Ludwig von Mises on Bureaucracy

(Plus a couple of thoughts of my own.)

There is one book by Ludwig von Mises that I think is slightly neglected, namely Bureaucracy, first published in 1962. (I may be wrong, but I have never seen any discussion of it.) It deals with the difference between profit-and-loss management and bureaucratic management, and I think it is important for our understanding of the difference between market and government. I just want to give some illustrative quotes:

In public administration there is no market price for achievements. This makes it indispensable to operate public offices according to principles entirely different from those applied under the profit motive.

Now we are in a position to provide a definition of bureaucratic management: Bureaucratic management is the method applied in the conduct of administrative affairs the result of which has no cash value on the market. Remember: we do not say that a successful handling of public affairs has no value, but that it has no price on the market, that its value cannot be realized in a market transaction and consequently cannot be expressed in terms of money. […] Bureaucratic management is management of affairs which cannot be checked by economic calculation. (P. 47f.)

And:

The conduct of government affairs is as different from the industrial processes as is prosecuting, convicting, and sentencing a murderer from the growing of crops or the manufacturing of shoes. Government efficiency and industrial efficiency are entirely different things. A factory’s management cannot be improved by taking a police department as its model, and a tax collector’s office cannot become more efficient by adopting the methods of a motor-car plant. (P. 52.)

And:

In the field of profit-seeking enterprise the objective of the management engineer’s activity is clearly determined by the primacy of the profit motive. His task is to reduce costs without impairing the market value of the result or to reduce costs more than the ensuing reduction of the market value of the result or to raise the market value of the result more than the required rise in costs. But in the field of government the result has no price on the market. It can neither be bought nor sold. (P. 49f.)

And so, governments and government agencies simply cannot be run by profit-and-loss management; and neither could private enterprises be run by bureaucratic management. The spheres are entirely different. (This is also an implicit criticism of anarcho-capitalism.)

The later chapters of the book deal with what happens when governments take over what should properly be run by private enterprises, i.e. the dangers of bureaucratization.

Bureaucratization is especially dangerous in the field of education. Here is an illustrative quote:

After the old professors [in 19th century Germany] who had got their chairs in the short flowering of German liberalism had died, it became impossible to hear anything about economics at the universities of the Reich. There were no longer any German economists, and the books of foreign economists could not be found in the libraries of the university seminars. […] All that the students of the social sciences learned from their teachers was that economics is a spurious subject and that the so-called economists are, as Marx said, sycophantic apologists or the unfair class interests of bourgeois exploiters, ready to sell the people to big business and finance capital. The graduates left the universities convinced advocates of totalitarianism either of the Nazi variety or of the Marxian brand. […]

European totalitarianism is an upshot of bureaucracy’s preëminence in the field of education. The universities paved the way for the dictators.

Is the situation much different today? Is it an exaggeration to say that Marxism may be dead in the former Communist countries, but alive and well at our universities?

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It might be objected (and I am sure many will object) that such fields as education and health care should not be run by profit-and-loss management, since the primary purpose here is not to make money but to educate students and make people well. But in a free economy there would be no such conflict of purposes: the best schools and universities and the best hospitals would also be the ones who make the most money.

But I do see a problem with such institutions as libraries and archives. (I myself worked at the Swedish Royal Library before I retired, and it is certainly not managed by profit and loss; it is subsidized by the tax payers.) Such institutions provide a valuable service: they are “a country’s memory” and are necessary for historical research. But would they be able to survive, if they were suddenly privatized? Well, they may be taken over by private foundations; but are there such foundations today that are rich enough and interested enough to take them over? Privatizing such institutions will have to be a goal for a more distant future.

Meanwhile, bureaucratization just goes on and on and on …

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A Short Word on Fractional Reserve Banking

I think I have said all I need to say about fractional reserve banking, and I do not want to repeat myself. (Here is a collection of my blog posts on the subject.) But the subject does not quite go away.

