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Thursday, July 31, 2014


The most passionate detractors of capitalism are those who reject it on account of its alleged injustice.
It is a gratuitous pastime to depict what ought to be and is not because it is contrary to inflexible laws of the real uni­verse. Such reveries may be considered as innocuous as long as they remain daydreams. But when their authors begin to ignore the difference between fantasy and reality, they be­come the most serious obstacle to human endeavors to im­prove the external conditions of life and well-being.
The worst of all these delusions is the idea that “nature” has bestowed upon every man certain rights. According to this doc­trine nature is openhanded toward every child born. There is plenty of everything for everybody. Consequently, everyone has a fair inalienable claim against all his fellowmen and against society that he should get the full portion which nature has allot­ted to him. The eternal laws of natu­ral and divine justice re­quire that nobody should appropri­ate to himself what by rights belongs to other people. The poor are needy only because unjust people have deprived them of their birthright. It is the task of the church and the secular authorities to prevent such spoliation and to make all people prosperous.
Every word of this doctrine is false. Nature is not bounti­ful but stingy. It has restricted the supply of all things in­dispens­able for the preservation of human life. It has populated the world with animals and plants to whom the impulse to destroy human life and welfare is inwrought. It displays powers and el­ements whose operation is damaging to human life and to human endeavors to preserve it. Man’s survival and well-being are an achievement of the skill with which he has utilized the main in­strument with which na­ture has equipped him—reason.
Men, cooperating under the system of the division of labor, have cre­ated all the wealth which the daydreamers consider as a free gift of nature. With regard to the “distribution” of this wealth, it is non­sensical to refer to an allegedly divine or natural principle of justice. What matters is not the allocation of portions out of a fund presented to man by nature. The problem is rather to fur­ther those social institutions which enable people to continue and to enlarge the production of all those things which they need.
The World Council of Churches, an ecumenical organi­za­tion of Protestant Churches, declared in 1948:  “Justice demands that the inhabitants of Asia and Africa, for in­stance, should have the benefits of more machine produc­tion.”*  This makes sense only if one implies that the Lord presented mankind with a def­inite quantity of machines and expected that these contrivances will be distributed equally among the various nations. Yet the capitalistic countries were bad enough to take possession of much more of this stock than “justice” would have assigned to them and thus to deprive the inhabitants of Asia and Africa of their fair portion. What a shame!
The truth is that the accumulation of capital and its in­vest­ment in machines, the source of the comparatively greater wealth of the Western peoples, are due exclusively to laissez-faire capi­talism which the same document of the churches passionately misrepresents and rejects on moral grounds. It is not the fault of the capitalists that the Asiatics and Afri­cans did not adopt those ideologies and policies which would have made the evolution of autochthonous capitalism possi­ble. Neither is it the fault of the capitalists that the policies of these nations thwarted the attempts of foreign investors to give them “the benefits of more machine production.”  No one contests that what makes hundreds of mil­lions in Asia and Africa destitute is that they cling to primitive methods of production and miss the benefits which the employ­ment of better tools and up-to-date technological designs could be­stow upon them. But there is only one means to relieve their distress—namely, the full adoption of laissez-faire capitalism. What they need is private enterprise and the accumulation of new capital, capitalists and entrepreneurs. It is nonsensical to blame capitalism and the capitalistic nations of the West for the plight the backward peoples have brought upon themselves. The remedy indicated is not “justice” but the substitution of sound, i.e., laissez-faire, policies for unsound policies.
It was not vain disquisitions about a vague concept of jus­tice that raised the standard of living of the common man in the capitalistic countries to its present height, but the activi­ties of men dubbed as “rugged individualists” and “exploit­ers.”  The poverty of the backward nations is due to the fact that their poli­cies of expropriation, discriminatory taxation and foreign ex­change control prevent the investment of for­eign capital while their domestic policies preclude the ac­cumulation of indigenous capital.
All those rejecting capitalism on moral grounds as an unfair system are deluded by their failure to comprehend what capital is, how it comes into existence and how it is maintained, and what the benefits are which are derived from its employment in production processes.
The only source of the generation of additional capital goods is saving. If all the goods produced are consumed, no new capi­tal comes into being. But if consumption lags be­hind produc­tion and the surplus of goods newly produced over goods con­sumed is utilized in further production proc­esses, these pro­cesses are henceforth carried out by the aid of more capital goods. All the capital goods are intermediary goods, stages on the road that leads from the first employ­ment of the original factors of production, i.e., natural re­sources and human labor, to the final turning out of goods ready for consumption. They all are perishable. They are, sooner or later, worn out in the pro­cesses of production. If all the products are consumed without replacement of the capital goods which have been used up in their production, capital is consumed. If this happens, further production will be aided only by a smaller amount of capital goods and will therefore render a smaller output per unit of the natural re­sources and labor employed. To prevent this sort of dissaving and disinvestment, one must dedicate a part of the pro­duc­tive effort to capital maintenance, to the replacement of the capital goods absorbed in the production of usable goods.
Capital is not a free gift of God or of nature. It is the out­come of a provident restriction of consumption on the part of man. It is created and increased by saving and maintained by the abstention from dissaving.
Neither have capital or capital goods in themselves the power to raise the productivity of natural resources and of human labor. Only if the fruits of saving are wisely em­ployed or in­vested, do they increase the output per unit of the input of natural resources and of labor. If this is not the case, they are dissipated or wasted.
