Very little achievement is required in order to pity another man’s shortcomings.
~George Eliot, Middlemarch
Very little achievement is required in order to pity another man’s shortcomings.
~George Eliot, Middlemarch
When looking for case studies of free market societies throughout history Singapore, a polity built from scratch in 1965, is an oft-cited example of how enlightened political leadership can stand back and let the market build a prosperous community for all. But was Singapore really guided by free market thinking at the executive political level? And should the free market in Singapore get the praise (or the blame) for subsequent economic developments? In consulting the autobiography of Lee Kuan Yew, Singapore’s first and longest-serving executive politician, an autobiography which covers the life and career of both Lee and the modern country of Singapore itself, the answer seems to carry a bit of nuance.
Chapter 1 Going It Alone
Singapore was a former British colony and military base/trading depot. It had no “hinterland” economy. It was dependent upon British military subsidies, the bases on the island costing nearly GBP$100M and losing these subsidies early on was a major fear of Lee’s.
Lee’s Top 3 Concerns after independence:
Chapter 2 Building An Army from Scratch
Rebuilding the military was a jobs program and an opportunity to create loyal party adherents and factional interest groups. Utilized conscription to build national unity and, modeled on Israeli military, be able to field a large fighting force in a short amount of time.
One official lamented that, “The Spartan approach to life does not come about naturally in a community that lives by buying and selling.” [The need for a military was to protect the political system from foreign dominance, not the commercial system.] “we were building up our defense forces to protect our fledging state.”
“Those who enlisted in the SAF as a full-time career would be guaranteed hobs in the government, statutory boards, or the private sector when they left full-time service to go into the reserves.”
Perceived and actual political threats from Malaysia and Indonesia and a desire to racially and ideologically unify the Singaporean citizenry and re-educate Chinese cultural norms led LKY to build SAF w/ Israeli training and partnerships with “Western democracies” for practice
Chapter 3 Britain Pulls Out
Contribution of British bases to the economy of Singapore in 1966, 20% of GDP.
LKY referred to by a British official “as good a left-wing and democratic socialist as any in this room” and “the government of Singapore… is the only democratic socialist government… in Southeast Asia” and “his housing programme… defies challenge in anything that has been done in the most advanced social democratic communities.”
Later, LKY “attended a Socialist International conference in Stockholm to keep in touch with British and European socialist party leaders.”
Singaporean government lost lots of money on the devaluation of the British pound, in which many of their reserves were held, and feared the departure of British troops in mainland Asia would shake investor confidence, particularly investors in Hong Kong, resulting in a desire to have an arms buildup for credible defense.
Chapter 4 Surviving Without a Hinterland
Recommendations of Dutch economist Dr. Albert Winsemius in 1965:
Sent trade delegation to Africa to try to drum up business but failed. Fears of unemployment since 1959 led to desire to industrialize. Formed Singapore Tourist Promotion Board to try to address unemployment.
To promote industrialization, “we protected locally assembled cars, refrigerators, air conditioners, radios, television sets and tape-recorders, in the hope that they would later be partly manufactured locally. We encouraged our own businesspeople who set up small factories to manufacture vegetable oils, cosmetics, mosquito coils, hair cream, joss paper and even mothballs!
Spent “vast sums” on infrastructure only to find the “Jurong industrial estate” mostly empty. Formed an Economic Development Board which got into JVs to recycle paper products with a businessman with no manufacturing experience, as well as ceramics without technical know-how. Also JVed with a Japanese shipbuilder but it did not prove profitable versus ship-repair, which was labor intensive.
“I was convinced our people must never have an aid-dependent mentality” yet formed the Bases Economic Conversion Department whose job was “to retrain and redeploy redundant workers, take possession of land and other assets the British were vacating, put them to the best use, and negotiate mitigatory aid.” Resulted in 1968 agreement for GBP$50M aid package to be spent on British goods and services, 25% being grants and 75% being loans.
Generated S$4-5M in annual USN ship repair business for the Singaporean government. The Singaporean government formed private entities to manage shipyards which later transformed into public companies.
Sought to “leapfrog” regional economies to become trading partner with developed world (America, Europe, Japan) to attract manufacturers to export to developed countries.
Formed Development Bank of Singapore, “DBS helped finance our entrepreneurs who needed venture capital because our established banks had no experience outside trade financing and were too conservative and reluctant to lend to would-be manufacturers”, ie, subsidized a top-down manufacturing-centric policy.
Keng Swee, first chairman of the Economic Development Board, “every time he drove by a school and saw hundreds of children streaming out, he felt downhearted, wondering how to find jobs for them when they left school.”
“The government played a key role in attracting foreign investments; we built the infrastructure and provided well-planned industrial estates, equity participation in industries, fiscal incentives and export promotion. We established good labor relations and sound macroeconomic policies, the fundamentals that enable private enterprise to operate successfully.”
Also, by end of 1970 had “issued 390 pioneer certificates giving investors tax-free status for up to five years, extended to 10 years for those issued after 1975”
“During this period, China was in the mad throes of Mao’s Culturual Revolution. Most investors thought Taiwan and Hong Kong too close to China and headed for Singapore.”
“By the late 1970s we had left our old problems of unemployment and lack of investments behind us. The new problem was how to improve the quality of the new investments and with it the education and skill levels of our workers.”
“After several years the EDB finally convinced Rollei, the German camera manufactuer, to relocate in Singapore. High German wages had made them uncompetitive.”
“We left most of the picking of winners to the MNCs that brought them to Singapore. A few, such as ship-repairing, oil-refining and petro-chemicals, and banking and finance, were picked by the EDB or Sui Sen, our minister of finance, or myself personally. Our ministry of trade and industry believed there could be breakthroughs in biotechnology, computer products, specialty chemicals and telecommunications equipment and services. When we were unsure how new research and development would turn out, we spread out bets.”
