual bonus from others to add to the value of his time. The man at the bottom who, left to himself, would starve in his hopeless ineptitude, contributes nothing to those above him, but receives the bonus of all of their brains. Such is the nature of the ‘competition’ between the strong and the weak of the intellect. Such is the pattern of ‘exploitation’ for which you have damned the strong.” (Ayn Rand, Atlas Shrugged.)

Marxist Determinism

Marx views the proletariat as the “exploited” and the bourgeoisie as the “exploiters”. The proletarians are perpetually the victims of the bourgeoisie, with no autonomy or free will whatsoever:

“No sooner is the exploitation of the labourer by the manufacturer, so far, at an end, that he receives his wages in cash, than he is set upon by the other portions of the bourgeoisie, the landlord, the shopkeeper, the pawnbroker, etc.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

Note how Marx regards the proletarians as somehow lacking in agency. They are unable to resist paying for too large of an apartment or house by the landlord, unable to resist buying things from the shopkeeper, and also unable to continually seek high-interest loans from the pawnbroker. (Where the “proletarian” gets the stuff to pawn, Marx doesn’t say. The proletarian envisioned by him is both simultaneously unable to afford anything but the basics in life, and also has items of value to take to the pawnshop. I suppose I’m just not steeped in enough “Marxist Dialectic” to see past the contradiction.)

Since “proletariat” is a poorly defined term, in modern times, any group that is less culturally advanced tends to be viewed by political leftists as “exploited” by whatever group they regard as “bourgeoisie” -which, in practice, ends up meaning the more intelligent, knowledgeable, and better cultured people.

Marx views people as primarily products of their environment. Their ideas, attitudes and beliefs are shaped by their “material circumstances”:

“Does it require deep intuition to comprehend that man’s ideas, views, and conception, in one word, man’s consciousness, changes with every change in the conditions of his material existence, in his social relations and in his social life?” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

Is there any sense in which Ayn Rand would agree with that? Rand recognized that a dogmatic refusal to question any aspect of the established social order seems to be a feature of many people’s minds. Rand described several different types of “collectivist thinking” that were common in human society. Two of these are the “tribal mindset” and the “second-hander”:

“What are the nature and the causes of modern tribalism? Philosophically, tribalism is the product of irrationalism and collectivism. It is a logical consequence of modern philosophy. If men accept the notion that reason is not valid, what is to guide them and how are they to live?

Obviously, they will seek to join some group—any group—which claims the ability to lead them and to provide some sort of knowledge acquired by some sort of unspecified means. If men accept the notion that the individual is helpless, intellectually and morally, that he has no mind and no rights, that he is nothing, but the group is all, and his only moral significance lies in selfless service to the group—they will be pulled obediently to join a group. But which group? Well, if you believe that you have no mind and no moral value, you cannot have the confidence to make choices—so the only thing for you to do is to join an unchosen group, the group into which you were born, the group to which you were predestined to belong by the sovereign, omnipotent, omniscient power of your body chemistry.

This, of course, is racism. But if your group is small enough, it will not be called “racism”: it will be called ‘ethnicity.’” (The Voice of Reason, “Global Balkanization”, Ayn Rand; http://aynrandlexicon.com/lexicon/tribalism.html )

“Men were taught to regard second-handers—tyrants, emperors, dictators—as exponents of egoism. By this fraud they were made to destroy the ego, themselves and others. The purpose of the fraud was to destroy the creators. Or to harness them. Which is a synonym.

From the beginning of history, the two antagonists have stood face to face: the creator and the second-hander. When the first creator invented the wheel, the first second-hander responded.

He invented altruism.

The creator—denied, opposed, persecuted, exploited—went on, moved forward and carried all humanity along on his energy. The second-hander contributed nothing to the process except the impediments. The contest has another name: the individual against the collective.” (The Fountainhead, Ayn Rand; http://aynrandlexicon.com/lexicon/second-handers.html)

For Rand, these aren’t mindsets to be blindly accepted by those who choose to think. Such irrationality should be criticized.  Social institutions, educational institutions, laws, and ethics should be aimed at critiquing and discouraging such a passive mindset. Until the early Twentieth Century, the United States of America had a set of institutions in place to discourage tribalism:

“Tribalism had no place in the United States—until recent decades. It could not take root here, its imported seedlings were withering away and turning to slag in the melting pot whose fire was fed by two inexhaustible sources of energy: individual rights and objective law; these two were the only protection man needed.” (Philosophy: Who Needs It, “The Missing Link” Ayn Rand, http://aynrandlexicon.com/lexicon/tribalism.html)

Furthermore, for Rand, tribalism and second-handedness are not an inevitable mindset. People become this way through their own default. They fail to think, and that is the result. The solution is to encourage thought. What system of social organization encourages thought and discourages the failure to think?

“Capitalism demands the best of every man—his rationality—and rewards him accordingly. It leaves every man free to choose the work he likes, to specialize in it, to trade his product for the products of others, and to go as far on the road of achievement as his ability and ambition will carry him. His success depends on the objective value of his work and on the rationality of those who recognize that value. When men are free to trade, with reason and reality as their only arbiter, when no man may use physical force to extort the consent of another, it is the best product and the best judgment that win in every field of human endeavor, and raise the standard of living—and of thought—ever higher for all those who take part in mankind’s productive activity.” (Capitalism: The Unknown Ideal, “What is Capitalism”, Ayn Rand, http://aynrandlexicon.com/lexicon/capitalism.html )

The Communist Manifesto on Women

In a departure from the more modern, “feminist”, interpretation of Marxism, The Communist Manifesto regards the damage to the family as another harm caused by the “bourgeoisie”. Specifically, Marx and Engels say capitalism has made women too independent:

“Modern Industry has converted the little workshop of the patriarchal master into the great factory of the industrial capitalist. …The less the skill and exertion of strength implied in manual labour, in other words, the more modern industry becomes developed, the more is the labour of men superseded by that of women. Differences of age and sex have no longer any distinctive social validity for the working class. All are instruments of labour, more or less expensive to use, according to their age and sex.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

For Marx, the Industrial Revolution has made it possible for women to do the work that used to be done by men, and that is a bad thing. Jobs that would have required great physical strength are replaced by machines, which can be operated by comparatively physically weaker women. Even poor women no longer need be dependent on men for their subsistence.

Further, in a knowledge-based, intelligence-based, industrial economy, intelligence becomes more important than physical strength, allowing for women to rise in the business world, if they so choose. Ayn Rand recognized this fact, which is why she created the character of Dagny Taggart in Atlas Shrugged: A female businesswoman and engineer. Rand agrees with Marx that capitalism and the Industrial Revolution gave women greater independence. As one writer in a collection of essays approved by Rand noted:

“The factories were held responsible, by such critics, for every social problem of that age, including promiscuity, infidelity, and prostitution. Implicit in the condemnation of women working in the factories was the notion that a woman’s place is in the home and that her only proper role is to keep house for her husband and to rear his children….

The factories were blamed simultaneously for removing girls from the watchful restraints of their parents and for encouraging early marriages; and later, for fostering maternal negligence and incompetent housekeeping, as well as for encouraging lack of female subordination and the desire for luxuries….” (Capitalism: The Unknown Ideal, “The Effects of the Industrial Revolution on Women and Children”, Robert Hessen.)

