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.
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