A capitalist manifesto understanding the market economy and defending liberty

A CAPITALIST MANIFESTO A CAPITALIST MANIFESTO Understanding the Market Economy and Defending Liberty By Gary Wolfram DG DUNLAP GODDARD Copy right © 2012, 2013 by Gary Wolfram All rights reserved No part of this book may be reproduced, stored in a retrieval sy stem, scanned, or distributed in any printed or electronic form by any means without permission Please not participate in or encourage piracy of copy righted materials in violation of the author’s rights Purchase only authorized editions Published in the United States of America Manufactured in the United States of America First Edition published in 2012 Second Edition published in 2013 FIRST PRINTING ISBN-13: 978-0-965-60407-9 (trade paperback: acid free) ISBN-13: 978-0-965-60408-6 (ebook) LCCN: 2013747609 A CIP catalogue record for this book is available from the publisher Jacket Design by Maria Diodati Book Design by Tom Grace QUANTITY PURCHASES: Companies, professional groups, clubs and other organizations may qualify for special terms when ordering quantities of this title For information, email Special Sales Department at info@dunlap-goddard.com Economics is too important to be left to the experts —Ludwig von Mises Our reliance is in the love of liberty which God has planted in our bosoms Our defense is in the preservation of the spirit which prizes liberty as the heritage of all men, in all lands, everywhere —Abraham Lincoln CONTENTS I / The Roots of Capitalism II / Two Economists on a Bus III / Demand IV / Supply 23 V / Equilibrium 30 VI / Profit 40 VII / The Market Economy vs Socialism 44 VIII / A Just Political System 49 IX / Individual Liberty 53 X / Characteristics of a Free Society 57 XI / Preserving Freedom: The Constitution 64 XII / Progress 67 XIII / A History of Western Progress 71 XIV / Lessons from History 89 XV / The Role of Government and Macroeconomic Theory 93 XVI / Money and the Role of Government 107 XVII / The Individual, the Market System, and Society 116 XVIII / Business Cycles: The Austrian View 118 Glossary 125 Notes 131 Index 137 Chapter I The Roots of Capitalism are ancient, so ancient in fact that they likely predate even language in the development of civilization Capitalism arose from something so uniquely human and so intuitive that it may well be hard wired into our genetic code—barter Imagine the dawn of man, clans of hunter-gatherers following the herds in search of food A few of our ancestors doubtless possessed greater physical abilities and refined skills in hunting game or locating edible vegetation, and their success won them a greater share of the bounty Even at this primitive stage, other members of the clan would have specialized in the making of tools or the tanning of hides, activities that support the primary goal of feeding the clan Those earning a greater share of the bounty would exchange some of their perishable surplus for a straighter spear or warmer clothing—simple barter transactions based on the perceived value of the goods offered Capitalism evolved as one of the earliest characteristics distinguishing human behavior from that of all other animals; we alone have developed the ability to satisfy our needs and wants through the peaceful exchange of value for value The elegant beauty of capitalism lies in the fact that regardless of how global or interconnected the world becomes economically, it never loses sight of the importance of the individual The genius of capitalism is that it is not a monolithic, centrally planned monstrosity, but rather a fluid system with millions of individual exchanges, resulting in the most efficient allocation of resources The difference between centrally planned economies and free market capitalism is the difference between glaciers and the ocean The debate over government’s role in the economy is a staple of modern politics, with opposing sides arguing for greater or lesser intervention in the marketplace This debate took on a new form in the fall of 2011 with the Occupy Wall Street protest Interviews with these anticapitalism protesters reminded me of a scene in the 1979 Monty Python film Life of Brian that ended with the following exchange between a group of anti-Roman protesters: The roots of capitalism Protester 1: “All