Carl Menger: The Vital Evolutionary Thinker and his ‘Austrian School of Economics’
Introduction
We are over two years into CovidMania and a new European war in Ukraine, the latest self-mutilations by the slightly smarter apes that have inadvertently come to dominate the planet. In August 10, 1915, British physicist Henry Mosely, who would have probably won the Nobel Prize that year, died in perhaps the most disastrous error the apes have thus far made, The First World War (1914–18). Slightly smarter apes that had absorbed German/French/British/Russian “identities”… students, fathers, engineers, “great minds” and “experts”, who even shared a common European Christian faith, reverted to their tribal ape-like nature, and for God, honor, flag and country, needlessly slaughtered each other across the trenches for four years leading to about 18 million deaths and millions more left invalid (6.5 million just in France). Why did this happen? And if it was such a big deal at the time, worth sacrificing so much, how come hardly anybody knows anything about it today? 20 years later via WWII the tribalistic slaughter led to over 80 million deaths and what followed was a “Cold War” that brought the slightly smarter apes close to nuclear annihilation several times. Why were our “great leaders” and “intellectuals” utterly powerless to prevent the WWI/II slaughters and were in fact its promoters? How can mankind today build mindbogglingly complex microchips, airplanes, satellites, the Internet and so much more, yet still not have figured out something as simple as peace and always be one spark away from another world-wide tribalistic tyrannical calamity as CovidMania and the war in Ukraine are clearly showing?
There is something missing from our understanding of how the world works, something as monumental in importance as Darwin’s theory of evolution, something that our “leading intellectuals” and “experts” have yet to discover and spread accordingly. Fortunately for mankind that “something” has already been discovered and explained by a group of little-known and widely misunderstood intellectuals often-times referred to as ‘The Austrian School of Economics’. And as 1974 Nobel Laureate in Economics, F.A. Hayek(1899–1992) writes, their vital insights and “fundamental ideas belong fully and wholly to Carl Menger[1840–1921]”.
Just like the human body/organism and the numerous “systems” that coordinate it like the respiratory/nervous/digestive “systems”, are the result of the actions of some 70 trillion human and bacterial cells but obviously NOT the result of any conscious planning or designing by them, and thanks to the likes of Darwin and a modern understanding of genetics we can understand how ‘natural selection’ was the inadvertent “designer” of such systems and complex order, the modern global socioeconomic order or what the great British 19th century thinker Herbert Spencer(1820–1903) cleverly referred to as “The Social Organism”, is also coordinated by a “system”, by what Menger’s intellectual descendants Ludwig von Mises and F.A. Hayek, referred to as “The Market Process”. ‘The Market Process’ and the “parts” it is composed of like money, prices, economic competition, interest rates, and the legal/religious/governmental frameworks that sustain it, “are indeed the result of human action, but not the execution of any human design” (Adam Ferguson) similar to how cells inadvertently/unconsciously act to create the systems that coordinate multicellular life. The ‘market process’ shares this trait with language which is also a complex mechanism that is the result of human action but was not consciously designed or invented by people/cells. It took millions of years for natural selection to evolve the numerous complex biochemical ‘systems’ that allow single cells to cooperate in multicellular organisms. Sometimes these mechanisms fail and the cells revert to their solitary ways and replicate wildly, in other words, they become cancerous/tribal or uncooperative and prematurely destroy the larger multicellular organism/order they were a part of. Similarly, it took about 50,000 years for natural selection to evolve ‘the market process’ which reordered tribal homo sapiens into cooperative members of the ‘Social Organism’. Unfortunately, generally speaking man is as ignorant of the workings of the social order and its evolution as cells are regarding their role in multicellular organisms, and our ‘law of the jungle’ tribal instincts constantly has us, via massive monopoly/coercive bureaucracies/governments and wars, destroying the very freedom and tolerance that is needed to create/coordinate civilization.
There is one vital insight, the “flux-capacitor” idea that makes ‘time-travel’/‘understanding society’ possible. The evolution of money. Menger’s explanation of the emergence of money and its ramifications is in all likelihood the most important insight to have coalesced in the mind of a human being and is needed to understand the calamities above and prevent future ones before the slightly smarter apes inevitably self-destroy in some nuclear war, economic chaos, environmental disaster, or similar man-made calamity. In order to properly understand the above and appreciate Menger’s insights, let us first summarize some vital economic concepts and the role that trade and money play in the emergence and functioning of civilization.
Living orders need information
The more complex a thing is, the more information is needed to create it and keep it in order. The biological order is created via the well-known mechanism of ‘biological evolution’ with genes being like the sentences which store the information necessary to create/coordinate life/order. Mutations cause new genes and thus new information to arise which leads to a different life-form which is then ‘naturally selected’ as it inadvertently competes with others, with the winner reproducing more and thus passing on more copies of the better-adapted/”fitter” genes/information/design to future generations. Tiny E. coli bacteria have about 4,000 genes and are relatively simple in structure and function. On the other hand, each human cell has about 25,000 genes thus containing far more information allowing each cell to specialize and take part in a vast “division of labor” by transforming itself into a heart/lung/nerve/etc. cell as a young fetus develops inside the womb. About 500 million years ago, life-forms with brains began to emerge which allowed information to be stored outside of genes. Eventually life-forms evolved that used their brains to be increasingly “social” and cooperate with others to reach even higher levels of relative productivity/fitness/competitiveness which leads us to ourselves, anatomically-modern man (about 100,000 years ago), whose ancestors had spent over 2 million years living in small nomadic tribes of about 15 to 100 people where everyone more or less knew how to do the same things so information was inefficiently repeated across the social order. Just like few genes/information leads to simple bacteria, few brains lead to a simple and relatively unproductive social order. Tribal man/order had an information storage/sharing problem.
