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The Political Economy of Nostalgia, Ramon Diaz - Friedrich August von Hayek, Toward Liberty: Essays in Honor of Ludwig von Mises, vol. 2 [1971]

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Toward Liberty: Essays in Honor of Ludwig von Mises on the Occasion of his 90th Birthday, September 29, 1971, vol. 2, ed. F.A. Hayek, Henry Hazlitt, Leonrad R. Read, Gustavo Velasco, and F.A. Harper (Menlo Park: Institute for Humane Studies, 1971).

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The Political Economy of Nostalgia
Ramon Diaz

Travaillons donc a bien penser: voila le principe de la morale.

Pascal

I

Regret is often voiced for the loss to Western civilization of a world-view, prevalent in the Middle Ages, according to which, in the words of R.H. Tawney, human society was “a spiritual organism, not an economic machine”.1/ The steed of self-interest, or of covetousness, or of avarice, all terms that you might apply to it, was held in check, as this sentiment would have it, by the use of moral bridles and ethical fetters. And if it was not quite held in check, as in fact it often was not, an effort was made in that direction “that had in it something of the heroic”.2/ Later the steed was let loose and the results are there for all to see.

Sometimes this sense of loss is coupled with the notion that the West could recapture the world-view in question, if it so wished, and thereby achieve a “moral rebirth”3/ and further that this “re-insertion of the economic world in the moral order”4/ affords the only hope for our civilization to overcome its current predicament. This idea enhances the feelings of regret and then they assume the distinct nostalgic tinge to which the title of this essay refers.

Among those who share this nostalgia, some speak of a system that will transcend capitalism,5/ but few attack private property, including private ownership of the means of production,6/ and their writings contain numerous condemnations of socialism.7/ The “moralizing of economic life” which they propose would imply only slight institutional change;8/ after all, they implicitly argue, there was little production in public hands in the course of the Middle Ages, and certainly no central planning.

We intend to show, against such arguments, that central planning and socialism is precisely where an attempt to restore the mediaeval rule of moral law over economic activity would lead, under contemporary conditions. It will also become manifest, in the course of our demonstration, that some of the principal reasons invoked in favour of the proposal break down completely when extracted from the atmosphere of a closed, stagnant economy with which the system was originally associated.

II

Before that, however, we should try to determine as far as possible what the doctrine in question is and what it implies.

In the first place, it is a theory about what society is; it concerns human activity as it appears when looked at from the outside, as seen by students of society, by social scientists, as we should say to-day. It therefore contains a system of political economy. When held by our contemporaries, it is proper to call it the Political Economy of Nostalgia.

What are its characteristic elements? Let us be reminded that, from the vantage-point in which Nostalgic economists place themselves, society is seen as “a spiritual organism, not an economic machine”. If one stands before a machine, the question naturally comes up - how does it work? On the other hand, if one is instead confronted with a spiritual being, a more pertinent question seems to be - how ought it to behave? These political economists consequently tell us, not what people do while they go about their economic affairs but what they ought to do when so employed; they are concerned, not with the sein, but with the sollen of human action.

To illustrate the difference between the Orthodox and the Nostalgic schools of economic thought, let us take the theory of value as an example. The members of the former school examine exchange transactions under given conditions, say under “free market” conditions. By analysing the behaviour of economic units, i. e. of households (sellers of factor services and buyers of consumer goods) and producers or entrepreneurs (buyers of factor services from households, sellers of consumer goods to households, buyers and sellers of intermediate goods among themselves) in terms of their respective goals and the means whereby these can be achieved, the economists of orthodox inclinations can explain how decisions are reached separately by the vast multiplicity of units about the purchase and sale of factor services and goods in such a way that each market tends to reach equilibrium (i.e., to be cleared) at a certain price level. Since this approach comprises the totality of markets, the analysis shows, apart from the laws of competitive pricing, how the economy (i. e. the whole of the consuming and producing units, acting independently, each in the pursuit of its own interests) decides, as Paul Samuelson puts it, what goods to produce and how and for whom to produce them. In other words, this single theoretical block simultaneously accounts for (a) the determination of an equilibrium quantity in each market for goods, which in its turn implies a solution to the problem of what to produce; (b) an equilibrium quantity in each market for factor services, and its break-down at the level of the purchasers, which implies the determination of the factor mix and hence the solution of the problem of how to produce each good and, finally, (c) an equilibrium price in each market for goods and for factor services, all of which, in addition to the quantities resulting from (a) and (b), implies the determination of profits, wages and other factor incomes, i.e. the distribution of national income, or the answer to the question concerning to whom production goes.

Let us next watch their colleagues of the Nostalgic persuasion at work. Their method also comprises the analysis of methods with a view to the attainment of certain goals; but there, in the common use of what has been called “teleological reason”,9/ the similarity ends. With the former political economists, the objectives in question are those of individuals or minute social aggregates, the atom-like economic units, and such as, to the best of the economists' beliefs, the units in fact do hold. With the latter, the goals belong to the community taken as a whole, they make up what one might designate the moral purpose of society, and are not part of what the political economist finds given but rather the first question for which he must supply an answer. Whether or not the moral purpose of society is something real and whether or not it can be known, and, if so, how it can be known, involve problems far too vast to be dealt with here. For the sake of argument, we shall assume that reality contains such a thing and that the Nostalgic economists can attain knowledge of it. The next question with which they are confronted is—how ought the economic units to behave so that the common purpose of society is achieved?

