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REVIEW: ECONOMIC POLICY

Thoughts For Today And Tomorrow

Ludwig von Mises

Table of Contents
Introduction ............................................... 2 1st Lecture: Capitalism .............................. 3 2nd Lecture: Socialism ............................... 3 3rd Lecture: Interventionism ...................... 4 4th Lecture: Inflation .................................. 5 5th Lecture: Foreign policies...................... 6 6th Lecture: Politics and ideas ................... 7 Conclusion ................................................ 7

Introduction
Government should protect and defend against foreign aggression the lives and the property of those under its jurisdiction, settle disputes that arise and leave the people otherwise free to pursue their various goals and ends in life. Ideally the government should be a caretaker of the conditions which allow individuals to pursue their goal. If the government does only that and no more, people will be able to provide for themselves much better than the government could possibly do. This in essence is the message that Professor Ludwig Von Mises sends to us through this book. Professor Mises(1881-1973) was one of the 20th centurys foremost economist. He was the author of many books ,such as: Human Action, Socialism, Theory and History and others. He describes and analyses what impact economic policies have on our well-being. What good decisions and mostly what bad decisions have been taken ,that affected all of us deeply. Using homespun examples he illustrates theory, so that everyone can understand. This book was published after the authors death, in June 1979 by Margit Von Mises, the wife of the author, who decided to bring together and publish the transcripts of his lectures .Therefore this book contains 6 Lectures about: Capitalism, Socialism, Interventionism, Inflation, Foreign Investment and Politics and Ideas.

1st Lecture: Capitalism

The first Lecture begins with emphasizing the change in peoples status nowadays, as opposed to feudal societys. Then people were born with a social status and could not change it. The outcasts, the poor ones, were doomed to misery. But in their attempt to change something, they organized themselves and set up small shops and started to produce cheaper products for the lower classes, for the masses. That was the beginning of modern capitalism .Big business for big masses became characteristic for capitalist countries. Freedom of competition meant that everyone had the right to produce better products and sell them cheaper. That transformed the world and made possible an unprecedented increase in population and in the standard of life. In spite of all the benefits, capitalism had been furiously attacked and criticized by the gentry who were now faced with paying higher wages to population, so that they would not leave the county side and go to the industrialized cities where they earned more. With the help of the government, who started subsidizing these wages, everyone was better off. Now, in the capitalism system you can change your status. The difference between the poor ones and the rich are not that big, as everyone has food, clothes to get dresses, a house and a car. People afford to have more things, because they set their own wages. If everyone buys more, more is produced, more people have a job and the wages start increasing, so then they can start saving money .And that is actually from where the name of this system has its origins, Karl Marx was convinced that if people had extra money they would save and further invest those money. Extra capital leaded to higher life conditions in capitalist countries, as well as an increase in the number of population. Applying capitalist principles made a difference between USA and Third World Countries and also made possible the miraculous recovery of Germany after World War II.

2nd Lecture: Socialism

Market economy is described as a process, the way in which the buyers and sellers ,by consuming and producing, contribute to the total workings of society. That means that people living in a market economy society serve fellow citizens and are also being served by them in return. The real bosses in this system are the consumers. Economic freedom give people the chance to choose what they want to do and what they want to buy . But in a system where there is no market and the government directs everything ,freedom is only illusory. Socialism is such a system. Those in favor of socialism think that consumers
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sometimes take foolish decisions ,and that government should be a paternal authority ,who will decide what is good and what is bad. They completely oppose the theory of harmony of interests. The synonymous with socialism is planning. The government makes a plan that is ought to be respected by anyone .Soviet Russia was the home of socialism. In Russia socialists controlled everything: prices, peoples freedom, production of goods and showed reluctance towards innovation. So in this system is not the seller, but the buyer that has to be grateful for the things he is able to buy.

3rd Lecture: Interventionism

In a mixed economy both the state and the individuals have the right to operate enterprises. While an individuals business cannot survive if it has a deficit, the government can run at deficit because it has the power to tax people. If people are able to pay these taxes ,state enterprises can run at deficit. Government ought to protect the individuals within the country against the violent and fraudulent attack of foreign enemies. But sometimes government wants to do more ,and if it does interfere in the market prices (prices of commodities, wages, profits, interest rates),we are facing what is called Interventionism. All the measures of interventionism by the government are intended to restrict the supremacy of consumers. Governments usually resort to price control when they have inflated the money supply and people have begun to complain about the rise in prices. This happened in the era of Emperor Diocletian and also 1500 years later during the French revolution. In the first case they tried fixing the problem by debasing the currency, which had no result, and then the Empire started disintegrate. The French did not need to resort to the debasing the currency , as they had the printing press, but their method also failed as prices were increasingly higher and people could not afford them. If government, in an attempt to help population, establishes a maximum price what it actually does is limiting the quantity that is provided to population ,because some producers cannot supply anymore. There appears a shortage and instead of helping the population, the government actually harms them ,because now the goods will be bought only by those who have more money or are acquaintances of the sellers .As an example we could consider the rent control and the price of milk presented in detail in the book. When government realizes that their plan does not work ,obliges the suppliers of second order goods to decrease the prices, and so on. When they come to the point where all prices are controlled we are talking about Socialism .This has happened to Germany (Hindenburg Plan) in the First World War. For Hitler there was no such thing as private initiative or private enterprise.The hole economic system was regulated in every detail by the government. England was about to take the same path ,but then USA entered the war and started supplying them with goods.