From trade emerges the ‘division of labor and information’
Trade and money led to the “division of labor and information” which allowed the social order to efficiently compartmentalize information in only the brains that needed it and also accumulate a virtually limitless amount of information. For example, Mark’s brain contains knowledge of how to get coconuts and process them to create pastries. Tom’s brain contains knowledge of how to find the best vines and weave them together to make baskets. Jim’s of where to find rocks which when split can create sharp knives and how to sharpen them. When Mark trades his pastries for Tom’s baskets and Jim’s knives he is a benefactor of all the information needed to creating those items yet he only had to know how to make his pastries. Unlike the tribal social order where information is inefficiently repeated across every brain, trade allows for information to be efficiently stored fewer times freeing up more brains to contain more information. We can envision 1,000 men producing and trading 1,000 different types of items requiring 1,000 times more information which without trade and the ‘division of information’ that it enables would have been impossible to achieve in a tribal society. Also, when Mark trades his pastries for the baskets and knives he can now make less trips to gather coconuts by using the baskets and process them faster by using the knives and thus increase his ‘rate of production’, in other words, the rate at which he reorders/transforms matter to create human-usable wealth and subsequent order, from 2 to 10 pastries per day. The pastry-making process has become more productive and also more complex because it was enabled by basket and knife making knowledge. We now have a never-ending cycle of increased ‘rate of production’ and complexity -> population growth (more brains) -> increased ‘rate of production’ and complexity -> more brains -> … leading to where we are today with nearly 8 billion people and the inability to fully trace the knowledge that enabled the creation of even a simple pencil.
From ‘private property’ emerges trade and ‘competitive knowledge discovery’
From our freedom to use/transform our private property emerges the ‘freedom to trade’ it with anyone in the entire planet which inadvertently transforms mankind into a global supercomputer where people/companies are motivated to innovate and learn from each other(competitors) thus inadvertently cooperate to create and spread superior information and subsequent order. It is our freedom as consumers to trade our life/order-sustaining wealth for the best cars with the latest features/innovations, and as producers to go into the auto-manufacturing business, which motivates existing auto manufacturers(competitors) to innovate/compete/copy/learn to produce the best cars. Just like in the Olympics we can discover the best athletes in the world due to global competition, so does having the ‘freedom to trade’ with everyone in the world allows the best ideas to compete/spread globally thus ensuring the best possible global order. Via advertising, competitors are motivated to spread the potential usefulness and superiority of their products/ideas as well as the defects/inferiority of their competitors thus accelerating the need to compete/copy/spread superior information and subsequent order. As cost-cutting ideas emerge and inevitably spread via competition leading relative prices to continuously fall, new profitable ideas easily arise and once again spread via competition in an endless cycle of knowledge generation/innovation. For example, computers were once very expensive, but once the price of making them came down enough, people easily realized that every home could have them, which gave birth to our computerized world and the Internet and all the great things that flow from it. The more wealth is produced, the more wealth has to be offered in exchange for labor as companies/orders compete against each other for the labor they need which helps explain why the economic pie grows for everyone.
Superior morals also arise from ‘private property’
Morals are knowledge which also emerges and spreads via economic competition. It is hard-working, tolerant, courteous people who thanks to competition inevitably motivate everyone else to be likewise. As Hayek writes:
“Competition is, after all, always a process in which a small number makes it necessary for larger numbers to do what they do not like, be it to work harder, to change habits, or to devote a degree of attention, continuous application, or regularity to their work which without competition would not be needed.”
As millions of Britons, Germans, Jews and others from all over the world came to America, it was ultimately the competition which grows from ‘private property’ and thus individual liberty/freedom which stripped these people of their otherwise nationalistic/ethnocentric/tribalistic identities and evolved what came to be seen as the classic American character/ethos of wanting to be seen as a reputable/honest businessman/professional who treats everyone with respect and wears a business suit as opposed to older religious/ethnocentric dress.
Envision the real dynamic social order
It is important to envision the socioeconomic order as it really exists as if looked at from high above. Envision people coming together/apart as companies/orders emerge and dissolve in ever-changing conditions. Superior information arising and rippling/restructuring the social order thanks to competition. As orders get more productive they lure people to ‘trade-with’/’join-them’ by offering more money/wealth for their labor eventually causing the least productive orders to sort of dissolve as their ‘factors of production’ like labor, buildings, etc. are bid away to be parts of the better informed and thus more productive plans/orders. A sort of swarm intelligence emerges as the all-pervasive public constantly uses its ‘freedom to trade’ its wealth for what it calculates to be best to nourish the growth and spread of superior orders/companies/information, inadvertently expanding the worldwide “division of labor and information” as entire neighborhoods/cities morph themselves in specialized ways as complementary pieces of information/orders segregate themselves in distinct geographical locations like the software industry in Silicon Valley, California and manufacturing in Guangdong, southern China. As Menger’s intellectual descendant Ludwig von Mises(1881–1973) reminds us “The division of labour is a fundamental principle of all forms of life.” The division of labor is a pattern/way which natural selection rediscovers to enable smaller units/orders to efficiently compartmentalize labor/information as they contribute-to (and are nourished-by) a larger organism they become parts of(Organelles -> Cells -> Organs -> Humans -> Social Organism).
