Among Mr. Hall’s most important works is his 1985 book, “The Flat Tax,” written with Alvin Rabushka. Messrs. Hall and Rabushka made a strong case for replacing the current income tax with a flat rate and showed that it would be much less distortionary and more pro-growth than our current tax system.
Michael Woodford’s main contributions were on monetary policy. His 2003 book, “Interest and Prices,” has been called a bible for central bankers. Keynesians, up to and including 1970 Nobel laureate Paul Samuelson, argued that monetary policy was ineffective at lifting economies from recessions. Friedman, on his own and with co-author Anna J. Schwartz, showed that monetary policy, for good and ill, was quite effective. Friedman had focused on the money supply. Mr. Woodford showed how the Federal Reserve could affect the economy by targeting the federal-funds rate. As Hoover economist John Cochrane notes, the Taylor rule, named for economist John Taylor, is central to the framework Mr. Woodford developed. According to that rule, to reduce inflation, the Fed should aggressively raise interest rates.
The Nobel committee said the prize was awarded for “demonstrating how economic models could be reconstructed to revitalise stabilisation policy.” That leaves out two important points. First, Mr. Hall’s work on consumption shows that using Keynesian fiscal policy wouldn’t work. Second, the work of both Messrs. Hall and Woodford shows how government policy, especially monetary policy, has at times erred and caused instability. The Nobel committee has an unfortunate tendency to attribute implicitly almost all problems of unstable economies to the economies themselves and almost none of the problems to bad government policy. Fortunately, the work of this year’s winners offsets this tendency.
GMU Econ alum Dave Hebert reports that “manufacturing surged when tariffs were lifted.” A slice:
The combination of high tariffs with uncertain start dates and unclear goals proved disastrous for firms looking to make long-term investments. As a result, the manufacturing sector shrank. The ISM’s Manufacturing PMI fell into contraction and stayed there for ten months. Factory payrolls fell for eleven straight months, resulting in a loss of about 92,000 manufacturing jobs. Economists had predicted these outcomes and warned that the tariff agenda would produce them.
The great historian of the American Revolution, Gordon Wood, argued in The Radicalism of the American Revolution that what is most overlooked in discussions is the radical transformation of society that resulted. Colonial America was a society of status, of privileges, of station. Patronage and personal favoritism by those with power played a major role in social mobility—to the extent that it existed. This social system would all be transformed by the Revolution. One prominent example of the legal transformation was the abolition state by state of the practice of primogeniture between 1777 to 1798. Not only did this change the laws of inheritance, but transformed the meaning and use of property, encouraged entrepreneurship, credit markets and social and geographic mobility. Legal distinctions based on rank disappeared, and economic opportunities were based in interest, aptitude and talent rather than birth. Certainly not perfectly, it must be acknowledged. But in a far more sweeping nature than anywhere else in the world, ordinary individuals were enabled to “give it a go,” as the historian Deirdre McCloskey likes to stress about the ascendancy of the Bourgeois Era. Almost overnight, Wood argues, Americans became “the most liberal, most democratic, most commercially minds, and most modern people in the world.”
As a result, America became the richest country in history over the next 250 years. It did so without an aristocracy, and without central planning or a comprehensive blueprint by the governmental authorities. The Revolution succeeded because it created the institutional conditions for commercial civilization. It unleashed the creative powers of a free people to a greater degree than had ever been experienced before. As Hayek would stress, the transformation for a society of status to one of contract is critical to experiencing modern economic growth. And this is only possible if the governing system seeks to eliminate privileges and instead binds itself to the rule of law.
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This to me is the enduring lesson in political economy that we should derive from reflecting on the twin 250th anniversaries and allow to guide us through our contemporary debates which too often seem to have forgotten these. Let me add one other aspect that is too often overlooked. When Hayek founded the Mont Pelerin Society, one of the names he toyed with was the Acton-Tocqueville Society. This was rejected by the original group for a variety of reasons, but it does reflect Hayek’s thinking. In the context of this article, I think we can argue that Alexis de Tocqueville provides a bridge between Wood’s historical account of the American Revolution and Hayek and Friedman’s theoretical accounts of economic and political freedom. Tocqueville observed what Wood described as the transformation of American society: a social order characterized by vibrant civil society of voluntary associations, social mobility, local initiative, and unbounded energy. Hayek explains to us why this decentralized dynamism is a source of discovery and continuous learning how to better pursue productive specialization and realize the gains from peaceful social cooperation. Friedman explains how the constitutional structure of government, by limiting power and privileges, preserves the open society and its properties of creativity, innovation and social and material progress.