right…all right…but apart from better sanitation and medicine and education and irrigation and public health and roads and a fresh water system and baths and public order…what have the Romans done for us?” Protester 2: “Brought peace!” Protester 1: “What?! Oh…Peace, yes…shut up!” In a similar vein, the Occupy Wall Street crowd’s reactionary furor against capitalism apparently blinds them to the myriad benefits of capitalism, including many that have made both their lives and even their protest possible In their demagoguery they conveniently ignore the fact that modern market capitalism has reduced poverty and raised life expectancy more in the past century than did all previous economic systems in the previous five thousand years of recorded human history The Wall Street protesters lack a fundamental understanding of capitalism and how the market system works They appear to think that the cell phones they use, food they eat, hotels and tents they stay in, their sleeping bags and clothes, the cars they drive and the fuel that powers them and all the goods and services they consume every day would exist under a different system, perhaps in more abundance While the hypocrisy of the Occupy Wall Street crowd may be entertaining, the threat they and their like-minded allies pose to civilization is real and rooted in a lack of understanding of the founding American principles of individual liberty and self-governance We are threatened by an education system that fails to instruct our children in how limited government and a market economy lead to liberty and wealth for the masses The reason people in sub-Saharan Africa and rural India live like refugees is not that they don’t work as hard as we do, or are not as smart as we are, but that they live in an economic system that doesn’t allow them to be productive The basis of our economic prosperity is market capitalism, individual liberty and responsibility, and limited government It took six thousand years from the invention of the wheel until we developed the two-wheeled cart In the film The Ten Commandments, we see Moses parting the Red Sea to let the Israelites escape from the Pharaoh’s army, which is riding in two-wheeled carts From the time of Moses to Wyatt Earp we move from two-wheeled carts to four-wheeled carts—buckboards and stagecoaches Yet Wyatt Earp, who is an adult when he participates in the gunfight at the OK Corral, sees the movement from four-wheeled carts to the Model T My grandparents were born before man had ever seen powered flight, yet lived to see a time when you could buy a trip into space The rapid increase in innovation and the wealth of the masses occurred because the West gradually developed the economic system of market capitalism and a compatible political system Capitalism allows for the creation the greatest wealth for the masses, and offers the greatest benefits and opportunities to the poor Capitalism is not a collusion between big business and big government to advance the interests of stockholders and management at the expense of workers—it is rather a system of voluntary exchange based on private property rights, limited government, and individual freedom Voluntary exchange ensures that only businesses that provide what consumers want at the right price will survive, fostering continuous innovation One becomes wealthy in a market system by pleasing others, and the more individuals you please the wealthier you become Each day we go about our business in complete confidence that the rest of society will provide for our basic needs Typically, we not stop to wonder how food gets to our table, clothes into our closet, or how our shelter is provided We not take the time to consider that millions of people will awake in our largest cities tomorrow and there will be the right amount of coffee, dental floss, toilet paper, and an astonishing array of other goods and services sold during the day Yet if we stop to think about it, it is a miracle The market system delivers untold wealth to millions of persons Societies that not have market economies have been forced to concede that only free markets are capable of producing on a scale that affords even the poorest person a standard of living well above what would have been unthinkable just a few hundred years ago Socioeconomic