Leithner Letter No. 57
26 September, 2004

...After having thus successively taken each member of the community in its powerful grasp, and fashioned him at will, the supreme power then extends its arm over the whole community. It covers the surface of society with a network of complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate to rise above the crowd. The will of man is not shattered but softened, bent and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannise, but it compresses, enervates, extinguishes and stupefies a people, ‘til each nation is reduced to be nothing better than a flock of timid and industrial animals, of which government is the shepherd.

Alexis de Tocqueville
Democracy in America (1837)

Fascism will come at the hands of perfectly authentic Americans who have been working to commit this country to the rule of the bureaucratic state; interfering in the affairs of the states and cities; taking part in the management of industry and finance and agriculture; assuming the role of great national banker and investor, borrowing billions every year and spending them on all sorts of projects through which such a government can paralyse opposition and command public support; marshalling great armies and navies at crushing costs to support the industry of war and preparation for war which will become our nation’s greatest industry; and adding to all this the most romantic adventures in global planning, regeneration, and domination – all to be done under the authority of a powerfully centralised government in which the executive will hold in effect all the powers, with Congress reduced to the role of a debating society.

John T. Flynn
As We Go Marching (1944)

There’s really one question to be asked – does the public want a coalition led by me with the economy run by Peter Costello? Or a government led by Mark Latham and the economy run by Simon Crean? That’s the choice – the very, very stark choice. The Howard-Costello team – very good blend, run the economy extremely well. Very stable on defence and national security. Or the Latham-Crean team?

John Howard
Network Ten Australia (16 May 2004)

Behold Those Hoons Despoiling the Beach

One of the biggest threats to (or perhaps absurdities of) Western civilisation is that more and more people are passing longer and longer periods of time in universities. Alas, the “outputs” of Western degree factories can be as shoddy as the widgets once produced in Soviet industrial plants. Accordingly, as Sir Robert Menzies, Australia’s longest-serving Prime Minister (1939-1941, 1949-1966) put it in 1951, “the amount of muddled thinking and speaking that can proceed from minds that are supposed to be improved by university degrees in some cases is quite baffling.”

Yet these minds conform to the intention of these degrees’ designers. Western credential-holders are more – not less – susceptible to their rulers’ relentless torrents of cant, omissions, misrepresentations and lies. A good example occurred on 6 June 2004. On that day politicians from Australia, Britain, Canada, France, Germany, Russia, the U.S. and other countries congregated in Normandy. They did so ostensibly in order to commemorate the sixtieth anniversary of the Allied invasion of Nazi-occupied France. Their remembrance also drew attention to a fundamental lesson whose implications contradict the politicians’ “spin.”

The speeches, ceremonies and news coverage on 6 June, considered as a whole, invited their viewers and readers to accept three sets of conclusions. First, despite Vladimir Putin’s presence it was repeatedly implied that Anglo-American – and particularly American – armed forces conquered Nazi Germany. More generally, Allied governments and Western democracy were inherently good and Hitlerism was innately evil. Further, Western governments’ interventionist policies were unarguably righteous; and the extinction of Nazism, which commenced on the beaches of Normandy, confirmed both these governments’ nobility and their policies’ efficacy.

A second set of conclusions is closely related to the first. National Socialism might have sprung from the German “national character,” but Allied countries certainly had nothing to do with its rise. Similarly, major Western governments bear none of the blame for the outbreak of the Second World War. Quite the contrary: the war’s course and conclusion brought glory to the victorious Allies. In principle, Mssrs Blair, Bush and Howard seemed to say on 6 June, military interventionism led by America and dutifully supported by Britain and other British countries is not just the most appropriate way – it is ultimately the only possible way – to vanquish evil.

A third set of conclusions links past triumphs to current tribulations. Nazi totalitarianism and Islamic fundamentalism are cut from the same cloth. Each is inherently evil; each targets the good, noble and innocent; and just as Rome destroyed Carthage and sowed salt into its fields, America, led by its neo-conservatives and supported by like-minded leaders in other countries, must uproot and destroy “Islamofascism.” Nothing else, say the neocons, will preserve and protect the West’s intrinsic decency, nobility and innocence.

These three sets of conclusions contain a few kernels of truth, many distortions and some brazen falsehoods. With respect to the first set, Nazism was certainly fundamentally evil. It, together with Russian and Chinese and Cambodian and other outbreaks of Communism, epitomised the worst that human beings can do to one another. But it is wrong to imply that Anglo-American interventionism defeated it. Few Westerners remember that in June 1944 the Red Army also commenced a massive offensive. Operation Bagration involved 1.2 million Soviet soldiers, 4,000 tanks, 24,400 cannon and 6,300 aeroplanes. It was much bigger than the Normandy invasion – indeed, it was arguably history’s largest military operation. It cost more than 500,000 lives and produced one of the war’s most decisive victories. Within months the German Army Group Centre had effectively ceased to exist; and at Bagration’s conclusion the stage was set for the Red Army’s drive into Poland and Germany.

