12/09/08 – Joseph Solerno – The Scott Horton Show

I'm Scott Horton, it's chaos in Austin, Texas, chaosradioaustin.org, also streaming live every day, 11 to 1 Texas time, at antiwar.com slash radio, and our next guest is Joseph Salerno, he's a senior fellow at the Mises Institute, professor of economics at Pace University and editor of the Quarterly Journal of Austrian Economics.
Welcome to the show, Joe.
Thanks.
Glad to be here, Scott.
I'm very glad to have you here, and my good friend Anthony Gregory showed me this article, or I guess it's the text of his speech that you gave, about the praxeology of war.
And I'm no Austrian economist, but I understand the basic premise, man acts, that makes sense to me.
So what exactly is praxeology, and what does it teach us about war?
It's actually published as an article, and it has a less threatening title, it's called The Logic of Warmaking, and that's what praxeology is, it's the logic of action, but applied to different areas of human life, so there's a praxeology, or a logic of economics, peaceful action, the logic of the government intervening in the economy, and a logic of warmaking.
And I use the word warmaking deliberately, because wars are made by men, they're made for a purpose.
So, like in anything else we do, buying something in the market, when someone is involved in warmaking, or a group of individuals are involved in warmaking, they're doing it deliberately and with a purpose, and they're using certain means to carry out that purpose.
And so, I guess this is as opposed to the winds of time a-blowin' and the page of history turnin', and oh, in fact, George Bush's history has called us into action.
Yeah, that's all basically nonsense.
If you go back even to the Greek accounts of their own wars and so on, much of it is deterministic in the sense that, well, something that just had to happen, the force of history caused it to happen, or an accident of history brought it about, and it really didn't have much to do with human beings' will, whether or not they were willing to do this activity.
Well, it's like any other activity, playing baseball or anything else.
People are engaged deliberately and consciously in these activities, war, and they're doing it, again, for a reason.
I sort of think maybe part of the problem here is the shortness of our lives, living just a few decades, and when we learn history of, even just American history, the last, you know, two, three, four hundred years, it all seems so far away, and like it had to happen that way.
That's the way it happened.
History happened that way.
That's why a lot of people think that whatever the American government does, it must be good and logical, because after all, this is a democracy, and this is what the people have wanted all this time, and so this is what they've gotten.
That's right.
In fact, what I talk about in this article, Logic of Warmaking, is that democracies, if you go back to, for example, ancient Athens, are extremely imperialistic.
Athens, and even the Roman Republic, both were imperialistic, war-making states.
And one of the points I make is that in prehistory, before we had the division of labor, where people lived together and traded together, there were conflicts between groups of human beings, even among Native American Indians, there were conflicts.
But because there was no state, it was basically a fight over resources, in which, you know, one tribe won, and murdered the other tribe, or enslaved them, and it ended.
But with states, there's something else going on here.
States are regular entities that want to continue to collect taxes and exploit the populace.
So what you tend to get is that after you have peaceful exchange, and after you have a lot of wealth being created, and then states growing up and exploiting their own domestic populations, they would also want to expand their sphere of influence, because that means more tax money, that means more power, that means more jobs in the bureaucracies, and so on.
Well an integral to this is the Austrian economics understanding of class warfare, which is quite different than just rich versus poor, in a sense.
I mean, ultimately, that's kind of how it works out, but it starts a step before that, with just, who's actually using state power to make their money, as opposed to trading their goods and services for it.
You're absolutely right.
In fact, you have to distinguish very carefully between entrepreneurs, Bill Gates and Ray Kroc, who started McDonald's, those people that are making money, maybe a lot of money, by serving consumers, and what I call plutocrats.
Those people, well, pluto means wealth, those people who, and krats, you know, have something to do with government.
So there might be large businessmen, or even powerful unions, that get special privileges from the state, and earn their income by exploiting taxpayers via the state.
So, you know, it's not just rich versus poor, as you pointed out, it's much more complicated than that.
