Liberalism: The Classical Tradition (Ludwig von Mises, 1962)
Preface to the English-Language Edition
The social order created by the philosophy of the Enlightenment assigned supremacy to the common man. In his capacity as a consumer, the "regular fellow" was called upon to determine ultimately what should be produced, in what quantity and of what quality, by whom, how, and where; in his capacity as a voter, he was sovereign in directing his nation's policies. In the precapitalistic society those had been paramount who had the strength to beat their weaker fellows into submission. The much decried "mechanism" of the free market leaves only one way open to the acquisition of wealth, viz., to succeed in serving the consumers in the best possible and cheapest way. To this "democracy" of the market corresponds, in the sphere of the conduct of affairs of state, the system of representative government. The greatness of the period between the Napoleonic Wars and the first World War consisted precisely in the fact that the social ideal after the realization of which the most eminent men were striving was free trade in a peaceful world of free nations. It was an age of unprecedented improvement in the standard of living for a rapidly increasing population. It was the age of liberalism.
Today the tenets of this nineteenth-century philosophy of liberalism are almost forgotten. In continental Europe it is remembered only by a few. In England the term "liberal" is mostly used to signify a program that only in details differs from the totalitarianism of the socialists. In the United States "liberal" means today a set of ideas and political postulates that in every regard are the opposite of all that liberalism meant to the preceding generations. The American self-styled liberal aims at government omnipotence, is a resolute foe of free enterprise, and advocates all-round planning by the authorities, i.e., socialism. Every measure aiming at confiscating some of the assets of those who own more than the average or at restricting the rights of the owners of property is considered as liberal and progressive. Practically unlimited discretionary power is vested in government agencies the decisions of which are exempt from judicial review. The few upright citizens who dare to criticize this trend toward administrative despotism are branded as extremists, reactionaries, economic royalists, and Fascists. It is suggested that a free country ought not to tolerate political activities on the part of such "public enemies".
Surprisingly enough, these ideas are in this country viewed as specifically American, as the continuation of the principles and the philosophy of the Pilgrim Fathers, the signers of the Declaration of Independence, and the authors of the Constitution and the Federalist papers. Only few people realize that these allegedly progressive policies originated in Europe and that their most brilliant nineteenth-century exponent was Bismarck, whose policies no American would qualify as progressive and liberal.
When, thirty-five years ago, I tried to give a summary of the ideas and principles of that social philosophy that was once known under the name of liberalism, I did not indulge in the vain hope that my account would prevent the impending catastrophes to which the policies adopted by the European nations were manifestly leading. All I wanted to achieve was to offer to the small minority of thoughtful people an opportunity to learn something about the aims of classical liberalism and its achievements and thus to pave the way for a resurrection of the spirit of freedom after the coming debacle.
Liberalism: The Classical Tradition
Ludwig von Mises ,
See also Friedrich August von Hayek - Prize Lecture: The Pretence of Knowledge (December 11, 1974, Nobelprize.org).
"Free To Choose" (1980) a PBS TV Series by Milton Friedman
"Nobody spends somebody else's money as carefully as he spends his own. Nobody uses somebody else's resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property."
"Governments never learn. Only people learn."
"The only way that has ever been discovered to have a lot of people cooperate together voluntarily is through the free market. And that's why it's so essential to preserving individual freedom."
"Most economic fallacies derive - from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another."
"Underlying most arguments against the free market is a lack of belief in freedom itself."
"The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both."
The legendary PBS TV series "Free to Choose" (1980) by Nobel Prize-winning economist Milton Friedman is now available on Google Video for free (by courtesy of the Palmer R. Chitester Fund).
"Free To Choose" (1980) a PBS TV Series by Milton Friedman:
Power of the Market, The Tyranny of Control, Anatomy of a Crisis, From Cradle to Grave, Created Equal, What's Wrong With Our Schools?,
Who Protects the Consumer?, Who Protects the Worker?, How to Cure Inflation, How to Stay Free.
See also Milton Friedman - Autobiography Nobelprize.org
See also The Cato Institute: Milton Friedman
The Laffer Curve illustrates the basic idea that changes in tax rates have two effects on tax revenues:
the arithmetic effect and the economic effect.
The arithmetic effect is simply that if tax rates are lowered,
tax revenues (per dollar of tax base) will be lowered by the amount of the decrease in the rate.
The reverse is true for an increase in tax rates.
