Tag: economics

A strong step forward

This 14-point corporate tax cut really is a big deal and a massive win for the God-Emperor:

Telecom giant AT&T was quick to respond to news of U.S. tax reform, announcing it would give some employees bonuses once the legislation is signed into law.

AT&T said in a press release Wednesday that it would give more than 200,000 of its U.S. workers who are union members a special bonus of $1,000. The company also increased its capital expenditures budget by $1 billion in the U.S.

“Congress, working closely with the President, took a monumental step to bring taxes paid by U.S. businesses in line with the rest of the industrialized world,” CEO Randall Stephenson said in a statement. “This tax reform will drive economic growth and create good-paying jobs. In fact, we will increase our U.S. investment and pay a special bonus to our U.S. employees.”

AT&T had previously said that it would invest $1 billion in the U.S. if “competitive” tax reform legislation was passed, and has said that the tax reform framework could increase demand for AT&T’s services.

The House of Representatives on Wednesday sent tax reform legislation to President Donald Trump, who is expected to sign it soon. Trump lauded the bill, calling it “an extraordinary victory for American families, workers, and businesses.”

The new tax law will drop the corporate tax rate to 21 percent from the current 35 percent and includes other measures that Republicans say will spur businesses to invest domestically. AT&T’s effective tax rate was 32.7 percent in 2016, according to its annual report.

High corporate taxes are brutal because they cost so many people beyond the intended targets; it’s like eating the seed corn. It would be nice to see the God-Emperor follow this up by offering a carrot-and-stick solution to corporations holding Eurodollars overseas, then getting rid of the ludicrous and unconstitutional FATCA.

A masterpiece in progress

Professor Steve Keen, aka The Greatest Living Economist, has graciously permitted me to quote some of the very first words from his Principles of Political Economy, which Castalia House will be publishing sometime in the next five years:

The True Father of Economics

Labor without Energy is a Corpse;
Capital without Energy is a Statue

Economics went astray from the very first sentence of Adam Smith’s Wealth of Nations in 1776:

“The annual labour of every nation”, Smith asserted, “is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always, either in the immediate produce of that labour, or in what is purchased with that produce from other nations.”

This paragraph mimicked the structure, and even the cadence (though not the brevity), of the opening sentence of Richard Cantillon’s 1730 treatise Essai sur la Nature du Commerce en Général (which Smith read). However, Smith made one crucial substitution: he asserted that “Labor … is the fund” from which our wealth springs, whereas Cantillon asserted that it was Land:

“Land”, Cantillon began, “is the source or matter from which all wealth is drawn; man’s labor provides the form for its production, and wealth in itself is nothing but the food, conveniences, and pleasures of life.”

Both these assertions are strictly false. The true source of the wealth that humanity has generated from production is neither Labor nor Land, but the Energy that humanity’s production systems harness and turn into useful work (now known as “Exergy”). However, Smith’s assertion is irredeemably false, whereas Cantillon’s merely needs generalization to make it consistent with the fundamental laws of the universe known as the Laws of Thermodynamics.

These Laws are still poorly known by economists, which in part explains why economic theory has managed to be in conflict with them for so long. Illustrating why this is so, and why it is crucial, will take time and effort on your part to understand them (if you do not already). But the fact that no theory that contradicts them can be taken seriously was stated eloquently by the physicist Arthur Eddington in his 1928 book for lay readers The Nature of the Physical World:

The law that entropy always increases—the second law of thermodynamics—holds, I think, the supreme position among the laws of Nature. If someone points out to you that your pet theory of the universe is in disagreement with Maxwell’s equations—then so much the worse for Maxwell’s equations. If it is found to be contradicted by observations—well, these experimentalists do bungle things sometimes. But if your theory is found to be against the second law of thermodynamics I can give you no hope; there is nothing for it but to collapse in deepest humiliation.

On this undeniable basis, the only pre-2016 economic theory of production which does not have to “collapse in deepest humiliation” is that of Richard Cantillon and the School to which he belonged, the Physiocrats.

That’s right. Steve Keen is taking economics all the way back to Cantillon and building upon that as a much stronger foundation! Now do you understand why I am so enthusiastic about a book that isn’t even written yet? This is exactly the sort of book that Castalia House was founded to publish.

Deal with it, commies

Lefties are deeply upset to discover that their labor is of so little value that they can be literally replaced for nothing:

#LAWeekly fired their staff in favor of unpaid “contributors.” If you are an aspiring writer, and you submit to them, you are insuring it becomes impossible to make a living in this field.
– Jennifer Wright‏

As with music, just because you love something so much that you’d do it for free, doesn’t mean that you don’t deserve to be paid for your hard work that makes other people money.
– Zack Stentz

See, the problem is supply and demand. The labor theory of value is false. There is no intrinsic value in one’s labor that merits automatic compensation. In cases such as this, the value of the channel greatly exceeds the value of the indistinguishable content flowing through it.