In reality, the factory system provided women with a means of survival and independence unavailable to them before the advent of the Industrial Revolution:

“What the factory system offered these women was—not misery and degradation—but a means of survival, of economic independence, of rising above the barest subsistence….

…women increasingly preferred work in the factories to any other alternatives open to them, such as domestic service, or back-breaking work in agricultural gangs, or working as haulers and pullers in the mines; moreover, if a woman could support herself, she was not driven into early marriage.” (Capitalism: The Unknown Ideal, “The Effects of the Industrial Revolution on Women and Children”, Robert Hessen.)

Capitalism has done more to liberate women than all the political agitation of feminists, to Marx and Engels’ consternation.

The Communist Manifesto on Property

Marx says that the abolition of property is not a “distinctive feature of communism”:

“The abolition of existing property relations is not at all a distinctive feature of communism.

All property relations in the past have continually been subject to historical change consequent upon the change in historical conditions.

The French Revolution, for example, abolished feudal property in favour of bourgeois property.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

Instead, Communism aims at the abolition of only “bourgeoisie property”:

“The distinguishing feature of Communism is not the abolition of property generally, but the abolition of bourgeois property. But modern bourgeois private property is the final and most complete expression of the system of producing and appropriating products, that is based on class antagonisms, on the exploitation of the many by the few.“ (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

Marx says he does not mean he advocates the abolition of the property acquired by “the fruit of one’s labor”:

“We Communists have been reproached with the desire of abolishing the right of personally acquiring property as the fruit of a man’s own labour, which property is alleged to be the groundwork of all personal freedom, activity and independence.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

But, Marx says, such private property is no longer a feature of the system of “bourgeoisie property”:

“Hard won, self-acquired, self-earned property! Do you mean the property of petty artisan and of the small peasant, a form of property that preceded the bourgeois form? There is no need to abolish that; the development of industry has to a great extent already destroyed it, and is still destroying it daily.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

Marx says that modern “wage labor” does not create private property for the laborer:

“But does wage-labour create any property for the labourer? Not a bit. It creates capital, i.e., that kind of property which exploits wage-labour, and which cannot increase except upon condition of begetting a new supply of wage-labour for fresh exploitation. Property, in its present form, is based on the antagonism of capital and wage labour.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

“Capital”, by which Marx seems to mean “property” as that term is understood in modern times, is collectively produced by proletarians, and is a tool of exploitation by the capitalist:

“To be a capitalist, is to have not only a purely personal, but a social status in production. Capital is a collective product, and only by the united action of many members, nay, in the last resort, only by the united action of all members of society, can it be set in motion.

Capital is therefore not only personal; it is a social power. “ (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

So, for Marx, the “liberation” of “capital” by the proletarians is not theft, it is merely an elimination of its “class character”:

“When, therefore, capital is converted into common property, into the property of all members of society, personal property is not thereby transformed into social property. It is only the social character of the property that is changed. It loses its class character.“ (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

As has already been discussed, Rand would simply have a fundamental disagreement with Marx about (a) studying groups of people and social systems without understanding the fundamental nature of man; (b) the grouping together in Marx’s mind of all people into either “proletarians” or “bourgeoisie”, without recognizing the individual nature of human beings; and (c) the assumption that technology, created by the more knowledgeable and intelligent people, is somehow “exploiting” the less knowledgeable and intelligent. Instead, Rand, in accordance with the “Pyramid of Ability” principle, would say that the more able make life better for the less able -although Rand would also adamantly say this is not, and should not be, the life’s goal of property owners:

“The Objectivist ethics proudly advocates and upholds rational selfishness—which means: the values required for man’s survival qua man…” (The Virtue of Selfishness, “The Objectivist Ethics”, Ayn Rand; http://aynrandlexicon.com/lexicon/selfishness.html)

For Marx, property rights are a form of “exploitation”. For Rand, property rights are moral principles defining and sanctioning an individual’s freedom of action to live his life in a social environment. To create the material means of his survival and flourishing:

“Bear in mind that the right to property is a right to action, like all the others: it is not the right to an object, but to the action and the consequences of producing or earning that object. It is not a guarantee that a man will earn any property, but only a guarantee that he will own it if he earns it. It is the right to gain, to keep, to use and to dispose of material values.” (The Virtue of Selfishness, “Man’s Rights”, Ayn Rand.)

Also, for Rand, since the interests of rational men generally do not conflict in a free society, the fact that the more able are able to produce great new technologies actually benefits their intellectual inferiors, in accordance with the economic principle of “comparative advantage” and Rand’s concept of the “pyramid of ability”.

Marxist Epistemology

For Marx, at least when it comes to normative concepts like “law”, “morality” and “government”, there is no such thing as “objectivity” -of “true” and “false”.  All ideas are just a product of one’s “material conditions”:

“But don’t wrangle with us so long as you apply, to our intended abolition of bourgeois property, the standard of your bourgeois notions of freedom, culture, law, &c. Your very ideas are but the outgrowth of the conditions of your bourgeois production and bourgeois property, just as your jurisprudence is but the will of your class made into a law for all, a will whose essential character and direction are determined by the economical conditions of existence of your class.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto; emphasis added.)

Marx views the contents of the human mind, our ideas, as nothing but a sort of rationalization for advancing our class. For instance, when addressing some of the criticisms of communism, Marx notes that:

“The charges against Communism made from a religious, a philosophical and, generally, from an ideological standpoint, are not deserving of serious examination.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

Why does Marx dismiss philosophical and “ideological” criticisms of his viewpoint? Because all philosophy and ideology is nothing but rationalization for him. There is no such thing as “objectivity” for Marx and Engels:

“Does it require deep intuition to comprehend that man’s ideas, views, and conception, in one word, man’s consciousness, changes with every change in the conditions of his material existence, in his social relations and in his social life?” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

The predominate ideas of a society are nothing but the “ideas of the ruling class”:

“What else does the history of ideas prove, than that intellectual production changes its character in proportion as material production is changed? The ruling ideas of each age have ever been the ideas of its ruling class.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

Education of children is premised on the idea that some ideas are true, while others are false. It is also based in the belief that some concepts will help you to live your life better. You learn how to read because literacy is better than being illiterate. It allows for greater communication and easier learning. You learn arithmetic to keep a budget of your spending, and to determine quantities more quickly than you could through simple counting. You learn calculus to be able to determine the instantaneous velocity of a rocket to put satellites into orbit for tracking the weather. Etc., etc. But for Marx, all education is nothing but a perpetuation of the system of exploitation by the “bourgeoisie”:

“And your education! Is not that also social, and determined by the social conditions under which you educate, by the intervention direct or indirect, of society, by means of schools, &c.? The Communists have not invented the intervention of society in education; they do but seek to alter the character of that intervention, and to rescue education from the influence of the ruling class.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto; emphasis added.)

Normative concepts like “law” or “morality” for Marx merely reflect the “selfish interests” of some particular group. All such concepts are merely a reflection of “present modes of production”:

The selfish misconception that induces you to transform into eternal laws of nature and of reason, the social forms springing from your present mode of production and form of property – historical relations that rise and disappear in the progress of production – this misconception you share with every ruling class that has preceded you. What you see clearly in the case of ancient property, what you admit in the case of feudal property, you are of course forbidden to admit in the case of your own bourgeois form of property.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto; emphasis added.)

Strangely, Marx uses the term “selfishness” here to refer to a group interest, not self-interest -the supposed group interest of the “bourgeoisie”, whatever that is.

