Central
Planning = Spontaneous Economic Order?
A Socialist Paradigm Has Turned Scientific Research on it's
Head at the Santa Fe Institute By
Eric Englund
Before
I had ever heard of Ludwig von Mises, Friedrich A. Hayek,
Murray Rothbard, and, thus, the Austrian School of Economics,
I had enthusiastically followed the economics research undertaken
by the Santa Fe Institute (SFI). My interest in the institute
emerged after reading Dr. Stuart Kauffman’s fabulous
book At Home in the Universe: The Search for the Laws
of Self-Organization and Complexity (published in 1995).
Dr.
Kauffman is a member of the Santa Fe Institute, which is the
world’s leading research institute pertaining to the
science of complexity. A particular line in Dr. Kauffman’s
aforementioned book struck me as important: “It is our
quest to understand emergence of this ordered complexity all
around us, in the living forms we see, the ecosystems they
construct, the social systems that abound from insects to
primates, the wonder of economic systems that actually deliver
us our daily bread and astonished Adam Smith into the conceptualization
of his invisible hand.”
It
was this line, combined with the concept of self-organization,
which gave me hope that brilliant scientists would produce
research supporting the wonders of capitalism while demonstrating
the reasons as to why socialism/central planning has utterly
failed and has only lead to wide-scale poverty. After all,
socialism/central planning is a concept antithetical to spontaneous
self-organization. Unfortunately, the Santa Fe Institute’s
economics research program - particularly in the area of poverty
- has shown me that the socialistic paradigm, that is so common
in academia, is literally blinding their research efforts.
Instead
of promoting capitalism, which is inherently an unplanned,
self-organized, and a successful economic system, SFI’s
research regarding poverty has a Marxist class-struggle flavor
to it while promoting wealth redistribution - i.e. taxation
and redistribution, by a central governmental authority, with
the goal of alleviating poverty.
In
my opinion, logic has been completely suspended here. Thankfully,
a few years ago, a friend introduced me to Austrian Economics.
It is here that I have found my intellectual home. I learned
that economic calculation is impossible in a socialist commonwealth
and that capitalism provides the best chance for all individuals
to prosper. If the researchers at the Santa Fe Institute want
to learn how to alleviate poverty, then their most fruitful
research will come from using an Austrian perspective. This
will truly require a radical paradigm shift. Ironically, it
will be a shift back to accepting the truth that a robust
economy is self-organized and, thus, an unplanned phenomenon.
For
those who are not familiar with the science of complexity,
it is a relatively new science that is somewhat difficult
to define. At the heart of this science is the belief that
spontaneous order - or self-organization - emerges as a result
of physical laws, which clearly remain undiscovered. A broad
definition of self-organization is as follows (taken from
the book Swarm Intelligence: From Natural to Artificial Systems):
Self-organization
is a set of dynamical mechanisms whereby structures appear
at the global level of a system from interactions among its
lower-level components. The rules specifying the interactions
among the system’s constituent units are executed on
the basis of purely local information, without reference to
the global pattern, which is an emergent property of the system
rather than a property imposed upon the system by an external
ordering influence.
Using
this definition, I would strongly assert that central banks
such as the Federal Reserve are formed under the pretense
of providing an ordering influence to the market place, and
yet, are completely unnecessary for a free-market order to
emerge. The same can be said of a central taxing authority
bent on creating a more perfect society via wealth redistribution.
As I will discuss later, central banks and central taxing
authorities end up as destabilizing influences and, therefore,
cause disorder and poverty.
If
one was to reword the above-mentioned description of a self-organized
phenomenon into economic terms, then it couldn’t be
done any better than the following quote from Dr. Murray Rothbard’s
magnum opus Man, Economy, and State:
Directly,
voluntary action - free exchange - leads to the mutual benefit
of both parties to the exchange. Indirectly, as our investigations
have shown, the network of these free exchanges in society
- known as the ‘free market’ - creates a delicate
and even awe-inspiring mechanism of harmony, adjustment, and
precision in allocating productive resources, deciding upon
prices, and gently but swiftly guiding the economic system
toward the greatest possible satisfaction of the desires of
all the consumers. In short, not only does the free market
directly benefit all parties and leave them free and uncoerced;
it also creates a mighty and efficient instrument of social
order. Proudhon, indeed, wrote better than he knew when he
called ‘Liberty, the mother, not the daughter, of order’.
