Comments (19)

• Kevin

  All of what is said in this essay is true....but how to prevent it? Government itself does not rise out of a vacuum...so often it is the result itself of market demand for leadership, oversight, etc. And even in countries like the USA where the government is (supposedly) run by the will of the people, the demand for this sort of body not only does not diminish, but grows and grows.

  I understand that people are raised on the belief that they cant live without the government and thus are less likely to take action other than to let it grow, but in real terms, how do we return to a form of non-government at this point? is it a utopian fantasy? or do we have to wait for Atlas to shrug, and start from scratch?

  Published: November 17, 2008 7:46 AM

• greg

  China's expansion was not market driven, the government had its hands in it all along the way. For example, plastic film manufacturing. Through subsidies, China installed enough production lines to handles 100% of the world's demand. Now, through market conditions and high fuel cost that restrict their exports, they have cut their production by 40%.
  Another example is the effects of high transportation cost. Furniture manufacturers in NC have started up production again as the high cost of importing from China has made it profitable again to build furniture here.
  Finally, automation is where the Chinese cannot compete. If an item can be produced by a machine with little labor input, it is cheeper to manufacture it here where productivity is higher. An item I developed in the 90's fit in this mold and our decision to manufacture here was based on the cost was lower per unit in the US and I had control of manufacturing.
  The Chinese stimulus is just a poor attempt to try to fix a problem they created.

  Published: November 17, 2008 8:50 AM

• terry

  A truly great article that reminds us all about the bottom line of the government myth, but as someone who has lived in China and Hong Kong for over 25 years, I have to disagree with Greg's statement that China's expansion was not market driven. I have long admired Chinese entrepreneurship, the rise of small mom and pop shops and yes, the manufacturing juggernaut that has been created. I see it day to day even in Beijing which is akin to Washington DC but with actually lot more business of all nature than DC's very limited lobbyists and lawyers!

  Zhejiang province would be a great case study for the market and how it adapts and grows in spite of the government. There evolved an incredible & ostensibly illegal private banking system in the province that funded the growth of manufacturing in the province quite outside of the state run "policy" banks. Zhejiang was neglected by the central planners, as it had strong ties to the former KMT (Guomingdang) party of Chiang Kai Shek and yet it now has one of the strongest provincial economies in China.

  I also disagree with the statement about Chinese automation as this is routed in the belief that China's success is just a cheap labor play. There is incredible manufacturing infrastructure in play in China and the level of factory automation is growing not only exponentially, but in many places is exceeded that in American factories. I just read an interesting article on this excellent blog in that regard http://www.dlevy.com/changejunkie/.

  In summation, I have long held the view that China is more capitalist and free market than the USA (it is certainly easier here to set up a company) in spite of the ostensibly Marxist/Socialist government. The rapid expansion was not centrally planned and I even have hope that this "stimulus" package will at least consist of some tax reductions as has been recently announced in regard to VAT (the government hasn't said much about specifics yet, and many believe that this big announcement was just a way of making news and encompasses nothing new in the way of spending).

  Published: November 17, 2008 9:36 AM

• greg

  I have not lived in China, have sold them equipment in plastic film manufacuring and know the business. They have the capacity to produce more than 100% of the world demand and when the high oil price hit, lines expanded in areas closer to the end market as transportation cost made it more cost effective. Why would someone that investing in an industry think that they could be the sole supplier? Free market, Marxist, or whatever you my think they are, they just made a bad business decision based on subsidies.

  Published: November 17, 2008 10:21 AM

• Gilligan

  Jean-Francois Revel nailed it:

  'The totalitarian phenomenon is not to be understood without making allowance for the thesis that some important part of every society consists of people who actively want tyranny: either to exercise it themselves or -- much more mysteriously -- to submit to it.'

  Published: November 17, 2008 11:52 AM

• redshirt

  Second Kevin's point. I'm not sure I have yet seen an article here that dissuades me from thinking governments arise naturally, in the same manner free markets give rise to other businesses. And I am entirely unconvinced that there are other businesses that would arise to perform all the key functions of a government. If so, why haven't they?

  OK, so government is more empowered than other businesses.

  Nevertheless, government arises naturally, and naturally garners more power. Like other businesses, it can branch out in too many directions. Eventually, there has to be some kind of feedback that tells government to start the process of divesting. At least in the US, there seems to be a built-in feedback loop that can lead to changes.