Prices, the impossibility of ‘central planning’, and ‘economic calculation’
In our role as consumers we trade money for wealth, and as producers/laborers we trade wealth/labor for money. As producers we also perform the vital task of setting the price of the wealth we produce. For example, a Cuban restaurant in Miami sells a meal for $10. Perhaps $1 might be profit, and $9 will be spent in costs, in other words, in the necessary consumption of wealth needed to produce the meal/wealth, things like equipment/electricity/food/supplies, and everything employees and their families will consume at home (food, energy) since this consumption is needed to produce their labor. The businessman discovered 2 vital pieces of information: 1) that there are enough customers willing to patronize the restaurant at the $10/meal price taking into account their ‘freedom to trade’ their money/wealth for other things thus providing a superior/competitive/winning alternative to society at that place and time, and 2) how to reorder $9 worth of stuff(labor/supplies/etc.) to profitably produce the meal. If he sets prices too high, customers will choose other superior competing options thus he’d be failing to reorder a section of society in a useful/superior way. If he sets prices too low, he won’t be able to cover costs and thus end up shrinking the economic pie by consuming more than what he produces. Every time a person uses his ‘freedom to trade’ his wealth for what he considers best, he is providing vital calculations, like some distributed sensor he is nourishing the maintenance/growth of useful products/companies and motivating others/competitors to innovate/learn or dissolve into more useful plans by withdrawing funds/wealth from them. Given the above we are now in a position to understand the vital fact that ‘central economic planning’ ideologies like Socialism/Communism can’t work because only free people/businessmen dispersed throughout society are at the right time and place needed to discover people’s desires(1) and (2) how to properly set prices and thus create a profitable and competitive order ( i.e., one that produces more than it consumes while also providing a superior alternative to customers/society).
How much wealth had to be consumed in order to produce a gallon of gasoline that sells in Seattle for $3.50? Or a pound of beef that sells in Boston for $5.35? We can’t know for sure, however, we can be fairly certain that it was less than the advertised price which on average must include the costs. Thus the price of any item in the world lets us know that there is an order/minds/CPUs at that particular time and place that is coordinated by information that can produce the item while consuming less than the advertised price. THAT IS AMAZING! Thus prices, and the vital information they convey, are what allow ‘economic calculation’. They allow wealth to be purchased and combined in a manner that ensures that the combination (like a car) can easily have a price set that properly accounts for the costs/consumption of the whole (car) by just adding the prices of the parts used to produce it (wheels, glass, robotics, labor, etc.), parts which themselves had a price set that included their costs/consumption and so on, each part/input managed/ordered by entrepreneurs/brains/CPUs with highly specialized time-and-place specific information who are always using profit/loss calculation to ensure they are increasing the economic pie leading to never-ending conveyor belts of interlocking cycles of production/consumption, each moving/reordering matter in increasingly valuable ways. The concept/tradition of ‘private property’ plays a vital role here as well, it is not until matter/things are privately owned, that they are controlled/coordinated by brains/CPUs that are incentivized to discover the best information with which to reorder/coordinate them in the most productive/profitable way possible.
Government is a coercive competition-immune/inefficient order and should be minimized
The role of governments/coercion should be minimized because governmental/‘public sector’ bureaucracies, being COERCIVE MONOPOLIES which get their life/order-sustaining wealth through taxes/compulsion are immune to the competitive-information-spreading incentives/pressures which motivate private sector entities to keep up with the competition in terms of information and hustle. Central/government plans can’t work if people are free to not go along with them so they inevitably require compulsion/tyranny. The former Soviet Union had plenty of highly educated scientists/“experts” whose plans required the coercion of millions, but they were thoroughly crushed by relatively freer Americans and their resulting superior “competitive knowledge discovery”. The “classic” image below helps explain the difference between competitive/private/free orders(South Korea) and monopolistic/government/coerced orders (North Korea). Keep your eye on how information arises/spreads via competition and continuously restructures the social order.
Regulatory Paralysis
In the free/private/competitive sector information moves from the bottom (individual minds/entrepreneurs/innovators) to others/influencers/many/top as it is ‘tested’/refined/preferred by the comparisons to other information by billions of minds thus ensuring superior information spreads and is ideally adapted to each specific time and place. This mechanism is bypassed by government regulations which are top-down/coercive/competitionless/monopoly information/action which is not subject to continuous improvement/replacement via competition so they paralyze entire industries slowing down ‘competitive knowledge discovery’, driving up costs (more lawyers/regulators/bureaucrats), and potentially making criminals out of people who harm nobody but just prefer to do things differently. Hayek reminds us:
“The argument for liberty is not an argument against organization, which is one of the most powerful tools human reason can employ, but an argument against all exclusive, privileged, monopolistic organization, against the use of coercion to prevent others from doing better.”
Compare the increasingly regulated/paralyzed healthcare sector which has grown from consuming less than 5% of the economic pie in 1960 to over 20% today, to the free/competitive IT sector where even the poorest of Americans can afford rapidly improving amazing cell phones and technology. What a person must learn in order to legally offer medical advice via licensing of doctors, where he must learn it via licensing of medical schools, what chemical compounds can be legally consumed, how to test drugs, how the medical insurance industry should work, and countless other gigantic bodies of knowledge/information are dictated by monopolistic competition-less bureaucracies like the American Medical Association (AMA), the Food And Drug Administration (FDA), CDC and numerous others leading to the spectacular CovidMania tyranny. By comparison, the Information Technology sector has very few government regulations so competition motivates the discovery and spread of superior information at breakneck speed and is obviously transforming the world right before our eyes. In graph below one can see how the more regulated a sector is (Hospital Services) the more expensive/paralyzed/consumptive it becomes.