If Stalingrad was the end of the beginning, then the puncture of the Ukrainian and Normandy fronts in June-September 1944 was the beginning of the end. It therefore seems reasonable to say that the Anglo-American and Soviet campaigns were individually necessary and jointly sufficient conditions of Hitler’s destruction. If so, then the critical point is that Nazi totalitarianism was defeated at least as much by another evil, Soviet totalitarianism, as it was by the Anglo-American welfare-warfare state.

With respect to the second set of conclusions, to say that America, Britain and France had nothing to do with the rise of National Socialism, or more generally that Western interventionism bore no blame for the Second World War, is not just flatly false: it breeds costly delusions that have bedevilled their politicians to this day. During the Great War, which erupted ninety (northern) summers ago and was the primary cause of the Second World War, Britain maintained a naval blockade that cost the lives of hundreds of thousands of German civilians. After the Armistice – which Germany signed on the basis of Woodrow Wilson’s idealistic Fourteen Points – the blockade nonetheless continued and cost further hundreds of thousands of lives in Germany and Central Europe. Again mocking the Fourteen Points, at Versailles in 1919 British and French politicians, together with Wilson, imposed upon Germany the absurdly unjust notion that it was solely responsible for the war. Britain and France also forced upon it reparations that were extraordinarily harsh and – they suspected but did not care – impossible to fulfil.

According to Herbert Hoover, who moved heaven and earth in order to feed millions of hungry mouths during and after the war, the Treaty of Versailles was “an abomination” that would “pull down the whole continent” and “contained the seeds of another war.” A prominent British economist, John Maynard Keynes, concurred. In The Economic Consequences of the Peace (Penguin, 1919, 1995, ISBN: 0140188053). Keynes savaged the politicians who framed the Treaty. He also prophesied that war reparations would cripple Germany’s economy and prompt its politicians to repudiate the Treaty (which they did). These provocations and retaliations, in turn, would exacerbate hatred, provoke rearmament and ultimately incite another war (which they also did).

Western politicians did these abominable and self-destructive things because they believed their own propaganda. For half a century, many people in France had bitterly resented and sought to avenge the results of the Franco-Prussian war; and since the late nineteenth century, many Britons had feared the growing ability of German industry to produce more and better products at lower cost. The result was a lengthy, extraordinarily vitriolic and quite effective campaign of anti-German and anti-Wilhelmine hysteria (see, for example, Cate Haste, Keep the Home Fires Burning: Propaganda in the Great War, Allen Lane, 1977, ASIN: 0713908173 and Thomas Fleming, The Illusion of Victory: America in World War I, Basic Books, 2003, ISBN: 046502467X). Prominent academics, it is worth noting, did not just succumb to this frenzy: they helped to lead it (see in particular The Historian Who Sold Out by Thomas Fleming).

Anglo-French hatred of Germany produced the British blockade and the Treaty’s onerous terms; these things, in turn, helped to inflict economic devastation, chaos and despair in immediate post-war and Weimar Germany. They also generated outrage and resentment, and eventually enmity and blood lust for retaliation. These catastrophes of policy – not to mention the mammoth bungles at the Bank of England and Federal Reserve that helped to turn a recession in 1929-1930 into the Great Depression – contributed to a climate in Germany in which evil madmen thrived. The Great War thus set in motion a train of extremely costly unintended consequences. They included not just millions of deaths in 1914-1918, but also the collapse of classical liberalism and the classical gold standard, the rise of totalitarianism in Germany and Russia, an even more terrible war and the Holocaust.

American, British and French politicians’ illusions, delusions and blind hatred of all things German, then, did nothing to mitigate and indirectly and inadvertently spurred the rise of Hitlerism. During the Second World War, this odium mutated into Americans’ and Britons’ refusal even to consider the possibility that an internal opposition to Hitler might exist, and therefore into an implacable insistence upon unconditional surrender. This policy lengthened and intensified the war. Like the Allies’ deliberate decision to bomb German civilians, it cost hundreds of thousands of lives (see also Rethinking Churchill by Ralph Raico).

It is equally false to say that the Second World War produced peace – at least in the sense that our forebears knew it after Waterloo and before Sarajevo. To hold this position is to distract attention from another series of catastrophic miscalculations. It also excuses their major progenitor. Franklin Roosevelt’s breathtakingly naïve attitude towards Joseph Stalin (FDR believed he “understood Stalin,” that the Soviet dictator had a “sincere desire” for peace and that he would make “industrial and social changes” in Russia that would lead to “true democracy”) was based upon the delusion that he could charm this mass murderer into becoming a liberal democrat and his country into becoming a Slavic version of the New Deal (see John T. Flynn, The Roosevelt Myth, Fox & Wilkes, 50th Anniversary Edition, 1998, ISBN: 0930073282 and Thomas Fleming, The New Dealers’ War: FDR and the War Within World War II, Basic Books, 2001, ISBN: 0465024653).