Rand agrees with Marx that reason and the discovery of laws of nature is only necessary if one is selfish. She agrees that property rights are related to selfishness. But, for Rand, “selfishness” is actually related to a “self”, which Marx, as a collectivist, barely even recognizes:

“…the exact meaning and dictionary definition of the word “selfishness” is: concern with one’s own interests.

This concept does not include a moral evaluation; it does not tell us whether concern with one’s own interests is good or evil; nor does it tell us what constitutes man’s actual interests. It is the task of ethics to answer such questions.”  (The Virtue of Selfishness, “The Objectivist Ethics”, Ayn Rand.)

Rand, unlike Marx, regards one’s self-interest as the only reason ethics, politics, or any other normative concept is necessary. It is because one chooses to live that ethics, rights, or questions of the concept of “property” even arise:

“There is only one fundamental alternative in the universe: existence or non-existence—and it pertains to a single class of entities: to living organisms….It is only the concept of “Life” that makes the concept of “Value” possible. It is only to a living entity that things can be good or evil.” (Atlas Shrugged, Ayn Rand, emphasis added.)

Marx, like almost every philosopher before him, starts from the assumption that the only way for there to be “truly objective” concepts like “rights”, “law”, “government” or “ethics” is to somehow eliminate all self-interest from the equation. Since that is not possible without dying, Marx throws up his hands and declares the whole enterprise to find objective law and government nothing but  “….the outgrowth of the conditions of your bourgeois production and bourgeois property…”

Rand, on the other hand, recognizes that it is only because one wants to live that these concepts are necessary. Therefore, an objective definition of “rights” or “law”, to say nothing of morality, depends on man’s choice to live:

“My morality, the morality of reason, is contained in a single axiom: existence exists—and in a single choice: to live. The rest proceeds from these.” (Atlas Shrugged, Ayn Rand)

The Communist Manifesto’s Nihilistic Tendency

As discussed, Marx views all ideas as nothing but the ideas of the “ruling class”:

“What else does the history of ideas prove, than that intellectual production changes its character in proportion as material production is changed? The ruling ideas of each age have ever been the ideas of its ruling class. “ (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

In reality, some ideas are true and others are false. What makes an idea “true” or false”? It’s correspondence to reality. The idea that the Earth is flat is false and the idea that the Earth is round is true. Why does one accept the latter and reject the former? Because it has consequences for living. If you operated on the assumption that the Earth was flat, it would lead to a whole host of contradictions, and would put you at war with reality. Human life would be worse if people continued to insist that the Earth was flat.

People who continue to accept false ideas will be less successful at living. People who insist that vaccination is, on the whole, bad for them, will tend to be killed by that idea. People who regard vaccination as generally a good will tend to live longer and better lives.

Taken to its logical extreme, a Marxist analysis of vaccination will call it nothing but a “bourgeoisie prejudice” and claim that the reason the vaccinated live longer and better lives than the unvaccinated is due to “exploitation” of the later by the former.

Furthermore, taken to its logical extreme, a Marxist analysis of vaccination would say that precisely because people who are vaccinated are living longer is proof that they are exploiters, and that they must be “swept aside”. The desire to live as the basis for objectivity is regarded as a distorting agent by Marxists. Those implementing Marxist political theory will then hold a simmering grudge against the successful and the able. The able tend to be the people who want to live, and therefore conform the contents of their minds to reality in order to achieve that objective. Marxist resentment will focus on the most rational and most successful people. It focuses it’s hatred on us, the living. The Marxist mindset is a psychology of nihilism -of hatred of the good.

This is why Marxism tends to devolve into full-throttle mass-murder and destruction of the able wherever it is implemented. (For instance, Pol Pot and the Khmer Rouge murdered anyone who spoke a foreign language or wore glasses because they were viewed as intellectuals -as people who used ideas to improve their lives.  https://www.bbc.com/news/world-asia-pacific-10684399)

Marx said:

“The Communist revolution is the most radical rupture with traditional property relations; no wonder that its development involved the most radical rupture with traditional ideas.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

“The Communists disdain to conceal their views and aims. They openly declare that their ends can be attained only by the forcible overthrow of all existing social conditions.” (Communist Manifesto; https://oll.libertyfund.org/page/marx-manifesto)

In practice, this has meant the Killing Fields of Cambodia, the Cultural Revolution of China, and the Gulags of Stalinist Russia. The blood of the people murdered under those regimes is on the intellectual hands of Marx and Engels.

The Government Against the Economy In the Year of COVID-19

In the coming days, the US Congress will be voting on a massive spending package to give subsidies to various industries and people as part of the Federal Government’s response to the COVID-19 outbreak. This is a $1 trillion dollar bill that will hand out massive subsidies, include loans for businesses, direct deposits that could give an average U.S. family of four $3,000, and up to $4 trillion in liquidity for the U.S. central bank to support the economy. It includes bipartisan agreement on additional unemployment payments for people who have been laid off. https://news.yahoo.com/u-senate-leadership-aims-finalize-141350505.html

It is part of the government’s effort to legislate away a natural disaster. I think the result will be more hardship for Americans, not less.

In the mid-1990’s, I read a book called “The Government Against the Economy”, by George Reisman, an Economics professor who had been a student of the free market economist Ludwig von Mises and associate of Ayn Rand. In that book:

Reisman details how the profit motive and private ownership operate in a free society to produce consequences beneficial to all. He contrasts this with socialism, which destroys the possibility of rational economic activity and maintains control through-compulsion. He demonstrates how housing is provided efficiently in a free market, then examines the chaos of rent controls. He explains why shortages cannot exist in a free economy, then explodes the myths surrounding the energy crisis. “ (https://fee.org/articles/book-review-the-government-against-the-economy-by-george-reisman/)

In the 1970’s the Federal Government, specifically the Nixon administration, imposed price and wage controls. https://www.cato.org/publications/commentary/remembering-nixons-wage-price-controls. After the Arab Oil Embargo of 1973, this had particularly disastrous consequences on the supply of gasoline and petroleum products.

In discussing the 1970’s gasoline shortage, Reisman made the distinction between “scarcity” on the one hand and “shortage” on the other. As he noted in a later, more comprehensive book:

The concept of a shortage is not the same thing as the concept of a scarcity. An item can be extremely scarce, like diamonds, Rembrandt paintings, and so on, and yet no shortage exist.” (Reisman, George. Capitalism: A Treatise on Economics . TJS Books. Kindle Edition. Location 10064.)

Diamonds are very “scarce”, but there is no “shortage” of diamonds. The price of diamonds is determined on a free market. When something is scarce, their price is bid up to a level that will be consistent with that scarcity. So long as price can rise to a level that reflects that scarcity, then there will never be a shortage. People will learn to economize on that good or service. They will learn to do with less, or they will seek substitute goods.

In the production sector, if businesses find that certain inputs they need to operate are increasing in price, they will do the same. They will either learn to do with less, or they will seek substitute goods. For instance, if a factory making leather shoes finds that its cost of leather is going up, then it might switch to imitation leather, or start making canvas shoes.

Additionally, if a business sector is highly profitable because more consumers want its goods and services relative to other business sectors, then that business will have more money to hire more workers and, if the economy is near full employment, then it will be able to pay its workers higher wages, and thereby outbid other businesses that are less profitable.  If, for instance, more people suddenly want more shoes and fewer jackets, then the shoe industry will be making higher profits as consumers are willing to pay more for shoes. This will give the shoe industry greater profits relative to other businesses sectors, and they will be able to offer higher wages and pay more for the inputs that both shoes and jackets use. (Leather, for instance, will go to make leather shoes, and not to make leather jackets.)