order is determined by the rules under which we play the game This is the political process But as the French political economist Frédéric Bastiat noted, it is not possible to develop a science of politics without understanding how the economic system works Nobel laureate Friedrich Hayek refined this idea by offering that if people not understand and believe in market capitalism, they will ask their government to undertake actions that in the end will make us less wealthy and free This has proven true with the faltering Western social democracies and lies at the root of anticapitalist movements What goes wrong in today’s society too often occurs because people have not thought very much about how the world works They are too busy, think themselves uninformed, or simply aren’t interested However, it does not require more than an ability to read and think critically to make sense of many confusing and contradictory statements; to recognize that what our government does to solve problems often makes things worse and that federal, state, and local officials are often advised that their policies will fail The difference between a good economist and a bad economist, Bastiat observed, is that the bad economist sees the seen, but the good economist sees the unforeseen In other words, the good economist can imagine the unintended consequences of a policy action The goal of this book is to make you a good economist Chapter II Two Economists on a Bus of colleges and universities in Western Massachusetts Years ago, five of these formed a compact to share facilities and to operate a bus service between their campuses The buses are free to all students and are often taken between one of the all-women and one of the all-men colleges on Friday and Saturday evenings One evening, while riding this bus with a colleague, we were talking to two students about an incident that occurred the previous winter We were told that one of the buses could not negotiate the steep hill that separates two colleges with a full load of passengers because of the snow The bus driver needed to have ten students exit the bus in order to make it up the hill My colleague and I failed to sympathize with one of the students telling the story, who had to exit the bus and walk up the hill in a snowstorm Instead, we were sidetracked with how to optimally choose ten persons to exit the bus There are, of course, a number of ways to pick the ten unfortunate students who must walk up the hill Some of those that readily came to mind were: Choose the last ten persons who boarded the bus, a sort of first-come, first-served solution; Choose those who are best dressed for the inclement weather; Choose those who appear to be in the best shape to make the walk up the hill; Choose ten freshmen You can easily envision a number of other options Most would involve some sense of fairness using a rule that has been established in other contexts, such as a seniority solution (#4), or attempting to judge who among the students would be least inconvenienced by having to walk (#3) The problem with solutions like these is that only those students on the bus can know to what extent they may be inconvenienced, or what special circumstances might make blindly following a rule of thumb unfair A solution that came immediately to my colleague and me was to have everyone exit the bus and then buy their way back on This solution has some appealing characteristics First, it does not require the bus driver or anyone in authority to judge which students would be best able to climb the hill Neither does it force anyone to make the value judgment of which solution is most fair Instead, it allows each individual to express his or her value of remaining on the bus Special circumstances can be taken into account, and students can express their intensity of preference by the amount they are willing to pay to get back on the bus Second, there exists a price at which exactly ten persons will be unwilling to pay to get back on the bus If the bus driver sets the price at $2 and all but two want to ride the bus, he can move the price higher If at $4 there are too few riders, he can move the price lower There will be a price at which the quantity of seats available will equal the amount of seats demanded This market-type solution