BALTIMORE – On Friday, bitcoin took a dive.
From an all-time high of $17,899… it tumbled to $14,336 – a 20% fall.
What a wild ride!
Our theme from last week includes a warning… a not-so-subtle memento mori for the financial world: Put on your seat belt!
But today, we dig deeper to answer a question almost no one asks: Why are most modern economists such nincompoops? The quick answer: because it pays.
Positive Knowledge
We blame Claude Henri de Rouvroy, comte de Saint-Simon… along with many others.
In 1760, Saint-Simon was born into an aristocratic family in France. He had a talent for broad, moronic ideas.
But he was remarkably untalented at suicide. Disappointed by the lack of success of his writing, he shot himself in the head six times… and lived!
Yet, with French philosopher Auguste Comte, Saint-Simon developed an idea that, like a malevolent weed, flourished: positivism.
That was the late 18th century. By then, it was obvious that “positive knowledge” about the natural world could help us live better. The Industrial Age was just beginning. Progress was undeniable.
So why not apply the “positive knowledge” idea to personal relationships, business, government, and culture? Wouldn’t that make things better, too?
But the relationships between people are not as simple as the relationship between a nail and a hammer. You can beat on people, too. But it’s hard to drive them straight where you want them to go.
And in the 250 years that have elapsed since – in which the propositions put forward by positivists were exhaustively rehearsed by governments, activists, and world improvers – no persuasive evidence of any real improvement has emerged.
Disastrous Failures
Society evolves as people develop new ideas, products, inventions, and ways of working – mostly voluntarily – with one another. One buys his bread from the corner shop because he likes the salesgirl’s pretty red hair. Another orders his cement from across town because they give him more time to pay. A third fancies a new watch powered by his own body heat.
Then, along come the feds. Imposing their own rules and policies, preventing the free give and take of a free economy, setting prices, requiring licenses, blocking competition… all in the name of making the world a better place, of course.
In their most ambitious forms, they launch sweeping programs to reorder social and economic relationships according to the fads and fashions of the time. We will all now wear Mao jackets… the intellectuals will plant cabbages… a pound of beef and a pound of steel shall bear the same price… we will speak Esperanto, tie our shoelaces together, and hop to work… and wear our underwear on the outside so the authorities can verify that it is clean!
As far as we know, every effort to consciously remake society has been a disastrous failure.
At best, they have had outcomes that can’t be measured… or proven one way or another.
In the 1930s, the positivist doctrine was given a boost. Thinkers assembled in Vienna, Austria, made an impression on an English visitor named A.J. Ayer. The 24-year-old hurried back to London, wrote about it, and became the enfant terrible of English philosophy – promoting “logical positivism” however he could.
This school of thought – which attempted to reduce all human behavior to logical and scientific foundations – became so popular, it filled the universities, sloshing over department walls like an overflowing septic tank, and poisoning many other disciplines – notably economics.
Today, practically all economists believe they can assemble “data,” manipulate rates and rules, stimulate an economy, or calm it down… and thereby make things better.
Encounter With a Prizefighter
These are convenient thoughts for someone who is looking to get money, power, and status without adding to the world’s wealth.
And now, inspired by positivism, three generations of economists have earned their livings and reputations by consciously applying logic and reason to make human economic relationships more fruitful.
They no longer question it; it is as though it had come from the mouth of God Himself.
But it wasn’t God who pushed positivism; it was the aforementioned A.J. Ayer, who taught at Bard College in New York and who, at the age of 77, distinguished himself in an encounter with an American prizefighter at a party in New York.
According to reports, Tyson was trying to impose himself on fashion model Naomi Campbell. Ayer tried to intervene.
“Do you know who the f**k I am? I’m the heavyweight champion of the world,” said Mike Tyson.
“And I am the former Wykeham Professor of Logic,” Ayer replied. “We are both pre-eminent in our field. I suggest that we talk about this like rational men.”
During the conversation that followed, Ms. Campbell is said to have slipped away. The effects of the discussion on Mr. Tyson went unrecorded.
But Ayer is best remembered for his judgement on his life’s work. Late in life, he was asked about positivism’s shortcomings.
“I suppose the greatest defect,” he replied, “is that nearly all of it was false.”
Fraudulent and Futile
Modern economists have preached and practiced intervention and activism for the last 50 years.
It has enabled them to earn decent incomes… win Nobel prizes… pretend to know what they were talking about… and exert huge influence on their victim economies.
None of it made people richer or better off. Instead, it was all fraudulent and futile.
But having made such a striking claim so much at odds with the accepted wisdom of the world’s leading economists, obviously, we carry the burden of proof.
We dispose of the burden in a couple of sentences:
Economies discover wants and prices by allowing win-win deals. These deals discover both what people really want… and how much it really costs to get it. The feds – aided and abetted by their positivist economists – just get in the way.
What about it, Mr. Bernanke? Ms. Yellen? Mr. Powell?
Mr. Ayer has set a good example. Care to make a confession?
Leave us a comment below with your own.
Regards,
Bill
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Category: Economics