Saturday, November 18, 2006

Five Steps to Immigration Reform

By Howard Hyde

(ver en Español a:

A realistic, politically feasible solution to the problems of illegal immigration which will actually work must be comprehensive, involving several interdependent aspects of security, politics, economics, citizens, immigrants, businesses and government agencies. It must be consistent with basic principles of how society actually functions, not on the ideology of narrowly-focused political factions or special-interest groups. And it will involve compromises with entrenched political interests; it will have something in it to offend everyone to some degree.

I see five pillars required of a comprehensive reform plan:

1. Legalize Capitalism. (Yes, you read that correctly.)

Abolish socialism. Stop paying able-bodied adults to breathe at the expense of fellow (taxpaying) citizens, many of whom are worse off than the beneficiaries but don’t meet the political requirements. Slash regulation of anything that doesn’t relate to murder, theft, rape, persecution or conspiracy (see the Ten Commandments). Allow businesses and individuals (including hospitals) to do as they see fit with what is theirs, including picking and choosing their customers, suppliers, employees, employers, investors and investments according to their own criteria and requirements. Allow medical savings accounts, deductibility of healthcare costs to individuals, marketing health insurance across state lines, and the right to refuse service to anyone. Abolish the abolition of unskilled labor (minimum wage laws). Cut red tape that keeps legitimate extra-legal and black market businesses out of the mainstream system. Understand that inclusion has been the number one challenge of capitalism for centuries; it is nothing new (see Hernando de Soto’s The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else).

2. Elevate Citizenship.

Require 8th-grade English proficiency for US citizenship. Print ballots and other election materials only in English. Amend the US Constitution to repeal the loophole that grants automatic citizenship to children born (even of illegal aliens) in the US.

3. Liberalize the quotas.

WE NEED the workers, unskilled and skilled, blue collar and professional. We need the professionals because their productivity and services maintain our leadership in the world and generate more opportunities at home. We need the laborers to perform jobs we’d rather not do, lower the prices of all goods and services, and free us to do higher-order work.

The current legal quotas are out of touch with reality by orders of magnitude. It is a lose-lose proposition to discourage educated professionals and force desperate poor people into illegality and danger with no benefit to ourselves. We need to make it easier, not harder, for economic immigrants to come into the US to live and work, with few strings attached other than compliance with law. No restrictions should be put on immigrants as to where they shall live, who they shall work for, or what businesses they shall open, provided these are all legitimate, that is, do not involve crimes of murder, theft, rape, persecution or conspiracy.

4. Document the Undocumented --- without penalty.

Every immigrant should be photographed, fingerprinted, tested for infectious disease and documented in a national database. Non-citizens should periodically (once, twice or four times per year) provide a verifiable residence address, subject to random audit; guest workers may apply for a non-citizen’s driver’s license, NOT valid for obtaining public services reserved for citizens, and must pass the appropriate exam to receive it.

Do not require immigrants to have already been in the country for a specified period, or to return home after another. MAKE IT EASY to comply with the law, and people will comply. People want to live legitimately, out of the shadows.

5. Isolate the criminals.

If we accomplish the above four points, then this one will be much easier. We have made legal immigration easy, so there is a drastically reduced need for anyone to ‘sneak’ across the frontier zone. Citizenship is not automatic, welfare fraud has been shut down, and hospitals aren’t obliged (penalized for opening) to serve patients that don’t pay, so the draw of inappropriate benefits has been reduced. The only real magnet left is honest, hard work for willing employers and customers, leading to a better life for all.

Some criminal element will remain, of course. Drug traffickers, car thieves, pimping rings, and terrorists will always be attempting to penetrate our borders and society. Nevertheless, under the circumstances in which legitimate but ‘illegal’ economic immigrants no longer form a massive cover under which the criminal element may operate, the latter will be easier to target and interdict. With legitimate immigration easy, the waves of desperate and innocent families with children flooding across the desert will recede, revealing only the highly suspect. The immigrant database mentioned earlier makes us able to know who’s who and where.

As for terrorists, let us not forget that the 9/11 terrorists all entered the country legally and repeatedly. With limited resources, we would do better to scrutinize those few mosques and madrassas in the United States where radical Islamic imams are preaching ‘death to America and to the infidels!’, rather than flailing after millions of Mexicans as terrorist suspects.

A nation has the legitimate right to secure its borders, and a security fence can be a justified part of a plan to prevent illegal entry. That being said, a wall in and of itself is not a solution; if the above reforms are carried out, it may not be necessary. We have lived as neighbors with Mexico without a wall for almost 160 years, and we have the best friend America and George Bush could ask for in President Felipe Calderón, a pro-capitalist conservative.

The idea of criminalizing and/or deporting 12 million illegal immigrants en masse is logically ludicrous, socially destructive and politically suicidal (is the Republican Party listening?).

Spanish-speaking Puerto Ricans have few restrictions on their movement into and work in the continental United States, yet ‘immigration’ from Puerto Rico never makes the headlines; it’s balanced.

The solution is to allow the natural process to work.

Saturday, August 19, 2006

What is Capitalism?

A proper discussion of any topic cannot begin without a definition of its most fundamental terms. Most of the controversy over Capitalism stems from disagreements and ignorance of just what Capitalism actually is. My definition will not settle the arguments, of course, as it will provoke again as much controversy as it resolves. Nevertheless, it is based upon this definition that I make the Shocking, Outrageous Assertions, and it will be shown that with this definition established (if not agreed upon), the common arguments against Capitalism lose their power and frequently turn on their wielders.


At the heart of Capitalism is Liberty; the freedom of the individual to do as (s)he pleases with what is his/hers, unbounded by forcible coercion or fear of agression against his life; only constrained by the equal liberty of every other individual human being.

Liberty is freedom, with the responsibility to respect the freedom of others. It is the freedom of innocents from aggressive force, and the restraint from using aggressive force against innocents.

Liberty thus is not license to do anything you want and/or can get away with, including robbery, rape, murder and mayhem. To paraphrase Walter Williams, ‘the freedom of your fist ends at the tip of my nose’[i].

