October 29, 2011

The Eminently Real Free Market (XLIV): Sketchy Stories (32): Scrooge on Externalization and Other Samples of Ferraran Standards of Documentation

Continuing his eighth sketchy story, Mr. Ferrara rails against State-facilitated externalization or socialization of the cost of doing business. In his attempt to make this a case against the free market, however, Mr. Ferrara has, as we have seen, summoned to the witness stand an unrepentant Catholic Fascist. Remarkably, he then reinforces his argument by quoting the words Charles Dickens put into the mouth of Ebenezer Scrooge in A Christmas Carol. You know, where he suggests that the poor repair to the prisons and workhouses of Victorian England, etc:
Well, I’ll be tougher than the toughies, and sharper than the sharpies—and I’ll make my money square!
All right, that was Scrooge McDuck.[0] That cartoon character’s lines may be more irrelevant to the matter at hand than Ebenezer’s, but not much. For the matter at hand is Mr. Ferrara’s accusation that
. . . it is precisely Scrooge’s reliance on the State to do what he should do in justice that Austrians defend. (28)
yet Mr. Ferrara does not—because he could not—quote any Austro-libertarian to the effect that employers either (a) morally owe their employees certain welfare benefits or (b) should evade that “obligation” by persuading their employees to join the welfare rolls. The Austrian condemnation of the welfare state in all its incarnations does not allow for that inference.
Let’s overlook that typical shortcoming, however, and instead make sure we understand his slander: Austrians allegedly defend the fictional Scrooge’s reliance on the State (which they want to dismantle) to do what that fictional miser was allegedly morally obliged to do.
Mr. Ferrara’s implicit slander that any given capitalist is presumptively a meanie—a Scrooge—informs the tenor of this section. And he is not finished: here he is merely foreshadowing the chapter (15) that he will devote to Michael Levin’s contrarian, pro-market interpretation of Dickens’ classic. Mr. Ferrara’s slander is not based on evidence we can examine, but rather trades on the negative emotional charge attaching to “Ebenezer Scrooge” enhanced by (as we shall see) a poorly documented anecdote. As there’s no real defendant here, no defense is required.[1]
We wonder why Mr. Ferrara didn’t omit this appeal to the fictional and instead move directly from Fanfani to one of his favorite whipping boys, Wal-Mart:
A perfect example of how the “free” market uses government to “externalize” its operating costs so that it can scrimp on employee compensation is the declaration by Wal-Mart’s CEO that Wal-Mart employees without medical coverage should consider public assistance. (28)
Truly horrible. But what does this have to do with Austro-libertarianism?
Markets, whether “free” or free, don’t use government. Individuals use government to seek power over other individuals, and historically the State has served as the convenient facilitator of such exploitation. We Austro-libertarians don’t think that moral hazard should exist.
Mr. Ferrara insinuates that the interest of big business in getting others to pay their costs of doing business was the prime mover of the rise of the welfare state in America, which would not, of course, explain its earlier rise in Europe. We agree that the effort to externalize costs was a factor, but hardly the only one. It is certainly not the kind of explanation that should satisfy a Catholic intellectual. Unless one is committed to Marxist—or Beardsian, quasi-Marxist—interpretation of history, one will look for ideological drivers. Murray Rothbard’s “Origins of the Welfare State in America”[2] shows how much ideology Mr. Ferrara’s economic determinism omits.
The silent, unsupported premise of Mr. Ferrara’s indictment of Wal-Mart is that “medical coverage” is somehow a morally necessary part of an employee’s compensation. Mr. Ferrara has not even attempted to show that it is any more such a part than is a Social Security “insurance premium.”
Compensation—money paid to “compensate” employees for the leisure they forego when they produce goods or services their employer prefers to that money—is determined by market forces, including the supply of and the demand for their particular skill sets. It is also, as we have argued, a function of the capital investment that increases the productivity of labor, which in turn increases the wages or “compensation” that labor can command.
Market forces—not ethical desire or the imperatives of justice—also determine the production of the goods and services for which wage earners exchange the money they receive in wages, including health care insurance. Markets cannot—logically cannot—be blamed for political interference with markets, which distorts pricing. Let’s eliminate those complicating, distorting, aggravating political forces.
One form that interference takes is the mandatory pooling of people who incur greater risks to their health through their lifestyle choices with those who incur lesser. That is, the same coverage is offered both to those who don’t eat well and exercise and to those who do.[3] But to the degree that health is subject to one’s control, to that degree the acquisition of an adverse health condition is not a poolable risk as is, say, a catastrophic accident. Yet insurance underwriters get raked over the coals every time they insist on following the logic of pooled risk rather than that of welfare benefits.
Such interference has made health care insurance coverage virtually unaffordable for most people.[4] Many of them conclude, unfortunately, more emotionally than rationally, that such coverage is not something they must either (a) pay for themselves or (b) receive as charity from others. It is rather something that is theirs as a matter of justice, as Mr. Ferrara suggests. This moral imperative does not, however, immunize companies from the central bank-spawned alternation of boom and bust, and during the bust, when many of them are forced to cut costs, including those associated with their compensation packages, healthcare insurance coverage is vulnerable. Wal-Mart demonstrated that just the other day. But Mr. Ferrara has not demonstrated that there is any presumptive right to such coverage: so far that’s just his dogma. As far as we can tell, it is but another form that compensation has taken historically and can one day cease to take.
If, in fairness to former Wal-Mart CEO Lee Scott whom Mr. Ferrara seems to quote, you would like to read for yourself what he said, even what else he may have said immediately before or after his alleged comparative judgment
“In some of our states, the public program may actually be a better value with relatively high income limits to qualify and low premiums” (28-29)
do not look to Mr. Ferrara. He fulfills his obligation as a propagandist once he has held up his target for mockery, sourcing only the latter’s adversary: his reference note cites something called wakeupwalmart.com/facts, but that link does not take one to the transcript of Mr. Scott’s speech mentioned in Mr. Ferrara’s note. (331 n. 51) Rather, it redirects to the site of the United Food and Commercial Workers International Union.
If fact, do not bother to look anywhere for the origin of those words, which seem to reproduce themselves, meme-like, across the Internet. On the Wiki article on criticism of Wal-Mart one can find a contemporary source for this alleged speech-fragment, but its linked reference, Susan Bucher’s impartially titled study, “Walmart: the $288 billion welfare queen,” Tallahassee Democrat, April 19, 2005, also redirects to that union site.
In short, Mr. Ferrara’s “perfect example” is an anecdote, from which nothing may be reliably inferred.
For the sake of argument, however, let’s assume that Mr. Scott said what he is quoted as saying and that it fairly represents his attitude toward the “public program,” i.e., the welfare rolls. Let’s also assume the veracity of the facts Mr. Ferrara appended to Mr. Scott’s words:
And this from a company whose CEO earns more than $25 million annually and whose founding family is worth more than $80 billion collectively thank to the labor of the “sales associates” Wal-Mart declines to provide with medical coverage . . . . (29)
The undefended implicit premise here seems to be: “And employers who are worth that much and pay their officers that much ought to pay larger compensation packages than those mutually agreed upon.” But that “ought” begs the question.  
While corporations are externalizing these operating costs [Mr. Ferrara writes], wage earners are paying for them almost entirely. In fiscal year 2008, for example, federal personal income taxes and payroll taxes combined represented 81% of federal tax revenues, while the corporate tax represented only 12%. (29)
Tax avoidance is everyone’s game, however, and we should not be surprised that those with more money and power will be better at protecting their money from the taxman than those with less. So, in the interest of equity as well as justice, let’s abolish all such systems by which the few loot the many and find a more intelligent way to pay for socially necessary goods and services. Let's try free markets.
On this very point, we are pleased to note partial agreement between Mr. Ferrara and ourselves. After imputing another silly “panic button” to us (“So, you want to soak the corporations?”), he “replies”:
. . . this is not an argument for increased corporate taxation. Rather, it is an argument for abolition of the personal income tax and the federal corporate income tax . . . (29)
Actually, we haven’t seen much of an argument at all, but if Mr. Ferrara wishes to number himself among the tax abolitionists, however, we will take him at his word. But then he drops the other shoe. (Same sentence; take a deep breath.)
. . . followed by payment of just wages and benefits to employees in the Catholic spirit of commerce, along with privatized retirement plans and public provision only for those truly in need, and then only at the local level. (29)
Hmmm.  How will that be paid for? He will attempt an argument for this opinion later, but here it is a gratuitous, question-begging assertion, meriting only gratuitous denial.
* * *
The rest of his sketch concerns the role of big business in the creation of the welfare state and its infamous socialistic “programs,” an involvement we lament and deplore, but to the origin of which there was much more by way of ideological inspiration than he shows any awareness of or interest in.[5] We do, however, question what this indictment of “the Keynesian model of the managed economy,” as he refers to it, has to do with the defense of free markets, hampered as they are by the implementation of that model. He tops off his narrative with this flourish:
. . . every single Western nation today . . . combines a “free” market of privileged corporations with government assistance programs by which corporate costs for employees are externalized. “We’re all Keynesians now,” as Milton Friedman has famously observed. (29)[6]
But he has not shown that they are necessarily “corporate costs” at all. They are simply various goods and services (e.g., “social security” financed by a Ponzi scheme) that people demand through the political system, which large corporations effectively control. The latter warrants the aim of abolishing, not the corporate form of organization, but rather the State.
As for his use of Friedman, Mr. Ferrara’s source for his words is not the December 31, 1965 issue of Time magazine where they first appeared, rather (once again) a book by his economics control, John Médaille. (331 n. 53) The latter author, however, merely reproduces the fragment of Friedman’s words that President Nixon echoed when he closed the U.S. “gold window” in 1971. Words “as quoted” by Médaille, however, is apparently good enough for Mr. Ferrara. We have seen how unreliable that can be. Let’s explore that defect in this instance.
Mr. Médaille wrote: “The conservative economist Milton Friedman somewhat impishly suggested “We’re all Keynesians now!” (The Vocation of Business, 79). If the following qualified remark by the late dean of the Chicago School of Economics sounds like an impish suggestion to our readers’ literary ears, then perhaps something is wrong with ours:
In one sense we are all Keynesians now; in another, no one is a Keynesian any longer. We all use the Keynesian language and apparatus; none of us any longer accepts the initial Keynesian conclusions.
As for Mr. Médaille’s political characterization of Friedman:
In 1994 Milton Friedman wrote a letter to Policy Review to complain that the magazine, then published by the Heritage Foundation, had inaccurately described his mentor and friend F.A. Hayek as a conservative. Noting that Hayek had included a postscript in his classic work of political philosophy, The Constitution of Liberty, explaining “Why I Am Not a Conservative,” Friedman said, “Hayek, to the best of my belief, like myself, always considered himself a ‘Whig’—a 19th century liberal, never a conservative.” Policy Review's editor, Adam Meyerson, was unfazed. Not only was Hayek a conservative, he told Friedman, but “you are a conservative, too. Sorry.”
Jacob Sullum, “Milton Friedman, Archliberal: Why the great free market economist was not a conservative,” TownHall.com, November 22, 2006. Emphasis ours.
We never said Mr. Ferrara is the first practitioner of the art of persistent misquotation and mischaracterization.