Both the left and right in our current political and intellectual culture have abandoned these principles, at least in their rhetoric. New York Mayor Zohran Mamdani and Vice President J. D. Vance have recently gone out of their way in respective speeches to dismiss the ideas of Hayek and Friedman. Critics of neoliberalism repeatedly target Hayek and Friedman without seemingly any sense of understanding the subtleties and nuances in their arguments. Post-liberals are even worse. Thinkers like Patrick Deneen argue that free market policies result in the erosion of community, destroy the social fabric, and increase inequality. The individual becomes isolated and lacks any great purpose as a result. The remedy offered is the abandonment of the free market system with its emphasis on material growth and the adoption of public policies that stress virtue, local obligations, and the moral community. Scholars under the New History of Capitalism movement see the coercion and abuse of corporate and state power as attributes inherent in capitalism. To both groups of critics, support for capitalism must either elide over these abuses or even justify them as the lesser evil to growth.
These criticisms are grounded in a misunderstanding of the argument for the liberalization of markets from David Hume and Adam Smith to F. A. Hayek and Milton Friedman. Markets are no doubt vehicles for efficiency in exchange and production and the creation of great material abundance, but that isn’t the side of markets that was stressed by Hayek and Friedman, let alone Smith. Smith was a champion of the doux commerce thesis that commerce civilized. Thomas Paine, of American Revolution fame, wrote that: “If commerce were permitted to act to the universal extent it is capable of, it would extirpate the system of war…” Commercial life civilizes people. Peaceful social cooperation among strangers replaces violence and conquest. Montesquieu wrote that “wherever the ways of man are gentle, there is commerce; and wherever there is commerce, there the ways of men are gentle.”
George Will writes eloquently about Pete Hegseth’s barbaric proposal to live-stream an execution. Two slices:
Might this live-streaming desensitize the audience and coarsen society? Benjamin Rush, the Philadelphia physician and signer of the Declaration of Independence, thought capital punishment “lessens the horror of taking away human life,” thereby fostering murders. Today, it neither encourages nor deters. Death sentences are handed down so capriciously and administered so glacially (Hasan’s is scheduled for 17 years after his crime), its deterrent effect, if any, is vanishingly small.
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Put aside the question of whether the soldiers who will be in the Fort Hood firing squad anticipated such an assignment when they enlisted. But credit Hegseth with usefulness. His idea of live-streaming the infliction of death comes as the nation approaches midterm elections widely considered a referendum on the Republicans’ national administration. Hegseth has clarified what should be the preeminent issue: Fill the government with barbarians, you get barbaric government.
Revulsion is not an argument. But regarding Hegseth and the administration he vividly exemplifies, it is a virtue.
No, the privileged groups had a clearer view of what might prolong their existence. They understood that they could continue peacefully to pick the pockets of the public so long as contrived antagonisms would prevent the drawing together and merging of nations. This being so, they harnessd their forces, influence, capital, and activity to national hatred. They, too, adopted the mask of patriotism. They bribed such newspapers as had not yet adopted the banner of false national honor, and it may rightly be said that this monstrous alliance stopped the march of civilization.
The economic case is the same for free trade as for allowing technological progress: both increase the yield of useful goods and services from available labor and other resources.
Passing a law that mandates higher pay does nothing to make workers more productive, nor does it create new alternatives to bid workers away from their current jobs. Legal minimum wages simply outlaw potential gains from trade between employers and workers. Paraphrasing liberal Nobel laureate Paul Samuelson, it does a potential sweatshop worker, who can create $2 per hour of value, no good to know that by law he must be paid $3 per hour if that very law keeps him from getting a job.
An economy exists to make trade-offs, and a market economy makes the terms of those trade-offs plain with price tags representing the relative costs of producing different things. To have politicians arbitrarily change the price tags, so that prices no longer represent the real costs, is to defeat the whole purpose.