The Second World War, like the Great War, produced a range of costly and unintended consequences (see in particular Gregory Pavlik, ed., Forgotten Lessons: Selected Essays of John T. Flynn, Foundation for Economic Education, 1996, ISBN: 1572460156). According to The Weekend Australian (7-8 August), “the two world wars were in turn the main causes of the 45-year Cold War,” including its hot tangents in Korea and Vietnam, and “which in its final fling spread into Afghanistan sparked the rise of the Taliban and al-Qa’ida, and through them 11 September and the war in Iraq.” The attacks on New York and Washington, in other words, were consequences of earlier disasters of interventionism. They epitomised much but changed nothing. Glibly to say that 11 September “changed everything” and that “we should look forward, not back” (as did The Australian Financial Review on 9 August) is therefore conveniently to absolve yesterday’s politicians for their misdeeds and misjudgments, and to give today’s crop a free hand to wreak further havoc.

The Unheralded Lesson

The fundamental lesson, obscured and ignored at the recent commemorations in Normandy, is that interventionist politicians inevitably make calamitous misjudgments. Foremost among these mistakes is total war. The errors committed during war inescapably generate more interventionism – which typically leads to yet more war. To reflect upon the myths, omissions, misrepresentations and lies uttered on 6 June is therefore to recognise that politicians are too arrogant or stupid (or, more likely, both) – and that journalists are too dumb and lazy and academics too dense, slack and venal – to grasp this hard lesson. The most disturbing spectacle on that day was the sight and sound of politicians who were either oblivious to the historical record or resolved to ignore it (and thus bound to repeat it). Consciously or otherwise, they took the easy option of reciting their usual litany of cant, nonsense and lies, and of associating themselves with the memory of slaughtered farm boys, clerks and factory hands.

After two world wars, the economic landscape in Europe is remarkably similar to one envisaged a century ago. Before the Great War, Kaiser Wilhelm “led a prosperous, lawful and fairly free country [and] an essentially responsible international power ... The Kaiser was an unelected chief executive by right of heredity, but otherwise much like a U.S. president” (The Weekend Australian 7-8 August). Wilhelmine Germany’s pre-war aims were modest. It sought an acknowledgement of the obvious fact that it was Europe’s biggest economy. Good fences make civil neighbours, and to keep Russia a respectable distance from its eastern frontier it wanted independence for Poland and the Baltic states. If goods do not move freely across borders, then (as the French classical liberal, Frédéric Bastiat, warned) soldiers will. To provide a market for its manufactures, Germany also sought a trade zone encompassing France, Italy, the Benelux countries, Scandinavia and Austria-Hungary. Germany aspired, in other words, to a role in Europe much like the one it plays today (see Niall Ferguson, The Pity of War, Basic Books, 1998, ISBN: 04650511X). But for decades British and French politicians sought desperately to deny economic reality; and partly because of their hysterical obstinacy – and American politicians’ disavowal of George Washington’s noble and wise Farewell Address to the American People – scores of millions had to die.

Extrapolating this point, what will Anglo-American politicians’ “war on terror” achieve? Much killing and hatred for many years. Grieving the death of his only son during the war to end all wars, in 1919 Rudyard Kipling wrote “if any question why we died, tell them because our fathers lied.” Peace will not come until these politicians abandon what they arrogantly believe is their right – the treatment of the Arab and Muslim world like a pawn on a chessboard, drawing its boundaries, making and breaking incompatible promises, occasionally invading it and constantly meddling in its affairs, and establishing and supporting puppets that oppress local populations. During the twentieth century, American, British and other politicians did little that mitigated – and much that indirectly and inadvertently encouraged – the rise of extremism. Today, consciously or not, they are doing exactly the same thing.

A just and enduring peace can come only if politicians stop creating a state of affairs in which extremists thrive. And given their appalling historical form, an unconscionably long time will pass before they come to their senses. In the mean time, Australia should indeed adhere strictly to a staunchly pro-American policy. But it must be “pro-American” in the proper historical sense of that term – one, alas, that is utterly alien to the best and brightest in Canberra. As Amir Butler expresses it in an outstanding article, Australia Must Follow Washington – George Washington, that is.

Another Sixtieth Anniversary

Alas, our rulers not only commit monumental sins of commission; they are also guilty of revealing sins of omission. Little, for example, has been said during the past six months – and nothing said by politicians – about another important sixtieth anniversary (see, however, Robert Formaini’s Are We Serfs? and Arnold Beichman’s The Road Away from Serfdom). Between 1940 and 1943, partly from an office at Cambridge lent to him by Keynes, a Viennese economist who migrated to Britain in the early 1930s and became a naturalised Briton just before the war wrote a book that sought to correct misconceptions about Germany and the interventionist policies Britons seemed determined to enact after the war. The economist was Friedrich Hayek and the book, published in Britain in March 1944 and in the U.S. in September of that year, was entitled The Road to Serfdom (The University of Chicago Press, 1944, 1972, ISBN: 0226320774).

