LIBERTY – whatever.


‘Houston, we have a problem…’

Yer may have read an earlier post here on Serf Underground, 8th Edition, ‘The Case for Dynamic Disequilibrium,’ where I discuss Joseph Schumpeter’s famous book, ‘Capitalism, Socialism and Democracy.’ In his book, Schumpeter attributes the prosperity of the West, post the Industrial Revolution, to people’s freedom to innovate. The innovative process of dynamic disequilibrium that Schumpeter identifies in the West, moving resources from the old and obsolete, to new and more productive employment, is the very essence of its economic development and a nation’s prosperity. Schumpeter argues that a modern economy is always in disequilibrium. It is not a closed system like John Maynard Keynes macro economy, but is forever growing and changing. It is biological rather than mechanistic.

In the process of dynamic disequilibrium, Schumpeter argues, the only genuine profit is the profit created by the innovator. Profit is not surplus value stolen from the workers but is the cost of staying in business, the cost of capital formation to defray the costs of the future, the cost of maintaining jobs and creating new ones. .

Relating to profit, Schumpeter later identified the problem, during the First World War, of government mobilizing liquid wealth. Through taxation and borrowing, the State had acquired the power to shift income and control the distribution of the national wealth. Where Keynes saw this as a magic wand to achieve social justice, Schumpeter saw it as an invitation to irresponsibility because it eliminated safe guards against inflation. In the past, the inability to tax or borrow more than a small proportion of the country’s wealth had made inflation self limiting, now the only limit against was political self discipline.

Schumpeter was skeptical that governments would be politically self disciplined and argued that capitalism would be destroyed by the very democracy that had helped make possible. For in a democracy, to be popular, governments would buy votes to stay in power. Nations would increasingly become ‘tax states,’ shifting profits from producers to non-producers. Capital for tomorrow would be consumed, democracy would come under increasing inflationary pressure and eventually, Schumpeter predicted, inflation would destroy both democracy and capitalism.

Reflecting on the French Revolution – etcetera.

Edmund Burke, writing in 1791, his cautionary letter ‘Reflections on the Revolution in France,’ saw threats to the basic principles whose observance sustained western constitutional government and free society. Burke recognized the problem of cavalier exercise of authority demonstrated by events in Paris that were based on Rousseau’s doctrine of natural rights, a doctrine that Burke perceived as gaining ground in England. Burke wanted to shake the complacency of those who believed that the French were simply imitating the modest English Revolution of 1688, which he argues was restorative of constitutional and established rights and very different from the clean slate reconstructing of society from scratch, which was taking place in France. Wary of the untutored and unsocial impulses that lie beneath men’s acquired civility, Burke considered that the social institutions that have evolved in a complex, historical process and have stood the test of time are what allow men to live together in any degree of peace and freedom.

The political creed to which Burke subscribed, an off-shoot of the ‘Glorious Revolution of 1688,’ was united by hatred of arbitrary power and by a wish to be guided by and governed by the certain rule of law. Burke argues that the Revolution of 1688 did not seek to overthrow constitutional law but to preserve ‘ancient indisputable laws and liberties, and that antient constitution of government which is our only security for law and liberty.’ (‘Reflections,’ Oxford Press, P31.) Without the means of some change the State is without the means of its conservation, he argues. Without such means of correction it might even risk the loss of what it most wishes to conserve and these ‘ two principles of conservation and correction acted strongly at the two critical periods of the Revolution and the Restoration.’ (R. P22.)

‘We wished at the period of the Revolution and do now wish, to derive all we possess as an inheritance from our forefathers.’(‘R P31.) ‘ In the famous law of the 3d of Charles 1, called the Petition of Right, the parliament says to the king, ‘Your subjects have inherited this freedom, ‘claiming their franchises, not on abstract principles ‘as the rights of men,’ but as a patrimony derived from their forefathers.’( R P32. ) Whereas, says Burke, the revolutionaries in France, operating from first principles rather than empiric study are so taken up by their principles that they totally forget man’s nature. To legislate on the principle of human rationality is to present a one dimensional picture forgetting that men may also be irrational, self serving and violent. With regard to the excesses and social misery brought about by the revolutionary government’s ad hoc decisions, Burke argues that if the parliament had been not been dissolved, it may have acted as a balance and corrective of the excesses of the National Assembly and its judiciary owing its place to the National Assembly, not knowing by what law it judges nor under what authority it acts. ( R.PP 208/9.) .

In Burke’s account there is much to be said for his comparison between the stability of English politics and a non-arbitrary rule of law, and the anarchy in France. The English recognized that property, in its widest definition, defined as certain rights, land, goods and including the value in labor of a pair of hands, each defined and guaranteed in law, was what brought men from the savage to the political state and kept them there. Burke was horrified that the French revolutionaries attacked the corporate property of the Church and émigré nobility and questioned what property could be claimed secure when the French taught examples such as these.