Finance/Banking, interest rates, inflation, and the ‘Business Cycle’
Thanks to the finance/banking industry people are motivated to consume less than they produce and thus increase the amount of saved/unconsumed wealth, which is then loaned to and borrowed by entrepreneurs as they nourish their consumption while they produce wealth at a rate greater then the prevailing interest rate. This allows the quick and easy pooling of large quantities of saved wealth to sustain the creation of large projects/buildings/factories which would have been impossible to do if people were limited to the savings/wealth of friends and family. And, very importantly! It also gives a ‘computational boost’ to society by both, motivating the accumulation of saved/unconsumed wealth, and placing it under the control of entrepreneurs/CPUs whose superior ideas can grow the economic pie quicker than prevailing interest rates.
When governments via their central banks create money to lend it to businesses and “stimulate” the economy, they are doing immense harm and leading to the ‘Boom and Bust’ cycles. Such money-creation, or inflation of the money supply, creates harmful fake savings. Creating money is NOT the same thing as creating wealth, it just leads to more money per existing unit of wealth and thus higher prices. It gives the illusion that there exists real saved/unconsumed wealth that can be consumed/used/transformed by businesses as they produce wealth when in reality it doesn’t exist. Imagine there is enough saved/unconsumed wealth(bricks/food) that can be used/consumed while 9 skyscrapers are completed, but because the government via the central banks created a bunch of money (fake savings) it gives the illusion that there is enough saved/unconsumed wealth(bricks/food) which can be consumed/used to create 12. Unfortunately only 7 can be completed instead of 9, because much wealth/savings/bricks were misallocated creating the bases/scaffolding for 12, thus 5 skyscrapers/projects had to be abandoned after much wealth was consumed. The new money(loans/‘credit expansion’) coupled with the reality that the needed wealth/goods simply does not exist ultimately causes prices of factors of production(bricks/laborers/wealth) to go up more than expected as entrepreneurs use the new money to compete for the limited existing wealth, causing the original profit/loss calculations and plans to eventually reflect the reality that there just isn’t enough wealth/bricks for all the newly attempted skyscrapers/projects to profitably complete. As Mises explains:
“However conditions may be, it is certain that no manipulations of the banks can provide the economic system with capital goods[wealth/bricks]. What is needed for a sound expansion of production is additional capital goods[wealth], not money or fiduciary media. The boom is built on the sands of banknotes and deposits. It must collapse.” ([brackets] added by me)
‘The Market Process’ coordinates ‘The Social Organism’
We have discussed how from the tradition of private property(1) emerges the ‘freedom to trade’(2) which leads to the emergence of the ‘division of labor and information’(3), ‘competitive knowledge discovery’(4) which helps civilize our morals and discover the truth, and ‘economic calculation’(5). These 5 things, coupled with money, interest rates, the finance and banking industries, stock markets, as well as governmental/religious/legal structures which enforce rules that sustain their functioning, taken as a whole comprised what Menger’s most famous intellectual descendants, Ludwig von Mises, Ludwig Lachmann, Israel Kirzner and F.A. Hayek referred to as ‘The Market Process’. ‘The Market Process’ is to civilization or ‘The Social Organism’ what the respiratory, circulatory, nervous, and other “biological systems” are to multicellular organisms. Just like the human body/organism and the numerous “systems” that coordinate it are the result of the actions of some 70 trillion human and bacterial cells but obviously NOT the result of any conscious planning or designing by them, the ‘Market Process’ which coordinates the ‘Social Organism’, is similarly “the result of human action, but not the execution of any human design” (Adam Ferguson). The ‘market process’ shares this trait with language which is also a complex mechanism that is the result of human action but was not consciously designed or invented by people/cells.
So how did this wonderful ‘market process’ and resulting ‘Social Organism’/Matrix evolve without man’s deliberate intention? As Menger phrased it:
“How can it be that institutions which serve the common welfare and are extremely significant for its development come into being without a common will directed toward establishing them?”
Menger, writing in the late 1800s after Darwin showed us how the biological order could arise without design via an evolutionary process, knew that the key was to also look at society as an organism in an evolutionary manner. Menger was a fan of and arguably heavily influenced by Spencer’s all-encompassing evolutionary framework. Spencer summarizes:
“We have to deal with man as a product of evolution, with society as a product of evolution, and with moral phenomena as products of evolution.”
Menger writes of Spencer: “the works of … H. Spencer… which are excellent in their way, have really contributed essentially to a deepening of the theoretical understanding of social phenomena”. Menger elaborates on the vital “similarity between natural organisms and…structures of social life”:
“There exists a certain similarity between natural organisms and a series of structures of social life, both in respect to their function and their origin…Natural organisms almost without exception exhibit, when closely observed, a really admirable functionality of all parts with respect to the whole, a functionality which is not, however, the result of human calculation, but of a natural process. Similarly we can observe in numerous social institutions a strikingly apparent functionality with respect to the whole. But with closer consideration they still do not prove to be the result of an intention aimed at this purpose, i.e., the result of an agreement of members of society or of positive legislation. They, too, present themselves to us rather as “natural” products(in a certain sense), as unintended results of historical development. One needs, e.g., only to think of the phenomenon of money, an institution which to so great a measure serves the welfare of society, and yet in most nations, by far, is by no means the result of an agreement directed at its establishment as a social institution, or of positive legislation, but is the unintended product of historical development. One needs only to think of law, of language, of the origin of markets, the origin of communities and of states, etc.”
