Tuesday, July 28, 2015

Monday, July 27, 2015

Saturday, July 25, 2015

What Evangelical Environmentalists Do Not Know About Economics

By Timothy D. Terrell

Some of the most common arguments advanced against the price system are those based on religious faith. In fact, all forms of statism can be tied to some form of faith. It may be a faith in a human being, or committee of human beings. Certainly, socialism requires a great deal of faith in the abilities of central planners to collect relevant, nonquantifiable, up-to-date information about the desires of millions of remote individuals. It requires more faith to believe that a government can prescribe an efficient allocation of resources and methods of production to meet the most important of those desires.

This may not be the sort of faith evidenced by attendance at a church, synagogue, or mosque, but it is faith nonetheless, and, in a sense, it is religious. As the statist Bernard Bosanquet wrote over a century ago, "the modern nation is a history and a religion rather than a clearcut idea."[1] Using the term "religious faith," then, requires us to cover too much ground. So I will be more specific. I shall deal, in particular, with the views of those identifying themselves as modern evangelical Christians.

In the last thirty years, modern evangelicals have attacked the market economy on several fronts. Individuals, para-church organizations, and entire denominations have advocated government run welfare systems, minimum wages, restrictions on hiring and firing employees, monetary manipulation by governments, trade restrictions, and other major interventions. Frequently, some attempt is made to show that a free market is, at some fundamental level, inconsistent with the Bible.

Recently, evangelicals have been mimicking the secular environmentalists' assault on the market economy. Pollution, deforestation, endangered and extinct species, food shortages, and global warming are all, they say, evidence of our failure to be good stewards over creation. Overconsumption, particularly in the industrialized parts of the world, is responsible, they say. Personal frugality, coupled with government regulation to prod along the unrepentant SUV-driving glutton, is the answer. Late last year, the Evangelical Environmental Network launched its "What Would Jesus Drive" campaign, which associated low gas mileage with immorality and advocated stricter government fuel economy regulations.

There is a great deal of activity on the environmental front, and it is perhaps the most vigorous attack on markets that evangelicals have launched in the last twenty years. This attack is not coming from Gaia worshiping cultists or fringe groups within the churches. Major Protestant denominations, and some groups of Roman Catholics, have issued documents stating that caring for creation is inconsistent with a market economy. Of course, many of these groups have had a statist social policy for the better part of a century, so antimarket environmentalism may be viewed as a variation on the same old theme.

Not all believers have participated in this attack. There are quite a few, particularly in the more theologically conservative denominations, who have strong promarket views. But in most churches and seminaries today, a majority have been convinced that when it comes to the environment, the market economy cannot be trusted.

For most Christians, the idea that humans should be good stewards of creation is easy to swallow. The trouble, as usual, begins when the particulars must be addressed. How does one know which use of a resource constitutes "good stewardship"? Can the government identify poor stewardship and take steps to correct a misallocation of resources?

Stewardship and Human Goals

Modern evangelical environmentalism cannot solve basic questions of resource allocation because it has rejected the foundations of rational economic calculation. Like their nonChristian counterparts, evangelical environmentalists regard private property as a source of environmental problems rather than the solution. Writing on the tragedy of the commons, Loren Wilkinson, a prominent figure among evangelical environmentalists, claims that the overgrazing of the common pasture is due to private ownership of the cattle, not the absence of property rights in the land. The problem, he writes,

…is based on the hypothesis of individual interests, detached from ties with nature, humanity, or God, [so] it is almost inevitable that resources held in common will be misused—or that common actions which need to be taken will not be taken unless someone can speak for the whole interconnected system, not just for one's individual interest.[2]

That "someone" who speaks for the whole system would seem to be the socialistic central planner.

More recently, Calvin DeWitt has argued that because the creation has value, we should preserve it as we would a classic work of art. He writes, "When it comes to masterpieces created by human artists, respecters of Rembrandt keep and take care of Rembrandt's paintings; how much more so should respecters and worshippers of the Creator keep and take care of the Creator's works?"[3]

DeWitt's statement is an example of the second major problem within evangelical environmentalism—the denial of individual valuations of resources in accordance with individual goals. DeWitt assumes, in effect, that individuals have the same tastes and preferences and do not come up with different plans. Therefore, if DeWitt is to be logically consistent, every person's subjective valuation of a particular natural resource must be identical.

This explains why DeWitt chose a Rembrandt as an example. DeWitt assumes that we would not think of using a Rembrandt for anything other than visual contemplation. And, indeed, most of us would never dream of using a Rembrandt to patch a hole in a roof. We think it appropriate that Rembrandts stay behind velvet ropes, untouched. For most people, Rembrandts fulfill goals that require this careful preservation.

Yet most of nature is not so uniquely suited to the fulfillment of one purpose as is a Rembrandt. Parts of nature have value to the individual according to how well each meets that individual's specific goals. Unlike a Rembrandt, where the highest valued use is (in most people's minds) its visual appearance, a tree is more versatile. In both cases, value is inseparable from the achievement of individual goals.

DeWitt and others overlook the possibility that an object might be useful in achieving multiple, mutually exclusive goals. Yet it is clear that the same natural resource (an acre of land, for example) might be used to feed the hungry, house the homeless, heal the sick, clothe the naked, or teach the ignorant, as well as for simply viewing and appreciating the wonder of it all. All of these goals have a place in the Christian's life. The difficulty lies in deciding which goal to achieve with each piece of the created order.

Some evangelical environmentalists have attempted to counter this line of reasoning by claiming that it is too anthropocentric. They argue that the value of some part of nature—say, a tree—originates not in how well the tree meets human goals, but in the value that the Creator places upon the tree. As Steven Bouma-Prediger wrote,

God's creatures are valuable not because of their usefulness to humans—though some are useful, indeed essential, to us. …[R]ocks and trees, birds, and animals are valuable simply because God made them. Their value resides in their being creations of a valuing God, not in their being a means to some human end.[4]

First of all, from the Christian perspective, God's valuations are fundamentally different from man's valuations. Economists speak of value as being related to how much one is willing to sacrifice of one thing in order to have one more unit of another thing. But for God, no such tradeoff is necessary. He never needs to choose between a red-cockaded woodpecker and a tree; he can have both merely by thinking them into existence. Distinctions in moral values are valid for God and for us: truth is to be valued over falsehood, faithfulness over infidelity, true worship over idolatry, and so on. But to speak of God having to make economic tradeoffs as we do is inconsistent with Christianity.

Second, and more to the point of this lecture, attempting to have economic valuations without humans leaves us no way to discover these valuations. Bouma-Prediger wants to separate value from human goals. "God's creatures are valuable not because of their usefulness to humans," he wrote. As much as he may dislike it, he really has no alternative. Because we humans are finite, we must value in an economic sense. Yet none of these advocates of price free stewardship have been able to locate divine revelation that informs us of the proper tradeoff between red-cockaded woodpeckers and trees. In fact, the dynamic economy would seem to indicate that continuing divine revelation is necessary so that we can keep our price controls up-to-date. I know of no evangelical environmentalists who claim access to this kind of information.

