Friedrich Engels, unlikely Marxist

Friedrich Engels died on August 5th, 1895. He is best known, of course, as the person who collaborated with Karl Marx to develop the theory of Communism. He co-wrote several publications with Marx, including, most famously, "The Communist Manifesto." He himself was born into a wealthy German family, and his father owned large cotton mills in both Germany and Britain. It was from the proceeds of these that he financed his own life, and later financed Karl Marx to work on "Das Kapital." After Marx's death, Engels edited the 2nd and 3rd volumes of it.

His own philosophy was heavily influenced by Wilhelm Hegel, and he was associated with the Young Hegelians while attending lectures at the University of Berlin. Suffused throughout his work was the notion of dialectic, which Engels applied to the material world as "dialectical materialism." The notion that real-world material conditions, such as the division of classes, contained contradictions that could ultimately be resolved only by revolutionary clashes, formed the basis of the Communist revolutionary creed.

Engels wrote essays about how the working classes lived in Manchester, and sent them to Marx for publication. These formed the basis of his influential book, "The Condition of the Working Class in England" (1845), which was not translated into English until 1887. It painted a grim picture of working-class life in Northern England, with poor quality housing, sanitation, food, and conditions of work. Its influence was such that for a century after he wrote it, historians treated the Industrial Revolution as something that had brought squalor to working people. What Engels had not appreciated was that, bad though the conditions he saw were, they had been worse in the rural hovels from which people had moved into the towns and cities. Industrial work was an improvement on the wretched, impoverished, malnourished and short lives they had lived in the country.

It was not until T S Ashton published "The Industrial Revolution" in 1948 that the Engels view was reversed, and people began to see that revolution as one of the greatest advances mankind had ever made. And far from the violent clashes through which history was supposed to achieve its inevitable destiny, people in the English-speaking world began to see more merit in the Darwinian view of gradual evolution than in the Hegelian one of spasmodic clashes.

In Russia, though, the Communist revolutionaries who seized power placed Engels alongside Marx as the intellectual justification for their actions, and many posters showed the three of them in heroic poses, with Lenin as the logical successor to Marx and Engels, and the heir to their tradition. Engels had written that the state's only purpose was to abate class antagonisms, and once social classes based on property had ended, the state would have no further purpose and would wither away. This did not happen, of course, in Russia or any other Communist country. Quite the reverse.

Engels presented the picture of a most unlikely Communist. He liked fox-hunting and poetry, and liked to live the good life, holding famous Sunday parties for the left-wing intellectuals of his day, parties that went on into the small hours of the morning. And he was wealthy enough to indulge his love of music, art and literature. His personal motto was "take it easy." If only he had done more of that, the world would almost certainly have been a better place.

Yes Mr Cohen, we do - and we're right to do so too

Nick Cohen identifies the grand and terrible problem these days:

They believe that markets possess more knowledge than the state.

Well, yes, they and we do believe that. And we’re obviously correct to do so.

What is the price of apples? The market price. What should be the price of apples? Well, assuming we don’t want either dearth or glut, the market price. Given that we are using the market to set the price of apples, not government, we are obviously enough assuming that the market knows more about what the price of apples both is and should be than government does.

The basic logic here is not difficult.

It has also been explored in more formal terms. Hayek pointing out that we don’t in fact have any system that knows as much about everything as that market and economy. Government, any form of planner, simply cannot gather the data and cannot process it into information with either the same speed or efficiency. Markets know more than government, have more knowledge.

This is not to say that markets are always the correct management method for everything. Nor is it to insist that there are never market failures, absences of markets, times when markets need central correction. But the bald and basic statement is indeed true - markets know more than governments.

At the most basic level this is because markets, and their prices, are the agglomeration of the knowledge of everyone. Government is only the knowledge of those in government. 7 billion people do indeed know more than the some 600,000 who are the central civil service in the UK.