Below Menger further stresses the need to study the social order with the tools of biology/organisms:
“Now if social phenomena and natural organisms exhibit analogies with respect to their nature, their origin, and their function, it is at once clear that this fact cannot remain without influence on the method of research in the field of the social sciences in general and economics in particular….Now if state, society, economy, etc., are conceived of as organisms, or as structures analogous to them, the notion of following directions of research in the realm of social phenomena similar to those followed in the realm of organic nature readily suggests itself”
Menger thus felt like the methods of the physical sciences, like their use of mathematics, was as inappropriate for understanding the monumental complexity and evolution of the social order as it was for the biological one. He writes:
“I do not belong to the believers in the mathematical method as a way to deal with our science….Mathematics is not a method for…economic research . . .”
Mises and Hayek would of course follow suite. Mises:
“As a method of economic analysis econometrics is a childish play with figures that does not contribute anything to the elucidation of the problems of economic reality.”
Hayek also ridicules the:
“…extensive use of mathematics, which must always impress politicians lacking any mathematical education, and which is really the nearest thing to the practice of magic that occurs among professional economists”
Menger eventually stumbled upon the “flux-capacitor” idea of the social sciences. The idea that makes ‘time-travel’/‘understanding society’ possible. The evolution of money.
Without money, if Tom wasn’t interested in Mark’s pastries, Mark would have to waste time/effort/expense/consumption figuring out what Tom wanted(chairs), who made it(Gina), visit her and hope she was interested in his pastries. But what if Gina wasn’t interested in pastries and instead wanted blankets made by Lucas? Even more time/consumption would have to be wasted. This problem, of having to consume increasing amounts of wealth setting up intermediate trades to make the trade you really want is commonly referred to as “The Double Coincidence of Wants” problem because for a trade to happen you need the coincidence that both parties are interested in the goods they have available for trade. Thus with direct barter above, the ‘cost of transaction’, in other words, the amount of wealth that had to be consumed in order to produce the desired trade/transaction, becomes too high/expensive greatly limiting the benefits of trade (1–5 above) to small/tribal populations and thus preventing the emergence of ‘The Social Organism’/civilization.
Did some clever individual invent money as a way to overcome the ‘double coincidence of wants’, or as part of designing ‘The Market Process’? Of course not. It is as mistaken to believe that man and his “reason” invented money and the emerging ‘Market Process’ as it is to believe that cells invented the various ‘biological systems’ that coordinate multicellular organisms. So how did money arise? Quite easily actually. As people bartered their ‘private property’, there were some goods that people were willing to trade for, not necessarily because they wanted to consume them, but because they knew they could later use them to trade for the things they really wanted. For example, let’s assume goats were very common in Mark’s village. People would use them for their fur, milk, and meat, and half of households had at least a few. Because of this, even if Tom already had more goats than he needed for milk/skin/meat, he would still be willing to accept them as payment from Mark for his basket. Even if Tom did not want Mark’s pastries or goats and insisted on a chair, there would be a good chance that Gina would accept the goat for her chair thus still saving Mark from having to see Lucas to trade for his blankets which Gina wanted. Essentially what happens is that by offering to trade a more popular or ‘salable’ good Mark increases the chances that his attempt at trading will be successful so the average number of intermediate trades and ‘costs of transaction’ goes down the more widely accepted the goats are. Goats now were valuable for 4 things, their fur, milk, meat, and as ‘medium of exchange’/money. This process incentivizes more people to accept goats for payment and continues until eventually the majority of people would be using goats and thus goats became the major source of money. Let’s quote Menger:
“As each economizing individual becomes increasingly more aware of his economic interest, he is led by this interest, without any agreement, without legislative compulsion, and even without regard to the public interest, to give his commodities in exchange for other, more saleable, commodities, even if he does not need them for any immediate consumption purpose.”
Menger gives us a brief history of money:
“In the earliest periods of economic development, cattle seem to have been the most saleable commodity among most peoples of the ancient world. Domestic animals constituted the chief item of the wealth of every individual among nomads and peoples passing from a nomadic economy to agriculture. Their marketability extended literally to all economizing individuals, and the lack of artificial roads combined with the fact that cattle transported themselves(almost without cost in the primitive stages of civilization!) to make them saleable over a wider geographical area than most other commodities…The trade and commerce of the most cultured people of the ancient world, the Greeks … showed no trace of coined money even as late as the time of Homer. Barter still prevailed, and wealth consisted of herds of cattle. Payments were made in cattle. Prices were reckoned in cattle. And cattle were used for the payment of fines… Among the Arabs, the cattle standard existed as late as the time of Mohammed.”
Once money emerged and the ‘double coincidence of wants’ problem was overcome, the ‘division of labor and information’, ‘competitive knowledge discovery’, ‘economic calculation’, and other aspects of ‘The Market Process’ inadvertently emerged leading to the growth of ‘The Social Organism’/civilization.
