Chapter: 8

Abundance and its Sources–Poverty and its Causes

 “[Civilization] does not get started with economic thinking; [it] gets started with developments of a creative sort—innovation of products.”—Andrew J. Galambos

SYNOPSIS

The abundance of material necessities and comforts which most Americans take for granted is not a universal condition in America, much less in the whole of human society. Abundance is a triumph over the poverty that has existed in all times and places in human history.

Where abundance exists, its primary source is knowledge. Where poverty exists, its primary cause is lack of knowledge.

In addition to knowledge, abundance derives from saving and the accumulation of capital, peace, freedom, property, work, the profit motive, and the activity of innovators, entrepreneurs and investors.

In addition to lack of knowledge, poverty derives from attacks on saving, accumulated capital and production, war, attacks on property, unemployment caused by interference with the market for labor, thwarting the profit motive, and attacks on innovators, entrepreneurs and investors.

TEXT

Knowledge

The original and primary source of material abundance is scientific discovery and technological innovation. The history of technology is the development of laborsaving devices, from early innovations such as agriculture, the plow, wheel and axle, down to more recent inventions such as the telephone, washing machines and computers.

Knowledge also promotes physical health and lack of knowledge is the source of sickness and death. For example, as David Deutsch observed in his magnificent book, The Beginning of Infinity:

“Many of the millions of victims of cholera throughout history must have died within sight of the hearths that could have boiled their drinking water and saved their lives; but . . . they did not know that.” 1

Poverty

“The history of poverty is almost the history of mankind. The ancient writers have left us few specific accounts of it. They took it for granted. Poverty was the normal lot.” 2

The term poverty is vague and seldom defined except in relative terms, for example as in the second inaugural address of President Franklin D. Roosevelt when he said, in 1937: “I see one-third of a nation ill-housed, ill-clad, ill-nourished.”

The poverty in the America of two centuries ago was far different than the lot of the poor in America in the early 21st century. Contemporary Americans who are considered poor generally enjoy indoor plumbing, hot and cold running water, the advantages of electronic communication via telephones, television, and even electronic mail, the ownership of an automobile, and relatively inexpensive, decent quality food and clothing if they are careful and sensible in their spending. Medical care is expensive, in relation to personal income and wealth, for not only the poor but for the middle class and even the affluent. But that is a subject to be discussed elsewhere herein.

Americans are taxed heavily to provide for the alleviation of poverty. “Welfare [in the U.S.] is not a category in the federal budget but the Congressional Research Service . . . catalogued it in 2003 as a $522 billion, federally mandated state cost. Welfare is hidden in 86 different programs in six different cabinet agencies. [In 2009] adjusted for inflation it cost $700 billion a year, larger than Social Security or Medicare. It [then represented] $65,000 for every poor family of four — yet poverty increases each year, says the Census Bureau.” 3

The foregoing indicates that achievement of abundance and the alleviation of poverty cannot be accomplished by political means. It must be found elsewhere, in the freedom of people to act for their own benefit by individual action and trading and cooperating with others.

Saving and the accumulation of capital

As the eminent economist Ludwig von Mises (1881-1973) observed before recent developments in China, the difference between the American truck driver and the (then) Chinese Coolie was the truck, which enabled the driver to out-produce and, therefore, out-earn the Coolie by a factor of perhaps 1,000 to 1. Although the average Chinese coolie had no less native intelligence than the average American truck driver, China lacked the capital to mass produce motor vehicles and the infrastructure of roads on which they operate.

In order for capital to accumulate people must work and save, and the fruits of their labor must be protected from theft and confiscation.

Production, consumption and the law

Abundance consists of the ready and widespread availability of goods and services for consumption. Before there can be consumption, there must first be production. In his lectures Galambos observed that even a child knows the answer to the following question: “Can you eat a loaf of bread that has not been baked?”

In American society there is a plethora of laws to protect consumers from producers. At the federal level there are several agencies established for this purpose. Few Americans would question the need for these agencies and the laws they administer. However, Galambos said of such agencies and laws that they can only hamper production and thereby reduce the amount of production for consumption.