It's those people that use the state to gain resources at the expense of their fellows, okay, of taxpayers.
So they are the only ones that gain.
But in the case of Microsoft or McDonald's, both parties gain, because it's a voluntary exchange.
Well, and I think most, well, probably, I think almost all people on the left misunderstand that what libertarians object to is a poor person ever getting a food stamp, when we talk about people receiving the largesse of, you know, government, you know, treasury checks being written, and that kind of thing.
But the Austrian school, particularly, at least the best I can tell from talking with you guys at the Mises Institute, you're just as, or perhaps even more opposed to the military industrial complex, and people who are rich capitalists, basically, but who do nothing but sit around overcharging the government all day for goods and services that a lot of times they don't even come up with at the end of the day anyway.
Yeah, no, you're absolutely right.
Not just overcharging the government, but of course, getting subsidies, direct subsidies from government.
For example, the heads of, well, the NFL, for example, National Football League, you know, they have their stadiums built at the expense of the local taxpayers.
They're plutocrats.
The heads of the big three auto companies here in the U.S., it would be a really disgusting sight to see them going to Washington, hat in hand, begging for money, and then saying that if they weren't bailed out, there'd be a cataclysm that would destroy the American economy.
What do you mean, the automakers, you mean?
I'm sorry, go ahead.
The automakers, you mean?
You said the oil companies.
Yeah, I meant the automakers.
I'm sorry.
Yeah, no problem.
Just making sure.
Yeah, I know.
You're absolutely right.
And so in any case, getting these subsidies, when what's happening is that they're making cars that just cannot, you know, Americans do not want to buy at a price that compensates their costs.
Whereas Nissan, Toyota, Honda, and many other companies operating here in the U.S. are doing just fine.
Nissan, I believe, just opened a plant last week.
Well, of course, the oil companies are all on welfare, too, aren't they?
Yeah, well, many of the oil companies certainly get special privileges from government, too.
In fact, I think a lot of, well, I'm not really certain about this, but it's got to be some part of Afghanistan policy is about basically using our Marine Corps as the security guards for private companies' pipeline routes, just like our policy in Georgia for the BTC pipeline there.
Yeah, no, absolutely.
It's certainly the policy in Georgia.
That's true.
But the U.S., you know, is, or the American government, again, we can't just use a, it's not the whole country, it's the American state that is over there trying to secure these resources both for its own power and influence, but also for the benefit of oil refinery companies and so on.
Well, and as you say in your article, the class conflict model is important here because the American people start to understand, I mean, it's kind of hard to disguise how many billionaires are, especially during bailout times like right now, how many billionaires are the recipients of giant welfare checks that then war is the best thing to divert everybody's attention and make them believe that their enemy is not the state and the people that control it, but their enemy is a group of, you know, weird-sounding foreigners with funny hats who have to be killed or else we'll all be killed.
That's correct.
In my article I talk about the Roman Republic was like that.
The large landowners were the ones that were benefiting from slave labor, and so many of the peasants that were thrown off the land, the Roman citizens, went to the cities and they became, they went to Rome, they became the so-called proletariat in Rome, the proles, and they began to demand, you know, pieces of pie, and eventually, so Rome began engaging a lot of these wars, instead of giving them some land or giving back the land that was stolen by the large landowners, they inducted them into the army and sent them off to fight all of these enemies, real and imagined, throughout the ancient world.
Well, you know, it's funny.
I may be imagining this, but it seemed to me when I was reading your article, the parallel to the 1980s and 90s when, through the massive inflation and then the war against inflation and the driving up of interest rates by Paul Holker in order to so-called lift the inflation that the Fed had caused in the first place, basically a bunch of Midwestern farmers' sons had been lured into debt with these artificially low rates, and then when the interest rates got jacked up so high, they all went bankrupt and lost their farms.