Without Liberty, there is no Capitalism and no civilization.

Already I can hear the anti-capitalist critics screaming. “Liberty! What Liberty? Capitalism is the expoitation of the powerless workers by the ruling class of owners of the means of production! It’s the Liberty of the Rich to enslave the Proletariat! Long Live the Comm---”

Patience, please. We’ll get to that…

Security of Life, Person and Property

In order to be free in the civilized sense, an individual must know that his right to live, and to live free of fear of physical threat or theft of what it his, is respected and defended. Since one individual is no match for the agression of multitudes, society must construct institutions which constrain, prevent, and as a last resort, punish violations of individual liberty. This conclusion is easily deductible from secular, dispassionate observation of human society. Remarkably enough, it is also freely available in the form of one of the oldest religious codes in the world, to wit, the Ten Commandments.

I am not a religious scholar. Nevetheless, permit me to go out on a limb for a moment to give my interpretation of this ancient text as it is relevant to our current discussion. The first 4 commandments instruct human beings in how they should relate to God; to believe (exclusively), to not profane the name or image of God, not to engage in idolatry, and to honor Him with the weekly Sabbath. The last 5, which I call the 5 Secular Commandments, or the ‘Secular 5’, deal with how human beings are to treat one another, specifically prohibiting fundamental forms of agression against innocents:

  • Thou shalt not murder
  • Thou shalt not commit adultery
  • Thou shalt not steal
  • Thou shalt not bear false witness against your neighbor
  • Thou shalt not covet thy neighbor’s wife, …house, his field, or his manservant, or his maidservant, his ox, or his donkey, or anything that is your neighbor's.

The fifth commandment, ‘Honor thy Father and thy Mother’, seems to serve as a bridge between the spiritual commandments and the more worldly ones.

My next 2 sets of critics are screaming: the fundamentalist religious and the militant anti-religious atheists. The first are ready to fry me over my superficial and sophomoric analysis, which doesn’t agree perfectly with theirs, and the second are furious at my corrupting a ‘sacred’ secular topic with fairy tale mush. Hasn’t Howard heard of Separation of Church and…Separation of Church and…Economics? Uh,…

None shall murder, rape, rob, steal, defraud, or falsely prosecute.

I haven’t set out to write anything necessarily claiming that God endorses Capitalism. Nevertheless, I find it very interesting that I can find nothing in the most fundamental, religion-given law to contradict the most fundamental principles of Capitalism. For if all people followed the 10 Commandments (or at least the Secular 5), then Liberty, Capitalism and the most optimum prosperity possible on an imperfect earth would follow. This I deduct not from religious faith but independently from secular, logical deduction.

The commandment against murder validates the primacy of the individual human life. Capitalism takes this principle as its first axiom; by definition, capitalism cannot exist unless innocent individuals have an inviolable right to theif lives. About adultery there may be less of a connection with Capitalism (I cannot say that Capitalism per se requires abstinence from extramarital sexual relations), but both this commandment and Capitalism would be in agreement as proscribing rape. Religion teaches that rape is morally wrong; Capitalism is undermined by and therefore incompatible with violent coercion and violation of life, liberty, property and/or body of the individual.

‘Thou shalt not steal’ is a validation of private property rights, fundamental to Capitalism. For if there were no such thing as private property, there could be no such thing as theft. If what’s mine is yours is his is theirs is hers belongs to all and any, then if I take what is yours, it is the same as if they took what was hers or you took what was mine, or if you took what was your own. So what’s the problem?

The problem is that without security of possessions, there is no Liberty and no Capitalism. If none will defend my (or your or his or her or their) right to keep what I have acquired through my own labor and/or voluntary exchange with others, then Capitalism can not develop (we will deal with whether or not this is a good thing later). Capitalism requires defined boundaries of who may do what with what, and deduces that if a person owns himself, his life and his body, than anything which he acquires without violence upon others must also be his and his exclusively. In the case of possesions such as clothing, tools and foodstuffs, this is easily managed. With respect to land and other nature-given resources, the issues become more complex and subtle. As resources are defined with increasing subtlety, including side effects, externalities and aspects not thought of before (like water rights, pollution, airspace, mining, noise, aesthetic effects, property values etc.) the difficulty increases. Nevertheless, the most satisfactory solutions have been ingeniously devised by free people cooperating under the system of private property, validating this principle so fundamental to Capitalism.

False prosecution of innocent people is morally and socially destructive and is therefore proscribed by spiritual authority and incompatible with Capitalism. It is not enough to say, none shall murder, rob or rape; neither shall anyone acuse anyone else of the same, knowing the charge to be untrue.

The final commandment as enumerated in the Bible deals with ‘coveting’, or envy. Believers (and non-believers alike) are exhorted not to look upon the possessions of others as objects of provocation, inspiring feelings of inadequacy, jealousy, and the temptation to appropriate those thing from others by force or stealth. Envy is a poisonous emotion, causing destruction among the envious and the envied alike. In the political arena, some have elevated it to a high art, seeking to satisfy constituents through the punishment, plunder and restraint of other people for no better reason than that such others are perceived to be more prosperous than the supposed beneficiaries of the policy. ‘Soak the rich’ for the benefit of the poor, or the ‘Robin Hood’ political syndrome, are examples of this.

As it applies to Capitalism, for individuals to commit murder, robbery, rape etc. is just as much not permitted when done out of envy or jealousy as for any other reason. Moreover, the ambitions and plans which arise from envy --- conspiracy to commit murder, theft, fraud --- are worthy of the attention of the institutions which defend Capitalism. In order for Capitalism to exist, it is not sufficient only to punish violations after the fact; it must strive to prevent them (protect innocents) proactively. Thus Capitalism is consistent and in agreement with the tenth commandment, implementing it with prevention of violence and enforcement against criminal plots.

Again, I don’t expect to settle long religion-based and/or moral arguments. Nevertheless, I observe that Capitalism is a system of private property and voluntary cooperation holding individual human life and liberty to be sacrosanct, a position with which the religious commandments seem perfectly compatible.

