Monday, 22 August 2016

Cobden, von Mises and Shostak

Is there a role for Government spending?

Under the heading “DOES UK NEED LOOSER FISCAL STANCE TO CUSHION BREXIT?”,  Dr. Frank Shostak elaborates the 'Austrian' argument that 'The Market' is the only way of determining what is in the best interests of the world as a whole; the argument that government intervention inevitably distorts prices and generates inefficiencies. It is a beguiling theory, that of the ‘invisible hand’. Many years ago I also marvelled at how, in our small  market town, there appeared to be just the right number of milkmen, butchers, etc. I was thrilled to realise that there need be no external planner; that adjustment was automatic; no less thrilled than Adam Smith 2 centuries earlier. 

Dr. Shostak ridicules the idea of government-funded work projects by considering the building of an unnecessary and unwanted pyramid, which generates no  wealth, (either directly or indirectly), which is worse than pointless, because such building misdirects resources that could have been put to work creating wealth.

However, I think Dr. Shostak overstates the case against government intervention, and therefore the case for letting the market decide. Consider, instead of a pointless pyramid, the building of a motorway, or a channel-tunnel; a project that requires enormous capital resources and 20 years before showing a profit. The ‘invisible hand’ points, but there may be no entreprenuers who are both able and willing. What about monopolies, as when one operator buys up and destroys his competitors?  Bang goes the vaunted market. What if he does not, and we end up with two parallel railway lines running between London and Birmingham, squandering resources and both running at a loss?  Perhaps we should desire that governments act minimally; and wisely.

Cobden spoke forcefully in favour of letting the market decide the price of corn, and the price of money. He said “I hold all idea of regulating the currency to be an absurdity.” He saw that by abolishing tariffs against imported corn, the price of corn would automatically fall to the ‘just’ price, benefiting humanity as a whole; the foreign producers would benefit, the shippers would benefit, the British public would have cheaper food, and consequently would be able to buy more manufactured goods; only the British farmers would lose, but justifiably. However, Cobden’s motivation was not the logical beauty of the free market; it was this consequential humanitarian benefit that motivated him. His was a lifetime of concern for “the promotion of peace on earth and goodwill among men”.

Frank Shostak follows in the footsteps of the Austrian economist Ludwig von Mises, who also advocated letting the market decide, but with his eye on the beautiful theory, not on the humanitarian benefits. Von Mises was a supporter of ClassicalLiberalism, with its logical but brutal attitudes to poverty, the welfare state, and any action whatever by the state against individual liberty. He saw Keynesian-style intervention in the economy as little better than communism. He mistrusted, and denounced, the application of mathematics and even empirical observation to economics. He was both loyal and inflexible in his adherence to the articles of his a priori ‘faith’; you could say he was ’continental’, in contrast to Hayek who, though born in Austria, drifted toward British empiricism.

Against the a priori, von Mises, approach, I would suggest that human motivation is not simple, and is not logical. You cannot assume that every individual unit in a complex economy will value money above fresh air, so you cannot proceed a priori. Some people may like to starve their workers into accepting low wages, while others may not; or only sometimes. Of course it is logical to let indigent and surplus people starve or emigrate, but it is not humane. (Ah! the humane; the ‘bleeding heart’ of humanity; that contagious wrecker of perfect symmetries, that wanders like a virus from unit to unit of the social organism, and then vanishes.)

It is odd to find Richard Cobden and Ludwig von Mises sharing a website. There is, of course, nothing wrong with that, if there are common elements, except that some articles may seem flawed, simplistic or harsh, to people who read other articles on the site with enthusiasm. 

Wednesday, 10 August 2016


    (Please don’t advocate Remain without meeting the criticisms against Europe.) 