“Our job was to plan the broad economic objectives and the target periods within which to achieve them.”
“We did not have a group of ready-made entrepreneurs such as Hong Kong gained in the Chinese industrialists and bankers who came fleeing from Shanghai, Canton and other cities when the Communists took over. Had we waited for our traders to learn to be industrialists we would have starved.”
“The government took the lead by starting new industries such as steel mills (National Iron and Steel Mills) and service industries such as a shipping line, Neptune Orient Lines (NOL), and an airline, Singapore Airlines (SIA).”
Development Bank of Singapore, Insurance Corporation of Singapore, Singapore Petroleum Company; Chartered Industries of Singapore (CIS), a mint and a factory for small ammunition. Pg 67, conversion of “successful” public monopolies into private companies.
With economic consultation from a Dutch academic, Singapore embarked on economic experimentation which involved at various times a combination of tariffs and no tariffs, tax concessions for new MNCs, extensive investment in infrastructure and at times direct government investment in “from scratch” national industries, which despite being successful and profitable were mysteriously privatized at points. The Singaporean government benefitted from political tailwinds created by economic chaos in other parts of the world, but also attracted FDI by pledging not to interfere in business affairs for those relocating to Singapore (1973 oil crisis being a good example).
Chapter 5 Creating a Financial Center
To become a world financial center, Singapore’s government realized it needed to lift foreign exchange control restrictions on all currency transactions between Singapore and territories outside the sterling area.
“I had decided in 1965… that Singapore should not have a central bank that could issue currency and create money. We were determined not to allow our currency to lose its value against the strong currencies of the big nations… so we retained our currency board which issued Singapore dollars only when backed by its equivalent value in foreign exhcange. The MAS has all the powers of a central bank except the authority to issue currency notes.”
Why did Singapore need its own currency if it had no plans to expand its issuance?
“We attracted international financial institutions by abolishing withholding tax on interest income earned by nonresident depositors. All Asian dollar deposits were exempted from statutory liquidity and reserve requirements.”
“The foundations for our financial center were the rule of law, an independent judiciary, and a stable, competent and honest government that pursued sound macroeconomic policies, with budget surpluses almost every year. This led to a strong and stable Singapore dollar, with exchange rates that dampened imported inflation.”
“To meet the competition from international banks, the MAS encouraged the four largest local banks (known as the “Big Four”) to acquire and merge with the smaller local banks to become bigger and stronger.”
1985 “The SES [Stock Exchange of Singapore] was closed for three days while MAS officials… worked around the clock with the Big Four banks to arrange an emergency “lifeboat” fund of S$180 million to rescue the stockbrokers.”
Government of Singapore Investment Corporation formed to manage the Central Provident Fund, Singapore’s pension scheme.
“For over three decades, I had supported Koh Beng Seng on restricting the access of foreign banks to the local market. Now I believed the time had come for the tough international players to force our Big Four to upgrade their services or lose market share… the MAS liberalized access to the domestic banking sector by allowing qualifying foreign full banks to open more branches and ATMs. It lifted limits on foreign ownership of local bank shares.”
Singapore sought to be a global financial center, becoming a key chronological link in the chain between markets in SF, Tokyo and Zurich. Singapore went without a central bank but did establish a “monetary authority” and currency board similar to HK. Special rules and taxes were established to attract foreign financial capital, but a primary attractor was stability in an unstable region. The government managed a pension scheme and sovereign wealth fund which somehow earned above market returns with a conservative stance. The banking sector was partially deregulated and globalized after a period of productive controls.
Chapter 6 Winning Over the Unions
“I started my political life fighting for the unions as their legal adviser and negotiator.”
“I owed my position as prime minister largely to the trade union movement.”
“We banned all strikes in certain essential services”
Britain’s withdrawal of military announcement in 1968 led to Employment Act, Industrial Relations (Amendment) Act and Trade Unions Act amendment, “These laws spelled out minimum employment conditions and placed limits on retrenchment benefits, overtime bonuses, and fringe benefits. They set out uniform provisions for rest days, public holidays, working days, annual leave, maternity leave and sick leave. They restored to management the right to hire and fire, to promote and transfer, functions the unions had encroached upon during the years of industrial strife… we made it illegal for a trade union to take strike or industrial action without a secret ballot.”
1972, sets up National Wages Council “with representatives from unions, management and government”
“The NTUC [National Trade Union Council] expanded into health services, child care, a broadcasting station, a seaside resort hotel for workers called Pasir Ris Resort, and a country club, the Orchid Country Club with a golf course by Seletar reservoir. It also developed quality condimuniums its members could buy… To make them affordable, the government provided state land at nominal prices.”
LKY’s political career began as a union consultant and advocate. But when he came to power, he threatened unions with treason if they striked. A series of reforms were put in place which reduced union power and enhanced company/management power, but it all takes place within a system of “managed relations” where the government is a “stakeholder”. For some reason, the national union organization has made conglomerated investments in semi-private for-profit businesses and co-ops aimed at worker welfare, which the government has helped subsidize.
Chapter 7 A Fair, Not Welfare, Society
“We believed in socialism, in fair shares for all. Later we learned that personal motivation and personal rewards were essential for a productive economy. However, because people are unequal in their abilities, if performance and rewards are determined by the marketplace, there will be a few big winners, many medium winners and a considerable number of losers. That would make for social tensions because a society’s sense of fairness is offended.” [set this up as the leading quote for the essay?]