We have firsthand experience of this. We have a perfectly functioning store that sells – or as is increasingly the case, sold – ebooks that are superior to the ebooks that Amazon sells. Unlike Amazon, we don’t DRM the epubs sold there, whereas Amazon converts exactly the same epub into a proprietary format that can only be read on a Kindle device or application. The price is exactly the same.

And yet, we sell literally 100 times more books through Amazon because that is how people almost uniformly prefer to buy them. In fact, we have learned that we even do better giving Amazon exclusive distribution rights and permitting them to give books away to its KU subscribers and then compensate us for those who actually read them at about one-half the page rate that would be equivalent to a book sale than we do selling our books on our own store. More than three times better.

Of course, this preference for the dominant channel will sooner or later lead to the usual monopoly-related problems, which is why we will continue to maintain our digital storefront. But as long as the channel is more valuable than the content, content providers will be at risk by those willing to provide cheaper, or even free, substitutes. And the more that content is readily available, the less one is going to be compensated for it.

Steve Keen may have disproved the inescapability of the Law of Supply & Demand, but that doesn’t mean it is never relevant, only that it may not always be applicable to a given situation. But in this particular case, there is clearly more demand for free labor than there is for expensive labor. The writers and musicians affected would be wise to contemplate why their work is so easily replaced by free substitutes; the irony is that the free music available today is often superior in quality to that for which one must pay up front.

Case in point: Erock’s instrumental version of Let It Go is a joyful thing of beauty that surpasses Leo Moracchioli’s very good metal cover, and both of them are far more interesting than the Disney-published version available in the stores. I don’t know that I’ve ever seen a better combination of technical pyrotechnics with staying completely within the melodic framework of a song. Note to aspiring young guitarists: if you want to make an unforgettable impression on the girls in your town, learn to play this.

Mailvox: back for more

It never ceases to amaze me how these idiots read a single paragraph I have written on a subject and then assume that it comprises the totality of my thoughts on the matter. Yesterday’s emailer, Donny, decides to come back for more

I see that you have published my email to you and John.  Well, that’s fine.  I wish I had clarified that my public service at a community college was in addition to my regular job (commodities trader) and those eleven years ended twenty years ago.  You and some of your commenters had fun with that.

To the matter at hand, John’s speech at Mencken asked:  “I’d like to see a good logical proof of the proposition that free trade requires free movement of peoples.”

Your November 9th post (which I discovered from a link in John’s December 1st posting) responded in two paragraphs.  In the first you write “free trade requires the free movement of peoples.”  No, it doesn’t, except in a pedantic “by definition” sense.  As commenter Austin Ballast said, “You still have blinders on VD. Free trade in goods does not require free trade in people, assuming people are not the goods.”

Without regard to minutia such as one commenter’s (SAK) concern for a foreign nation making the chips in our missiles, the big picture on trade is that it is beneficial to both parties trading.  That big picture remains even if we tighten against visa over-stayers, chain-migration and Rio Grande swimmers.

In your second paragraph you speak of “maximum efficiencies theoretically provided” and “maximum growth potential” but less than maximum is still mutually beneficial in the big picture sense.  I made these points in my email to John which I copied to you as a matter of courtesy, since the two of you are so deferential to each other.

In response to my email, you ask, “what two points is the clueless professor failing to take into account here?” as if simply asking makes your points.  Again, Austin Ballast, “VD, you treat this idea more as an axiom than something you have really proven. That is a basic flaw. It may seem obvious to you, but that does not make it true.”

Then you ask, “where is the evidence that free trade in goods without free trade in labor is even materially possible” which is facile.  I agree that visa over-stayers, chain-migration and Rio Grande swimmers are a challenge, but why does that prevent the trade of a container of computers for Africa in exchange for a sum of gold?

Your bullying manner may appeal to the members of your audience with a sadistic bent but I am not distracted from the fact that you have been twice unresponsive to the challenge John posed:  “I’d like to see a good logical proof of the proposition that free trade requires free movement of peoples.”

It’s not so much that I am sadistic as these stubborn ignoramuses tend to be masochistic. Donny isn’t distracted from the fact that I’m repeatedly unresponsive to demands to provide a good logical proof of the proposition that water is wet. Just as being wet is an attribute of water, the free movement of labor is an intrinsic attribute of free trade. What Donny complains is a “pedantic ‘by definition’ sense” is literally what free trade is. Every argument, every economic law, that supports the free trade in x also supports free trade in y. All of them. No exceptions.