But, if the government steps in and interferes with this process by imposing price controls for leather, then shoe companies will not be able to pay more for leather in order to outbid the manufacturers of leather jackets. The government will thwart the shift from making leather jackets to making leather shoes because it has distorted the price system with price controls, and thereby destroyed any incentive that leather makers would have to sell more leather to shoe companies and less to leather jacket manufacturers.

The takeaway from George Reisman’s book, the Government Against the Economy, is that governmental interference in the profit motive leads to shortages, among other problems.

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The plan to increase unemployment insurance benefits and give some Americans (around) $3,000 will lead to shortages in key industries for similar reasons as the price and wage controls of the 1970’s. It will discourage people who have been temporarily displaced from their jobs from seeking alternative sources of employment.

Some of these people could be employed in critical areas of the economy that are going to need to ramp up production. Some of these areas include:

(1) Grocery Stores

Grocery stores need more employees:

https://www.wpsdlocal6.com/news/overwhelmed-grocery-stores-looking-to-hire-during-stressful-times/article_25d3c018-6a41-11ea-b4dd-eb1e05a0b641.html

(2) Online order fulfillment at places like Amazon and Walmart centers.

Fulfillment centers at Amazon and Walmart need more employees:

https://www.marketwatch.com/story/amazon-is-hiring-100000-workers-7-eleven-will-hire-up-to-20000-here-are-the-sectors-adding-jobs-amid-coronavirus-2020-03-20

(3) Restaurants switching to food delivery or increasing their food delivery services.

Restaurants, many of which have been arbitrarily shut down by the government, need delivery services:

U.S. consumer interest in delivery and take-out food service has more than doubled due to the coronavirus pandemic

https://www.ibtimes.com/us-interest-take-out-delivery-food-services-double-during-covid-19-panic-according-2943682

(4) Businesses need extra personnel to clean

All businesses need cleaning people to go through and sanitize their offices and work areas more frequently, if for no other reason than to assure workers and customers that health and safety is a top priority:

Job openings for cleaners are shooting through the roof as the U.S. mobilizes to contain the coronavirus…Many companies, workplaces and transportation systems are trying to assure customers they are safe by sanitizing and deep cleaning their premises. That’s leading to a steep increase in demand for cleaning services…”

https://www.marketwatch.com/story/taking-it-to-the-cleaners-coronavirus-spurs-spike-in-demand-for-jobs-to-sanitize-america-2020-03-12

Paying people unemployment insurance, especially when there is enormous need for employment in other sectors of the economy, like there is right now, will reduce the incentive for people to seek employment in these other sectors of the economy.

Additionally, making cash payments of $2,000 or more to people below a certain income threshold will likely discourage people who could do the type of work that is needed right now from doing overtime or re-entering the job market. If the government is going to pay a person working in the the office cleaning industry $2,000, then they might decide they’d rather stay home for the next month. This will mean offices and businesses don’t get cleaned.

(I don’t know how much cleaning services actually help stop the spread of COVID-19, but consumers and workers appear to want the psychological reassurance that stores, offices, and factories are clean. So, cleaning them will provide those consumers and workers with the confidence to go back to work, and get the economy moving.)

Reisman described how the profit motive works in a free market for labor  in a later book, Capitalism: A Treatise on Economics:

In sum, in a free market there are at least three principles of wage determination at work simultaneously. One is a tendency toward a uniformity of wages for labor of the same degree of ability. A second is a tendency toward unequal wage rates for labor of different degrees of ability—primarily intellectual ability, but also other abilities as well. And a third is a tendency toward the inclusion of discounts and premiums in wages as an offsetting element to the special advantages or disadvantages of the occupations concerned. The combined operation of these three principles helps to explain the full range of the various wage rates we observe in actual life.” (Reisman, George. Capitalism: A Treatise on Economics . TJS Books. Kindle Edition. Location 9062)

 “Now, as far as it operates, the principle of the uniformity of wage rates is similar in its consequences to the uniformity-of-profit principle. That is, it serves to keep the various occupations supplied with labor in the proper proportions. Too many people do not rush into carpentering and not enough go into printing, say, because the very effect of such a mistake is to reduce the wages of carpenters and raise those of printers.” ( Reisman, George. Capitalism: A Treatise on Economics . TJS Books. Kindle Edition.  Location 9065)

In addition, the operation of this principle gives to consumers the ultimate power to determine the relative size of the various occupations. If, to continue with the same example, the consumers buy more printed matter and fewer products made of wood, then the effect of the change is to cause the demand for printers to rise and that for carpenters to fall. As a result, the wages of printers rise and more young men are induced to become printers, while the wages of carpenters fall and fewer young men become carpenters.

It should be realized, as this example of the printers shows, that in seeking to earn the highest wages, the individual worker is seeking to do the kind of work the consumers most want him to do.” (Reisman, George. Capitalism: A Treatise on Economics . TJS Books. Kindle Edition. Location 9070)

“…the enactment of price and wage controls causes shortages and economic chaos, because it destroys the price system.” (Reisman, George. Capitalism: A Treatise on Economics . TJS Books. Kindle Edition.  Location 37186)

Paying people in shuttered industries and professions extra unemployment benefits will discourage them from seeking employment in industries where there is suddenly great demand. If someone can get paid, say, $2,000 a month in unemployment benefits, or go work at an Amazon fulfillment center and earn $2,500 per month, they might just decide to forego the extra $500, and sit at home.

(I am assuming someone at an Amazon fulfillment center makes about $15/ hour, working 40 hours per week. https://www.glassdoor.com/Hourly-Pay/Amazon-Fulfillment-Associate-Hourly-Pay-E6036_D_KO7,28.htm and, I’m assuming the average monthly benefit for unemployment insurance is about $500 per week. https://fileunemployment.org/unemployment-benefits/unemployment-benefits-comparison-by-state )

By paying out massive unemployment benefits, it’s like the government is a business that is bidding away people who could go and work at Walmart and in trucking at a time when Walmart and trucking companies are in need of those additional workers. It doesn’t even matter that these people might make more working at Walmart than they would on unemployment, because there is “disutility” associated with working. Most people would prefer to stay at home rather than work, which is why they get paid. If the government pays them something even close to what they can make working, then they’ll just chose not to work.

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The effort to prop up businesses hit by the Coronavirus will have the same effect as giving more unemployment benefits to American workers at this time. It will disincentivize them to switch to the production of more immediately necessary goods and services.