Every legal impediment to production must necessarily reduce consumption and reduce abundance. This is not to say that producers should have no responsibility for a dangerous or defective product—they should; or that consumers should have no remedy for injury from that product—they should.

However, when society through its laws protects consumers so much that it hampers and reduces production, then consumers as a group will have a less abundant supply of goods and services for consumption.

A wide variety of producers have either been hampered in their production or been put out of business entirely by legal impediments to production and lawsuits to protect consumers. Another wide variety of activities have been withdrawn from public availability due to the risk of lawsuits and the costs of insurance protection.

Here are just four examples.

  • The U.S. Food and Drug Administration has delayed introduction of new pharmaceutical medicines, keeping them off the market for years after they have become available elsewhere.
  • Nationwide, the cost of medical malpractice insurance has become so costly that in some specialties, for example obstetrics and gynecology, large numbers of physicians have quit this specialty.
  • No new oil refineries or nuclear power plants have been built in America since the late 1970s, raising costs and reducing supplies of gasoline and electricity.
  • Rent control in some cities, intended to protect tenants, has in fact deterred private construction of affordable new rental housing and made it a losing proposition for property owners to maintain existing rental housing properly, thereby causing housing shortages and deterioration in quality of rental housing.

Peace and war

Human abundance, where it exists, requires peace. It is in peaceful activities that humans cooperate to create life, property and abundance.

Henry Moseley

Henry Moseley

War destroys human life and property, including intellectual property, by killing talented young people. Henry Moseley (1887-1915) was an English physicist who died in battle during World War I in 1915, at age 27. Before his enlistment in the British armed forces Moseley accomplished outstanding contributions to advancements in chemistry and atomic physics.

For the United States, the combined spending during the ten years that included the Civil War, World War I and World War II far exceeded all other spending of the U.S. over the first 150 years of its existence.

As Jacob Bronowski observed, wars conducted by aggressors are a form of organized theft. Imperial Japan and Nazi Germany launched wars in the 1930s with the express purpose of stealing the lands and resources of other countries. In the end both Japan and Germany suffered almost as much destruction as they inflicted on those they attacked. Thus, as Galambos observed about Germany:

“Do you suppose Hitler got up before his victims, the German people, and announced to them, ‘I plan to enslave you and destroy you, and when I get through with Germany all you’ll recognize is a pile of rubble? And in the meantime, you’ll suffer for twelve miserable years and wish you were dead.’ That is what happened.” 4

War was always extremely destructive, and has become more so with science and technology perverted into the production of ever more destructive weapons.

War is caused by politics carried on by a state or an organized religion as noted in the famous quotation of the German military strategist Carl von Clausewitz that “war is a continuation of politics by acts of violence to compel our opponent to submit to our will.”

The most basic and original justification of the state is set forth in the Preamble to the U.S. Constitution: “to provide for the common defense.” 

Nevertheless, throughout the history of the state on planet earth there has been almost continuous warfare in one place or another. During the 20th century scarcely a year passed without states engaging in wars, some defensive, others aggressive, some local and some global.

Galambos’ work was totally dedicated to the eradication of wars. In his view political states cause war. He said states not infrequently justify their monopoly of force by conjuring up an external threat and if the threat does not materialize, by provoking conflict with another state.  He saw the necessity of ending war, and innovated a vision of building a different kind of social structure where the common defense was provided without the state, and hence without war.

Freedom

Looking around the world we see that the countries with greater freedom for individuals have achieved a far higher standard of living than countries with less freedom for individuals.

Communist ideologue Karl Marx (1818-1883) argued in his Communist Manifesto of 1848 that capitalism exploits and impoverishes workers; that private property ought to be abolished and that the “means of production” should be seized by the working class under the leadership of the communist party.