  As an example, it looks like this feedback (the sound defeat of the Republican party in the elections at the fed level) is sending the signal to the party that maybe they should listen to some of their fiscally conservative governors and people like Ron Paul.

  Of course, I'll keep my fingers crossed for Obama... he's not an idiot. He can count.

  -r

  Published: November 17, 2008 12:05 PM

• fundamentalist

  Terry: "I have long held the view that China is more capitalist and free market than the USA..."

  I agree with you that China's growth was driven primarily by private enterprise. All one has to do to see the business acumen of ethnic Chinese is to look at the growth in Thailand, Indonesia, Singapore and the Philippines: it's all Chinese. When China opened up, many of these businessmen responded by investing in the mainland.

  However, technically the Chinese system is not capitalist. Capitalism requires the rule of law and the institutions to support it, such as honest judges and police. China does not have those institutions. Expatriot Chinese who invested in China understood that. To protect their property, they had to resort to bribing important officials in various ways and staffing key positions with relatives. Of course, that's how they had to operate in the rest of SE Asia, too.

  China is making some progress toward the rule of law and I expect it to get their eventually.

  Published: November 17, 2008 12:22 PM

• Eric

  Kevin asks why governments always seem to appear, and says that the demand for government comes out of the marketplace.

  I find it useful to use a medical analogy with an evolutionary approach to disease. I think of government in two ways. One, it's a parasite living off a larger body through force. But sometimes I think it's more like an autoimmune disease.

  Government is like the killer cells that are supposed to provide protection against invaders first, but also go after its own, such as when there are non-social cancer cells. But sometimes this police force also turns on itself, as in allergies (round up the usual subjects) or the more serious diseases, such as multiple sclerosis (Wars).

  The distinction here is that parasites can be identified and eliminated, and perhaps one can leave them behind (by say, the free state movement). But if government is more like an autoimmune disease, then the problem is inside of us and might be far more difficult to eradicate since it is often impossible to tell the good guys from the bad ones.

  I think the autoimmune analogy is more revealing to the hope of creating a libertarian society. Even were we to create a space habitat far from Earth, whatever police force that is created (even if private initially) can ultimately turn on the group. And once the disease starts, history has shown that it is very difficult to peacefully find a cure. Revolution seems to be the only way, and that is no guarantee that a libertarian society would be the result.

  So, what do we see in China?

  Is a corporation internally a free market? No, not usually, but that corporation still has to operate in a market to sell its goods. So, perhaps China is more like a very large corporation operating in a world market.

  China may not internally be a free market (in the same way that the US is not either) but it still sells products on the world market. That market is still relatively free, in the sense that there is far less force used to make customers buy from any particular country, and there are many competitive choices. But as many on this site have written, the New World order is in the works.

  It just seems to be the way our world evolves. We are a product of this process. Only survival counts. And if despotic government keeps surviving, it's because somehow it is more stable than freedom - and nature doesn't seem to mind in the slightest.

  
  

  Published: November 17, 2008 12:30 PM

• Chad Rushing

  "Another point that is just as telling: no state empowered to do what is supposedly necessary will restrain itself to those things. It will expand as much as public opinion will tolerate."

  Based on that particular excerpt, it seems to me then that the goal should be to make sure that public opinion is wisely informed in such a manner as to permit as little governmental expansion as possible; the irresistible force should be met with an immovable object. That is to say that no government can ever expand beyond the point of containment when and where the public actively restrains it from doing so.

  If Mises is correct in stating that "Corruption is an evil inherent in every government not controlled by a watchful public opinion" [emphasis mine], then it follows that a government that is controlled by a watchful public opinion will be far less inclined towards corruption.

  If government is perceived as a tool in human society, then as in the case of a chainsaw, the benefits or detriments resulting from its use depends entirely on the wisdom, skill, and intentions of its wielder (or his overseers). Gross misuse of a tool such as government by foolish, ignorant, or self-serving politicians and the citizens who heartily endorse their actions does not prove that the tool itself is inherently evil or rule out the possibility that the tool could be highly beneficial in the hands of a more wise, skillful, or altruistic wielder.

  Otherwise, everyone who supported Dr. Ron Paul's recent run for the presidency expended their time, effort, endorsements, and wealth completely in vain.