Austin Ballast’s comment is particularly stupid. He is projecting the blinders he mentions, because his statement is simply irrelevant. He might as well have said “free trade in cars does not require free trade in computers.” But it does, for the obvious reason that if you are engaged in trading cars without restriction but restricting trade in computers, you are not engaged in free trade. You are simply doing what nearly all states have done for all of human history in restricting the trade in some goods while permitting it in others.

What Donny and some other advocates of “free trade in goods, but not capital, services, or labor” want is to be able to draw the line in a different place than other trade protectionists, but dishonestly avail themselves of the rhetoric of free trade and the ability to appeal emotionally to the language of freedom and liberty.

But as he has asked for an actual proof, I will provide him with a logically unassailable one, one with which he will quibble, but in vain. After all, what can be easier than to prove that water is wet?

  1. The sole justification for distinguishing in economic theory between domestic and foreign trade is to be found in the fact that in the case of the former there is free mobility of capital and labor, whereas this is not true with regards to the commerce between nations.
  2. The basis for restricting the free trade in goods between nations is an invisible judicial line that separates one nation from the other.
  3. The same logic and ethics apply to people who want to trade on both sides of the invisible judicial line known as a national border, which renders this basis for restricting the free trade in goods between nations both false and illegitimate.
  4. Because the basis for restricting the free trade in goods between nations is false and illegitimate, it cannot logically or ethically restrict that free trade in goods.
  5. This invisible judicial line that cannot logically or ethically restrict the free trade in goods between nations does not magically materialize when labor and capital cross it.
  6. Therefore, there is no legitimate justification for distinguishing between domestic and foreign trade in economic theory.
  7. Therefore, any logical, ethical, or theoretical argument for the free trade in goods encompasses the free trade in capital and labor as well.

Those who are sufficiently well-educated in economics will recognize the sources of at least three of those points as well as their impeccably free trade credentials. Unlike Donny and Austin, I do not attack strawmen of my own imagination, but rather, the actual arguments made by the strongest proponents.

What both of them failed to grasp is that simply mentioning the fact that there are beneficial aspects to free trade, limited or not, does not mean that free trade is net beneficial, even if it is limited only to goods or a given set of goods. I do not deny that free trade benefits certain parties, the point is that it also harms other parties whose costs are never factored into the equation. The point that I was making  when I referred to the maximum efficiencies provided is that the argument for economic efficiency to which free traders so often appeal – free trade is good for the economy – necessarily and intrinsically includes the free movement of labor and capital. If one is going to appeal to the good of the economy as a whole without considering the costs to various elements of the economy, then it is every bit as reasonable to argue for the free movement of labor combined with restricting the movement of goods as it is to argue the reverse.

Indeed, if we are to use GDP as our primary metric as so many free trade advocates do, one can make a considerably stronger case for free trade in labor combined with a restricted trade in goods than one can for the reverse.

Fair enough

Derb highlights a line of demarcation:

Since I have no clue what the Alt Right perspective is, I went for inspiration to someone who believes he does know. This is the blogger Vox Day, who last year published a 16-point Alt Right Manifesto. In my address to the Mencken Club I read off Vox Day’s points and passed comment on each one.

As a format for a talk, this has somewhat of cheating about it; but spirits were so high, nobody minded, and my talk went over well with the audience.

Not so much with Vox Day, who picked nits with my comments on his website a few days later. That’s okay, and all in good argumentative combat. I respect Vox Day as an ally in the Cultural Counterrevolution, as well as a writer of wit and courage. We disagree about many things, but our disagreements are cordial.

Our deepest disagreement is anyway just temperamental. In the language of We Are Doomed, Chapter 7: he’s a religionist, I’m a biologian. He thinks the universe cares about the human race, and even about individual persons; I see no evidence of either thing. He thinks we are a unique creation, kissed with magic; I think we’re smart chimps.

There’s no use arguing about this. The difference is, as I said, temperamental, most likely genetic. It shouldn’t stop us liking and respecting each other, and acknowledging that both personality types have a part to play in the Cultural Counterrevolution.

I could not agree more with the general sentiment. I like and respect Derb, who remains one of my favorite Dissident Right writers as well as the author of the only math book I have ever really enjoyed reading. I am no more troubled by the fact that we disagree on this, that, and the other thing than I am by the fact that my sexual preferences happen to differ considerably from my friend Milo’s.

That being said, contra Derb, I do think it can be useful to argue about these things, even when our opposing positions are intractable. I do see real value in intellectual opponents who can disagree vehemently and yet still get along on a personal level. My economic arguments have been honed by opponents like Nate and Dr. James Miller, as well as the guy who challenged me to review Henry Hazlitt’s arguments.