The accumulation of new capital, the maintenance of pre­vi­ously accumulated capital and the utilization of capital for rais­ing the productivity of human effort are the fruits of purposive human action. They are the outcome of the con­duct of thrifty people who save and abstain from dissaving, viz., the capitalists who earn interest; and of people who succeed in utilizing the capital available for the best possible satisfaction of the needs of the consumers, viz., the entrepreneurs who earn profit.
Neither capital (or capital goods) nor the conduct of the capi­talists and entrepreneurs in dealing with capital could improve the standard of living for the rest of the people, if these noncapi­talists and nonentrepreneurs did not react in a certain way. If the wage earners were to behave in the way which the spurious “iron law of wages” describes and would know of no use for their earnings other than to feed and to procreate more offspring, the increase in capital accumulated would keep pace with the in­crease in population figures. All the benefits derived from the accumulation of additional capital would be absorbed by multi­plying the number of people. However, men do not respond to an improvement in the external conditions of their lives in the way in which rodents and germs do. They know also of other satisfactions than feeding and proliferation. Consequently, in the coun­tries of capitalistic civilization, the increase of capital ac­cum­ulated outruns the increase in population figures. To the extent that this happens, the marginal productivity of labor is in­creased as against the marginal productivity of the ma­terial factors of production. There emerges a tendency to­ward higher wage rates. The proportion of the total output of production that goes to the wage earners is enhanced as against that which goes as interest to the capitalists and as rent to the land owners.*
To speak of the productivity of labor makes sense only if one refers to the marginal productivity of labor, i.e., to the deduction in net output to be caused by the elimination of one worker. Then it refers to a definite economic quantity, to a determinate amount of goods or its equivalent in money. The concept of a general productivity of labor as resorted to in popular talk about an allegedly natural right of the work­ers to claim the total in­crease in productivity is empty and indefinable. It is based on the illusion that it is possible to determine the shares that each of the various complementary factors of production has physically contributed to the turning out of the product. If one cuts a sheet of paper with scissors, it is impossible to ascertain quotas of the outcome to the scissors (or to each of the two blades) and to the man who handled them. To manufacture a car one needs various machines and tools, various raw materials, the labor of vari­ous manual workers and, first of all, the plan of a designer. But no­body can decide what quota of the finished car is to be physically ascribed to each of the various factors the co­operation of which was required for the production of the car.
For the sake of argument, we may for a moment set aside all the considerations which show the fallacies of the popular treat­ment of the problem and ask:  Which of the two factors, labor or capital, caused the increase in productivity?  But precisely if we put the question in this way, the answer must be:  capital. What renders the total output in the present‑day United States higher (per head of manpower employed) than output in earlier ages or in economically backward countries—for instance, China—is the fact that the contem­porary American worker is aided by more and better tools. If capital equipment (per head of the worker) were not more abundant than it was three hundred years ago or than it is today in China, output (per head of the worker) would not be higher. What is required to raise, in the absence of an in­crease in the number of workers employed, the total amount of America’s industrial output is the investment of additional capi­tal that can only be accumulated by new sav­ing. It is those saving and investing to whom credit is to be given for the mul­tiplication of the productivity of the total labor force.
What raises wage rates and allots to the wage earners an ever increasing portion out of the output which has been enhanced by additional capital accumulation is the fact that the rate of capital accumulation exceeds the rate of increase in population. The of­ficial doctrine passes over this fact in silence or even denies it emphatically. But the policies of the unions clearly show that their leaders are fully aware of the correctness of the theory which they publicly smear as silly bourgeois apologetics. They are eager to restrict the number of job seekers in the whole country by anti‑immigra­tion laws and in each segment of the la­bor market by pre­venting the influx of newcomers.
That the increase in wage rates does not depend on the indi­vidual worker’s “productivity,” but on the marginal pro­ductivity of labor, is clearly demonstrated by the fact that wage rates are moving upward also for performances in which the “productivity” of the individual has not changed at all. There are many such jobs. A barber shaves a cus­tomer today precisely in the same manner his predecessors used to shave people two hun­dred years ago. A butler waits at the table of the British prime minister in the same way in which once butlers served Pitt and Palmerston. In agricul­ture some kinds of work are still per­formed with the same tools in the same way in which they were performed cen­turies ago. Yet the wage rates earned by all such workers are today much higher than they were in the past. They are higher because they are determined by the marginal produc­tivity of labor. The employer of a butler withholds this man from employment in a factory and must therefore pay the equiva­lent of the increase in output which the additional employment of one man in a factory would bring about. It is not any merit on the part of the butler that causes this rise in his wages, but the fact that the increase in capital invested surpasses the increase in the number of hands.
All pseudoeconomic doctrines which depreciate the role of saving and capital accumulation are absurd. What con­stitutes the greater wealth of a capitalistic society as against the smaller wealth of a noncapitalistic society is the fact that the available supply of capital goods is greater in the former than in the latter. What has improved the wage earners’ standard of living is the fact that the capital equipment per head of the men eager to earn wages has increased. It is a consequence of this fact that an ever increasing portion of the total amount of usable goods produced goes to the wage earners. None of the passionate tirades of Marx, Keynes and a host of less well known authors could show a weak point in the statement that there is only one means to raise wage rates permanently and for the benefit of all those ea­ger to earn wages—namely, to accelerate the increase in capital available as against population. If this be “unjust,” then the blame rests with nature and not with man.