brings up a number of questions First, what might one with the There are a number Mathematical School of Economics also referred to as The Lausanne School He also developed the concept of marginal utility, along with (and independent of) Jevons and Menger NOTES Chapter II: Two Economists on a Bus The purpose of the price in this case is simply to allocate the existing resource—the supply of bus seats—which is fixed We will see later that one of the purposes of profit is to increase the amount of resources for the production of a good This question is related to the income distribution problem, which we will discuss later when examining incomes in a market economy An economist would say that the value of a chance for something is its “expected value.” That is, the value multiplied by the probability that it will be obtained For example, if the value of the seat is $2, but the chance is only 50 percent that you will get it, then the value of the chance is $2 x 50 percent, which equals $1 This is the expected value of the chance of the seat Chapter III: Demand This will be discussed in greater detail under marginal benefits and marginal costs, but for now this may be accepted as a general rule For those interested in the history of economic thought, see William Stanley Jevons, “Brief Account of a General Mathematical Theory of Political Economy,” Journal of the Royal Statistical Society 29 June 1866, 282-87; Carl Menger, Principles of Economics, originally published in 1871 and available online from the Ludwig von Mises Institute at http://www.mises.org/etexts/menger/principles.asp; and Leon Walras, Éléments d’Économie Politique Pure, Ou, Théorie de la Richesse Sociale originally published in 1874 by L http://archive.org/stream/lmentsdconomiep00walrgoog#page/n13/mode/2up Corbaz & cie., available online at Why, you might ask, would the marginal cost of oranges go up? Peeling oranges makes your hands sticky This might be okay initially, but the stickiness becomes increasingly irritating with each additional orange If your discomfort rises at an increasing rate, then the marginal cost will also rise The slopes of the curves may change as well, although the demand curve will always slope down and the supply curve will always slope up Chapter IV: Supply See Henry Hazlitt’s classic, Economics in One Lesson (New York: Arlington House, 1979), originally published by Harper and Bros in 1946 Chapter V: Equilibrium One can, using a higher level of economic theory, construct examples where the supply curve will bend backward at some point This is not important for our purposes here Chapter VII: The Market Economy vs Socialism See Socialism, (1922; Indianapolis: Liberty Fund, 1981) For a discussion of his most famous works, see Murray Rothbard “The Essential Mises,” in Ludwig von Mises,Planning for Freedom, 4th ed (South Holland, IL: Libertarian Press, 1980) See Leonard Read’s, “I Pencil, My Family Tree as Told to Leonard Read,” inThe Freeman, Foundation for Economic Education, December 1958 See Friedrich Hayek, “The Use of Knowledge in Society,” American Economic Review 35, no (September 1945), 519–30 See Yale Bozen, Is Government the Source of Monopoly? and Other Essays (Washington, DC: Cato Institute, 1981) Adam Smith, Wealth of Nations, ed Edwin Cannan (London: Methuen, 1904), vol 1, p 130 Chapter VIII: A Just Political System The Law (1850; reprint, Irvington-on-Hudson, NY: Foundation for Economic Education, 1981) Ibid., p 18 Ibid., p 21 Herbert Spencer’s “The Proper Sphere of Government” was published in 1842 It is included inThe Man Versus the State (Indianapolis: Liberty Fund, 1982) Chapter IX: Individual Liberty Friedrich Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 1960) Much of the discussion in this and the following two chapters is owed to Professor Hayek’s work Of course, we have already seen that Bastiat would consider such a situation unjust since the government would be doing exactly the opposite of protecting life, liberty, and property Chapter X: Characteristics of a Free Society See Hayek, The Constitution of Liberty Federalist No 62, in The Federalist Papers (1787, reprint New York: Bantam Books, 1982), p 317 Hayek, The Constitution of Liberty, p 152 Edward Bellamy, Looking Backward 2000-1887 (Boston: Houghton, Mifflin, 1888) It also