When Rationality Breaks Down, So Does the Economy

Μadmen appear to be plentiful and enjoy great prestige on every side

By JR Nyquist

Rational Choice Theory tells us that people want good things, and they want them at the lowest price possible. Therefore, economic man is a rational actor. He measures costs against benefits. Of course, men are also irrational actors and capable of willfully misunderstanding their economic interests. And today, like no other time, irrationality is becoming a power in and of itself, dictating to the economy, subverting the very grounds of rational choice by taking choice away from the individual and giving it to government bureaucrats.

Many years ago the Austrian economist, Ludwig von Mises, pointed out that nations were more or less prosperous depending on the degree to which they “put obstacles in the way of the spirit of free enterprise and private initiative.” We look around today, in both Europe and America, and find that the great economic crisis of our time has not been met with sane solutions drawn from careful study, but by an anti-capitalist prejudice that holds grimly onto ideas and methods that have long since been discredited.

In 1956 Mises wrote, 

“The people of the United States are more prosperous than the inhabitants of all other countries because their government embarked later than the governments in other parts of the world upon the policy of obstructing business. Nonetheless many people, and especially intellectuals, passionately loathe capitalism.” 

And now we are living more than half a century later, bearing witness to the triumph of that loathing. America is no longer the prosperous country it once was. Businesses are being obstructed in ways that would have been unimaginable in the 1950s. (See the Free Market America [1] video on The Big Green’s True Colors [2], or peruse the EPA’s blog on Cap and Trade [3], or read regultions.gov [4] from the perspective of a farmer, rancher or fisherman.)

Whatever happened at the end of the Cold War, it was not the defeat of socialism; for a new anti-capitalist formation predicated on environmentalism was already taking shape. Even as the hammer and sickle came down over the Kremlin, the spotted owl was becoming the battle cry of those who were seeking to smash capitalism and market freedom in the Great Northwest. Consider, for example, the evidence presented in Discover the Networks [5], which begins with the statement: “Radical environmentalist and the activist groups with which they are affiliated typically view free-market capitalism as an economic system that is inherently destructive of the natural world.” It therefore goes without saying that the environmentally preferred solution is socialist. (This is ironic, since the socialist countries have always been the greatest polluters of the environment – please see Thomas J. Dilorenzo’s “Why Socialism Causes Pollution.” [6])

It cannot be an accident that Earth Day was first celebrated on the 100th anniversary of Vladimir Lenin’s birth. For the sake of those who have not read much history, it is worth pointing out that Lenin was the founder of the Union of the Soviet Socialist Republics (USSR). The goal of Lenin was to liquidate capitalism. But today it is difficult to advance this liquidation directly, without making use of endangered species and other related issues. Therefore, socialism now uses environmentalism to overthrow capitalism. According to Mises, the socialists believe “it is a foregone conclusion that capitalism is the worst of all evils and socialism the incarnation of everything that is good.” (It is useful, in this context, to read Ed Dolan’s April 2011 piece, “Why Do Environmentalists Hate Capitalism?” [7])

In practical terms, socialism signifies government intervention in the economy, and typically signifies financial decline. There are many technical reasons for the failures of socialism, and these are covered in Mises’s book, Socialism: An Economic and Sociological Analysis [8]. Therein he wrote the following passage:

 “[That] since socialist society is not a [practical] possibility every step towards it must harm society.” 

Mises calls socialism a “destructionist policy” which rejects the private ownership of the means of production and market freedom. He laments the fact that the masses do not believe in capitalism or freedom. Mises implies that only an intelligent minority is capable of sustaining capitalism politically. According to Mises, 

“Liberalism and Capitalism address themselves to the cool, well-balanced mind. They proceed by strict logic, eliminating any appeal to the emotions. Socialism, on the contrary, works on the emotions, tries to violate logical considerations by rousing a sense of personal interest and to stifle the voice of reason by awakening primitive instincts.”

Those who seek liberation through the overthrow of capitalism are, in fact, revolting against freedom and prosperity. William Graham Sumner wisely noted, more than 100 years ago, 

“Modern civilization is built upon machines and natural agents, brought into play … through capital. Herein lies the true emancipation of men and the true abolition of slavery. Then come these two questions: 

(1) can we keep the advantages and comforts of a high civilization, based on capital, while attacking the social institutions by which the creation of capital is secured? 

(2) are we prepared to give up the comforts of civilization rather than continue to pay the price for them?”

Sanity and reason dictate that nearly everyone prefers the “comforts of high civilization” to barbarism. Therefore, only a madman would actively undermine the free market. And yet, such madmen appear to be plentiful and enjoy great prestige on every side. The irrational power of majority belief completely undermines the rational power of a thinking minority. Thus, we see civilization crumbling around us, and the trends are unmistakable.Irrationality is becoming a power in and of itself, dictating to the economy, subverting the very grounds of rational choice by taking choice away from the individual and giving it to government bureaucrats.

We are gradually, but surely, approaching a crisis. Rationality is breaking down. Unless the trend is reversed, the economy must also break down.