Rather than try to show how this question could be answered in the abstract, let us see how the method worked in the historical period when it was at the zenith of its prestige. The words of Henry of Langenstein, a mediaeval writer, contain the doctrine in a nutshell—prices may be such as will enable each man “to have the necessaries of life suitable for his station”.10/ This is the most typical formulation of the doctrine of the just price, and from it is transparent that, like the modern theory of fair profits, it aims at preserving a certain social status quo. The unchallenged sway this doctrine has held for something like four centuries shows what exceptional degree of self-contentment with its social arrangements the culture of the West generated at the time, and the fact that the intellectuals of the period—the clerics—enjoyed a position of exceptional social eminence does make one reflect about man's tendency to rationalize his own interests as a form of the common good. It should give the Nostalgic economists food for thought, but, of their difficulties, the present one lies somewhat beside our line of argument. We shall therefore grant that the obvious ideological features of the just price doctrine are accidental to the whole approach and that this could eventually lead to a system capable of realising the true moral purpose of society. What we now have to be concerned with relates to the different contents and implications of the Orthodox and the Nostalgic schools in the realm of value.

The latter's theory is far less comprehensive than the former's—this is the contrast we should like to bring out. The Nostalgic economists perhaps can turn out a set of rules for the pricing of goods and factors relative to each conception of the common end of society that they may happen to embrace, but their theory of value will certainly fail to tell us more than one thing—that the resulting prices will be just in the sense that they are adequate for the chosen end. Seeing that society's moral purpose could never be anything so prosaic as keeping markets cleared, their pricing rules will not even guarantee that. In fact, their theory of value entirely fails to account for flows of goods and services and therefore to throw any light on the subjects of what ought to be produced and how. In the Middle Ages these problems seem to have been solved implicitly by tradition. This could hardly be expected to happen under present conditions and, in fact, Nostalgic writers do deal with such matters quite often. Their way of handling them, however, is unsatisfactory, mainly because they seem to be unable to cope with the pertinent quantitative aspects. As long as they limit themselves to the critique of liberal capitalism, this shortcoming is not very noticeable; as, for instance, when they express their moral reprobation at self-interest providing the sole dictation at which entrepreneurs choose to produce guns or butter, marihuana or milk. But they seem to be seriously handicapped when called upon to pass judgment on how much of each good should be turned out. One can understand that it may be considered immoral to produce guns and marihuana, but hardly that it would be unethical to go beyond a certain annual output of either good. Qualitative questions involving an either-or alternative seem to be all they can answer. The real problem that every economy faces, on the other hand, concerns the mix of goods to be produced, a problem containing a myriad of unknowns. What it all boils down to is that the Nostalgic writers can only provide answers to a few of them—those for which the solution is nought.

But more about this later. Our purpose now was merely to illustrate the differences between the two schools of thought, and let us trust that it has been achieved. We must inquire next about the main implications of the system of Nostalgic economics.

III

Or rather, let us first ask what the system does not imply. It does not imply, contrary to what might appear, the contention that a high level of moral life would follow from its adoption. It is not affirmed by Nostalgic economists, or even hinted, that people at large became moral cynics when, in the sixteenth century, the system they propound was put in abeyance. Nor do they hold that observance of the rules of the system was satisfactory throughout the Middle Ages and everywhere in the mediaeval Western world. What is more, the kindred literature of that period was often cast in a mood that has been described as “the jealous and cynical suspicion of economic egotism”.11/ It is not, therefore, the facts of economic life from the Renaissance onwards that the Nostalgic economists particularly find fault with; it is the tone that the discussion began to assume—that matter-of-fact, utilitarian approach—that they abhor. It was tantamount to treating society as an economic machine, instead of the spiritual organism that they know it to be. It implies raising the lamentable workings of avarice to the rank of an object of science, coming to terms with sin. This attitude, which condemns the pursuit of knowledge in a given field as morally tainted, is indeed a strange one. It implies that, after having discerned a level of coherence in human action, man should deliberately stay away from it, that some peaks should remain for ever unconquered, some lands untrodden, certain challenges unanswered. It can be seen that the Nostalgic school holds claims in this field that are quite unrealistic and smack of intolerance.

So much about their attitude towards economic studies; let us return to their views on economic life. These certainly do not include any illusions about the moral conduct of men in the course of their business. On the contrary, as pointed out above, authors of this persuasion have always shown signs of being obsessed by human weakness before the temptations of covetousness. They have never entertained the hope that knowledge of the rules of the good conduct would in itself guarantee their observance; on the contrary, they have always preferred to rely on the authority of government to enforce those rules. Nevertheless, the possibility of spontaneous, uncoerced compliance is certainly implicit in the system. Moreover, among the reasons that commend it most, according to its supporters, stands precisely the possibilities it opens for man's self-realisation through his free observance of the moral law. To state that, ceteris paribus, if demand goes up, prices will go up too is like saying “if you propel that shaft, this wheel will be put in motion”. But human beings can transcend the realm of natural laws and be free. And to be free is to act in accordance with the rules of ethics for the sake of justice and truth. Finally, to achieve freedom (man is not born free, according to Maritain, but can become free) is to attain full human status, to realise oneself as a man.12/ Between a system that opens this sort of avenue for man's improvement and another that treats human beings as though they were inanimate things, how can anyone hesitate?