Now, certainly, our individual economic valuations will flow from our moral values. And we Christians regard ourselves as having some divine revelation on which actions are moral evils and which actions are good. So, for example, Christians regard rape as having a negative economic valuation because it is a moral evil. Thus, Christians would pay to have rape eliminated. Christians have a moral obligation to appreciate God's creation, so trees and wildlife have a positive valuation. The problem arises when we must choose between the trees and housing for the homeless. Since we humans cannot create ex nihilo, scarcity of wilderness and scarcity of housing are real problems for us. Without further information to help us decide which need is more pressing, we are left in chaos. Good intentions alone are insufficient to make choices among multiple moral goals. As economist P.J. Hill wrote,

Good intentions cannot ensure that people manage resources appropriately or prevent environmental degradation. Given that much of what we see in the world is the unintended consequence of human interaction, simply reforming our intentions is an inadequate policy prescription.[5]

Most of the evangelical statements on the environment reveal an inability to solve the basic problem of deciding between alternative beneficial uses of the created world. One example is an environmental statement from the Evangelical Lutheran Church in America. This document states, "…caring, serving, keeping, loving, and living by wisdom sum up what is meant by acting as God's stewards of the earth."[6] There is no way to tell from this how to balance the goal of environmental preservation with the goal of satisfying some other human need, though the authors apparently believe that the current tradeoffs being made are inappropriate. The authors have concluded in advance that the market is not the answer to their lack of information. We are left with vague platitudes about stewardship with no explanation of how that stewardship is to be accomplished. Paul Heyne explained:

We will almost certainly fail to achieve our objectives if we simply ask people to become "better stewards." No one knows what "stewardship of creation" implies for his or her own actions. Exhortations to change our lifestyles just do not give us sufficient information.[7]

Stewardship and Prices

Advocates of marketless stewardship seem unaware of the severity of the problems that a socialist planner faces. Yet these problems were pointed out over eighty years ago by Ludwig von Mises. In his book Socialism, Mises argued that because economic valuation was ultimately subjective, the protection of private property and voluntary exchange is indispensable if an economy is to be rational. In a complex world, we are constrained to use prices to assist in determining the particular uses of resources that will best reduce the problems of scarcity. If we refuse, we are left with chaos.

This is a core problem with evangelical environmentalism today: it has no rational method for economic calculation. Instead, we have appeals to inner wisdom. Loren Wilkinson wrote that we should not govern our use of creation with price information. We should, he says, make "wise and frugal use of it."[8]

This sounds high-minded but is completely meaningless when it comes to making actual decisions. How do we know what uses of resources are "wise"? How do we know what level of use is "frugal"? Even the best of intentions cannot overcome the absence of price information that tells us how frugal to be with various resources. Furthermore, as Mises argued, the presence of profits and losses is also a necessary ingredient for the efficient production and distribution of goods. Profits and losses send signals to the owners of factors of production as to what is being demanded.

Christian stewardship does not benefit from doing away with the market system. Prices, wages, and profits provide a way to "count the cost" of an endeavor—which Jesus Christ said was a necessary part of wise decision making.

Paul Heyne presented a wonderful example of how acting on good intentions, without price information, can actually lead to poor stewardship:

Suppose that every inhabitant of Los Angeles was miraculously converted overnight to the worldview of St. Francis of Assisi. We would no doubt see major changes in the behavior of Los Angelenos; but I would not be at all confident that we would see a decline in air pollution caused by the automobile. Each newly-sanctified Los Angelino, eager now to bring benefits and blessings to all other beings, would still need his car to do so effectively, given the physical layout of the city and its environs, just as any current Los Angelena desirous of doing good finds her automobile a valuable asset for getting food to the hungry, drink to the thirsty, and clothing to the naked, for visiting those sick or in prison, and for earning income with which to do any of these things more effectively. Citizens of Los Angeles who make the "good steward's" choice and leave their cars at home end up getting less done, breathing more exhaust fumes, and dying earlier than those who refuse to behave like "good stewards." That looks like very bad stewardship.[9]

Official Denominational Statements on the Environment

One way to see the antimarket tendencies in modern evangelical environmentalism is to look at the official statements of some of the largest Protestant denominations, and certain Roman Catholic organizations. As I have said, this antagonism toward market freedoms is not universal—there are many Christians who hold promarket views. But let's take a look at some of the documents on the environment that have appeared in the last ten or twelve years.

Some of these official statements are lowest common denominator, platitudinous recommendations, like the document produced by the Wesleyan denomination: "Seek information on environmental issues." "Avoid polluting as much as possible." "Examine the pattern of our consumption, and avoid unnecessary expense."[10]  We must presume that when the authors say, "avoid polluting as much as possible," or to "avoid unnecessary expense," they expect individual decision makers to take price information into account when deciding what is "possible" or "unnecessary." To the denomination's credit, all of its recommendations save one can be achieved without resorting to state intervention. The exception is a call to "support political efforts to make recycling available where it is not."

Other denominations make more comprehensive attacks on the market. Hope for a Global Future, a document produced by the Presbyterian Church (U.S.A.), condemns market-based resource management as "unjust," but does not provide an alternative to the market's role in calculation. Somehow, however, the authors have managed to calculate that our current rate of consumption is too rapid. In a section on resource exhaustion, the P.C.U.S.A. statement asserts that we are, as it says, "living beyond [our] planetary means…maximizing current benefits, particularly for the affluent, at the expense of future generations."[11] And, while the document admits that better technology and substitutes can forestall resource exhaustion, it states, "[t]here really is no substitute for the conservation of nonrenewable resources." Predictably, the question of how much conservation is necessary is left unanswered. Also predictably, prices are viewed as inadequate as a rationing mechanism. As the document says:

Current market prices made higher by temporary shortages tell us only about near-term demand and supply conditions: they rarely anticipate the longer-term effects of resource depletion. By waiting to recognize environmental scarcity, it probably will be too late to conserve nonrenewable resources for the sake of future generations.[12]

So, we might ask, how do we know how to strike a balance between conservation of resources for the future, and consumption today? Our Presbyterian churchmen are left groping in the dark for answers, while implying publicly that they know the correct balance.

Ironically, when the Presbyterian statement provides examples of resource scarcity problems, they are traceable to an absence of a pricing mechanism. It mentions the scarcity of potable water in certain parts of the world, and the reduced yields of open ocean fisheries. Where drinking water is scarce, it is typically because it is a common access resource, not privately owned and rationed by the price system. Likewise, open ocean fisheries[13] are producing smaller catches because property rights in fishing banks are largely unprotected.

An Episcopal resolution on energy policy supports extensive government intervention to achieve energy conservation and reduce pollution.[14] The resolution urges government to:


  • Raise federal fuel economy standards and require SUVs and minivans to meet the same standards as passenger cars        
  • Require or subsidize the production and purchase of "clean" vehicles        
  • Use tax dollars to fund inter-city and intra-city mass transit        
  • Use taxes to fund "renewable energy" research and development        
  • Include carbon dioxide as a pollutant, and thereby subject it to E.P.A. regulations        
  • Apply the "strongest feasible" energy efficiency regulations to consumer goods        
  • Ban drilling in the Alaska National Wildlife Refuge, and         
  • Subsidize energy consumption by low income households
  • Price information is regarded by the Episcopal Executive Council as irrelevant or inconsistent with an appropriate allocation of resources. Each of their policy recommendations is in accord with the socialist ideal of centralized planning, rather than the market system of decentralized, individual planning. 