[0] Brother to Viennese polymath Ludwig von Drake. (Hat tip to Dave Rogers.)
[1] Mr. Ferrara once before treated us to his sophomoric use of the novelist when he referred to Albert Jay Nock’s unfortunate reliance on Dickens’ Hard Times to express disapproval of the enclosure of the English commons.
[2] The text of a paper Rothbard delivered at the Mises Institute's “Evils of the Welfare State” conference, Lake Bluff, Illinois, April 30—May 2, 1993.
[3] As Hans-Hermann Hoppe tersely put it: “Subsidies for the ill and diseased breed illness and disease, and promote carelessness, indigence, and dependency. If we eliminate them, we would strengthen the will to live healthy lives and to work for a living.”
[4] For excellent reading material on the topic of free-market health care, see the list Tom Woods compiled for a recent post.
[5] “J. Douglas Brown was head of Princeton's IRC-created Industrial Relations Department, and was the point man for the CES [FDR’s Rockefeller-dominated Committee on Economic Security.—A.F.] in designing the old-age pension plan for Social Security. Brown, along with the big-business members of the Advisory Council, was particularly adamant that no employers escape the taxes for the old-age pension scheme. Brown was frankly concerned that small business not escape the cost-raising consequences of these social security tax obligation. In this way, big businesses, who were already voluntarily providing costly old-age pensions to their employees, could use the federal government to force their small-business competitors into paying for similar, costly, programs. Thus, Brown explained, in his testimony before the Senate Finance Committee in 1935, that the great boon of the employer “contribution” to old age pensions is that it makes uniform throughout industry a minimum cost of providing old-age security and protects the more liberal employer now providing pensions from the competition of the employer who otherwise fires the old person without a pension when superannuated. It levels up cost of old-age protection on both the progressive employer and the unprogressive employer.” Rothbard, op. cit. Our emphasis.
[6] Mr. Ferrara’s grammar is as good as his scholarship. Reference in 2010 to someone’s “observing” something in 1965 should be expressed in the simple past tense.