Wednesday, July 30, 2014


Again there are grumblers who blame capitalism for what they call its mean materialism. They cannot help admitting that capitalism has the tendency to improve the material con­ditions of mankind. But, they say, it has diverted men from the higher and nobler pursuits. It feeds the bodies, but it starves the souls and the minds. It has brought about a decay of the arts. Gone are the days of the great poets, painters, sculptors and architects. Our age produces merely trash.
The judgment about the merits of a work of art is entirely subjective. Some people praise what others disdain. There is no yardstick to measure the aesthetic worth of a poem or of a building. Those who are delighted by the cathedral of Chartres and the Meninas of Velasquez may think that those who remain unaffected by these marvels are boors. Many students are bored to death when the school forces them to read Hamlet. Only people who are endowed with a spark of the artistic mentality are fit to appreciate and to enjoy the work of an artist.
Among those who make pretense to the appellation of edu­cated men there is much hypocrisy. They put on an air of con­noisseurship and feign enthusiasm for the art of the past and artists passed away long ago. They show no similar sympathy for the contemporary artist who still fights for recognition. Dis­sembled adoration for the Old Masters is with them a means to disparage and ridicule the new ones who deviate from traditional canons and create their own.
John Ruskin will be remembered—together with Carlyle, the Webbs, Bernard Shaw and some others—as one of the gravedig­gers of British freedom, civilization and prosperity. A wretched character in his private no less than in his public life, he glorified war and bloodshed and fanatically slan­dered the teachings of political economy which he did not understand. He was a big­oted detractor of the market econ­omy and a romantic eulogist of the guilds. He paid homage to the arts of earlier centuries. But when he faced the work of a great living artist, Whistler, he dis­praised it in such foul and objurgatory language that he was sued for libel and found guilty by the jury. It was the writings of Ruskin that popularized the prejudice that capitalism, apart from being a bad economic system, has substituted ugliness for beauty, pettiness for grandeur, trash for art.
As people widely disagree in the appreciation of artistic achievements, it is not possible to explode the talk about the artistic inferiority of the age of capitalism in the same apo­dictic way in which one may refute errors in logical reason­ing or in the establishment of facts of experience. Yet no sane man would be insolent enough as to belittle the gran­deur of the artistic ex­ploits of the age of capitalism.
The preeminent art of this age of “mean materialism and money‑making” was music. Wagner and Verdi, Berlioz and Bizet, Brahms and Bruckner, Hugo Wolf and Mahler, Puc­cini and Richard Strauss, what an illustrious cavalcade!  What an era in which such masters as Schumann and Donizetti were over­shadowed by still superior genius!
Then there were the great novels of Balzac, Flaubert, Mau­passant, Jens Jacobsen, Proust, and the poems of Victor Hugo, Walt Whitman, Rilke, Yeats. How poor our lives would be if we had to miss the work of these giants and of many other no less sublime authors.
Let us not forget the French painters and sculptors who taught us new ways of looking at the world and enjoying light and color.
Nobody ever contested that this age has encouraged all branches of scientific activities. But, say the grumblers, this was mainly the work of specialists while “synthesis” was lacking. One can hardly misconstrue in a more absurd way the teachings of modern mathematics, physics and biology. And what about the books of philosophers like Croce, Berg­son, Husserl and Whitehead?
Each epoch has its own character in its artistic exploits. Imitation of masterworks of the past is not art; it is routine. What gives value to a work is those features in which it differs from other works. This is what is called the style of a period.
In one respect the eulogists of the past seem to be justified. The last generations did not bequeath to the future such monu­ments as the pyramids, the Greek temples, the Gothic cathedrals and the churches and palaces of the Renaissance and the Baroque. In the last hundred years many churches and even cathe­drals were built and many more government palaces, schools and libraries. But they do not show any original conception; they re­flect old styles or hybridize divers old styles. Only in apartment houses, office buildings and private homes have we seen some­thing develop that may be qualified as an architectural style of our age. Although it would be mere pedantry not to appreciate the peculiar gran­deur of such sights as the New York skyline, it can be ad­mitted that modern architecture has not attained the distinction of that of past centuries.
The reasons are various. As far as religious buildings are concerned, the accentuated conservatism of the churches shuns any innovation. With the passing of dynasties and aristocracies, the impulse to construct new palaces disap­peared. The wealth of entrepreneurs and capitalists is, what­ever the anticapitalistic demagogues may fable, so much inferior to that of kings and princes that they cannot indulge in such luxurious construction. No one is today rich enough to plan such palaces as that of Ver­sailles or the Escorial. The orders for the construction of gov­ernment buildings do no longer emanate from despots who were free, in defiance of public opinion, to choose a master whom they themselves held in esteem and to sponsor a project that scandalized the dull majority. Committees and councils are not likely to adopt the ideas of bold pioneers. They prefer to range them­selves on the safe side.
There has never been an era in which the many were pre­pared to do justice to contemporary art. Reverence to the great authors and artists has always been limited to small groups. What characterizes capitalism is not the bad taste of the crowds, but the fact that these crowds, made prosper­ous by capitalism, became “consumers” of literature—of course, of trashy litera­ture. The book market is flooded by a downpour of trivial fic­tion for the semibarbarians. But this does not prevent great au­thors from creating imperishable works.
The critics shed tears on the alleged decay of the indus­trial arts. They contrast, e.g., old furniture as preserved in the castles of European aristocratic families and in the collections of the museums with the cheap things turned out by big‑scale produc­tion. They fail to see that these collectors’ items were made ex­clusively for the well-to-do. The carved chests and the intarsia tables could not be found in the mis­erable huts of the poorer strata. Those caviling about the inexpensive furniture of the American wage earner should cross the Rio Grande del Norte and inspect the abodes of the Mexican peons which are devoid of any furniture. When modern industry began to provide the masses with the para­phernalia of a better life, their main con­cern was to produce as cheaply as possible without any regard to aesthetic values. Later, when the progress of capitalism had raised the masses’ standard of living, they turned step by step to the fabrication of things which do not lack refinement and beauty. Only romantic prepossession can induce an observer to ignore the fact that more and more citizens of the capitalistic countries live in an environment which cannot be simply dis­missed as ugly.

Tuesday, July 29, 2014

The Argument Of Happiness

Critics level two charges against capitalism:  First, they say, that the possession of a motor car, a television set, and a refrigera­tor does not make a man happy. Secondly, they add that there are still people who own none of these gadg­ets. Both propositions are correct, but they do not cast blame upon the capitalistic system of social cooperation.
People do not toil and trouble in order to attain perfect hap­piness, but in order to remove as much as possible some felt un­easiness and thus to become happier than they were before. A man who buys a television set thereby gives evi­dence to the ef­fect that he thinks that the possession of this contrivance will in­crease his well‑being and make him more content than he was without it. If it were otherwise, he would not have bought it. The task of the doctor is not to make the patient happy, but to remove his pain and to put him in better shape for the pursuit of the main concern of every living being, the fight against all fac­tors pernicious to his life and ease.
It may be true that there are among Buddhist mendicants, living on alms in dirt and penury, some who feel perfectly happy and do not envy any nabob. However, it is a fact that for the immense majority of people such a life would appear unbearable. To them the impulse toward ceaselessly aiming at the improve­ment of the external conditions of existence is inwrought. Who would presume to set an Asiatic beggar as an example to the av­erage American?  One of the most re­markable achievements of capitalism is the drop in infant mortality. Who wants to deny that this phenomenon has at least removed one of the causes of many people’s unhappi­ness ?
No less absurd is the second reproach thrown upon capital­ism—namely, that technological and therapeutical innova­tions do not benefit all people. Changes in human conditions are brought about by the pioneering of the cleverest and most en­ergetic men. They take the lead and the rest of man­kind follows them little by little. The innovation is first a luxury of only a few people, until by degrees it comes into the reach of the many. It is not a sensible objection to the use of shoes or of forks that they spread only slowly and that even today millions do without them. The dainty ladies and gentlemen who first began to use soap were the har­bingers of the big‑scale production of soap for the common man. If those who have today the means to buy a tele­vision set were to abstain from the purchase because some peo­ple cannot afford it, they would not further, but hinder, the popu­larization of this contrivance.*