The Ten Commandments are imperative, value-laden judgements. Capitalism takes most of the same statements as definitional, without passing moral judgement per se. Capitalism does not require or endorse government enforcement of the first four ‘spiritual’ commandments. It does require institutions of society to enforce the last five as they pertain to the limits of agression against other people.

Ownership of property is documented, standardized, and leverageable.

Under Capitalism, not only are individuals free to own possessions (foodstuffs, clothing, tools etc.) and property (homes, land, businesses and other long-term assets), but that ownership is documented, recognized and respected by the society as a whole. A title deed from Wyoming is as valid, comprehensible and enforceable in Florida (or France or Japan) as it is in Wyoming. No court in Florida would judge an owner in Wyoming as invalid and therefore worthy of forfeiting his land to a Floridian on the basis of the title deed not being written in Florida, on the Floridian forms[ii].

The first consequence of this documentation and standardization is that, unlike primitive tribes, third-world countries or citizens of states struggling to emerge from communism, capitalist owners are secure in the knowledge that their property cannot be capriciously taken away or otherwise violated. The second, and most powerful consequence, it that assets thus secured are able therefore to become living, leverageable Capital. A documented and recognized owner may take out a mortgage (incur debt in exchange for cash), sell all or part of a property, sell equity shares in an enterprise, or derive other financial instruments from his otherwise ‘merely’ physical assets. This is the truly powerful nature of capital, and the key element missing in so-called ‘third-world’ and post-communist countries. Hernando de Soto has written authoritatively about this in his seminal book The Mystery of Capital: Why Capitalism Triumphs in the West and Fails everywhere else. The world’s so-called poor have collectively accumulated literally trillions of dollars worth of assets (many times the total foreign investment and charitable aid donated to the same people and countries); however, lacking a proper, universally recognized documentation and enforcement system, they are unable to leverage these assets. They are ‘dead’ capital. If ever there were a key to solving world poverty, this is it.

Rule of, and Equality before, the Law

Capitalism is defined as a social system in which all individuals are governed impartially, without privilege or prejudice, by laws consistent with the preservation of individual life, liberty and property. ‘Rule of Law’ differs from ‘Rule of Men’ in that the latter are capricious, favoring themselves and their cronies, unbounded by fundamental principles. A ruling dictator may makes laws or arrive at judgements binding on others because he feels like it or because they favor himself or his friends, without reference to any transcendent priniciple beside his own pleasure. This is the antithesis of the rule of law.

Rule of law differs from ‘Rule of Lawyers’ as a system in which well-connected power brokers jockey for advantage. Neither is it necessarily synonymous with democracy, which for all its merits is still corruptible, allowing for tyrannical majorities or caucusses to vote for themselves the expropriation of the property of others, competing caucusses.

Rule of Law means not just any law, but natural law which respects and defends the most fundamental rights of individuals and does not seek to engineer social outcomes per se. The founders of the United States of America and their precursors such as John Locke and Thomas Hobbes, considered that law was not something to be invented or made up for the caprice of the moment, but rather something innate in the nature of the world, God and human beings, to be discovered and understood. When we say that Capitalism requires rule of law, we mean law that is in harmony with transcendent, immutable principles.

Minimal, Democratic Government

Under Capitalism, government has only one job; the defense of Liberty. Government’s role is to interdict and punish murderers, rapists, theives, robbers, defrauders and all other violators of Liberty as outlined above, so that the Liberty-respecting citizens are free from fear and free to act in their own best interests.

In an imperfect world, governments formed on the principle of equal right of participation in the governing process by all adult citizens --- democratic governments --- have the best track record of respecting individual liberty and promoting Capitalism. Thomas Jefferson’s statement that ‘government is best which governs least’ is consistent with Capitalist definition and principle.

While still clinging to a fragile lead, the West in general and the United States which Jefferson contributed so much to found in particular, have strayed far from the original principles of minimalist, democratic government. The US since its founding has extended the franchise to the lower classes of society, to non-landowners, to black former slaves and to women. Yet the minimalist creed has been eroded beyond recognition via a series of significant expansions: the conduct of the Civil War under Abraham Lincoln, the 16th Ammendment to the Constitution permitting the Income Tax, the New Deal policies of Franklin Delano Roosevelt, ostensibly instituted to save us from the Great Depression, and the Great Society programs of Lyndon Baines Johnson and their progeny[iii]. Today government in the United States of America consumes 40% of GDP while placing or permitting substantial burdens on individuals, families and businesses, and eroding private property rights and equality before the law.

America may yet be the most capitalist nation in the world, but it is a far cry from the definition of Capitalism.

Freedom of contract and of exchange

The next part of the definition of Capitalism flows freely from the prior. If individuals are free in relation to other adult human beings to own themselves, their bodies, their possessions and their property, then it follows irrefutably that they have the right to do with these things as they, not others, judge best, including exchanging them with others.

Under Capitalism, individuals are free from coercion or compulsion in deciding whether to hold onto something they own (including their own labor), or to exchange it for something else with another individual. Third parties do not interfere in the free exchange of goods or services by others unless (s)he can demonstrate that the exchange violates his/her own liberty in some way.

Individuals are free to trade with friends, family, neighbors, strangers, foreigners or aliens (intra- or extra-terrestrial). They may voluntarily form groups or organizations for purposes of mutual aid, spritual fellowship, commercial enterprise, charitable works, artistic patronage or any other desirable human activity. Individuals may choose to join such organizations as paid employees, unpaid volunteers, leaders, advisors and/or contingent stakeholders. And they may choose to leave. Individuals may contract their labor with other individuals freely willing to employ them. Individuals acting alone or in concert (i.e. as a corporation or labor union) may agree to perform services or provide goods to one another over short or long periods of time, with agreement on consequences should one party be unwilling or unable to fulfill the bargain. Capitalism requires that contracts freely entered into be enforced according to their original terms, not capriciously discarded at the whim of one party to the detriment of the other or to be reinterpreted and/or rejected by third parties; to permit otherwise is to permit and commit fraud and theft.

I can hear the yawning. So what, you say?

The critical element in all of this is that absent a demonstrable violation of the liberty of one or more individuals, no interference, compulsion or regulation by third parties is required or permissible under Capitalism.

