Tag Archives: Carl Menger

Why Socialism and Communism Can Never Work.

The Austrian Economists Who Refuted Marx (and Obama)

From:    The Daily Bell

Editorial By Richard Ebeling

March 04, 2014

The president of the United States has publicly declared that he knows the minimum wage any worker in the United States should earn as an hourly salary: $10.10. Why not $11.11 or $9.99 has been left a mystery. But what the president is sure of is that businessmen clearly are stonehearted money grabbers exploiting some of their workers by not paying them the real value of what their labor is worth.

Left unspoken in Obama’s assertion of knowing what a minimum “fair” or “just” wage should be in America is the ghost of a thinker long thought to have been relegated to the dustbin of history: Karl Marx (1818-1883).

Marx’s Labor Theory of a Worker’s Value

Marx’s conception of the unjust “wage slavery” that businessmen imposed on their workers became the premise and the rallying cry that resulted in the communist revolutions of the twentieth century, with all their destruction and terror.

Marx insisted that the “real value” of anything produced was determined by the quantity of labor that had gone into its manufacture. If it takes four hours of labor time to produce a pair of shoes and two hours of labor time to prepare and bake a cake, then the just ratio of exchange between the two commodities should be one pair of shoes in trade for two cakes. Thus, the quantities of the two goods would exchange at a ratio representing comparable amounts of labor time to produce them.

If a worker’s labor produced, say, three pairs of shoes during a twelve-hour workday, then the worker had a just right to the ownership of the three pairs of shoes his labor had produced, so he might exchange it for the productions of other workers from whom he wanted to buy.

But, Marx insisted, the businessman who hired the worker did not pay him a wage equal to the value of the three pairs of shoes the laborer had produced. Simply because the businessman owned the factory and machines as private property with which the worker produced those shoes, and without access to which the worker would be left out in the cold to starve, the employer demanded a portion of the worker’s output.

The employer paid him a wage only equal to, say, two of the pairs of shoes, thus “stealing” a part of the worker’s labor. Hence, in Marx’s mind, the market value of the third pair of shoes that the businessman kept for himself out of the worker’s work was the source of his profit, or the net gain over the costs of hiring the worker.

Here is the origin of the notion of “unearned income,” the idea of income not from working and producing, but from, well, simply owning a private business in which the workers who really did all the work were employed.

The businessman, you see, does nothing. He lives off the labor of others, while sitting up in his office, with his feet on the desk, smoking a cigar (when it was still “politically correct” to do so). It is not surprising given this reasoning about work, wages and profit that a president of the United States then says to businessmen, “You really did not make it.”

Carl Menger and the Personal Value of Things

Karl Marx died in 1883, at the age of 64. A decade before his death, in the early 1870s, his labor theory of value had been overturned by a number of economists. The most important of them was the Austrian economist, Carl Menger (1840-1921), in his 1871 book, Principles of Economics.

Menger explained that the value of something was not derived from the quantity of labor that had been devoted to its manufacture. A man might spend hundreds of hours making mud pies on the seashore, but if no one has any use for mud pies, and therefore does not value them enough to pay anything for them, then those mud pies are worthless.

Value like beauty, as the old adage says, is in the eyes of the beholder. It is based on the personal, or “subjective,” use and degree of importance that someone has for a commodity or service to serve some end or purpose that he would like to satisfy.

Goods do not have value because of the amount of labor devoted to their production. Rather, a certain type of labor skill and ability may have value because it is considered useful as a productive means to achieve a goal that someone has in mind.

And furthermore, the value of things decreases as our supply of them increases, because we apply each additional quantity of a good at our disposal to a purpose less important than the purpose for which previously acquired units of that good were used.

As I am adding shirts to my wardrobe, each extra shirt generally serves a use for that type of clothing less important to me than the shirts I had purchased earlier. Economists call this the “diminishing marginal utility of goods.”

Read More here: http://www.thedailybell.com/editorials/35079/Richard-Ebeling-The-Austrian-Economists-Who-Refuted-Marx-and-Obama/

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Real Evil: Attributing the Creation of Money to the State

Another good article from the folks over at the Daily Bell! (E)

MONDAY, APRIL 08, 2013

By Staff Report
Sorry, Libertarians, History Shows Bitcoin Isn’t the Future … As we consider the digital-currency phenomenon that is
Bitcoin, bear in mind that there are, broadly speaking, two accounts of the origin and history of money. One is elegant, intuitive and taught in many introductory economics textbooks. The other is true. The financial economist Charles Goodhart, a former member of the Bank of England‘s Monetary Policy Committee, laid out the two views in a 1998 paper, “The Two Concepts of Money: Implications for the Analysis of Optimal Currency Areas.” – Bloomberg

Dominant Social Theme: Money comes from government.

Free-Market Analysis: This is the fundamental fault line between freedom and statism and one reason we’ve spent so much time writing about it and have been subject to so many attacks.

The meme – and we early recognized it as such – that money is a state-sponsored occurrence can be found in such books as Ellen Brown‘s Web of Debt. It is a Greenbacker analysis and one that yields the conclusion that if money is state-sponsored than we can use elements of the state to “change” money and make it more equitable.

This is why the enemies of freedom and solvency are constantly trying to make the argument that money comes from the state. The Bloomberg article, above, makes the same points.