Monday, July 28, 2014

The Anticapitalistic Front

From the very beginnings of the socialist movement and the endeavors to revive the interventionist policies of the precapitalistic ages, both socialism and interventionism were utterly discredited in the eyes of those conversant with economic theory. But the ideas of the immense majority of ignorant people exclusively driven by the most powerful human passions  of envy and hatred.
The social philosophy of the Enlightenment that paved the way for the realization of the liberal program—economic freedom, consummated in the market economy (capitalism), and its constitutional corallary, representative government—did not suggest the annihilation of the three old powers:  the monarchy, the aristocracy and the churches. The European liberals aimed at the substitution of the parliamentary monarchy for royal absolutism, not at the establishment of republican government. They wanted to abolish the privileges of the aristocrats, but not to deprive them of their titles, their escutcheons, and their estates. They were eager to grant to everybody freedom of conscience and to put an end to the persecution of dissenters and heretics, but they were anxious to give to all churches and denominations perfect freedom in the pursuit of their spiritual objectives. Thus the three great powers of the ancien régime were preserved. One might have expected that princes, aristocrats and clergymen who indefatigably professed their conservatism would be prepared to oppose the socialist attack upon the essentials of Western civilization. After all, the harbingers of socialism did not shrink from disclosing that under socialist totalitarianism no room would be left for what they called the remnants of tyranny, privilege, and superstition.
However, even with these privileged groups resentment and envy were more intense than cool reasoning. They virtually joined hands with the socialists disregarding the fact that socialism aimed also at the confiscation of their holdings and that there cannot be any religious freedom under a totalitarian system. The Hohenzollern in Germany inaugurated a policy that an American observer called mon­archical socialism.*  The autocratic Romanovs of Russia toyed with labor unionism as a weapon to fight the “bourgeois” endeavors to establish representative government.**  In every European country the aristocrats were virtually cooperating with the enemies of capitalism. Everywhere eminent theologians tried to discredit the free enterprise system and thus, by implication, to support either socialism or radical interventionism. Some of the outstanding leaders of present-day Protestantism—Barth and Brunner in Switzerland, Niebuhr and Tillich in the United States, and the late Archbishop of Canterbury, William Temple—openly condemn capitalism and even charge the alleged failures of cap­italism with the responsibility for all the excesses of Russian Bolshevism.
One may wonder whether Sir William Harcourt was right when, more than sixty years ago, he proclaimed:  We are all socialists now. But today governments, political parties, teachers and writers, militant antitheists as well as Christian theologians are almost unanimous in passionately rejecting the market economy and praising the alleged benefits of state omnipotence. The rising generation is brought up in an environment that is engrossed in socialist ideas.
The influence of the prosocialist ideology comes to light in the way in which public opinion, almost without any exception, explains the reasons that induce people to join the socialist or communist parties. In dealing with domestic politics, one assumes that, “naturally and necessarily,” those who are not rich favor the radical programs—planning, socialism, communism—while only the rich have reason to vote for the preservation of the market economy. This assumption takes for granted the fundamental socialist idea that the economic interests of the masses are hurt by the operation of capitalism for the sole benefit of the “exploiters” and that socialism will improve the common man’s standard of living.
However, people do not ask for socialism because they know that socialism will improve their conditions, and they do not reject capitalism because they know that it is a system prejudicial to their interests. They are socialists because they believe that socialism will improve their conditions, and they hate capitalism because they believe that it harms them. They are socialists because they are blinded by envy and ignorance. They stubbornly refuse to study economics and spurn the economists’ devastating critique of the socialist plans because, in their eyes, economics, being an abstract theory, is simply nonsense. They pretend to trust only in experience. But they no less stubbornly refuse to take cognizance of the undeniable facts of experience, viz., that the common man’s standard of living is incomparably higher in capitalistic America than in the socialist paradise of the Soviets.
In dealing with conditions in the economically backward countries people display the same faulty reasoning. They think that these peoples must “naturally” sympathize with communism because they are poverty-stricken. Now it is obvious that the poor nations want to get rid of their penury. Aiming at an improvement of their unsatisfactory conditions, they ought therefore to adopt that system of society’s economic organization which best warrants the attainment of this end; they ought to decide in favor of capitalism. But, deluded by spurious anticapitalistic ideas, they are favorably disposed to communism. It is paradoxical indeed that the leaders of these Oriental peoples, while casting longing glances at the prosperity of the Western nations, reject the methods that made the West prosperous and are enraptured by Russian communism that is instrumental in keeping the Russians and their satellites poor. It is still more paradoxical that Americans, enjoying the products of capitalistic big business, exalt the Soviet system and consider it quite “natural” that the poor nations of Asia and Africa should prefer communism to capitalism.
People may disagree on the question of whether everybody ought to study economics seriously. But one thing is certain. A man who publicly talks or writes about the opposition between capitalism and socialism without having fully familiarized himself with all that economics has to say about these issues is an irresponsible babbler.