presumes that people will not respond to this situation by behaving in such a way that reduces the amount of goods and services available Chapter XI: Preserving Freedom: The Constitution Étienne de la Boétie, The Politics of Obedience: The Discourse of Voluntary Servitude (1552: reprint, New York: Free Life, 1975) Chapter XII: Progress This example, as well as some of the discussion of the role of individualism in this chapter, was inspired by Henry Grady Waver’s book, The Mainspring of Human Progress, 2nd edition (Irvington-on-Hudson, NY: The Foundation for Economic Education, 1953) Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776; reprint, Indianapolis: Liberty Classics, 1981), vol 1, p 13 Ibid., p 22 Ludwig von Mises, Liberalism in the Classical Tradition (1927; reprint, Irvingtonon-Hudson, NY: Foundation for Economic Education and Cobden Press, 1985) Chapter XIII: A History of Western Progress See Nathan Rosenberg and L E Birdzell,How the West Grew Rich: The Economic Transformation of the Industrial World (New York: Basic Books, 1986) For a brief exposition of the manor system, see Rondo Cameron, A Concise Economic History of the World (oxford: oxford University Press, 1989), ch 3 See David Ricardo, Principles of Political Economy (1817; reprint, Amherst, NY: Prometheus, 1996) For this and other examples see Cameron, A Concise Economic History of the World, ch 5 See Cameron, A Concise Economic History of the World, p 114 Ibid, p 159 Friedrich Hayek, ed., Capitalism and the Historians (Chicago: University of Chicago Press, 1954) Smith, Wealth of Nations, p 24 Thomas Hobbes, Leviathan, ed C B MacPherson (New York: Penguin Books, 1968) 10 See John Willson, “World War II: The Great Liberal War,” Imprimis 21, no (May 1992) Chapter XIV: Lessons from History See Ludwig von Mises, Liberalism in the Classical Tradition, 3rd edition (Irvingtonon-Hudson, NY: Foundation for Economic Education, 1985) The first edition was published in 1927 Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962) Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1979) See Richard Weaver’s extraordinary book, Ideas Have Consequences (1948; reprint, Chicago: University of Chicago Press, 1984) For a discussion of why this might be the case, see Friedrich Hayek, “The Intellectuals and Socialism,”The University of Chicago Law Review 16, no (Spring 1949) Chapter XV: The Role of Government and Macroeconomic Theory John Maynard Keynes, The General Theory of Employment, Interest and Money (1936; reprint, Amherst, NY: Prometheus, 1997) There are much more complicated ways of generating a downward-sloping aggregate demand curve The same is true of the upward-sloping aggregate supply curve These are detailed in any intermediate macroeconomics text For our purposes, we can simply assume a downward-sloping aggregate demand curve and an upward sloping aggregate supply curve Just as there is diminishing marginal utility from buying more of a good, there is diminishing marginal product from adding more machines after a certain point When interest rates get lower, and you have to get less of a product in order to make the machines pay for themselves, you can add machines that have less marginal product This is just another way of noticing that the demand for investment will go up as interest rates go down James Buchanan and Richard Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes (New York: Academic Press, 1977) For a discussion along these lines see Robert Higgs, Depression, War and Cold War (oakland, CA: Independent Institute, 2006) Chapter XVI: Money and the Role of Government One book containing a history of what has served as money is John Kenneth Galbraith’s Money: Whence It Came, Where It Went (Des Plaines, IL: Bantam Books, 1976) Technically, federal statute requires that each Federal Reserve note be backed by collateral This collateral is chiefly held in the form of U.S Treasury, federal agency, and government-sponsored enterprise securities However, this law could be changed as the debt held by the public declines Chapter XVIII: Business Cycles: The Austrian View Two good books that provide a clear presentation of Austrian business cycle theory are Meltdown by Thomas Wood, a discussion of the causes of the Great Recession of 2007-09; and Microfoundations and