Hayek contended, partly from first principles and partly from his analysis of British developments, that liberty is fragile, easily harmed but seldom extinguished in one fell swoop. Instead, over the years “the unforeseen but inevitable consequences of socialist planning create a state of affairs in which, if the policy is to be pursued, totalitarian forces will get the upper hand.” Hayek did not premise his case upon an a priori conception of natural rights. Instead, he asserted that liberty had developed from an a posteriori recognition of humans’ inherent limitations – particularly the restrictions of their knowledge and reasoning. Most importantly, no planner or group of planners, however intelligent and well resourced, can possibly obtain and process the countless bits of localised and tacit information required such that a government plan meets its objectives. Only price signals emitted in an unhampered market enable harmony and efficiency to arise spontaneously from many millions of individuals’ plans. Hence government intervention in the plans of individuals, even if undertaken by men of good will, inevitably leads to loss of liberty, economic stagnation (at best) and war and impoverishment (at worst).

Hayek also pointed to an even greater danger. “At least some of the forces which have destroyed freedom in Germany,” he warned, “are also at work [in Britain and, by implication, America]. The character and the source of this danger are, if possible, even less understood than they were in Germany. ... Few are ready to recognise that the rise of Fascism and Nazism was not a reaction against the socialist trends of the preceding period but a necessary outcome of those tendencies. ... As a result, many who think themselves infinitely superior to the aberrations of Nazism, and sincerely hate all its manifestations, work at the same time for ideals whose realisation would lead straight to the abhorred tyranny.” National Socialism, in short, was not a German cultural phenomenon: it was a socialist economic phenomenon.

Socialism, then – including the allegedly “moderate” and “responsible” variety championed today by business schools and business executives, investment bankers and funds managers, management consultants and MBAs, central bankers and Treasury economists, and Australian Liberals, British Conservatives and American Republicans – begets tyranny as well as stultification. Hayek did not maintain that any tendency towards socialism leads quickly or automatically to totalitarianism. Instead, The Road to Serfdom “is a warning that unless we mend the principles of our policy, some very unpleasant consequences will follow which most of those who advocate these policies do not want.” Alas, in 1976 Hayek reckoned “both the influence of socialist ideas and the naïve trust in the good intentions of the holders of totalitarian power have increased markedly since I wrote the book.”

These insights generated mixed reviews. In England, Fabians gave Hayek a careful, respectful and in a few instances sympathetic hearing. Keynes wrote two letters praising the book. In the U.S., however, New Dealers and One Worlders were apoplectic. Hayek was “surprised by the violence of the reaction from both political wings, by the lavish praise the book received in some quarters no less than by the passionate hatred it appeared to arouse in others.” In particular, “contrary to my experience in England, in America the kind of people to whom this book was mainly addressed seem to have rejected it out of hand as a malicious and disingenuous attack on their finest ideals; they appear never to have paused to examine its argument. The language used and the emotion shown in some of the more adverse criticism the book received were indeed rather extraordinary” (see in particular Herman Finer’s Road to Reaction, Greenwood Press, 1945, 1977, ISBN: 0837197260. Hayek called it “a specimen of abuse and invective which is probably unique in contemporary academic discussion”).

On 24 September 1944 The Road to Serfdom was the subject of the lead review in The New York Times Book Review. Henry Hazlitt, the author of Economics in One Lesson (Laissez Faire Books 50th Anniversary Edition, 1996, ISBN: 0930073207) and a Newsweek columnist, enthused that Hayek “has written one of the most important books of our generation. ... It restates for our time the issue between liberty and authority with the power and rigour of reasoning that John Stuart Mill stated the issue for his own generation in his great essay “On Liberty.” It throws a brilliant light along the direction in which the world has been heading, first slowly, but now at an accelerating rate, for the last half-century. It is an arresting call to all well-intentioned planners and socialists.”

Tomas Jezek, who became the Czech minister of privatisation after the collapse of communism, has said that if the “ideologists of socialism would single out the one book that ought to be locked up at any price and strictly forbidden, they would surely point to The Road to Serfdom.” If these ideologues of socialism, i.e., the “socialists of all parties” to whom Hayek dedicated the book, wish to avert the repetition of the multiple and unprecedented catastrophes that they caused during the twentieth century – and threaten to repeat in our own time – then they could do no better than to read it and heed its lessons. Investors, too, who are notoriously prone to complaisance and overconfidence, can benefit greatly from its sobering message.

The Most Prominent Austrian

Among the contemporary mainstream, Friedrich Hayek is the best known – which probably means the only known – Austrian School economist. For decades Hayek spread Austrian ideas to the English-speaking world, and in 1974 he was a co-recipient of the Nobel Memorial Prize in Economic Science (see Bruce Caldwell, Hayek’s Challenge: An Intellectual Biography of F. A. Hayek, University of Chicago Press, 2003, ISBN: 0226091910, Alan Ebenstein, Friedrich Hayek: A Biography, University of Chicago Press, 2003, ISBN: 0226181502 and Alan Ebenstein, Hayek’s Journey: The Mind of Friedrich Hayek, Macmillan-Palgrave, 2003, ISBN: 1403960380).