Capitalism is, by definition, freedom of contract and of exchange.

Freedom of Competition

Under Capitalism, individuals are free to offer their goods and services on the market as they judge best, at prices and/or terms of their choosing. No individual or corporate party is prevented from entering into any business, industry or profession except by the limits of their own abilities, skills, knowledge, competence and experience. No privilege is reserved for parties already in a certain industry or market against newcomers. Anyone is free to compete with anyone else, to offer their own (presumably better, cheaper, higher-quality, better-tasting-less filling) product or service to consumers or clients, who are free to make new purchases and contracts which differ from the ones they had made in the past. ‘Stealing’ market share from competitors is not theft punishable under capitalist law (unless achieved through coercion or threat of force), but represents customers freely choosing to do business with different entities in the present and future than they had in the past.

Parties on the losing end of any market competition have five alternatives:

  1. Improve their market offering; lower prices, higher quality products, better service etc.
  2. Go to work for the leader; for the individual, this may mean seeking employment with the leading competitor in a subordinate position; for a company, this may mean being bought out by the leader (with mixed prospects as to what the buyer will actually do with the acquired assets).
  3. Leave the market segment, industry, trade or profession and find one in which one’s abilities, products, services, etc. can be more competitive.
  4. Appeal to his/her fellows for aid or charity to avert bankruptcy and starvation.
  5. Fail in the business or occupation, consume remaining assets, and in the extreme case, starve to death.

It is this fifth, extreme condition that most critics of Capitalism latch onto to claim that Capitalism is a cruel and vicious system where compassion and caring for the less fortunate are absent and only the ‘law of the jungle’ prevails. We will defer the discussion of this criticism to a later chapter. For the moment note that without denying the reality of this case, we have with reason placed it at the end.

The sixth alternative, appealing to the government for aid, that is, having the government intervene by virtue of its ability to coerce and force appropriations in the marketplace, to take resources from one set of citizens (including the winning competitor) in order to subsidize or ‘bail out’ the failed individual or business, is not a capitalist concept. This is an interventionist action inconsistent with laissez-faire capitalism, practiced to some degree by all governments on Earth, from the most liberal to the most tyranical.

What Capitalism is NOT

I will defer discussion of the claim that Capitalism is the exploitation of the poor by the rich. For now I want to make clear some frequently misunderstood notions about Capitalism.

First, Capitalism by definition is NOT a system in which government is ‘pro-business’ in the sense of providing subsidies, protectionist tarrifs, special tax breaks and privileges for corporations. Capitalism is freedom from interference, and equality before the law. Under Capitalism, businesses are free to succeed without punishment, and to fail without privilege (we will talk about the very very VERY important role of failure in detail in a later chapter).

Capitalism does not sanction slavery, or the forcible coercion of workers to stay in jobs that pay ‘starvation wages’. It only permits anyone willing, to offer or deny employment, or to accept or forgo the same. It may happen under Capitalism that workers are not paid as much as they (or third parties) feel that they are worth (and this can and does happen at any level from non-skilled manual labor to high-level professional work). But this is not the same as ‘forcing’ people to accept inadequate compensation.

Finally, no activity of government qualifies as Capitalist. If a government runs a factory and sells the goods in a store ‘for profit’, this is still not Capitalism, because the government has the ability (which a private company does not) to tax and regulate the market, in other words to forcibly coerce individuals and groups to its own advantage. This is inconsistent with Liberty, private property, and freedom of contract and exchange, and therefor does not qualify under the defnition of Capitalism.

Government acting in defense of liberty in preventing and punishing murder, robbery, rape and fraud, acts in support of Capitalism. But Capitalism is the thing being defended, separate from the agency defending it.

With this definition of Capitalism in hand, then, let us elaborate upon how Capitalism solves so many of the challenges of human existence.

[i] I heard this in the mid-1990’s when Walter Williams, professor of Economics at George Mason University, was subbing for Rush Limbaugh on his nationally syndicated radio talk show. Forgive me for not recalling the exact date.

[ii] We’ll deal with Eminent Domain and its abuse another time.

[iii] Some might argue that Jefferson himself was the first significant violator of his own principles, with the massive land purchases and the government financing of the Lewis and Clark expedition, which in its day was equivalent to our NASA Apollo program to go to the moon.

Copyright © 2006 by Howard Hyde. All rights reserved.

Saturday, July 22, 2006

What is Economics and Praxeology?

This article is a summary and personal interpretation of the introduction to Human Action, by Ludwig von Mises.

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Economics is a science that has emerged in the last two hundred and fifty years, distinct from the sciences discovered by the ancient greeks: logic, mathematics, psychology, physics and biology, etc. It started with the recognition of regular, predictable patterns of marketplace phenomena --- prices, supply, demand, profit motive, material wealth, poverty, etc. The classical economists from before Adam Smith through Karl Marx struggled with the concept of value, attempting to explain it either as some measure of labor expended or some other objectively ascertainable phenomenon. Eventually the ‘objective’ theories of value were replaced with the concept that value is always subjective, the product of the choices and preferences of idiosyncratic individuals. Once that happened, market economics was seen to be just one narrow part of larger study of human choice and action, which Mises calls Praxeology.

So economics is a field of study within a larger context, and with a broader scope than it is popularly understood to have. It is not just about money. It is not just industrial products, services, markets, trade, regulation and taxes. It is not about materialism, ‘greed’ or ‘selfishness’, narrowly defined.

Rather, economics is the study of scarce resources with alternative uses, and how people choose to act in using, re-creating, saving, spending and utilizing them for whatever purpose suits them; survival, comfort, materialism, hedonism, spritual advancement, religious piety, charity, artistic patronnage, altruism, philanthropy, recreation, sado-masochism, intellectual enrichment, or just plain fun. Resources may be material, such as food, land, machinery, etc. or ideal/abstract, such as leisure time, spiritual fulfillment, or vocational satisfaction.

In addition to being a science of human action based on subjective appraisals of value, as opposed to a mechanical science like physics and its objective measures, there are other important distinctions to be made.