Government fuel economy standards, just to take one example, will misallocate resources and make drivers worse off. Drivers have decided that fuel economy is only one of many desirable automobile characteristics. We want gas mileage, but we also want safety, comfort, and performance. In a free economy, each person has the freedom to decide what combination of these features they want in a vehicle, and will have better information about their own preferences than any government regulatory agency could possibly possess. The cheapness of gasoline in the United States today, even considering gasoline taxes, tells the vehicle buyer how scarce gasoline is relative to other goods. Without knowing the volume of oil reserves, the rate of new oil discoveries, the uses that drivers in New Zealand might have for that oil, the advances in technologies of extracting or refining oil, or anything else about the process, the buyer has enough information to make an appropriate energy conservation decision. If oil reserves decline, or supplies from the Persian Gulf are threatened, the price of gasoline will immediately rise, and people will begin conserving gasoline. In short, any event that would lead a well informed, well intentioned environmentalist to promote gasoline conservation should, through the market process, result in just that. In fact, it will be conservation of the best sort—those who can cut back on consumption at the lowest cost to themselves will do so first, and not those for whom it would mean great hardship.

So, can we answer the Evangelical Environmental Network's question, "What Would Jesus Drive?" Knowing everything the price system communicates about relative scarcity, would Jesus drive a gas-sipping econobox? Of course we cannot presume to know such things. But I find it more plausible that he would have a balanced regard for other human concerns like safety and comfort—and be generous enough to allow room for his followers. I do recall that Christ once rode a donkey, which creates many more pounds of pollutants per mile than walking (and more than an SUV).

After reading these denominational statements myself for several days, they began to merge in my mind—they contain the same exhortations to a vaguely defined "stewardship" and the inevitable condemnation of the market. It is no wonder that Mises could say that Christian socialism "has taken root in the last few decades among countless followers of all Christian churches."[15]

True to form, the Lutheran statement on the environment which I mentioned previously deals with a comprehensive set of environmental issues, and exhorts readers to a vaguely defined "stewardship."[16] It is clear that the Lutherans who drafted this document have no use for free-market pricing.

I mention the Lutheran statement because one paragraph, under the heading "Justice Through Sustainability," demonstrates an important, and common, flaw in evangelical environmentalism. It reads:

We recognize the obstacles to sustainability. Neither economic growth that ignores environmental cost nor conservation of nature that ignores human cost is sustainable. Both will result in injustice and, eventually, environmental degradation. We know that a healthy economy can exist only within a healthy environment, but that it is difficult to promote both in our decisions.

Setting "environmental cost" against "human cost" is problematic. How can a choice be made, unless there is some common unit of measurement by which to calculate these two costs? Because value is subjective, so is cost, and therefore information about "human cost" is not directly observable. The only information we do have about human cost is revealed through voluntary exchange. In a voluntary exchange, each person reveals that the thing he acquires is ranked higher on his personal value scale than the thing he gives up. Without explicit divine revelation, there is no other way of comparing values.

"Environmental cost" here must refer to some alteration or consumption of some environmental resource. Ultimately, it is impossible to separate this "environmental cost" from "human cost." "Environmental degradation" refers to a loss of one or more of the properties of the environment that were useful to some individual. That usefulness may not involve an alteration of the natural state. True, some may value the environment for mineral deposits or farm land. Others, however, value it for a scenic view or for the wildlife habitat it provides. Therefore, one person's "degradation" may not be another person's "degradation." A farmer viewing the encroachment of indigenous plant life onto his cultivated field may regard this return to a natural state as damaging, while another person may find cause to celebrate the erasing of man-made scars on the earth.

"Environmental degradation," or "cost" is not objective, but is subjectively perceived by those individuals who might use the environment in some way. The concept of "environmental cost" is nonsensical without reference to the impact on a decision-making individual. That person has individual goals. The event some call "degradation" either furthers or hinders his accomplishment of his ends. The inanimate environment does not seek ends, and therefore cannot be said to incur "costs." Can there be such a thing as "environmental cost" that is not reducible to "human cost"?

If "environmental cost" is really a subset of "human cost," we are back to the problem of comparing human valuations. The only feasible solution is a price system, which implies private property rights and the freedom to voluntarily exchange that property. Yet property rights in the environment, much less pricing of the environment, is anathema to our environmentalist churchmen.

The statement of the American Baptist Churches begins with an uncritical review of the science of global warming, ozone depletion, and resource exhaustion. The document as a whole identifies any damage to the environment as sinful, and regards use of resources for private gain as necessarily inconsistent with the "common good." It reads:

We can choose to disobey, to be irresponsible, to disrupt and disturb the peaceable relationship of creature and creation. We can choose to use nature's resources only for what we perceive is our own immediate interest. Such action is sin. It is a violation of the basic covenant wherein we are called to stewardship.[17] [emphasis added]

We could quibble with the idea that all creation would be at peace except for the existence of this bumbling, selfish interloper called Man. But we are focusing here on the problems that confront evangelical environmentalists when they try to get by without market prices. The core problem is a familiar one by now. If using nature's resources for our own immediate interest is sinful, how are we to assess the needs of others?

The writers try to bypass this problem early in this document by using the analogy of a household. One of the words translated "steward" in the Bible is oikonomos, meaning "the manager of a household." One suspects that the authors find this analogy attractive because those abominable market prices are not normally part of a household's resource allocation process. Paul Heyne explained why this concept of household stewardship cannot carry through to the larger economy:

The problem is that we live in a complex, decentralized, highly specialized society that no one controls or can control. What we call our "economy" is not at all analogous to a household or anything else that could possibly be "managed." …A modern industrial society, characterized as it is by extensive and minute division of labor, is a social system far too complex to be managed by any oikonomos not endowed with godlike powers.[18]

In a household with (usually) 2–6 individuals, it is relatively simple to estimate the needs of that small number of people without assistance of prices. Penalties (explicit or implicit) for failure to work for the good of the whole household are readily available.[19] Once we move beyond a handful of individuals in close association with one another, prices become indispensable as a way to communicate the intensity of needs.

Using the earth's resources today does not imply a lower standard of living for future generations. Burning cheaper fossil fuels today instead of using cleaner and more expensive sources of energy will allow greater expenditure on research, education, and permanent or semipermanent capital (for example, housing or infrastructure that will be used for decades). Would it be better to bequeath to future generations the outcomes of that research and education, or stocks of underground coal? Most likely, future generations will desire both.