“A competitive, winner-takes-all society, like colonial Hong Kong in the 1960s, would not be acceptable in Singapore. A colonial government did not have to face elections every five years; the Singapore government did. To even out the extreme results of free-market competition, we had to redistrivute the national income through subidies on things that improved the earning power of citizens, such as education. Housing and public health were also obviously desirable. But finding the correct solutions for personal medical care, pensions, or retirement benefits was not easy. We decided each matter in a pragmatic way, always mindful of possible abuse and waste. If we over-re-distributed by higher taxation, the high performers would cease to strive. Our difficulty was to strike the right balance.”
CPF policies imposed a total savings rate of 50 percent of wages.
“I further amended the law to give the government the power to acquire land for public purposes at its value on a date fixed at 30 November 1973. I saw no reason why private landowners should profit from an increase in land value brought about by economic development and the infrastructure paid for with public funds.”
On the development of HDB and resettling of farmers and squatters: “Compressing 30 years into a few pages makes it all appear simple and straightforward. There were enormous problems, especially in the early stages when we resettled farmers and others from almost rent-free wooden squatter huts with no water, power or modern sanitation, and therefore no utility bills, into high-rise dwellings with all these amenities but also a monthly bill to pay. It was a wrenching experience for them in personal, social and economics terms.”
“As incomes increased, fewer patients chose the lower-cost wards, which had the highest government subsidies, and opted for wards with more comfort but lower subsidies. We considered but rejected a means test to determine which wards patients were entitled to use; it would have been difficult to implement. Instead we encouraed people to upgrade to the ward they could afford by making clear differences in comfort between different types of wards. It was in effect a self-administed means test.” so is the market!
“Government expenditure has averaged 20 percent of GDP, compared to an average of 33 percent in the G7 economies. On the other hand, our development expenditure has consistently been much higher than that of the G7 countries.”
“Our aim is to have partial or total cost recovery for goods and services provided by the state. This checks overconsumption of subsidized public services and reduces distrotions in the allocation of resources.”
The Singapore government was dominated by one party, PAP, for its modern history. They very openly bought botes with their welfare programs. But they sought to make many of these programs less generous to ensure their solvency. The government forced high rates of saving on workers which it deployed to finance infrastructure spending and welfare housing. Lower tax rates compared to other developed countries helped Singapore remain competitive. LKY is very clearly NOT a fan of the free market in this chapter.
Chapter 8 The Communists Self-Destruct
On fighting Malayan National Liberation Front/communist guerrillas: “Could we have defeated them if we had allowed them habeas corpus and abjured the powers of detention without trial? I doubt it.”
Singapore had two major political factions, the Communists and the PAP. After a series of political blunders and internal turmoil, the communists formally exited the electoral scene leaving the PAP to run unopposed for 30 years, allowing them long and consistent control over policy-making. They used “ends justify the means” and subverted sound legal principles to obstruct and detain communists.
Chapter 9 Straddling the Middle Ground
“while overall sentiment and mood do matter, the crucial factors are institutional and organizational networks to muster support… in our HDB new towns, there is a network that leads from the RCs to the MCs and CCCs on to the prime minister’s office…”
“The PAP had countered the opposition’s ‘by-election’ strategy with the electoral carrot that priority for upgrading of public housing in a constituency would be in accord with the strength of voter support for the PAP in that constituency.”
The PAP faced no serious political opposition and turned to various patronage and vote-buying schemes to solidify support. It seems the HDB housing projects also allowed the PAP to corral supporters and have a physically defensivle political communications network. Many political opponents made claims of corruption only to be sued, sometimes into bankruptcy, by LKY. The few times his own PAP members were charged with libel, they settled out of court. LKY employes specious reasoning to defend this authoritarian legal approach on the grounds that to let the charges go unmolested would threaten his political power– he has a pure, unviolated record of ethics in a region known for corruption!
Chapter 10 Nurturing and Attracting Talent
“Traditional methods of choosing marriage partners had been ruptured by universal education: The government had to provide alternatives to the family matchmakers of old.”
“I gave special income tax concessions to married women”
Stop-at-Two policy of the 1960s “Without that policy, family planning might never have brought population growth down, and we would not have solved our unemployment and schooling problems.”
“Difficulties over our talent pool were aggravated when the rich Western countries changed their policies on Asian immigration… [the US] decided to accept Asian immigrants, reversing more than a century of its whites-only policy.”
The Singapore government was obsessed with population management, first trying to limit births on Malthusian grounds, then trying to promote the marriage and childraising of educated parents on the grounds of skewing the IQ or “talent” pool. Many subsidies Singapore granted to educate its citizenry was “leaked” as people immigrated to other countries to pursue opportunity, partly in response to changing immigration policies elsewhere (such as the US in the 1960s). Now it has taken to liberalizing immigration for high IQ emigres, especially those with jobs, to try to increase the “talent pool.”
Chapter 11 Many Tongues, One Language
LKY enforced language laws on the population in a desire to achieve social harmony and globally integrated economic progress. He encountered much popular resistance but believes these policies proved prescient given global events. It also allowed for a more homogenized culture.
Chapter 12 Keeping the Government Clean
“Human ingenuity is infinite when translating power and discretion into personal gain.”
Singapore got high marks for honesty of government in a region where corruption is an ingrained part of culture. LKY attributes this cultural success to the ideological rigor, invasive investigative authority given to the anti-corruption bureaus and the willingess of government to pay high salaries to public servants to attract them away from the private sector [distortion]. But who watched the anti-corruption officers to ensure they weren’t on the take? And why would this be a corruption issue if government didn’t have the power over the economy? LKY again admits that the PAP bought political favors with public resources by engaging in welfare spending once in office.
Chatper 13 Greening Singapore
“Hundreds, eventually thousands, of pirate taxis clogged our streets and destroyed bus services… only after 1971, when we had created many jobs, were we able to enforce the law and reclaim the streets.”