Not so much, however, by this next fellow. As is so often the case when someone thinks he has caught me out in a mistake, he has only demonstrated his inability to understand what I have written or the conclusions that naturally follow. For some reason, this gentlemen elected to CC me in his email to John Derbyshire, in which he claimed that I had inadvertently made the opposite of the case I was making without anyone even noticing. Except himself, of course.

One would think that would have been his first clue…Note that this is written by a community college professor, demonstrating once more that the self-professed intellectual elite is actually composed of midwits who overestimate their own capabilities and don’t understand their own subjects very well:

John,

Having embarrassed myself in our emails and at our single meeting (AmRen15) I had been resolved to communicate with you less, but you suffer fools gladly so I venture again with this.

I am not an “economic ignoramus” having taught micro- and macro- for eleven years (community college, adjunct faculty – more public service than income source) but I have long had the exact same question as the one you posed:  Why does free trade require free movement of peoples? I note from the Vox Day response that it does not, though he would be surprised by that reading.

He wrote two paragraphs.  In the first he wrote “by definition” and so creates a tautology:  Free trade requires that trade be free.  More specifically, an engineer who travels to install a piece of equipment and the returns home is not a migrant.  There is nothing about the importation of automobiles (or any other merchandise) that requires the importation of people.  Call it the difference between free trade and absolutely free trade.

To wit:  If Americans drink Mexican beer, it is because we import the beer.  The beer has cost components that are relevant to the manufacturer in Mexico but irrelevant to the gringo imbiber, such as direct materials, direct labor and overhead.  (I am a CPA too.)  The Budweiser employee in Saint Louis may see his hours cut back due to the good efforts of the Dos Equis employee south of the border, but no economist without an agenda would call that “importing labor.”

In the case of “absolutely free trade” where factors of production can cross borders as freely as merchandise, theoretical economics predicts “factor price equalization” and we would expect brewer employees both north and south of the border to be paid the same wage in equilibrium.  In his second paragraph, he writes of “maximum efficiencies” and “maximum growth potential” – very theoretical stuff.

But he gives the game away where he writes “any failure to restrict this travel will necessarily create inefficiencies” (though he of course meant “any travel restriction will necessarily create inefficiencies”) which concedes a key point:  Free trade in merchandise without free trade in all factors of production (e.g. labor) is still beneficial to both parties, even if not maximally.

Imagine a world where ethnocontinents are stable but comparative advantages differ.  Africa could send gold to North America in exchange for computers and both would benefit.  If there are no North American gold miners, we can live with that small inefficiency reflected in a slightly higher price of gold.  We could have all the gold be want simply by importing it.  And if the Africans use Dell computers to enslave and murder each other, that has no weight in calculating gains from trade.

Trump is wrong on trade; it is not a zero-sum game.  As I had preached for eleven years, “trade fosters peace” because both parties develop an interest in a friendly on-going relationship.  However, trade (excepting “absolutely free trade” comprehending factor mobility) does not demand emigration/immigration.  Indeed, a person relocating internationally is not an act of “trade.”  Build the wall, yes, but run railroads through it.

There is no game to be given away. I conceded absolutely nothing. Let’s look closely at this “key point”.

But he gives the game away where he writes “any failure to restrict this travel will necessarily create inefficiencies” (though he of course meant “any travel restriction will necessarily create inefficiencies”) which concedes a key point:  Free trade in merchandise without free trade in all factors of production (e.g. labor) is still beneficial to both parties, even if not maximally. 

Now, what two points is the clueless professor failing to take into account here? And beyond that, speaking of “very theoretical stuff”, where is the evidence that free trade in goods without free trade in labor is even materially possible in a world where inexpensive global travel is available to the average laborer? I observe that the free traders have it entirely backwards now, as their theory does not even begin to account for the fact that labor can now move more easily, more inexpensively, and more freely than goods can.

Lower IQ, declining productivity

More of the unseen benefits of mass immigration altering US demographics:

Evidence from the American Time Use Survey 2003-12 suggests the existence of small but statistically significant racial/ethnic differences in time spent not working at the workplace. Minorities, especially men, spend a greater fraction of their workdays not working than do white non-Hispanics. These differences are robust to the inclusion of large numbers of demographic, industry, occupation, time and geographic controls. They do not vary by union status, public-private sector attachment, pay method or age; nor do they arise from the effects of equal-employment enforcement or geographic differences in racial/ethnic representation. The findings imply that measures of the adjusted wage disadvantages of minority employees are overstated by about 10 percent.

White men are more productive on average. This isn’t news to anyone who actually works in the labor force or is familiar with national productivity statistics. The good news is that at least it isn’t racist. White women are less productive too.