Market prices can help to make that allocation decision. Market prices take into account expectations of future scarcity, and in so doing serve to encourage the use of less scarce alternatives. As a commodity is consumed, the supply curve shifts upward, driving the price up and promoting conservation. The needs of future generations are taken into account—if a commodity is expected to have a sufficiently higher price in twenty years, suppliers have an incentive to maintain some quantity of the commodity to sell at that time. Even if the individual supplier does not expect to be alive to collect those future revenues, the supplier does at least have the incentive to make the firm attractive for a buyer who will be around to collect. The immediate interest firms have in profits (both current profits and expected future profits) tends to produce a result that is beneficial to both living and future generations.

In contrast, political systems allow only the living generation to have political power. Politicians, after all, are not elected on the expectation of future votes. It would seem that political solutions would be more likely to neglect the interests of future generations than would a market system. Yet this is exactly the proposed solution: "As Christians and faithful stewards, we bear the responsibility to affirm and support programs, legislation, research and organizations that protect and restore the vulnerable and the oppressed, the earth as well as the poor. This responsibility for a habitable environment is not just for human life, but for all life."

The authors of the Baptist statement, like many others, read into certain biblical texts a message consistent with their own statist environmentalism. A good example is their statement on the Old Testament law of Jubilee. This was a law that set a particular year for the freeing of slaves—indentured servants—and returned land to the tribe that originally owned it. According to these writers, however, the Jubilee year was "a year of land reform. It is a recognition that all land basically and ultimately belongs to God, and that no person or group has the right to destroy it or to use it unendingly for unjust personal or institutional gain."[20]

The message of the Jubilee year had nothing to do with the destruction of land, or the use of it for "personal or institutional gain."[21] It was not "land reform" in the modern sense, in which the State seizes land from rightful owners and transfers it to those of its choosing. It was a restriction on the market alienability of the land, not on the use of the land. This is a twisting of biblical interpretation to grant power to the State. As the biblical scholar and economist Gary North has argued, the time and place for applying that law is long past. "No judicial appeal to any of those laws is valid today," he writes. "Those who appeal to them risk placing us in bondage: the revival of permanent chattel slavery or the imposition of permanent slavery to the messianic welfare State…."[22] For many evangelical environmentalists, however, their interpretation of the Bible is apparently based on their personal brand of statism.

Protestants are not the only ones having problems with the concept of stewardship. One key Roman Catholic statement acknowledges that allocating resources to their most appropriate uses is not easy, but goes no further in suggesting ways to solve the problem:

Stewardship implies that we must both care for creation according to standards that are not of our own making and at the same time be resourceful in finding ways to make the earth flourish. It is a difficult balance, requiring both a sense of limits and a spirit of experimentation. Even as we rejoice in earth's goodness and in the beauty of nature, stewardship places the responsibility for the well-being of all God's creatures.[23]

In The Ecological Crisis: A Common Responsibility, Pope John Paul II (1989) promotes world government as a way to exercise stewardship over the environment: "The concepts of an ordered universe and a common heritage both point to the necessity of a more internationally coordinated approach to the management of the earth's goods."[24] Later, in Centesimus Annus, the same pope contends, "It is the task of the State to provide for the defence and preservation of common goods such as the natural and human environments, which cannot be safeguarded simply by market forces."[25] In the next paragraph, the encyclical affirms the value of the market, but within limits:

Here we find a new limit on the market: there are collective and qualitative needs which cannot be satisfied by market mechanisms. There are important human needs which escape its logic. There are goods which by their very nature cannot and must not be bought or sold. Certainly the mechanisms of the market offer secure advantages: they help to utilize resources better; they promote the exchange of products; above all they give central place to the person's desires and preferences, which, in a contract, meet the desires and preferences of another person.[26]

What it is about the nature of goods that precludes their market alienability, or the logic of this distinction, is never made clear in Centesimus Annus. Certainly Christian thought regards certain goods or services as properly market inalienable, such as children or murder. Yet an appeal to the nature of the good or service is not likely to produce consistent understanding among Christians. While we consider rivers, oceans, scenic wilderness, and even air quality as marketable goods, other Christians will regard these environmental goods as offlimits to pricing mechanisms.

Conclusion

In the writings of modern evangelical environmentalists runs a disturbing theme: the idea that it is possible for a small group of individuals to improve upon our use of the environment through coercion. In the name of stewardship, they lay claim to control of every aspect of our lives. Private property, a protected institution throughout the Bible, is regarded as dispensable. Of course evangelical environmentalists deny that destroying private property is part of their plan. Mises wrote about these types decades ago, who avoid "drawing the logical conclusions of their premises."

They give one to understand that they are combating only the excrescences and abuses of the capitalist order; they protest that they have not the slightest desire to abolish private property; and they constantly emphasize their opposition to Marxist Socialism. …[T]hey constantly proclaim that they do not wish to attack private property. But what they would retain is only the name of private property. If the control of private property is transferred to the State the property owner is only an official, a deputy of the economic administration.[27]

Almost completely neglected by the evangelical environmentalist is the recognition of the dangers to human life and freedom of handing over such power to the State. The Bible contains multiple examples of the misuse of state power. To trust the State to put our interests first, and to sacrifice our liberties for the empowerment of bureaucracies, is to deify and idolize the State. Evangelical environmentalists are seeking salvation in the very institution that has been responsible for slaughtering countless numbers of Christians. Turning over regulatory power to the State is a fatal mistake.

Another evangelical environmentalist (of a very different sort) named Calvin Beisner has contended that environmentalist central planning contradicts another Christian moral standard: to avoid pride. To claim that a bureaucrat, or a committee of bureaucrats, can have sufficient knowledge to plan an economy is to lay claim to one of the attributes of God: omniscience. Beisner wrote,

Humility applied to environmental stewardship should lead us, in the light of the vast complexity of human society and the earth's ecosystems, to hesitate considerably at the notion that we know enough about them to manage them (as opposed to enforcing the rules of justice)—particularly that we are confident enough of our knowledge to assert our management preferences in place of the free choices of those who disagree with us.[28]

Mises's observations on the impossibility of socialist calculation should lead the environmentalist toward humility. Market prices represent, in summary form, billions of inexpressible assessments of the value of different parts of creation. In a complex world, caring for creation is impossible without them.

Timothy Terrell teaches economics at Wofford College. The text is the Lou Church Memorial Lecture delivered at the Austrian Scholars Conference, Auburn, Alabama, March 15, 2003 and originally appeared at Mises.org

References

American Baptist Churches. 1989. American Baptist Policy Statement on Ecology: an Ecological Situational Analysis [Electronic version]. Valley Forge, PA.: American Baptist Churches.

Beisner, E. Calvin. 1997. Where Garden Meets Wilderness: Evangelical Entry into the Environmental Debate. Grand Rapids MI.: Eerdmans.

Bonsanquet, Bernard. 1899. Philosophical Theory of the State.

Bouma-Prediger, Steven. 1998. Creation Care and Character: the Nature and Necessity of the Ecological Virtues [Electronic version]. Perspectives on Science and Christian Faith 50: 6–21.

———. 2001. For the Beauty of the Earth: a Christian Vision for Creation Care. Grand Rapids MI.: Baker.

Calvin College Department of Economics and Business. 1986. Through the Eye of the Needle: Readings on Stewardship and Justice. Grand Rapids, MI.: Calvin College Department of Economics and Business.