A similar example of this process, where socially beneficial things inadvertently arise without intention or design, was the Protestant Reformation. For centuries the Catholic Church’s traditions/myths held immense coercive/monopoly/competitionless power which prevented/retarded individual freedom and resulting ‘competitive knowledge discovery’. In the early 1500s Martin Luther preached that a person could go to heaven by believing in Christ without the Catholic Church’s approval, and that the Bible itself, not the Pope/Church’s edicts/interpretations, was what mattered. This helped reduce the coercive/monopoly power of the Church and spark a pro-freedom and thus emergent ‘competitive knowledge discovery’ that would lead to skyrocketing rates of innovation/production/prosperity in Europe/Christendom thus taking Europeans to prominence. Now, very important! Did Martin Luther reason that his religious interpretations would accelerate ‘competitive knowledge discovery’ leading to our relatively advanced civilization? Of course not! Again, just like solitary cells millions of years ago inadvertently created the respiratory/circulatory/nervous/etc. “systems” that led to multicellular organisms without ‘designing them’, so is ‘the market process’/Capitalism “indeed the result of human action, but not the execution of any human design”. The ‘market process’/Capitalism is mankind’s greatest invention, yet it was not “the execution of any human design” and emerged “as unintended results of historical development” !!!!
Knowing that ‘private property’ is the simple concept/institution that leads to a chain-reaction of incentives which creates ‘the market process’/‘competitive knowledge discovery’/civilization, we can easily see that those tribes/orders/cultures whose customs/religions/myths inadvertently became more peaceful and thus less violent, extended peace/friendship/trade to those outside the tribe, etc., in other words, those who tended to respect ‘private property’ and thus individual freedom more and more, would inadvertently gain the benefits of superior ‘competitive knowledge discovery’, become more advanced/powerful, and as they grew, they would inadvertently spread the very customs (increasing respect for private property, tolerance, and commercial culture that emerges from it) and evolving economic system (capitalism) that allowed them to reach such relative heights. Essentially 100,000 years ago there was a sort of petri dish of cultures/tribes, and ‘natural selection’/competition selected those whose sort of ‘cultural mutations’ led to a more productive/fitter/powerful social order, with respect for private property ultimately being the most important tradition given the ‘competitive knowledge discovery’ that inadvertently emerged from it. This ‘cultural evolution’ happened mostly without the design/intention/reason of the slightly smarter apes. Hayek elaborates:
“We have never designed our economic system. We were not intelligent enough for that. We have stumbled into it and it has carried us to unforeseen heights and given rise to ambitions which may yet lead us to destroy it.”
And regarding the tradition of private property and thus all the emerges from it:
“…I am quite convinced nobody invented it for a known purpose, and to me the proof of this is that even now hardly anybody yet understands what the advantages of private property and the market society are.” (Hayek essay “Individual and Collective Aims” published in “On Toleration” ISBN 0–19–827529–3)
Of course! Once we understand the basics of how ‘The Market Process’ works and the VITAL fact that its evolution was NOT the result of man’s design, understanding our problems and history becomes trivial.
For most of human evolution man has lived in small communal tribes where things like money, finance/banking, the tradition of private property and resulting ‘competitive knowledge discovery’ did not exist. Jealousy/hatred of those that have more, especially in times of need, and the altruism that motivates us to share, are intuitive, while understanding the aforementioned economic concepts is not and requires a tolerance and respect for private property and individual freedom which goes against out tribalistic/communist/egalitarian instincts. As Hayek explains:
“…man’s instincts…were not made for the kinds of surroundings, and for the numbers, in which he now lives. They were adapted to life in the small roving bands or troops in which the human race and its immediate ancestors evolved during the few million years while the biological constitution of homo sapiens was being formed.”
Warfare/predation was an important evolutionary strategy and one of the reasons we are social and have evolved big brains to begin with. As Steven Pinker writes:
”… men go to war to get or keep women –not necessarily as a conscious goal of the warriors(though often it is exactly that), but as the ultimate payoff that allowed a willingness to fight to evolve. Access to women is the limiting factor on male’s reproductive success. Having two wives can double a man’s children, having three wives can triple it, and so on. The most common spoils of tribal warfare are women. Raiders kill the men, abduct the nubile women, gang-rape them, and allocate them as wives.”
To be successful in war/hunt you need a strong sense of unity which translates itself into the strong tribalistic/nationalist/militaristic/patriotic tendencies we are so susceptible to and has the planet littered with nuclear weapons and “civilized” taxpayers believing we must have them. The bond men make as co-warriors may be stronger than male/female love. A female is easily replaceable (another raid, etc.) but the loss of that co-warrior that will help get the next female and/or defend you when you only get one chance at life is probably even more important. Just like natural selection has shaped us to enjoy sex due to the vital biological/evolutionary importance, it has also shaped us to enjoy war/violence and easily segregating ourselves into the in-group/us/”good” vs. out-group/them/”evil”. Given its importance, war/patriotism easily fills us with a great sense of purpose. England’s prime minister during WWII and national hero Winston Churchill shows us how inspiring, exciting and purposeful WWI was to him when he mentioned:
“I think a curse should rest on me — because I love this war. I know it’s smashing and shattering the lives of thousands every moment — and yet — I can’t help it — I enjoy every second of it.”
And in another occasion:
“My God! This is living History. Everything we are doing and saying is thrilling… Why I would not be out of this glorious delicious war for anything the world could give me…”
Towards the end of WWII, Russia’s Red Army is estimated to have raped over 2 million German women. Equally human, the Allies/Americans weren’t much better and generally saw the Japanese as an inferior race and cared little for their suffering or views, as US president who needlessly nuked Hiroshima and Nagasaki, Harry S. Truman, mentions in a letter:
“The only language they seem to understand is the one we have been using to bombard them. When you have to deal with a beast you have to treat him as a beast.”