This is something that a columnist of long standing should grasp at a gut level. The incoming letters and comments do indeed always prove that the readership at large - and in aggregate - know more than the writer on any and every particular subject. Sure, some to many of them will be wrong but there’s not a single one of us who has ever essayed into print without being corrected by the aggregate knowledge of the readership - they knowing more than we.

This is the very same point. The aggregate knowledge of the people out there is greater than that possessed by any subset of us. Even if that subset is called government.

When Idi Amin expelled 50,000 ‘Asians’ from Uganda

Idi Amin, military dictator of Uganda, was as mad as a hatter. He'd deposed President Obote when he discovered that Uganda's leader was about to arrest him for misappropriating army funds. This was in 1971, but 18 months later his murderous spree was well under way, with thousands killed from ethnic groups he disliked, plus religious leaders and journalists, judges and lawyers, students and intellectuals, among many others. He declared economic war on the tens of thousands of people whose forebears had come from the Indian subcontinent, confiscating their property and businesses.

On August 4th, 1972, Amin ordered the expulsion from the country of some 50,000 of these who held British passports. For some strange reason, in Britain people from the Indian subcontinent are usually called "Asians," which doesn't leave a word to cover those from farther East. These Ugandan "Asians" were entrepreneurial, talented and hard-working people, skilled in business, and they formed the backbone of the economy. However, Idi Amin favoured people from his own ethnic background, and arbitrarily expelled them anyway, giving their property and businesses to his cronies, who promptly ran them into the ground through incompetence and mismanagement.

Amin declared that he had beaten the British Empire, and awarded himself a CBE, "Conqueror of the British Empire." He went on to style himself, "His Excellency, President for Life, Field Marshal Al Hadji Doctor Idi Amin Dada, VC, DSO, MC, Lord of All the Beasts of the Earth and Fishes of the Seas and Conqueror of the British Empire in Africa in General and Uganda in Particular." This was in addition to his claim to be the uncrowned King of Scotland. The "VC" stood for "Victorious Cross," which he had made to imitate the VC medal.

Amin's mad exploits continued. He confessed to cannibalism after human heads were seen in his refrigerator. "I have eaten human meat," he said in 1976. "It is very salty, even more salty than leopard meat." He had 4,000 disabled people, together with several of his own ministers, thrown into the Nile to be dismembered and eaten by crocodiles. Among the 300,000 – 500,000 of his countrymen he had killed was the Anglican bishop of Kampala, his body dumped by the roadside.

The "Asians" he deported in tens of thousands after his decree that August day 47 years ago were lucky that they were merely deported, rather than butchered. I was  student at St Andrews at the time, and joined a campaign to persuade the UK government to allow them to settle in Britain. We were successful, in that 30,000 were allowed in, and the remainder were helped to get into Commonwealth countries and the US.

They prospered. The ones who came to the UK set up businesses and ran small shops. Some went from running street stalls to become proprietors of multi-million pound grocery chains. They have been a success story contributing to Britain's economy and society. People of Ugandan ‘Asian’ descent feature among Britain's high achievers and celebrities, including Priti Patel, the new Home Secretary.

As for Idi Amin, it finally took an invasion from Tanzania early in 1979 to bring his bloody reign to an end. He was given exile in Saudi Arabia, where he lived the remainder of his life. Asked by a journalist if he had any regrets about his time as dictator, he replied with a smile, "Only nostalgia."

Electric scooters show why we've got to use markets about climate change, not planning

A currently fashionable insistence is that given the importance of climate change we must abandon market processes and use central planning to reorganise our world. This is of course incorrect as the greater the importance and complexity the more we’ve got to use markets and not planning. Electric scooters being today’s exemplar:

At first glance, the assertion that dockless electric scooters are more environmentally friendly than other modes of transportation seems sound. They don’t emit greenhouse gases. They don’t add to vehicle congestion. “Cruise past traffic and cut back on CO2 emissions – one ride at a time,” touts Bird, one of the most popular scooter companies in the US.

But scooters are not as eco-friendly as they may seem, according to a study published Friday.