Passenger air traffic has fallen off drastically because no one wants to take a chance of becoming infected on a plane. Commercial airlines and cruise ships could retool their planes and boats to deliver goods and cargo instead of people.  Admittedly, they will take a hit to their profit, since their systems are not set up for cargo delivery, but this could be done with some retooling.  Some airlines are already doing this:

American Airlines will conduct its first cargo-only flights since 1984 on Friday as it looks to offset a massive revenue shortfall amid the ongoing coronavirus pandemic.” https://www.foxbusiness.com/markets/american-airlines-coronavirus-cargo-freight-flights

Perfume and alcoholic-beverage companies have switched to making hand-sanitizers:

“The British Honey Company, which makes honey, gin, rum and other spirits from its base in the Cotswolds, said it would use spare capacity in its distillery in Worminghall, Buckinghamshire, to produce hand sanitiser.”

https://www.theguardian.com/business/2020/mar/21/europes-companies-retool-production-to-fight-coronavirus-fallout

Although in the US, alcohol companies had to get “special dispensation” from the FDA to do so, as the FDA restricts the output of hand-sanitizer with regulations: https://www.cnbc.com/2020/03/20/fda-says-it-wont-take-action-against-manufacturers-that-start-making-hand-sanitizer.html

Now, thanks to government subsidies, these companies have an economic incentive to sit idle. Rather than retool, passenger airlines might decide it’s better just to do nothing, let their planes sit idle, and take their corporate welfare check from the government. It’s exactly the same principle as paying people extra unemployment benefits. The stockholders at the airlines might decide it’s better to just sit idle, and hope for passenger traffic to return.

Since what is needed right now is the movement of cargo like medical supplies, the government is essentially paying companies to remain idle, which will exacerbate the problem, and thereby keep us in the emergency even longer. (This is all assuming that COVOD-19 is truly the health threat that many government officials are claiming it is- which I don’t have enough information to know, one way or the other.)

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If the current plans in Congress to help will actually hurt our response to the COVID-19 natural disaster, is there anything Congress and State governments can do? They can get out of the way. Some possible solutions include the following:

(1) Reduce commercial drivers license regulations.

There are probably a lot of retired truck drivers out there. The government could repeal commercial driver’s license requirements for anyone who has ever had a commercial driver’s license, even if it isn’t active. For instance, in Washington D.C., if a CDL has been expired for more than 60 days, the driver has to retake the tests:

If your CDL has been expired for more than 60 calendar days, you must take and pass BOTH the knowledge and the road skills tests.” https://dmv.dc.gov/service/renew-cdl

State and Federal Government should waive this and allow truckers to drive on expired CDL’s.

(2) Allow doctors from other countries residing here who do not have medical licenses to practice medicine – with patients signing informed consent forms.

There could be thousands of foreign people from other countries in the US right now that could start practicing. The New York Times notes that:

“….No one knows exactly how many immigrant doctors are in the United States and not practicing, but some other data points provide a clue. Each year the Educational Commission for Foreign Medical Graduates, a private nonprofit, clears about 8,000 immigrant doctors (not including the American citizens who go to medical school abroad) to apply for the national residency match system. Normally about 3,000 of them successfully match to a residency slot,…” https://www.nytimes.com/2013/08/12/business/economy/long-slog-for-foreign-doctors-to-practice-in-us.html

This is significant because foreign doctors can only practice in the US if they can get into one of these residency slots. This means there are about 5,000 foreign doctors in the US every year that cannot practice medicine.

(3) Relax immigration laws for foreign medical personal and their immediate families (spouses and children). Offer permanent US residency if they serve in hospitals here during the crisis.

I suspect that you would have large numbers of foreign doctors flooding into the US very quickly if this offer was made.

Would a doctor rather live and practice medicine in India, or here in the U.S.? If you allow him to bring his wife and children, and give them all permanent U.S. residency, the airlines would suddenly see planeloads of doctors and nurses headed to the US. I predict this would solve a lot of our healthcare problems, very quickly.

(4) Allow doctors and other medical personnel who allowed their licenses to lapse due to retirement, or who no longer have a license for other, non-disciplinary, reasons, to practice medicine, with patients signing consent forms.

In a serious emergency, getting medical care from a doctor with a lapsed license is better than getting no medical care at all.

(5) Eliminate all tariffs on the import of medical products

This appears to be something the Trump administration is getting right, although they initially helped create the problem:

https://thehill.com/policy/finance/trade/488799-trump-administration-seeks-public-comment-on-removing-tariffs-on-medical

(6) Eliminate all environmental regulations associated with drug manufacturing and the manufacture of medical supplies, so that drugs can be made here in the US, instead of in China.

Rosemary Gibson, author of “China Rx: Exposing the Risks of America’s Dependence on China for Medicine”, discussed the shortage of essential lifesaving drugs in U.S. hospitals on C-SPAN recently. She noted at 00:33:36 that:

“THAT’S A GREAT QUESTION, ONE OF THE REASONS THAT CHINA’S CHEAPER IS NOT JUST BECAUSE OF SUBSIDIES BUT BECAUSE LABOR COSTS ARE LOWER AND ENVIRONMENTAL REGULATIONS ARE CERTAINLY NOT WHAT WE HAVE HERE. SO BY OUTSOURCING IT WE HAVE ACTUALLY INCREASED GLOBAL POLLUTION WHICH COMES FROM PHARMACEUTICAL MANUFACTURING. WHAT I HAVE BEEN IMPRESSED WITH COMING BACK TO THIS IS THE NEW CHEMICAL PROCESSES THAT WE HAVE WHICH DRAMATICALLY REDUCES THE ENVIRONMENTAL FOOTPRINT. IF WE CAN LEARN TO MAKE OUR MEDICINES DIFFERENTLY AND ADOPT THOSE PRACTICES, WE CAN MITIGATE THE ENVIRONMENTAL IMPACTS THAT COME FROM TRADITIONAL WAYS OF MAKING MEDICINE.” (Emphasis added.)  https://www.c-span.org/video/?470077-5/washington-journal-rosemary-gibson-discusses-us-reliance-china-lifesaving-drugs&start=2016

In other words, environmental laws are forcing drug manufacturers over to China, where they can then threaten to restrict our supply of medical drugs, as one Chinese official recently did. https://www.ibtimes.com/china-threatens-restrict-drug-exports-us-amid-coronavirus-pandemic-2941920

(7) Eliminate minimum wage laws for medical manufacturing here in the US.

This is the other major reason we don’t manufacture more goods here in the US. Labor costs are artificially high thanks to unions and minimum wage laws.

(8) Eliminate overtime restrictions, and requirements that employers pay time and a half for jobs at hospitals, medical facilities, grocery stores, food delivery, and food services industries.  Allow the free market to determine what people will be paid, which will probably be more than before, anyway.

The reality here is that most of these industries are going to pay much higher wages precisely because they need to “ramp up” with as many doctors, nurses, truck drivers, and Walmart workers as they can. So, people in these sectors will likely get paid more, not less.

(9) States like California should roll back laws restricting the “gig economy”, especially for thinks like food and package delivery.

Companies like DoorDash, which is an app-based food delivery service, are potentially going to be put out of business by California’s AB 5:

It has many unicorns, including Lyft, DoorDash, Instacart and Uber worried about their business model scrambling to launch a voter initiative to roll back the effects of AB 5.”  https://www.cnbc.com/2019/12/11/californias-new-employment-law-is-starting-to-crush-freelancers.html

California, which is currently forcing all residents to remain in their homes under penalty of law (an injustice in itself), should repeal AB 5.

(10) Prepare government funds to pay Hotels and Motels to use their rooms in an emergency as extra bed space for medical patients.

This is a temporary taking of private property by government, so compensation would have to be paid, although I suspect most hotel and motel companies would gladly donate the space. Hospitals would probably be willing to pay them for the use.

The government should cut funding to non-essential things like public parks, recreation areas, and libraries to pay the just compensation to hotel and motel companies. Alternatively, the government can offer to drastically reduce the taxes that hotel and motel companies pay in order to compensate them. In other words, the government can guarantee lower taxes in the future for hotels and motels, if they agree to make bed space available for medical purposes if things should get too bad. (Essentially offer a massive income tax credit for several years to hotel and motel companies.)