It
is quite possible that there are no physical laws of self-organization
responsible for the emergence of a free-market social order.
Certainly, Dr. Rothbard did not advocate such a concept (i.e.
that there are physical laws responsible for self-organization).
Nevertheless, the great Austrian economist and Nobel laureate
Friedrich A. Hayek did feel that research regarding spontaneous,
self-organizing processes was a worthy endeavor. For example,
Dr. Hayek stated the following in his book The Fatal Conceit:
The Errors of Socialism: “Adam Smith nevertheless remains
the butt of jokes even among economists, many of whom have
not yet discovered that the analysis of self-ordering processes
must be the chief task of any science of the market order.”
If
I have done anything here, I hope that I have demonstrated
an intellectual connection between Austrian economics and
the science of complexity. Therefore, it would seem that the
Santa Fe Institute’s economics researchers would be
most interested in studying the free-market order as advocated
by Dr. Kauffman (unless he really didn’t mean what he
stated in his book At Home in the Universe). As I
will show below, SFI’s scientists are defying logic
and are advocating socialistic prescriptions for alleviating
poverty.
So
let’s get to the Santa Fe Institute’s suspension
of logic. As I mentioned earlier, SFI is involved in researching
the socio-economic issue of poverty. It appears to me that
SFI’s researchers believe the solution to the problem
of poverty lies with socialism instead of capitalism - which
is an unplanned, self-organized economic system. As an example,
here’s what was stated in the Santa Fe Institute’s
“2000 Annual Research Report”:
SFI
is in the midst of hosting four interdisciplinary workshops
seeking to better understand the persistence of economic and
social inequality in both groups and individuals, its impact
on the ability of groups to cooperate in the pursuit of environmental
sustainability and other common objectives, and the capacity
of governments and other collective actors to alleviate poverty
and economic insecurity given the constraints of global economic
integration. The workshops address the following topics (I’ve
shortened the workshop-topic descriptions without preventing
you from getting the gist of each topic):
•
Poverty traps. For economic, cultural, technological and institutional
reasons, otherwise identical individuals often suffer or enjoy
divergent fortunes as a result of differing initial conditions;
as a result individuals, ethnic groups, nations and other
entities can remain locked in poverty.
•
The intergenerational transmission of economic inequality.
The impact of parental wealth and income on offsprings’
economic success is substantial…
•
Inequality and environmental sustainability.
•
Globalization and egalitarian redistribution. The freer movement
of capital, goods, people and information is thought to raise
the costs and compromise the effectiveness of some national
policies designed to raise incomes and economic opportunity
for the least well off.
Plain
and simple, these workshops will provide no contributions
to gaining a better understanding of poverty. The Santa Fe
Institute is simply seeking ways to help government redistribute
wealth, via taxation, in order to alleviate poverty. This
is not science, it is scientism. Nowhere have I found any
research from SFI pointing to governmental central planning
as a key cause of poverty. To me, this makes no sense considering
SFI performs research regarding self-ordering phenomena. Wouldn’t
it make sense to explore the idea of making a free-market
economy even more robust so that poverty could be alleviated
(i.e. looking at deregulation, eliminating the Federal Reserve,
reducing taxes, etc.)? A left-wing paradigm clearly can lead
to a suspension of logic, especially considering that Ludwig
von Mises has shown that economic calculation is impossible
in a socialist commonwealth (please refer to Dr. Mises’
excellent book Economic Calculation in the Socialist Commonwealth).
For
me to make the claim that the Santa Fe Institute is seeking
ways to help government redistribute wealth via taxation is
a strong statement, although it is self-evident from looking
at the above-mentioned socialist-flavored workshop topics.
All doubt will be removed once you read the following quote
from an interview with Sir Robert May, who sits on the Santa
Fe Institute’s Science Board. I found this information
on page six of the Summer 2001 edition of the SFI Bulletin.