The Abandoned Road.

Friederich Hayek, a century and a half after Edmund Burke, shares many of his views on the nature of society and the proper task of government. Writing in the period of another European cataclysmic event, The Second World War, Friedrich Hayek, in his classic book on human liberty, ‘The Road to Serfdom’ argues that while the crisis to the freedom of nations by German fascism is very real, for at least the twenty-five years before that, the spectre of totalitarianism had become a real threat:

‘We had been progressively moving away from the basic ideas on which European civilization had been built. That this movement on which we have entered with such high hopes and ambitions could have brought us face to face with the totalitarian horror has come as a great shock to this to this generation, which still refuses to connect the two facts. Yet this development merely confirms the warnings of the liberal philosophy which we still profess. We have progressively abandoned that freedom in economic affairs without which political and personal freedom has never existed in the past.’(‘The Road to Serfdom.’ Routledge. 2010. P13.)

Western Civilization, observes Hayek, is also abandoning that basic individualism inherited from classical antiquity, from thinkers such as Thucydides, Pericles, ( say, I’m adding Socrates to this list, ) Cicero, Tacitus through to thinkers of the Renaissance like Montaigne and Erasmus, defined as:

‘the respect for the individual man qua man, that is the recognition of his own views and tastes as supreme in his own sphere, however narrowly that is circumscribed, and the belief that it is desirable that men should develop their own individual gifts and bents.’ (P14.)

With the increasing prosperity of western nations as an outcome of the free growth of economic activity, itself the undersigned and unforeseen by-product of political freedom, for some classic liberal philosophy came to be regarded as a negative creed because it could offer to particular individuals little more than a share in progress, a progress that came to be taken more and more for granted.

Some people turned to socialism to replace the impersonal mechanism of the market by collective direction of social forces to consciously chosen goals. What the ‘democratic’ socialists failed to recognize and what the founders of socialism had understood was that their ideas could only be put into practice by a strong dictatorial government with much in common with fascist and communist nations like Hitler’s Germany and Stalin’s Soviet Union. Lenin’s old friend, Max Eastman, felt compelled to admit that ‘instead of being better, Stalinism is worse than fascism, more ruthless … anti-democratic, unredeemed by any hope or scruple.’ (M. Eastman,’ Stalin’s Russia and the Crisis of Socialism.’1940 P82.) Foreign correspondent Francis Voigt, writing of developments in Europe in 1939, observed that ‘Marxism has led to Fascism and National-Socialism because, in all essentials, it is Fascism and National-Socialism.’ (F A Voigt. ‘Unto Caesar.’ 1939. P 95.)

To allay these suspicions and connect with the strongest of all political motives, people’s craving for freedom, says Hayek, increasingly the socialists began to make use of the promise of a ‘new freedom,’ not ‘freedom from coercion,’ since all pulling together is a must in a collective state, but ‘freedom from the despotism of want,’ necessitating a new authoritarian principle in human affairs.



Planning For Freedom?

To assert the complexity of civilization as an argument for central planning is to misapprehend the working of competition, argues Hayek. The very complexity of the division of labor under modern conditions precludes one person or central body from consciously balancing all the details of changes that continually affect the conditions of demand and supply of commodities. Only the price system under competition, because it enables entrepreneurs to gain the information they require by watching comparatively few prices, allows this to happen.

Not only is a central board of experts unsuited to survey and act upon the complexities ‘out there,’ there’s the historical record of failed long term plans and great leaps forward based on ‘expert’ predictions. If you’ve read Nassim Taleb’s ‘The Black Swan’ concerning unexpected ‘black swan’ events in history and understand the folly of assuming the future will mirror the past, you’ll be wary of long term plans. In Taleb’s chapter entitled, ‘ The Scandal of Prediction,’ he cites a study by Philip Tetlock showing that highly qualified ‘experts’ are not significantly more reliable in their predictions than their less qualified associates and no different from the rest of us when it comes to learning from our mistakes. Having ‘skin in the game,‘ or personal liability that concentrates your decision making is another factor missing in the think tank predictions of a bureaucracy, ie. Paul Ehlich, Joseph Stiglitz et al, but we won’t go into that!

Relating to complexity of modern society, Hayek also states: ’It is no exaggeration to say that if we had to rely on conscious central planning for the growth of our industrial system, it would never have reached the degree of differentiation, complexity and flexibility that it has attained.’ ( P52.) Supporting this, Jane Jacobs (ref my Serf Underground, 21st Edition,) cites the development of Venice and mushroom towns, and other case studies demonstrating that the growth of cities and import replacement is a messy process independent of government planning, and in fact hindered by it. ( Jane Jacobs, ‘Cities and The Wealth of Nations.’)