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The social and political reality of the age we live in means I am probably “spitting into the wind” by writing this. What people do in a crisis is largely determined by a lifetime of habit and belief. Perhaps if more people read books by Ayn Rand, Ludwig von Mises, and George Reisman going forward, the next national crisis, whatever it is, will lead to positive political and social change, instead of more of the statism and collectivism that has made our culture and society sicker than any virus ever could.

Good Article on PG&E and the California Wildfires

The Wall Street Journal article “PG&E: Wired to Fail” by Russell Gold,
Rebecca Smith and  Katherine Blunt, was, overall, a good, in-depth, article that lays out the relevant facts for why PG&E allowed its infrastructure to become so old that power lines fell and caused massive wildfires, killing many people.

It doesn’t do as good of a job explaining the significance of the facts that it cites, leaving it up to the reader to “put them together”. I thought I might synthesize the relevant facts from the article here, and draw the conclusions that the authors don’t explicitly draw.

The article notes that, at several points in the past, the state government of California mandated that PG&E switch to “green” sources of energy, mainly solar energy and wind.

As regulators pushed for more renewable energy, the combination of high winds and sparks from a damaged San Diego Gas & Electric power line ignited what came to be called the Witch Fire in Southern California, killing two people, injuring 45 firefighters and destroying 1,140 homes.”

For the past 15 years, PG&E has plotted a round trip from one bankruptcy to another. In between, it navigated the aftermath of a catastrophic natural-gas pipeline explosion and a series of increasingly demanding green-energy mandates from state regulators.”

In April 2011, seven months after the San Bruno explosion, California’s new governor, Jerry Brown, signed legislation raising the percentage of state electricity that must come from renewables to 33% by 2020, up from the previous state goal of 20% by 2010.”

In September 2018, Gov. Brown, months from leaving office, signed a bill that again raised the state’s renewable-energy target, this time to 60% by 2030.”

This is significant, because it causes the cost of power generation to go up. It’s simple Economics. If solar and wind were cheaper than  other, more traditional, forms of power generation, then power companies would have already switched to them. (That would allow them to generate power at a lower cost, thereby increasing their profits.) The reason PG&E didn’t switch voluntarily, and had to be forced by the government to do so, is because there is a higher cost from producing with solar and wind.

CALIFORNIA REGULATORS kept up the pressure to meet the state’s aggressive renewable energy goals.

By 2012, PG&E was spending more than $1.2 billion a year to meet the targets, more than double what it spent in 2003, according to PG&E filings, and it was projected to top $2 billion by 2015. Mr. Peevey, the utilities commission head, addressed concern that Californians faced a “rate bomb” as the deals kicked in.”

The second fact that has to be understood about power utilities is that they are heavily regulated by the government in terms of what price they can charge. The supposed rationale for this is that since only a limited number of companies are allowed to operate as utilities, they are governmentaly enforced monopolies that must have their prices regulated. I won’t get “too deep into the weeds” on this point, but there is no reason, in principle, that different companies couldn’t all enter the power generation business. (Power lines can be laid almost without limit underground or even through the air, or people can move, if the power company in one area charges too much, to another city where the power company charges less.)  What you should take away from this paragraph is this point: Power companies cannot just easily raise prices when their costs go up like like less regulated industries. They have to get permission from the government, usually some sort of board, which takes time and money, and there will be political pressure for the regulator to not let prices go up to reflect actual costs.

When you combine increasing costs to a power company from being forced to switch to “green energy sources” with the inability to fully pass that cost on to the consumers, the power company has to make up that difference somewhere. If it reduces profits, it reduces the number of people willing to invest in the power company, which reduces its ability to purchase new equipment, such as power lines. It means the company has to continue generating power with aging equipment. If it keeps profits high enough to keep investment coming in, it will have the same problem. It can’t simultaneously have: (1) higher production costs, (2) pay the same amount of profit to investors, and (3) keep prices the same to customers. Something has to give, and the “short term solution” is to stop spending money on the maintenance of equipment. But, the “long-run” eventually caught up with California:

It proved to be especially challenging for a plodding utility undergoing management upheaval, heavily regulated and saddled with aging, neglected equipment.

Executives were so focused on the past and the future that the present sneaked up on them. PG&E’s electric lines, after years of deferred maintenance, were threatening drought-parched California.

PG&E’s Caribou-Palermo transmission line was built in 1921 through the Plumas National Forest. Part of a larger network that carried electricity from the Sierra Nevada to the Bay Area, it was so old that it had been considered a candidate for the National Register of Historic Places. PG&E had told federal regulators it planned to replace many of the towers and hardware on the line but postponed the work several times…

At about 6:15 a.m. on Nov. 8, 2018, an iron hook holding up a 115,000-volt line broke, dropping the live wire and sparking a blaze.

Thirty minutes later, what would come to be known as the Camp Fire was out of control. Officials ordered the evacuation of the nearby town of Paradise, home to 26,000 people. The town was soon burned to the ground. Within hours, the fire destroyed 13,983 homes and killed more people, 85, than any other California wildfire.”

What is the solution to this problem?  It is two-fold.

First, California needs to withdraw state mandates on a switch to solar and wind, which will bring down the cost of power generation.

Second, California needs actual competition in electricity generation. This doesn’t mean just competition in generation, but distribution. In exchange for eliminating their current legal monopolies on generation and distribution, power companies would be free to charge whatever rate people are willing to pay them.

Of the two, the second is actually the most important. Even if the state mandates on the switch to renewables stayed in place, as long as the utilities can charge customers higher prices to reflect this, then it will not affect the ability of utilities to maintain and replace aging equipment. (I think both of my solutions should occur, since I think the concerns over “climate change” are either illusory, or overblown, but, that is a debate for another time.) The important point to recognize is that there is no free lunch. If the people of California want to reduce so-called “greenhouse gases”, then they need to be prepared to pay for it with higher utility rates. (Otherwise, they’ll continue to “pay for it” with forest fires.)

The Plano Ordinance Banning Discrimination Is An Attempt to Substitute Force for Reason

Even though I live in Plano, I apparently missed this ordinance banning discrimination against homosexuals by businesses when it was originally approved earlier this month. I am opposed to the ordinance for the same reason I oppose the initiation of governmental force *even* when it is for a supposedly “good cause”.

In my personal life, I don’t discriminate against gays and racial minorities because I don’t think it is in my rational self-interest to do so. If a person has a value to offer me in trade, or has a new idea that is true, then it would not be beneficial to my life to avoid that person just because of his skin color or sexual preference. (Similarly, I don’t pretend to like someone  -as many white “liberals” seem anxious to do- when that person behaves like an obnoxious moron, and happens to be a member of a racial minority group.)  Even if certain sexual preferences are irrational, that would not prevent me from buying or selling goods or services from such a person, since their private sex life would have no bearing on the purchase or sale of goods and services. I don’t pick my grocer based on what he does in his bedroom, but based on whether he sells me the best groceries at the best price. Economically, speaking, such discrimination will also fail, because any business that refuses to sell to a particular customer group would invite competition from other profit-seeking businesses. (The mere fact that there is a sufficiently large enough political majority in Plano willing to enact such an anti-discrimination ordinance tells me that there are large numbers of people and businesses willing and able to sell to homosexuals, or the ordinance never would have passed in the first place.)