First, Economics is not history, not even ‘economic’ history. In the late nineteenth century, the German Historical School dominated the study of what was called economics in universities. But History is not economics proper. Rather, economics is a theoretical science that take ideas and scenarios through to their logical conclusions. Those theories, ideas and scenarios are what this book is about.

Finally, economics is not, according to Mises, a mathematical science capable of predicting precise magnitudes. It cannot tell what the price of milk will be on August 17 if the president’s tax plan is ratified, the union gets the wage increase it is stiking for, the rainfall is above average and there is a full moon. It can only predict general tendencies and directions which are likely to occur under specific circumstances.

Economics defined in this way is not universally embraced; not by all thinkers of past centuries, nor by present-day university economics departments. It has been condemned as the ‘Dismal Science’ by Thomas Carlyle. Karl Marx could not accept the validity of a science which claimed universal validity in the study of human action, since in his view people’s modes of thinking could only be determined by their class membership or affiliation (himself conveniently exempted); bourgeois, proletariat, serf, etc. Others base similar objections on the basis of race, ethnicity, culture, etc., claiming that what is true for one group is not valid for another (this is known as ‘polylogism’). No one could claim that there is a ‘Jewish Physics’ or a ‘Chinese Chemistry’ that would not be equally valid for Russians, Germans and Africans. But for economics, the polylogists have succeeded to a certain extent in marginalizing economists as the sycophant apologists of bourgeois capitalism, and dismissing them as partisan politicians.

This blog ( defends and promotes economics as a positive, practical and useful science; indeed, a science indispensible to the survival of civilization. In order to do this, we must define and clarify what economics is and isn’t, what its objects and method are and what they can’t be, what its limitations and opportunities are.

All science has its limits, even the natural or ‘pure’ sciences. Newton’s theories of physics are today still useful for simple scenarios, but they completely fall apart when it comes to advanced problems, for which it is necessary to substitute the theories of Einstein and his disciples. Science then, is a process of seeking out truth without ever finding the ultimate, final destination beyond which there is no going.

Economics has been criticized by some natural scientists for not using the methods and procedures of the laboratory. But the problems of human behavior within and without markets is not a laboratory problem. Different problems require different methods.

Economics has been further criticized for falling short of the manifest accomplishments of engineering; all the inventions, machines, capital equipment etc. which this discipline has produced which have greatly magnified the power of the human mind and muscle and increased material comfort and society’s standard of living. But if it weren’t for economics, none of these advances could have been permitted. In all times, even in our day, new inventions and improvements are a threat to entrenched interests and established orders. The building of capital equipment requires the accumulation of savings plus the vision of exceptional creative and entrpreneurial minds, belonging to individuals who are rarely initially part of the established political power structure. Extremely few kings, presidents, governors, union leaders, dictators, despots or socialist premiers have been prepared to tolerate the inequality (their own inferiority) implicit in the entrepreneurial proposition. Without entrepreneurship, engineering is vain. Without tolerance for inequality (the superiority of genius, the reward of profit for successfully anticipating the most urgent wants of the consumers, and losses associated with failing to meet these needs), entrepreneurship is impossible. Without economics, there is no explanation and justification of inequality and entrepreneurship. The accomplishments of the industrial revolution are the accomplishments of the classical economists, through the policy liberalizations that they advocated.

Economics proper cannot tell anyone what to products to value, what services to seek, or what ends to pursue. But it can tell what will and will not work, and can demonstrate the utility or disutility (or is it futility?) of different modes of social organization. It’s time to listen to what economics has to say; the survival of civilization depends on it.

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Copyright©2006 by Howard Hyde. All rights reserved.

[1] The term praxeology was first used in 1890 by Espina. If you can read French, look up his article “Les Origines de la technologie,” Revue Philosophique, XVth year, XXX, 114-115 and his book published in Paris in 1897 with the same title.

Another big, unfamiliar word that Mises uses is ‘Catallactics’, referring specifically to the dynamics of the exchange and markets.

Saturday, June 24, 2006

The Role (and Benefits) of Failure in Human Endeavors

All human projects and actions are subject to the possibility of failure. It does not matter whether the objective is good or evil, related to business or charity, patronage of the arts or religious. The best-laid plans of men can fail. In the realm of business, it has been estimated that 80% of new startups go belly-up within 5 years.

For this reason, government must step in to ensure that good businesses do not fail.

If you’ve been paying attention to this site so far (or are you using it as a sleeping aid?) you’ll realize that the previous statement was given completely in jest.

Hold on! We haven’t even examined the nature of failure yet, let alone its role in the cycle of economic activity, so it’s premature to be throwing out conclusions as to what to do about it.

So, just to spice things up a bit, let me hit you over the head with another shocking, outrageous assertion:

  • Failure is good!

Do you think I’m nuts yet? Let’s start with some acute examples to shake you out of your complacency. Imagine that a mugger is about to beat your face in with a motorcycle chain, but he slips on the ice and falls unconscious, allowing you to escape. He FAILED.

Are you getting my point yet? Failure is the flip side of success; without the one, the other has no meaning. Moreover, there are many things that you would hope to fail. Let us list just a few examples:

  • A terrorist plot to explode a ‘dirty’ bomb in YOUR city (thank you Osama).
  • A plan to eliminate your job and ship it to Outer Elbonia (thank you Scott Adams).
  • A marketing campaign which includes the withdrawal of your favorite soft drink from the market and its replacement with something with more sugar in it (thank you New Coke!)
  • A law abolishing the private practice of medicine (thank you Hillary Rodham Clinton).
  • An athletic training regimen on the part of the scum-of-the-earth team intended to beat YOUR favorite team in the national championship (thank you Denver Broncos).

From these examples it is easy to see how there is a definite benefit to failure when it applies to something you personally don’t desire. What is a little more difficult to comprehend is the benefit of failure when encountered in the pursuit of worthy goals. Let’s imagine a story to illustrate the point:

Two entrepreneurs of modest means liquidate their life savings to open a restaurant each, in close proximity to one another. One of them thrives and begins opening additional restaurants, initiating a franchise chain. Ten years later, the first company is going strong. The other goes bankrupt after one year. Isn’t this a clear-cut case of failure being a bad thing, even an injustice?