We shouldn’t be shocked when men murder, rape and torture, or masturbate to tentacle porn, the real miracle that has taken thousands of years of cultural/legal evolution to create, are the modern cultural values/laws/ideologies/software we absorb that program homo sapiens into respecting the body/property/thoughts of all human beings regardless of age, sex, beliefs, and race. Being the social slightly smarter apes that we are, fellow humans are our biggest assets which helps explain the evolution of altruism/compassion, as well as our biggest competitors which helps us understand our horrendous violence and cruelty towards fellow men.
By the late 1800s, especially after Darwin, the slightly smarter apes began replacing the evolved wisdom/information/laws espoused by religious mythology (private property, freedom and family) which had tamed/brainwashed the savages into civilization (Exodus 22:19 “Anyone who has sexual relations with an animal is to be put to death.), by the “reason” of “expert/scientist” apes. Not having the slightest clue how the vital information that orders/creates civilization “emerges” from ‘private property’/freedom since this amazing mechanisms/order had been designed, not by clever men, but by an evolutionary process we didn’t even really understand at the time, they understandably fell for all the usual anti-Capitalist and central planning fallacies. They saw economic freedom as a recipe for chaos, exploitation and ‘social injustice’. Some like Hitler (a socialist) erroneously saw many aspects of finance/banking/stock-markets, especially due to the at-times overrepresentation of Jews, as some sinister and malicious way for Jews/Capitalists to enrich themselves at the expense of others(more on this in a sec). Most ultimately believed that a competitionless coercive tax-funded monopoly of “experts”/ideologues/“great leaders” could better order society, and increasingly saw religion and its traditions of private property and family as something backward, unnatural, and a tool of the growing business/Capitalist/”Bourgeoisie” class, or just selfish people in general that “don’t care about others”. Just like complex environmental factors create selective pressures that favor the spread of certain genes, the environment was ripe for the emergence of a new religion/mythology, Socialism/Communism/Statism. Eventually some slightly smarter arrogant ape would describe these increasingly popular fallacies/myths in a manner that was bound to go viral and that is what happened with Karl Marx and his bite-sized ‘Communist Manifesto’:
“the theory of the Communists may be summed up in the single sentence: Abolition of private property”….”Abolition of the family!”
The slightly smarter apes via Vladimir Lenin’s Bolshevik revolution in Russia (1918) and other apes throughout the world (Mao/China, Castro/Cuba, Pol Pot/Cambodia) with the utmost arrogance and cruelty went wild using their “reason”/“the science” and instincts to create massive central-planning-coercive bureaucracies that destroyed ‘competitive knowledge discovery’ and thus their own socioeconomic order that was created by it.
Lenin, as well as most people, believed that “the key feature is people, the proper choice of people”, and if we could just have the right apes/experts/’Great Leaders’ with the right values/ideas government/‘central planning’ would work. But Lenin was wrong of course, it is not so much the individual cells/people that matter, it is the system, it is freedom and its emergent ‘competitive knowledge discovery’ and socioeconomic order spreading mechanisms. It makes perfect sense how a bunch of economically clueless vicious slightly smarter tribal apes would go wild looking for and pledging support to the ape they feel has the right personal qualities (courage, honesty, intelligence, toughness, etc.) and coercing each other via governments to go along with the “master plans” as they inadvertently destroyed the very non-human-designed customs/traditions like private property which gave them life to begin with.
It is important that we see Communism/’Central Planning’ and Lenin’s Bolshevik Revolution not as some ‘nefarious conspiracy’, but as an almost inevitable spread of viral self-reinforcing ‘echo chambers’ of economic fallacies and disastrous ‘incentive structures’ that were just bound to finally spark in truly sustainable reactions as the social order got more complex and thus more fertile for economic fallacies. A young idealistic Russian could worry about how to make a good living in the always-uncertain and competitive private sector, or by joining Lenin and his Socialist Bolsheviks(government) he could become a hero to mankind by just forcing farmers/‘private sector’/others to give up (share) their grain/wealth to feed a bureaucracy/monopoly of “experts” who would plan a superior order. Sign me up! We should also highlight the fact that the apes ultimately stumble upon the realization that in order to carry out their wonderful/vital central plans, they must either coerce the public directly via edicts/taxes/regulations, or even better, simply control the ability to create money. It becomes a lot easier to create an ‘incentive structure’ where most people go along with your wonderful ideas when you can create the money and assure the public that you can provide the money/wealth they need. The money=wealth fallacy/myth easily causes the slightly smarter apes to self-destroy as 1) It allows transfers of wealth from the productive/innovative private sector to the centrally-planned inefficiently ordered bureaucracies which will consume more than they produce thus destroying social order 2) It easily motivates the apes to peacefully fool themselves and even clamor for such an ultimately disastrous rearrangement and attack the critics(obviously “right-wing extremists”). The apes go from fear and uncertainty to the comfort of working towards the ‘master plan’ by the ‘trusted expert apes’ and see how they are getting the money they foolishly equate with wealth. As this happens, more wealth is transferred to the minds that want to spread and make a living via the ‘central planning’ fallacies/myths/‘echo chamber’ from those that don’t, making it harder for the latter to resist until complete central planning tyranny/chaos is reached. As Spencer explains:
“Increasing power of a growing administrative organization is accompanied by decreasing power of the rest of the society to resist its further growth and control.”