“It was immensely better that we competed to be the greenest and cleanest in Asia. I can think of many areas where competition could be harmful, even deadly.”
“We phased out the rearing of over 900,000 pigs on 8,000 farms because pig waste polluted our streams.”
“After we had persuaded and won over a majority, we legislated to punish the willful minority… if this is a ‘nanny state’, I am proud to have fostered one.”
Much in the vogue in the 1970s, LKY got swept up in environmentalism and made it a major policy priority to “green” Singapore; this included building public utility infrastructure to control waste and pollution, but also involved “nudge” legislation to change or ban cultural habits deemed offensive or a nuisance. Agricultural practices were changed as were retail practices (pirate taxis, street hawkers). LKY put great emphasis on the “morale” of greening and its affect on visiting dignitaries and VIPs. There is no discussion of the cost of these programs or whether there were alternative approaches to accomplishing the stated goals: he embraced charges of “nanny statism.”
Chapter 14 Managing the Media
“Our journalists are exposed to and influenced by the reporting stytles and political attitudes of the American media, always skeptical and cynical of authority. The Chinese and Malay press do not model themselves on newspapers in the West. Their cultural practice is for constructive support of policies they agree with, and criticism in measured terms when they do not.”
“My early experiences in Singapore and Malaya shaped my views about the claim of the press to be the defender of truth and freedom of speech. The freedom of the press was the freedom of its owners to advance their personal and class interests.”
“That was exactly what we had the right to do, to seek a mandate to deal firmly with foreign, in this case colonial, interests in the press. It was our declared policy that newspapers should not be owned by foreigners.”
“I needed the media ‘to reinforce, not to undermine, the cultural values and social attitudes being inculcated in our schools and universities. The mass media can create a mood in which people become keen to acquire the knowledge, skills and disciplines of advanced countries. Without these, we can never hope to raise the standards of living of our people… Freedom of the press, freedom of the news media, must be subordinated to the overriding needs of Singapore, and to the primacy of purpose of an elected government.'”
“A few years later, in 1977, we passed laws to prohibit any person or his or her nominee from holding more than 3 percent of the ordinary shares of a newspaper, and created a special category of shares called management shares. The minister had the authority to decide which shareholders would have management shares.”
“We decided in 1986 to enact a law to restrict the sale or distribution of foreign publications that had engaged in the domestic politics of Singapore.”
Freedom of the press is clearly not a cherished ideal in Singapore, in so far as PAP-controlled government is concerned. The law allows various forms of censorship used to control “foreign influence” of the press but there is no discussion of whether this was also used to control domestic press.
Chapter 15 Conductor of an Orchestra
LKY built a national airline, but insisted it make a profit. He engaged in enormous airport building projects without explanation for why they were necessary. He used the unions to pressure foreign politicians. LKY banned jury trials in Singapore, he appointed lawyers, many friends from his school days, to many important ministries related to commerce. He regulated the housing system and enforced desegregation quotas which he knew depressed the capitalization of the housing stock and went against the ethnic groups’ desires to segregate. Is this multi-cultural harmony, based on edict?
At one point, he brags that Uganda has more female hotel managers than any other country in Africa. “We have got four managers, and another two assistant managers.” This is a strange thing for the president of an entire country to worry about—but Amin seems to feel that he has to worry about it: Only if he controls everything, and only if he can keep the country in line, will Uganda prosper. Success, Amin seems to believe, is a matter of will and of heeding his good advice. People just need to work harder—women need to get up at “about 5 o’clock in the morning”—and love their leaders. If something’s wrong, then, it’s because a citizen has personally failed, not because the system is screwed up. Amin had no ideology. (“We are not following any policy at all,” he says at one point.) Like so many Third World tyrants, he was not a fascist or a Communist. His idea of the world was purely personalistic. He was an Amin-ist.
[similar to the # of car competition between LKY and indonesian leader; also, the rejection of ideology by LKY, following his own intuition]
Why did Mises write this book?
Mises was attempting a scientific analysis of the socialist program. Much of the early writings on socialism concerned themselves with ideological critiques of the existing capitalist order rather than a scientific exposition of what socialism would put in its place. Mises wanted to explain: what is socialism? how does it compare to capitalism? what claims does socialism make about society? are they true? what can we expect the world to look like under a socialist order? and, is socialism possible?
What the heck is Mises saying?
Some people find Mises’s writing confusing. He uses big words (“panegyrists”) and archaic references, often in foreign or dead languages. Mises possessed a Classical education like many educated Europeans of his time and saw himself as part of a grand Western intellectual tradition that had taken over two millennia to develop, scientifically examining social phenomena by responding to particular people, schools or ideas which were well-known and publicly debated in his day. He was a systems-builder who started with a foundation and then added to it block-by-block, the end result being an intellectual skyscraper.
What are the biggest ideas in “Socialism” (Chapters 1-4)?
“The word Capitalism expresses, for our age, the sum of all evil. Even the opponents of Socialism are dominated by socialist ideas.“
“To drink coffee I do not need to own a coffee plantation in Brazil, an ocean steamer, and a coffee roasting plant, though all these means of production must be used to bring a cup of coffee to my table. Sufficient that others own these means of production and employ them for me.“
“If the State takes the power of disposal from the owner piecemeal, by extending its influence over production… then the owner is left at last with nothing except the empty name of ownership, and property has passed into the hands of the State.“
What is “Liberalism”?
Mises’s Liberalism stood for a social order built on respect for private property rights and contractual negotiation of social conflicts, which was once an intellectual project of thinkers of all nations and ethnicities participating in “Western civilization”. Today, Liberalism lives on most strongly in the ideas of the American Libertarian movement, which was kick-started in large part by the publication of Mises’s “Human Action” in 1949. Since then, Socialists have co-opted the Liberal name, having rightfully seen it as valuable due to its old popularity and intellectual prestige.
