David Henderson on Seven Myths of Free Markets — transcript

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.

Hicks: I’m Stephen Hicks, here at the Center for Ethics and Entrepreneurship with Dr. David R. Henderson, an economist visiting from the Naval Postgraduate School in Monterey, California. david-henderson

Dr. Henderson is the author of many books and articles, notably The Joy of Freedom, a semi-biographical exploration of economic themes and his career. Also The Concise Encyclopedia of Economics, a widely-used textbook in economics available both online and in print. Dr. Henderson was here to speak on the seven myths of free markets. Actually, on seven myths of free markets, leaving open that there might be more.

You mentioned that economics has the moniker the dismal science, but people don’t often know the actual origin of that. What is the story there?

Henderson: Yes, and the origin is fascinating. The way most people or most economists who think of themselves as informed think is that it came from Thomas Robert Malthus because he was dismal. He thought, two-hundred years ago in his essay on population, that agricultural output could grow only arithmetically and that population would expand exponentially, and, therefore, we would have mass starvation. That turns out not to be the reason at all. The term was coined by Thomas Carlyle, a British anti-capitalist author in the early 19th century. And his objection to economics — you have to remember, economics was dominated by very free-market economists at the time, two-hundred years ago — as that those free-market economists who dominated economics strongly opposed slavery. So Carlyle is saying economics is dismal because economists oppose slavery.

Hicks: You then proceeded to the seven myths with respect to the free market — how people think and evaluate free markets. This is important because it leads to lots of policy issues. We can run through the seven. The first one ties into Carlyle’s anecdote that free markets, in some sense, promote racism. What do you think about that one?

Henderson: Yes, that’s the myth. And, in fact, free markets undercut racism. This is the typical case people think of when they think about markets and racism. Think of a white employer who is faced with the chance of hiring a black employee who is productive, but because this employer is racist, he says, ‘No’. Free markets make him bear a cost for that action because if he gives up the chance to hire a productive black employee he gives up the potentially profitable opportunity. It doesn’t mean he won’t do it, but it does mean that it will make him bear a cost, and, therefore, the employers who come to get bigger market share are the ones who are the least racist because they are making out best financially. And that, then, gives an incentive even to racist employers not to care as much.

Hicks: Okay, so the less racist employer will hire the black employee, get the productive worker, and then will have a competitive advantage against the less tolerant employer.

Henderson: Exactly. And, in fact, governments were the ones that promoted racism. And the example I mentioned in my talk was street car companies, which one-hundred years ago in the South, were required by law to segregate by race. They had been segregating, but they had segregated smokers from non-smokers. And they were required, instead, to segregate by race, and they fought those regulations tooth and nail until the government got harder and harder on them and they finally gave up.

Hicks: What you call the second myth is the standard slogan, “The rich get richer under free markets and the poor get poorer under free markets.”John_D._Rockefeller_1885

Henderson: Right, and it’s half-truth. The rich get richer, the poor get richer, and the in-between get richer. What I would point out is that, if you look at what Rockefeller, the richest man in the world one-hundred years ago, he had stuff that all but our very poorest people have. College students with very little money have cellphones, but he didn’t have that. He couldn’t fly very many places for most of his life. He couldn’t telephone people from most of his life. And then, even more important, if he got sick he couldn’t use penicillin or any other drugs because almost no other drugs existed. And that was key.

Hicks: So, the rich get richer and the poor get richer as well under free markets. Other standard criticism is the dynamic of free market capitalism is to lead to monopolies, and monopolies have various economic pathologies. What about that one?

Henderson: Yeah. Actually, free markets break down monopolies, and the reason is that when there is a monopoly, the monopoly is making money. Those high profits attract new entrants into the industry the way honey attracts ants. So monopolies under free markets tend to be temporary until some better competitors or better product comes along. And an example is the Blackberry, which now is being displaced by the iPhone. What’s interesting is that the Federal Trade Commission was suing Apple for a while on the grounds that they were dominating and whoever gets there first dominates. Well, that’s absurd, because the people who got there first were Blackberry.

Hicks: Okay, fair enough. Capitalism or free markets are bad for the environment. Another myth?