    I am a keen supporter of the European experiment and think (even now) that Britain should remain in the European Union, but I am annoyed when other people write as though we had not lost the vote. 
    ‘Mainly Macro’ grumbles that we are going to lose a lot of money if we leave, and that the broadcast media failed the country because they failed to show that all the economic experts and financial pundits were on the side of remain. Yes, of course the coffee drinking middle classes are in favour of Polish plumbers and Latvian baristas; that is simply to fail to see the complexities and problems about immigration; the ambivalence, and the double-talk. What if the unemployed of Ashington do not want to pick carrots in Lincolnshire, at 6 in the morning; can we make them?
    What are the problems with the present concept of the European Union? Is it a mistake to aim at a union in which we are all more-or-less as well off as each other? So that free movement is integral, and the means to that end? If we retain free movement, we in the richer countries will have to face considerable immigration, from poorer countries in the north and east of Europe. (We do not need to fear a large inrush of Greeks, Italians, Spanish and Portuguese, because the wonderful climate and cultures in those countries will keep them at home.) Are we in Britain too generous with our benefits; should we hand out houses to anyone in Britain who has a baby and no income? Should the European Union have been restricted to countries of similar wealth and education? Too late now, you will say; but you can still decide your answer. Maybe those who crave a closer union will have to move towards a new Europe-within-Europe.
    The sovereignty issue has not been properly discussed, and has been very badly handled. The Queen in our Westminster parliament remains totally sovereign — except for powers voluntarily delegated. And even those powers can be recalled by revoking those treaties by which they were delegated. It should have been made clear to everyone in Britain that we voluntarily adopt the legislation and judgements of European executive and judicial organs. If it were ever the case that we do not voluntarily accept these ‘foreign’ decisions, what do we do? Appeal, or ask Europe to reform/limit itself, or pull out of Europe. Did we do too little protesting, and too late?
    The democracy issue was also inadequately discussed, and badly handled. The  Council of ministers and the European parliament, which are ‘the government’ of Europe, are as democratic as our own Cabinet and House of Commons. (More so if you like, as they have proportional representation.) That bogey of the Brexiters, the Commission, is merely the civil service, the executive. 
    But The Commission is too powerful. The whole ethos is foreign to our British idea of government. It should not have a named President, but an anonymous director. It is essentially an authorised clique placed in power for 5 years by a complex power play between the leading countries of Europe; Junker, with 27 handpicked pals, and 23,000 employees. It sees its roles as (and I quote) to:
“— propose legislation which is then adopted by the co-legislators, the European Parliament and the Council of Ministers
— enforce European law (where necessary with the help of the Court of Justice of the EU)
— set a objectives and priorities for action, outlined yearly in the Commission Work Programme and work towards delivering them
— manage and implement EU policies and the budget
—represent the Union outside Europe (negotiating trade agreements between the EU and other countries, for example.)”.
    We British would expect the objectives and priorities to be set by Ministers and approved by Parliament before being sent to the Commission; likewise the proposing of legislation; only the realisation to be executed by the Commission. This ‘problem of the Commission’ (a hangover from the early days of the Coal and Steel Community) has not been tackled, certainly not solved, and may be intractable.
     The Euro, as a currency, remains a problem. It would be interesting if there were, somewhere, an authority high enough to ask the following questions. If Greece can never repay its debts to European lenders, do the Greeks spend the rest of eternity paying interest; a sort of perpetual fee and a grim warning to others? What if the total sum of paid interest exceeds the original debt? Does any responsibility lie with a lender who lends to someone who cannot easily pay back the loan? Does not the charging of interest (above base rate) imply risk of losing the principle?  But where shall we find such a high authority these days; for it used to be God who denounced usury, a voice less heard than formally.  
    We had a chance to stay and sort this, but failed. Now we leave; and when we are not picking our own carrots, we can go to sleep somewhere to the sound of our dripping ball-valves. We shall manage, as long as our more able youngsters can emigrate to countries where they are welcome. 

Monday, 1 August 2016

Is there an honourable case against Proportional Representation?

(An open letter to an MP who opposes PR)

Dear Andrea Leadsom MP,

      It struck me recently, that there would have been no need for a referendum if we had proportional representation (PR) in the House of Commons.  I believe you oppose proportional representation for elections to the Westminster parliament. 

("The principle argument against the present system is that it is not fair - it is not a proportional system. However, proportional representation is a narrow concept. The 'proportionality' relates only to the relationship of votes to seats and not to the proportionality of power. Under PR, 10% of the votes are designed to produce 10% of the seats, but not necessarily 10% of the negotiating power in the House of Commons. Indeed, a party with 10% of the seats may be in a position to wield disproportionate negotiating power.”)

     You are quoted as raising two objections to PR; that it is a "narrow concept", and that power is not distributed fairly under PR. I do not understand your first point, unless it is intended only as a summary of your second point. 
     Your second point is familiar. Even Harold Wilson was aghast at the thought of the Liberals holding "the balance of power" both with a Tory minority government and with a Labour. But surely this is a relatively simple error. Suppose the Commons contains 300 Tories, 280 Labour, 30 LibDem. Suppose, on a Tory motion,  LibDem and Labour vote (in a principled way) against, and the motion is therefore defeated. The power that defeated the motion does not reside in the LibDem portion of the opposition, but in all 310 opposers !  The motion is defeated only if there are more MPs against the motion than for; each MP counting for one vote. Have I said enough? 
     You seem to see the possibility of a centre party MP supporting a Labour motion and supporting a Tory motion and you cry “Foul!  He is supporting more motions than I. He is exercising more power than I.” But that is also nonsense isn’t it?  If you are against the moderate voices being in the majority, I am afraid you are up against an immutable law — the bell-shaped curve of the Normal Distribution. You should not disenfranchise the middle merely to give the extremes a chance to govern
     Perhaps I should consider the possibility that the combined opposition (LibDem + Labour + whoever) unanimously  wanted to vote strategically, playing games with parliament and the whole process of government. But that proposition is defeated by a number of considerations: such behaviour defeats good government, the perpetrators would be punished at the next election, the same game could eventually be played against them. I think the whole idea of parliament, and democracy itself, is based on the assumption that these people do not play silly games.
    I have heard two further objections to PR, which you have not raised. (1) "Look", some people say, "at Italy”. To which I would reply "Or at The Netherlands". And (2) it is remarked that the present flip-flop system makes for large majorities and “decisive" government.   But that is surely the DISADVANTAGE of the present system, and by no means its strength? There is no virtue in being decisive if you are wrong, or going against the wishes of the country. Furthermore, with a large majority for 5 years the backbench MPs have little to do. Add to that the devastating effect this flip-flop system has on morale in the country, and morals in the House; the people cease to vote, for they see that their votes are not counted, and the MPs overuse their privileges.
     Proportional Representation is not a new concept. Many (if not most) countries have adopted it. I do not know of any occasion when the adoption of PR has been reversed by people wishing to return to a system like ours. The referendum of May 2011 was not about PR; it was a choice between staying with the present system or changing to the Alternative Vote system which is not proportional, has few advocates, and few users.
     The 'First Past the Post’ system favours two large parties, and large parties cynically favour it in return. 
     Please do not oppose PR on dishonourable grounds, nor on foolish grounds. If I have misunderstood your position, please can you explain more fully. 

     Yours sincerely, Ian West
Ian West,
Middleton Cheney, Northamptonshire.