What is Socialism?
The essential idea is “a policy which aims at placing the means of production in the hands of the State.” It is the antithesis of the private property order of Mises’s much-cherished Liberalism, and diametrically opposed to the “consumer sovereignty” of the marketplace. Socialism is Utopian by nature, promising to deliver a perfect economic, political and social environment where all inequalities and disputes are resolved forever and the end of history, in the sense of a constantly-evolving, ever better social order, arrives.
Do Liberalism and Socialism have conflicting ends?
No! And this is the most fascinating part of the analysis. Socialist propaganda strives endlessly to create contrast between the goals of Liberalism and the goals of Socialism. The goal of both is to raise the material standard of living of humanity as a whole. The only thing that differs is the means chosen to secure those ends. But it is that choice which ultimately makes all the difference.
The introduction of the book is Mises’s explanation for why he wrote the book— to ground economics in the science of praxeology and to refute the various anti-economic philosophies. It seeks to answer the simple question, “Why did Mises write this book?”
Economics is a young science. It introduced new knowledge about human society that did not fit into the existing disciplines of logic, mathematics, psychology, history or biology. It stood in opposition to earlier methodologies for explaining social phenomena, such as historicism, which focused on social aggregates and metaphysical supernaturalism. Other social philosophers focused on practically changing society through forms of social engineering, believing any kind of regularity to social relationships was non-existent and thus not worth considering in their schemes. The discovery of social regularities contained within economic study proved an intellectual revolution. But the revolution was limited in scope until a general theory of human choice (praxeology) could be developed.
Economic study suffered a serious early crisis during the “Methodenstreit” in which the epistemology of economics was argued between historicists (economic history), logical positivists (emulators of the natural sciences) and praxeologists (methodological individualists and deductive logic). These economic methodology debates quickly became radical in nature, leading to the first charges against rationalism in all of scientific debate which up to that point had accepted human logic as universal and immutable. Such criticisms bring into question ALL scientific findings, but they are really aimed only at economics specifically. Thus, Mises wants to ground economic theory in the general theory of human action to demonstrate it’s universality and defend it from polylogist and anti-rational criticisms.
Economics receives criticism as being an imperfect science. All science is imperfect, and is subject to change and improvement over time. One major school of criticism comes from naturalist scientists who blame economics for not adopting their own methodology— they suffer from a narrow focus and can not see the virtue in doing things any way but their own. The other major school of criticism is that economics hasn’t solved all social problems, so it must be barren. This perfectionist fallacy ignores the great progress economic theory in action has achieved so far, such as the “Industrial Revolution”, which was directly enabled by progress in economic thought applied to the political realm which freed the energies of entrepreneurs and creators. The modern era is characterized by ignorance and hatred toward economic science, it is also an era of social disintegration, wars and mass social calamities. The fate of civilization’s progress and the progress of economic science are directly intertwined.
Mises wrote this book to situate economic theory within a wider body of human choice, known as praxeology. He did this to defend it from its critics, but also to expand the breadth and knowledge of the science to gain new insights on social phenomena. In that sense, Mises’s book is both reactionary, and revolutionary.
Part One, HUMAN ACTION, I. Acting Man
Human action is the study of means used to obtain certain ends. It does not study the ends themselves nor does it administer judgments about personal values. Human action is purposeful action, it is not animal action, instinct or reflex. And it does not concern itself with the reasons for ends being chosen. Within the framework of human action, all actions taken are either effective, or ineffective, they can never be judged as irrational or rational. For man to act, he must be aware of causal relationships that he believes he can influence. Human action demands methodological dualism— human action is assumed as an ultimate given, it is beyond the scope of praxeology to investigate causes antecedent to it. Human action is a necessary category of the life of man, he can not avoid choosing in the act of living, life itself being a choice over death. What man strives for in acting is to relieve felt uneasiness— some call this happiness but it is not an objective category and can best be thought of as an improvement in his position as judged by himself, though happiness is a commonplace referent for the concept. Positivism demands an experimental, inductive, natural sciences approach to knowledge of human action yet it tacitly accepts the methodological dualism of praxeology in appealing to man’s rational mind to consider an alternative way of performing economic science.