October 25, 2011

Interlude: Tom Woods on the Latest Expression of Empirical "Catholic Social Teaching"

As it appeared today on npr.org, to which Tom Woods’s site alerted us. The NPR page describes Tom as “the author of 11 books, including The Church and the Market: A Catholic Defense of the Free Economy,” to our 2005 review of which we have just linked. 
Tom also wants readers to know that “I didn’t come up with the title; always give authors the benefit of the doubt on that and assume the editors title their articles.”


Don’t Mix the Ecclesiastical with the Economical
Thomas E. Woods
The Vatican’s Pontifical Council for Justice and Peace released a document Monday, calling for a world economic authority and condemning the “idolatry of the market.”
It’s a document that could have been written by any number of secular U.S. think tanks. It is also deeply confused.
On the one hand, it speaks of excessive money growth as a problem that can lead to dangerous “speculative bubbles.” On the other, it calls for a world economic authority that will . . . what? Be exempt from the errors and hubris of government officials and national central banks?
We were assured that the best and the brightest were running the Fed. These were people who told us the rise in housing prices was attributable to strong fundamentals. Alan Greenspan told people to take out adjustable-rate mortgages. Ben Bernanke said in 2006 that lending standards were sound. And so on.
Whenever rising interest rates might have discouraged crazed speculation in real estate, the Fed kept the mania going by maintaining low rates. When the market was trying to send us red lights, in other words, the Fed was turning them all green.
Had we really been engaged in “idolatry of the market,” we might have listened to the market. Instead, the central authorities drowned out what the market was trying to tell us.
It’s been idolatry not of the market but of central banks, the institutionalized sources of moral hazard and financial instability around the world. (The aura of infallibility and the cult of personality surrounding Fed chairmen make the language of idolatry more than mere poetic license.)
The widespread misdiagnosis of the crisis now engulfing us has led to the frequent claim that lax regulation, or deregulation, must have caused it, and that better supervision of the system can prevent future crises. This is a delusion, albeit a common one.
In the United States we saw a significant increase in staffing for the 115 agencies that regulate the financial sector, as well as a threefold (inflation-adjusted) increase in funding for financial regulation since 1980. There is no repealed regulation that would have prevented the crisis consuming the world right now.
The present malaise does not call for another layer of supervision, as the Pontifical Council appears to think. It calls for a serious moral and economic re-evaluation of institutions, among them central banking (and fiat money), that we have long taken for granted.
The last thing we need is a larger, more centralized version of what we have now. Our problem isn’t greedy people or bad personnel; every society and every period of world history have had those. The problem is the system itself.
What we need is a genuinely free economy, one not subject to the cronyism and manipulation at the heart of the present system, and one that’s free of the central bank.
We’ve been assured that the central bank has found a shortcut to prosperity by managing the economy with its highly touted macro tools and by second-guessing the interest rates to which the free interactions of individuals give rise. The result has been bubble after bubble and — contrary to popular belief — far more banking, currency crises and overall instability than was ever seen in the oft-misunderstood era that preceded the age of central banking.
The Vatican document reflects a vague sense of what is wrong, but any solution that involves reposing our confidence in still another layer of time-serving drones supervising a largely unchanged system is no real solution at all.

October 21, 2011

The Eminently Real Free Market (XLIII): Sketchy Stories (31): Kicking Capitalism While (Fan)Fanning the Embers of Fascism (2)