DeWitt, Calvin B. 1994. Preparing the Way for Action [Electronic version]. Perspectives in Science and Christian Faith 46: 80–89.

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Executive Council, Episcopal Church (U.S.A.). 2002. Resolution: Conservation Based Energy Policy. Retrieved from http://www.episcopalchurch.org/peace-justice/resolution_15.asp.

Heyne, Paul. 1993. "Are Christians Called to be 'Stewards' of Creation?" Stewardship Journal 3:17–22.

Hill, Peter J. 2000. Environmental Theology: a Judeo-Christian Defense. Markets and Morality 3.

Mises, Ludwig von. 1981 (1922). Socialism: an Economic and Social Analysis. Indianapolis, IN.: Liberty Classics.

North, Gary. 1994. Leviticus: an Economic Commentary. Tyler, TX.: Institute for Christian Economics.

Paul, John, II. 1989. The Ecological Crisis: a Common Responsibility: 1990 World Day of Peace Message (Dec. 8, 1989).

———. 1991. Encyclical letter Centesimus Annus (May 1, 1991). Retrieved October 8, 2002, from http://www.vatican.va/holy_father/john_paul_ii/encyclicals/documents/hf_jp-ii_enc_01051991_centesimus-annus_en.html

Presbyterian Church (U.S.A.). 1990. Restoring Creation for Ecology and Justice. Louisville KY.: Office of the General Assembly (P.C.U.S.A.).

Presbyterian Church (U.S.A.). 1996. Hope for a Global Future: Toward Just and Sustainable Human Development. Louisville KY.: Office of the General Assembly (P.C.U.S.A.).

Rushdoony, Rousas J. 1986. Christianity and the State. Vallecito, CA.: Ross House.

United Methodist Church. 2000. The Book of Discipline of the United Methodist Church. Nashville TN.: United Methodist Publishing House.

United Methodist Church. 2000. U.S. Agriculture and Rural Communities in Crisis. 2000 book of resolutions [Electronic version]. Washington D.C.: 2000 General Conference of The United Methodist Church.

United States Catholic Conference. 1994. Renewing the Face of the Earth: A Resource for Parishes [Electronic version]. Washington, D.C.: United States Catholic Conference, Inc.

Wesleyan Church. 2002. Standing firm: the Wesleyan Church Speaks on Contemporary Issues. Retrieved October 8, 2002, from http://www.wesleyan.org/issues14.htm

———, ed. 1991. Earthkeeping in the Nineties: Stewardship of Creation. Grand Rapids, MI.: Eerdmans.

[1] Bosanquet (1899), cited in Rushdoony (1986), p. 186.

[2] In Calvin College Department of Economics and Business, (1986).

[3] DeWitt (1994), p. 82.

[4] Bouma-Prediger (1998), p. 10. See also Bouma-Prediger (2001), pp. 128, 142, 171.

[5] Hill (2000).

[6] Evangelical Lutheran Church in America (1993).

[7] Heyne (1993), p. 21.

[8] Wilkinson (1991), p. 241.

[9] Heyne (1993), pp. 20, 21.

[10] Wesleyan Church (2002).

[11] Presbyterian Church (USA) (1996), p. 53.

[12] Ibid., p. 51.

[13] Ibid., p. 53.

[14] Executive Council, Episcopal Church (U.S.A.) (2002).

[15] Mises (1981), p. 223.

[16] Evangelical Lutheran Church in America (1993).

[17] American Baptist Churches (1989).

[18] Heyne (1993), p. 18.

[19] Other denominations’ documents have also made use of this analogy (e.g., Presbyterian Church [U.S.A.] [1990], p. 25).

[20] American Baptist Churches (1989).

[21] Note that the authors are tripping over superfluous qualifiers: is using land “for unjust personal or institutional gain” acceptable if it is thus used only temporarily instead of “unendingly”?

[22] North (1994), p. 429.

[23] United States Catholic Conference (1994).

[24] Paul (1989), p. 9.

[25] Paul (1991).

[26] Ibid.

[27] Mises (1981), p. 225.

[28] Beisner (1997), p. 28.