Praxeology and history are the two main branches of the science of human action. History is a collection and systematic arrangement of data of human action experience in the past; it can not tell us anything that is valid for all human action and thus can not predict anything about the future, it can only tell what has taken place before. Complex phenomena with interlaced causal chains can not be used to validate an existing theory— the natural sciences require the ability to set constant all entities but one variable which is then tested. All human experience is filtered through human reason, which is a priori valid and universal to all individuals. It is the unique structure of the human mind and it is impossible to conceive of or interpret human experience other than through the logical structure of man’s mind. This gives rise to methodological apriorism, which means that it is impossible for man to conceive of a reality in which the fundamental logical relationships of his mind and his understand of causality do not hold. “Human knowledge is conditioned by the structure of the human mind.” Primitive man who is said to understand miracles is a man who has a difference of content of thought, not of the process of thought itself— the attribution of miracles to life phenomena was an early attempt at establishing causal relationships in the world around man. The concept of action implies belief that the means chosen are valid and that the end sought is valuable— it does not imply that the action is guided by a necessarily correct theory or appropriate technology for achieving the end sought. Action == reason, action is how man effects his reason in the world around him. All human experience must be filtered through pre-existing logical categories, for example, experience of money requires knowledge of the theory of medium of exchange to make sense of the data of money. “It is the meaning which acting individuals and all those who are touched by their action attribute to an action, that determines its character.” In this way, collective entities can have meaning for man’s actions even though methodological individualism holds, which implies that only individuals are capable of acting. “There is no social collective conceivable which is not operative in the actions of some individuals.” Methodological collectivism is revealed to be a false idol when considering the fact that there is a multiplicity of coexisting social units and mutual antagonisms— which social collective is “acting” in this case? Human action also follows methodological singularism, it is convened with concrete action of a definite person, at a definite date and a definite time, not action in general. Praxeology is causal-realist— what happens in acting? what does it mean to say that an individual did X, at Y place and Z time, and not A at B place and C time? What is the result of him choosing one thing and setting aside another? Human life is an unceasing sequence of individual actions, though these actions may be taken in the context of a larger project to which they belong. For example, “A cathedral is something other than a heap of stones joined together. But the only procedure for constructing a cathedral is to lay one stone upon another.” Historians must select which data are valuable to study by referencing a specific end or theory which they are using to make their choice. The historian seeks at “verstehen”, or understanding, he does not make up facts or interpret data as he likes but applies all his best knowledge of existing science in other branches to understand the “meaning” of the data he looks at— its implications and significance. However, this “understanding” is always limited by the current state of the underlying sciences he depends upon. Empirical data by itself is seen to be hollow when we acknowledge the recording of miracles and witchcraft by numerous human witnesses in past history— these events can not have logically occurred even if we have collected data of people verifying them in the past. Where the underlying science is unsettled, history may prove to be “open to interpretation” as to the significance of events recorded. There are no constant relations in the field of economics and so establishing things such as the “elasticity of demand” of a good are nothing more than historical facts, not future-predicting theories of human action. “Happiness” is not an inappropriate measure of human action due to technological limitations but because it is not objective and universal in its implications— it means different things to different people. Logic, mathematics and praxeology are universally valid for all humans capable of reason. “What counts for history is always the meaning of the men concerned.” All historical events are described and interpreted by means of ideal types, e.g., general, president, businessman, entrepreneur, doctor, tyrant. But ideal types belong only to history— human action concerns itself with real acting man as he is, which is the mistake made by the German Historical School or the American Institutional School, which built their theory around the “ideal type” of “homo economicus”. This was a make believe intellectual phantom with no connection to real, acting man. “Praxeological knowledge is within us” and is in this sense experience based, but it is something that belongs to everybody who is capable of human reason, and no amount of experience or description to an entity not capable of it could lead to their understanding. “The end of science is to know reality”, and we use our experience of daily life to decide what interests us and what we should explore, but not how we should explore it (theory building). Economic theory refers to practical problems simply because that is what man is concerned with understanding. Economics is necessarily politically contrarian because it serves to provide knowledge of the limitations of human action and thus the necessary restraints that exist for human legislators and warlords in their social engineering endeavors. Economics is holistic, special theories of economics must be encased in a greater framework which is itself consistent in order for special theory to be valid. Praxeology belongs only to man— superhuman entities capable of anything would not fit into a theory involving entities which have limited means of satisfying their ends.
III. Economics and the Revolt Against Reason
The classical economists destroyed all socialist theories and demonstrated their impracticality. Instead of admitting defeat because they could not construct a logical theory, the socialists turned to questioning the efficacy of human reason itself. They decided to substitute mystical intuition for universal logic (similar to divine right of kings for monarch). Marxian polylogism states that every social class has its own distinct logical structure within the mind. There is no biological support for this assertion and Marxists make no attempt to establish anything beyond this assertion. Marxian “ideology” is a doctrine which is incorrect from proletarian pure logic but which is beneficial to the class interests of the one who espouses it. Marxists provide no explanation for why minority policies which are deemed injurious to the wider social body nonetheless come to pass without the majority stopping them. “The fundamental logical relations and the categories of thought and action are the ultimate source of all human knowledge.” We can not even imagine a system that operates otherwise without referring to this logic in our inquiry, and we can not explain logic without using logic. This means logic is an ultimate given. Polylogism scan not explain why people of the same social class nonetheless arrive at different conclusions about the truth.
Economics concerns itself with the way thinking man turns things into means by way of action. It is concerned with the meaning men give to things through their action and not what third parties think about such action. Man’s ends can be thought of as existing on a scale of values, which are ordinal. It is a simple rank of things he’d like more over things he’d like less, the satisfaction of which serve to remove felt uneasiness. These scales don’t exist in any real sense and are simply a tool used to understand the concept of action, and they are revealed definitely only through concrete action. The values that things have are within the person of whom action is taken, they are not intrinsic to the things themselves. Economics concerns itself with what man DOES do, not what he should or ought to do, e.g., prices of “sinful” goods must be explained from the way men value them, not how an ethical system claims they should. Action can be thought of as an exchange, where a less satisfactory set of conditions is given up for a more satisfactory set of conditions. Costs are the value of the next best thing given up. Profits are the excess of gains over costs. Anytime costs exceed gains, loss is incurred.
Change and time are two aspects of the same phenomenon. Thinking takes time and is itself an action. Action is always aimed at altering the events of the future because the present moment is fleeting. The present is an ideal boundary line separating the past and the future. The past is designated as the place where opportunity to consume or do has passed. The future is designated as the place where the opportunity to do or consume has not yet taken place. The present is the place in which it is too early to do some things and too late to do others. The uncertain nature of the future means that we have a vague notion at any given moment of how much of our action we can consider “now” or present. Time must be economized like any other good due to the fundamental nature of reality. Actions are never synchronous, they always are in a relation to one another of being sooner or later. Man’s values and thus actions can change over time. There is a difference between logical consistency, and praxeological constancy. Irrationality does not apply.