Amintore Fanfani, the star of yesterday’s post, makes another appearance in TCATL in Mr. Ferrara’s eighth historical sketch, this time by name. We will get to him presently.
8. Corporate cost externalization: the “nanny state.”
Here he exposes the alleged hypocrisy (or perhaps merely the inability to remember “from one moment to the next”) of Austro-libertarians who rail against the welfare-warfare state “while failing to mention the role of corporations in its emergence and persistence.” (28)
By now you probably know how this goes: first, the overgeneralization dressed in scare quotes followed by a mélange of extraneous matters, each of which needing a reply (which, as you should also know by now, each one will get, but in due course):
Under the corporate status quo of our “free” market society, which institutionally rejects the Catholic concept of the just or living wage (see Chapter 12), corporations are able to “externalize” onto government (i.e., the taxpayer) not only transportation costs, as discussed above, but also the costs of supporting wage-dependent employees, including health and retirement benefits. (28)
The salient “failure to mention” here is Mr. Ferrara’s, whose yellow journalism overlooks Murray Rothbard, for his exposure of this very externalization (why the scare quotes?) was a major theme of his scholarly career. Here is a sample of his thought on this matter:
Under cover of the Civil War, then, the Lincoln Administration pushed through the following radical economic changes: a high protective tariff on imports; high federal excise taxes on liquor and tobacco (which they regarded as “sin taxes”); massive subsidies to newly established transcontinental railroads, in money per mile of construction and in enormous grants of land all this fueled by a system of naked corruption; federal income tax; the abolition of the gold standard and the issue of irredeemable fiat money (“greenbacks”) to pay for the war effort; and a quasi-nationalization of the previous relatively free banking system, in the form of the National Banking System established in acts of 1863 and 1864.
In this way, the system of minimal government, free trade, no excise taxes, a gold standard, and more or less free banking of the 1840s and 1850s was replaced by its opposite. And these changes were largely permanent. The tariffs and excise taxes remained; the orgy of subsidies to uneconomic and overbuilt transcontinental railroads was ended only with their collapse in the Panic of 1873, but the effects lingered on in the secular decline of the railroads during the 20th century. . . .
The chief architect of this system was Jay Cooke, long-time financial patron of the corrupt career of Republican Ohio politician Salmon P. Chase. When Chase became Secretary of the Treasury under Lincoln, he promptly appointed his patron Cooke monopoly underwriter of all government bonds issued during the war. Cook, who became a multi-millionaire investment banker from this monopoly grant and became dubbed “the Tycoon,” added greatly to his boodle by lobbying for the National Banking Act, which provided a built-in market for his bonds, since the national banks could inflate credit by multiple amounts on top of the bonds. (“Government-Business ‘Partnerships,’” as it appears in Rothbard, Making Economic Sense, Second Edition, 2006, Ludwig von Mises Institute, 190-192)
The article concludes:
The northeastern Republican Establishment is still cartelizing, controlling, regulating, handing out contracts to business favorites, and bailing out beloved crooks and losers. It is still playing the old “partnership” game—and still, of course, at our expense. (Ibid., 192.)*
Rothbard’s remedy, of course, was the opposite of Mr. Ferrara’s “freedom through moral restraint” program. It was rather to free markets from the State by reducing and ultimately abolishing the latter. Upon reading this correction of his account of the Austro-libertarian position, will Mr. Ferrara humbly bleat, “Oh. Never mind,” à la Emily Litella? To ask is to answer.
As it becomes clearer with each page that Mr. Ferrara intends to offer only more fallacy-infected, anti-capitalist litanies, we will take the occasion they provide to push the antithesis between his viewpoint and ours. Mr. Ferrara’s literary authorities are clues to the affinities that his Distributism bears to one form or another socialism, be it corporatism, guildism, democratic industrial organization, or, we now see in the case of Amintore Fanfani, Fascism. It is germane to the purpose of this blog to point them out.
NB: We are aware of Mr. Ferrara’s formal denial of socialism, if no other reason than that Pope Pius XI declared in Quadrogesimo Anno that “No one can be at the same time a sincere Catholic and a true socialist.” Mr. Ferrara is nothing if not a sincere Catholic. Since, however, his criticisms display the same economic ignorance that distinguishes franker socialists, draped in the same historical romance, then his denial rings hollow. Now, to Fanfani.
The renowned Italian economist Amintore Fanfani, who served as Prime Minister of Italy and President of the United Nations General Assembly, summarized, this truth about capitalism thus: “The State, by carrying out public works in a capitalist-liberal régime, lessens the risks of producers, andlamost plays the part of an insurance system.” (28)
We postpone a discussion of the tendentious description “this truth about capitalism.”
Readers had to wait until Mr. Ferrara quoted Fanfani a second time to get an insight into the meaning of this appeal to authority. Just why did Mr. Ferrara cite him? Because he was a scholar, a specialist in economic history, who taught at the Universities or Milan and Venice? Mr. Ferrara never mentions those achievements. Mr. Ferrara doesn’t even tell us that Fanfani was a Catholic, arguably relevant to Mr. Ferrara’s purposes in the  book under scrutiny. Does he believe that “Amintore Fanfani” is a household name, like, for example, “Abraham Lincoln,” in which case further denotation would insult the reader? We learn a bit of Fanfani’s post-war career but not why we should pay heed to the utterances of Italian Prime Ministers or Presidents of the U.N. General Assembly.
Most remarkably, he doesn’t mention Fanfani’s career as a fascisto-Catholic theoretician (before he reinvented himself as a center-left Christian Democrat), outlined in our previous post.** Remarkably, we say, for in the 21st century one does not responsibly quote such a figure without also distancing himself from that political commitment. One does both especially if one is a Catholic—unless, of course, one is attracted to aspects of Italian fascism. We’re anarcho-Catholics. If one is a fascisto-Catholic, one should step up to the microphone and say so rather than hope no one will notice that he’s quoting an earlier fascisto-Catholic. If one is not, then one should take pains to ensure that no one draws that fateful inference from one's words.
Now this blog is about TCATL, not Fanfani, but let’s take advantage of the present opportunity. As Fanfani was a scholar, a note on his contribution to the current state of economics education is germane.
For light on the roots of one of Fanfani’s ideas, we once again turn to Murray Rothbard, this time his magisterial Austrian History of Economic Thought. In the following passage he traced several symptoms of the economic ignorance on display in TCATL to 14th-century theologian and mathematician Heinrich von Langenstein the Elder, who was plucked from obscurity by a couple of scholars who unfortunately latched onto, not his expertise in divinity or math, but his economic notions.
In his usual entertaining way, Rothbard exposed the ageless rationale for the intervention known as price-fixing—the desirability of maintaining one’s station in life, draped in moralizing solicitude for the poor. Elements of 20th-century corporatism and guildism are discernible. Rothbard shows the power of ideas, especially bad ones, to influence scientific inquiry for centuries.