Researchers at North Carolina State University found that traveling by scooter produces more greenhouse gas emissions per mile than traveling by bus, bicycle, moped or on foot.

The paper in full is here.

The results of a Monte Carlo analysis show an average value of life cycle global warming impacts of 202 g CO2-eq/passenger-mile, driven by materials and manufacturing (50%), followed by daily collection for charging (43% of impact).

That 202g per passenger-mile is more than the emissions from a flight on a 737-400 of some 185g (115g per passenger km). No, that’s not a fair comparison but the shock value is there.

Now note what happens when we use planning to decide what to do. Our central bureaucrat has to go through these calculations for everything. How much energy does it take to make the steel for a wind turbine? How much coal use in the steel making process cannot be avoided? What’s the scrap to virgin steel mix? What are the maintenance costs out in the North Sea? The bunker fuel consumption of the repair boats? What type of electricity is being used to power the conversion of sand into silicon for solar cells?

These calculations rather being prey to political correctness. That’s how Drax burning wood pellets from 3,000 miles away is counted as carbon neutral. That’s how we got first generation biofuels which are definitely more emitting than burning dead dinosaurs. That’s how Germany has managed to spend at least a trillion euros to go green and thereby increase emissions from lignite usage.

We are here because Hayek was right about the Pretence of Knowledge. It’s all simply too complicated to be able to calculate centrally. We therefore have to use the only calculating engine we’ve got with the necessary processing power - the market economy.

That is, stick our crowbar once into the price system - yea, a carbon tax - and stand back and let the market do the heavy lifting. It’s the only method we’ve got that actually works. Since we’d prefer not to be steaming Flipper in the fumes of the last ice floe then that’s what we’ve got to do.

The more complex and concerning the problem the more we’ve got to use markets.

A lifecycle analysis of a racing yacht crossing the Atlantic as compared to cattle class on an airliner would also be informative, don’t you think?

Surprise! Building more houses lowers the cost of housing

Something we keep being told is that Britain’s house prices are too high. We’re happy with that as either a statement or a critique. To which we say, well, build more houses. The answer that all too often comes back is no, we’ve got to build the right type of houses.

That is, only if we build more affordable housing will housing become more affordable. This having the delight, for the proponents, of confusing two different meanings of affordable. There’s the real one, cheaper, and then there’s the constructed one, special rent limited stuff run by a bureaucracy. For, so goes the argument, building a lot of expensive housing doesn’t make housing more affordable in that real and accurate sense.

This is incorrect:

If a metropolitan area was to alter its system of permits and rules in a way that enabled a substantial expansion in the quantity of housing being built, would this step help to make housing more affordable for those with lower and moderate income levels?

Two answers are hypothetically possible here. One answer points out that new market-driven housing construction will tend to be higher-priced, and therefore that in it offers no near- or middle-term assistance to people struggling with housing affordability. The other answer readily admits that new market-driving housing construction will tend to be higher-priced, but argues that an overall rise in the quantity of housing supplied will affect prices across the entire housing market, not just one part of it.

As it turns out the simplistic explanation wins. Having more housing reduces the price of housing.

This means, of course, that we can solve Britain’s housing problems simply by building more housing, Rent controls, bureaucracies, need make no appearance. In fact, kill off the planning bureaucracy which stops people from building what people would like to live in , where they’d like to live, and we’d solve the problem entirely.

Or, as we repeatedly say, the solution to Britain’s housing problems is to blow up the Town and Country Planning Act 1947 and successors.

Columbus changed the world

Schoolchildren in Britain learn the rhyme, “In fourteen hundred and ninety-two, Columbus sailed the ocean blue,” and it was in fact on August 3rd, 1492, that Christopher Columbus set sail from Palos de la Frontera in Spain with his three ships, the Pinta, the Niña, and the Santa Maria. Supported by Isabella of Spain, his total crew numbered 90 sailors. He knew the world was round, so that by sailing West he could reach the Eastern lands of India and China, and capitalize by trading in their valuable goods, notably spices. The world was bigger than he thought, though, with two giant continents between him and his goal.