My opposition to the Plano ordinance also isn’t based in the silly “religious freedom” arguments that get advanced by some conservatives. By this reasoning, people can engage in human sacrifice or cannibalism and then claim that it is part of their “religious freedom” to do so. Government must protect individual rights, and this means that it can rightfully prohibit any action that violates rights. But, fundamentally speaking, government can *only* protect rights, not make people use their minds when they choose not to. This is the proper basis of religious freedom. Even if the majority of people were atheist, the religious minority, would need to be left free to have and speak their beliefs, because there is no way to force them to use their rational faculty if they choose not to. Only reason and persuasion can change them.

The reason I oppose this ordinance is because it is based in the assumption that reason and persuasion are not the proper means of dealing with other men. This ordinances is based in the assumption that one can instead simply rule over men with a gun as your only syllogism. But, when the initiation of force, not reason, becomes your method of dealing with men, watch out! Soon your society will stop being governed by law and reason, and will instead be ruled by those who are most effective at brutality, force, and violence. (Then your society will perish.) 

Free Trade In Liquified Natural Gas Benefits the Creators

A recent news article illustrates the sort of unprincipled, short-range thinking that can occur in our society, especially when it comes to issues of free trade.  (“US Gas Exports Clear Hurdle” by Keith Johnson and Tennille Tracy, The Wall Street Journal, December 6, 2012, http://online.wsj.com/article/SB10001424127887324001104578161461770971222.html)  The article discusses a government study that endorsed allowing the free export of liquefied natural gas from the United States, which is currently restricted.  While the study makes the right conclusion, it appears to do so without citing the best reason for doing so.
For those who haven’t been following this issue, North America is currently projected to become a net exporter of natural gas and oil as a result of the creation of new technologies that allow for obtaining these resources from areas that were outside the reach of conventional oil and gas drilling techniques.  These new technologies involve directional drilling and hydraulic fracturing (i.e., “fracking”).  (“The U.S. Natural-Gas Boom Will Transform the World”, by by John Deutch, The Wall Street Journal, August 14, 2012, http://online.wsj.com/article/SB10001424052702303343404577514622469426012.html)
The article describes the government study as concluding that the benefits to natural gas exporting companies, businesses, and workers would outweigh the losses from domestic companies, consumers and businesses that use natural gas.  This later group of domestic natural gas consumers is viewed as “loosing” some from exporting natural gas, since the price of natural gas will rise due to increased demand from abroad.
However, the first article never mentions whether any consideration was given to the people who invented these new oil and gas drilling technologies.  What will be the result if they are not allowed to gain maximum economic benefit from the invention of these new drilling techniques?  It is true that the price of natural gas in the US market probably will rise slightly from its current record low levels if the export of liquefied natural gas occurs.  But, this increased price will mean increased profits for the oil and gas companies that are implementing these new drilling technologies, which will mean that the people who created these new technologies will benefit.  They will be given an increased economic incentive to create new technologies in the future, which will further increase the standard of living of everyone.  Furthermore, other young scientists, engineers, and businesspeople will know that they will also materially benefit from any new technologies that they invent and bring to market, which will create the incentive for the development of new technologies in the future.  Ultimately it is new technology that increases standards of living, and we must ensure that the people who create new methods of production have every incentive to invent.  Considering the benefits to the people who created the new energy is a much more principled justification for free trade in natural gas, but it is overlooked by those who don’t seem to understand that the free human mind is the root of all production.

John Grisham’s “The Rainmaker”

I recently watched the movie version of John Grisham’s “The Rainmaker”, and I liked the move so much, that I went to Half Price Books and purchased the novel that day. I thought that it presented the trials and tribulations of being a recent law school graduate, trying to make it as a solo-practicing lawyer quite well. I could relate to the fears that the main character Rudy Baylor must overcome as a newly practicing attorney. Going to court is pretty intimidating at first, especially when you are all by yourself, and don’t have the support of a firm with more experienced attorneys to bail you out if you get in over your head. I could also relate to the financial difficulties of the main character, when you don’t necessarily know when and where your next fee is going to come from, and you’ve got bills to pay. As a result, I read this book in 3 days, and enjoyed it immensely.

Although I generally could relate to Rudy Baylor, a couple of things that he did really bothered me. First of all, at the beginning of the novel, a lot of his behavior seems to be motivated by either greed or envy, especially the later. He seemed to hold a lot of resentment towards a lot of different people, and he acted on this resentment from time to time, such as when he destroyed property at a law office because they wouldn’t hire him.

The other thing that really bothered me were his improper ex parte communications with the trial judge throughout the novel. Before I explain what an ex parte communication is, let me explain the basic outline of the plot. The major conflict in the novel is a lawsuit Rudy Baylor files against a very corrupt insurance company, who has denied the claim of his client, who is dying of leukemia. The insurance company has wrongfully denied his client’s claim, and now they file suit, although it is now too late for the client to get the bone marrow transplant that would have saved his life. An ex parte communication is a generally prohibited communication between a party and/or their attorney or representative and the judge when the opposing party, their attorney and/or their representative is not participating in the communication regarding some substantive issue regarding the case before the judge. I am always careful not to engage in ex parte communications with a trial judge because it would get me in trouble, but I also agree that it is, ethically, totally improper, and I think that it can rightfully be prohibited. Our System is an adversarial system, where both parties argue their sides of the case, and then an impartial third party (the judge and/or jury) decides who is right and who is wrong. This system best ensures that the truth will prevail because each side has an incentive to makes its best argument to the judge or jury. Justice should be “blind” in the sense that the winner of a trial should not be based on personal contacts or friendships between a party’s lawyer and the judge, because we are a “nation of laws, not of men”. Ex parte communication would corrupt this adversarial system by allowing you to argue your side of the case without the judge hearing from the other side on the matter, which would thwart a just outcome.

Despite the fact that ex parte communication with the trial judge is improper, the main character, Rudy Baylor, does it over and over again throughout the novel. For instance, in Chapter 26, Rudy Baylor goes to Judge Tyrone Kipler’s office and explains to him why the case should be “fast tracked”, and the insurance company’s lawyer(s) are not there. In Chapter 34, Rudy Baylor, Judge Kipler and the insurance company’s lawyer are having a phone conference over a discovery dispute during a deposition, and the judge orders the insurance company lawyer off the phone, so that he can talk to Rudy Baylor alone. The judge is also hardly what I’d call impartial, since he clearly wants Rudy Baylor to win, and does everything he can to make this happen in the novel, although I agree that, given the set of facts in the novel, Rudy Baylor probably should win.

I agree that, morally, the executives at the fictional insurance company (“Great Benefit”) did something wrong for the simple fact that they had a policy of denying all insurance claims without regard of their merit under the insurance contract. At some point in the novel, it is revealed that the insurance company instructed its employees in their procedures manual to initially deny all claims. I think that this would be fraud. Generally, if you enter into a contract with someone with the present intention of never performing under the contract, then I believe it is considered fraud. While it is not fraud to default on the contract at some later time, so long as you intended to perform at the time you entered into the contract, if you intend to default on the contract at the time you entered into it, then that is fraud. Regardless of the present state of law, I think that it should be fraud, because you are, in essence, taking values from someone, without ever intending to reciprocate. In essence, you are conning them out of values that they wouldn’t part with, if they knew that you didn’t plan to live up to your end of the agreement. Great Benefit was incurring a debt, or obligation, when it accepted people’s insurance premiums. By deciding it was going to initially deny all claims, its managers had a present intention not to pay out under the insurance contract. I think that any corporate executive who instructed the corporation’s employees to deny all claims, regardless of the fact that some of the claims were legitimately covered under the policy, would be guilty of the criminal act of fraud, and could be jailed and/or fined.