The Doctrines of One Obscure and Heterodox Scholastic***
Murray Rothbard
One nominalist and student of [Jean] Buridan, Heinrich von Langenstein the Elder (also known as Henry of Hesse) (1325–1397), while an uninfluential and minor scholastic philosopher in his own and later centuries, made great mischief for modern interpretations of the history of economic thought. Langenstein, who taught first at the University of Paris and then at Vienna, began in his Treatise on Contracts by analyzing the just price in the mainstream scholastic manner: just price is the market price, which is a rough measure of the human needs of consumers. This price will be the outcome of individuals” calculations about their wants and values, and these in turn will be affected by the relative lack or abundance of supply, as well as by the scarcity or abundance of buyers.
Having said this, Langenstein proceeded to contradict himself completely. In a highly unfortunate contribution to the history of economic thought, Langenstein urged local government authorities to step in and fix prices. Price fixing would somehow be a better path to the just price than the interplay of the market. Other scholastics had not exactly opposed price fixing; for them, the market price was just whether it was set by the common estimate of the market or by the government. But it was at least implicit in their writings that the free market was a better (or at the very least an equally good) path to discovering the just price. Langenstein was unique in positively advocating government price fixing.
Moreover, Langenstein added another economic heresy. He counseled the authorities to fix the price so that each seller, whether merchant or craftsman, could maintain his status or station in life in the society. The just price was the price which maintained everyone's position in the style to which he had become accustomed — no more and no less. If a seller tried to charge a price to advance beyond his station, he was guilty of the sin of avarice.
Langenstein was the odd man out among the scholastics and late medieval thinkers. No one has been found to second the “station in life” concept of the just price. Indeed St Thomas Aquinas himself effectively demolished this view when he trenchantly declared
In a just exchange the medium does not vary with the social position of the persons involved, but only with regard to the quantity of the goods. For instance, whoever buys a thing must pay what the thing is worth whether he buys from a pauper or a rich man.
In short, on the market prices are the same to all, rich or poor, and furthermore this is a just method of establishing prices. In the bizarre Langenstein view, of course, a wealthy seller of the same product would be obliged to sell it for a far higher price than a poor seller, in which case it is unlikely that the wealthy man would last long in the business.
As far as can be determined, no medieval or renaissance thinker adopted the station-in-life theory, and only two followers adopted the price-fixing position. One was Matthew of Cracow (c. 1335–1410), professor of theology at Prague and later rector at the University of Heidelberg and archbishop of Worms, and particularly Jean de Gerson (1363–1429), nominalist and French mystic who was chancellor of the University of Paris. Gerson, however, ignored the station-in-life notion and reverted to the 13th-century view of John Duns Scotus that the just price is the cost of production plus compensation for labor and risk incurred by the supplier. Gerson therefore urged that the government fix prices to force them to conform to the allegedly just price. Indeed, Gerson was a fanatic on price fixing, advocating that it be extended from its customary sphere in wheat, bread, meat, wine and beer, to embrace all commodities whatsoever. Fortunately, Gerson's view also had little influence.
Von Langenstein was scarcely important in his own or at a later day; his great importance is solely that he was plucked out of well-deserved obscurity by late-19th-century socialist and state-corporatist historians, who used his station-in-life fatuity to conjure up a totally distorted vision of the Catholic Middle Ages. That era, so the myth ran, was solely governed by the view that each man can only charge the just price to maintain him in his presumably divinely appointed station in life. In that way, these historians glorified a nonexistent society of status in which each person and group found himself in a harmonious hierarchical structure, undisturbed by market relations or capitalist greed. This nonsensical view of the Middle Ages and of scholastic doctrine was first propounded by German socialist and state corporatist historians Wilhelm Roscher and Werner Sombart in the late 19th century, and it was then seized upon by such influential writers as the Anglican Socialist Richard Henry Tawney and the Catholic corporatist scholar and politician Amintore Fanfani. Finally, this view, based only on the doctrines of one obscure and heterodox scholastic, was enshrined in conventional histories of economic thought, where it was seconded by the free market but fanatically anti-Catholic economist Frank Knight and his followers in the now highly influential Chicago School.
The much-needed corrective to the older view has at last become dominant since World War II, led by the enormous prestige of Joseph Schumpeter and by the definitive research of Raymond de Roover.
How irenic of Rothbard to describe Fanfani so politely and how interesting that Mr. Fanfani’s partner in this intellectual escapade was the Anglican Socialist Tawney, whom Mr. Ferrara has drawn upon, as we saw last April.
To Be Continued