Henderson: Another myth because, in fact, what’s bad for the environment is socialism, because no one has an incentive to care for the environment under socialism. Property is not privately owned, so no one has an incentive to care for it. I have a chapter in my book, The Joy of Freedom, entitled “The Environment Owned and Saved,” and the idea is that if you own something you tend to take good care of it. Imagine we can do time travel and travel around the world: what we will find is that in 1990, before the former Soviet countries had a chance to develop out of socialism, you saw pollution. You saw lakes that were destroyed. The Soviet Navy had dropped nuclear waste in the ocean on purpose. If you go to Africa in this time travel, you find that the countries that have the strictest poaching laws are losing the most elephants. But the ones that have poaching laws and also allow the local villagers to share in the benefits from the tourism that elephants give rise to — those villagers have an incentive to then watch out for poachers, and those elephant populations are growing.

Hicks: The time travel argument is a kind of historical argument. If you look at the nations that are more socialistic, the environmental record is terrible. In the more free-market countries that have property rights, the environmental problems are either solved or less severe.

Henderson: Yes, solved or less severe is completely accurate.

Hicks: Okay. Free markets lead to war. Another standard one?

Henderson: Yeah, in fact, trade promotes peace because part of free markets is free trade across borders. And if two countries have a lot of trade, they have an incentive not to make war. It was interesting that when there was the big conflict between the United States and China in the first couple of months of the Bush administration, when the Chinese forced a U.S. Navy plane down and they were held prisoners for about a week to two weeks, the multinational corporations went to Bush and said, “However you resolve this, don’t do it by making war, because China is a great trading partner and we want to keep that going.” And it was resolved. In fact, these two economists found that the larger the interaction or the larger the amount of trade between two countries, the lower the probability of conflict is.Henderson-Joy-of-Freedom

Hicks: Interesting. Another myth you call the “Stinginess myth.” Capitalism and free markets are all about money, about getting money, hoarding money, being like Scrooge, and so, those nations are stingy compared to more benevolent modes of organizations.

Henderson: There are two reasons why that’s a myth. The first is that the more economic freedom we have over time, the wealthier we become. The wealthier we are, all other things equal, the more generous we are. The other part is that when governments come in and try to be generous with other people’s money — which, by the way, is really a contradiction — they crowd out private individuals’ actions in that area. One reason that Europeans aren’t nearly as generous as we are — and it isn’t mainly wealth because the wealth differences isn’t that huge — is that the government does so many things for people that it never occurs those people to do it for others. So when we have any kind of a natural disaster or whatever, there is this huge outpouring of help, in money, in goods, in food, clothing, time spent, and so on. The economists which looks their nose down at American audiences even admit that we’re the most generous nation in the world. We give on average one weekly paycheck a year to charity, 2% of our income. The average person who volunteers, and the majority of us do volunteer, spend at least four hours a week in voluntary activities. That’s unheard of in most of Europe.

Hicks: The seventh myth on your list has to do with employer/employee relations, with the dynamic being zero-sum. The employers have the upper hand and bargaining power, so free markets allow employers to dominate and not treat their employees properly.

Henderson: Right. That is a myth, and the reason is worker mobility. Within a certain community workers have choices of jobs, and even more important, they have a choice of moving to another community. Railroads, when they came along in the 19th century, made that much easier. And so, what really gives rise to worker power is mobility. Now, it is true that unions can bargain for a higher wage — and they were successful in doing so — but that doesn’t help workers in general. That gives higher wages to the employees who were lucky enough to keep their jobs, but at the higher wage, employers employ fewer people. Those people put out of work because of the unions’ high negotiated wage go elsewhere. They drive the wage down slightly elsewhere by being in that non-union sector. So the main effect unions have on workers is a wash, and it’s essentially a distribution of wealth from the non-union workers to the union-workers.

Hicks: Let me ask one question in conclusion. Why do you think these myths are so widespread, if indeed they are myths? You did present a lot of historical data, a certain amount of economic analysis that seems relatively straightforward. What’s the power that these myths have still?

Henderson: First of all, I think they are still taught in school. I think most schoolteachers don’t know they are myths. Second, there are now groups with strong incentives to push these myths because they want their particular, special deal. They want to have this restriction on capitalism, or they want that monopoly power. And so they push the idea that a free market is dog-eat-dog and all that kind of stuff. So, it’s a combination of bad education and incentives of people to propagate the myths.

Hicks: All right, thanks for being with us today.

Henderson: Thank you.

[The original video interview with Dr. Henderson follows.]

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German philosophy in pre-World-War-II Japan

German-Japanese-allianceIn Western nations, there is a clear connection between philosophy and totalitarian politics in the 20th century. Hegel’s philosophy, for example, took a “left” turn in Marx’s thinking — which Lenin, Trotsky, and Stalin drew upon — and it took a “right” turn in Treitschke’s and Nietzsche’s thinking — which Goebbels, Hitler, and the National Socialists drew upon, as did Gentile and Mussolini‘s fascism.