He thus discovered the New World and changed history forever. He thought he’d reached India when he made landfall in the Bahamas, and called the natives there “Indians.” The contact of the Old World with the New World, which began that day 527 years ago was to change both profoundly. From the New World came commodities, including gold and silver, tobacco and cheap food. From the Old World came people, crossing the ocean to live a new life on a faraway continent.

That day marked the beginning of a process that would lead to the establishment of many countries on the continents newly-discovered by the Europeans. The United States, Canada and the Latin-American countries have contributed much to the economies and cultures of the world since then, though the impact on the native populations and their cultures was to a large extent catastrophic. New diseases were among the less fortunate trades between the two worlds.

Neither Columbus, his crew or his backers could possibly have imagined that the New World they had landed on would one day be the home of a continental super-power with worldwide influence. The US adopted Britain’s Industrial Revolution and applied American know-how to it to develop new technologies that would impact on the lives of every person on the planet.

It developed the military prowess that would save Europe from tyranny in two world wars and the Cold War. Significantly, though, it also developed a new form of constitutional government that would restrain any excessive ambitions among its own rulers. The nations of Latin America, mostly ruled by a series of military dictators, have lacked the political stability of their Northern neighbours, and have had a more chequered history.

Now the US is following in the footsteps of Christopher Columbus by embarking on the exploration of yet another new domain, not that of another continent, but that of the wider universe. It has already put people on another world, and is about to do so again. Some commentators have suggested that, while the 20th Century was that of America, the 21st Century will be that of China. This seems unlikely, given the creativity and resourcefulness of free peoples. Unless the US is seized by some collective madness and ruins itself with socialism, as others have sadly done, the odds suggest that in the 21st Century the most influential, the most creative, and the most prosperous power will be the United States.

Those ships that sailed with Columbus certainly started something. There is a life-size copy of the Santa Maria in Madeira, one that makes tourist voyages around the islands. Seeing how tiny it looks, one appreciates how brave those intrepid explorers were to set out in such ships upon vast and unknown oceans.

The future of freeports

In 1983, 36 years ago, Dr Eamonn Butler and Dr Madsen Pirie, founders of the Adam Smith Institute, wrote Free Ports. 3 years later, Dr Butler co-authored Free Ports Experiment. In 1981, the ASI had proposed freeports for the UK – and six were established – but their chances of great success were scuppered from both sides by the EU and HM Treasury. The European Union steadfastly refused to ease any of their choking regulations – and the UK Treasury, similarly, refused to ease VAT or tariffs. According to Dr Madsen Pirie in the Spectator today, ‘the freeports were effectively just reduced to being bonded warehouses, where goods could be stored, and only be taxed when they left.’

The Adam Smith Institute has long been clear that this isn’t what freeports should be about. Freeports could, and should, be hi-tech, high enterprise hubs for the British economy, springboards for regional and global competition through free trade, and gateways to local employment and prosperity.

Freeports aren’t a new concept – they rose to prominence in post-Renaissance Italy – and they aren’t a complex idea. As Dr Butler explains in his piece for the Telegraph today: ‘take a bit of land near a port or airport and treat it as if it were a foreign country as far as import/export trade is concerned. So, people can fly or ship in goods from abroad, store, consolidate, process, assemble, package or label them in the freeport, and fly or ship them out again. All this with no import tariffs, no VAT or any other taxes, and no paperwork when the goods leave. All plain and simple for the importers and exporters, and a nice generator of jobs, enterprise and investment for the local community.’

Despite the simple nature of freeports policy – and the limited cost to the public purse – government has insisted on getting them wrong in the past. The sites rolled out when the Adam Smith Institute first championed the idea were chosen by the government for political reasons, not for sound business ones. Freeports should have regulations which are as simple as possible – and tax codes to match. Freeports should be treated as foreign territory in many ways – and managed through an independent port operator – not a meddling government.