Beginning in 1918 this Marxian vision of society was imposed by force in the self-described communist countries: Russia and its conquered peoples known as the Soviet Union, as well as in eastern Europe, China, North Korea, Cuba, Vietnam, Cambodia and several African countries. Other countries followed suit in lesser degree with forms of socialism that greatly curtailed property ownership and individual freedom. As a result, such countries had the lowest standard of living in the world. Meanwhile, other once poor countries “. . . that went in the direction of private ownership of the means of production and greater individual freedom—which is commonly called capitalism—were the ones that provided the highest amount of personal standard of living to the people who lived there.” 5

The founders of the Russian communist party declared that a principal goal was to establish a “classless society”—where everyone would be equal. Instead, they established a privileged class made up of members of the communist party, called the nomenklatura. These people held key administrative positions in the state, the military, industry, agriculture, education, and all other important aspects of Soviet society.

Despite perennial shortages of housing, food and just about everything but bread and vodka, the nomenklatura had access to special food stores, special hospitals and the best housing. This situation was satirized in George Orwell’s novella Animal Farm (1945) about a society of animals in which the rules of society were summarized by the motto “All animals are equal, but some animals are more equal than others.” The Serbian dissident communist Milovan Djilas (1911-1995) wrote a book, The New Class (1957) as an exposé of the Communist hierarchy.

The Soviet communist party said the Soviet Union was a socialist country making the difficult transition to “true communism” where there would be material plenty for all. With the realization of the permanence of poverty along with knowledge of the special privileges of the nomenklatura, a widespread disillusionment with the supposed benefits of socialism  was evidenced by the following  saying popular in communist Russia:

“In capitalism one man exploits the other and in socialism it is the other way around.”

China since 1947 has experienced both the destructiveness of political coercion and lack of freedom and the beneficial effect of diminishing political coercion and allowance of a modicum of economic freedom. 6 From 1976 to 1979 leadership of the Chinese communist party transferred to the so-called “capitalist roaders,” led by Deng Xiaoping who saw that China was in urgent need of economic change and said famously, “To get rich is glorious.” With the unleashing of the forces of some economic freedom and the profit motive the Chinese people have achieved immensely more abundance since 1979.

Property

Human freedom and the right to private ownership of property are inseparable. Property in this sense means all the fruits of one’s labor. In 1689 English political philosopher John Locke expressed the then radical view that government is morally obliged to serve people by protecting life, liberty, and property. 7

The idea that ownership of private property ought to be protected was an important part in the development of freedom and an ever-rising abundance in countries that provided some protection for private property.

In contrast, the Communist Manifesto of Karl Marx (1848) states: “The theory of the Communists may be summed up in the single sentence: Abolition of private property.” The more completely this anti-property idea has been enforced in a society, the greater the poverty and even destitution of people living in such a society.

The attempt to bring about complete abolition of private property was a disaster in the early years of the communist Soviet Union of Russia and its conquered people. “At least five and probably up to ten million people died of starvation in Soviet Russia in these early years [1918-1921]. And that’s in a country where the Ukraine, the ‘breadbasket of Europe,’ was Russian territory. How did this happen? No private ownership. No incentive. . . What saved Russia from total annihilation was that in the early 1920s . . . [the communists introduced] a so-called new economic plan in which you could own a little property . . .” 8  [Civil War also raged in Russia from 1918-1921, adding to the misery of the people and exacerbating the lack of food production. At least one million people died in the war from a combination of fatalities due to combat and disease in the opposing armed forces and  summary executions of supposed civilian enemies.]

Between 1929 and 1933 the Soviet communist party launched devastating blows against the peasant farmers in the Ukraine and neighboring regions: the abolition of private property in farm land, deportation of millions of peasant families to Siberia (where most perished) and removing every source of food while preventing help from the outside. In the process millions died of starvation. 9

Work

The path to abundance starts with productive work. Whatever impedes or prevents people from working leads to poverty. Whatever fosters work tends to lead to greater prosperity.