Hayek was born in 1899, attended the University of Vienna and earned doctorates in 1921 and 1923. In 1922 Mises published Die Gemeinwirtschaft (later translated as Socialism, Liberty Classics Edition, 1981, ISBN: 0913966622). To “young men who read the book when it appeared,” Hayek later recalled, “the world was never the same again.” An extension and elaboration of Economic Calculation in the Socialist Commonwealth (1920), Mises demonstrated that economic calculation presupposes private property and free markets. Without these things, there is no objective means whereby individuals can exchange subjective estimates of the value of land, capital, labour and consumer goods; and without these valuations, there is no basis to ascertain consumers’ wishes or devise a viable structure of production. Mises’s from-first-principles demolition of central planning converted Hayek to the material and moral necessity of capitalism (in 1983 Hayek noted “capitalism created the proletariat, but not by making anyone any the worse off; rather by enabling many to survive who would not otherwise have done so”).

Also during the early 1920s, Hayek attended Mises’s famous Privatseminar and undertook research about banking and monetary theory. Starting with the insights of Mises, Hayek explained the upward leg of the typical business cycle as a consequence of the expansion of bank credit and its bust as a consequence of the “malinvestments” made during the boom. The trouble with credit booms, in other words, is that they cause busts. Hayek’s research came to the attention of Lionel Robbins, produced an invitation to lecture at the LSE (which created a sensation) and an offer to occupy its Tooke Chair in Economics and Statistics (which Hayek accepted in 1931).

During the early 1930s, Hayek and Keynes debated the latter’s Treatise on Money (1930). As one of Keynes’s leading critics, Hayek was ideally placed to provide a comprehensive critical analysis of The General Theory (1936). Alas, he never did. Keynes’s personal charm and rhetorical skill, as well as Hayek’s reserved demeanour and general aversion to disputation, was a deterrent. Further, for years Keynes had repeatedly changed his theoretical positions and policy prescriptions. Expecting to see Keynes reconsider yet again, and exasperated by its numerous contradictions, errors and sheer muddles, Hayek declined to subject The General Theory to painstaking criticism. How differently investors, economists and politicians might think and act today if in the mid-1930s Hayek had written a line-by-line refutation, i.e., a book like Hazlitt’s The Failure of the “New Economics:” An Analysis of the Keynesian Fallacies (The Foundation for Economic Education, 1959, 1994, ISBN: 1572460024).

Hayek remained at the LSE until he joined the Committee on Social Thought at the University of Chicago in 1950. His unexpected award of the Nobel Prize helped to revive interest in Austrian School economics. His last major work, The Fatal Conceit: The Errors of Socialism (University of Chicago Press, 1988, 1991, ISBN: 0226320669) was published a few years before his death in 1992 (he died at Freiburg, Germany, where, except for a brief period at Salzburg, he had lived since he left Chicago in 1961). Hayek, who lived to see the disappearance of Nazi and Soviet totalitarianism but not the collapse of the Western welfare-warfare state, is best known for The Road to Serfdom. He also made substantial contributions to the economics of knowledge (see in particular The Use of Knowledge in Society) and capital and business cycle theory. He is also recognised as an important political philosopher and legal theorist (see in particular The Constitution of Liberty, University of Chicago Press , 1960, 1978, ISBN: 0226320847). Keynes’s biographer, Robert Skidelsky, has called Hayek “the dominant intellectual influence of the last quarter of the 20th century.”

The Road’s Present Terrain and Contour

In order to appreciate Hayek’s insights fully, one should read TThe Road to Serfdom carefully and from cover to cover. To glimpse its relevance for our day, consider two points. First, although “hot socialism [i.e., the nationalisation of banks and heavy industry, the collectivisation of agriculture and so on] is probably a thing of the past, some of its conceptions have penetrated far too deeply into the whole structure of current thought to justify complacency. If few people in the Western world now want to remake society from the bottom according to some ideal blueprint, a great many still believe in measures which, though not designed completely to remodel the economy, in their aggregate effect may well unintentionally produce this result. [Accordingly], the advocacy of policies which in the long run cannot be reconciled with the preservation of a free society is no longer a party matter.”

Hayek continued: “the socialism of which we speak is not a party matter, and the questions which we are discussing have little to do with the questions at dispute between political parties. It does not affect our problem that some groups may want socialism less than others; that some want socialism mainly in the interest of one group and others in that of another. The important point is that, if we take the people whose views influence developments, they are now in the democracies in some measure all socialists. If it is no longer fashionable to emphasise that ‘we are all socialists now,’ this is so merely because the fact is all too obvious.”

Obvious to everybody, perhaps, except American Republicans. A recent article by Laurence M. Vance, The Myth of Republican Conservatism, corroborates Hayek’s contention. It states “the latest ‘Conservative Index’ ... is an eye-opener for those who think that the Republicans in Congress are ‘conservative.’” According to The New American, the Conservative Index “rates Congressmen based on their adherence to constitutional principles of limited government, to fiscal responsibility, to national sovereignty, and to a traditional foreign policy of avoiding foreign entanglements.” It defines conservatism in terms of the “Constitution, the freedoms it guarantees and the moral bedrock on which it is based.”