* “. . . what does one do with the legion of pro-New Deal, -Fair Deal, -Great Society big businessmen: the Paul Hoffmans, the Averell Harrimans, the Rockefeller brothers? Neither the liberal explanation that these were unusually ‘enlightened’ or ‘intelligent’ sports, nor the conservative psycho-smear that they were brainwashed into feeling guilty about their wealth by liberal prep-school teachers, was particularly compelling. Especially when everyone knew that such government intervention as tariffs or import quotas on steel, for instance, were lobbied for, neither by altruists nor by the brainwashed guilt-ridden, but by steel manufacturers anxious to secure their profits from more efficient foreign competition.” Rothbard, “The Business-Government Alliance,” Inquiry, January 1983, republished here.
** In his Machiavelli’s Children: Leaders and Their Legacies in Italy and Japan (Cornell University Press, 2005), Richard J. Samuels reveals facts about Mr. Ferrara’s expert that in turn raise disturbing questions about Mr. Ferrara’s use of him, questions he neither anticipates nor answers.
The Christian doctrine of “voluntarism” was his [Fanfani’s] connection to fascism. On this view, the economy is subordinate to politics, and politics is subordinate to Christian morality. . . . Corporatism was a fundamentally reactionary “third way” between capitalism and communism that suited Catholics and fascists alike. 250
Although his central concern was social justice, he was not beyond nationalist sentiment. Fanfani celebrated Italian imperialism in Ethiopia, for bringing “Roman virtue combined with Christian consecration” to Ethiopia. He praised Mussolini, whom he called “the conqueror of all in the struggle for civilization,” for inculcating a new patriotism among youth and for raising Italy’s stature abroad. . . . In 1937 he wrote that he did not consider fascism a form of tyranny because it limited “only the noxious and dysfunctional liberties.” Totalitarianism, he argued, was acceptable because it organized the inequalities among citizens for desirable collective ends and subordinated rights to duties.” 250
Fanfani continued to write of its [Fascism’s] virtues as late as 1942, arguing that it had succeeded traditional corporatism with its powerful ideas for “organic reconstruction of society and cross-class cooperation.” At this point Fanfani was convinced that fascist corporatism echoed the moral teachings of the Catholic Church, a “coincidence [that] should not serve to diminish the originality and merit of fascist corporatism, but [that] should demonstrate the profound sense of justice that animates the new [fascist] doctrine.” 251.
Fanfani had been attracted to fascism in part because fascist corporatism was consistent with Catholic social doctrine and in part because fascism was politically dominant. He reinvented himself as a center-left Christian Democrat at a time when democracy had become the only means to realize his social doctrine or to achieve political power. 252.
Certainly helps position TCATL within a longer tradition!
*** From Economic Thought before Adam Smith, the first volume of Rothbard’s History, 77-79, was published as a Mises Daily article on January 8, 2010.

October 20, 2011

The Eminently Real Free Market (XLII): Sketchy Stories (30): Kicking Capitalism While (Fan)Fanning the Embers of Fascism (1)

Before examining Mr. Ferrara’s seventh historical “sketch,” we urge upon our visitors Stephan Kinsella’s recent (October 18) and extensive answer to those who, like Mr. Ferrara, Kevin Carson, Joel Bakan, et al., seem to regard the notion of corporate personhood as the root of all modern evil, which we addressed in recent posts. It is entitled, “Corporate Personhood, Limited Liability, and Double Taxation.” A lively discussion with Mr. Kinsella follows in the combox.
* * *
The next sketch under review, reproduced below, continues Mr. Ferrara’s by-now boring recitation of historical examples of some capitalists seeking and winning governmentally granted privileges, subsidies, and other non-market advantages over their market rivals—as though such stories bore on the Catholic reception of Austro-libertarianism, i.e.:
7. The use of State power to impose the legal and social uniformity required for “efficient” large-scale commerce (27)
to which our by-now equally boring response is that such episodes only reinforce our case for ethically regarding the State—no matter how “constitutionally limited,” no matter how “small” by today’s measure—as an unacceptable moral hazard.* Here’s the latest laundry list:
Capitalists were instrumental in achieving State-imposed uniform legal codes and weights and measures, the abolition of the guilds and other intermediary social bodies, the repeal of the Sunday closing laws and legal religious holidays, the repeal of laws against usury, and a host of other State-imposed “reforms” that cleared away all the underbrush in the once Christian socioeconomic landscape that had interfered with the business of buying cheap and selling dear over as large a territory as possible. Capitalism thus achieved, through the exercise of State power, “still greater advantages from being able to expand over the wide territories of a State in which the feudal substructures were demolished one by one.” (27-28)
Our first reaction to this was, “So, for crying out loud, work to abolish the State instead of trying to influence it!” Taking these items on a case-by-case basis, we notice problems that the market solves when it is free to (e.g., standards), and others that are not problems at all (“usury,” to which we will return in future posts). The generalization “were instrumental in achieving” is a template of conceptual laziness that dilutes any content poured into it. If Mr. Ferrara laments the passing of “feudal substructures” (along with their intertwining royal and papal intrigues), or prefers buying dear and selling cheap to the alternative arrangement, he should step up to the microphone and remove any doubt.
Our second reaction was based on what we found in the reference note appended to the concluding quote, whose author is not identified in the main text. We were surprised, at least initially, to see his nonchalant reference to Fanfani’s Catholicism, Protestantism, and Capitalism, an erudite anti-capitalist tome that should give its readers, especially Catholics among them, a whiff of the ideological hothouse within which early 20th-century anti-capitalism grew.**
Mr. Ferrara’s note gives the uninformed reader the impression that Catholicism, Protestantism, and Capitalism is a new book, as it bears a publication date of 2005 and the imprint of IHS Press, a pro-“Catholic Social Thought” outfit after Mr. Ferrara’s own heart. In the next sketchy story he obscures more than identifies Fanfani, but let’s not get ahead of ourselves.
At the Cattolica del Sacro Cuore, which he graduated from in 1932, Fanfani wrote a thesis that was published three years later as Cattolicismo e Protestantismo nella formazione storica del capitalismo, also published in the United States by Sheed & Ward as Catholicism, Protestantism, and Capitalism. So this is not a new book.
The ‘30s were a busy time for Signore Fanfani. In 1935, the year this Fascist Party member’s first book was published (while Mussolini’s “imperial” troops were mustard-gassing Haile Selassie’s), he found regular outlet for his literary production in a magazine with the charming title La Difesa della Raza (The Defense of the Race). Since we are in an inflammatory mood, we reproduce a few covers:










Furthering the goals of its movers and shakers was a “Manifesto della razza,” which many public figures and academics, including our devout Catholic social scientist, signed. The Manifesto quickly metamorphosed into a law in July 1938 that deprived Italian Jews of their citizenship, thereby provoking the displeasure of Pope Pius XII with equal alacrity.
In short, to say that Amintore Fanfani was a Fascist is not to engage in leftist name-calling. According to the July 14, 1958 issue of Time magazine, Fanfani “once wrote” that
the European continent will be organized into a vast supranational area guided by Italy and Germany. Those areas will take authoritarian governments and synchronize their constitutions with Fascist principles.
“Once” was probably fifteen to twenty years earlier. Certainly no Italian dreamt such dreams after July 25, 1943, the day King Victor Emmanuel III had Mussolini arrested, a month and a half before Italy’s surrender to the Allies. Signore Fanfani was probably not even in town at the time: having been drafted into the service of the lost cause of that grand synchronization, he fled to Switzerland to teach Italian expatriates and conceptually alchemize his fascisto-Catholic or "corporatist" ideology as “Christian Democracy.” This former Fascist cheerleader, who continued to expound Fascist principles as late as 1942, when his anthology Il Significato del corporativismo appeared, reinvented himself as Catholic Prime Minister of post-war Italy five times (not to mention numerous other governmental posts).
Mr. Ferrara didn't think any of this was worth bringing to his readers' attention.
To Be Continued

* Catholics wary of drawing that anti-state, i.e., anarchistic, conclusion should remember that man’s fallen nature and the nature of the State as the territorial monopolist of the means of violence form a fateful combination. It is just because "men are not angels" that they should not be trusted to exercise that monopoly. We anarcho-Catholics are happy to have a discussion about how social order is to be maintained in the absence of such a monopoly. We only ask that those who see it as indispensable to such maintenance entertain our skepticism for an evening. We remind them the State does not “abuse” its power the way a bad parent abuses his or her parental authority or a bishop his episcopal. As a network of interpersonal relations, the State is constituted and sustained by aggression, the initiation of violence against persons and their property. It is intrinsically, not accidentally, a rights-violating agency. The monopoly it enjoys in the provision of defense, police, and judicial services only underscores the State’s constitutional instability and the incoherence attaching to “the State” as a summary term for such diverse activities as taxation, defense, and ensuring the delivery of mail.
** Ironically, Murray Rothbard prepared a brief report bearing that same title, dated August 8, 1957, for the Volker Fund. Its content should be of interest to followers of this blog.

October 12, 2011

The Eminently Real Free Market (XLI): Sketchy Stories (29): Railroading the Free Market

Mr. Ferrara’s brief eighth historical “sketch”
8. The government-subsidized transportation network (27)
is surreal in its virtual repetition of Murray Rothbard’s case against government subsidies to corporations without "connecting to the dots" for the reader who wants to know how this undermines the Austro-libertarian defense of the free market. One would think it tends to exonerate Austro-libertarians of the Carsonian charge of vulgarity.
When given the opportunity, no Austro-libertarian fails to condemn such subsidies on the explicitly Rothbardian grounds Mr. Ferrara adduces. He then delivers this revelation:
Without government-subsidized transportation systems, the modern “free” market could never have developed as it did nor continue to function as it does. (27)
And Rothbardians, those “vulgar libertarians” who have created almost a cottage-industry of historical revisionism regarding the career of Lincoln the Corporate Railroad Lawyer, join Mr. Ferrara in condemning anything that interferes with free markets.
What we wait in vain for Mr. Ferrara to acknowledge, however, is the significance of the reality of persons who generally seek mutually agreeable terms of trade even if they also irrationally pursue opportunities to cheat and plunder each other. We acknowledge both sets of facts, while affirming the eminent reality of free markets, a reality that asserts itself through the major and minor distortions, betrayals, and perversions committed by every kind of market player, rich and not-so-rich.* The freedom is exercised in spite of the subsidies.
Mr. Ferrara doesn’t need more than these three paragraphs, however, to display once again his already well-documented penchant for misdirection:
Even Rothbard notes that the railroad companies “received vast subsidies of land from the government: not only rights-of-way for their roads, but fifteen-mile tracts on either side of the line.” Through federal, state and local government land grants and outright land seizures by eminent domain as authorized by the “takings clause” of the Fifth Amendment, tort law exemptions that insulated railroads from damages liability, the issuance of government railway bonds, the use of tax dollars to construct and  maintain interstate highways, and numerous other government favors, it is the State—not the “free” market—that has “built an artificial ecosystem to which large-scale, mass-production industry was best ‘adapted’” while small local firms were fatally disadvantaged by new, government-subsidized economies of scale.
This was only part of the process by which “the growth of big government continued to parallel that of big business, introducing newer and larger-scale forms of political intervention . . . to insulate the giant corporation from the market forces that would otherwise have destroyed it.”
To his credit, Mr. Ferrara quotes approvingly and accurately from Murray Rothbard’s Power and Market—perhaps the most hardcore anarchocapitalist economics textbook ever written—but then unfortunately creates the impression that his next two quotes are from the same source. In fact they are from The Homebrew Industrial Revolution by Carson the Accuser, a fact discovered only in the reference notes.** Rothbard's position on large-scale or small-scale industry is not quoted. We cannot recall where he has ever written on it. That aside, why would Mr. Ferrara not make it clear that the "Pope" of the Vulgar Libertarian Church and Carson are on the same page when it comes to the free market and anti-market government subsidies? Would such forthrightness undermine his propagandistic purpose?

*  We acknowledge both sets, but do not equate them ontologically: distortions, perversions, and betrayals are dependent, even parasitic, upon what they distort, pervert, and betray. Wealth, to be looted, must first be produced. 


** Mr. Ferrara’s ellipsis obscures Mr. Carson’s phrase, “to address the corporate economy's increasing tendencies toward destabilization,” which omission suggests that perhaps even Mr. Ferrara is uncertain about whether there is such a thing as a “corporate economy.” There is certainly such a thing as an economy progressively destabilized by governmental interference.