Macroeconomics: An Austrian Perspective by Steve Horwitz, which provides a detailed discussion of the Austrian theory See Thomas Woods Jr., Meltdown (Washington DC: Regnery, 2009), and Steven Horwitz, Microfoundations and Macroeconomics: An Austrian Perspective (New York: Routledge, 2000) Friedrich Hayek, “The Pretense of Knowledge,” Lecture presented in the Memory of Alfred Nobel, December 11, 1974 In addition to Meltdown by Woods, another excellent book on the subject is John Allison’s, The Financial Crisis and the Free Market Cure (New York: McGraw-Hill, 2013) This is one aspect of what Robert Higgs has termed “regime uncertainty.” Higgs believes uncertainty about what the government’s actions will be was a major reason the Great Depression lasted so long See his Depression, War, and Cold War (oakland, CA: The Independent Institute, 2006) See “Lessons from the Early History of the Federal Reserve,” By Allan H Melt-zer, Carnegie Mellon University and American Enterprise Institute, Presidential Address to International Atlantic Economic Society, Munich, March 17, 2000 Murray Rothbard’s book, America’s Great Depression, provides an excellent Austrian analysis of how central bank policy caused the Great Depression by artificially expanding credit during the 1920s America’s Great Depression, 4th edition (New York: Richardson and Snyder, 1983) See Amity Shlaes, Coolidge (New York: Harper Collins, 2013) and Robert Murphy, “The Depression You’ve Never Heard of: 1920-21,” The Freeman, Vol 59, December 2009 Two good discussions of the failure of the New Deal are Lawrence Reed, Great Myths of the Great Depression, Mackinac Center for Public Policy and Foundation for Economic Education, 2011, and Burton Folsom,New Deal or Raw Deal (New York, Simon and Schuster, 2008) See Robert Higgs, ibid 10 For those wishing to read more on this subject, I recommend Chapter XX of Ludwig von Mises,Human Action, 3rd Edition (Washington DC: Regnery, 1966) INDEX A activist government 118 Acton, Lord 55, 56, 125 Adams, Samuel 64 adscripti glebae 72 advertising 14, 35, 100 aggregate demand 98, 99, 100, 101, 102, 103, 104, 105, 107, 114, 122, 127, 128 aggregate supply 98, 99, 101 aggregation 98 altruism 62 American colonists 64 anticapitalist movements apprentice 82 Austrian business cycle theory 118 Austrian model 121 Austrian School 47, 118, 119, 122, 125, 126, 128 B bad investment 46 barter arrangement 75 barter economy 75 Bastiat, Frédéric 4, 49, 50, 51, 52, 54, 56, 60, 92, 104, 105, 116, 117, 118, 125 Bellamy, Edward 62, 125 Boétie, Étienne de La 65 British colonies 82 Brozen, Yale 48, 125 Buchanan, James 104, 126 Bureau of Labor Statistics (BLS) 96 C capital goods 101, 119, 120 capitalism 1, 2, 3, 4, 83, 84, 85, 86, 91, 116, 117 Capitalism and Freedom (Friedman) 91 Capitalism and the Historians (Hayek) 83 capital market Carter administration 103 Carter, James E (U.S President) 103 CATO Institute, The 92 central planning 55 Charles I (King of Spain) 80 Charles V (Holy Roman Emperor) 80 Charlie and the Chocolate Factory (Dahl) Chicago School 48, 125, 126 Commons, John R 54, 126 Community Reinvestment Act (1977) 121 comparative advantage 76, 77, 78, 81, 129 complements 16, 18, 33, 36 conservation 42 Constitution of Liberty, The (Hayek) 53, 106 Constitution, The (U.S.) 53, 64, 66, 106 constitution of liberty 66, 82 consumer demand 26, 102, 118, 119, 121 consumer good(s) 100, 105, 119, 120 Consumer Price Index (CPI) 96, 97, 98, 100 Coolidge, John Calvin (U.S President) 122 cooperative systems 46 corporate income tax 95 corporation, general 86, 87 D Dahl, Roald demand 8, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 26, 27, 28, 30, 31, 32, 33, 34, 35, 36, 37, 39, 98, 99, 100, 101, 102, 103, 104, 105, 107, 113, 114, 127, 128 demand curve(s) 14, 16, 17, 18, 19, 21, 22, 27, 28, 30, 32, 33, 34, 35, 36, 37, 39, 98, 99, 100, 101, 103, 120, 128 demand for investment 100, 101, 102 Democracy in Deficit: The Political Legacy of Lord Keynes (Buchanan & Wagner) 104 Dewey, John 54, 126 diamond-water paradox 10 Discourse of Voluntary Servitude, The (Boetie) 65 Dutch East India Company 86 E Earp, Wyatt economic profit 40, 41, 42 Economic Recovery Tax Act (1981) 101, 125 Economics in One Lesson (Hazlitt) 126 economic system(s) 2, 3, 4, 44, 45, 62, 73, 80, 84 efficiency advantage 77 