But money did not come from the state. It is ludicrous to argue that it did.

The state cannot make anything and has no incentive to innovate. There is not one single invention so far as we are aware that comes from the state. Everything is invented first in the private market and then adapted as necessary by government.

And that goes for money, too, which developed out of a competitive process, as Murray Rothbard pointed out, between various currencies.

But that is not what the sophists want us to think. They want us to believe that money was invented in the neolithic as a result of war. Here’s more from the article:

The first view, the “M View,” is named after the Austrian 19th century economist and historian Karl Menger, whose 1882 essay “On the Origins of Money” is the canonical statement of an argument that goes back to Aristotle:

As subsistence farming gives way to more complex economies, individuals want to trade. Simple barter (eight bushels of wheat for one barrel of wine) quickly becomes inefficient, because a buyer’s desires won’t always match up with a seller’s inventory. If a merchant comes through the village with wine and all a farmer has to offer is wheat, but the merchant wants nuts, there’s no trade and both parties walk away unfulfilled. Or the farmer has to incur the costs of finding another merchant who will exchange wheat for nuts and then hope that the first merchant hasn’t moved on to the next village.

But if the merchant and the farmer can exchange some other medium, then the trade can happen. This medium of exchange has to be what Menger calls “saleable,” meaning that it’s easily portable, doesn’t spoil over time and can be divided. Denominated coins work, shells and beads also fit the bill. So do cigarettes in POW camps and jails and Tide laundry detergent for drug dealers. This process, Menger argues, happens without the intervention of the state: “Money has not been generated by law. In its origin it is a social, and not a state institution.”

Goodhart points out, however, that Menger is just wrong about the actual history of physical money, especially metal coins. Goodhart writes that coins don’t follow Menger’s account at all. Normal people, after all, can’t judge the quality of hunks of metal the same way they can count cigarettes or shells. They can, however, count coins. Coins need to be minted, and governments are the ideal body to do so. Precious metals that become coins are, well, precious, and stores of them need to be protected from theft. Also, a private mint will always have the incentive to say its coins contain more high-value stuff than they actually do. Governments can last a long time and make multi-generational commitments to their currencies that your local blacksmith can’t.

But why oversee money creation in the first place? This brings us to the second theory of money, which Goodhart calls the “C View,” standing for “cartalist” (chartalist is a more common spelling). To simplify radically, it starts with the idea that states minted money to pay soldiers, and then made that money the only acceptable currency for paying taxes. With a standard currency, tax assessment and collection became easier, and the state could make a small profit from seiginorage.

The state-coin connection has far more historical support than Menger’s organic account. As Goodheart points out, strong, state-building rulers (Charlemagne, Edward I of England) tend to be currency innovators, and he could have easily added Franklin D. Roosevelt’s taking the U.S. off the gold standard in 1933 or Abraham Lincoln financing the Civil War with newly issued greenbacks. The inverse is true too: When states collapse, they usually take their currencies with them. When Japan stopped minting coins in 958, the economy reverted to barter within 50 years. When the Roman Empire collapsed in Western Europe, money creation splintered along new political borders.

If money came about independent of states, as according to the M View, one would think it would outlast transient political structures. Historically, however, this tends not to be the case, a strong argument in favor of the C View.

The article goes on to attack Bitcoin – a “currency” about which we have longstanding doubts. But even though the article is aimed at Bitcoin, what is most disturbing about the article is its mischaracterization of fundamental economic literacy.

The crux sentence of this article is “A private mint will always have the incentive to say its coins contain more high-value stuff than they actually do.”

There are no words to describe the maliciousness of such a misstatement. It really plumbs the depth of depravity.

It is the old market failure argument, but updated and casually tossed off with breathtaking arrogance. If one follows the logic of this statement, one arrives at the conclusion that the private market will always attempt to mislead and that government is a necessity to insure against private market corruption.

If one accepts this nonsensical perspective then everything else flows logically. Government was necessary to create money, to supervise it, etc.

Additionally, and most importantly, since government has MADE money, the process of government can be used to change money and make its creation and distribution more ethical and fair.

And, in fact, this is what Money Power hopes you believe.

There is a huge push underway to get people to believe that if governments are responsible for money instead of “private” monopoly central bankers, the world will benefit and societies will be financially healthy again.

Nothing can be further from the truth. Make no mistake: Those who support Greenbackerism and speak approvingly of Silvio Gesell and Major Douglas are in league with Money Power. They are propounding a myth – that government itself can be the antidote to Money Power.

But only the free market can create and circulate money fairly. Money Power controls the state, which is why statists in the employ of Money Power, want to propound the falsity that the State can liberate money.

It is a con, a falsehood … a dominant social theme.

It starts with the idea that the state created money, a falsehood on every level. It continues with the idea that the state-run money can be controlled by “the people” who can use monopoly central bank for their own benefit. This is of course the language of the Third Reich and the fascism that is now coming back into fashion.

China, India, Russia … we are supposed to believe that because these countries have public central banks, their currency regimes are “better.” What nonsense.

Conclusion: Don’t fall for this sophism. Money was created by the free market and the sooner that the creation and circulation of money is returned to the market via currency competition (including gold and silver) the better off we shall be.


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