Certainly, from the point of view of the failed entrepreneur, this situation is painful. But let us come back to him/her in a minute.

Consider the situation from the point of view of the restaurant patron. Assuming a very simple model, in which both restaurants open in a free market with similar menu items and target clientele, what could make one succeed and the other fail? Perhaps the quality of the food. Perhaps the friendliness of the servers. Perhaps the first entrepreneur just worked harder, putting in longer hours. Or perhaps the location chosen by the second entrepreneur was just not quite as advantageous, i.e. not near enough to other businesses, theatres etc. or in a neighborhood with a higher crime rate than the first. It could be for any one of a million things. But in the final analysis, it was the customers who decided to patronize the first restaurant and to avoid the second; to leave fat tips on repeat visits to the first and to leave for the first and last time at the second.

The first entrepreneur satisfied the customers. If government, the mafia or any other organization were to step in at this point and force customers to give equal patronnage to the second, or to subsidize the second to compensate for losses, it would be going against the choices made by the customers. Moreover, such an interference would necessarily involve raising taxes on the customers and the first restaurant in order to divert funds to the second restaurant. This would reduce the customer’s income and ability to patronize any restaurants, and impair the first entrepreneur’s ability to open new extablishments and pay salaries to more employees, without necessarily improving the quality of product or service at the second restaurant. Job creation would suffer.

So, clearly, from the point of view of the customers, the first restaurateur and society at large, it is a benefit that the second restaurant is allowed to fail and close its doors quietly.

Economics can only tread lightly on the question of whether the second entrepreneur ‘deserved’ to fail. It can only explain that in a society in which consumers have freedom of choice, they will necessarily make such choices as favor one set of products and services over others. Again, there cannot be success without failure. This does not mean that, given two businesses, one must succeed and the other fail. It simply means, axiomatically, that people make choices; the same family can’t eat dinner on the same night at two different establishments.

Economics also makes the following observation. Most successful entrepreneurs have multiple failures in their history. That is, their current success has come only at the price of trying and failing, trying and failing, getting up and trying yet again and learning from their failures what works and what doesn’t work, until finally they get it right. Read the biographies of great entrepreneurs from Thomas Edison, Henry Ford through Colonel Sanders (KFC) and Steve Jobs (Apple Computer), and you’ll see a history of repeated failures. In his day, Babe Ruth had the highest strikeout record in major league baseball.

But what of our failed entrepreneur in the moment? Isn’t (s)he entitled to some consideration for effort? Well, there are a few possibilities:

  • He can appeal to his fellow citizens for assistance. This is the voluntary charity and assistance option, available from many secular and religious organizations, as well as informally through acquantance networks.
  • The government could subsidize him personally or his business. This presupposes that a law and/or program to do such things is already in place; we don’t assume that at the point of failure, the entrepreneur has the time, resources and connections sufficient to lobby government for favors. We have already discussed the general dis-utility of this option.
  • He could go to work for the competitor. This is not uncommon, however wounding it may be to the ego. If he wasn’t qualified to be the boss at one establishment, his knowledge, skills and experience might very well qualify him to work at one or two levels lower in the hierarchy at another firm in the same industry.
  • He could get a job in another line of business.
  • He could appeal to private investors to support him in his next venture, presumably convincing them that he’s learned from his mistakes and has a sure-fire, can’t-lose plan this time around.
  • He can wallow in self-pity, consume remaining assets, starve and die.

In any event, the most important question of what to do about anyone’s failure is less what specifically to do, but whether the solution will be accomplished via voluntary cooperation, or by coercive force, against the will of participants. Ethics teaches that the use of coercive force is wrong in the majority of cases; economics demonstrates that the use of force is counter-productive in the same majority of cases.

One more example of the benefit of failure. Have you ever had a boss you didn’t like? (You’re lying!) I mean, not only someone you had a hard time getting along with, not just someone whose orders you resented, but someone who you were convinced was incompetent, actually hurting the business and compelling you to participate in counter-productive activities? Don’t you wish that boss could just, well, FAIL?

Of course you have! We all have. And the truth is, it would be better for all stakeholders (though in the short term, perhaps not for competitors) that such a person be removed from his/her position and given the opportunity to rethink his/her market offering.

It is desirable that if a plan or enterprise is destined to fail, that it should fail as early and quickly as possible, in order to limit the time and scope of suffering. Imagine that you are embarking on a hot-air balloon expedition. The balloon has a fault in a seam which will cause it inevitably to rip, causing the balloon to fall back to earth. Would you prefer the fault be exposed at two meters, twenty meters, or two thousand meters of altititude? You would prefer, the sooner/lower the better, unless you have a parachute.

Similarly, imagine that you are involved in a business enterprise or investment portfolio that is destined to crash because the fundamental assumptions underlying the projections of success are erroneous. The market isn’t really there, customers don’t really want the product or service, or government is printing money so fast that it only seems like there’s a dramatic increase in market demand. When would you prefer this enterprise fail? When the stock price is at $10 per share? $100? $1000? You would prefer it to fail as soon as possible, before you sink anymore of your hard-earned uninflated money into it --- unless you’ve got a parachute, but how you happened to have a parachute under these circumstances could attract the attention of the Justice department.

If you’re an employee of such a firm, you don’t want to lose your job, of course, but this is not an option. Given a choice between sooner or later, you are better off that your firm and firms like it fail before they grow to the point of dumping even larger numbers of employees out on the street, to fight it out for unemployment benefits and reduced real employment opportunities. The best preference would have been never to have been lured into a doomed enterprise in the first place. The least bad ‘failure’ might just mean staying in a job that doesn’t thrill you, but which is at least grounded in reality.

In conclusion, then, the phenomenon of failure, in business as in any human endeavor, is a fundamentally good and necessary part of the functioning of society. If it’s going to fail, let it fail fast. Failure artificially postponed is pain augmented.

Copyright©2006 by Howard Hyde. All rights reserved.

Saturday, June 10, 2006

What about my medicine?