Immigrants coming to America were an important factor in the growth of the U.S. population from four million in 1790 to 92 million in 1910. Many of these immigrants came in search of work and a better life. Despite this massive immigration, unemployment was seldom a major social problem in 19th century America as the rapid growth in the American economy caused a near permanent labor shortage.

The hard-working spirit of immigrants continues to drive American prosperity. For an anecdotal example, the author of this website knows a husband and wife, Robert and Diane Lee (not their actual names) who emigrated from Korea to America in the 1970s. Robert was a school teacher in Korea. Robert and Diane have operated a laundry and dry cleaning business in the Los Angeles area since 1982. They are both naturalized citizens of the U.S. They have three grown children, all college graduates.

The Lees were quite young during the Korean War of 1950-1953, a most devastating war for the Korean people. Robert and Diane emigrated to the U.S. as young adults. They found work, got a place to live, and after getting situated in an apartment, had only four dollars left. They still have that same four dollars, which they have saved as a memento.

In 1982 the Lees bought their business for $42,000, equivalent to $100,000 early in the second decade of the 21st century, adjusted for changes in the Consumer Price Index. During their many years in business the Lees’ raised their children and were able to pay for all three going to college.

The business is open from 7:00 a.m. until 7:00 p.m. Monday through Friday, and 9:00 a.m. to 5:00 p.m. on Saturdays. The years of hard work show, but the Lees are cheerful, friendly, pleased to be Americans, and proud of their children.

Since the start of the 20th century the U.S. and its constituent states have enacted a panoply of laws controlling work and working conditions. While these laws are intended to benefit workers and to protect them from exploitation by employers, the laws actually cause unemployment. For example, “minimum wage laws are a major source of unemployment. . . There could never be a job shortage in this world without coercive interference [with work and employment].” 10

Especially during economic downturns, unemployment is always the highest among young people and especially young black Americans. This is due to the minimum wage laws and the various taxes that add to the cost of employing people, because young people often have not developed the skills to justify the minimum wage plus tax costs imposed on a potential employer, especially small business operating with minimal profitability.

In his book The Politics of Unemployment (1987) economist Hans F. Sennholz discusses the vast number of laws in the U.S. that limit the ability of people to offer or find work. A few examples include:

  • Prohibitions against employing people to work in their homes.
  • Laws favoring labor union activities have excluded non-union members from competing for jobs (often to the detriment of black Americans). These laws have also raised labor costs to the point of reducing employment or even forcing some companies out of business.
  • Laws imposing taxes on employment for the purpose of funding benefits for employees.
  • Unemployment benefits which provide disincentives for people out of work to seek new work. Studies from Europe show a statistical relationship between the duration of unemployment benefits and long-term unemployment.
  • Central bank policies and various laws which amplify and exacerbate the ups and downs of the business cycle, throwing people out of work during economic downturns.

Some of these laws were well-intentioned but others were intended to benefit one group of workers at the expense of others.

At the time of posting this chapter, early in 2012, unemployment was a serious problem in the U.S. with 16% or more of the people willing to work being without work or employed only part time. Yet, in a number of highly visible occupations, a large percentage of the workers are immigrants from Mexico, other parts of Latin America, and parts of Africa and Asia. Examples of such fields of work include the restaurant industry;  nursing aides, orderlies and attendants; house maids and housekeeping cleaners; the car wash industry; parking lot attendants; gardeners; and manicure/pedicure. In aggregate, about 15 million people are employed in these occupations. Implied in the foregoing is that many native-born Americans choose not to work in these occupations. 11

Immigrants are also visible in large numbers as self-employed entrepreneurs in small business, for example dry cleaning and convenience stores (small stores selling food,  beverages and a variety of consumer products).

The average earnings for unskilled or low-skilled work is around $18,000 per year. $18,000 in annual income would not cover bare necessities plus the cost of medical and automobile insurance for a person living alone. However, low income workers often are younger members of a family working in entry level jobs, or part of a family unit where two or more people are working. Small businesses operated by immigrants are typically a family affair with father, mother, and older children working in the business.