This is the sort of argument one comes across. It is not our intention to discuss it here; merely to point to one thing it implies—that the rules that should govern each man's economic life are intelligible for him. This was clearly the case with the doctrine of the just price. Schoolmen often advised that prices should be fixed by public authority, but this was only because they did not trust men to act ethically. In absence of official pricing each individual must fix prices for himself in conformity with the rules of the system.13/ As a matter of historical fact, most of the mediaeval literature on economic subjects developed as the Schoolmen attempted to provide guidelines for confessors, who in turn were assailed by penitents troubled about what their behaviour ought to be.14/ Sometimes the penitents were rulers, sometimes they were subjects. The system undoubtedly contained rules addressed to one and the other rank. This was so under the economic circumstances prevalent in the Middle Ages. Let us now inquire how the change into contemporary Western conditions would affect the issue.

IV

It has been stated above that, in the Middle Ages, the what, the how and the for whom of production was solved implicitly by tradition. The same can be said about all stationary economies, in which, as Octave Gélinier has pointed out, the role of producers consists of supplying a constant volume of production of an unchanging set of goods according to an invariable technique.15/ The entrepreneur has no place in such an economy; neither have profits.

The situation is radically different in a contemporary Western society. The flow of production varies all the time. Not only does the rate at which each product is turned out constantly change but, what is even more characteristic, new goods are permanently being poured into the stream. Methods of production are hardly more stable. Techniques are in a state of flux and so is the factor mix. The main determinants of change can be grouped under two headings—alteration of consumer preferences and technical development; but, however determined, change always occurs by the decision of an entrepreneur—that character, once superfluous, not long ago unknown, so often still mistaken for somebody else; that character whom profit moves and, even more significantly, guides; whose business it is precisely to supply the flow of decisions that keep a modern economy on the move.

The mediaeval producer was no entrepreneur. The latter is surrounded by problems; the former was immersed in tradition; and tradition had answers for all the questions that could ever arise in his life. Not that many did. Occasionally, the mediaeval farmer or craftsman was confronted with doubt. The disease of a cow, the command of an excentric patron, a friend's offer to lend or request to borrow, a poor harvest or a shortage of certain materials made him ponder. But he would normally find a way out of his perplexity by seeking advice from someone older or wiser. The answer was somewhere out there, to be looked for among the rules of which the fabric of tradition was largely made up.

Some of these rules were seen as possessing ethical nature; others, as the standards of an art or husbandry. When proving elusive, some posed technical difficulties; others, cases of conscience. All, however, were interwoven in the same texture, formed part of the same system.

When the Nostalgic political economists believe they contemplate the mediaeval economic system they suffer from a sort of historical mirage. What they actually see is part of a system, a part that would not be, by itself, viable. When they wish to revive the system they love, they are in fact trying to resuscitate an incomplete body, a fraction that would be quite incapable of independent life.

Or could it be that the Nostalgic school are proposing to do away with all material progress and bring back the economies of the West to a stagnant condition, when traditional technique could again govern the what and the how of production, and ethics could see to the for whom of it? The idea must be dismissed forthwith. Nostalgic economists as a rule entertain nothing but gentle, humane feelings, whereas such a project would involve the curtailment of the population growth by the sheer starvation of millions, before a stationary equilibrium, in the midst of destitution and despair, again became possible.16/

Nor can one hope that a market economy might afford the Nostalgic system the second leg it needs to stand on. Under the conditions they wish to impose upon it, the mechanism simply would not work. We are sorry if the members of the Nostalgic school dislike the metaphor; it is nevertheless a pertinent one. Spiritual beings one can expect to be amenable to argument; machines certainly are not. Try to substitute water for gasoline and your engine, whatever your eloquence, will refuse to start. Social phenomena often exhibit that very kind of intractability. Take, for instance, the notion that profits are deserved, and therefore legitimate, only if the result of the firm's efficiency, the high productivity of its resources or some similar reason. This is undoubtedly among the mildest propositions on record to interfere with market forces. And yet, if adhered to strictly, it would be lethal to a free economy. “Deserved” profits are of no avail when you want to re-direct resources. You need “undeserved” profits for that—i. e. firms ought to make them in the fields of production to which demand requires that resources should be channeled. As Enoch Powell so aptly puts it, “Profit will only serve the consumer and the common good if high profits can be made from time to time with less effort, less efficiency, less of all the deserving virtues than lower profits. Profits are the index of what people want.”17/

