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Advocates of Capitalism

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Ludwig Von Mises (1881 - 1973)

Although not formally his professor, Ludwig von Mises may be considered a mentor of Friedrich von Hayek. A leading member of the Austrian School of Economics, Mises is best known for his work on praxeology (the study of human action and conduct) which underlies his approach to economics. According to Wikipedia, “Mises observed that money is demanded for its usefulness in purchasing other goods rather than for its own sake, and that unsound credit expansion causes business cycles [economic booms followed by busts]. He also concluded that socialist economies must fail because of the economic calculation problem – the impossibility of a socialist government being able to make the calculations required to operate a complex economy. Mises held that without a market economy there could be no price system and no monetary unit of account, both of which he argued were needed to achieve the allocation of economic goods to their most productive uses.”

One of the earliest critics of Soviet Russia, Mises lambasts the Communist system in his 1922 work Socialism: An Economic and Sociological Analysis:

“The only certain fact about Russian affairs under the Soviet regime with regard to which all people agree is: that the standard of living of the Russian masses is much lower than that of the masses in the country which is universally considered as the paragon of capitalism, the United States of America. If we were to regard the Soviet regime as an experiment, we would have to say that the experiment has clearly demonstrated the superiority of capitalism and the inferiority of socialism.”

Unfortunately, Mises did not live to see the collapse of the Soviet system seven decades later, although his most famous student (Hayek) did.

 

Milton Friedman (1912 - 2006)

Nobel Prize in Economics, 1976

When asked to name an economist with an unparalleled capability to explain the benefits of capitalism to the general public, the first name that comes to mind is Milton Friedman, also of the University of Chicago and a leader of the Chicago school of economics. In 1976, Friedman was awarded the Nobel Prize in Economic Sciences “for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy.” In other words, the more strongly the government intervenes in the economy, the more likely it is to cause harm. Friedman once compared the actions of the Federal Reserve to the proverbial fool in the shower. Because there is a delay between adjusting the faucet and the resulting temperature change, the hapless fool alternates between freezing and scalding. It is similar to the delay between Fed policy changes and their impact in the real economy.

Perhaps Friedman is best known for “Free to Choose”, a ten-part documentary originally aired on PBS in 1980 that beautifully explains why free market capitalism is superior to all other economic systems devised by humankind. To get the flavor of it, please take few minutes to watch “Power of the Market – The Pencil” in which Friedman has us mesmerized as he describes the complexity behind the manufacturing of something so simple as a pencil and how the magic of the price system brings all the people (some of whom may hate each other) and components together to produce something of value. With Friedman’s passing in 2006, capitalism lost one of its most persuasive advocates.