Idaho's Weekly Journal of Local & National Commentary  Week 1614


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by Free Market Duck

2006 Nobel Economist supports "Dynamic Capitalism" by assuming socialist principles
(Oct 27, 2006)

So let me get this straight:  Nobel Laureate Phelps supports "dynamic capitalism" within a mixed-economy (which is socialism) because Phelps "scores" entrepreneurs' touchy-feely emotions higher than the "expected benefits" of "lowest-wage earners?"

I don't know which is more ridiculous: (1) Prof Phelps' assumption that capitalism can co-exist within a socialist state, or (2) the WSJ editors wasting a third of their Op Ed page to print this non sequitur."

Stockholm, Sweden – If you want to know why the U.S. economy is moving inexorably toward Big Brother statism, you need only examine the dissertations of the so-called intellectuals at our universities.  Not only are the economics departments of all the major Ivy League and other prestigious universities such as Harvard, Princeton, Yale, Stanford, MIT, and UC Berkeley monopolized by left liberal Quantitative Econometricians who think that mimicking the mathematical models of the physical sciences will somehow make the study of qualitative economics (human action) more scientifically valid, those economists who have not been totally brain-washed by altruistic state-collectivist philosophy during their undergraduate years and suspect that free market capitalism may be the real reason for all the spectacular economic gains of the 20th and 21st centuries, offer up a confusing bag of contradictory assumptions in their frail attempts to support capitalism within a socialist, or “mixed economy.”

   Claiming that free market capitalism can co-exist within any type of state-collectivist economy, whether it is a socialist, fascist, syndicalist, dictatorship or a contradictory mix of pretend-capitalism and socialism called a “mixed-economy,” ignores the fact that the basis for free market capitalism, which is individual rights and freedom, cannot co-exist within an infra-structure of Big Brother statism, the basis of which is non-individual rights and no freedoms.  In short, a “mixed economy” of capitalism and socialism cannot co-exist because the philosophical foundations for each, freedom and non-freedom respectively, cannot co-exist.  The term “mixed economy” is, at best, a non sequitur.  At worst, it is intellectual dishonesty.

   The problem is:  those intellectuals who try to defend capitalism with socialist philosophy – altruistic collectivism -- do a great disservice to the concepts of individual rights and free market capitalism.  With these types of supposed capitalist proponents, who needs Karl Marx and Joseph Stalin?

   On October 9, 2006, four economists shared socialist Sweden’s 2006 Nobel Prize for Economics.  One of the economists, Mr. Edmund S. Phelps, the McVickar Professor of Political Economy at Columbia, took up about a third of the Wall Street Journal’s Op Ed page explaining – more like trying to defend -- why capitalists should be “allowed” to co-exist with “lowest-wage earners” within a “mixed economy.”  Professor Phelps’ intellectual error is not that he attempts to defend capitalism but that he tries to defend it on wrong and contradictory assumptions.

   Professor Phelps’ errors are twofold.  First, he postulates a “mixed economy” model of capitalism and socialism (a non-sequitur, since they are mutually exclusive).  True capitalism – not Phelps’s definition -- is defined as the individual controlling the means of production while socialism is the state controlling the means of production.  An economic infrastructure is a lot like pregnancy:  you either is, or you ain’t.  By definition, in a “mixed economy,” as in pure socialism, the state controls all the means of production.  Ignoring this contradiction, Phelps then throws in capitalist “entrepreneurs” like Miss Scarlett and Colonel Mustard in the board game of Clue and pretends they can play capitalism as “entrepreneurs.”  He neglects to state that a capitalist’s existence pre-supposes individual rights and freedoms that are non-existent in a “mixed economy.”  Oh well, moving right along…

   Phelps’ second big error – which logically should precede the first, but doesn’t because he argues backwards from presumed results to assumed causes -- is that he apparently does not understand the difference between inherent individual rights and government-granted special privileges.  Free market capitalism is based upon inherent individual rights while socialism is based upon Big Brother special grants and privileges.  Capitalists obtain their inherent rights at birth, not from the government.  Without inherent rights, capitalists cannot be capitalists.  They can only be government-controlled socialists.  So Phelps’ assumption that one can just dump “entrepreneurs” into a “mixed economy” falls apart at the pre-economics philosophical level concerning Natural Rights theory, upon which, by the way, the U.S. Constitution and Bill of Rights -- AND free market capitalism -- is based.  A cursory review of eighth-grade social studies would show Professor Phelps that the U.S. Constitution, including the Bill of Rights, is not a granting document; it is a prohibiting document, protecting infringements upon inherent individual rights, especially by government officials running a “mixed economy” such as the one Phelps’ pre-supposes.  As soon as one assumes a “mixed economy” and thus no inherent rights, one has assumed slavery in which capitalists cannot function.  At this point, Phelps' econometric model falls apart.