To obtain a summary measure of every Congressman’s adherence to these ideals, each vote they cast was assigned a plus (good) or a minus (bad) score. Dividing a Congressman’s number of “plus” votes by the total number of votes cast and then multiplying that figure by 100 produces the summary (0-100) measure. The higher the number the stronger is the Congressman’s adherence to “conservative” ideals. In the House, Ron Paul (Republican-Texas) unsurprisingly earned the highest score (a perfect 100); and in the Senate, John Ensign (Republican-Nevada) emerged with the honours (80). But the averages, according to Vance, are shocking. Irrespective of party, the average score for members of the House was 46 and the average for Senators was 41; and two Republicans “earned” the wooden spoon in the Senate (10).

How does this index shatter the myth that Republican Party is “conservative”? Bernie Sanders (Independent-Vermont), the only member of the House who freely acknowledges that he is a socialist, scored 47 – slightly above the average! Moreover, a whopping 174 House Republicans – 76% of the caucus – and 23 Senate Republicans (45%) scored lower than Sanders. Ignore their moronic swagger and bluster – most Republicans in Congress are, in terms of their acts and deeds, socialists. They simply lack the honesty to admit it – both to themselves and others.

Twenty-one Republicans in the Senate scored the same as or less than their bêtes noires (Ted Kennedy and Hillary Clinton, each of whom scored 40), and none of the Republican leadership in either chamber tallied more than 50. House Majority Leader Tom DeLay scored 50, and Senate president pro tempore Ted Stevens and Senate Majority Leader Bill Frist scored 40 – tying the Senate Democratic Minority Leader, Tom Daschle. The principles of most Republicans, in short, are either dishonest or deluded (or both); and these principles, when applied to matters before Congress, are indistinguishable from those of either its sole self-declared socialist or the Democratic Party. As Hayek foretold, everybody in America is a socialist.

Vance concludes “as should be obvious, the Republican Party is not the hope of America.” Equally obviously, nor is the Democratic Party; but because they are the more hypocritical of the two (in the sense that their actions more blatantly contradict their rhetoric), it is Republicans who should be reviled as America’s foremost no-hopers. They are “conservative” only in the sense that they strive to maintain and extend FDR’s socialism at home and militarism abroad. But do not gloat: Australian Liberals and British Conservatives are equally contemptible.

According to Vance, “nothing has changed since George Wallace said that there was ‘not a dime’s worth of difference’ between the Democratic and Republican presidential candidates.” So too in Australia and Britain: the only subject matter of “debate” among parties is what new powers, taxes and expenditures will be added to those that already exist (see also The Single Party by Joseph Sobran). In Hayek’s words, “the most important change which extensive government control produces is a psychological change, an alteration in the character of the people.” With the honourable exceptions of Ron Paul and a very few others, statism has certainly altered the character of American Republicans, Australian Liberals and British Conservatives (see also America the Unfree by Paul Craig Roberts).

As a second point, Hayek warned in The Road to Serfdom about the destruction of the legal foundation of British liberty. Following John Locke, Hayek argued that personal liberty presupposes the rule of law. “Stripped of all technicalities,” this “means that government in all its actions is bound by rules fixed and announced beforehand.” Hayek draws an analogy between the rule of rule and good traffic regulations. Rules should be very few and very simple, and therefore easy for drivers to follow and police to enforce. They should also evolve slowly over time and leave drivers free to choose their own destinations. Good rules enable drivers to reach their destinations safely and in good time. Poor rules not only confuse drivers and help to cause accidents: if they are irregularly enforced, or enforced harshly for some drivers and leniently for others, they engender cynicism and contempt for the law. Accordingly, “the essential point [is that] the discretion left to the executive organs wielding coercive power should be reduced as much as possible.” Such discretion constitutes “despotism exercised by a thoroughly conscientious and honest bureaucracy for what they sincerely believe is the good of the country. But it is nevertheless arbitrary government.”

Whence comes the pressure for this discretion and the capriciousness? From the fairest – indeed, the most sacrosanct, misunderstood and therefore insidious – word in today’s political lexicon (see in particular Hans-Hermann Hoppe, Democracy, The God That Failed: The Economics and Politics of Monarchy, Democracy and Natural Order, Transaction Books, 2002, ISBN: 0765800888). Hayek does not make “a fetish of democracy. It may well be true that our generation talks and thinks too much of democracy and too little of the values which it serves.” Democracy, says Hayek, is a means of safeguarding peace and individual liberty, and its desirability depends upon the achievement of these ends in given circumstances. It is neither intrinsically desirable nor infallible. Indeed, “the fashionable concentration on democracy is not without danger. It is largely responsible for the misleading and unfounded belief that, so long as the ultimate source of power is the will of the majority, the power cannot be arbitrary. The false assurance that many people derive from this belief is an important cause of the general unawareness of the dangers we face. There is no justification for the belief that, so long as power is conferred by democratic procedure, it cannot be arbitrary.”

Free Martha!