elasticity 19, 20, 21, 22, 128 equilibrium 13, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 41, 97, 98, 99, 100, 102, 103, 104, 114, 120, 129 excess demand 30, 31, 32, 33 excess supply 31, 32, 35, 39, 98 F false philanthropy 52 Fannie Mae 121 federal budget 88 federal debt 87, 104 Federalist Papers, The 58 Federal Reserve 87, 108, 109, 112, 113, 114, 118, 120, 121, 127 Federal Reserve Act (1913) 108, 127 Federal Reserve Bank, The 87 Federal Reserve notes 111 Federal Reserve System 109, 127 feudal era 79 feudalism 71, 75, 79 feudal society 71 feudal system 72, 74, 75, 79, 80, 83 fiscal policy 102, 103, 107, 128 Foundation for Economic Education 92 fractional reserve banking 109 Freddie Mac 121 freedom 47, 48, 54, 55, 56, 60, 61, 62, 64, 79, 81, 91, 116, 117 economic freedom 61 political freedom 61 freedom from government regulation 80 freedom of speech 60 freedom of the press 47 freedom of trade 74 free market exchange free people 56, 57, 60 free society 53, 56, 58, 60, 61, 62, 106, 117 Free to Choose (Friedman) 91 Friedman, Milton 91, 103, 114, 126 full employment 98, 99, 100, 102, 103, 104, 127, 129 full employment output 98, 100 G gasoline lines (1973) 32 Gates, Bill 46 general incorporation laws 86 General Theory of Employment, Interest and Money, The (Keynes) 97, 98, 127 goods 1, 2, 3, 14, 15, 16, 18, 25, 29, 31, 32, 36, 43, 47, 68, 69, 79, 82, 84, 85, 91, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 105, 108, 113, 119, 125, 128 Good Samaritan, The 117 government intervention 32, 37, 39, 88, 91, 92, 122 government regulation 39, 48, 80, 88 government spending 122 Great Depression 87, 97, 98, 99, 105, 122 Great Recession of 2007-2009 121 Great Society 103 Gross Domestic Product (GDP) 93, 96, 97, 99, 100, 102, 104, 105, 106, 107, 114 guild system 73 H Harding, Warren G (U.S President) 121 Hayek, Friedrich 4, 45, 53, 54, 55, 56, 57, 58, 60, 64, 66, 83, 91, 103, 105, 106, 116, 117, 118, 119, 120, 122, 126 Hazlitt, Henry 25, 103, 126 Heartland Institute (Illinois) 92 Henry, Patrick 64 Heritage Foundation 92 higher-order goods 121 capital goods 119 Hobbes, Thomas 56, 88, 127 Hoover, Herbert C (U.S President) 105, 122 Hula Hoops 100 human labor 25 I incentives 39, 48, 55, 74, 84, 89 individual behavior 8, 9, 61 individual demand 13, 18, 19, 21 individual freedom 3, 67, 82, 116, 117 individual liberty 2, 3, 44, 53, 60, 82, 116 individual responsibility 61, 91 Industrial Revolution 29, 82, 83, 85, 86 inelastic demand 20 inferior good 15, 16 inflation 95, 96, 97, 103, 104 Inquiry into the Nature and Causes of the Wealth of Nations, An (Smith) 68, 82, 129 Institute for Humane Studies, The 92 Intercollegiate Studies Institute 92 interest rate(s) 101, 102, 107, 112, 113, 114, 118, 119, 120, 121, 122 investment demand 101, 102, 114 Iron Curtain 44 J Jevons, William Stanley 10, 127 Johnson, Lyndon B (U.S President) 101, 129 Jordan, Michael 46 Jung, Carl 117 K Kennedy, John F (U.S President) 101, 129 Kennedy-Johnson tax cut See Revenue Act of 1964 Keynesian economic theory 88, 98, 101, 103 Keynesian economics 104, 105, 127, 129 rational expectations 103 Keynesian model 101, 103, 104, 114, 118, 121 Keynesian policy 106 Keynesians 103, 115, 119, 122, 128 Keynes, John Maynard 97, 98, 99, 104, 106, 127 King George III 82 L Lausanne School, The 129 Law of Diminishing Returns 11 diminishing marginal benefit rule 11 Law, The (Bastiat) 49, 54, 125 legalized plunder 51 Legislation of 1913 127 Leviathan (Hobbes) 88, 127 Liberalism in the Classical Tradition (Mises) 70, 91 liberty 2, 3, 44, 49, 52, 53, 54, 55, 56, 57, 60, 61, 62, 63, 66, 69, 82, 116, 118, 123 Life of Brian Limbaugh, Rush 92 loanable funds 118, 119, 120, 121, 122, 123 Looking Backward: 2000–1877 (Bellamy) 62, 125 lottery M M1 107 M2 107 M3 107 Machiavelli 65 Mackinac Center (Michigan) 92 macroeconomics 97, 98, 107, 127 macroeconomic theory 97, 98 Madison, James 58 Magna Carta 54 malinvestment 119, 120, 122, 128 Manhattan Institute, The 92 manor system 72, 79 marginal analysis 10 marginal benefit 10, 11, 12, 27 marginal benefit curve 11 marginal cost 10, 11, 12, 27 marginal cost curve 11, 27 marketable stock 87 market basket 96 market demand 14, 18, 19, 21, 35 market economy 2, 9, 25, 26, 40, 43, 44, 45, 46, 47, 48, 62, 84, 89, 90, 118 market equilibrium 13, 30 market price 19, 30, 32, 34, 