We can easily see the inadvertent evolution and repetition of this process today where what increasingly matters to politicians/ideologues/masses is who will appoint or control the technocrats who run the ‘central banks’/’Federal Reserve’ and will thus be able to keep creating money/“stimulus” to seemingly accomplish anything like having millions not work/produce and stay home during CovidMania lockdowns, the Green New Deal, free education and healthcare, ‘racial/gender equality’, etc. The central banking technocrats are the new Popes/Oracles of the new faith/religion of ‘central planning’, not via Soviet Style direct threats/edicts, but by nonetheless using money to attempt a similarly disastrous/fateful ‘centrally planned’ rearrangement of society. Visit gatesnotes.com or weforum.org for an up-to-date list of all potential ‘social problems’ and how the 6 pounds of flesh in economically clueless great leaders/ideologues Bill Gates and Klaus Schwab’s heads have ‘master plans’ that can fix them all, or we die.
Fortunately for mankind Ludwig von Mises nearly single-handedly put the intellectual brakes on Socialist expansion when he showed the impossibility of central planning (summarized above) and persuaded Austrian politicians away from Communism/Bolshevism in 1919:
“I knew what was at stake. Bolshevism would lead Vienna to starvation and terror within a few days. Plundering hordes would take to the streets and a second blood bath would destroy what was left of Viennese culture.”.. “The most important task I undertook…was the forestalling of a Bolshevist takeover… The fact that events did not lead to such a regime in Vienna was my success and mine alone.” –Mises (Memoirs)
Later Hayek’s classic book “The Road to Serfdom”(1944), but also perhaps more importantly, the brilliantly written ‘condensed’ version which “Reader’s Digest” magazine placed in millions of US homes in 1945, would play a vital role in educating future freemarketeers like future British PM Margaret Thatcher, and 3-time presidential candidate Dr. Ron Paul who writes:
“My introduction to Austrian economics came when I was studying medicine at Duke University and came across a copy of Hayek’s The Road to Serfdom. After devouring this, I was determined to read whatever I could find on what I thought was this new school of economic thought — especially the works of Mises”
It is important that we see our problems in terms of an understandable economic ignorance for which no one is really to blame. Again, ‘the market process’ and resulting civilization has inadvertently evolved without man’s deliberate design, and our tribalistic instincts and economic ignorance has us constantly falling for coercive central planning that will eventually destroy the social order. It should be easy to realize that Socialism/Communism/Nazism/’viral economic fallacies/myths’ did not spread and destroy much of the 20th century because of a few bad apples or tyrants; they first spread through the minds of well-meaning citizens and intellectuals which then gave the future leaders the moral and intellectual justification for their actions. Hayek writes:
“It is necessary to realize that the sources of many of the most harmful agents in this world are often not evil men but high-minded idealists, and that in particular the foundations of totalitarian barbarism have been laid by honourable and well-meaning scholars who never recognized the offspring they produced.” (Hayek F. A., 1973, p. 70)
“Most people are still unwilling to face the most alarming lesson of modern history: that the greatest crimes of our time have been committed by governments that had the enthusiastic support of millions of people who were guided by moral impulses. It is simply not true that Hitler or Mussolini, Lenin or Stalin, appealed only to the worst instincts of their people: they also appealed to some of the feelings which also dominate contemporary democracies.” (Hayek F. A., 1976, p. 134)
When one looks at the biographies of fellow freemarketeers it is easy to notice how prior to stumbling upon the proper understanding of economics most were essentially “wild” humans, Socialists/Communists/Statists to various degrees. This just makes sense, our nature is that of the ‘Law of the Jungle’, how freedom leads to order instead of chaos is definitely not ‘in our genes’. Jealousy, vilification, tribalism… It all seems so obvious when we stand on the above men’s shoulders. Supposedly the Dodo bird quickly went extinct because it had not evolved to recognize humans as potential dangers, we similarly just line up for central planning/coercive self-destruction over and over and over and over. We essentially go from “wild” and extremely dangerous slightly smarter apes to “civilized” ones by understanding how civilization actually works and emerges from respecting private property and thus liberty.
Most of us mistakenly believe that the best thing we could do for ourselves is to work hard, be productive, etc. Sounds reasonable right? Yes and no, although those things are important, perhaps it is even more important to join Mises in his “intellectual battle”. He writes:
“Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping towards destruction. Therefore, everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us.”
If mankind proves to be an evolutionary dead end in the near future as certainly looks to be the case, it will not be because of the “evil” or clueless politicians and masses. It will be because those who have had the fortune of stumbling upon these and like-minded men’s ideas failed to educate fellow citizens. Mises one last time:
“If we want to avoid the destruction of Western civilization and the relapse into primitive wretchedness, we must change the mentality of our fellow citizens. We must make them realize what they owe to the much vilified “economic freedom,” the system of free enterprise and capitalism. The intellectuals and those who call themselves educated must use their superior cognitive faculties and power of reasoning for the refutation of erroneous ideas about social, political and economic problems and for the dissemination of a correct grasp of the operation of the market economy. They must start by familiarizing themselves with all the issues involved in order to teach those who are blinded by ignorance and emotions. They must learn in order to acquire the ability to enlighten the misguided many.
It is a fateful error on the part of our most valuable contemporaries to believe that economics can be left to specialists in the same way in which various fields of technology can be safely left to those who have chosen to make any one of them their vocation. The issues of society’s economic organization are every citizen’s business. To master them to the best of one’s ability is the duty of everyone.”