   Phelps’ econometric model based upon false assumptions reminds me of the joke about three men marooned on an island in the Pacific: a physicist, an engineer, and a socialist economist.  All they have is some firewood, a book of matches, and a can of beans for survival.  The engineer says, “Hey, we can start a fire, heat the can which will blow the lid off, and then eat the beans.”  The physicist says, “But wait, if we heat the can of beans, the pressure will blow the can apart and also blow the beans all over the place and we will have nothing to eat.”  They both looked at the economist and asked what should be done.  The economist said, “Well, assume a can opener…”

   And that is exactly what Nobel Laureate Phelps did by proposing to introduce “dynamic capitalism” into his “mixed economy” model while ignoring the basis for capitalism in the first place: namely, individual rights and freedoms.  Once again, Phelps erroneously assumes that free market capitalists can be wound up like toys and dumped into the middle of socialism to function as “entrepreneurs.”

   So how is it that a Nobel Laureate, an economics intellectual such as Phelps, can overlook such obvious philosophical mistakes and non-sequiturs regarding inherent individual rights as the basis for capitalism?  Phelps and all other economists know from observation and empirical data over the last 250 years that capitalism, not socialism, is responsible for all the productive gains at all levels, including entrepreneurs and “lowest-wage earners,” in the global economy.  Everybody knows from both theoretical and empirical data that socialism is a dismal failure.  So why do Phelps and other economics intellectuals continue to try to link capitalism with socialism when each is mutually-exclusive at their premises? 

   The answer is because they do not understand their philosophical contradiction.  So they persist in trying to reconcile their altruistic moral values of individual self-sacrifice to a collective (the philosophy which leads to suicide on an individual level and a state dictatorship at a collective level) with the contradiction of inherent individual rights (the philosophy which leads to individual freedom at the individual level and free market capitalism at a collective level).  And therein lies the problem:  a philosophical contradiction.

   So Phelps and other intellectuals keep trying.  They can’t connect their bankrupt moral philosophy of altruistic state-collectivism to the results of capitalism because it can’t logically be done.  But when has logic stopped many intellectuals?  In fact, Kant and Hegel regarded logic, reason, and reality as “unknowable” – without noticing they just concocted an oxymoron – in an attempt to relieve themselves of that burden.

   Ironically, in his WSJ article, Nobel Laureate Phelps tries to put the capitalist cart before the individual rights horse by claiming that “economic justice” – whatever that is -- is the “ends” to his “socialist” means.  That is, he attributes his contradictory economic model into which he thinks he can throw “dynamic capitalism” to his definition of “economic justice.”  Phelps, like most collectivist econometricians creating a mathematical model, jumps to the conclusion that he, or some unspecified bureaucrat in the omnipotent state, gets to be Master of The Game and, as such, gets to keep “score” about whose subjective “dreams” are best attained:  the “entrepreneur” or the “lowest-wage earners” or some combination of both.

   Phelps says,  “I conclude that capitalism is justified – normally by the expectable benefits to the lowest-paid workers but, failing that, by the injustice of depriving entrepreneurial types (as well as other creative people) of opportunities for their self-creation.”  Wow.  Just when you think Phelps has morphed into a raging free market capitalist in the middle of his socialist article, he adds, “I want to conclude by arguing that generating more dynamism through the injection” – INJECTION?  By whom? – “of more capitalism does serve economic justice.”

   Really?  Whose “economic justice” and who gets to try to “inject” the capitalism into socialism, which, as stated above is a non sequitur?  Whose subjective judgment gets to “score” whose “dreams” are fulfilled and thus whether “economic justice” is truly attained?  Sounds like a prescription for a state dictator.

   But Phelps continues, ”We all feel good to see people freed to pursue their dream.”  Freed?  Freed from and by whom, the state?  Freed presumes a prior state of slavery.  “Yet, Hayek (note: Phelps is referring to Austrian free market economist F.A. Hayek) and Ayn Rand went too far in taking such freedom to be an absolute.”  Actually, Hayek and Rand AND the framers of the U.S. Constitution and Bill of Rights defined freedom to be an “absolute” since they defined freedom as inherent rights, not government grants.  If freedoms are not absolutes, but rather subjective whims of Big Brother, then they aren’t freedoms, they’re special interest privileges.  Remember that freedom is defined as mutually non-infringing relationships, not unbridled force or fraud, which is exactly what an interventionist state running a “mixed economy” always resorts to.

   Phelps continues, “In judging whether a nation’s economic system is acceptable” – acceptable to whom and on what basis, Phelps reveals later – “its consequences for the prospects of the realization of people’s dreams matter, too.”  Phelps argues erroneously by assuming an economic system either already exists (without reference to how it got that way, i.e., by inherent individual rights or through state controls).  He then assumes that we then must vote on it or else create an economic model in his computer lab and judge it by whether the ends (maximizing everybody’s dreams, which is very subjective) justify the means (free market, or socialism, or a dictatorship, or a “mixed economy”).  But it is not the ends, it is not the consequences of people’s dreams, that determine whether economic systems are just or not – since everybody wants to be rich and own a Porsche – but rather economics is concerned with the means, not the ends.  Free market capitalism is just because it is the implementation of inherent individual rights, such as freedom of trade, not because it produces more goods and services.  Socialism is unjust because it infringes upon or prohibits individual rights and freedoms, not because it doesn’t produce more goods and services.  An economic system is just because of its means, not its ends.  Then again, it is not coincidental that freedom works and state slavery doesn’t.  Somebody could write an interesting Ph.D. dissertation on this fact alone.