But it is one more piece of evidence showing that immigration is NOT good for the economy. It is, however, good for white contractors.

Subway-repair contracts had to be issued and work performed as emergency repairs to every leg of the DC Metro train system this summer. Populated 92{75555d9e07a24e4b9ce698107dbbd309d5544f8e8057bab8f219509a7e001883} Black, every maintenance job up to the most specialized engineering positions are held by Blacks, who cannot perform said work. Like women in the Navy, they hold the job, knock down the pay and benefits, but someone else has to do the work under contract.

Steve Keen, sell-out

Professor Steve Keen, possibly the greatest economist of our time and Castalia House author-to-be, admits that he is a sold-out member of no less than FOUR grand conspiracies:

How I sold out to the Putin-Soros-Murdoch conspiracy to destroy Western civilization

I was delighted to find myself in the Top Ten (alright; top 15) of the European Values list of 2,326 “Useful Idiots” appearing regularly on RT shows, and thus legitimizing Vladimir Putin’s attempt to destroy Western civilization as we know it.
Why delighted? Because it completes the set of conspiracies to which I can now be accused of belonging. They include:

• The Putin Conspiracy, since I am regularly interviewed on Russia Today (and even worse, I now get paid to write for RT!);

• The Soros Conspiracy, since my research, has been funded by the Institute for New Economic Thinking (INET) which he established;

• The Murdoch Conspiracy, since I appear every week on Sky News Australia with Carson Scott, and I used to get paid by News Ltd to write a weekly column; and

• The Alt-Right Conspiracy, since I’ve signed a book contract with Vox Day’s publishing firm Castalia House.

I can confirm the latter. We have the privilege to be publishing what Steve describes as his “magnum opus”, a work that I have reason to believe may prove not only significant, but utterly revolutionary. As for the others, I fear we shall have to settle for taking his word on them. Speaking of economics, it might interest you to hear that I am writing a piece addressing free trade and nationalism for a first-rate anthology that will appear next year from another publisher.

I will be doing a Voxiversity variant of it for our third video, after #001 Immigration and War and #002 Comics and Culture War.

But back to Steve:

So not only am I a “useful idiot,” I’m a useful idiot for four contradictory conspiracies. Does that make me a double-double agent?

No, it makes me someone who’s quadruple pissed off with people who attempt to understand the world from the perspective of conspiracy theories in the first place. I don’t deny the existence of conspiracies: in fact, far from it, because they’re everywhere. What I do deny is the implicit assumption that the conspirators understand the system they’re attempting to manipulate.

For example, I’ve heard plenty of conspiracy theorists assert that the 2008 financial crisis was caused by the Federal Reserve/George Soros (Hi George!)/Hedge Funds/Academic-Economists-Who-Peddle-The-Efficient-Markets-Hypothesis, and “they” profited from it.

This implies “they” knew what “they” were doing. Pardon me, but I’ve met many of these protagonists—and in the case of academic economists, I’ve worked with them for 30 years. “They” don’t have a clue (except George). Even those that were actively conspiring—like many hedge funds during the subprime bubble were doing so on the basis of utterly deluded theories about how the system they were trying to game actually worked. Where apparent conspiracies did work, like Soros’s punt against the British Pound decades ago, they did so because a CSP (Clever Sinister Person) bet against the conventional wisdom of others who thought they understood the system (and did not), rather than because the CSP set up the whole thing in the first place.

I used to work out with a guy running a very large global corporation. And by large, I mean annual turnover measured in the billions. He disabused me of any notion that the central bankers were smart; after returning from one meeting with the Bank of England’s Court of Directors, he said something about hoping the directors were somebody’s puppets, because if those bozos were actually running anything, the global economy was doomed.

Another case against free trade

Steve Keen, arguably the most important economist alive today, turns his formidable guns on David Ricardo, specialization, and free trade.

David Ricardo extended Smith’s vision of specialization within a given industry to specialization between industries and nations, and made the argument that two countries can benefit from free trade even if one country is absolutely less competitive in both industries than the other. In his hypothetical example, Portugal could produce both cloth and wine with less labor than England. If England specialized at the industry it was comparatively better at (cloth, obviously) and Portugal specialized in wine, then the total output of both industries would rise.

This concept of the advantages of specialization became the core insight of economics, and it continues to be ingrained in and promoted by economists today. Lionel Robbins’s proposition that “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”3 is the dominant definition of economics. It implicitly emphasizes the importance of specialization, so that those “scarce means which have alternative uses” can be efficiently allocated to achieve the maximum level of output.