Friday, July 25, 2014

Capitalism As It Is And As It Is Seen By The Common Man

The emergence of economics as a new branch of knowledge was one of the most portentous events in the history of mankind. In paving the way for private capitalistic enterprise it transformed within a few generations all human affairs more radically than the preceding ten thousand years had done. From the day of their birth to the day of their demise, the denizens of a capitalistic country are every minute benefited by the marvelous achievements of the capitalistic ways of thinking and acting.
The most amazing thing concerning the unprecedented change in earthly conditions brought about by capitalism is the fact that it was accomplished by a small number of authors and a hardly greater number of statesmen who had assimilated their teachings. Not only the sluggish masses but also most of the businessmen who, by their trading, made the laissez-faire principles effective failed to comprehend the essential features of their operation. Even in the heyday of liberalism only a few people had a full grasp of the functioning of the market economy. Western civilization adopted capitalism upon recommendation on the part of a small élite.
There were, in the first decades of the nineteenth century, many people who viewed their own unfamiliarity with the problems concerned as a serious shortcoming and were anxious to redress it. In the years between Waterloo and Sebastopol, no other books were more eagerly absorbed in Great Britain than treatises on economics. But the vogue soon subsided. The subject was unpalatable to the general reader.
Economics is so different from the natural sciences and technology on the one hand, and history and jurisprudence on the other hand, that it seems strange and repulsive to the beginner. Its heuristic singularity is viewed with suspicion by those whose research work is performed in laboratories or in archives and libraries. Its epistemological singularity appears nonsensical to the narrow-minded fanatics of posi­tivism. People would like to find in an economics book knowledge that perfectly fits into their preconceived image of what economics ought to be, viz., a discipline shaped according to the logical structure of physics or of biology. They are bewildered and desist from seriously grappling with problems the analysis of which requires an unwonted mental exertion.
The result of this ignorance is that people ascribe all improvements in economic conditions to the progress of the natural sciences and technology. As they see it, there prevails in the course of human history a self-acting tendency toward progressing advancement of the experimental natural sciences and their application to the solution of technological problems. This tendency is irresistible, it is inherent in the destiny of mankind, and its operation takes effect whatever the political and economic organization of society may be. As they see it, the unprecedented technological improvements of the last two hundred years were not caused or furthered by the economic policies of the age. They were not an achievement of classical liberalism, free trade, laissez faire and capitalism. They will therefore go on under any other system of society’s economic organization.
The doctrines of Marx received approval simply because they adopted this popular interpretation of events and clothed it with a pseudophilosophical veil that made it gratifying both to Hegelian spiritualism and to crude materialism. In the scheme of Marx the “material productive forces” are a superhuman entity independent of the will and the actions of men. They go their own way that is prescribed by the inscrutable and inevitable laws of a higher power. They change mysteriously and force mankind to adjust its social organization to these changes; for the material productive forces shun one thing: to be enchained by mankind’s social organization. The essential content of history is the struggle of the material productive forces to be freed from the social bonds by which they are fettered.
Once upon a time, teaches Marx, the material productive forces were embodied in the shape of the hand mill, and then they arranged human affairs according to the pattern of feudalism. When, later, the unfathomable laws that determine the evolution of the material productive forces substituted the steam mill for the hand mill, feudalism had to give way to capitalism. Since then the material productive forces have developed further, and their present shape imperatively requires the substitution of socialism for capitalism. Those who try to check the socialist revolution are committed to a hopeless task. It is impossible to stem the tide of historical progress.
The ideas of the so-called leftist parties differ from one another in many ways. But they agree in one point. They all look upon progressing material improvement as upon a self-acting process. The American union member takes his standard of living for granted. Fate has determined that he should enjoy amenities which were denied even to the most prosperous people of earlier generations and are still denied to many non-Americans. It does not occur to him that the “rugged individualism” of big business may have played some role in the emergence of what he calls the “American way of life.” In his eyes “management” represents the unfair claims of the “exploiters” who are intent upon depriving him of his birthright. There is, he thinks, in the course of historical evolution an irrepressible tendency toward a continuous increase in the “productivity” of his labor. It is obvious that the fruits of this betterment by rights belong exclusively to him. It is his merit that—in the age of capitalism—the quotient of the value of the products turned out by the process­ing industries divided by the number of hands employed tended toward an increase.
The truth is that the increase in what is called the productivity of labor is due to the employment of better tools and machines. A hundred workers in a modern factory produce per unit of time a multiple of what a hundred workers used to produce in the workshops of precapitalistic craftsmen. This improvement is not conditioned by higher skill, competence or application on the part of the individual worker. (It is a fact that the proficiency needed by medieval artisans towered far above that of many categories of present-day factory hands.)  It is due to the employment of more efficient tools and machines which, in turn, is the effect of the accumulation and investment of more capital.
The terms capitalism, capital, and capitalists were em­ployed by Marx and are today employed by most people—also by the official propaganda agencies of the United States government—with an opprobrious connotation. Yet these words pertinently point toward the main factor whose operation produced all the marvelous achievements of the last two hundred years:  the unprecedented improvement of the average standard of living for a continually increasing population. What distinguishes modern industrial conditions in the capitalistic countries from those of the precapitalistic ages as well as from those prevailing today in the so‑called underdeveloped countries is the amount of the supply of capital. No technological improvement can be put to work if the capital required has not previously been accumulated by saving.
Saving—capital accumulation—is the agency that has transformed step by step the awkward search for food on the part of savage cave dwellers into the modern ways of industry. The pacemakers of this evolution were the ideas that created the institutional framework within which capital accumula­tion was rendered safe by the principle of private ownership of the means of production. Every step forward on the way toward prosperity is the effect of saving. The most ingenious technological inventions would be practically useless if the capital goods required for their utilization had not been accumulated by saving.
The entrepreneurs employ the capital goods made available by the savers for the most economical satisfaction of the most urgent among the not-yet-satisfied wants of the consumers. Together with the technologists, intent upon perfecting the methods of processing, they play, next to the savers themselves, an active part in the course of events that is called economic progress. The rest of mankind profit from the activities of these three classes of pioneers. But whatever their own doings may be, they are only beneficiaries of changes to the emergence of which they did not contribute anything.
The characteristic feature of the market economy is the fact that it allots the greater part of the improvements brought about by the endeavors of the three progressive classes—those saving, those investing the capital goods, and those elaborating new methods for the employment of capital goods—to the nonprogressive majority of people. Capital accumulation exceeding the increase in population raises, on the one hand, the marginal productivity of labor and, on the other hand, cheapens the products. The market process provides the common man with the opportunity to enjoy the fruits of other peoples’ achievements. It forces the three progressive classes to serve the nonprogressive majority in the best possible way.
Everybody is free to join the ranks of the three progressive classes of a capitalist society. These classes are not closed castes. Membership in them is not a privilege conferred on the individual by a higher authority or inherited from one’s ancestors. These classes are not clubs, and the “ins” have no power to keep out any newcomer. What is needed to become a capitalist, an entrepreneur, or a deviser of new technological methods is brains and will power. The heir of a wealthy man enjoys a certain advantage as he starts under more favorable conditions than others. But his task in the rivalry of the market is not easier, but sometimes even more wearisome and less remunerative than that of a newcomer. He has to reorganize his inheritance in order to adjust it to the changes in market conditions. Thus, for instance, the problems that the heir of a railroad “empire” had to face were, in the last decades, certainly knottier than those encountered by the man who started from scratch in trucking or in air transportation.
The popular philosophy of the common man misrepresents all these facts in the most lamentable way. As John Doe sees it, all those new industries that are supplying him with amenities unknown to his father came into being by some mythical agency called progress. Capital accumulation, entrepreneurship and technological ingenuity did not contribute anything to the spontaneous generation of prosperity. If any man has to be credited with what John Doe considers as the rise in the productivity of labor, then it is the man on the assembly line. Unfortunately, in this sinful world there is exploitation of man by man. Business skims the cream and leaves, as the Communist Manifesto points out, to the creator of all good things, to the manual worker, not more than “he requires for his maintenance and for the propagation of his race.”  Consequently, “the modern worker, instead of rising with the progress of industry, sinks deeper and deeper.... He becomes a pauper, and pauperism develops more rapidly than population and wealth.”  The authors of this description of capitalistic industry are praised at universities as the greatest philosophers and benefactors of mankind and their teachings are accepted with reverential awe by the millions whose homes, besides other gadgets, are equipped with radio and television sets.
The worst exploitation, say professors, “labor” leaders, and politicians is effected by big business. They fail to realize that the characteristic mark of big business is mass production for the satisfaction of the needs of the masses. Under capitalism the workers themselves, directly or indirectly, are the main consumers of all those things that the factories are turning out.
In the early days of capitalism there was still a considerable time lag between the emergence of an innovation and its becoming accessible to the masses. About sixty years ago Gabriel Tarde was right in pointing out that an industrial innovation is the fancy of a minority before it becomes the need of everybody; what was considered first as an extravagance turns later into a customary requisite of all and sundry. This statement was still correct with regard to the popularization of the automobile. But big-scale production by big business has shortened and almost eliminated this time lag. Modern innovations can only be produced profitably according to the methods of mass production and hence become accessible to the many at the very moment of their practical inauguration. There was, for instance, in the United States no sensible period in which the enjoyment of such innovations as television, nylon stockings or canned baby food was reserved to a minority of the well-to-do. Big business tends, in fact, toward a standardization of the peoples’ ways of consumption and enjoyment.
Nobody is needy in the market economy because of the fact that some people are rich. The riches of the rich are not the cause of the poverty of anybody. The process that makes some people richis, on the contrary, the corollary of the process that improves many peoples’ want satisfaction. The entrepreneurs, the capitalists and the technologies prosper as far as they succeed in best supplying the consumers.