H.L. Mencken expressed the point this way: “it is the invariable habit of bureaucracies, at all times and everywhere, to assume that every citizen is a criminal. Their one apparent purpose, pursued with a relentless and furious diligence, is to convert [this] assumption into a fact. They hunt endlessly for proofs, and, when proofs are lacking, for mere suspicions.” Martha Stewart would surely agree. According to Martha Stewart and the Two Americas by William Anderson and Candice Jackson, the judge who tried her case did not allow her lawyers to mount a proper defence; a juror submitted a false application – which is a felony, but was not charged; and her prosecutors suborned perjury but also escaped charges.

Ms Stewart, in short, was held to a very high standard but her accusers to no standard at all. Her plight is hardly unique. In Freedom in Chains: The Rise of the State and the Demise of the Citizen (Palgrave-Macmillan, 2000, ISBN: 0312229674), James Bovard showed that nearly one-fifth of Americans – the 20% employed by the government – are effectively exempt from many of the laws that shackle the other four-fifths (see also Bovard’s Lost Rights: The Destruction of American Liberty, Palgrave-MacMillan, 1994, ISBN: 0312103514 and The Bush Betrayal, Palgrave-Macmillan, 2004, ISBN: 140396727X).

Ms Stewart, it is important to emphasise (as Paul Craig Roberts does in his excellent article Whom Did Martha Stewart Kill?), was accused of neither “insider trading” nor the possession of “inside information” about ImClone’s anti-cancer drug. She and her broker knew only that ImClone’s founder had sold some of his stock, and they decided to follow his lead. They did not know whether inside information motivated the founder’s sale. It is also important to emphasise that American regulators, like those in most other countries, have declined to define “insider trading” such that an individual can readily understand it and therefore steer clear of it. Accordingly, when Ms Stewart and her broker learnt that prosecutors might investigate her sale, they were unsure how the authorities would react or how they should respond to any reaction.

Faced with the risk that they might be accused of a vaguely defined crime, they stated that they had agreed to sell her ImClone shares when they reached a predetermined price. This statement, Roberts notes, was not made under oath; accordingly, if it was false it would not be indictable. Prosecutors uncovered no evidence that Ms Stewart had committed a crime. Yet because she did not tell prosecutors what they deem is the truth about her sale of the stock – even though they have no way of knowing what motivated the sale, and what they say is the truth about the sale does not constitute a crime – they indicted and convicted her for “obstructing justice.” Nobody, apart from Ms Stewart and her broker, knows whether they told authorities the truth about the sale. Further, nobody – judge, prosecutor or jurors – apparently had enough knowledge of or regard for the traditional conception of the rule of law to know that it makes no difference. In a free society, nobody can be guilty of obstructing a non-crime that the state’s agents arbitrarily decide is objectionable.

As Roberts also notes, during the Stewart travesty the U.S. Senate’s Select Committee on Intelligence compiled a report that stated, among other things, that the information used to justify the Anglo-American invasion of Iraq was “incorrect.” A war that has produced tens of thousands of deaths was started on the basis of faulty information and misjudgment, and the Senators concluded that the invasion was “unjustified.” They somehow forgot to mention that unprovoked military aggression has another name: mass murder. Here, then, was a heinous crime and many victims. But unlike Ms Stewart’s judge, they – like Australian and British politicians, who have conducted their own investigations – threw the book at nobody. No person, but rather “the process,” is to blame.

When one arm of government investigates another, in other words, the buck stops nowhere. According to The Economist (15 July), Bush and Blair are “sincere deceivers” who “ believed what they said, but they said more than they really knew.” Piers Morgan resigned because the newspaper he edited published information that was subsequently shown to be false. Yet no one – and certainly not Mssrs Blair, Bush or Howard – will account or even apologise for their monumental error, the tens of thousands of lives and the billions of dollars they have squandered. The principle is clearly that no government program ever fails: they are simply “underfunded.” And no politician ever errs: instead, “the process” – which, rest assured, an enquiry will investigate and put right – is always to blame (see also Ivan Eland’s Being the Government Means Never Having to Say You’re Sorry).

In a free market under the rule of law, competition among producers improves the quality of goods and services, and consumers reward good producers and punish the poor ones such that consumers and the best producers prosper. In politics, however, the contest to hold the reins of power generates perverse results. Quality constantly declines and “innovations” occur only with respect to bad things: lying, cheating, manipulating, stealing and killing. The price of political services constantly increases and there is no obsolescence – planned or otherwise. In politics, as Hayek demonstrated, “the worst get on top.” There is no accountability: the higher the office, the more criminal the acts that escape punishment (see also Two Kinds of Competition by Lew Rockwell).