This belief in the advantages of specialization lies behind the incredulity with which economists have reacted to the rise of populist politicians like Donald Trump in the United States, as well as the United Kingdom’s vote for Brexit. They have, at their most self-righteous, blamed the rise of anti-globalization sentiment on the public’s irrational failure to appreciate the net benefits of trade. Or, more commonly, they have conceded that perhaps the electorate has reacted negatively because the gains from trade have not been shared fairly.

There is, however, another explanation for why anti–free trade sentiment has risen: the gains from specialization at the national level were not there to share in the first place, for sound empirical reasons that were ignored in Ricardo’s example. That ignorance has been ingrained in economics since then, as Robbins’s definition—dominant and superficially persuasive, but fundamentally limited—gave economists a starting point from which they could not properly perceive either the advantages or the costs of globalization.

Deus Sine Machina

Robbins’s definition codifies arguably the most egregious oversight in economic theory. It omits a realistic treatment of resources that do not “have alternative uses,” by which the great wealth of modern society has been created: machines. Today, with 3-D printers, increasingly adaptable robotics, and the beginnings of AI, we can contemplate the eventual creation of a single machine that could be deployed across a range of industries. Yet for the foreseeable future, most machines are tailored for specific tasks in specific industries and are useless in any others, as was also the case in the distant past when the theory of comparative advantage was invented. Smith acknowledged the need for specialized machinery in pin production (and attributed the development of that specialized machinery to the division of labor itself, though it can just as easily be argued that the specialization of machinery is what gave rise to the specialization of labor):

A workman not educated to this business (which the division of labour has rendered a distinct trade), nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty.

Ricardo also acknowledged the need for machinery. But in considering not one industry but two, Ricardo assumed a crucial and false equivalence between physical machinery and monetary capital that has bedeviled economics ever since: he treated the specialized machinery in different industries as if it were equally as liquid (and so could be as easily repurposed) as the money with which it had been purchased.

The gain from trade arose, Ricardo asserted, because of different production technologies in different countries (whether that was due to different labor skills, different weather, or different machinery). These differences could not apply within one country, but did apply between them, so that “the produce of the labour of 100 Englishmen may be given for the produce of the labour of 80 Portuguese, 60 Russians, or 120 East Indians.” The reason for this difference between domestic and international trade was, he claimed, because capital moved easily within a country, whereas it was effectively immobile between them.

This is a confusion of monetary capital (which Ricardo, as a stockbroker by trade, knew intimately) with the physical machinery in factories (about which he knew very little). Yes, monetary capital moves easily in search of a profit—today, even internationally. But machinery is specific to each industry, and the crucial machines in one industry cannot simply “move” to another without loss of productivity.

The archetypal machines for cloth and wine manufacturing in Ricardo’s time included the spinning jenny and the wine press. It is stating the obvious that one cannot be turned into the other, but stating the obvious is necessary, because the easy conversion of one into the other was assumed by Ricardo, and has been assumed ever since by mainstream economic theory.

In fact, the relative mobility which Ricardo assumed for his ubiquitous concept of “capital” is the opposite of what applies to machinery. Machinery designed for one industry simply cannot move to any other, even in the same country; but machinery in one industry can (and frequently is) shipped between countries.

This is a conceptually devastating critique of comparative advantage, which, in combination with my labor mobility argument, should suffice to convince even the most enthusiastic free trader that free trade is intrinsically and inherently disadvantageous in certain specific circumstances, many of which happen to be applicable to the USA today.

Free trade is not always and inherently inimical. The important point is that, contra Ricardo and his mindless adherents, it is not always and inherently beneficial either.

The economic socialism of Nazi Germany

These observations – they can really only be considered “arguments” by the ignorant – are not new, but date back to the 1940 publication of Human Action, when Ludwig von Mises not only acknowledged the differences between Russian socialism and German socialism, both of which predated Hitler and the Nazi Party, but explicates them with his customary attention to relevant detail.
It’s particularly informative in light of the fact that Mises identified German socialism with Hindenberg, not Hitler. And it’s somewhat remarkable that the defenders of the false and ahistorical notion that the National Socialists were of the Right attempt to dismiss the whole subject as mere “economics”, when economics is merely the more scientific-sounding title for “political economy”, and the entire foundation for all socialisms is, and has always been, economic in nature.