  Published: November 17, 2008 3:19 PM

• kevin

  I suppose one thing I wanted to say in my earlier post is that I see this same problem with a lot of the essays on Mises.org....they are wonderfully effective at pointing out the problems with government and the problems with barriers to free trade, but they never do anything toward proposing a real solution. While it is certainly true that the majority of the population would benefit from understanding even the problem (ie anyone who believes that laws and regulations will somehow make things better), it is more important in my mind that we prescribe a real course of action, a real plan, to bring about this neeeded change.

  I hope future writers on this site will take this to heart - else Mises.org will devolve into an empty congregation of complainers.

  Published: November 17, 2008 4:21 PM

• StatusQuoJoe

  Kevin, in response to your most recent post I would wager that you want some kind of compromise. You want the Austrian School to compromise with the current statists to find some kind of reasonable ground. Although I am not an official Austrian per se, I believe they are more focused on fundamental truths of free market behavior. If there were true free market behavior you wouldn't need the kinds of compromises that you are seeking. Big government prohibits free markets plain and simple due to an inherent, unseen law that guides big government into taking control of the situation. Free markets rely on just that freedom of choice to "regulate" economic activity. I am just a simple lay person here, but I can see what they are saying you just have to let go of any particular pre-conceptions you may have of the market or government.

  Published: November 17, 2008 4:31 PM

• StatusQuoJoe

  To tag onto what I said previously if you wanted to know specifically what should be done to reach a free market, I would suggest that the school might respond as such (correct me if I am wrong here);

  1) Congress is to coin money and set its value.
  2) The government should uphold and enforce contracts between parties as detailed in the constitution.
  3) Get the heck out of the way from that point on.

  Any steps towards those goals would be positive steps towards restoring the republic.

  Published: November 17, 2008 4:56 PM

• Stanley Pinchak

  StatusQuoJoe,
  Lew brings up the point that governments are inherently expansionary. Hoppe and others suggest that this stems from the fact that the state is the ultimate arbitrator of disputes within its territory, including those disputes where the state, itself, is a party. This suggests an inherent bias towards the actions of the state being held superior to the actions of the individual (i.e. that redress is not attainable). To reverse this situation is truly revolutionary (even if peacefully attained), but if replaced with another territorial monopolist (even of minarchist proportions), the same result is inevitable. No matter how diligent the initial revolutionaries and their immediate successors, it is not long before the inherent bias towards aggrandizement of the state results in its enlargement and the filling of its offices with demagogues. I fear that Mises fell into the middle of the road trap that he exposed so eloquently when he justified the state on utilitarian grounds. I don't see how the state can help but become enlarged (in scope and size) and more socialist as the zeal of the patriots and revolutionaries wanes, replaced by the increasing masses of tax consumers.

  With all of the bias against reduction of the state and the empirical evidence in confirmation of Higgs' ratchet phenomenon, I don't think that working within the paradigm of the state, that the state can be reduced. Any reduction must come from without of the state, imposed upon it. In order for the real revolution (abolishment of the state) to succeed it must not fight the majority of the populace. It must already have their (at least tacit) consent as legitimate. Even the idea of panarchy and secessionist movements can only succeed when the majority of the larger state accepts this new arrangement. The libertarians' goal then must be winning hearts and minds, counteracting the 12 years of statist brainwashing and constant streams of propaganda spewing forth from the corporatist media.

  Published: November 17, 2008 6:10 PM

• Oil Shock

  I don't totally agree with this article. The $586 billion, is presumably coming out from the 1.6 trillion in reserves that the chinese government is hoarding. So in that sense, no new resources will be confiscated from the private sector.

  It would have been a lot better if the Chinese goverment, through it's currency pegging tactics, didn't accumulate all those reserves. Now that the politbureau has the reserves, it some how has to be unloaded. The best way would be to give a tax break to the chinese citizens and corportations.

  As for the stimulus programs planned by the American politbureau, it all will have to come from the private sector: borrowing, printing, or taxing.

  Published: November 17, 2008 6:37 PM

• Bruce Koerber

  "No government is liberal by nature, said Ludwig von Mises."

  That is why it is so difficult for us to imagine classical liberal societies in a classical liberalism civilization! It has never been seen before except in theory. Even then, the theory is continually developing.

  First of all, classical liberalism is real and it is based on subjectivism so it is perfectly compatible with human action.

  Second, theoretical discoveries often (and inevitably) enter into the realm of everyday usage when resources, technology, and/or receptivity make it imminent.

  Published: November 17, 2008 6:48 PM

• Octobox

  I agree with Lew on all points save one.