The idea of interventionism as a solution to economic problems leads, in every country ,to conditions which, at the last, are very unsatisfactory and often quite chaotic. If government does not stop on time ,it will bring on Socialism.

4th Lecture: Inflation

Inflation is this process of devaluation of currency as a result of the increase in the quantity of money on the market. Purchasing power of a monetary unit begins to drop and the prices begin to rise. If the government is in need of money ,they should input new taxes, but because taxes are so unpopular, they sometimes just print money. Even if the purpose of that money is well intended( like as hospital) of not, the result is the same. Even if the government decides to increase the quantity of money ,some people will be beneficial from inflation .The quantity of money being greater the prices tend to go up, but the first ones who get to have more money are in advantage, as the rest are in disadvantage ,coping with the rise in prices. The technical methods employed to achieve inflation are so complicated that average citizens do not realize when inflation has begun. The most important fact about inflation is that ,sooner or later ,it must come to an end. In long run ,inflation comes to an end with the breakdown of the currency ,resulting a catastrophic situation, like it had happened in Germany in 1923.On August the 1st ,1914 the value of a dollar was four marks and twenty pfennigs .Nine years and three months later, in November the 20th1923,the dollar was pegged at 4.2 trillion marks. That meant the mark was almost valueless. At some point the mark had been loosing its purchase power by 50% a day, so people hurried to buy at any price. The system finally collapsed and a new currency was established. That would not have happened if the gold standard would have been implied, because the gold standard is independent of the political parties and government policies. But when Great Britain had returned to the gold standard before war, it actually out-priced itself on the world market .Wages grew up too much and business man could no longer keep up, so the only solution was to devaluate the currency .This measure was later adopted by Netherlands, Czechoslovakia, France and Belgium. Full employments existence is also linked to the existence of inflation. People tend to settle for lower salaries so that they do not remain unemployed . A question remains: it is better to have unemployment without inflation, or full employment with inflation? The people who resort to inflation , do this because they consider it less evil than unemployment. But we should be aware that this is not a long run strategy ,and that inflation does not cure unemployment.

5th Lecture: Foreign policies

Today people find the differences of standard of living between countries unsatisfactory. The standard of living is lower in some countries, the so-called developing countries, because the average earnings for the same type of job is lower than in USA, Western Europe ,Japan or Canada. The reasons for this is not the inferiority of the workers, nor the inferiority of the employees, but the difference in the quantity of capital goods available. As the wages are determined by the marginal productivity of labor, more efficient tools and increased technologies, make some people earn more. Foreign investment is what brought most countries at the level they are now. Great Britain was the first to redirect its capital towards foreign investments. They helped building most of the European railroads. Also British gas companies brought light to the homes and streets of Europeans .Even USA had received British aid to develop, but as soon as they were on their feet they started buying back the capital stocks they had sold to foreigners . After the Second World War Americans were to ones redirecting their capital, they started subsidizing Europe: by loans, Marshal Plan, investments, foreign aid. So we have to highlight the fact that foreign capital investment played a considerable part in the development of modern industries. Foreign investment is made in the expectation that it will not be expropriated, as happened to French in Russia: after they have paid for the building of railroads ,communists came and declare they will not pay anything. And the same happened in the case of India, both direct and indirect expropriation has been attempted by Indians .Such hostility towards foreign investments seriously reduces capital investments and the chances to improve the industrialization of a country, and therefore the nations standard of life.

6th Lecture: Politics and ideas

Radical change in economic and political ideas are responsible for the decay of freedom, of constitutional government and representatives. Political events are the inevitable consequence of change in economic policies. First goal of political parties, formed of people who shared similar ideas, was the welfare of their nation, but also the welfare of other nations. Unfortunately ,real political parties were replaced by pressure groups .A pressure group is formed of people who want to attain for themselves a privilege at the expense of the whole nation. That means they are privileged to have rights that other groups do not. Each pressure group forms a minority ,and success only comes as result of coalitions with other minorities, with the main goal of forming a majority .Such pressure groups have a great power, they can even influence foreign policies of a nation. Political changes of this kind are said to weaken a nations power to resist to aspirations of dictators and operations of tyrants. These pressure groups may want privileges for their representatives, but they do not want to burden them with a too heavy tax load. Pressure groups show us why government cannot stop inflation , as inflation is a consequence of high expenditure of government within a certain district ,according to pressure groups interests. However, dictatorship is certainly not a solution for economic problems nor the problems of freedom. People say that finally every civilization must fall into ruin and disintegrate. That is not actually precise as civilizations are not independent, but interdependent, they constantly influence each other. However, inflation and interventionism have the power to destroy a nation, this happened to the Roman Empire and might also happen to us.

Conclusion
In conclusion, I feel like I have learned a lot from reading this book. The nice structure of the book as well as the multitude of examples made it very easy and pleasantly to read. I now understand why government should not print too much money, why they should not try to control the level of prices and also why they should welcome any foreign investment with open arms. But most important, I learned that : ultimately, no matter if we like it or not , our future rests on the good judgment and the on good intents of those who lead us.