The profit motive

“The source of affluence [in American society or any other] is the profit-oriented [business], which in turn requires profit-oriented people, which in turn requires people inclined toward innovation.” 12

The term “profit motive” signifies the desire of people and businesses to supply their services and goods to others in the expectation of receiving value in return. The profit motive is evidenced by the following examples of human conduct. In these examples the word “person” includes a business whether operated as a sole proprietorship, a partnership, a corporation or some other profit-seeking enterprise.

  • An individual’s offer to work for monetary or other compensation and the willingness of another person to pay for the work.
  • A person competing for patronage by offering goods or services at a lower price, a higher quality, or both than competitors.
  • The willingness of some retail businesses to take a return of merchandise and refund payment when a customer is dissatisfied with merchandise. The retailer’s motive is to build goodwill and repeat patronage by customers.
  • A restaurant removes a charge for food a customer says is unsatisfactory. The restaurant does this in the hope the customer will not shun the restaurant in the future.

Where there is freedom of individuals and businesses to exchange goods and services, and competition for business, the profit motive causes business conduct friendly to customers.

Where there is no competition and no free market for goods and services, there is no profit motive causing suppliers of goods and services to strive continually to provide goods and services at lower prices and higher quality. In the extreme case of a total monopoly in the market for goods and services, quality and price become irrelevant. Note: As will be discussed in chapters below, the state is the only organization which has an enduring and pernicious monopoly–the monopoly of coercion; and non-state monopolies cannot long survive in a free market absent legal support of such a monopoly.

A striking example occurred for over 70 years in Russia (and all of the former Soviet Union) under communism. Soviet law made it illegal to be unemployed. However, the opportunities for work were limited legally to employment by the state. Incomes, incentives to work diligently, and the standard of living were so low that Russian workers  described their situation with the following statement:

“They pretend to pay and we pretend to work.”

In the Soviet Union in the 1920s and 1930s the most enterprising and productive farmers and their families were forced off their farms and deliberately starved to death in their villages, or were shipped off to slave labor camps for years (where most perished), or were forced to work on large state-operated “collective” farms (called Kolkhozy). The death toll from this assault on farmers has been estimated at 14.5 million people out of a population of around 40 million in the affected areas. 13

Soviet “collective farms” controlled most of the agricultural land in the country. Farmers on collective farms were virtual slaves, as they could not leave the farm without state permission and were paid only enough for a bare subsistence living. The productivity of the collective farms was so abysmal that the Soviets, using gold as payment, had to trade with America in order to buy enough wheat to feed the people—this in a country with vast, fertile farm lands.

To alleviate perpetual food shortages, eventually the Soviet state allowed individual farmers to hold a small area of private land and some animals. The average size of the private plots was usually about one acre. The relative productivity of the private plots–a direct consequence of the profit motive in operation–is shown by the fact that in 1938 only 4% of total farm land was in the form of private plots, but those plots produced 21% of gross agriculture output.  14 And “in 1959  the [private plots] . . . produced nearly half of the total meat and milk output, over 80 per cent of the eggs, 60 percent of the potatoes, and 46% per cent of the green vegetables consumed in the Soviet Union. In 1963, 23.8 per cent of all field crops and 45.6% of livestock products were produced on private plots occupying only about 3.1 per cent ot the total arable land.” 15

Two Russian emigré historians state “. . . [T]he productivity of the private plots was quite high . . . [T]he [private] plots in small provincial towns were not only the principal source of their owners’ livelihood but also a major source of the agricultural supply for a significant part of the population as a whole . . .” 16

Despite the fact that the profit motive was anathema under communist ideology, the Soviet state was acknowledging, reluctantly, that the profit motive would and did operate in the hearts and minds of the people who farmed private plots and that the profit motive would cause private conduct that would alleviate the chronic food shortages in the Soviet Union.

Other examples over the past 100 years demonstrate a similar story in communist states around the world. Thwarting the profit motive causes poverty; liberating the profit motive causes an almost immediate alleviation of poverty; and the more that the profit motive is allowed to operate the greater the prosperity of a country. A striking example is seen in comparing economic life in China from 1949 to 1976 (widespread and extreme poverty) to developments in China after 1976 (from abysmal poverty of most people to an astounding rise in national productivity and the average standard of living).

A comparison of pre-1980 China and Taiwan offers a striking example of the importance of the profit motive to prosperity. Taiwan is a large island located 100 miles off the coast of mainland China, with a population ethnically and culturally virtually the same as China. Until the 1980s the 20 million Taiwanese had achieved a  greater Gross Domestic Product than the one billion people of mainland China.

The impact of thwarting the profit motive is seen also in states that are not nominally communist, but rather have a culture of imposing bureaucratic interference on the ability of individuals to work for their own profit. This is characteristic of much, if not all, of Latin America. 17

Innovators, entrepreneurs and investors

Innovators create labor saving inventions that lead to greater abundance. Entrepreneurs organize the factors of production—capital and labor—to increase the efficiency of production, introduce technological applications of scientific innovation and continually adjust the quality and quantity of production to meet the ever-changing desires of consumers.

The immediately preceding chapter describes the discoveries and innovations that led to the creation of the telecommunications industry, which employed no one in America before invention of the telegraph and telephone in the 19th century. As of 2004 the American telecommunications industry employed about one million Americans. Employment in the telecommunications industry generally is well paid.

In the U.S. the telecommunications industry, although regulated by the state, was developed entirely by means of the activities of innovators, entrepreneurs and investors. Innovators developed the technology of telecommunications, which continues to develop. Entrepreneurs organized the factors of production—labor and capital. Investors provided the capital that was used by entrepreneurs.

Knowledge and freedom as the true sources of abundance

The growth of prosperity in America over the first 150 years after independence from Britain has been attributed to low population density and an abundance of natural resources. This is a mistaken idea.

Population density is irrelevant. Some of the most prosperous countries on earth have a high population density and few natural resources, including Holland, Belgium, and Switzerland in Europe; Israel; and Hong Kong, Japan, Singapore and Taiwan in Asia.

Some countries with a relatively low population density and an abundance of natural resources, are either very poor or have a terribly large portion of their population living in extreme poverty, for example Russia, much of Latin America, and Zimbabwe in Africa.

Examining these countries one can see a direct correlation between the relative lack of freedom and poverty. With freedom comes the ability of people to employ scientific and technical knowledge to create better paid employment. Prosperity is directly related to relative freedom from political impediments that create disincentives to work and production.

Numerous examples could be given but a few must suffice. After World War II, defeated Germany and Japan recovered from the devastation of war faster than the victorious countries such as Russia, England and France in Europe and China in Asia. This was due to the total destruction and discrediting of the political state in Germany and Japan. With diminished bureaucracy in both countries for several decades, a relatively free market was established and flourished. The greater degree of economic freedom soon produced relatively high prosperity in both Germany and Japan despite the war losses that had devastated most of their major cities and industrial centers and killed off a large proportion of their able-bodied young men.

Japan and Germany in defeat achieved greater prosperity than they could have as warlord nations—by trading with other countries rather than trying to rob and enslave them. England, one of the victors in World War II  has trailed defeated Germany and Japan in recovery from the war because English politics came under control of people who were  hostile to the profit motive and the incentives of economic freedom.

Abundance and the growth of global population

Concern has been expressed for over 200 years about the ability of planet earth to support a growing population.

In 1798 Thomas Malthus published An Essay on the Principle of Population. Malthus argued that population grows exponentially faster than food supply. Therefore, Malthus argued that planet earth had already reached the limit of its ability to produce enough food for its then current population; that it was inevitable for population growth to cease and that there would be an end to human progress in the 19th century. However, during the 19th century world population almost doubled, going from 900 million to 1.6 billion.

Life in 1800 was not much different than life for thousands of years before then. But by 1900 the industrial revolution had transformed society by causing a great advance in the average standard of living in much of the world.