Thursday, July 24, 2014

The Communism Of Broadway And Holly­wood

The many to whom capitalism gave a comfortable income and leisure are yearning for entertainment. Crowds throng to the theatres. There is money in show business. Popular actors and playwrights enjoy a six-figure income. They live in palatial houses with butlers and swimming pools. They certainly are not “prisoners of starvation.”  Yet Hollywood and Broadway, the world-famous centers of the entertain­ment industry, are hotbeds of communism. Authors and performers are to be found among the most bigoted supporters of Sovietism.
Various attempts have been made to explain this phe­nomenon. There is in most of these interpretations a grain of truth. However, they all fail to take account of the main motive that drives champions of the stage and the screen into the ranks of revolutionaries.
Under capitalism, material success depends on the apprecia­tion of a man’s achievements on the part of the sovereign con­sumers. In this regard there is no difference between the services rendered by a manufacturer and those rendered by a producer, an actor or a playwright.  Yet the awareness of this dependence makes those in show business much more uneasy than those supplying the customers with tangible amenities. The manufac­turers of tangible goods know that their products are purchased because of certain physical properties. They may reasonably ex­pect that the public will continue to ask for these commodities as long as nothing better or cheaper is offered to them, for it is un­likely that the needs which these goods satisfy will change in the near future.  he state of the market for these goods can, to some extent, be anticipated by intelligent entrepreneurs. They can, with a degree of confidence, look into the future.
It is another thing with entertainment. People long for amusement because they are bored. And nothing makes them so weary as amusements with which they are already familiar.  The essence of the entertainment industry is variety. The patrons applaud most what is new and therefore unexpected and surpris­ing. They are capricious and unaccountable. They disdain what they cherished yesterday. A tycoon of the stage or the screen must always fear the waywardness of the public. He awakes rich and famous one morning and may be forgotten the next day. He knows very well that he depends entirely on the whims and fan­cies of a crowd hankering after merriment. He is always agitated by anxiety. Like the master-builder in Ibsen’s play, he fears the unknown newcomers, the vigorous youths who will supplant him in the favor of the public.
It is obvious that there is no relief from what makes these stage people uneasy. Thus they catch at a straw. Communism, some of them think, will bring their deliverance. Is it not a sys­tem that makes all people happy? Do not very eminent men de­clare that all the evils of mankind are caused by capitalism and will be wiped out by communism? Are not they themselves hard-working people, comrades of all other working men?
It may be fairly assumed that none of the Hollywood and Broadway communists has ever studied the writings of any so­cialist author and still less any serious analysis of the market economy.  But it is this very fact that, to these glamour girls, dancers and singers, to these authors and producers of comedies, moving pictures and songs, gives the strange illusion that their particular grievances will disappear as soon as the “expropriators” will be expropriated.  There are people who blame capitalism for the stupidity and crudeness of many products of the entertainment industry.
There is no need to argue this point.  But it is noteworthy to remember that no other American milieu was more enthusiastic in the endorsement of communism than that of people cooperat­ing in the production of these silly plays and films.  When a fu­ture historian searches for those little significant facts which Taine appreciated highly as source material, he should not ne­glect to mention the role which the world’s most famous strip-tease artist played in the American radical movement.*

Wednesday, July 23, 2014

The Resentment Of The “Cousins”