There are a couple of prominent economists – George Selgin and Lawrence White – who regard themselves as “Austrians” and who argue that fractional banking in the old days of relatively free banking was beneficial and that 100% reserve banking would have resulted in those beneficial effects not taking place. They give lots of examples.[1] I am not an economic historian and I cannot judge the accuracy of their historical examples. But I do think there is a logical (or praxeological) flaw in this reasoning.

Any policy of “easy money” – of inflation and credit expansion – will have some initial good effects on the economy. But those won’t last, and there will be repercussions later – the well-known “boom-bust” cycle. It is often said (and I have certainly said it myself) that credit expansion creates an illusion of prosperity. But strictly speaking, the initial good effects are not an illusion; the illusion is that they will last and that there will be no repercussion, no bust following the boom.

And I think history bears this out. There were repercussions even in those “good old days” of relatively free banking. Let me quote George Reisman:

Again and again, when banks did fail, the government stepped in and allowed them to suspend payment in specie, in flagrant violation of their agreement to pay their depositors specie on demand. This prevented the wiping out of fractional-reserve banks and enabled such banks to return to issue still more fiduciary media. – Capitalism: A Treatise on Economics, p. 515.

A more extensive criticism can be found in Murray Rothbard’s essay The Myth of Free Banking in Scotland.

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Another argument that keeps popping up is that it is a myth that fractional banks are fundamentally insolvent. But how could it be otherwise? If a bank lends out more money than it actually has in its possession, this means that it is not fully solvent and won’t be able to meet a bank run. To say that such a bank is actually solvent is tantamount to saying that fractional banking is not fractional at all, but non-fractional.

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I also sometimes see people defending “fractional” money (fiduciary media) by showing it can be entered into balance sheets. I do not contest that. (Murray Rothbard – who is dead against FRB – also does this in The Mystery of Banking.) But entering counterfeit money into a balance sheet does not make it less counterfeit.

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And while I’m arguing about fractional banking under a gold and/or silver standard, fractional banking based on fiat money just goes on and on and on…

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I remind you of my comment rules: don’t try to convert me to this, that or the other idea. If you think I am wrong – or that you know much more about the subject at hand than I do – there is nothing I can do about that, anyway. And I do not have the time – nor the inclination or even the stamina – to engage in endless debates. (Or read the very first sentence of this blog post.)


[1]) See George Selgin, Free Banking and Economic Development, Part 1 and Part 2. There is also a lengthy discussion on Detlev Schlichter’s blog.

Environmentalist Extermination?

Absurdities in theory will lead to atrocities in practice. – Voltaire (paraphrased).

There is clearly a potential threat to human life and well-being looming on the horizon that is of unprecedented proportions. It is present in the openly expressed hate-filled, murderous ideas of many people. Sooner or later, in response to this or that crisis or series of crises, these ideas will be translated into physical action if not overcome by other, prohuman ideas. – George Reisman, Gun Control: Controlling the Government’s Guns.

I do not think that the majority of environmentalists actually wants to exterminate mankind; but the idea is implicit in environmentalism and sometimes explicitly stated, as in this quote:

Until such time as Homo sapiens should decide to rejoin nature, some of us can only hope for the right virus to come along. (David Graber, quoted by George Reisman in The Toxicity of Environmentalism.)

Or in this:

I just wonder what it would be like to be reincarnated in an animal whose species had been so reduced in numbers than it was in danger of extinction. What would be its feelings toward the human species whose population explosion had denied it somewhere to exist…. I must confess that I am tempted to ask for reincarnation as a particularly deadly virus. (Prince Philip of Britain; also quoted by George Reisman in the blog post linked to above.)

Are these just exaggerated statements, meant merely to catch people’s attention? Or do they really mean it? Do they wish for a virus to come along, deadly enough to kill all mankind?

Or do they only want to kill off the “surplus population”, leaving a few people alive (e.g. the British Royal House)?