In 1968 Paul Ehrlich published The Population Bomb which predicted imminent mass starvation for reasons similar to but even less rational than those of Malthus. At the time world population was 3.7 billion. Ehrlich calculated in 1971 that for the U.S. to sustain its then standard of living it would have to reduce its population by three quarters, from 200 million to 50 million. In the early twenty-first century, with a U.S. population of 300 million the U.S. produces enough food not only to feed itself but also continues to be a large exporter of agricultural products, e.g., having exported $140 billion of agricultural products in 2008. The U.S. has been the largest exporter of food products virtually every year since Ehrlich’s book came out in 1968.

As David Deutsch has observed, the dire predictions of Malthus and Ehrlich were wrong because they ignored the fact that we do not yet know what we have not yet discovered. 18

Food supply has been growing faster than population due to advances in science and technology. With the advances in science and technology that have already occurred planet earth could support a far larger population that its current seven billion. Consider that the total land area of planet earth (excluding Antarctica but including Africa, Asia, Australia, Europe, North America and South America) is about 52 million square miles. If we assume that half that area is relatively uninhabitable in our current state of knowledge, that would leave 26 million square miles, enough for a population of about 270 per square mile.

As of 2011 Switzerland, the Netherlands, and Taiwan, countries with a relatively high standard of living, support respectively 495, 1278 and 1,845 people per square mile, an average of more than 1,000 people per square mile or nearly four times the global average population density based on the assumptions in the preceding paragraph.

Until quite recently virtually every country in the world had high rates of infant mortality and a large majority of the population was employed in agriculture.  Accordingly, a high birth rate was the norm as people had large families in order to increase the possibility of having at least a few grown children around to to support them in old age.

However, population growth is now leveling and even declining in developed countries, and even in some developing countries due to the tendency towards lower infant mortality rates and lower birth rates accompanying advances in the education and emancipation of women.

Hopes for future abundance depend on freedom

England holds an honored place in the history of freedom. England was at the center of the change in attitude that brought about the Age of Enlightenment, the Scientific Revolution and the Industrial Revolution and, ironically, the American Revolution. Yet it is in the recent history of England that we can observe the adverse consequences for abundance when society is dominated by a politics hostile to property and the profit motive.

World Wars I and II were less devastating to England than to Germany. But starting in 1945 the English state undertook widespread confiscation of wealth via taxation and nationalization of private industries.

Mismanagement and inefficiency in state-controlled basic industries, stifling labor regulations and high taxes on private industry made English industry uncompetitive with much of the rest of the world, witness the failure of the English auto industry in international competition with German and Japanese auto makers.

High inflation caused by profligacy of the state, coupled with laws that increased the power of labor unions, led to demands for higher wages and benefits without a commensurate increase in worker productivity in both private industry and nationalized industries. When the demands were met British industry became less competitive. When they were not met labor union strikes shut down entire industries. For example, strikes in the state operated coal industry caused electricity blackouts throughout the country because coal was the principal source of generation of electricity.

In striking contrast is the increase in production and prosperity in several Asian countries that were extremely poor at the end of World War II, including Hong Kong, Japan, Singapore,  South Korea and  Taiwan. Those countries now enjoy some of the highest per capita incomes in the world. In the years following World War II those countries developed a political and social climate far more favorable to property and the profit motive.

The lessons of history are clear. The way to greater and more widespread abundance, and away from poverty, starts with liberation of humanity from the coercion manifested by politics, war, and interference in the ability of people to exchange goods and services freely. Prosperity will advance rapidly in a society that cherishes the open-ended increase in knowledge that comes from the process of conjecture and criticism already well established in the physical sciences. Abundance will develop in proportion to the amount of encouragement and reward that society accords to innovators, entrepreneurs and investors.

Commentary

This chapter is a transformative work. It is not a condensation of any one Galambos lecture. Rather, it is a presentation of Galambos’ ideas, derived from five of the lectures in Galambos’ 1968 presentation of Course V-50. Comments and new matter are incorporated into the text rather than being collected in separate commentary at the end.

