Tag: civilization

How the Government Held Back the Second Industrial Revolution

By Mason Mohon | USA

Between the end of the Civil War and the beginning of the 20th century, the American economy experienced growth like no country had ever seen before in the entire history of the world. The discovery of lots of oil, along with the progression of electricity, expanded logging industries, and advancements in mining gold and silver created profound economic growth. New investments from overseas stimulated the American economy and migrant workers provided cheap menial labor. The development of steel lead the railroad system to a great multitude of new locations.

This age in American development was also seemingly plagued by the ills of the free market and was only held through because of government intervention. That is what historians see, and that is what the textbooks teach. Labor conditions were horrible, income inequality increased, and robber barons took over the oil industry. The issue with this, though, is that people look at it with no depth. They take everything at an economically uneducated mainstream face value. A deeper look into the issues afflicting America must be taken if we want to truly see what harmed and benefited the United States during this time.

In the first place, we must look a bit at what did not happen, and where funds did not go. This is important because of what Bastiat described as the seen versus the unseen. In one of his most famous essays, he wrote the following “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.” What this means is that we saw the consequences of what happened in history, but to find out if what we did was as beneficial as it could have been, we need to look at the consequences of the potential action that was not taken. This is especially important for the second industrial revolution., because the government did intervene, and growth did happen, but correlation doesn’t equal causation. We must look to what we know to be economic law, and what is true in all instances, and look at what did and didn’t happen.

Many argue that the government’s subsidies and land grants to the railroad industry allowed the economy to boost, and even more, that they were instrumental and critical to the economic growth that happened. This is not true at all. The subsidies that went to the railroad industry went there because the money was taxed from people around the United States. This was money that could have gone places consumers wished for them to go. There is no way to gauge demand for a government agency, so instead, they must bring in scientists who make a guess as to where the best place to promote industry would be. An astounding amount of money went from the government, after it had been stolen to the taxpayers, and went to what there wasn’t necessarily demand for. The railroad industry would have flourished, and maybe even in more economically strategic places without the government’s “help.”

Furthermore, this was seen as the age of the “robber barons,” with men like Rockefeller, Morgan, and Carnegie dominating economic industries, both by cutting prices to beat out competition and by buying out the entire process of producing the good that dominates their industries. Many do not like what these men did and see it as sensible as to why antitrust laws were passed soon after. The issue, though, is that many men of great industry in these times colluded with government to benefit their industry. When it comes to monopolies, you can achieve one in two ways: the natural way, which means serving consumer demand better than everyone else, or the unnatural way of working through government subsidy and regulations to get a foot up on the industry. The second method was the one used primarily in these days because of the lack of lobbying laws. It was not a flaw in the market that these men climbed to the top, but rather it was collusion with the state, the ultimate organization of violence.

Lastly, the poor working conditions and the profound income inequality is seen by many to be a flaw in the upgrading capitalist system. The issue with this is that the workers may have had a tough working environment, but it was better than the alternative of starving by not working or the economy staying behind and everyone continuing to live in a sort of agrarian post civil war economy. The real wages of the workers increased in these times because the development of chain companies, steel for transport, and electricity, which all worked to drive down the price of goods. The conditions of each worker was actually improving from what it had been. At the same time, inequality in income is not an inherently bad thing. The way capitalist economies have tended to work is the rich get richer, and the poor get richer at a slightly lower rate, contrary to the Marxist joke.

In the end, we must realize that we cannot take what happened during the second industrial revolution at face value without looking at economic law and applying it. The point of studying history is to learn from the mistakes of those in the past, so what we must mainly learn is that government subsidies put money into places where there is not necessarily demand and that corporate lobbying is the primary cause of unnatural and harmful monopolies.

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Foresight? Who needs it?

By Mason Mohon | USA

We’ve all heard in our times of distress “the world will keep on spinning without you.” This statement is probably true and normally puts one at ease, making one realize they don’t have to conquer reality in this instance. But while it may be true for individuals, there is a larger, broader group of people this idea may not apply to. Those are the entrepreneurs.

There are many ways to view the entrepreneur and many subjects that touch on the idea of the entrepreneur. Business, self-help, finance, and economics all, at one point or another, take a look at this idea. But what is it? What is an entrepreneur, and what do they do?

In my opinion, the greatest definition of an entrepreneur is someone who sees problems not as such, but rather, as opportunities. This nails a very basic meaning of what an entrepreneur does, but how do they do it? The Misesian view of entrepreneurship is someone who acts with foresight. Because they are acting under uncertainty, a good entrepreneur must have very keen foresight.

But why does this foresight keep the world spinning? The “problems” that entrepreneurs see are seen by them as demand, a way to make a profit. I covered this in my previous article on the entrepreneurs titled The Market is Brutal, and That’s a Good Thing which can be found here, but to cover it briefly again, the entrepreneur benefits everyone. Nothing they do is useless, it is always to benefit another person, while also benefiting themselves. If an entrepreneur were to engage in action that helped nobody else and paid no attention to demand, the result would be the entrepreneur falling flat on their face. This is the glorious brutality of the market.

These people may not literally spin the earth, but they sure do help us develop our lives and aid in the division of labor. A successful economy not only needs entrepreneurs but needs them to both be able to be successful and be able to fail. To give them the ability to be successful, they must have foresight, which brings us to the idea of time preference. In the first chapter of Democracy – The God that Failed, Hans Hoppe articulates this idea of time preference by explaining it as when individuals prefer goods. High time preference means that one prefers a good sooner rather than later, and low time preference is the opposite.

This phenomenon more or less explains why capitalism civilizes society. One with low time preference will begin to use his current wealth as future wealth, whether it is through saving or investing makes no difference. This is because the individual expects to gain more in the future and can afford to have less now. If these expectations prove correct, they time preference rate will further lower because this actor will begin to participate in the same type of action more and more, because it is so profitable.

The result of this is civilization increases, meaning that we develop new medicines, nutritions, health care, and increased life expectancy. The impacts of lower time preference are a net benefit. Entrepreneurs in the Misesian view have a very low time preference, being able to take a serious hit in the short run for a potential goal in the long run. They look forward to the future and this also benefits everyone.

So a successful economy needs entrepreneurs to be able to both succeed and fail, but there is a burden that entrepreneurs face which decreases their foresight. This burden is taxation. Taxation is when the state coercively takes money from individuals, which causes a rise in time preference because they have fewer present good, AND fewer future goods because the state will continue to tax. The result is less foresight and less willingness to invest in the future because one knows they now have less wealth along with less future wealth. Taxation causes people to be more present-oriented because it takes from the goods of the future, not just the present.

Imagine if the state were to tax less – a lot less – so entrepreneurs, investors, and all other individuals can all be more future-oriented. Imagine the effect this would have on human health and technological development. This is why the state should curb its levels of taxation as much as it can because every tax hinders the process of civilization.