Mr. Peterson is headmaster at the Pilgrim Academy in Egg Harbor City, New Jersey. He is the author of In His Majesty’s Service (Huntington House), a book an politics to be published in October.
For the past 100 years, central planners have used the language and methods of science to explain and justify their attempts to fine-tune most of the world’s advanced economies. Pointing to the successes of researchers in the hard sciences, they have led people to believe that a little inflation here or a lot of regulation there can actually fine-tune an economy–the same way a mechanic can adjust the points, set the timing, and put new spark plugs in a classic car engine.
Using the veneer of scientific language, government officials explain how in five years a deficit will be reduced, or how so many shoes or tanks will be produced, or how so much health care will be made available. Like some ancient soothsayer, the official economist looks for good omens in the economic data and tells the ruler or rulers what they want to hear. When the projected results don’t materialize in democratic countries, we are told it was merely because the central planners weren’t skilled enough. Just find enough Rhodes scholars, create a Brain Trust, and all will be well.
There’s only one problem with this kind of thinking: the very nature of the universe makes all central planning impossible.
Man’s inability to control the economy is nowhere more graphically illustrated than in our helplessness before the weather. All of life depends on agriculture, and successful harvests depend on “good” weather. No economist can predict prolonged years of cold weather, such as Europe experienced in the Middle Ages when the Baltic Sea froze over, destroying the seaborne trade of the Hanseatic League. The Japanese have kept meticulous records for over 1,000 years of when the cherry trees blossomed, but no one can predict when they will bloom next year, or if they will be killed by a late frost. No one could have predicted the destructiveness caused by the Great Blizzard of 1888, or the ravages of Hurricane Andrew (which cost over $20 billion, and destroyed some insurance companies in the process). And no amount of emergency planning by any level of government was able to hold back the Mississippi in 1993.
When forecasters do successfully predict a change in the weather, it’s almost always by accident. The Old Farmer’s Almanac got its lasting claim to fame back in 1815, when editor Robert B. Thomas was so sick in bed that, he told his assistant to “leave him alone” and “just write anything for July 13th.” The assistant did just that and for that day wrote “Rain, hail, and snow.” Thomas and Co. couldn’t have known it, but about that same time Mt. Tambora in Indonesia was erupting, spewing millions of tons of sulfur dioxide into the stratosphere, which circled the globe, deflecting the sun’s light and heat, causing the infamous “Year With out a Summer.” Farmers wore their greatcoats in the fields, only to shake their heads in disbelief at the meager harvest. And yes, on July 13, it really did rain, hail, and snow in the Eastern United States.
The cool summer of 1992—when vast acres of Midwestern cornfields were declared federal disaster areas—was also caused by a volcanic eruption, this time from Mt. Pinatubo in the Philippines. When Pinatubo erupted, 25 million tons of sulfur dioxide were blasted into the atmosphere. The effect on America’s summer economy that year was devastating. Utilities, previously thought recession-proof, saw their sales of kilowatts plunge as people and businesses used less power for air conditioners. Sales of patio, pool, and sports equipment plummeted, and people sipped fewer soft drinks.
One government economist said that the floods in the Midwest in 1993 would have “no overall negative effect” on the economy. That, of course, is absurd: people’s lives were changed forever, personal plans and fortunes were dashed, and the agricultural heartland of America was crippled.
Not only is the economy subject to the weather, but also to what might be called “quantum changes” in history. Our world has always been–and is now–subject to major changes that make tomorrow quite different from yesterday. Sometimes such quantum changes are the result of an invention. Most historians agree, for example, that those of us who live in the West might all be speaking Arabic today had it not been for the invention of the stirrup. At Tours, Charles Martel’s Frankish cavalry had stirrups, while the Moors did not. As a result, the Western European forces were victorious. Other times quantum changes are brought about by a mutant virus, to which a certain population has developed no immunities. In modern times, quantum changes may come from the actions of a lone entrepreneur or group of investors. Fiber optics would still be in the research and development stage had not an upstart little company, MCI—financed by junk bonds that were marketed by the much-maligned Michael Milken–taken on AT&T. IBM would still stand astride the business world like a colossus had it not been for the ideas of kids like Steven Jobs and Bill Gates. Thousands of jobs were lost at IBM, and the company’s equity was cut in half. Meanwhile, millions of people have been empowered by the ever-expanding capabilities of the affordable personal computer.