Transitions from Socialism to Capitalism

Pro-capitalist and libertarian politicians routinely lose debates and elections because of the challenge of people who have become dependent upon the system which is the target of reform. A Republican politician in a public debate once was unable to come up with a satisfactory answer to a senior citizen in the audience who demanded, “what about my medicine? How am I going to get my medicine”? It’s a fair question; as we seek to roll back government programs that never should have been established in the first place, we have to address transitions; getting from here to there.
In the case of senior citizens dependent upon government-managed retirement programs, the answer actually shouldn’t be that difficult. Permit me to imagine a response to that member of the audience.
“We will honor all contracts made with you and your generation, without reduction in service or benefits. We will not reneg on binding promises, because to do so would be wrong, immoral and destructive to society.
“What we do say is that for the next generation and the one after that, the contract has to be re-written, because it was fraudulent to begin with. This program is 100% guaranteed to go bankrupt and be unable to support anyone after X years as it is currently defined. If this program had been established in the same manner by a private corporation, its executives would be in jail today for foisting a Ponzi pyramid scheme upon the public.
“Before you judge this proposal as unfair or improper, take the example of your own life, the income that was taxed from you in order to reap the benefits that you enjoy today. Which of the following statements do you sincerely believe is true:

  • “I’m getting a better rate of return on my investment than any private health insurance or retirement savings plan could have offered me [That may be true for some in the currently retired generation; it will be less so with each passing year].
  • “The government is the most caring, knowledgeable and efficient agency for administering health care and retirement programs.
  • “If I have not saved enough or insured myself adequately, there is nobody, no private charity or religious organization that will lift a finger to help me or anyone else like me.
  • “If the government didn’t force people to contribute to the program, no one would save for their own retirement or health care.”

There is no reason for pro-capitalist politicians to be defensive about any of their principles. Bring on the challenges! Free markets and free people will make the solutions.

For additional perspectives on Social Security reform, see and Llewellyn Rockwell's contrarian article Save or Else.

(Suggestions for other links are welcome.)

Copyright © 2006 by Howard Hyde. All rights reserved.

Saturday, June 03, 2006

The Nature of Government and Political Power

Just what is Government, anyway? Ask that question and you may get many different answers, such as, ‘the institution for creating and enforcing laws’, or ‘the agency to ensure equality’, or ‘society’s way of making sure people don’t kill each other’, or ‘the organization that ensures that human needs come before profits’. However plausible or inaccurate these expressions may be, they all fall short of distinguishing government unequivocably from other institutions such as for-profit business, non-profit charities, religious/spiritual organizations, professional/collegial associations, or leisure clubs. Any of these types of organizations may actually engage in similar activities, attempting to feed people in need, clean up a toxic waste dump, triumph over an adversary or provide uplifting entertainment or spiritual experiences to the public.

Here then is a definition which cuts to the core distinguishing characteristic:

Government is the insitution of human society which assumes a monopoly privilege on the use of force.

Government takes as axiomatic (rightly or wrongly), that within its defined sphere, whether geographical or political, that it alone may legitimately use forcible and/or deadly coercion, enforcement and punishment in the pursuit of its objectives. Regardless of any goal or program a government may have, such as feeding the poor, eradicating disease, providing employment for citizens or protecting the environment, the difference between it and every other agency is that government pursues its goals with the implicit (frequently explicit) and presumed legitimate threat of violence against any involved parties who may be disinclined to comply.

A private, for-profit business corporation may include people with a strong desire to feed hungry people, but it is constrained by its resources, which can only be renewed through the earning of an excess of revenue over costs (profit) in the service of customers who freely exchange their wealth for the products and/or services of the company. A private company cannot levy taxes on citizens to pay for its altruistic or any other activities. A private organization that would force payment of ‘taxes’ from individuals who do not volunteer to be customers or donors, is not a legitimate business but an organized crime entity, a mafia, prosecutable under the natural law of a free society.

Churches, synagogues, temples and mosques may solicit donations or tithes from their flock, and may appeal to people’s (sense of) responsibility to God, yet under law in a secular capitalist society, the appeal does not have the force of an obligation, punishable in the breech. A church that would enforce its appeals for offerings by force of arms is a theocratic state, incompatible with Capitalism.

Therefore the monopoly on the use of force clearly differentiates government from all other of society’s institutions. This understanding has tremendous ramifications for how we should regard government, its role in society and in the economy, what enterprises it ought to participate in, what problems it ought to be used to attempt to solve. When we look at the concept of government in this way, we are more cognizant of the danger inherent in the expansion of the scope of government.

Copyright©2006 by Howard Hyde. All rights reserved.

Friday, May 26, 2006

Truths Numbers 9 and 10

Shocking Outrageous Truths about Capitalism #'s 9 and 10:

This post is a continuation of The 8 Shocking, Outrageous Truths about Capitalism.

9. The enemies of Capitalism depend on Capitalism for their survival.

Capitalism doesn't need Socialism, but without the market price information provided by Capitalism, socialist planners would be completey without any guide whatsoever as to how to allocate resources.
Capitalism doesn't need Radical Islamic Fascism, but Al-Qaeda would be out of business without Western Free Speech, petroleum extraction technology, airplanes and the internet. Every tool they use against us (except maybe the AK-47) was invented in the United States.

10. Capitalism is the Solution to Radical Islamic Fascism.

Of course this isn't easy. But common arabs and muslims throughout the world, who have education and jobs, and live under the rule of law, and taste the liberty and prosperity of the free market, are not candidates for recruitment into the rabid Jihad. Capitalism is the greatest threat to undermine any philosophy of hate.

Tuesday, May 23, 2006

WSJ on Economics of Immigration

The Wall Street Journal Editorial Page is one of the best sources for daily capitalist analysis of current issues. I recommend all my readers to subscribe (I'm not paid to say that, but I'm working on it).

Today (Tuesday, May 23) the title is 'Mexican Working Capital' and the subject is remittances from Mexican immigrants to their families in Mexico. The anti-immigration conservatives have it wrong. The money that workers earn and send to their families is beneficial to both sides of the border, certainly superior to foreign aid and government monopolies such as Pemex. One of the most beneficial points is that the money doesn't go through the corrupt middlemen.