Earth Day Group Think

By Willaim L. Anderson

During a religion class in my junior year of college, our leftist professor showed us a series of films glorifying the communist revolution in China. The "liberation," he told us, had saved the Chinese from a miserable existence and had both raised their standard of living and had given them new spiritual life.
Like so many other stories of regeneration (Lincoln freed the slaves, Castro liberated Cuba, and World War I made the world safe for democracy), this one was a lie. However, like Goebbels’ "Big Lie," it has become standard fare in the American academy and--as one would expect--in the salons of the political classes.
This weekend, Americans celebrate another Big Lie, this one having to do with Earth Day. (Perhaps we should call it, "Worship the Earth Day.") Schoolchildren who "celebrate" this day by doing deeds of recycling and writing letters to politicians begging them to "save the earth" are told that all of us are in immediate peril unless the government acts quickly. Any environmental improvements that we have seen since the inception of Earth Day 30 years ago are due solely to the Environmental Protection Agency and environmental activists.
For example, an 11-year-old fifth grade student at a Greenville, South Carolina, middle schools recently wrote in his Earth Day essay, "If there was no Earth Day, the Earth would rot and die and there wouldn’t be enough trees or oxygen." A classmate writes, "You should save the world and not pollute."
Lest we think this is simply foolishness from the mouths of babes, consider this from David Whitman, a reporter for U.S. News: "At the time of the first Earth Day, America was a place where oil-drenched rivers caught fire, loggers lopped down great swaths of national forests, recycling was rare, motorists routinely littered, and fabled icons like the bald eagle were headed toward extinction in the lower 48 states."
He goes on: "The Environmental Protection Agency did not exist, and industry and government casually dumped millions of tons of hazardous wastes." But like Mao’s China in 1974, all-powerful central government has come to the rescue of the people and the land and has saved us from the greedy capitalists.
Like all stories of salvation by government, this one comes loaded with propaganda of the sort that would have given Goebbels pride of authorship. I will next examine a few of the Big Lies that seem to emanate from the press this time every year.
The first lie is that unless government imposes socialist measures, we will drown in our own wastes or suffocate as deforestation and global warming slowly suffocate us. Each generation, interestingly, has predicted some sort of environmental catastrophe. Near the end of the 19th Century, for example, city planners warned of the impending danger of the streets being covered with dozens of feet of horse manure as the population of humans and animals would surely grow in those imperiled cities. The reviled automobile, it turns out, saved us from that horrible fate.
Who can forget the Club of Rome's screed, Limits to Growth, which appeared in 1974 and warned that unless the world immediately converted to socialism that humanity as we had known it would virtually disappear by the end of the 20th Century? Jimmy Carter’s Global 2000, which environmentalists hailed, was another gloom and doom report that predicted chaos in 20 years unless the madness of free markets was replaced by "orderly" government planning.
The world did not convert to outright socialism, and when the Iron Curtain fell in 1991, embarrassed environmentalists discovered that the socialist nations had by far the worst pollution problems on the planet. In other words, the supposed "solution" to environmental degradation was actually an engine of unchecked pollution.
The second Big Lie is that without the EPA, America’s rivers would be flaming sewers and life as we knew it most likely would have disappeared. The EPA is seen as the regulatory "thin, blue line" that separates the civilized world from chaos.
However, as Bruce Yandle of Clemson University has so eloquently written, "environmental regulation in the United States did not begin with the formation of the EPA (in 1970)." Indeed, as Yandle points out, "America’s pre-federal experience with environmental regulation is as diverse as the country’s population and geographic regions. Almost a century longer than the federal period, it was a time of experimentation with and development of ways to control polluter actions."
The commonly held belief is that there were no attempts to control emissions into the air and water until President Richard Nixon and Congress created the EPA. In fact, people had long acted both through the courts and through the legislatures to deal with pollution problems.
The most effective tool was the appeal to property rights as protected by common law. Citizens who found their property and personal health damaged by nearby factories could find redress from the courts and often were successful. However, as the state authorities began to see industrialization as something in the "public interest," the courts began to side with polluters without proper redress given to those whose health and property were harmed. (See Murray Rothbard’s "Law, Property Rights, and Air Pollution" for an excellent discussion of common law and environmental issues, from Economics and the Environment, edited by Walter Block.)
In fact, the destruction of private property rights and the metamorphosis of private property into common property has been a central reason why industrial pollution had reached nearly intolerable levels in some municipalities by 1970. For example, the famous 1969 fire in Cleveland, Ohio’s, Cuyahoga River would never had happened had the law recognized private property rights of waterways instead of having them declared "public" (read that, common) property. The same goes for the air above one’s property.
Instead of continuing strict property rules, which would have allowed for bargaining and solutions that would have satisfied all sides, government resorted to the faulty economic analysis of the Hicks-Kaldor rule. This rule assumes one can know cardinal measures of utility so that a person can objectively calculate both benefits and costs, with the "winners" supposedly being able to compensate the "losers" and there still being a "surplus" of "public welfare" left over.
Yandle notes that states and communities across the nation had experimented with various laws and regulations to deal with problems of emissions, with the results being a "rich diversity." As Yandle and others have also noted, environmental protection, which economists rightly portray as a normal good of which people demand more as their wealth increases, was on the rise even before the advent of the EPA.
What the EPA did, however, was to scrap much of the sensible law that was in existence and substitute the horribly inefficient methods of command and control. What most people do not realize is that the law, in mandating minimum levels of discharge, actually requires private business and property owners and municipalities alike to employ uniform anti-pollution equipment whether or not that equipment actually does what it is supposed to do.
Take automobile pollution gear, for example. For all its costs and impressive looks under the hood of a vehicle, most emissions equipment takes out only marginal amounts of toxic discharges. The greatest improvements in emissions reduction have come from simple measures like the positive crankcase ventilation system (PCV) that was enacted in the 1960s. However, even the most sophisticated anti-pollution devices are of little value if the car's owner fails to have regular tune-ups.
In truth, government has mightily contributed to the problems of air and water pollution by destroying common law property rights, which were the best defense against unwanted discharges into water and air. By insisting upon a rigid and inefficient command and control scheme, the EPA forces Americans to employ wasteful methods to clean up industrial and municipal discharges.
Like Mao's communist state, the EPA is the emperor without any clothes. Of course, since the EPA and other government agencies are the main source of news to media outlets, the larger public will never be told the truth. Thus, the Big Lie continues.
The above originally appeared at Mises.org.

Monday, July 20, 2015

The German Miracle vs. the Welfare State

By Ludwig Erhard

Every time I speak on the theme of "social security" I am in danger of being accused of going beyond my brief. If I may speak less as minister for economic affairs and more as a political economist, it will seem natural to those knowing the subject that within the sphere of the social market economy the minister for economic affairs has every reason to interest himself in further developments of our social policy. The social market economy cannot flourish if the spiritual attitude on which it is based — that is, the readiness to assume the responsibility for one's fate and to participate in honest and free competition — is undermined by seemingly social measures in neighboring fields.
If one is prepared to think this problem through, one will understand the unwisdom of drawing the limits of discussion too narrowly. A watertight division could only be defended if the actions of all those influencing economic conditions stemmed from a common attitude, if they supported without reservation that order that the market economy wants to bring about. Put briefly, all would have to pull in the same direction.
I have repeatedly stressed that I consider personal freedom to be indivisible. With this conviction I have worked since 1948 to reduce all economic restrictions. A free economic order can only continue if and so long as the social life of the nation contains a maximum of freedom, of private initiative, and of foresight.
If, on the other hand, social policy aims at granting a man complete security from the hour of birth, and protecting him absolutely from the hazards of life, then it cannot be expected that people will develop that full measure of energy, effort, enterprise, and other human virtues that are vital to the life and future of the nation, and that, moreover, are the prerequisites of a social market economy based on individual initiative. The close link between economic and social policy must be stressed; in fact, the more successful economic policy can be made, the fewer measures of social policy will be necessary.
It should not be denied that in modern industrial countries even a good economic policy will have to be complemented by social-policy measures. On the other hand it is true to say that every effective social aid will have to be based on an adequate and growing national income, which means an efficient economy. Thus it must be in the interest of every organic social policy to secure an expanding and sound economy, and to take care that the principles guiding this economy are maintained and extended.
As a result of the transfer of incomes through social budgets, which today play an important role in the process of economic distribution, there is now a close interdependence between economic and social policy. A national economic policy of neutrality and autonomy is thus a thing of the past. It has to make way for a social policy that is closely tuned to economic policy. Social policy must not damage national economic productivity even indirectly, and must not run counter to the basic principles of the market economic order.
If we desire to guarantee a permanent free economic and social order, then it becomes essential to achieve freedom with an equally freedom-loving social policy. That is why, for example, it is contradictory to exclude from the market economic order private initiative, foresight, and responsibility, even when the individual is not in a material position to exercise such virtues. Economic freedom and compulsory insurance are not compatible.
Other special relations between economic and social policy will be mentioned later in more detail. Here it should be noted that any social policy that does not regard the stabilization of the currency as of first importance must create the greatest dangers for the social market economy.