And it seems like, you know, when you look at the end of the Cold War and the decision to keep the military, you know, up and going as though the Soviet Union was still a threat and so forth, maybe a part of that was, we've got to find something to do with all these kids whose farms we just stole.
We needed a new enemy, absolutely, we needed a new enemy to hide the domestic exploitation of the taxpayers and to keep the booty coming, that is, to keep taxes high.
Remember, they were talking at first when the Soviet Union could collapse about a peace dividend.
All this money that was going to be now shifted out of the military, well, it hasn't happened.
And of course, 2001, I mean, 9-11, gave them the perfect opportunity to declare a war on an invisible enemy, a war on terror, which is just open-ended.
You can go anywhere in the world, okay, you can pinpoint anywhere in the world as a place where there's terror activity taking place.
And we're drawing other countries into this in a big way, and now India's sort of declaring a war on terror following us.
And this is pretty scary, because both India and Pakistan, as we know, are nuclear-armed powers.
Well, now, Joe, you know, you're such a nice guy, it doesn't seem so confrontational and controversial coming out of your mouth, but, I mean, really what you're saying here amounts to the most cynical position, isn't it, that, you know, never mind the red, white, and blue flag and the yellow ribbons, never mind patriotism, never mind our boys fighting for our freedom, never mind any of these ideas of God and country and service and all these things, all that you're saying is just basically a smokescreen for individuals using the government to murder and loot in the most depraved sort of fashion, basically, it sounds like is the, well, my more cynical way of phrasing what it sounds like you're saying.
Well, yeah, I mean, it comes down to that, and it's not, I don't think it grows out of cynicism, but it grows out of understanding that anybody, by the way, can achieve, not just somebody who's in economics, and that is that you have to look at the nature or the essence of the organizations that are involved.
And so if you look at the nature of the state, the state basically exists to earn an income in a way that does not involve voluntary exchange.
As we know, the great sociologist Oppenheimer said there's an economic means, which involves voluntary exchange to earn your income and your livelihood, and there's a political means, which involves regularized exploitation of the people who are engaged in the economic means, in other words, taxing them and conscripting them into the armed forces and so on.
So yeah, I mean, that's what, it's a non-romantic view, it's a realistic view, so I wouldn't call it a cynical view, but the way you put it, I mean, it's certainly true, I mean, I wouldn't deny what you just said.
Well, okay, now here comes some real cynicism for you.
The commies always say that this kind of imperialism is the end result of capitalism and that it's inescapable.
Well, remember, capitalism is a must-have piece, because capitalism is simply a network of voluntary relations between producers and consumers, between buyers and sellers.
And capitalism has an inner tendency to spread throughout the world in a peaceful way, through free trade, and that extends the division of labor, where we all cooperate socially with one another.
I mean, no automobile, no computer is made in any particular country anymore.
It involves workers and others throughout the world.
Even simple goods, like clothing, are the result of the global division of labor.
So capitalism is sort of the antipode of war and of exploitation and imperialism.
So it's really the elements that are injected on top of the market by the state, the interventionism, the sort of quasi-socialist element that results in war.
It really comes down to, well, I guess, again, the Mann-Axe thing.
If you're the CEO and you have a board of directors and you have stockholders and you have a responsibility to make them as much money as you can, if investing in a lobbying firm and investing in a few congressmen balances out on your mathematical equations on your paperwork there, then you have to do it.
In some sense, that's true.
In fact, Microsoft, up until a few years ago, never had any lobbyists in Washington.
They didn't need them.
And then when charges were brought against them, antitrust charges, some of the congressmen looked at this and said, how dare they not have people here in Washington in public relations dealing with us that is lobbyists.
And it was only after that, if that sort of pressure was put on Microsoft, when they saw it, that the government, even though they weren't doing anything, could actually destroy the company or at least take a part of its wealth or prosecute it for antitrust violations.
It was only after that that they have now a lobbying law.
So the state itself, as it grows, it sucks more and more of these companies out of purely using purely economic means and into lobbying.