39, 41 market process 7, 12, 45, 55 market supply 19, 27 market system 2, 3, 32, 42, 46, 47, 61, 67, 68, 79, 80, 85, 89, 90, 91, 116, 117 Marshall, Alfred 12, 128 Marx, Karl (Bobble Head Dolls) 41 Menger, Carl 10, 127, 128, 129 merchant class 74, 75, 80, 81 Middle Ages 67, 73, 79, 91 misallocation 119, 121 Mises, Ludwig von 44, 45, 46, 47, 60, 70, 91, 105, 116, 118, 120, 128 monetarism 128 monetary policy 102, 103, 104, 107, 114, 127 changing the money supply 102 money supply 97, 102, 103, 107, 110, 112, 113, 114, 118, 119, 122, 128 Money Supply 111 Monty Python Moses N Napoleonic wars 83 Navigation Acts 82 restrictions on colonial trade 82 nonhuman resources 25 normal good 15 O Occupy Wall Street opportunity cost(s) 23, 24, 25, 26, 32, 37, 40, 42, 61, 67, 76, 77, 78, 83, 102, 113, 125 organizational developments 86 Otis, James 64 P paper money 108 Pareto, Vilfredo 129 Parliament 64, 79, 81, 125 perestroika 47 personal freedom 47, 48 philanthropic view 52 philanthropy 52, 117 Pinocchio 82, 84 Geppetto 82, 84, 86, 90 planned economy 44, 45, 47, 48, 56, 89, 116 political freedom 116 Politics of Obedience, The (Boétie) 65 Pretense of Knowledge, The (Hayek) 119 price elasticity 19, 20, 21, 128 price for labor 37 price of resources 28 price of substitutes 16 Prince, The (Machiavelli) 65 Principles of Economics (Marshall) 128 profit 40, 41, 42, 43, 48, 55, 86, 90, 109, 113, 114, 120, 121 taxing profits 43 property rights 3, 47, 68, 69, 89 Public Choice Theory 128 R rational expectations 103, 129 rational individuals 10 rationality Reagan, Ronald W (U.S President) 101, 103, 104, 126 Reagan tax cut See Economic Recovery Tax Act (1981) Recession of 1920-21 121, 122 rent control 37, 39 rent-seeking 51 theory of 51 resource owners 26, 27 Revenue Act of 1913 127 Revenue Act of 1964 103, 129 reward for innovation 42 Ricardo, David 76, 78, 129 Road to Serfdom, The (Hayek) 91, 106, 126 Roaring Twenties 121 Rolph, Earl Robert 97 Roosevelt, Franklin D (U.S President) 105, 122 S sale(s) 16, 19, 27, 31, 32, 40, 94, 95 satisfaction 9, 14 scientific advancement 91 scientific knowledge 81 scientific method 81 self-interest 9, 12 services 2, 3, 15, 25, 32, 37, 47, 68, 76, 78, 91, 93, 94, 98, 100, 102, 108, 125 servile labor 72, 74, 89 Shawshank Redemption, The 23 shortage(s) 32, 39, 75 Siberia 48 Sixteenth Amendment (1913) 87, 127 Smith, Adam 46, 48, 68, 82, 85, 129 Smoot-Hawley Tariff 122 socialism 44, 105, 128 socialist economy 55 Social Security 57, 102 socioeconomic order Soviet Union 47 specialization 46, 47, 68, 76, 108, 116 specialized traders 72, 80 Spencer, Herbert 52 Stewart, Potter (Justice) 93, 95 stimulus package 118 stock 30, 87, 112 stock markets 87 stock of capital 121, 128 stock split 112 subprime mortgages 121 substitutes 16, 18, 33, 36 Super Bowl 76, 78 supply 12, 13, 19, 23, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 37, 39, 41, 84, 97, 98, 99, 102, 103, 107, 110, 112, 113, 114, 128 supply curve(s) 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 39, 41, 42, 85, 98, 101, 104, 120 Supply-Side Economics 126, 129 T taxation policy 57 Tax Foundation, The 88 Ten Commandments, The U unemployment 10, 38, 79, 90, 97, 98, 99, 100, 101, 105, 114, 118, 119, 121, 122 V value added 94, 95 value-added tax 95 value judgment value of resources 26 Vietnam War 103 voluntary exchange 3, 116 W wage(s) 25, 26, 37, 38, 44, 46, 48, 72, 74, 75, 80, 82, 83, 84, 95, 98 Wagner, Richard 104 Walras, Léon 10, 128, 129 Wealth of Nations See Inquiry into the Nature and Causes of the Wealth of Nations, An (Smith) Weaver, Richard 91 western science 90 Western social democracies Western world 67, 71, 72, 79, 80, 81, 82 Willson, John 88 World War II 70, 88, 105, 122 Z zero-sum game 46 ... Da is your demand, Db is my demand, and Dm is the market demand The market demand curve Market demand curves have all the characteristics of individual demand curves That is, they slope down and. .. government and a market economy lead to liberty and wealth for the masses The reason people in sub-Saharan Africa and rural India live like refugees is not that they don’t work as hard as we do, or are.. .A CAPITALIST MANIFESTO A CAPITALIST MANIFESTO Understanding the Market Economy and Defending Liberty By Gary Wolfram DG DUNLAP GODDARD Copy right © 2012, 2013 by Gary Wolfram All rights