The Hand in the Neighbor's Pocket

This danger must be energetically countered. More differences of opinion exist on this point than on any other problem. Some say that the happiness and well-being of the people are based on some form of general solidarity, and that one should progress along this path at the end of which, of course, stands the power of the state. The calm and comfortable life so pursued might not perhaps be luxurious, but it would be all the more secure. This form of living and thinking is visibly expressed in the so-called welfare state. On the other hand the natural efforts of the individual to be thrifty on his own account and to think of his future, his family, and his old age cannot be abolished — even if great efforts have been made indirectly to kill the human conscience.
In recent times I have frequently been alarmed by the powerful call for collective security in the social sphere. Where shall we get to and how are we to maintain progress if we increasingly adopt a way of life in which no one wants any longer to assume responsibility for himself and everyone seeks security in collectivism? I have drastically described this flight from responsibility when I said that if this mania increases we shall slide into a social order under which everyone has one hand in the pocket of another. The principle would then be this: I provide for someone else and someone else provides for me.
The blindness and the intellectual inertia that are pushing us toward a welfare state can only bring disaster. This, more than any other tendency, will serve slowly but surely to kill the real human virtues — joy in assuming responsibility, love for one's fellow being, an urge to prove oneself, and a readiness to provide for oneself — and in the end there will probably ensue not a classless but a soulless mechanical society.
This process is particularly incomprehensible because, with the spread of prosperity and the growth of economic security, our economic basis becomes increasingly solid; the need to safeguard the achievements from all future dangers overshadows all other considerations. Here there exists a truly tragic mistake, for one meets with an apparent refusal to recognize that economic progress and prosperity based on effort cannot be combined with a system of collective security.
This call for security, which naturally must permit more state intervention, shows up the contradictions contained in this dishonest policy. If the words of these demands are reduced to a simple formula then what is being demanded is no more and no less than a lowering of taxation simultaneously with a greater demand on the public purse. Have the defenders of such a thesis reflected where the state is to find the power and the means to meet such demands which, taken one at a time, might be justified?

The Need for Security

In the final instance this way of thinking leads to utterly antisocial results. If the state refuses to sin against the currency, which would destroy everything so far achieved in reconstruction, then its purchasing power — whether in the form of social-service payments, credits, loans or subsidies — is limited to what has first been collected from its citizens in taxation. I regard a policy that allows the state to gather capital in this manner, in order to enable it then to make private loans, as utterly immoral.
Those who do not shrink from thinking this problem through will rapidly recognize that the quest for security is an illusion. Just as a people cannot consume more than it has first produced, so the individual cannot gain more real security than we, the whole people, have gained as a result of our efforts. This basic truth cannot be concealed by attempts to veil it with collective schemes. It is for just these well-intentioned ventures that a high price has to be paid. Efforts to free the individual from too much state influence and too much dependence on the state are thus brought to naught; the tie with collectivism becomes stronger. The apparent security, granted to the individual by the state or by any other group, has to be bought dearly. Whoever wants protection of this kind must first pay in cash.
It is also wrong to believe that we should only move toward a welfare state when collective security is granted by the state either completely or in part from general taxation. Nor can these dangers be avoided by imposing a comprehensive compulsory insurance, in which payments are financed from contributions. General compulsory insurance — whether it is fed from one source or from many — is only different in degree, not in principle, from the ordinary citizen's pensions. The trend toward a welfare state begins when state compulsion extends beyond the circle of the needy, to include people who as a result of their position in economic life consider such compulsion and dependence as unwarranted.
Here the important question must be asked: Does penetration by the state, by the public authority, and by other large organizations into human life, and the resulting budgetary increases, accompanied by greater demands for taxation of the individual, does all this really lead to the greater security of the individual, to an enrichment of his life and to a decrease of individual anxiety? If I put this question in this absolute form, I should like to answer it equally clearly in the negative. The security of the individual, or at least his feeling of security, has not increased with the state or the group assuming a larger share of the responsibility; it has decreased.

And Finally the "Subject"

The just demand to give more security to the individual can in the end only be met by increasing general prosperity, thus instilling the feeling of human dignity and, with it, the certainty that the individual is independent.
The ideal I cherish is based on the strength with which the individual can say, "I want to prove myself by my own efforts; I want to meet the risks of life myself; I want to be responsible for my own fate. You, the state, must see to it that I shall be in a position to do so."
The cry must not be "You, the state, come to my aid, protect me and help me," but the other way around: "Don't bother with my affairs, but give me sufficient freedom and leave me enough from the results of my labors so I can shape my own existence, and that of my family."
The result of this dangerous road toward the welfare state must be the increasing socialization of incomes, the growing centralization of planning, and the extensive tutelage of the individual with increasing dependence on the state or the group — together with the deterioration of a free and well-functioning capital market as an important prerequisite for an expansion of the market economy. In the end we shall find the subject and a guarantee of social security by an all-powerful state, but we shall also have a paralysis of the economy.
It seems to me to be particularly dangerous to make way for these tendencies toward a welfare state at a time when the objectives, or the material facts, are clearly all against such a trend. If we had to presume that in the modern national economy, in spite of the progress in technique, economic trends and the living conditions of the people are becoming worse, then this longing for complete collective security would be understandable. But it seems to be almost certain that the living conditions of the people who realize the true market economy will continually improve. Since we should count on rising incomes and a rising standard of living, from a social point of view it seems proper to ask the individual to increase his responsibilities accordingly. This demand is all the more justified since the welfare state, from all existing experience, means everything but "welfare" and must finally spell "poverty" for all.
This fundamental discussion about questions that cannot be avoided in an analysis of social policy does not mean that I wish to ignore the special requests that have recently been made. As the reader turns over these pages, social reform will probably have found its legal expression. Nevertheless, I am doubtful whether the discussion about the aims of social reform will have ended. A glimpse at those countries that in recent years have made similar attempts shows to what extent such reforms have become no more than the starting point for the achievement of a sensible social order. My criticism about the disastrous pressure for a welfare state must not be misunderstood as a wish to change social security, as we know it. I believe that a further extension of social security is perfectly possible. But what I consider as totally wrong is that people who, having acquired freedom as a result of their profession and their position in the national economy, should wish to move into a collective scheme, or worse still, to be pushed into it.

Limits of Social Insurance

In judging social insurance in its contemporary setting it should be remembered how much economic forms and principles have changed in the past decades and to what extent the social and political structure has changed. The man of the "proletariat" who cannot provide for his own old age, or who does not want to provide and thus has to be protected by the state, will soon vanish if the present economic policy continues. Living conditions for the worker have improved infinitely and have become freer since the era of Bismarck. Compulsory state protection should end where the individual is in a position to provide for himself and his family on his own responsibility. For wage earners, this applies at least to those who have a higher income and thus occupy a responsible position in the economy or in the administration.
Furthermore, it would be serious for our social life if such citizens were forced into insurance, for as a result of their position and functions it might be expected that they would want to prove themselves by their own efforts. It is perhaps understandable that war and currency reform, and the great changes that followed, have brought with them a demand for collective security. But it would now be wrong and ominous to base security from the general risks of life on such an eventuality, which it is to be hoped will never recur.
From what I have said it can be seen that I should like to limit the area of collective security rather than extend it. To avoid all possible misunderstanding it should be stressed that I regard it as a natural duty for the community to see to the security of those who are now old and who, through no fault of their own, have lost their savings as a result of policies leading to two inflations. Here no social differences exist; the old workers and employees have to be helped in the same manner as the members of the free professions, the independent workers, the natives and the refugees. But this special problem, arising out of Germany's particular history, must not lead to that confusion which regards compulsory insurance and collective security as something that can be taken as a matter of course. The tragic consequences of inflation, experienced twice within one generation, does not tend to increase confidence in one's own strength. These tragic experiences must be taken into account; but they should, on the other hand, lead to a more careful examination of all economic and financial measures to make sure that we do not again take the same path, which can only lead to a serious devaluation of our currency.
Attempts to include independent workers in collective insurance should be particularly scrutinized. A readiness to cope freely and responsibly with the hazards of life is essential to independence in a free economic and social order. Independence in the market economy means undertaking some useful job of one's own accord and on one's own responsibility, and thereby becoming a pillar of enterprise and initiative. On the one hand, the independent individual has open to him all the chances arising from economic progress but, on the other, he must be ready to face the economic risks involved.
In no circumstances can such a position in economic life be guaranteed by the state under the system of the market economy. It must, above all, be earned anew day by day by economic achievement, by the readiness and the courage to face risks, and, above all, by a will to be individually responsible to shape one's own life, if it is to have meaning. As a result, those who are independent within our economic and social order must also show responsible foresight for themselves in facing the risks of life.
It is paradoxical and, moreover, an irresponsible privilege to give every citizen an opportunity to work independently and by means of a free economic policy to further the pursuit of independent living, and then to take away from these independent people by state compulsion the responsibility to shape their lives.
This compulsory insurance, which is essentially of the model type, loses sight of the fact that in the independent trades and free professions one deals with heterogeneous and differentiated groups, and that here, therefore, as a result of individual thrift, it becomes impossible to meet the needs of each case. A critical discussion cannot avoid the question of where it would lead if the free professions started — each group for itself — to build up a system of group provision.