There are two patterns for the realization of socialism.
The first pattern (we may call it the Lenin or the Russian pattern) is purely bureaucratic. All plants, shops, and farms are formally nationalized (verstaatlicht); they are departments of the government operated by civil servants. Every unit of the apparatus of production stands in the same relation to the superior central organization as does a local post office to the office of the postmaster general.
The second pattern (we may call it the Hindenburg or German pattern) nominally and seemingly preserves private ownership of the means of production and keeps the appearance of ordinary markets, prices, wages, and interest rates. There are, however, no longer entrepreneurs, but only shop managers (Betriebsführer in the terminology of the Nazi legislation). These shop managers are seemingly instrumental in the conduct of the enterprises entrusted to them; they buy and sell, hire and discharge workers and remunerate their services, contract debts and pay interest and amortization. But in all their activities they are bound to obey unconditionally the orders issued by the government’s supreme office of production management.
This office (The Reichswirtschaftsministerium in Nazi Germany) tells the shop managers what and how to produce, at what prices and from whom to buy, at what prices and to whom to sell. It assigns every worker to his job and fixes his wages. It decrees to whom and on what terms the capitalists must entrust their funds. Market exchange is merely a sham. All the wages, prices, and interest rates are fixed by the government; they are wages, prices, and interest rates in appearance only; in fact they are merely quantitative terms in the government’s orders determining each citizen’s job, income, consumption, and standard of living. The government directs all production activities. The shop managers are subject to the government, not the consumers’ demand and the market’s price structure. This is socialism under the outward guise of the terminology of capitalism. Some labels of the capitalistic market economy are retained, but they signify something entirely different from what they mean in the market economy.

Note that the Reichswirtschaftsministerium, originally Reichswirtschaftsamt, was the German Government’s Ministry of National Economy, and was established in 1917, two years prior to the creation of the German Worker’s Party, the predecessor of the National Socialist German Worker’s Party. The ministry was abolished in 1945.
What will likely strike the reader as ominous about this is the fact that the digitalization and bureaucratization of American corporatism is increasingly reminiscent of this German pattern of socialism that was adopted by the National Socialists in lieu of the Russian model. It’s also worth noting that just as the German political battle of the 1930s was fought between the Russian and German socialisms, the Chinese civil war of the 1940s was fought between Chinese and German socialisms. National socialism was a different socialism than the international socialism of the Marxists, but it was a competing socialism that was neither conceived nor defined by Adolf Hitler.
But since Mises is seldom read by anyone today, being much too difficult for the average individual, his observations are often forgotten. Which, no doubt, is why George Reisman attempted to spell the concept out more slowly for the benefit of those incapable of deciphering Mises’s words 12 years ago.

My purpose today is to make just two main points: (1) To show why Nazi Germany was a socialist state, not a capitalist one. And (2) to show why socialism, understood as an economic system based on government ownership of the means of production, positively requires a totalitarian dictatorship.
The identification of Nazi Germany as a socialist state was one of the many great contributions of Ludwig von Mises.
When one remembers that the word “Nazi” was an abbreviation for “der Nationalsozialistische Deutsche Arbeiters Partei — in English translation: the National Socialist German Workers’ Party — Mises’s identification might not appear all that noteworthy. For what should one expect the economic system of a country ruled by a party with “socialist” in its name to be but socialism?
Nevertheless, apart from Mises and his readers, practically no one thinks of Nazi Germany as a socialist state. It is far more common to believe that it represented a form of capitalism, which is what the Communists and all other Marxists have claimed….
De facto government ownership of the means of production, as Mises termed it, was logically implied by such fundamental collectivist principles embraced by the Nazis as that the common good comes before the private good and the individual exists as a means to the ends of the State. If the individual is a means to the ends of the State, so too, of course, is his property. Just as he is owned by the State, his property is also owned by the State.
But what specifically established de facto socialism in Nazi Germany was the introduction of price and wage controls in 1936. These were imposed in response to the inflation of the money supply carried out by the regime from the time of its coming to power in early 1933. The Nazi regime inflated the money supply as the means of financing the vast increase in government spending required by its programs of public works, subsidies, and rearmament. The price and wage controls were imposed in response to the rise in prices that began to result from the inflation.
The effect of the combination of inflation and price and wage controls is shortages, that is, a situation in which the quantities of goods people attempt to buy exceed the quantities available for sale.
Shortages, in turn, result in economic chaos. It’s not only that consumers who show up in stores early in the day are in a position to buy up all the stocks of goods and leave customers who arrive later, with nothing — a situation to which governments typically respond by imposing rationing. Shortages result in chaos throughout the economic system. They introduce randomness in the distribution of supplies between geographical areas, in the allocation of a factor of production among its different products, in the allocation of labor and capital among the different branches of the economic system.
In the face of the combination of price controls and shortages, the effect of a decrease in the supply of an item is not, as it would be in a free market, to raise its price and increase its profitability, thereby operating to stop the decrease in supply, or reverse it if it has gone too far. Price control prohibits the rise in price and thus the increase in profitability. At the same time, the shortages caused by price controls prevent increases in supply from reducing price and profitability. When there is a shortage, the effect of an increase in supply is merely a reduction in the severity of the shortage. Only when the shortage is totally eliminated does an increase in supply necessitate a decrease in price and bring about a decrease in profitability.
As a result, the combination of price controls and shortages makes possible random movements of supply without any effect on price and profitability. In this situation, the production of the most trivial and unimportant goods, even pet rocks, can be expanded at the expense of the production of the most urgently needed and important goods, such as life-saving medicines, with no effect on the price or profitability of either good. Price controls would prevent the production of the medicines from becoming more profitable as their supply decreased, while a shortage even of pet rocks prevented their production from becoming less profitable as their supply increased.
As Mises showed, to cope with such unintended effects of its price controls, the government must either abolish the price controls or add further measures, namely, precisely the control over what is produced, in what quantity, by what methods, and to whom it is distributed, which I referred to earlier. The combination of price controls with this further set of controls constitutes the de facto socialization of the economic system. For it means that the government then exercises all of the substantive powers of ownership.
This was the socialism instituted by the Nazis. And Mises calls it socialism on the German or Nazi pattern, in contrast to the more obvious socialism of the Soviets, which he calls socialism on the Russian or Bolshevik pattern.
Of course, socialism does not end the chaos caused by the destruction of the price system. It perpetuates it. And if it is introduced without the prior existence of price controls, its effect is to inaugurate that very chaos. This is because socialism is not actually a positive economic system. It is merely the negation of capitalism and its price system. As such, the essential nature of socialism is one and the same as the economic chaos resulting from the destruction of the price system by price and wage controls. (I want to point out that Bolshevik-style socialism’s imposition of a system of production quotas, with incentives everywhere to exceed the quotas, is a sure formula for universal shortages, just as exist under all around price and wage controls.)
At most, socialism merely changes the direction of the chaos. The government’s control over production may make possible a greater production of some goods of special importance to itself, but it does so only at the expense of wreaking havoc throughout the rest of the economic system. This is because the government has no way of knowing the effects on the rest of the economic system of its securing the production of the goods to which it attaches special importance.
The requirements of enforcing a system of price and wage controls shed major light on the totalitarian nature of socialism — most obviously, of course, on that of the German or Nazi variant of socialism, but also on that of Soviet-style socialism as well.