Arne Naess2Well, there is one prominent environmentalist theoretician who want just that. His name is (or rather was) Arne Næss (1912–2009), and he was a fairly famous and well-respected Norwegian philosopher, who wrote about a wide variety of subject, from semantics to Gandhi’s political philosophy, and he was also an expert on Spinoza. He founded a philosophical school called “ecosophy” or “deep ecology”. And what he called for was a reduction of the world’s population from today’s approximately 7 billion to 100 million (yes, million). 7 billion minus 100 million makes 6.9 billion. 6.9 billion of us will just have to go; otherwise the rest of the planet will not thrive. (My source for this is an obituary published in The Guardian a few days after his death.)

How will this mega-extermination be accomplished? Well, Næss himself believed it could be accomplished (although only in a remote future) by peaceful persuasion: people would just have to be persuaded to stop bringing children into the world. (Being an adherent of Gandhi, he believed in non-violence.) Of course, this is completely unrealistic. Why on earth should people abstain from having children? Of course, some people do abstain from having children; but most people do not; so how could vast numbers be persuaded to change their minds about this? I do not think I will have to elaborate more on this.

So whatever Næss himself might say about this, such extermination could only be achieved by force – and very massive force, at that.

So 6.9 billion of us will have to be rounded up and executed by the remaining 100 million. Or one might choose a slower method and impose forced abortion (as they do in China) or forced sterilization (as was proposed by India’s Indira Gandhi). Peaceful persuasion just will not work.

Is this likely to ever happen – or am I just “painting the devil on the wall” here? Of course I hope I am. But crazy ideas, that no one in his right mind could have taken seriously, have been implemented before. The idea that the Jews are responsible for every evil in the world resulted in approximate 6 million Jews being exterminated by the Nazis. The idea that capitalism is the root of evil accounts for bloodshed in Communist countries. The idea that the US is the “great Satan” accounts for the 9/11 terror attacks. Etcetera.

The danger might not be imminent. But, as George Reisman writes above, it is at least “looming on the horizon”.

And there are other environmental menaces as well. Even if this extermination does not take place, the policies urged by environmentalism and implemented by governments all over the world may drive us back to pre-industrial times. We will not be killed right away, but we will certainly suffer.

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What is Næss’ theoretical groundwork? It is the idea that nature has “intrinsic value”, i.e. a value quite apart from its relationship to man. I quote from the Guardian obituary:

Næss taught that ecology should not be concerned with man’s place in nature but with every part of nature on an equal basis, because the natural order has intrinsic value that transcends human values.

And what about the implications for politics and economics?

Shallow ecology, he believed, meant thinking the big ecological problems could be resolved within an industrial, capitalist society. Deep meant asking deeper questions and understanding that society itself has caused the Earth-threatening ecological crisis.

So even if we all will not be exterminated, capitalism and our industrial civilization will have to go.

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For Scandinavian speaking readers, I have also blogged about this in Swedish, and many years ago, I wrote a rather extensive criticism of “deep ecology”.

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Update August 30: There are other environmentalists than those quoted above who favor extermination of large numbers of people. I found the following in an article by Walter Williams:

Dr. Charles Wurster, former chief scientist for the Environmental Defense Fund, was once asked whether he thought a ban on DDT would result in the use of more dangerous chemicals and more malaria cases in Sri Lanka. He replied: “Probably. So what? People are the cause of all the problems. We have too many of them. We need to get rid of some of them, and [malaria] is as good a way as any.”

According to “Earthbound,” a collection of essays on environmental ethics, William Aiken said: “Massive human diebacks would be good. It is our duty to cause them. It is our species’ duty, relative to the whole, to eliminate 90 percent of our numbers.” [Italics added.]

Of course, the majority of environmentalists are not that murderous. But neither does one see them oppose those murderous views. And why should they, given the premise that nature has “intrinsic value” apart from its value to man?

(On the subject of DDT and malaria, see also George Reisman, Environmentalism’s Malaria Holocaust.)