No Out-of-Date Solutions

Have we not, in the past eight years, learned by tragic experience where it leads when the national economy is fragmented, in particular when every section and every class and every group believes that it can live its own life? If, for example, members of the free professions — be they doctors, lawyers, or accountants — want to cut themselves off in respect of their pensions, then this security within a smaller framework will become increasingly problematical. In this manner selfishness is cultivated, a damaging mania for the ego, so that this clannishness becomes simply out of date — especially as it is taking place at a time when we are beginning to free ourselves from protectionist and nationalist thinking and, in this way, to achieve wider horizons of individual and social life. It should not be thought that, on the one hand, tightly knit groups can find security in a collective scheme, and, on the other, can break their ties to move into a wider field.
From other aspects, too, such wrongheadedness leads to grave problems. For example, the attempt to apply the principles on which old-age pensions are based for workers and employees to individual professional groups must necessarily fail. It would be practical only if there were no chance of considerable structural changes during the next few decades. Even if for the mass of dependent workers a continuation of present trends can be expected, nobody can foresee how specific developments will affect certain of the middle-class sections: for example, craftsmen or retail traders. There, at least, the possibility of considerable structural changes has to be taken into account. The smaller the circle that wants to adopt the new principles of large-scale social insurance is, the greater the problems and the insecurity of the basis on which such an order is made will be.
These considerations must necessarily be relevant to the much-discussed pension reform, whether one speaks of an index pension, or a productivity pension based on wages, or of any other kind of pension. The decisive point is that the pension is meant automatically to change with the economic situation. This "movable" pension is based on the steady increase in productivity that is part of the market economy. It bases itself on the general experience that the increase in productivity is expressed less in lower prices than in higher nominal wages. Such a productivity pension related to wages is harmless only as long as no currency or economic disturbances result from wage movements. If these are expected, then this scheme to adapt pensions to wages increases the danger of upsetting currency stability. A cumulative effect may possibly be expected, the results of which will be discussed later.

A Good Social Policy Demands Currency Stability

From a political point of view some thought should be devoted to the question of whether too close a link with wages will not essentially lead to lower resistance to excessive demands from trade unions in wage negotiations. This connection is based more or less clearly on the equally dangerous and wrong precept that "the stability of the currency has nothing to do with social policy."
It seems to me in every respect impossible to base every new social reform, such as pension reform, on such a criminal catastrophe as the last inflation. It is a great mistake for a people, or a state, to believe that it can introduce and pursue an inflationary policy yet insure itself against the results. This is to try to lift oneself by one's own bootlaces. On the contrary, it is essential to concentrate all efforts to prevent inflation, and to reject and so forestall it.
Inflation is not the result of a curse or a tragic fate but of a frivolous or perhaps even criminal policy. Every change in old-age pensions that brings about an inevitable rise in prices, thus reducing purchasing power, cannot lead to happy results. Larger groups of our people will want to escape from their responsibility to themselves, and will try to gain an apparently absolute yet quite illusory security.
To translate a wage policy (the so-called "active wage policy") that must result in permanently increased prices into the field of pensions must quickly reduce general support for currency stability and thus start a disastrous trend. A general interest in maintaining the real purchasing power of our money is one of the most important counterbalances that oppose an inflationary policy in a well-ordered state. Furthermore, it must be asked how the formation of investible funds, so essential for technical progress, is to be achieved if social laws openly count on the likelihood of continually increasing prices. If all the people begin to lose confidence in the stability of the currency, and as a result of the aim for complete security demand such large contributions, then they would, in fact, have little or no incentive for individual saving.
During the discussions on the pensions index I clearly stated that it would be unwise to lay aside the idea of a movable pension. It is in favor of such a dynamically devised pension scheme that our idea of a minimum standard of living — that is, of a dignified way of living — is constantly changing. Pensions based on a full working life calculated on the classic contributory formula should, when pensionable age is reached, be regarded as insufficient — the more so, the stronger these changes are. The real danger, the almost destructive effect of a dynamic pension, is to be found less in their mobility than in their being linked to wage trends, which may well exceed what can be combined with monetary stability.
On a modified basis there exists the possibility of a flexible adaptation of pensions to changing living conditions and standards. This would be the case, for example, if as a guide for such a pension scheme the current increase in productivity were taken. Then there would be a guarantee that even the pensioner participated in real progress.
The formula would have to be something like this: to the extent that the national income, at constant prices, divided by the number of the workers or the population, shows an increase in productivity, the basic pensions will be raised by the same percentage. The pensioner would then share in increased productivity, but his interests would constantly be directed — even during his active life — toward constantly improving the performance of the economy. This worker or employee (or pensioner) will not regard saving as superfluous, but will be aware of the fact that investments financed by savings serve to improve his well-being, and provide for his old age and for that of his family. As with an active man, so also the pensioner becomes a center of resistance to every attempt to pursue an inflationary policy.
In conclusion, it must be said that social security is certainly a good thing and desirable to a high degree, but security must first of all come from one's own efforts and one's own endeavors. Social security is not the same as social insurance for all — it is not achieved by passing individual responsibility to some group. At the start there must be responsibility for oneself, and, only where this is insufficient, the obligations of the state and the community begin.
For the benefit of our people it would be better if we showed less desire for collectivism and more social sense. The one kills the other. That is why finally the question has to be put whether, united by the wish and the obligation not to see any German exposed to want, we are acting rightly by strangling the best virtues in the ideal of collective security, or whether, by striving for greater prosperity, and by opening up more and better chances to gain personal prosperity, we should not declare war on the destructive spirit of collectivism. My own views are clear: I hope that my warning will not remain unheard.

The above originally appeared as Chapter 12 of  Prosperity Through Competition,

Tuesday, July 14, 2015

Saturday, July 11, 2015

Wednesday, July 1, 2015