   Phelps continues toward his moral philosophy of altruistic collectivism by saying, “Since the economy is a system in which people interact, the endeavors of some may damage the prospects of others.”  Oh no.  Phelps falls into the economic sophism that wealth is a zero-sum game, or put another way, one man’s wealth is another man’s loss.  Not true, except to the extent that the horse and buggy commodity loses out to the automobile commodity, voted in freely by the consumers with their pocketbooks, which means blacksmiths must become tire shops or find another service to perform.  But that’s what fair and legitimate competition is all about.  If nobody’s rights were infringed upon, then so what?  The concept of “rights” does not mean the alleged “right to receive” from others either because of “need” or “dreams” or anything else.  The concept of “rights” means the right to voluntarily exchange.  Economics is not concerned with Phelps’ or a state dictator’s “score” card of implementing everybody’s real or imagined “dreams.”  Economics is only concerned with the means of production and capitalism is the only objectively moral economic system based upon inherent individual rights to voluntarily exchange.

   Economic justice does not mean the redistribution of everybody’s legitimately accumulated wealth.  Creating a welfare state based upon the alleged right to receive the fruits of other’s labors according to some real or imagined altruistic need is not justice.  In fact, a “mixed economy” produces all kinds of economic injustices since everybody continually tries to prove that they are more needy than their neighbor and thus should receive more cookies from everybody else via the state.  The ultimate consequence of “rights to receive” results in the contradiction of trying to establish reciprocal rip-off rights, an impossibility.  If Phelps means that one man’s wealth is another man’s loss, he is simply ignorant about basic economics in which it was proven a long time ago that wealth is not a zero-sum game.  Wealth is the product of implementing time and labor saving ideas, which is infinite.  One man’s gain is not another man’s loss, otherwise we have to ask ourselves where the proletariat have been hiding the invention of the electric light bulb and steam engine for the last three thousand years.

   Phelps continues to dig his non-sequitur hole even deeper as he says, “So a persuasive justification of well-functioning capitalism must be grounded on all its consequences, not just those called freedoms.”  Wrong.  As stated above, economics is concerned about the means, not the ends.  Although economics is neutral about the ends, the moral philosophical premises embedded in true free market capitalism empirically shows that it outperforms all other forms of economic infrastructures.  That’s why it’s a waste of time and money to dump capital into a socialist or “mixed economy.”  It’s the infrastructure of individual rights and free market capitalism that serves economic justice for all individuals from “the lowest-wage earners” to “entrepreneurs.”  Why are we surprised that a “just means” brings about a “just ends?”  It’s simple logic.

   But consistency of reason and logic is not the philosophical hallmark of today’s intellectuals.  In fact, today’s so-called intellectuals disparage logic and reason and substitute the equivalent of mystical voodoo-ism and altruistic touchy-feely-isms as man’s highest attribute for identifying, categorizing, and reasoning for survival in our objective universe.  No wonder most economies are failing.  Their illogical premises produce illogical results.

   Lastly, current intellectuals not only make the mistake of trying to pattern qualitative free market capitalism after the mathematical models of physics in order to make economics a “legitimate” science because they don’t understand that qualitative economics already is “legitimate,” they erroneously interpreted Einstein’s Theories of Special and General Relativities as meaning that the world is only subjective and contains no objective truths.  But that’s not true and that’s not what good ol’ Albert meant.  Relativity is not the same as subjectivity.  Reality is objective.  In fact, one could say that reality is objectively relative, not subjective.  Nor is it a contradiction to claim that economics, the study of human action, is a study of the qualitative subjective DECISIONS of individuals in an OBJECTIVE universe.  Without objective reality and logic, no one could ever know anything, including the ridiculous supposition by philosophers Kant and Hegel that nobody knows anything.

   Therefore, reality is real and it’s objective.  Economics is the study of qualitative human actions of individuals within a premise of individual freedom in an objective universe.  Economics is concerned about the means, not the ends.  Therefore, Nobel Laureate Phelp’s erroneous assertion that he can somehow insert free market capitalists like little wind-up toys into a socialist or “mixed” economy (with no reference to the mutually exclusive premises of capitalism and socialism) in order for his pretended “entrepreneurs” to attain their artsy-fartsy daydreams as “justice” is simply baloney.  So much for the bankrupt ideas of Quantitative Economics and its premise of altruistic collectivism at all the major universities.  And so much for the value of a Nobel Prize from socialist Sweden.

   By the way, never assume a can opener. – FM Duck

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