On the market not hampered by the interference of external forces, the process which tends to convey control of the factors of production into the hands of the most efficient people never stops.  As soon as a man or a firm begins to slacken in endeavors to meet, in the best possible way, the most urgent of the not yet properly satisfied needs of the consumers, dissipation of the wealth accumulated by previous success in such endeavors sets in.  Often this dispersion of the fortune starts already in the life­time of the businessman when his buoyancy, energy and re­sourcefulness become weakened by the impact of old age, fa­tigue, sickness, and his ability to adjust the conduct of his af­fairs to the unceasingly changing structure of the market fades away.  More frequently it is the sluggishness of his heirs that fritters away the heritage.  If the dull and stolid progeny do not sink back into insignificance and in spite of their incompetence remain moneyed people, they owe their prosperity to institutions and political measures which were dictated by anticapitalistic tendencies.  They withdraw from the market where there is no means of preserving acquired wealth other than acquiring it anew each day in tough competition with everybody, with the already existing firms as well as with newcomers “operating on a shoestring.”  In buying government bonds they hide under the wings of the government which promises to safeguard them against the dangers of the market in which losses are the penalty of inefficiency.*
However, there are families in which the eminent capaci­ties required for entrepreneurial success are propagated through sev­eral generations.  One or two of the sons or grandsons or even great-grandsons equal or excel their forebear.  The ancestor’s wealth is not dissipated, but grows more and more.
These cases are, of course, not frequent.  They attract atten­tion not only on account of their rarity, but also on account of the fact that men who know how to enlarge an inherited business enjoy a double prestige, the esteem shown to their fathers and that shown to themselves.  Such “patricians,” as they are some­times called by people who ignore the difference between a sta­tus society and the capitalistic society, for the most part combine in their persons breeding, fineness of taste and gracious manners with the skill and industriousness of a hard-working business­man.  And some of them belong to the country’s or even the world’s richest entrepreneurs.
It is the conditions of these few richest among these so-called “patrician” families which we must scrutinize in order to explain a phenomenon that plays an important role in modern anticapitalistic propaganda and machinations.
Even in these lucky families, the qualities required for the successful conduct of big business are not inherited by all sons and grandsons.  As a rule only one, or at best two, of each gen­eration are endowed with them.  Then it is essential for the sur­vival of the family’s wealth and business that the conduct of af­fairs be entrusted to this one or to these two and that the other members be relegated to the position of mere recipients of a quota of the proceeds.  The methods chosen for such arrange­ments vary from country to country, according to the special provisions of the national and local laws.  Their effect, however, is always the same.  They divide the family into two cate­gories—those who direct the conduct of affairs and those who do not.
The second category consists as a rule of people closely re­lated to those of the first category whom we propose to call the bosses.  They are brothers, cousins, nephews of the bosses, more often their sisters, widowed sisters-in-law, female cousins, nieces and so on.  We propose to call the mem­bers of this second cate­gory the cousins.
The cousins derive their revenues from the firm or corpo­ration.  But they are foreign to business life and know nothing about the problems an entrepreneur has to face.  They have been brought up in fashionable boarding schools and colleges, whose atmosphere was filled by a haughty contempt for banausic money-making. Some of them pass their time in night clubs and other places of amusement, bet and gamble, feast and revel, and indulge in expensive debauchery.  Others amateurishly busy themselves with painting, writing, or other arts.  Thus, most of them are idle and useless people.
It is true that there have been and are exceptions, and that the achievements of these exceptional members of the group of cousins by far outweigh the scandals raised by the provoking be­havior of the playboys and spendthrifts.  Many of the most emi­nent authors, scholars and statesmen were such “gentlemen of no occupation.”  Free from the necessity of earning a livelihood by a gainful occupation and independent of the favor of those ad­dicted to bigotry, they became pioneers of new ideas.  Others, themselves lacking the inspiration, became the Maecenas of artists who, without the financial aid and the applause received, would not have been in a position to accomplish their creative work.  The role that moneyed men played in Great Britain’s in­tellectual and political evolution has been stressed by many his­torians.  The milieu in which the authors and artists of nine­teenth-century France lived and found encouragement was le monde, “society”.
However, we deal here neither with the sins of the playboys nor with the excellence of other groups of wealthy people.  Our theme is the part which a special group of cousins took in the dissemination of doctrines aiming at the destruction of the mar­ket economy.
Many cousins believe that they have been wronged by the ar­rangements regulating their financial relation to the bosses and the family’s firm.  Whether these arrangements were made by the will of their father or grandfather, or by an agreement which they themselves have signed, they think that they are receiving too little and the bosses too much.  Unfamiliar with the nature of business and the market, they are—with Marx—convinced that capital automatically “begets profits.”  They do not see any rea­son why those members of the family who are in charge of the conduct of affairs should earn more than they.  Too dull to ap­praise correctly the meaning of balance sheets and profit and loss accounts, they suspect in every act of the bosses a sinister at­tempt to cheat them and to deprive them of their birthright.  They quarrel with them continually.
It is not astonishing that the bosses lose their temper.  They are proud of their success in overcoming all the obstacles which governments and labor unions place in the way of big business.  They are fully aware of the fact that, but for their efficiency and zeal, the firm would either have long since gone astray or the family would have been forced to sell out.  They believe that the cousins should do justice to their merits, and they find their complaints simply impudent and outrageous.
The family feud between the bosses and the cousins concerns only the members of the clan.  But it attains general importance when the cousins, in order to annoy the bosses, join the anticapi­talistic camp and provide the funds for all kinds of “progressive” ventures.  The cousins are enthusiastic in supporting strikes, even strikes in the factories from which their own revenues originate.*  It is a well-known fact that most of the “progressive” magazines and many “progressive” newspapers entirely depend on the sub­sidies lavishly granted by them.  These cousins endow progres­sive universities and colleges and institutes for “social research” and sponsor all sorts of communist party activities.  As “parlor socialists” and “penthouse Bolsheviks,” they play an im­portant role in the “proletarian army” fighting against the “dismal system of capitalism.”