Offer the possibility of “deserved” profits only and entrepreneurs will do the necessary to make them. If it is low costs that will bring them, they will see that productivity is high. But their decisions will have lost one of the essential virtues they would have possessed in a free market—the ability to direct resources to where they are most needed. Tamper further with market forces and entrepreneurs will perform their task with ever decreasing efficiency. They will continue to set the course of their action guided by profits but these will no longer be a true guide. The index of what people want will have been lost. Their decisions will no longer tend to clear the markets. Consumers will start forming queues in some of them while in others unsold stocks begin to pile up. Frustration will accompany all policy measures. New wage rates, new prices for grain, all fixed with the best of intentions, so sincerely aimed at doing justice—at long last!—to the worker and farmer, will fail to enthuse their beneficiaries. Unemployment and bursting silos will have spoilt their appreciation of social justice. The authorities will begin to fear that, before long, all those they are trying to help will address them in the spirit in which young Andrés spoke to Don Quixote: “By the love of God”, the poor boy begged of his protector, “should you run across me again, though I am being hacked to bits, do not come to my rescue: leave me to mine evil fate ...”18/

V

There is nothing moral or immoral about the production of so many tons of pig iron or so many barrels of oil more or less, the mix of thermic, nuclear and hydraulic generation of power seems quite indifferent to ethics and the blend of wool and synthetics in a fabric is likely to leave most moralists quite undisturbed, while hardly one of them will turn a hair if the issue relates to the launching of the latest model of a desk computer. The Nostalgic school would gladly leave such trivial matters to be determined by market forces while they would have government concentrate on the really important ones concerning the pricing of goods and factors, from which distributive justice depends. But, as we have just pointed out, things will not work out that way. To a number of the unknowns that the market economy used to solve they now wish to give certain values, aimed at realising certain moral ends; and they expect the rest to be solved by the old procedure. But the new inputs render the machine (the inescapable metaphor!) erratically wrong. Its answers no longer make sense. The use of new methods becomes imperative. The market economy must be scrapped.

We trust we shall not be misunderstood. We do not hold that a market economy is a delicate flower, likely to wither away at the slightest tampering. There is ample evidence to the contrary. The pertinent question, however, is not whether a minute dose of the medicine prescribed by the Nostalgic economists would prove lethal to a market economy, but whether this would survive the whole treatment that this school propounds.

We have therefore to assume that the economic authority has decided to model society after some ethical blueprint, leaving the morally indifferent trimmings of the good society to market forces, and ask ourselves whether this is a viable proposition. And to this question it is we suggest the answer should be negative.

We further submit that such an attempt would inevitably lead to central planning. One can see it happen in a gradual way, every failure of the ethically-oriented policy being taken as proof of the shortcomings of a market economy, calling for further state intervention in the economy, now even in morally neutral fields. Experience will show that the unco-ordinated operation of firms and households does not lead to market equilibrium (under the conditions created by the new policies this conclusion would become increasingly evident); more and more of the choices the entrepreneur used to face will have to be made on his behalf by a central authority; while rationing will be instituted to cope with the disorderly behaviour that scarcity would have brought out among consumers.

Finally, when no choices are left for the economic units to be made for themselves, the process will have been completed. The result will be undistinguishable from socialism; even if private property were maintained as a legal institution, its economic substance would have dried up; even if some people continued to be referred to as entrepreneurs, they would be so only in name.

The process would have been accompanied by growing inefficiency in the use of productive resources. Its consumation into a centrally planned regime, far from offering any hope of recovery, would simply crystalize inefficiency into a permanent feature of society. Von Mises's thesis to that effect stands unrefuted.19/ Thanks to him there is, in this connection, a large “lasciate ogni speranza” sign inscribed in large characters at the entrance of every system involving central planning. The Nostalgic economists would be quite wrong to ignore it.

They could, on the other hand, understandably disregard the advice. They could hold that people would derive spiritual satisfaction from living in a good society and this would outweigh any material loss coming from the lower degree of efficiency. But if the choice in itself is not debatable, the alternatives should be clearly defined. To this end, we trust we have shown that the Nostalgic school adorn theirs with a number of features that are illusory, beginning with the notion that their system is compatible with private property and the institutional arrangements of a substantially free economy. But more of prime importance is implicit in this; it brings us back to the starting point of our essay.

“Society is a spiritual being”, the Nostalgic economist argues, “not an economic machine. Man can only attain freedom and full human status by recognising himself as part of that spiritual being and accordingly accepting the common good, not self-interest, as his goal in life”. But this theory was evolved in the context of a stationary, extremely simple economy. In the infinitely complex, highly dynamic conditions of the contemporary West, no set of rules capable of realising some ethical ideal would be intelligible to the ordinary economic units, to the firm or the household. Only a centrally placed unit, possessing an intelligence of the entire system, could possibly discern such rules. Only to the central authority in control of the flow of goods and of the factor combinations throughout the economy could prices be meaningful in terms of relative factor incomes, of relative costs and profits. The behaviour of that authority could be seen as ethically significant, but no-one else's. It is transparent that the system aims at the freedom and the selfrealization ... of the central planners. To the common run of men and women would be reserved the sole freedom of obeying their self-realised masters and the single spiritual satisfaction of being told that they had been ushered into an incorruptible brave new world.

NOTES

[[21]]Kirzner falls into the same error. Kirzner, p. 134

[[22]]Lange, p. 242.

[[23]]For a slightly different translation of this passage, see Paul M. Sweezy, ed., Rudolf Hilferding, Böhm-Bawerk's Criticism of Marx (New York: Augustus M. Kelley, 1949), p. 196.

[[24]]Lange, p. 298.

[[25]]Lange, p. 298n.

[[26]]Lange, pp. 300ff. Lange himself is a bit dubious on this point, since capitalism in Austria was not as highly developed as in the other Western countries where the subjectivist, praxeological economics did not take hold.

[[27]]Lange, pp. 301-02.

[[28]]Lange, pp. 314ff.

[[29]]Ronald L. Meek, Economics and Ideology and Other Essays (London: Chapman and Hall, 1967), pp. 216ff.

[[30]]Meek, p. 216.

[[31]]Meedk, p. 218.

[[32]]B.B.(Ben Brewster), “Review of Ronald L. Meek, Economics and Ideology and Other Essays,” New Left Review (November-December, 1967), p. 90.

[[1]]Lord Acton, Essays on Church and State, edited by Douglas Woodruff (London, 1952) p. 6.

[[2]]Gertrude Himmelfarb, Lord Acton (Chicago, 1952) p. 15. Besides the very thorough chapter on Acton's education in Miss Himmelfarb's biography, the interested reader may consult a chapter by the Cambridge historian Herbert Butterfield, entitled “Acton: His Training Methods and Intellectual System,” in Studies in Diplomatic History Presented to G.P. Gooch, edited by A.O. Sarkissian (London, 1961).

[[3]]Wilfrid Ward, The Life and Times of Cardinal Wiseman (London, 1897), Vol. I, p. 348.

[[4]]Ibid., p. 343.

[[5]]Ibid., p. 349.

[[6]]Ibid., p. 353.

[[7]]Lord Acton, Selections from the Correspondence of the First Lord Acton, edited by J.N. Figgis and R.V. Laurence (London, 1917), pp. 1-2.

[[8]]Ibid., p. 1.

[[9]]Ibid., pp. 256-57. Acton, in 1890, thanked Gladstone for securing his appointment as a Fellow of All Souls. He added that King's College, Cambridge and “a famous college at Oxford” had offered him fellowships at the same time. “All of this has flattered me unduly,” he noted “as both universities refused me as an Undergrad.”

[[10]]M. Grant Duff, Cut of the Past (London, 1903), Vol. II, p. 190.

[[11]]Himmelfarb, Lord Acton, p. 19.

[[12]]Acton, Correspondence, p. 8.

[[13]]Ibid., p. 24.

[[14]]Acton, History of Freedom, p. xviii.

[[15]]Acton, Selections from the Correspondence, p. viii.

[[16]]Himmelfarb, p. 69.

[[17]]Ibid., p. 23. The reader interested in learning more about Dollinger may consult Acton's essay on his teacher in The English Historical Review, V, 1890, pp. 700-44.

[[18]]G.E. Fasnacht, Acton's Political Philosophy (London, 1952), p. 48.

[[19]]Duff, Out of the Past, Vol. II, p. 195. Acton is quoted as saying, “I am not conscious that I ever in my life held the slightest shadow of a doubt about any dogma of the Catholic Church.”

[[20]]Lord Acton, Historical Essays and Studies, edited by J.N.Figgis and R.V. Laurence (London, 1908), p. 369.

[[21]]Lord Acton, “Inaugural Lecture on the Study of History,” in Lectures on Modern History (London, 1926), p. 12.

[[22]]Home and Foreign Review, July 1863, p. 163.

[[23]]Himmelfarb, Lord Acton, p. 23.

[[24]]For more on Acton's early training consult E.L. Woodward, “The Place of Lord Acton in the Liberal Movement of the Nineteenth Century,” Politica, IV, 1939, pp. 248-65, and Sarkissian, Studies in Diplomatic History.

[[25]]The Chronicle, 13 April 1867, p. 57.

[[1]]Investigations in Currency and Finance, (London, 1884) p. XXIV.

[[2]]Ibid., p. 104

[[3]]Cf. also “An Ideally Perfect System of Currency” in Investigations in Currency and Finance, pp. 297-302; “The Variation of Prices and the Value of the Currency Since 1782,” ibid., pp. 120 ff.

[[4]]Official Papers (London: Macmillan & Co., 1926) for the Royal Economic Society, pp. 10-12; Also Money, Credit and Commerce (N.Y.: Augustus M. Kelley reprint, 1923) p. 36. According to Marshall, “An official index number, representing average movements of the prices of important commodities, might well afford the basis for a Unit of general purchasing power, in terms of which long-period obligations might be expressed: and in this matter the State might advantageously lead. The Unit would be derived from an official price list by adding together the prices of certain quantities of wheat, barley, oats, hops, beef, mutton, tea, coffee; together with staple timbers, minerals, textile materials and fabrics and so on. A new contract for interest on loans and other long-standing obligations might then be arranged by free consent of both parties to it in terms of the standard unit, instead of money.”

[[5]]Money, Credit, and Commerce, p. 43 et seq. His theory was later put into the form of a quantitative equation by Prof. Pigou in Quarterly Journal of Economics, Vol. XXXII, Nov., 1917.

