Howdy, gang! I’m glad to have our discussion about Marxism and socialism in the rearview mirror because it always seems like a downer when I have to think too much about the tenants of intellectually dishonest philosophies. Yeah, it’s a shame that we’re leaning towards incorporating more and more of the Karl Marx school of thought, but for now we still have a somewhat firm grasp on semi-capitalism.

Marx will always be someone our children will learn about from the history books, but there are other people who made names for themselves regarding economic theory from the 19th and early 20th Centuries. A movement took place in Vienna, Austria, just prior to World War I and included people like Carl Menger and Eugen von Bohm-Bawerk. These two men have become known as “marginalists,” but the most famous Austrian marginalists ended up being Ludwig von Mises and Friedrich von Hayek.

Between the years embroiled by World War I and World War II (and even through the immediate years following WWII), Mises and Hayek argued that socialism either ruled out rational calculation altogether or that it could only be an inferior system to capitalism because it was far less efficient. The main thesis of their philosophical argument focused on the idea that only individuals have the ability to determine their own costs and benefits because they are entirely subjective. Everyone has different costs and benefits! That is to say that all of us are incentivized by different things and we’re willing to do different tasks to earn those incentives.

The most efficient way of organizing economic activity is to allow the market to spontaneously coordinate between the preferences of the various types of consumers in society. Prices then perform the most important role in an economy because they reflect all the various and differentiating information in the economy! The catch is that this type of economic theory can only be attained by virtue of a “laissez faire” approach. Nothing scares a central planner or advocate of socialism more than allowing individuals the right to determine their future, which is why socialists are always developing schemes to intervene into the lives of the various groups they’ve created. In fact, it is in the best interest of a centrally planned economy to convince the citizenry that they belong to a very specific group of people.

To this end, our modern-day politicians have done an exceptionally good job. It’s depressing, but they have certainly succeeded in making us feel quantified and collated into feeling backed into belonging to a rather specific group based on race, gender, age, religion, and other factors. This form of tribalism is, in my humble opinion, systematically destroying our country and ripping us in half! The “laissez faire” approach is in direct conflict with the ideals of most progressive political goals, but it’s exactly what is necessary for the existence of a thriving capitalistic society that values the individual above all else.

In socialism, the state intervenes to set prices, but because it cannot possibly possess all the information regarding costs and preferences available in society, it will inevitably make a mess when it’s all said and done. History verifies this premise as explained by Mises and Hayek. Have you noticed what’s going on in Venezuela lately?

The ideas of the “Austrians” remained in the margin of economics until the early 1980’s, when they found an echo in some policies of Ronald Reagan and Margaret Thatcher (Great Britain). The “Austrians” are the strongest opponents of government intervention and are considered the fathers of “right-wing libertarianism,” but their insistence on the superiority of absolute laissez-faire seems to be a bit too far-fetched. It seems too much like anarchy to argue that a society will only function properly if no collective decisions are made. I would argue that in regards to government dealings it is absolutely okay to stray from the philosophy of laissez-faire, but in regards to the economy it is ideal to stay as close to the basic ideals of laissez-faire. It is possible to separate the two: government and economy. In fact, one could argue that the function of government should definitely be separate from the function of the economy! Our own constitution argues that there is really only two things that our government needs to focus on: protecting the citizenry and protecting the constitution. We sure have strayed from that mandate! BIG TIME!

Today, you can count on the financial markets ALWAYS being regulated in some manner. That’s not entirely a bad thing. We do need protection from those who would cheat the system and create an advantage that none of us could compete with. The exchanges need to be kept safe, for sure. Pure laissez-faire is not ideal for every aspect of society, but you’ve got to wonder how much better off we would be if we were closer to the philosophies of Hayek instead of the philosophies of Marx!

To borrow a quote from F.A. Hayek: “The economic problem of society…to put it briefly, is a problem of the utilization of knowledge not given to anyone in its totality.” His (Hayek) words are a beauty to read and I highly recommend his most famous book, “The Road to Serfdom” if you are at all intrigued or interested in learning more about his ideals. Hayek went through and endured quite a bit during his life and his writings are reflective of what he personally witnessed. His book is quite possibly one of the greatest books on economics that I have personally ever read.

Be good. Do good. Know good.

Kleiny (follow me on Twitter: @KnowGoodThings)