The economic effect, however, recognizes the positive impact that lower tax rates have on work, output,
and employment - and thereby the tax base - by providing incentives to increase these activities.
Raising tax rates has the opposite economic effect by penalizing participation in the taxed activities.
The arithmetic effect always works in the opposite direction from the economic effect.
Therefore, when the economic and the arithmetic effects of tax-rate changes are combined,
the consequences of the change in tax rates on total tax revenues are no longer quite so obvious.
Figure 1 is a graphic illustration of the concept of the Laffer Curve - not the exact levels of taxation corresponding to specific levels of revenues. At a tax rate of 0 percent, the government would collect no tax revenues, no matter how large the tax base. Likewise, at a tax rate of 100 percent, the government would also collect no tax revenues because no one would be willing to work for an after-tax wage of zero (i.e., there would be no tax base). Between these two extremes there are two tax rates that will collect the same amount of revenue: a high tax rate on a small tax base and a low tax rate on a large tax base.
The Laffer Curve itself does not say whether a tax cut will raise or lower revenues. Revenue responses to a tax rate change will depend upon the tax system in place, the time period being considered, the ease of movement into underground activities, the level of tax rates already in place, the prevalence of legal and accounting-driven tax loopholes, and the proclivities of the productive factors. If the existing tax rate is too high-in the "prohibitive range" shown above - then a tax-rate cut would result in increased tax revenues. The economic effect of the tax cut would outweigh the arithmetic effect of the tax cut.
Moving from total tax revenues to budgets, there is one expenditure effect in addition to the two effects that tax-rate changes have on revenues. Because tax cuts create an incentive to increase output, employment, and production, they also help balance the budget by reducing means-tested government expenditures. A faster-growing economy means lower unemployment and higher incomes, resulting in reduced unemployment benefits and other social welfare programs.
Successful Examples. Over the past 100 years, there have been three major periods of tax-rate cuts in the U.S.: the Harding-Coolidge cuts of the mid-1920s; the Kennedy cuts of the mid-1960s; and the Reagan cuts of the early 1980s. Each of these periods of tax cuts was remarkably successful as measured by virtually any public policy metric. In addition, there may not be a more pure expression of the Laffer Curve revenue response than what has occurred following past changes to the capital gains tax rate.
The interaction between tax rates and tax revenues also applies at the state level - e.g., California - as well as internationally. In 1994, Estonia became the first European country to adopt a flat tax and its 26 percent flat tax dramatically energized what had been a faltering economy. Before adopting the flat tax, the Estonian economy was literally shrinking. In the eight years after 1994, Estonia experienced real economic growth - averaging 5.2 percent per year. Latvia, Lithuania, and Russia have also adopted flat taxes with similar success - sustained economic growth and increasing tax revenues.
See also The Laffer Center (Supply-side Economics)
See Libertarianism (A Project of the CATO Institute)
From Sheldon Richman, Annotated Bibliography of Frédéric Bastiat (Frédéric Bastiat, 1801-1850)
The worst superstition - the most socially destructive of all - is the intuitively appealing belief that when there is a problem, government action is the best way to solve it.
What government usually does is make the problem worse and leave us deeper in debt.
The more power we give government to control businesses, the more businesses seek to control government.
Markets aren't perfect. But they allow for a world where prudence is rewarded and recklessness punished - a world in which people are more likely to take risks and innovate - one where more people prosper. That includes the poor.
A healthy economy does not just create jobs-of-any-kind, it creates productive jobs.
Since government services are funded through the compulsion of taxes, they have no market price. Without market prices, we have no way of knowing the importance that free people place on those services. We cannot calculate how much wealth we lose when politicians allocate resources.
Businesses that make bad decisions should fail. That's how capitalism works. Economists call it "creative destruction".
The laws of man cannot change the laws of economics. We cannot raise wages or create jobs or eliminate poverty by executive order. We do so by freeing people to save and invest and accumulate capital.
Politicians give speeches about how things ought to be - and it's tempting to judge them by those speeches. But high hopes can't alter reality. Ludwig von Mises wrote that understanding this is liberating: once people realized that they must adjust to economic forces "in precisely the same way as they must take into account the laws of nature, [that led to] policies of liberalism [classical liberalism, that is, what we today call libertarianism] and thus unleashed human powers that, under capitalism, have transformed the world".
This page was updated in: November 1 '15
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