This section of the article was ironically subtitled “Making
Coherent Contributions”:
He
also has ideas about applying complexity theory in the social
sciences, particularly…economics, a field he sees as
desperately in need of “transforming insights that respect
data.” And the advent of e-commerce provides a fruitful
new area to explore. One possible topic is taxation. “As
money becomes more and more virtual it is going to become
harder and harder to levy taxes,” he argues, “other
than from individuals that are located in particular places
in ways that much of commerce is not.” He suggests an
SFI program to explore the implementation of new tax regimes
to offset the inaccessibility of commerce, and the social
consequences that might follow from a shift of the tax burden
from corporations hiding out in cyberspace to individuals
who the government can still find.
In
other words, the Santa Fe Institute wants to help government
hunt you down and tax you wherever you may be in the world.
Of course, Sir Robert May is making the mistaken assumption
that government creates wealth when the opposite is true.
Government destroys wealth and perpetuates poverty.
As
any adherent of Austrian economics knows, inflation is a hidden
and redistributive tax. Moreover, it is a central bank that
causes inflation. When a central bank can create money out
of thin air, the power to depreciate the value of money is
frightening, and eventually socially devastating. Let’s
look at the United States’ Federal Reserve and its long-term
destruction of the dollar’s purchasing power. Since
the Federal Reserve’s founding in 1913, the dollar’s
purchasing power has depreciated by over 95% (go to the Inflation
Calculator, at the Bureau
of Labor Statistics, at www.bls.gov and you can confirm
this horrific destruction of the dollar’s purchasing
power).
If
having the government create money out of thin air leads to
prosperity, then Argentina and Brazil should have become the
world’s wealthiest countries by the end of the 1980s.
Instead, the ravages of inflation lead to greater poverty
and massive social unrest in both of these countries. It is
simply amazing that the Santa Fe Institute’s research
scientists haven’t figured this out yet. Families in
America are having more difficulty making ends meet because
the prices of goods and services are rising over time, directly
due to the dollar’s depreciation brought on by the Federal
Reserve itself. Using a little bit of logic here, doesn’t
it stand to reason that it will be more difficult to climb
out of poverty if the prices of goods and services are rising
continuously? The very government the Santa Fe Institute wants
to serve, is the same entity that helps perpetuate poverty
through the pernicious tax of inflation.
Naturally,
Austrians advocate a 100% gold standard. Through a socio-economic
selection process, gold and silver emerged as money. When
gold and silver are used as media of exchange, the tendency
is for the prices of goods and services to decline over time.
With this being the case, logic would also dictate that declining
prices, for goods and services, should alleviate poverty over
time as well. Once again, I have not seen any research from
the Santa Fe Institute regarding the positive role that a
gold standard would play in the battle against poverty. Keep
in mind that governments hate gold because it restricts government’s
ability to spend money on every pet project that comes down
the pike. A gold standard forces government to live within
its means just as American families must do.
A
favorite tax amongst those who view the world with a class-struggle
(i.e. Marxist) paradigm, is the estate tax. By taxing an estate,
government believes it is taking from the rich and giving
to the poor. Moreover, it is attempting to prevent “the
intergenerational transmission of economic inequality”
(to use SFI’s words). In reality, the death tax has
produced results that are exactly the opposite of its essential
goal (i.e. to redistribute wealth in order to help the less
fortunate climb the socio-economic ladder). Republican Congresswoman
Jennifer Dunn’s April 5, 2001 press release titled “House
Buries Death Tax” provides excellent insight as to how
the death tax tends to perpetuate poverty instead of alleviating
it. She stated the following:
This
onerous tax has a crippling grip on economic expansion and
doesn’t discriminate when it comes to victimizing Americans.
Victims of this tax can be found in minority communities,
where it takes an average of three generations to build an
economic foothold in the community – but this tax puts
a stranglehold on growth – causing minority-owned small
businesses to close shop after only a couple of generations.
Because of the death tax, women in particular are struggling
to pass their businesses on to their children. This was confirmed
by a recent survey of women business owners where 60% of the
respondents indicated the death tax will hurt expansion plans.
Sadly, that’s after women were given equal access to
business loans just 25 years ago.
It
is interesting to note who was in favor of scrapping the death
tax. Congresswoman Dunn received the support of over 100 organizations
including the following four:
