Two men, both born in February, helped to make the modern market economy possible by explaining how the market functions Carl Menger and Eugen von Boehm-Bawerk.
Carl Menger, born in the Austro-Hungarian Empire on February 23, 1840, bridged the gap between the Age of Monarchy and the Age of Liberalism. His Principles of Economics heralded a new approach to economics which lent support to the philosophy of limited government and individual freedom. For Menger, the individual was at the center of the economy. Economic values start with the wants and wishes of individuals. Entrepreneurs look to the ideas, values, and actions of consumers when deciding what, where, when, and how to produce. Carl Menger’s theories lay the groundwork for the “Austrian School of economics” and for the modern defense of free markets.
Eugen von Boehm-Bawerk, born on February 12, 1851, also in the Austro-Hungarian Empire, followed in the Mengerian tradition. He was well known among his contemporaries for serving three stints as his government’s Minister of Finance, 1895, 1897, and 19001904. However, his more lasting fame stems from his scholarly contributions to economic theory and to his explanation of the importance of capital goods, capital savings, and capital investments, all of which depend on the protection of private property and a market economy.
Menger and Boehm-Bawerk explained how people cooperate voluntarily to solve complicated problems. When people are free, they are remarkably ingenious, innovative, resourceful, and cooperative. Given free markets and free market prices, they provide well for themselves and others. People need no government direc tives to make arrangements for obtaining needed resources, transporting them over vast distances, and transforming them into the goods and services consumers want. Menger and Boehm-Bawerk explained why freedom works.
Rare Species Protected by Invisible Hand
Where can one find thriving populations of the following endangered species: Indian blackbuck, Sub-Saharan beisa oryx, Japanese sika deer, South African white-tailed gnus, Armenian red sheep, Moroccan aoudad, Nile lechwe, and Persian gazelles? The answer, according to Sports Illustrated (September 8, 1986): the hill country of Texas. On about 370 ranches, exotic species are raised for conservation purposes, for aesthetic reasons, and as game for hunters. A 1984 census counted 120,201 animals in 59 different species from all over the globe. Why are they doing so well in Texas though threatened in their homelands? Because in Texas, they are private property.
Paradoxically, where animals are privately owned and unprotected by law, they are often much more secure than when they are owned “by everyone” and in the care of government wildlife services. The paradox is not a matter of good and bad intentions or people, but of good and bad systems, of incentives to conserve or to despoil.
Under common ownership—where no one really owns at all—there is an incentive to get what one can before someone else gets it first. Hence resources tend to be depleted; animals are slaughtered indiscriminately. Government regulation often fails because wildlife officials have too little stake in doing their jobs diligently. Frequently they succumb to the temptation of payoffs from poachers. Many African wildlife services are said to be riddled with corruption, with officials sometimes killing the animals themselves for the black market in horn and ivory.
Private owners, by contrast, have strong incentives to husband their resources. Since they reap the financial (and aesthetic) benefits of conservation and long-term planning, they conserve and plan carefully. The game herds are an important source of present and future income to hill- country ranchers, hence they carefully regulate the hunting on their lands. Only “bachelors” or aging males past their breeding years are taken as trophies, and the herds thrive.
The incentive structures of private ownership are crucial to conservation. The greater kudu and the beisa oryx, not to mention the deer and the antelope, play more securely at home on the private range.
Nothing To Do
In La Libertad, Mexico, employees at the state-owned sugar mill report to work every morning, sit around all day doing nothing, and then go home. But they still get paid.
The reason they have nothing to do is that the mill is officially closed—the government’s own price controls on sugar have rendered the mill unprofitable (The Wall Street Journal, October 13, 1986). But why are the workers still there? The government also has a policy of steep severance payments—it would cost too much to let the workers go. So the workers play cards, look out the windows, and wonder why their nation is so poor. Such is the tragedy of socialism.
FEE’s annual Northwest seminar will be held April 10-12 at the Alderbrook Inn on beautiful Hood Canal in Washington State. Dr. Stuart Pritchard is organizing the program. Speakers will include Dr. John Williams (just returning from Australia), Howard Baetjer Jr., and Greg Rehmke. For more information contact Dr. Pritchard at P.O. Box 4101, Turnwater, WA 98501, (206) 352- 4884, or contact us at FEE.