Tuesday, July 22, 2014

The Resentment Of The White-Collar Workers

Besides being harassed by the general hatred of capitalism common to most people, the white-collar worker labors under two special afflictions peculiar to his own category.
Sitting behind a desk and committing words and figures to paper, he is prone to overrate the significance of his work.  Like the boss he writes and reads what other fellows have put on pa­per and talks directly or over the telephone with other people.  Full of conceit, he imagines himself to belong to the enterprise’s managing elite and compares his own tasks with those of his boss.  As a “worker by brain” he looks arrogantly down upon the manual worker whose hands are calloused and soiled.  It makes him furious to notice that many of these manual laborers get higher pay and are more respected than he himself.  What a shame, he thinks, that capitalism does not appraise his “intellectual” work according to its “true” value and fondles the simple drudgery of the “uneducated.”
In nursing such atavistic ideas about the significance of of­fice work and manual work, the white-collar man shuts his eyes to a realistic evaluation of the situation.  He does not see that his own clerical job consists in the performance of routine tasks which require but a simple training, while the “hands” whom he envies are the highly skilled mechanics and technicians who know how to handle the intricate machines and contrivances of modern industry.  It is precisely this complete misconstruction of the real state of affairs that discloses the clerk’s lack of insight and power of reasoning.
On the other hand, the clerical worker, like professional people, is plagued by daily contact with men who have suc­ceeded better than he.  He sees some of his fellow employees who started from the same level with him make a career within the hierarchy of the office while he remains at the bottom.  Only yesterday Paul was in the same rank with him.  Today Paul has a more important and better-paid assignment.  And yet, he thinks, Paul is in every regard inferior to himself.  Certainly, he con­cludes, Paul owes his advancement to those mean tricks and ar­tifices that can further a man’s career only under this unfair sys­tem of capitalism which all books and newspapers, all scholars and politicians denounce as the root of all mischief and misery.
The classical expression of the clerks’ conceit and their fan­ciful belief that their own subaltern jobs are a part of the en­trepreneurial activities and congeneric with the work of their bosses is to be found in Lenin’s description of the “control of production and distribution” as provided by his most popular es­say.  Lenin himself and most of his fellow conspirators never learned anything about the operation of the market economy and never wanted to.  All they knew about capitalism was that Marx had described it as the worst of all evils.  They were professional revolutionaries.  The only sources of their earnings were the party funds which were fed by voluntary and more often involun­tary—extorted—contributions and subscriptions and by violent “expropriations.”  But, before 1917, as exiles in Western and Central Europe, some of the comrades occasionally held subaltern routine jobs in business firms.  It was their experi­ence—the experience of clerks who had to fill out forms and blanks, to copy letters, to enter figures into books and to file pa­pers—which provided Lenin with all the information he had ac­quired about entrepreneurial activities.
Lenin correctly distinguishes between the work of the en­trepreneurs on the one hand, and that of “the scientifically edu­cated staff of engineers, agronomists and so on” on the other hand.  These experts and technologists are mainly executors of orders.  They obey under capitalism the capitalists; they will obey under socialism “the armed workers.”  The function of the capitalists and entrepreneurs is different; it is, according to Lenin, “control of production and distribution, of labor and products.”  Now the tasks of the entrepreneurs and capitalists are in fact the determination of the purposes for which the factors of production are to be employed in order to serve in the best pos­sible way the wants of the consumers, i.e., to determine what should be produced, in what quantities and in what quality.  However, this is not the meaning that Lenin attaches to the term “con­trol.”  As a Marxian he was unaware of the problems the conduct of production activities has to face under any imaginable system of social organization: the inevitable scarcity of the fac­tors of production, the uncertainty of future conditions for which production has to provide, and the necessity of picking out from the bewildering multitude of technological methods suitable for the attainment of ends already chosen those which obstruct as little as possible the attainment of other ends, i.e., those with which the cost of production is lowest.  No allusion to these matters can be found in the writings of Marx and Engels.  All that Lenin learned about business from the tales of his comrades who occasionally sat in business offices was that it required a lot of scribbling, recording and ciphering.  Thus, he declares that “accounting and control” are the chief things necessary for the organizing and correct functioning of society.  But “accounting and control,” he goes on saying, have already been “simplified by capitalism to the utmost, till they have become the extraordi­narily simple operations of watching, recording and issuing re­ceipts, within the reach of anybody who can read and write and knows the first four rules of arithmetic.”*
Here we have the philosophy of the filing clerk in its full glory.

Monday, July 21, 2014

The Anticapitalistic Bias Of American Intellectuals

The anticapitalistic bias of the intellectuals is a phenomenon not limited to one or a few countries only.  But it is more general and more bitter in the United States than it is in the European countries.  To explain this rather surprising fact one must deal with what one calls “society” or, in French, also le monde.
In Europe “society” includes all those eminent in any sphere of activity.  Statesmen and parliamentary leaders, the heads of the various departments of the civil service, publishers and edi­tors of the main newspapers and magazines, prominent writers, scientists, artists, actors, musicians, en­gineers, lawyers and physicians form together with outstanding businessmen and scions of aristocratic and patrician families what is considered the good society.  They come into contact with one another at dinner and tea parties, charity balls and bazaars, at first nights, and varnishing days; they frequent the same restaurants, hotels and resorts.  When they meet, they take their pleasure in conver­sation about intellectual matters, a mode of social intercourse first developed in Italy of the Renaissance, perfected in the Parisian salons and later imitated by the “society” of all impor­tant cities of Western and Central Europe.  New ideas and ide­ologies find their response in these social gatherings before they begin to influence broader circles.  One cannot deal with the history of the fine arts and literature in the nineteenth century without analyzing the role “society” played in encouraging or discouraging their protagonists.
Access to European society is open to everybody who has distinguished himself in any field.  It may be easier to people of noble ancestry and great wealth than to commoners with modest incomes.  But neither riches nor titles can give to a member of this set the rank and prestige that is the reward of great personal distinction.  The stars of the Parisian salons are not the million­aires, but the members of the Académie Française.  The intellec­tuals prevail and the others feign at least a lively interest in intel­lectual concerns.
Society in this sense is foreign to the American scene.  What is called “society” in the United States almost exclusively con­sists of the richest families.  There is little social intercourse between the successful businessmen and the nation’s eminent authors, artists and scientists.  Those listed in the Social Register do not meet socially the molders of public opinion and the harbingers of the ideas that will determine the future of the na­tion.  Most of the “socialites” are not interested in books and ideas.  When they meet and do not play cards, they gossip about persons and talk more about sports than about cultural matters.  But even those who are not averse to reading consider writers, scientists and artists as people with whom they do not want to consort.  An almost insurmountable gulf separates “society” from the intellectuals.
It is possible to explain the emergence of this situation his­torically.  But such an explanation does not alter the facts.  Nei­ther can it remove or alleviate the resentment with which the in­tellectuals react to the contempt in which they are held by the members of “society.” American authors or scientists are prone to consider the wealthy businessman as a barbarian, as a man exclusively intent upon making money.  The professor despises the alumni who are more interested in the university’s football team than in its scholastic achievements.  He feels insulted if he learns that the coach gets a higher salary than an eminent profes­sor of philosophy.  The men whose research has given rise to new methods of production hate the businessmen who are merely interested in the cash value of their research work.  It is very significant that such a large number of American research physicists sympathize with socialism or communism.  As they are ignorant of economics and realize that the university teachers of economics are also opposed to what they disparagingly call the profit system, no other attitude can be expected from them.
If a group of people secludes itself from the rest of the na­tion, especially also from its intellectual leaders, in the way American “socialites” do, they unavoidably become the target of rather hostile criticisms on the part of those whom they keep out of their own circles.  The exclusivism practiced by the American rich has made them in a certain sense outcasts.  They may take a vain pride in their own distinction.  What they fail to see is that their self-chosen segregation isolates them and kindles animosi­ties which make the intellectuals inclined to favor anticapitalistic policies.