“To acting man the future is hidden”, it is possible in a metaphysical sense that events are entirely deterministic but this is not the experience that man himself faces; he faces an experience of choice. In matters of uncertainty, acting man faces two kinds of probability, class probability and case probability. In class probability, the actor knows all qualities of the class itself, but knows nothing of the character of any specific event which might take place within that class. In case probability, he knows some of the factors guiding the outcome of a specific event but not all of them and the outcome itself is unique and not categorizable with other “class” events. The case is characterized by its uniqueness, not its similarities, to other identical events. Human action is based upon case probability, where no safety or stability can be purchased or achieved— all human action is inherently speculative with regards to the likelihood of a given action achieving the aimed at end. Case probability can not be quantified because it would require the summing of non-identical items. And game theory is an inappropriate means to study human action because human action in the division of labor aims at benefitting all participants, not just sum (i.e., zero sum game). Competition has been wrongly characterized as a form of combat when really competitors win their customers by achieving excellence and preeminence. All allusions to military terminology or characteristics is purely metaphorical. Because praxeology studies multi-causal events, its prediction is necessarily qualitative and reliant on “understanding” (verstehen), it can never be quantifiable or mathematical in nature and there can never be any certainty with regards to its outcome.
VII. Action Within The World
Utility is that which has causal relevance to removing felt uneasiness. Subjective use-value utility is different than objective (or technological) use-vale utility. Objective use-value may be obscured, incorrectly utilized or multiplicitous in comparison to subjective use-value. Acting man does not choose between total supplies of various goods serving as means— he chooses only between the relative, discrete amounts for his purposes against other ends he could pursue. And because he satisfies his most urgent wants before his less urgent wants, he values the means “at the margin”, meaning in consideration of the value of the least urgent want he’d have to give up. The law of diminishing marginal utility is implied in the category of action. It is futile to attempt to calculate composite values of total supply based off of knowledge of partial supplies— this is not how acting man utilizes discrete amounts of supply. Supply itself is characterized by a set of homogenous goods which could equally satisfy a given want. Technological recipes are not part of supply, once known they are inexhaustible and can be used as many times as is desired— however, the action leading to their discovery does involve scarcity and supply. The law of returns simply states that for any combination of real factors of production there is an optimum in relation to the productive end desired with regards to most efficiently utilizing scarce resources. It can only tell us that there is an optimum. It can not tell us how to arrive at it— this is something that must be achieved through experience (technological vs. teleological knowledge). The law of returns applies to all branches of production equally. The indivisibility of certain means of production is what gives rise to the fact that often large-scale production is more efficient and therefore optimum than small scale variants. Labor is the employment of human physiological capacities as a means of obtaining desired ends. Leisure is preferred to labor and labor itself suffers from the law of diminishing marginal utility. Additionally, not all labor is equal in quantity and quality within an individual or population. “Men do not economize labor in general, but the particular kinds of labor available.” The supply of labor available is conditioned upon genetics, social conditioning and innate human subjective preferences for labor vs. leisure. The potential supply of labor for each kind of work necessarily exceeds the demand in the long run because labor can be shifted and retrained to perform new tasks. Labor is always more scarce than the material factors of production (land, capital). The substitution of “labor saving” machinery for human labor does not render labor abundant so long as there are still more material productive factors available to combine with the freed up labor to pursue additional human well-being. Activities which provide immediate gratification are not labor nor work but consumption goods themselves, of the first order. Mises believes the creative genius is a special case which does not subscribe to the praxeological laws conditioning labor and is more equivalent to “manna from heaven” in that he toils under different conditions, for different reasons, and he can not be substituted, ordered/planned nor replaced. Production is not a creative act but one of rearrangement of already existent phenomena. Man is creative only in thinking, not rearranging the world according to his thoughts. Man’s capacity to work is a given much like the state of natural resources and animal substances. The material changes of man’s economy are due solely to the ideas he holds in his head about what is desirable. “Production is alteration of the given according to the designs of reason.”
by Daniel J. Siegel, MD, published 2010
Vertical integration, bottom to top
brainstem, regulates energy, fight-or-flight response, generates “drive” w/ limbic
limbic region, generates and evaluates emotion, forms relationships, “story-telling” experiences
cortex, 3D mapping and sensing of reality, conceptualizing, meta-thought
Horizontal integration (bilaterality)
Prefontal cortex functions:
The Tripod of Reflection:
Eight Domains of Integration:
Secure attachment to parents largely driven by the parents’ autobiographical narrative of their own upbringing
Adult & Child Attachment
Adult Narrative, Infant Strange Situation Behavior
Complete Family Wealth
by James E. Hughes, Jr., Susan E. Massenzio, Keith Whitaker
Chapter 1 – Complete Wealth
There are five forms of family wealth: human, intellectual, social and financial. A family can be rich in the first four without any of the fifth. Financial wealth is primarily useful for enhancing and developing the other four forms of wealth. The failure to acknowledge, measure and grow the four qualitative forms of wealth are the principal causes for the failure of family flourishing.
The Five Types of Capital
For a family to grow its five forms of capital over time, every family member must adopt an attitude of being responsible for contributing to the family capital’s growth in the ways they are able to do so.
Things Families Can Do To Grow Their Wealth
Many families create budgets for managing and growing their financial wealth, but few think to create such budgets for caring for their qualitative capital. Imagine forming such a budget. What would the relative amounts budgeted for in each category say about the relative importance of these forms of capital to the family?
The “Family Balance Sheet” exercise provides a short survey approach to quantifying the existence and growth of family qualitative capital over time.
Chapter 2 – Family Enterprise
Families that flourish over time define themselves as families of affinity. Their first principle is inclusion and they look for ways to be inclusive toward people who share their affinity.
7 Keys to Flourishing Over Multiple Generations
Keys for Flourishing Amid Wealth
Families are built on individual flourishing within a larger structure of shared identity, values and stories and a connection to the wider community.