Today, the world economy is being driven not so much by raw materials, but by creative minds and the software and computer chips they produce. George Gilder has written extensively of this quantum technology both in Forbes and in his 1989 book, Microcosm. “Quantum technology devalues what the State is good at controlling: material resources, geographic ties, physical wealth,” Gilder writes. “Quantum technology exalts the one domain the State can finally never reach or ever raid: mind. Thus the move from the industrial era to the quantum era takes the world from a technology of control to the dictionary of freedom…. We live in an epoch when desertbound Israel can use computerized farming to supply 80% of the cut flowers in some European markets and compete in selling avocados in Florida; when barren Japan can claim to be number one in economic growth; and when tiny islands like Singapore and Hong Kong can far outproduce Argentina or Indonesia.”
No one knows what the next major quantum changes will be in our world, least of all government officials. For political reasons, the State always overcommits itself to older, existing technologies and large companies who find it difficult to change and retool for the future. That is one of the great weaknesses of national industrial policy. Moreover, when the State crowds out all entrepreneurs, it leaves itself as the only institution effectively planning for the future. If it plans for seven fat years but gets seven lean ones instead, the entire society suffers. That is why the old Soviet Union had “bad weather” for 70 years.
In a free society, however, thousands of entrepreneurs and millions of consumers make their own individual plans for the future. Some are cautious and save their cash; others are courageous risk-takers and expand their businesses and services. Those who correctly gauge future conditions will be successful; those who fail will have to go to work for others.
The unpredictability of the weather and the possibility of quantum changes make it impossible for the State to control our economy or predict future needs. For most of this century, the state capitalists of the Communist world almost always guessed wrong, and were then bailed out by those entrepreneurs in the West who correctly anticipated future conditions.
But there’s one more factor that is perhaps the most complex of all. In his seminars at New York University and in Human Action, Ludwig von Mises demonstrated that an economy’s performance is based on the decisions of millions of people, not just in one place but all over the world. These millions of people make economic decisions, based on their own wants, needs, hopes, prejudices, and worldviews. Sometimes they act in groups, often they act alone. In America, we put diamonds on a woman’s hand; in India, they sew them into their clothing as their currency of last resort and pass them down through their families. In the West, experts have pronounced the death sentence on gold, time and again, for nearly a century. Yet in the Far East, economic growth is creating a demand for gold unlike anything seen for a generation. Individual Chinese want gold for the security and prestige it brings, thus driving world gold prices higher.
Many talented people, like Mother Teresa, willingly choose fields in which they not only know they will not get rich, but may very well live in poverty and disease. Some people–we call them martyrs–give up not only their wealth but their lives for an idea or belief.
Mises waited ten years before he finally asked his sweetheart, Margit, to marry him. Both he and Margit believed that his economic works and his struggle to destroy socialism were so important that they postponed their marriage until her children were on their own. Fortunately they did finally marry and Margit became a partner in his work.
Through much of his work, Mises argued that a central authority could never successfully direct human action on a wide scale. In fact, Mises pointed out, government intervention almost always results in the exact opposite of what policymakers are trying to achieve. A recent case illustrates Mises’ point. When, toward the end of the Bush administration, the Federal Reserve lowered interest rates to try to stimulate the economy, people who depended on interest for income (now 15 percent of the American population, and growing) lost much of their purchasing power. Here’s another case: In the 1960s, the United States embarked on a program called the “Great Society” to wipe out poverty. Today, millions of Americans linger in poverty because those welfare programs encouraged the breakup of the family economic unit.
For centuries, philosophers and poets have written about the unpredictability of life. Modern liberals might say that that is precisely why we need central planning—to give us security from the slings and arrows of outrageous fortune, as Shakespeare put it. But as history has shown, the only guarantee the State can provide is one of shared misery and poverty. If society is poor, it cannot generate enough wealth to take care of the elderly. When medical care is scarce, there’s no security against the simplest of diseases. It was modern capitalism that gave us penicillin, the polio vaccine, the concept of retirement, and so many other blessings that most people take for granted.
In the end, as a modern Robert Burns might say, the “best laid schemes of mice and governments oft go astray.” That’s why the best that we can do is allow millions of people to make their own plans for the future. It is simply not in the nature of things for central planning to work.