Arbitrariness All Over Again.

The creation of a broad, permanent framework of laws within which the productive activity is guided by individual decisions, the ‘Rule of Law,’ is very different from the laws governing economic activity by a central authority, which is necessarily arbitrary.

‘When the government has to decide how many pigs are to be reared or how many buses are to run, which coal mines are to be operated, or at what price boots are to be sold, these decisions cannot be deduced from formal principles, or settled for long periods in advance. They depend inevitably on the circumstances of the moment … and in the end somebody’s view will decide whose interests are more important.’ (P77.)

You are now replacing formal law by substantive rulings, imposing moral decisions at the discretion of a central authority or a judge. So here comes the moral imperative bit. Because successful planning requires the creation of a common view, we must all be persuaded to pull together, come to regard the central social plan as ‘our’ social plan.

‘Socialists,‘ says Hayek,’ the cultivated parents of the barbarous offspring they have produced, traditionally hope to solve this problem by education.’ (P117.) But what does education,’ in this sense mean? Why it means the general acceptance of a common weltanschauung, a definite set of values, and the problem becomes how to develop a movement supported by a single world view? An Austrian socialist , speaking of the socialist movement of his country, reports that its characteristic feature was its pervasiveness, creating special organizations for every field of activity of its workers and employees. ( G Wieser. ‘Ein Staat Stirht,’1938. P41.)

Then of course, we have creation of myths, there’s a long tradition in history, from Plato’s ‘Noble Lie,’ to Hitler’s myth of ‘The Master Race,’ those assertions about the connections between facts, which, once they have become ideals directing the activity of a whole community, may not be questioned. Those who retain an inclination to criticism must be silenced because they could weaken public support. Coercion, persuasion and pervasiveness, the methods, the whole apparatus for spreading knowledge, schools, press, radio, cinema, used to strengthen the belief in the rightness of the decisions taken by the central authority.(P164)

A serf sum up.

Well this serf’s not too happy with the way guvuhmints are spending our money as though there’s no tomorrow, no likely black swans on the horizon or inflation. What would Schumpeter or Nassim Taleb say? Then there’s the matter of that individualism we inherited from classical antiquity and the Renaissance, from Socrates, Tacitus to ,Montaigne, Erasmus etcetera, that ‘respect fer the individual man qua man?’ With the need ter have everyone all pulling together towards a single goal, everyone’s activity’s supposed ter derive its justification from a united, social purpose. There must be no art fer art’sake, no science fer science sake – no spontaneous, misguided activity that may produce unforeseen and perhaps seditious results. Ferget individuality. Oh Socrates!

Back ter the turnip field.


  1. The thing I like about Australia, apart from leg spin, beaches etc, is that our polity is a hundred years older than the nation itself. I just like that. Don’t know why. Matter of taste, maybe. Perhaps because…

    Novelty gets stale and brittle and bare; tradition, a live thing, sheds constantly.

    Novelty is non-renewable, non-reyclable.

    Novelty mimics change to keep things the same.

    Can’t be new and novel.

    One can easily be too right wing, but never too conservative.

    Novelty imposes itself on flux. Tradition floats on it.

    SUg thoughts.

    I’ll stop now.

    But that Schumpeter…how come he had the comical name and not Keynes?

  2. …Beaches, smell of Eucalypt leaves, music in the air of
    cockatoos, even leg spin if I knew when it was happening,
    – and yes, tradition that has stood the test of time –
    Montaigne and all that.

  3. Yep, Edmund Burke stuff. Say, moso, there’s another interpretation
    of Thomas More by Hilary Mantel in ‘Wolf Hall.’ She also did a
    convincing tale of the ad hoc decision making of the leading
    revolutionaries in The French Revolution, ‘A Place of Greater

  4. Rare visitor to your website, but oft reader of your comments on “Climate Etc” etc. Liked this post – I seem to have become more fiscally “Conservitave” but socially still “Liberal” as I have aged. I think Economists in the early part of the 20th century did not have any real inkling ( that’s a nice word) of the speed with which technology would change society or the aspirations of the general population. I agree with your summing up paragraph; it also seems to me that the challenge for Governments now is to make people today realise that they have to contribute in some way in order to benefit from the stability and security provided by western style democracies. To an earlier generation (mine sadly) the concept of a link between rights and responsibilities was self evident.

  5. Thx for your comment, Colin, those are my views also. About
    the challenge for Governments now, there’s a chapter in Nassim
    Taleb’s book ‘Antifragile’ about delayed crises not being a good
    idea. Controlling fluctuations in the market causes hidden risks
    to accumulate with impunity .The longer without market trauma,
    the worse the damage when it hits. But a lotta’ people have
    strange views regarding national prosperity, seems to me.

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