Subscribe and read the whole article at:

Sunday, May 21, 2006

Books on Capitalism and economics

February 2013 Update: The 100-page pamphlet 'Pull the Plug on Obamacare' by Howard Hyde is now available: Click here. See also the companion web page at

The books listed below are in my library, and ought to be in yours.

  • If you want to be an informed citizen,
  • If you want to stop being at the mercy of manipulators in politics and the media,
  • If you want to promote general liberty, peace and prosperity in your own country and time,
  • If you want to have influence over the cycle of crises and group conflict,
  • If you want to understand the inviolable, natural laws governing human society,
  • (or even if you want to preserve and expand socialism and intellectually arm yourself against the capitalist pigs!)

…then you must learn the discipline and logic of economics, not as you were taught by your Keynesian college professor or your closet socialist news commentator, but from the horses mouth; the men and women who have taken the pains to discover and articulate those laws. Their names are Ludwig von Mises, Adam Smith, Thomas Sowell, Ayn Rand, Friedrich von Hayek, Carl Menger, Eugen von Böhm-Bawerk, George Gilder, Milton Friedman, George Reisman, David Ricardo, John Locke, Frédérique Bastiat, Robert Bartely, Hernando de Soto, Edmund Opitz, and many more.

So as not to overwhelm the newcomer to the subject, I have organized this bibliography into 4 parts:

  • The Top Ten Easy-to-Read popular expositions on economics and capitalism

  • The Top Ten Hardcore Scholarly Treatises on economics

  • The Top Five Most Dangerous Anti-capitalist Rants

  • Other Books of Interest

The Top Ten Easy-to-Read popular expositions on economics and capitalism:

  1. Sowell, Thomas. Basic Economics, New York NY
  2. Sowell, Thomas. Applied Economics: Thinking Beyond Stage One, 2004 by Basic Books, New York NY
  3. Gilder, George. Wealth and Poverty, 1993 by ICS Press
  4. Friedman, Milton. Capitalism and Freedom, 1962, 1982 by the University of Chicago Press
  5. Friedman, Milton and Rose. Free to Choose, 1980 by Harcourt Brace Jovanovich
  6. De Soto, Hernando. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails everywhere else, 2000 by Basic Books
  7. Hazlitt, Henry, Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics, 1988 by Three Rivers Press
  8. Rand, Ayn. Capitalism: The Unknown Ideal, 1967 by Signet
  9. Von Hayek, Friedrich. The Road to Serfdom, 1994 by the University of Chicago Press
  10. Hyde, Howard. Capitalism is the Solution. Not yet completed for publication. Give me time. Better yet, give me money! I’m motivated by profit.

The Top Ten Hardcore Scholarly Treatises on economics

Most of the following are all of the 1,000-plus page, literary academic variety. Difficult to approach at first, but well worth the journey. You’ll never go back to World Wrestling Federation reruns after you’ve tasted this!

  1. Locke, John. Second Treatise of Government, first published in 1689. Contains the best-articulated foundation of private property and limited government to influence the American revolution of 1776.
  2. Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations, first published in Glasgow, Scottland in 1776; 1977 by the University of Chicago Press.
  3. Ricardo, David. Principles of Political Economy and Taxation, first published in 1817; see The Works of David Ricardo collected by J.R. McCulloch, 2002, by the University of the Pacific.
  4. Say, Jean-Baptiste. A Treatise on Political Economy, first published in 1836; 2001 by Transaction Publishers
  5. Mill, John Stuart. Principles of Political Economy, first published in 1848; 2004 by Prometheus Books
  6. Bastiat, Frederique. Complete Works. Volumes I-VII including Economic Harmonies, Economic Sophisms, The Law and more, first published circa 1860; see 1907 by Guillamin
  7. Menger, Carl. Principles of Economics, first published 1871; available from the Ludwig von Mises Institute:
  8. Mises, Ludwig von. Human Action, first published in 1949. Get the Scholar’s Edition 1998 by the Ludwig von Mises Institute.
  9. Rothbard, Murray. Man, Economy and State with Power and Market, first published in 1962 and 1970, respectively, now available together in one volume, 2004 by the Ludwig von Mises Institute. Personal opinion note: I think Rothbard does an outstanding job of elaborating upon Human Action and working out its ramifications; Then he drives over a cliff. Consume responsibly.
  10. Reisman, George. Capitalism, 1998 by Jameson Books, Ottawa, IL. This 13-pound suitcase bomb is the culmination of all of the above.

The Top Five Most Dangerous Anti-capitalist Rants

Know your enemy.

  1. Marx, Karl. Capital: A Critique of Political Economy (a.k.a. in German, 'Das Kapital'), first published circa 1866; see 1976/1992 by Penguin Classics
  2. Marx, Karl. The Communist Manifesto, first published circa 1848; see 2002 by Penguin Classics
  3. Keynes, John Maynard. The General Theory of Employment, Interest and Money, 1953 by Harcourt Brace Jovanovich.
  4. Galbraith, John Kenneth. The Affluent Society, first published 1958; see 1998 by Mariner Books.
  5. Galbraith, John Kenneth. The Great Crash 1929, first published 1955; see 1997 by Mariner Books.

Other Books of Interest

·Sowell, Thomas: Knowledge and Decisions, The Search for Cosmic Justice, A Conflict of Visions, Migrations and Cultures, Conquest and Cultures, Capitalism and Freedom.

·Von Mises, Ludwig: Bureaucracy, Socialism.

·De Soto, Hernando: The Other Path.

·Gilder, George: The Spirit of Enterprise.

·Von Hayek, Friedrich: The Errors of Socialism.

·Rand, Ayn: The Fountainhead, Atlas Shrugged.

·Wanniski, Jude: The Way the World Works.

·Bartley, Robert: The Seven Fat Years.

·Schlessinger, Laura: The Ten Commandments: The Significance of God’s Laws in Everyday Life.

·Opitz, Edmund: Capitalism and Religion: Allies not Enemies.

·God: My Holy Word (The Bible --- pick your translation carefully)