Every statement in this chapter is either a quotation or paraphrase of statements made by Galambos in his V-50 (and other) lectures, or is based upon and inspired by the ideas of Galambos, as well as authors such as Ludwig von Mises, Jacob Bronowski and David Deutsch who are in the intellectual flow stream that started with the Age of Enlightenment and continued on to and past the work of Andrew Galambos. This intellectual flow stream  continues with ever greater force as the passage of time corroborates the approach to science that has led to the open-ended acquisition of new knowledge.

Notes:

  1. The Beginning of Infinity (2011), page 207.
  2. Quoted from Hazlitt, Henry, The Conquest of Poverty (1973), page 13.
  3. Quoted from Short Stack, “Top 10 most destructive government actions,” by Steven E. Levingston, Op-Ed, The Washington Post.com, interview with Martin L. Gross, November 13, 2009, http://voices.washingtonpost.com/shortstack/2009/11/top_10_most_destructive_govern.html?hpid=news-col-blog
  4. V-50 lecture #1, 1968, and Sic Itur Ad Astra, p. 6.
  5.  V-50 lecture #4, 1968, and Sic Itur Ad Astra, page 118.
  6. The final, conclusive victory of the Chinese Communist Party (CCP) was accomplished completely in 1949, but by 1947 the CCP was already terrorizing the Chinese people and starting mass executions of “enemies of the people.” See Fairbank, John K., Edwin O. Reischauer and Albert M. Craig, East Asia: Tradition & Transformation (Houghton Mifflin, Rev. Ed. 1989), pages 940, 943-947 (arbitrary classification of individual peasants as “enemies of the people” and mass killings in the hundreds of thousands if not millions); and Jung Chang and Jon Halliday, Mao: The Unknown Story (Alfred A. Knopf 2005), pages 315-320 (as many as one million peasants executed in terror campaign of 1947-1949)
  7. Locke’s ideals of individualism, property rights, free markets, and representative government are set forth in his Two Treatises of Government (1689).
  8. V-50 lecture #8, 1968, and Sic Itur Ad Astra, pages 301-302.
  9. The Harvest of Sorrow: Soviet Collectivization and the Terror-Famine (1986) by Robert Conquest.
  10.  V-50 lecture #4, 1968, and Sic Itur Ad Astra, page 118.
  11. The restaurant industry is a leading employer of ethnic minorities. http://jobs.aol.com/articles/2011/02/14/according-to-restaurant-industry-statistics-women-and-minoritie/ Employment statistics kept by the U.S. Bureau of Labor Statistics itemize the numbers employed in the industries referred to in the text accompanying this note.
  12.  V-50 lecture #4, 1968, and Sic Itur Ad Astra, page 121.
  13. Robert Conquest, Harvest of Sorrow (1986), chapter 16.
  14. See “Kolkhoz,” http://en.wikipedia.org/wiki/Kolkhoz citing Roy D. Laird, Collective Farming in Russia: A Political Study of the Soviet Kolkhozy, University of Kansas Publications, Lawrence, Kansas (1958), p. 120.
  15. Ian Grey, The First Fifty Years, Soviet Russia 1917-1967 (1967), citing Merle Fainsod, How Russia Is Ruled (1963), p. 558.
  16. Heller, Mikhail and Aleksandr M. Nekrich, Utopia in Power: The History of the Soviet Union from 1917 to the Present, (1986 English language translation) pages 515 and 550.
  17. See The Other Path: The Invisible Revolution in the Third World (1989) by Hernando de Soto (as of the late 1980s 60% of the economy of Peru was represented by individuals operating without legal permit due to bureaucratic restrictions making it virtually illegal to start a new business). See also Lessons from the Poor: Triumph of the Entrepreneurial Spirit (2008) edited by Alvaro Vargas Llosa (examples of poor people in Latin America whose entrepreneurial spirit overcame state regulations that discourage small business formation and growth).
  18. In his book The Beginning of Infinity (2011), pages 205-207 and 431-432.

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