When a family has an intention to grow all its forms of capital over multiple generations through coordinated effort it creates a family enterprise. The three main parts of any family enterprise are family (inclusion), owners (preservation) and managers (performance). Trouble arises when one of these parts takes priority over the others.
Common sources of conflict in family enterprises:
Ideally, for long-term success the family circle should be larger than the owners or managers circles in terms of the time and resources employed the care for it.
In addition to keeping the family circle strong, family enterprises need to pay attention to the ownership circle by finding ways for each owner to take responsibility for his position. Without this, they become passive on questions of strategy and defer to management. Active ownership is cultivated by understanding:
by Nathaniel Branden, published 1994
The possession of self-esteem over time represents an achievement
The power of conviction in oneself is a motivator that inspires behavior.
The level of our self-esteem influences how we act, and how we act influences the level of our self-esteem.
With high self-esteem, I am more likely to persist in the face of difficulties.
If I persevere, the likelihood is that I will succeed more often than I fail.
People often self-sabotage because the mind’s desire to avoid cognitive dissonance forces people to alter the “facts” of their reality (behavior) to their “knowledge” of what they think is true of themselves (beliefs).
The tragedy of many people’s lives is that, given a choice between being “right” and having an opportunity to be happy, they invariably choose being “right”. That is the one ultimate satisfaction they allow themselves.
It would be hard to name a more certain sign of poor self-esteem than the need to perceive some other group as inferior.
A person’s image of the future may be a better predictor of future attainment than his past performances.
Self-concept is destiny, or, more precisely, it tends to be.
We cannot understand a person’s behavior without understanding the self-concept behind it.
An unresolved problem at one level may subvert operations at another.
If one does not understand how the dynamics of self-esteem work internally — if one does not know by direct experience what lowers or raises one’s own self-esteem — one will not have that intimate understanding of the subject necessary to make an optimal contribution to others.
We must become what we wish to teach.
Self-esteem is a consequence, a product of internally generated practices.
Once we understand these practices, we have the power to choose them, to work on integrating them into our way of life. The power to do so is the power to raise the level of our self-esteem, from whatever point we may be starting and however difficult the project may be in the early stages.
Think in terms of small steps rather than big ones because big ones can intimidate (and paralyze), while small ones seem more attainable, and one small step leads to another.
Consciously, we rarely remember these choices. But deep in our psyche they are added up, and the sum is that experience we call “self-esteem.”
Consciousness that is not translated into appropriate action is a betrayal of consciousness; it is mind invalidating itself. Living consciously means more than seeing and knowing; it means acting on what one sees and knows.
I do not indulge in the fantasy that someone else can spare me the necessity of thought or make my decisions for me.
Being present means “doing what I am doing while I am doing it.”
Fear and pain should be treated as signals not to close our eyes but to open them wider, not to look away but to look more attentively.
The world belongs to those who persevere.
When body therapists work to release the breathing and open areas of tight muscular contraction, the person feels more and is more aware. Body work can liberate blocked consciousness.
If one’s goal is to operate at a high level of consciousness, a body armored against feeling is a serious impediment.
Self-esteem is something we experience, self-acceptance is something we do.
“I choose to value myself, to treat myself with respect, to stand up for my right to exist.”
Compassionate interest does not encourage undesired behavior but reduces the likelihood of it occurring.
The act of experiencing and accepting our emotions is implemented through 1.) focusing on the feeling or emotion 2.) breathing gently and deeply, allowing muscles to relax, allowing the feeling to be felt, and 3.) making real that this is my feeling (which we call owning it.)
In contrast, we deny and disown our emotions when we 1.) avoid awareness of their reality, 2.) constrict our breathing and tighten our muscles to cut off or numb feeling, and 3.) dissociate ourselves from our own experience (in which state we are often unable to recognize our feelings.)
“I am now exploring the world of fear or pain or envy or confusion (or whatever).”
Acceptance of what is, is the precondition of change. And denial of what is leaves me stuck in it.
I am responsible for the achievement of my desires.
I am responsible for my behavior with other people.
I am responsible for my personal happiness.
I am responsible for raising my self-esteem.
What am I willing to do to get what I want?
Taking responsibility for my happiness is empowering. It places my life back in my own hands.
I do not support the grandiose notion that “I am responsible for every aspect of my existence and everything that befalls me.” Some things we have control over; others we do not. If I hold myself responsible for matters beyond my control, I put my self-esteem in jeopardy.
Never ask a person to act against his or her self-interest as he or she understands it.
No one is coming to save me; no one is coming to make life right for me; no one is coming to solve my problems. If I don’t do something, nothing is going to get better.
Self-assertiveness asks that we not only oppose what we deplore but that we live and express our values.
One of the great self-delusions is to think of oneself as “a valuer” or “an idealist” while not pursuing one’s values in reality.
Fundamental efficacy cannot be generated in a vacuum; it must be created and expressed through some specific tasks successfully mastered. I cannot be efficacious in the abstract without being efficacious about anything in particular. The purposes that move us need to be specific if they are to be realized.
Purposes unrelated to a plan of action do not get realized. They exist only as frustrated yearnings. Daydreams do not produce the experience of efficacy.
The root of our self-esteem is not our achievements but those internally generated practices that, amongst other things, make it possible for us to achieve– all the self-esteem virtues that we are discussing here.
For self-esteem, consistent kindness by intention is a very different experience from kindness by impulse.
In the inner courtroom of my mind, mine is the only judgment that counts.
If integrity is a source of self-esteem, then it is also, and never more so than today, an expression of self-esteem.
As long as a man is in command, be he the worst of fools, there are people around him committed to the belief that he commands well.
Stupidity is no bar to enterprise; on the contrary, it tends to conceal difficulties which an intelligent man would consider insuperable.
It is terrifying to think how much research is needed to determine the truth of even the most unimportant fact.