It's almost, unfortunately, it's almost self-defense for these companies.
There's two kinds of bribes, as Murray Rothbard pointed out.
One is an invasive or aggressive bribe, where you're bribing a government to, let's say, keep out a competitor.
Or you're bribing to keep out foreign competitors.
Or you're lobbying for subsidies.
But then there's another kind of bribe or payoff to the government, and that is to leave us alone.
So, unfortunately, it becomes more difficult to distinguish between the so-called entrepreneurs I talked about and the plutocrats, because the state is afraid of the entrepreneurs.
We're independent of it and not dependent on it.
Is that part of the reason, do you think, well, I'm always torn about this, whether it's, you know, stupidity or the plan.
Ron Paul likes to talk about how nobody in Congress understands any of this and don't care about it at all, either.
But then, on the other hand, I look at the results of all this inflating and deflating the economy and all these kinds of things, and it seems like the benefits sure do accrue to the people who are already rich first.
Is it really so accidental?
No.
I mean, they obviously, the people that have wealth to begin with, have more resources with which to lobby the politicians.
The politicians just care about getting re-elected, expanding their power, getting more income, okay?
In that sense, they're like the rest of us.
In a job, we want to get promoted in our jobs.
We want to earn more income, and we want our responsibilities to increase so that we can have a reason for asking for a higher salary, and so on.
When it comes to the state, they don't, there's no bottom line that says whether or not that it's a profit and loss test, whether or not what they're doing ultimately benefits consumers, okay?
They're benefiting simply themselves.
All right, now, I'm sorry to get back to oil, but this sort of goes to the broader question of imperialism, too.
I talked with Andrew Bacevich last week, and I certainly could have done a better job, but anyway, he has this new book out called The Limits of Power, and he's a conservative, and I don't think too thoroughly versed in Austrian economics and what have you, and a large premise of the book, and in the interview, he said, well, he didn't really know, but he was certain at least that this was the belief in Washington anyway, so it sort of made the point moot.
Whether it's actually a money-making proposition for America to, for example, secure our resources in the Middle East with military power, and whether or not all that oil would be for sale on the market with or without American domination in the region.
There's two points there.
One is that the social costs are certainly not worth it.
In other words, the taxpayers are bearing a great part of these costs, so if you sort of had a social accounting of everything, we're probably wasting more resources than it's worth to secure these sources of oil.
But the private cost is very, very low, because the people that are doing it, the people that will benefit directly from it, are using taxpayer money, are using the US military force almost as their own private police to go in there and do these things.
So that was one point.
What was the other part of the question that you asked?
You said the social accounting part of it?
You know, Adam Smith had mentioned that imperialism almost never pays the nation as a whole, okay?
It only pays the bureaucrats, the generals, and so on that directly get involved, also the military industries that supply the military.
There are benefits.
Well, it sort of seems like the...
Oh, I know.
The other point I did want to make, which you made, was that, as you said, even if some evil dictator took over the whole Middle Eastern region, let's say Saddam Hussein was resurrected or someone like him took over the whole region, the only reason they want that...
They don't want the oil itself, obviously.
They want the wealth from it, and the only way they can get that is by selling it.
So as you said, this oil would be sold to us even without our attempts to, in some way, secure these various sources.
Well, and so it's obviously in, say, for example, Exxon's interest to encourage the belief among the American people and among the politicians that it's somehow in the national interest as a whole rather than just in their particular interest that we be involved to this degree.
And I think it really goes without saying in most conversations about this that we're all agreed we must cease our dependence on foreign oil.
We must come up with all these alternative forms of energy.
We must drill, baby, drill.
We must use all of America's resources so that we're not dependent on these terrible Middle Eastern terrorist states and on and on like that.
That's exactly the line that's put forth by the establishment media, and that's supposed to scare us all.
However, there is a market mechanism.
If indeed oil was held off the market for whatever reason, prices would rise.