October 10, 2011

The Eminently Real Free Market (XL): Sketchy Stories (28): The Corporation as “Sociopath” (5)

Toward the end of his fifth sketchy story, Mr. Ferrara declares rather arbitrarily that
Whatever good corporations have done in the relentless pursuit of their own ends is not the result of the corporate form as such, which invites and protects a thousand abuses. (26)
One would think that the corporate pooling of capital bears some causal relationship to the good of higher living standards, itself an effect of the greater productivity that that pooling makes possible. Not a word about that, of course.
The unlimited liability corporation—the sole logical alternative to the LLC Mr. Ferrara reviles—would be formed only rarely, if ever, for few investors would care to put not only their own well-being but also that of their families at risk just because they went into business with others.
Since Mr. Ferrara brought up the topic of abuse, we remind him that the Catholic Church seeks that corporate form of protection so that liability for millstone-meriting abuse committed by some of its officers is confined to corporation assets and does not ensnare every Catholic who ever donated money to Her.
If what bothers Mr. Ferrara is an organizational form that “invites and protects a thousand abuses,” then he should direct his animus against the state as such, whose income stream is predicated on a squishy reading of the Eighth Commandment. The state is a moral hazard, if there ever was one. If one does not like the partnership between the taxing state, which is intrinsically rights-violating, and limited liability corporation, which is only accidentally so, it is not rational to abolish the latter in favor of the former. Or at least we’d like to see an argument for that preference.
Mr. Ferrara should consider that if there were no attractive helm of state for them to influence or seize, all LLCs would be utterly exposed to the rigors of the free market with no Sugar Daddy Fed to bail them out should they fail. There would, for example, be no non-market regulatory burdens and taxes at all, let alone of a magnitude that only the biggest market players can afford to comply with and pay. But if those barriers to market entry were lifted, “expiration dates” on the dominance of those larger firms would begin to materialize on their backsides.
Anarcho-Catholics join Mr. Ferrara in supporting the separation of corporation and state. We part company, however, over the probability of success as long while the state exists. There was never a time when the wealthy and the powerful did not form a symbiotic relationship, with members of each group morphing into members of the other, perverting both into social parasites. If anyone is more hopeful about the future on this score, we’d like to understand their reasons.
People who, like Mr. Ferrara, claim to favor genuinely free markets, as distinct from today’s hampered markets, should join our effort to “hamper the hamperer” and, frankly, phase it out. For as small as it was a century ago (in comparison to today), the Federal Government was not then so small as to be overlooked by the financiers who conspired to form the Federal Reserve System, a story that Mr. Ferrara will tell more or less accurately in his tenth sketch—and then, like the drunk who, sick after ten consecutive cocktails, swears, “That’s it! No more ice for me!,” fails to draw the anti-statist moral therefrom.
If certain large LLCs that benefit from the State are the mainstay of the State, then they will never keep their mitts off it. And they will resist with all their might the formation of any State they do not control. The only remedy, as we see it, is cold turkey: “No more State for you guys . . . ever!”
We must also remember that the State is effectively an LLC—“on steroids,” so to speak: it is a Hellmouth that recognizes no limits to its appetites. In the end, however, it is but a configuration of imperfect men, one which other imperfect men can, and will, disband once they set their mind to it.
Mr. Ferrara closes this section with an hypothesis about the moral breakdown in society, one that cannot wait for the appropriate time and place for hypothetical expression:
The publicly held corporation thus involves the same morally deadly disjunction between “public” and “private” morality exhibited by the secular State of political modernity—the disjunction that underlies the Austro-libertarian “ethics of liberty” and post-Enlightenment.
The corporation and the “free” market, as the Austrians call it, are perfect together. In one sense the “free” market of corporate activity, which has never been without its coercive partner, the secular State, is indeed free: free from all moral constraint, as any viewing of television for a few house will demonstrate with sickening impact. (26-27)
Still in his arbitrary mode, Mr. Ferrara just asserts that that disjunction is “morally deadly” without specifying the fatal ingredient. Perhaps he expects his readers to just nod their heads in unison when he writes this way, and perhaps most of them do as expected. But such throw-away lines come under the microscope here.
Now, there is a sense in which Austro-libertarians deny that disjunction: the moral quality of an action does not depend on whether State personnel engage in it. If A may not steal, then B may not steal, not even if B claims he’s ordained by God to steal. Not even if A and C, and D, and . . . n buy B’s claim to have the right to pick their pockets.
But that is probably not Mr. Ferrara’s point. He says he looks to the limited liability corporation for the source of televised moral degeneracy (among other species). If only agents of the “public”—preferably Catholics—would subject the “private” to moral constraint! But would Catholics get to do the subjecting? (Should they even want to, in the light of Matt. 20:25?) And since that has been tried before, one hopes that Mr. Ferrara would tell us why things would be different the next time. (We charitably assume he does not think the last time left nothing to be desired.)
The non-secular State of yore, after all, the one whose personnel often professed Christ with their lips and betrayed Him with their deeds—no shortage of that discrepancy today!—has at least an ambiguous record on this score. The professedly Christian monarchs and princes of those confessional states may have been restrained in their behavior, but we suspect that their comparative restraint was mostly a function of technological limitations.
Mr. Ferrara does not, at least here, essay an account of the role of philosophical ideas in moral decline, but it is hardly obvious that there is a simple answer to the question of why his late, lamented Christendom fell apart, with the help of both friend and foe. The Protestant revolt? Against what was it in revolt? The scientific revolution? What role did the Church's favoring of mechanism over Aristotelianism and hermeticism play in that episode?
Mr. Ferrara will not go there. He’s content to blame the LLC. Or the Enlightenment. Or greed, as the sign-wielding bipeds near Wall Street bleat. And this is supposed to pass for Catholic social analysis.