[[6]]The Gold Standard in Theory & Practice (London: Longmans, Green & Co., Ltd., 1939, 4th ed.) pp. 101, 102, 121, 122; cf. also Currency and Credit (London: Longmans, Green & Co., Ltd., 1927, 3rd ed.) pp. 156 et seq.; Monetary Reconstruction (London: Longmans, Green & Co., Ltd., 1926, 2nd ed.) p. 156; Trade and Credit, (London: Longmans, Green & Co., Ltd., 1928) p. 82 et seq.

[[7]]The Art of Central Banking (London: Longmans, Green & Co., Ltd., 1932) pp. 446 et seq.

[[8]]A Century of Bank Rate (New York: Augustus M. Kelley, 1962, 2nd ed.) p. xxi.

[[9]]Mastering the Crisis (London: George Allen & Unwin, Ltd., 1934) p. 21.

[[10]]Inflation (London: George Allen & Unwin, Ltd., 1934) p. 91.

[[11]]Mastering the Crisis, p. 37. Prof. Fisher apparently applied this version of trade cycle theory to his own financial transactions. He was caught unaware of the 1929 stock market crash and remained bullish throughout the decline. Although he enjoyed great reputation as an economic forecaster he failed to foresee the depression and therefore lost his sizeable fortune. Cf. Irving N. Fisher, My Father, Irving Fisher (N. Y.: Comet Press, 1956). According to his son, “the 1929 stock market crash caught him unawares. Placing his faith unreservedly in the ‘new economic era’ he did not foresee that it was destined to collapse like a house of cards.” p. 242. Between 1929 and 1933 Fisher lost an eight to ten million dollar fortune which he had pyramided on his wife's blue-chip inheritance and was left with an ultimate debt of three-quarters of a million dollars to his aunt. A committee of a lawyer and two nephews finally handled his intricate debt relationship. pp. 264-267.

[[12]]Inflation, p. 80.

[[13]]Stabilized Money, ibid., pp. 259-262.

[[14]]100$ Money (N.Y.: Adelphi, 1935) pp. 8-9.

[[15]]According to Simons, “attempting mischievous and salutory irritation of his peers ... he (Keynes) may only succeed in becoming an academic idol of our worst cranks and charlatans—not to mention the possibilities of the book as the economic bible of a fascist movement.” Cf. “Keynes' Comments on Money,” Christian Century, July 22, 1936, pp. 1016, 1017.

[[16]]See Milton Friedman, “The Monetary Theory and Policy of Henry Simons,” Journal of Law and Economics, Vol. X, Oct. 1967, pp. 1-13.

[[17]]Economic Policy for a Free Society (Chicago: The Univ. of Chicago Press, 1948) p. 168.

[[18]]Economic Policy, pp. 161, 162

[[19]]Ibid., p. 180.

[[20]]Ibid., p. 176.

[[21]]Milton Friedman and David Meiselman, “The Relative Stability of Monetary Velocity and the Investment Multiplier in the United States, 1897-1958,” Stabilization Policies (The Commission on Money and Credit, Prentice-Hall, Inc., 1963). Also Milton Friedman, “A Monetary and Fiscal Framework for Monetary Stability,” American Economic Review, June 1948, reprinted in Essays in Positive Economics (Chicago: Univ. of Chicago Press, 1953) pp. 133-156 and “Has Fiscal Policy Been Oversold?” Monetary vs. Fiscal Policy, A Dialogue between Milton Friedman and Walter W. Heller (New York: W. W. Norton & Co., 1969) pp. 43-62, 71-80

[[22]]Studies in the Quantity Theory of Money (Chicago: Univ. of Chicago Press, 1956) pp. 20-21

[[23]]A Program for Monetary Stability (Chicago: Univ. of Chicago Press, 1953) p. 91.

[[24]]Essays in Positive Economics (Chicago: Univ. of Chicago Press, 1953) p. 315.

[[25]]Monetary vs. Fiscal Policy, ibid., p. 76. For further details on his lags hypothesis of. Essays in Positive Economics, ibid., pp. 133-156

[[26]]The Optimum Quantity of Money and other Essays Chicago: Aldine Publishing Co., 1969) p. 222.

[[27]]Milton Friedman and Anna J. Schwartz. A Monetary History of the United States, 1867-1960 (Nat'l Bureau of Economic Research, Princeton University Press, 1963) p. 300.

[[28]]“The Case for Flexible Exchange Rates,” in Essays in Positive Economics, ibid., p. 157-203; also A Program for Monetary Stability, ibid., pp. 81-101.

[[29]]Milton Friedman, “The Methodology of Positive Economics,” in Positive Economics, ibid., pp. 3-43.

[[30]]Ludwig von Mises, Human Action (New Haven: Yale University Press, 1949) p. 30 et seq.; also his Theory and History (New Haven: Yale University Press, 1957) p. 240 et seq.; Epistemological Problems of Economics (Princeton, N. J.: D. Van Nostrand Co.1960); The Ultimate Foundation of Economic Science (Princeton, N.J.: D. Van Nostrand Co., 1962); Friedrich A. Hayek, The Counter-Revolution of Science (Glencoe, Ill.: Free Press, 1952).