Roberts makes the critical point that if we apply the “process is faulty” standard to Martha Stewart – the one that Anglo-American politicians apply to themselves – then “the process” to which she was subjected must also be defective. Because the law specifies no clear definition of insider trading, one cannot know what it is and how to avoid it. To use Hayek’s analogy, in this scenario drivers do not know whether one drives on the left or the right, what is the speed limit or whether road ahead is flat and straight or hilly and curvy. In a Hayekian sense, in other words, there is no law: there is merely a massive, bafflingly complex and contradictory morass of arbitrary decrees. Martha Stewart breached no law; she simply incurred the displeasure of the state’s agents. The contemporary legal system, whose complexity and capriciousness has utterly bastardised the rule of law, therefore stands condemned. If any person is guilty, it is the judges and jurors who permit prosecutors to harass people.

Americans thus face a shameful situation: their government, some of whose agents vigorously persecute citizens for non-crimes whilst other agents blandly avert their gaze from evidence of war crimes, unashamedly – indeed, defiantly – seeks their votes (see also Martha Provokes Outrage While Government Corruption Gets Yawns by Steven Greenhut and Has the U.S. Government Committed War Crimes in Afghanistan and Iraq? by Robert Higgs). Anderson and Jackson conclude “there are two Americas. Martha Stewart [inhabits] one America, a place where being law-abiding is not good enough. The other America is a very different place. In that country, one can hold the law in contempt, commit felonies, destroy people and their families, and force productive businesses into bankruptcy or even oblivion.” More generally, it is places like Canberra, Washington, DC and the Palace of Westminster that, as Mencken put it, are “storm centres of lawlessness. ... It is there that the worst crimes are committed; it is there that lawbreaking attains to the estate and dignity of a learned profession; it is there that contempt for the laws is engendered, fostered and spread.”

Exiting the Road: Some Thoughts for Investors

To invest is to allocate capital sensibly – that is, to the use that best serves consumers. Following Hayek and the Austrian School, few, simple and dispassionately enforced laws – which governments must also obey – peace and unfettered markets furnish the environment that is most conducive to successful investment. One might therefore be tempted to draw bleak conclusions from The Road to Serfdom. American, Australian and British governments, after all, have well and truly burst their constitutional banks. As a result, today’s world is upside down: it is arrogant politicians who tether docile subjects rather than vigilant citizens who restrain limited governments.

Moreover, few Australians object to the diminution of their liberties and the vast growth of their rulers’ ability to wreak havoc. This is perhaps because few realise the extent of either their subordination or their masters’ predations and mendacity. This, in turn, is perhaps because the modern state robs Peter to pay Paul such that more people identify themselves with Paul than with Peter. And perhaps Australians’ attitude is relaxed because their shackles have strengthened slowly over the years. Like the frog dropped into lukewarm rather than boiling water, no sudden shock to the system has jolted them from their complacency.

Are there grounds for guarded optimism? The first thing is to close the door on the twentieth century. “The important thing now,” said Hayek in the book’s conclusion, is that “we free ourselves from some of the errors which have governed us in the recent past. ... The first need is to free ourselves of that worst form of contemporary obscurantism which tries to persuade us that what we have done in the recent past was all either wise or inevitable. We shall not grow wiser before we learn that much that we have done was very foolish.”

The second thing is to open the door of the more distant past, i.e., to the deeds and ideals of our classical liberals forebears. “The young are right if they have little confidence in the ideas which rule most of their elders. But they are mistaken or misled when they believe that [contemporary “liberal” ideas are the same as the classical] liberal ideas of the nineteenth century, which, in fact, the younger generation hardly knows.” Mr Howard, in his opening quote, is correct to say that there is really one question to be asked. But he puts the wrong question. The correct question is “does the public want an arrogant interventionist government led by Dumb and Dumber? Or do individuals wish to reattach politicians to their constitutional moorings and manage their own affairs?” That is indeed the very stark choice: government authority or personal liberty. These choices are mutually exclusive and exhaustive; there is no “third option.” The vast majority of Australians seem to prefer the former to the latter choice. But a stalwart minority can and does select financial independence and disengagement.

The third and perhaps most important thing is to rejoice that each individual is endowed with a capacity of reason. True, Australian universities do their damnedest to dull it, and from their point of view they usually succeed. But “mental muscle tone” returns when a regimen of diet and exercise is adopted. “The most dangerous man, to any government,” said Mencken, “is the man who is able to think things out for himself.” Such a man, in the guise of an intelligent investor, is a bulwark of a free and prosperous society. “Liberalism,” Mises wrote in Liberalism: The Classical Tradition (Foundation for Economic Education, 1927, 1996, ISBN: 1572460229), “seeks to give men only one thing, the peaceful, undisturbed development of material well-being for all, in order thereby to shield them from the external causes of pain and suffering as far as it lies within the power of social institutions to do so at all. To diminish suffering, to increase happiness: that is its aim.”

Classical liberalism and sensible investing go hand in hand. For intelligent investors, then, and in the closing words of The Road to Serfdom, “the guiding principle that a policy of freedom for the individual is the only truly progressive policy remains as true today as it was in the nineteenth century.” That principle resonates best when it is pondered on the beaches of Normandy, Flanders’ fields or any of countless other killing fields. It, and not the cant, lies and catastrophic errors of the twentieth century, is a fitting homage – and vow – to the scores of millions killed by crazed politicians.

Chris Leithner


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