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Update February 25, 2015: Another horror quote about Arne Næss:

Fast-forward to a conversation I had with the late Arne Næss, the Norwegian father of “deep ecology” and guru of the European Green movement. With a straight face, Næss told me that the eradication of smallpox was a technological crime against nature. For Næss’s deep ecology, the smallpox virus “deserved” and needed our protection, despite having maimed, tortured, and killed millions of people.

This is from Jerry Weinberger’s review of Alex Epstein’s The Moral Case for Fossil Fuels in City Journal, February 23, 2015. (Epstein’s book is highly recommended.)

Christianity and Time Preference

Adaptation of a Swedish blog post.

If you are acquainted with “Austrian” economics, you know what is meant by “time preference”: it refers to the fact that, everything else equal, a need satisfaction today is more important and higher valued than the same need satisfaction  at some time in the future. You also know that time preference is the ultimate determinant of the level of profit and interest in the economy, of what is commonly called “originary interest”.[1]

Is time preference a good thing or a bad thing? Well, if we had no time preference at all, we would not consume anything in the present and save and invest everything we have. But this, of course, is not possible: if we consume nothing in the present, we would quickly starve to death, and then, what point would there be to saving and investing? (I know this is a drastic example.) But neither would it be a good thing if our time preference were infinite and we were to consume everything today with no provision at all for the future. So we weigh the past against the future and decide how much we can consume today against saving and investing for the future.

A poor man tends to have a higher time preference than a rich man. For example, a homeless person is not in a position to plan very far ahead; he lives “from hand to mouth”. A multimillionaire, on the other hand, does not have to worry at all about how to get his next meal or finding shelter for the night, and is in a position to plan how to best invest his millions. And the rest of us are somewhere in between those extremes.

On the other hand, even a poor man can have relatively low time preference – if he is struggling to rise above poverty. (Many millionaires have started their lives as relatively poor.) And the other extreme would be the worthless heir who is squandering his wealth.

Time preference also varies with age. A baby or a toddler has high time preference, simply because he is not yet aware of such a thing as a “future”. But it is rather early in life that a child starts to think about what he wants to become when he is grown up. And old people may have high time preference, because they do not have much of a future to plan for; but this is mitigated if one has heirs and cares for their future.

But what has Christianity to say about time preference? Let me quote the Sermon on the Mount:

Therefore I tell you, do not worry about your life, what you will eat or drink; or about your body, what you will wear. Is not life more than food, and the body more than clothes?  Look at the birds of the air; they do not sow or reap or store away in barns, and yet your heavenly Father feeds them. Are you not much more valuable than they?  Can any one of you by worrying add a single hour to your life?

And why do you worry about clothes? See how the flowers of the field grow. They do not labor or spin.  Yet I tell you that not even Solomon in all his splendor was dressed like one of these.  If that is how God clothes the grass of the field, which is here today and tomorrow is thrown into the fire, will he not much more clothe you—you of little faith?  So do not worry, saying, ‘What shall we eat?’ or ‘What shall we drink?’ or ‘What shall we wear?’  For the pagans run after all these things, and your heavenly Father knows that you need them.  But seek first his kingdom and his righteousness, and all these things will be given to you as well.  Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own. (Matthew 6:25–34.)

In short: Why care about the future? God will take care of you! Well, is God really taking care of the homeless? No. The homeless are able to survive, because they live in a world where even the poorest enjoy some standard of living – a standard of living provided by capitalists and business men, i.e. by people with a very low time preference. (For more on this, see George Reisman’s article In Praise of the Capitalist 1 Percent, also available on Reisman’s blog.)

Now, I do not think many Christians actually live by Jesus’ recommendation here – if they did, they would all be homeless and beggars, and if they live in a world of Christians following Jesus’ advice, from whom would they beg? – Nevertheless, this is what he preaches.

Is this idea compatible with capitalism or with civilization? The question is rhetorical.


[1]) See on this Eugen von Böhm-Bawerk, Capital and Interest, Vol. II, Book IV; Ludwig von Mises, Human Action, chapter XVIII. – On exactly how time preference determines the profit and interest rate, see George Reisman, Capitalism: A Treatise on Economics, especially p. 492ff.