[[31]]Cf. Ludwig von Mises, The Theory of Money and Credit (first German edition in 1912; English ed. New Haven: Yale University Press, 1953) p. 365 et seq.; also Human Action, ibid., p. 535 et seq.; also F.A. Hayek, Monetary Theory and the Trade Cycle (first German edition in 1929; English ed. A.M. Kelley, 1966); Profits, Interest and Investment (London: G. Routledge and Sons, 1939).

[[32]]Milton Friedman and Anne J. Schwartz, A Monetary History of the United States, 1867-1960, ibid., pp. 711, 712.

[[33]]Economics and the Public Welfare (Princeton, N.J.: D. Van Nostrand, 1949) p. 225.

[[34]]America's Great Depression (Princeton, N.J.: D. Van Nostrand, 1963) p. 303.

[[35]]Cf. Hans F. Sennholz, Inflation or Gold Standard (Lansing, Mich.: Constitutional Alliance, 1970)

[[1]]Ludwig Mises, Die Gemeinwirtschaft: Untersuchungen uber den Sozialismus (Jena: Gustav Fischer, 1922).

[[2]]Thus in lectures and later in Van Sickle and Rogge, Introduction to Economics (New York: Van Nostrand, 1954), I argued that “if our colleagues, the political scientists and the psychologists” could convince us “that such a program would not be abused, it would be quite easy to imagine a broad security program of admirable simplicity. The federal government might, for example, issue weekly or monthly checks to all families in the United States based on the requirements for a really Spartan existence. The only condition for eligibility would be the submission each year of a detailed family income declaration. The government would then levy a progressive income tax which, in the case of each family, would begin with the amount received over and above the government annuity. Thus each family would be assured of a tax-free income which would vary with the size of the family. The income tax admittedly would be heavy, but while we are allowing free play to our imaginations, we can also imagine some substantial savings: no more public works undertaken just for the sake of providing employment; no more minimum wage laws; no more restrictive union agreements; no more agricultural price supports and acreage restriction programs; no more special programs for the needy aged, for dependent children, for the blind and physically handicapped; no more tariffs to protect high-cost enterprises. In brief, one can imagine a highly competitive enterprise economy superimposed on a thin cushion of guaranteed income.” (pp. 522-23)

Fifteen years later, in Freedom in Jeopardy: The Tyranny of Idealism (New York: World Publishing Company, 1969), I, suggested safeguards that would, in my judgment, warrant experimenting with a universal minimum. For the suggested safeguards, see pp. 176-180.

[[3]]F. A. Hayek, The Road to Serfdom (Chicago: The University of Chicago Press, 1944). Here Hayek stated as self-evident that the British economy, despite the damages suffered and still being suffered by the poundings of the German Luftwaffe, could easily provide a guaranteed income to all, if all the existing restrictions were swept away. “Let a uniform minimum be secured to everybody by all means, but let us admit at the same time that with the assurance of a basic minimum all claims for a privileged security for particular classes must lapse, that all excuses will disappear for allowing groups to exclude newcomers from sharing their relative prosperity in order to maintain a special standard of their own.” (p. 210)

[[4]]Chicago: The University of Chicago Press, 1962. In his advocacy of a negative income tax, Friedman attached conditions similar to Hayek's. “If enacted as a substitute for the present rag bag of measures directed to the same end (i. e., the alleviation of poverty), the total administrative burden would surely be reduced,” (p. 193) and while “reducing the incentives of those helped to help themselves, ... it does not eliminate the incentive entirely, as a system of supplementing incomes up to some fixed minimum would.” (p. 192)

[[5]]Quoted from Freedom in Jeopardy, op. cit., p. 173.

[[1]]Lionel Robbins, An Essay on the Nature and Significance of Economic Science (London: Macmillan & Co., 1952), p. 1.

[[2]]“Job-Hunting Futile as Economists Meet” (N.Y. Times-Chicago Tribune Service, Dec. 27, 1970).

[[3]]Walter W. Heller, New Dimensions of Political Economy (New York: W. W. Norton & Co., Inc., 1966).

[[4]]R. Torrens, An Essay on the Production of Wealth (New York: A. M. Kelley, 1965), p. XIII.

[[5]]Joseph A. Schumpeter, “Eugen von Boehm-Bawerk” reprinted in Ten Great Economists from Marx to Keynes (London: George Allen & Unwin, 1952) pp. 157 and 189.

[[6]]Time, March 3, 1961, pp. 18–19.

[[7]]Gunnar Myrdal, The Challenge of World Poverty: A World Anti-Poverty Program in Outline (New York; Random House-Pantheon Books, 1970), p. 24.

[[8]]John von Neumann and Oskar Morgenstern, The Theory of Games and Economic Behavior (Princeton: Princeton University Press, 1944), p. 5.

[[9]]Time, November 17, 1967.

[[10]]Time, November 1, 1963. Quote from the well-known English painter Francis Bacon (ironically, not only the name-sake, but actually the descendent of the co-founder of modern empiricism).

[[11]]Time, February 28, 1964.

[[12]]The Economist, November 18, 1967, p. 751.

[[13]]Seymour E. Harris, National Debt and the New Economy (New York: McGraw-Hill Book Co., 1947), pp. 24–25.

[[14]]Joseph A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), p. 10n.

[[15]]‘Organic’ is used here not as the opposite of mechanistic. According to the atomistic view, society resembles a sand dune, with each individual representing a grain of sand, the ultimate reality;—the individual producer and consumer studied in microeconomics. According to the organic concept, on the other hand, society is looked upon as an organism, with the individuals likened to cells which are dependent for their survival upon the organism as a whole. The emphasis thus shifts from the individual to the organism as the most important entity;—which, of course, is the philosophic premise of macroeconomics.

[[16]]Julian Huxley, On Living in a Revolution (New York: Harper Brothers, 1944), pp. 21–23.

[[17]]The original version of the Declaration of Independence, before it was changed at Jefferson's suggestion, called for “life, liberty and property,” the original Lockian phrase.

[[18]]The Catholic Church never accepted the Lockian individualistic view of private property, but defended private property rights, in Aristotelian fashion, as a desirable social institution. In Mater et Magistra (1961), for instance, Pope John XXIII still stressed that private property “is a suitable means of safeguarding the dignity of the human person.” Less than a decade later, however, Progressio Populorum placed new and important restrictions on private property rights by holding that “it is unacceptable that citizens should transfer part of their wealth abroad for their own advantage.” Private property thus becomes a part of the national wealth, as Plato, Fichte and all modern totalitarian writers have held.

[[19]]Life, February 26, 1971. Interview with Buckminster Fuller.

[[20]]Karl Jaspers, Existentialism and Humanism, trans. E. B. Ashton (New York: R. F. Moore Co., 1952), p. 83.

[[21]]Kenneth E. Boulding, A Reconstruction of Economics (New York: Science Editions, 1950), p. 34.

[[22]]Ludwig von Mises, Human Action (New Haven: Yale University Press, 1949), p. 858.

[[23]]Well into the 19th century, value was regarded as an innate quality by those who held to the notion that it represented “congealed labor,” and to this day most people think of beauty as an inherent quality, rather than a conditioned response of the observer.

[[24]]J. Z. Young, Doubt and Certainty in Space—A Biologist's Reflection on the Brain (Oxford; Clarendon Press, 1951), p. 101.

[[25]]Werner Heisenberg, Philosophic Problems of Nuclear Physics (New York: 1952), p. 22.

[[26]]Herbert Dingle, “The Scientific Outlook in 1851 and 1951,” British Journal for the Philosophy of Science, 1951, pp. 89, 99.

[[27]]John Dewey and Arthur F. Bentley, Knowing and the Known (New York: 1949), pp. 205–206.

[[28]]The American G.N.P., for instance, makes no allowance for the work done by millions of housewives, because this work has ‘no market value’ (a purely subjective notion), while the Russian G.N.P. makes allowance for the work of housewives because it is ‘labor’ (a similarly subjective notion).

[[29]]J. R. Hicks, The Social Framework: An Introduction to Economics (Oxford: Clarendon Press, 1942), p. 8.

[[30]]Ferdinando Galiani, Dialogues sur le commerce des bles (Milano: G. G. Destefanis, 1803), p. 279.

[[31]]Werner Heisenberg, Philosophic Problems in Nuclear Physics (London: Faber, 1952), p. 22.

[[1]]Religion and the Rise of Capitalism, Penguin Books, 1948, p. 75.

[[2]]R. H. Tawney, ibid.

[[3]]Jacques Maritain, Scholasticism and Politics, p. 87.

[[4]]Pope John XXIII, Enciclical Mater et Magistra, No. 5.

[[5]]E. g.: Jacques Maritain, ibid.

[[6]]E. g.: Popes Leo XIII, Pius XI, John XXIII and Paul VI in their Enciclicals Rerum Novarum (No. 5), Quadragesimo Anno (No. 45), Mater et Magistra (No. 3) and Populorum Progressio (No. 61).

[[7]]E. g.: Rerum Novarum (No. 12); Quadragesimo Anno (No. 112).

[[8]]Cf. Pope Paul VI's formula: preserve competitive markets but keep them within limits so that they become fair and humane (Enciclical Populorum progressio) No. 61.

[[9]]See Williams T. Bluhm, Theories of the Political System, 1965, p. 10

[[10]]Quoted by R. H. Tawney, op. cit. pp. 53–54.

[[11]]R.H. Tawney, op. cit., p. 72.

[[12]]V. Jacques Maritain, Principes d'une Politique Humaniste, Paris, 1945, pp. 20–21

[[13]]R.H. Tawney, op. cit., pp. 53–54.

[[14]]V. Daniel Villey, Petite Histoire des Grandes Doctrines Economiques, Spanish Edition, Buenos Aires, 1960, p. 70.

[[15]]Morale de l'Entreprise et Destin de la Nation, Paris, 1965, pp. 38–39.

[[16]]V. Ludwig von Mises, Human Action, Chapter XXXV, Section2.

[[17]]Freedom and Reality, London, 1969, p. 28.

[[18]]Part. I, Chapter XXXI.

[[19]]V. Ludwig von Mises, Socialism.