In the early 20th century, the other major authoritarian player in the world was Japan.

A few teasers about the intellectuals of Japan’s militaristic politics and mystical collectivism:

* Hozumi Yatsuka (1860–1912): “In August 1884 he went to Germany to study European institutional history and constitutional law.Hozumi_Yatsuka_1912 During his stay in Germany he studied at three universities: Heidelberg, Berlin and Strasbourg.”

* Kakehi Katsuhiko (1872-1961) was Yatsuka’s student and also studied at the University of Berlin, where he began to fuse Shinto with German political philosophy. “Kakehi was also heavily influenced by German organic state theories. He acquired his knowledge of German state theory not only from his teacher Hozumi Yatsuka, but also from German mentors with whom he came into personal contact during his independent study in Europe from 1898 to 1903.”

* Daisetsu Teitaro Suzuki (1870-1966) is famous in the West for his classic An Introduction to Zen Buddhism (1934). He was “a university-educated intellectual steeped in knowledge of Western philosophy and literature” and who lived and worked with the German scholar Dr. Paul Carus in Lasalle, Illinois for eleven years.Suzuki-DT Back in Japan, Suzuki he was a strong nationalist who argued that Japanese culture’s integration with Buddhism gave it its uniqueness. He also expressed positive opinions about sympathy for Nazism and anti-Semitism, including Hitler’s plan to expel the Jews from Germany.

And then there is this intriguing hearsay connection from philosopher William Barrett about Suzuki and Martin Heidegger:

“A German friend of Heidegger told me that one day when he visited Heidegger he found him reading one of Suzuki’s books [on Zen Buddhism]: ‘If I understand this man correctly,’ Heidegger remarked, ‘this is what I have been trying to say in all my writings.'”

For more, here are some good sources to begin with:

* Richard Koenigsberg’s short article, “Japanese Nationalism: Death in Battle = Fusion with the Emperor.”zen-war

* Brian Daizen Victoria, Zen at War (Rowman & Littlefield, 2006). Daizen Victoria is reviewed here by Lorenzo Warby and interviewed here by Kathy Arlyn Sokol.

* Walter Skya, Japan’s Holy War: The Ideology of Radical Shinto Ultranationalism (Duke University Press, 2009).

[All of which makes the alternative history The Man In The High Castle even more intriguing.]

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The State of the Art World, late 2015 edition

Over ten years ago, some of us were complaining that the postmodern art world had become repetitive — and worse, boring — as it was merely recycling the same old tropes about nothingness and waste products.

Two images making the social-media rounds this week:

Nothing in Paris:

Rectal explorations in São Paulo:
Rectal investigations

So I repeat: “Artists and the art world should be at the edge. The art world is now marginalized, in-bred, and conservative. It is being left behind, and for any self-respecting artist there should be nothing more demeaning than being left behind.”


Why Art Became Ugly.

Taking Modern Artists at Their Word.

The Most Important Artist of the Century.

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Corporate funding and academic freedom

Clemson University professor C. Bradley Thompson has a good article answering the question “Do Corporate Donors Threaten Academic Freedom?”

It prompts me to post here my remarks from 2008, then published as “The Ethics of Outside Funding” [pdf]. The text follows:


Stephen R. C. Hicks
Center for Ethics and Entrepreneurship & Department of Philosophy
Rockford College, 5050 East State Street, Rockford, IL 61108

[Published in Proceedings of the International Association for Business and Society, 2008. Based on a talk given at the IABS Conference, Tampere, Finland, 2008.]

My brief remarks are organized under three headings: academic freedom, academic integrity, and the status of Ayn Rand as an intellectual.


Consider the following four scenarios:

* You are chair of your college’s theatre department. A regional theatre group offers $200,000 to fund at your college a year-long series of performances of plays by the German playwright Bertolt Brecht.
* You are director of college art gallery. A local art patron offers your college $30,000 to put on a showing of the works of pop artist Andy Warhol.
* You are a research professor of biology. A pharmaceutical company is investigating therapeutic potential of stem cells and offers $2.5 million to fund a research project if you are willing to work on stem cells.
* You are a professor of Eastern European languages. I am a student at your college and I come to you and offer you $100 per hour if you will tutor me in reading Turgenev’s Fathers and Sons in the original Russian.