The only way to raise wages

Is to reduce the supply of labor. American workers can only benefit from the elimination of labor visas, increased limits on immigration, and stepped-up deportation, as evidenced by the response of Maine businesses to a “shortage” of H-2B visas:

Businesses in Bar Harbor, Maine are turning to locals to make up for a shortage of foreign guest workers that normally fill summer jobs in the bustling seaside resort town.

Because the H-2B visa program has already reached its annual quota, Bar Harbor’s hotels, restaurants and shops can’t bring in any more foreign workers for the rest of the busy summer tourist season. Like hundreds of similar coastal resort towns, Bar Harbor has for many years depended on the H-2B visas for temporary workers. The program allows non-agricultural companies to bring in foreign labor if they are unable to find suitable employees domestically.

Now they are coming up with creative ways to attract local labor, reports the Bangor Daily News.

The Bar Harbor Chamber of Commerce will hold a job fair Saturday in an effort to recruit significant numbers of workers from the region. Just about every kind of business in the town is looking for help, says chamber executive director Martha Searchfield.

“All types of businesses — retail, restaurants, the tour boats, all the trips, everything. All types of workers are needed,” she told the Daily News.

The shortage is so acute that companies are sweetening incentives for local workers. Searchfield says some businesses are offering flexible schedules that might appeal to older workers who might be interested in working only a day or two each week. And other companies have gone so far as to offer higher wages to entice locals.

That’s not a problem, that’s an indication of a solution. As long as tens of millions of Americans remain unemployed, there is absolutely zero net benefit to the economy or to American workers from immigration. All immigration accomplishes is to increase income inequality to the advantage of very large US corporations and the financial class that caters to them.

Whenever half-educated midwits talk about the economy and “business profits”, one thing you will note that they NEVER mention is that about one-third of all corporate profits go to the financial industry, which is up from three percent in the 1950s.

In other words, all that this failure to protect American jobs in the name of “free trade” has accomplished is to redistribute income from the working and middle classes to the .01 percent. Of course, there is nothing “laissez faire” about it, it is the direct result of government action. And as we’ve seen, even straight-up communism is better for a nation than this unconscientious corporatism.

AA comments: It’s people taking advantage of high-standards, high-trust society in which to produce and sell their goods, while importing low-standards/low-trust/low-quality laborers to provide their goods.


In other words, it is short-term societal arbitrage, which is the equivalent of strip-mining a society.