Now, there's a tremendous amount of coal in the U.S., 250 years worth of coal in the U.S.
There's oil that can be gotten out of the shale rocks in the Rocky Mountains that can come out of the continental shelf, which is off the Atlantic coast of the U.S., and so on.
So there are enough resources if the price is high enough.
But again, to go back to the rationality of the people in the Middle East, OPEC has been trying to stop the price fall, the fall of the price of oil.
They're not economically rational.
They're unable to do it because of the tremendous fall in demand.
But I recently read that at below $90 per barrel, and we're now down to whatever it is, $44, whatever it is, Iran's budget, for example, is in tremendous deficit.
If it goes below $90, then their revenues fall below their spending.
So they're all very, very worried about the income aspects of oil.
They don't just want to destroy the oil field to get back to the United States.
They want wealth, like us.
They want more resources.
Well, and it's interesting how, if you talk about free markets, I mean, oil is not a free market.
In virtually every country that produces it and all the different market exchanges, there is government from top to bottom, front to back, all over every bit of it.
Most of the oil resources in the world are owned by the national governments, controlled by the national governments of the region.
And yet still, the market is, to a degree, beyond their control.
It still dictates prices that they can only try to influence but don't necessarily really have in their hand.
No, that's a good point.
The supply can be controlled to some extent, regulated, stunted, reduced, whatever, by government.
But the demand is controlled by individual consumers or consumers acting in the aggregate.
And so if their demand falls and the price is going to fall, no matter what the government is doing.
Now, one other thing that influences the demand of consumers is other technological alternatives.
And I don't mean ones that the government itself tries to spur, like energy efficient cars and so on.
But just naturally, as the price of oil goes up, there appear other alternatives.
Natural gas, natural gas that can now shift long distances, coal, which can be turned into a liquid and shift, and so on.
So as these alternatives come on the market, the demand will shift towards them.
And I think the Middle East government could be in even more trouble.
Well, you know, Greg Pallast, who's a reporter and actually has an interesting story in that a labor union, he arranged with this labor union when he was a young guy to go and take Art Laffer and all the Chicago School Economist classes undercover, kind of.
That's interesting.
And anyway, in his book, and on the show he's talked about, but in his book, R. Madhouse, he talks about how the Saudis attempt to use the oil price, where they jack up the price as high as they can, make as much money as they can, but then when alternative forms of energy really start to become developed, like for example, in Venezuela, where I think he says that the price, and these may be 2002 dollars, who knows now, but the price has to be at least 50 dollars a barrel for Venezuela to use their tar sands and turn any kind of profit, the same price pretty close is true with the Canadian tar sands as well, and that if the Saudis simply overproduce for a while and dump the price way back down again, they can bankrupt everybody's efforts to try to come up with the alternative sources, then they can jack the price back up again, and that Saudi Arabia and the boys in Houston, James Baker and all those guys are always in cahoots working these kind of deals.
Yeah, but that will only work in the short run, because the tar sands don't disappear, right?
So when the price goes back up again, there's ways again to start up production of oil from those sources.
It's interesting though that, well, I don't know, it seems like the more details you get about just how foreign policy works, the less all the yellow ribbons seem to count, you know?
That's true.
I mean, foreign policy is simply, in a sense, war by another name.
It's just maneuvering to get some sort of an advantage, some sort of an influence in foreign countries.
And ultimately, you know, we really don't need a policy.
We need simply defense of the United States, of the integrity of the territorial United States.
I mean, what do we need anything beyond that for?
So, yeah, foreign policy is really a misnomer.
In some sense, it's always maneuvering in a way that enhances the power of the state.
All right, everybody, that's Joe Salerno, Senior Fellow at the Ludwig von Mises Institute, Professor of Economics at Pace University, and Editor of the Quarterly Journal of Economics.
Thank you very much for your time today on the show.
My pleasure, Scott.
All right, everybody, that's Antiwar Radio.
See you tomorrow, 11 to 1 Texas time.