Furthermore, if someone did die in the scenario outlined in Grisham’s book, then I think the insurance company executives responsible for the fraudulent scheme to initially deny all claims, despite some of them being meritorious, might be guilty of manslaughter, because they engaged in a reckless act (denying claims regardless of the fact that they were supposed to be covered under the insurance contract), which resulted in the death of an insured person.

I would also note that I do not consider the scenario outlined in the book to be very likely to happen under pure capitalism. I note this fact because I think that Grisham’s probable agenda in writing “The Rainmaker” is to push for Canadian-style socialized medicine. I had never read a “legal thriller” before I read “The Rainmaker” last week. (I have always preferred science fiction novels.) But, I have seen several of the movie versions of Grisham’s novels, and they always have a socialist political-viewpoint. So, I suspect that the message of “The Rainmaker” was: “Private insurance companies are evil because capitalism is evil, so we need socialized medicine, similar to the Canadian version.” However, Grisham is mistaken if he thinks the current American health care system is a free market.

The American medical system is not a free market for several reasons, some of which I will now note. First, Medicare and Medicade drive up prices by providing free medical care to people, who then have no incentive to economize on their use of health care. Second, there probably is no industry more regulated than the health care industry. Patients aren’t free to choose who will provide them with health care thanks to medical licensure statutes. This means they must go to a government-approved doctor. Licensure statutes artificially limit supply by arbitrarily limiting the number of medical practitioners, thereby driving up prices. Patients aren’t free to choose which drugs they will consume, since they must get permission from a government-approved doctor before they can purchase so-called “prescription drugs” from a government-approved pharmacist. Once again, licensure statutes for pharmacists artificially limit supply and drive up prices. When it comes to drugs and medical devices, the government won’t allow innovators to market new drugs and medical products without government approval from the Food and Drug Administration, which can take years. Furthermore, taxes are structured to favor third-party payment of health care, because the government favors employer-provided health insurance by giving companies a tax break for providing it, but if employees want to get their own health insurance, they don’t get the same tax break. This also tends to make people dependent on their employer for continued health-coverage. Additionally, although I think this is less of a problem now, thanks to tort reform, doctor’s malpractice insurance expenses were outrageously high because of arbitrarily high punitive damages awards.

I tend to think that punitive damages awards should be capped. (In a civil suit, “punitive damages” are not the damages a plaintiff receives to repair the damage done to him by the defendant, they are an extra money award given to the plaintiff, just to punish the defendant’s wrongful conduct.) In the book, the fictional insurance company is hit with a massive punitive damages award, but I’m not sure that this is the best way to deal with the problem. I think that the management responsible for the fraudulent scheme in the novel would need to have been removed. The stockholders are probably not responsible at all, yet, they are the ones being punished with a high civil punitive damages award. I think it would make more sense to allow the criminal justice system to handle punishment, rather than the civil courts. As I said earlier, the corporate executives in the novel would probably be guilty of fraud and manslaughter for instituting a policy of denying all claims, which resulted in death.

I also find it doubtful that someone would actually not be able to receive treatment for leukemia under capitalism, even if they had no health insurance, and the treatment cost $200,000, which is how much the bone marrow transplant that the fictional insurance company refuses to pay for in the novel costs. First, I would note that I am uncertain what the cost of $200,000 reflects. Is the $200,000 cost mostly just to cover the “R&D costs” (“Research and Development”) of the procedure, or the actual costs of labor and materials? If the $200,000 cost is mostly to cover the costs of the R&D that went into developing the intellectual property for the procedure, then it would be possible under capitalism for the owners of the intellectual property to give a massive discount to those who actually couldn’t afford the procedure due to poverty. For instance, if $150,000 of the cost of the procedure is to help cover the per-unit costs of the R&D that went into developing the patents and other intellectual property, while only $50,000 represents the cost of labor and materials, then the manufacturer could give a discount to this particular patient, after doing an audit of his personal finances to confirm that he is in fact poor. Even if they could only charge this particular patient, say, $60,000, they would still be making $10,000 on the sale, which is $10,000 they otherwise wouldn’t have gotten. As long as they can perform a financial audit of the patient to determine that he isn’t lying about being poor, then the medical provider can charge rich people more, and poor people less, for the same procedure, and this would likely be the most profitable business plan they could adopt. For instance, with most pharmaceuticals, the manufacturing costs for the drug are extremely low. The reason they cost so much is to cover the expenses of R&D that went into the drug. This means that drug manufacturers could reduce the sales price for those who are genuinely poor, and charge rich people more, without much difficulty, and they would have an incentive to do so, because even if they make a lower profit on the drug for that particular customer, it is still a profit.

Even assuming that the $200,000 cost of a bone marrow transplant is mostly to cover the cost of labor and materials, rather than the cost of research and development, I think that the chances of a poor person getting a loan to cover the costs would be very good under capitalism. According to the novel, the chances of long-term success for the bone marrow transplant were around 90%. The character with leukemia is in his early 20’s, which means that, but for his leukemia, he would probably live to be about 75. So, his chances are 90% that he will live for another 50 years. This is a pretty good bet for an investor. Assume that he works for 50 years and that he can make about $30,000 per year on average, which is about $15 per hour, working 40 hours per week, 50 weeks out of the year. (This is an extremely low-ball figure in my opinion.) This means he would make $1,500,000 over 50 years. Assume he can live off of $15,000 per year ($11,000 is the approximate US poverty line). Then, he can pay $15,000 towards the $200,000 loan every year. Say that $10,000 of the $15,000 he pays every year is interest. This means the loan would be paid off in less than 40 years. The average yearly interest rate the creditor would get would be about 5% under this payment plan. (Actually, it would be a higher interest rate, since he is paying $5,000 towards principle every year, which means principle is being reduced every year, but I can’t remember how to figure the actual average interest rate over 40 years).

Five percent APR is about what you would pay towards a mortgage on a house. Certainly if someone is willing to give you a loan at 5% for a house, they would be willing to give you a loan at 5% for an operation to save your life, especially if the bankruptcy laws said that such a loan is non-dischargeable and they are allowed to garnish your wages and seize all assets if you default on the loan.

This all assumes that there are no private charities that would help a poor person with leukemia (doubtful), and that nobody else, such as his parents, friends, or family members, would be willing to sign a contract making themselves legally responsible for paying part of the loan, which is also a doubtful premise -I would certainly be willing to pay a portion of a friend or immediate family member’s loan for an operation to save their life.

This also assumes that it would, in fact, cost $200,000 under pure capitalism for a bone marrow transplant. I would note that capitalism creates the social conditions of freedom necessary for technological innovation, and reductions in the costs of products. For instance, fetal stem cell research creates the promise that we will soon be able to grow cloned organs and tissues in the lab, which will be a perfect match to your own body’s genetic code, thereby eliminating the risk of tissue rejection. But, every time medical innovators, who are the true “rainmakers”, get hit with massive punitive damages awards in court, or a new regulation by the government, technological innovation tends to dry up.