  The Private Market cannot be trusted with our vast Naval hardware -- which modern day billionair or corporatist entity who has been seeking gov't subsidies for decades possible with the most powerful artillary imagineable?

  I'm a Minarchist with strong Rothbardian leanings (as I understand them).

  A small central gov't to oversee the Navy (no more than 3% sales tax to accomplish that - maybe even less). This gov't would have no regulatory powers in the market and cannot raise taxes -- They would be a Meritocracy, serve only one term, and would be paid based on Innovation - Cost Reduction or Value Added Incentives. That completely eliminates the coercive power they'd have.

  If I had my way State Gov'ts would only have two roles: 1) Oversee Murder and Kidnapping investigation as this would be an incredible expense for anyone individual and 2) Run the State Air and Army Guard. This might cost 1% sales tax (more in some states).

  I could see everything else completely privatized.

  Octo

  Published: November 17, 2008 7:57 PM

• Terry

  Fundamalist: "However, technically the Chinese system is not capitalist. Capitalism requires the rule of law and the institutions to support it, such as honest judges and police. China does not have those institutions. Expatriate Chinese who invested in China understood that. To protect their property, they had to resort to bribing important officials in various ways and staffing key positions with relatives. Of course, that's how they had to operate in the rest of SE Asia, too."

  I have often thought about writing an article about the free market aspects of bribery, but I know too little about organic (common?) law vs. state imposed law. I am not convinced that state imposed "rule of law" is an ideal solution. It is not only overseas Chinese who have prospered through bribery/state entrepreneurship, but local Chinese entrepreneurs as well. Foreign companies enter this market with a distinct disadvantage as they actually believe (and are held out as an example under strict scrutiny) in being compliant with the law which renders them unable to compete pricing wise with local firms who use "ahem" more traditional methods of non-compliance. China has some of the best laws in the world on its books taking the best from studies of other countries, but you are right, enforcement is another matter and with a one party state totally subject to political pressures.

  Bribery and other means are therefore the actions of free agents looking for competitive advantage in a market (a necessary evil) but one that makes this market so incredibly free-wheeling and energetic in nature and such a fascinating place to live.

  Greg, I totally agree with you on the plastic film industry and can bring up other examples of industries in China that 'overproduce' (to wit, the steel industry here). Poor business decisions, but not necessarily a result of central state planning. In fact the central govt. has been trying unsuccessfully to close "me too" steel plants here to reduce capacity and improve margins.

  The problem in China is often one of lack of innovation and cut-throat competition that results from everyone and his auntie trying to copy a successful business. This in a natural market situation will inevitably result in some business's failing as they should, but this is also where government (esp. local govt) is most tempted to butt in and create disruptions.

  Published: November 18, 2008 3:53 AM

• Gil

  If the alternative to government is 'self-rule' whereby the individual is 'sovereign' would be someone in their own ship in international waters on the verge of being attacked by pirates be a good test of what it really means to be sovereign landowner rather than a ho-hum landholder. Bad news - it's no holds barred. Good news - you can defend your ship any way you see fit in kind.

  Or imagine a future where government is disbanded in a way that homeowners/landholders become the new 'sovereign' landowners. It'd be interesting to wonder if people would be invaded by roamin gangs and wonder if one landowner was attacked would fellow landowners pitch in and help or get the urge to pretend nothing had happened.

  Maybe government arises from safety in numbers. Better to be a member of a clan whereby an attack on one member brings the wrath of the rest.

  On the other hand, maybe governments can arise peacefully from incompetent landowners losing their land and end up selling it to successful landowners for cents on the dollar in a way that society goes from everyone being a landowner in a small way to renting land from well-established landowners. Maybe local landowners would share the same customs and agree to cartelise in a way as to create a private federation, if you will, with shared rules and regulation on tenants. I have postulated before that HOAs show a possible primordial stage of peaceful transition of private property owners morphing into what amounts to a government. Since it is said the Protestant Ethic creates the most wealth over time such conservative religious private federations might emerge from the disbandment of government (presuming gang warfare doesn't).

  Published: November 18, 2008 6:20 AM

• Francis Cahill

  There's only one way to fundamentally change the situation: separate money and the state. How is this done? Start private monetary systems. Once in place, local or community currency systems will reveal the fundamental mistake in our thinking that has lead to this oil/water mix of governments publishing money. This mistake--that money stores value. Money is an accounting system; value always has and always will derive from the products and services you and I produce.

  Published: November 19, 2008 2:55 PM