In these four cases, do you have before you four opportunities, which you may or may not choose to pursue? Or are you faced with four threats to your academic freedom? And does anything change if the proposed funding is for academic projects in philosophy, religion, politics, or economics?

The questions matter because we academics have fought for many centuries to win the degree of academic freedom that we enjoy today in higher education. Defending that academic freedom is an ongoing challenge, sometimes a battle, on many fronts.

One challenge involves money. Higher education is an expensive enterprise, so we seek funding, lots of it. We can ask our students to pay tuition, we can ask governments to divert tax dollars to us, or we can ask for donations from alumni, private foundations, and businesses. Sometimes we academics initiate the ask, and sometimes the offer is initiated by students, governments, or private parties. In each case there is an opportunity, and in each case there is possible pressure: all sources of funding have a quid pro quo.

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William Kline on entrepreneurship and liberty

Dr. William Kline is professor of philosophy and business at the University of Illinois, Springfield. In this 14-minute video lecture on “Entrepreneurship and Liberty” Professor Kline discusses the relationship between liberty and entrepreneurship. He explains how laws, culture, and economic regulation can infringe upon the freedom of entrepreneurs and inhibit their abilities to innovate. He stresses the importance of economic liberty in particular to providing the proper environment for entrepreneurship to flourish.

Professor Kline’s lecture is part of the ongoing Entrepreneurship and Values series, recorded and produced by the Center for Ethics and Entrepreneurship. Other lecturers in the seven-part series include Alexei Marcoux, John Chisholm, Stephen Hicks, Terry Noel, and Robert Salvino.

Related: My interview with Bill Kline on the Philosophy of Business.

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David Hume’s paternity suit?

As far as we know, Hume never fathered a child — but imagine how the arguments would go at a paternity lawsuit.


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How to Tame Religious Terrorists [new The Good Life column]

The opening of my latest column at EveryJoe:

“Defeating an enemy such as politicized Islam is a multi-front battle — police, military, diplomatic, cultural and philosophical.

“Any fight is triggered by short-term, local disagreements. But long-term, generalized conflicts are always about abstract principles in collision. As with neo-Nazis, Communist revolutionaries, violent environmentalists, bomb-the-government anarchists and others — our conflicts with them are intellectual in origin.

Terrorism is first a mindset — committing to a cause that includes a willingness to kill anonymous others indiscriminately …” [Read more here.]


Previous column in The Good Life series: Free Trade Makes You a Better Person.

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St. Thomas Aquinas on whether sinners should be killed or heretics tolerated

[In the excerpts below from Summa Theologica (written 1265-1274), St. Thomas Aquinas takes up two questions: Whether it is lawful to kill sinners? and Whether heretics ought to be tolerated? A PDF version of this text is here.]

Whether it is lawful to kill sinners?

[II II Q. 64 A.2]

Aquinas-two-booksObjection 1. It would seem unlawful to kill men who have sinned. For our Lord in the parable (Mt. 13) forbade the uprooting of the cockle which denotes wicked men according to a gloss. Now whatever is forbidden by God is a sin. Therefore it is a sin to kill a sinner.

Objection 2. Further, human justice is conformed to Divine justice. Now according to Divine justice sinners are kept back for repentance, according to Ezech. 33:11, “I desire not the death of the wicked, but that the wicked turn from his way and live.” Therefore it seems altogether unjust to kill sinners.

Objection 3. Further, it is not lawful, for any good end whatever, to do that which is evil in itself, according to Augustine (Contra Mendac. vii) and the Philosopher (Ethic. ii, 6). Now to kill a man is evil in itself, since we are bound to have charity towards all men, and “we wish our friends to live and to exist,” according to Ethic. ix, 4. Therefore it is nowise lawful to kill a man who has sinned.

On the contrary, It is written (Ex. 22:18): “Wizards thou shalt not suffer to live”; and (Ps. 100:8): “In the morning I put to death all the wicked of the land.”

I answer that, As stated above (1), it is lawful to kill dumb animals, in so far as they are naturally directed to man’s use, as the imperfect is directed to the perfect. Now every part is directed to the whole, as imperfect to perfect, wherefore every part is naturally for the sake of the whole. For this reason we observe that if the health of the whole body demands the excision of a member, through its being decayed or infectious to the other members, it will be both praiseworthy and advantageous to have it cut away. Now every individual person is compared to the whole community, as part to whole. Therefore if a man be dangerous and infectious to the community, on account of some sin, it is praiseworthy and advantageous that he be killed in order to safeguard the common good, since “a little leaven corrupteth the whole lump” (1 Cor. 5:6).

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