If done right, freeports can be a huge win for post-Brexit Britain. We can increase the capacity of our ports, develop strategic assets needed to be a serious global player on trade, and boost jobs and British products at the same time. As Dr Pirie said today: ‘Liz Truss, as the new International Trade Secretary should be bold. We should support her fight for real freeports, ones that can draw business, wealth and jobs to some of the UK’s ports, located in areas that have not kept pace with its economic expansion, and which could be regenerated with a such a boost. Low taxes and low regulation mixed with high-tech and tall global ambition — a recipe for success.’

Freeports are one of those policies which can make one really excited for the future – if they’re rolled out in the right way. Since 1981, the Adam Smith Institute has led the calls for freeports policy – and there’s now a wealth of evidence from around the world that shows we’re right. If done properly, freeports can be serious assets to an economy – we look forward to continuing to make the case for them. 


As sure as death and taxes, and then death taxes

No taxes are popular with those who pay them, but on August 2nd, 1894, one of the most unpopular taxes of all saw its debut when Inheritance Tax in its modern form was introduced. There had been predecessors, including the 1796 legacy tax introduced to fund the Napoleonic wars. By 1857 its scope was extended to estates of over £20 in theory, but was rarely levied in practice on those under £1500.

Its name has changed several times over the years - legacy duty, probate duty, estate duty, death duty, capital transfer tax, inheritance tax - but it became a tax on the value of land bequeathed, and has since morphed into a tax on the value of the assets that people bequeath to their heirs when they die.  There are allowances and exemptions, including gifts made while still alive, provided the donor does not die until at least seven years later.

It makes a relatively small (as taxes go) contribution to Treasury funds. The £1bn it yielded in 1993 had risen to £4bn by 2008 as property prices climbed ever higher, but the Financial Crisis of 2008 cut it back to £2.4bn, but it’s been rising again. It is levied at 40% on estates above £325,000 (with some exemptions). For most people it represents a tax on the value of their home when they leave it to their children.

It is unpopular because it taxes again money that has already been taxed. Apart from wealth a person inherits, money they earn from salary and investments is money that have paid tax on as it was earned. Now when they die the taxman is going to grab a large slice. Parents want to give their children a good start, and want to pass on to them what they have made.

It is a destructive tax because it breaks up the capital pools that could otherwise fund start-ups. People tend to die when their children are in their 40s and 50s, just about the time when they might leave the comfort of a salaried job and venture into entrepreneurial activity. The monies left by their parents could help fund this, but the Treasury takes a big chunk of it and uses most of it for transfer payments.

It is destructive because it leads to misdirected efforts. People divert their assets into ways that avoid the death tax instead of into activities that might boost the economy. They put it off-shore, or into trusts, because they don’t regard it as a just or fair tax, and do whatever they can to avoid paying it.

It’s one merit is that it probably kicked out Gordon Brown. He was all set to hold an election to win popular backing for his premiership, but when George Osborne announced at a Tory conference his intent to raise the Inheritance Tax threshold to £1m, Brown panicked when he saw how popular it was, and backed off from an election he might have won.

There is, of course, debate about whether people should have an “unfair” advantage by being left money by rich parents. There is a similar “unfair” advantage by having educated, intelligent or caring parents, rather than spendthrift, abusive ones. It is human nature that people want to care for their children and do the best for them. People who might add more value to the economy and to people’s lives are deterred from doing so by the knowledge that much of their work would be for the Treasury rather than for their children.

It is a bad and counter-productive tax that almost certainly has a negative yield, given the economic disincentives it imposes. Several economists have estimated that it has lost money in each of the 125 years of its existence. It is time to ensure that the death tax itself is made dead and stays dead.

Mark Carney's right - of course capitalism is the cure for climate change

It seems absurd that anyone even needs to make this point:

Challenged in an interview by the Channel 4 News presenter Jon Snow over whether capitalism itself was fuelling the climate emergency, Carney gave a strident defence of the economic system predicated on private ownership and growth but said companies that ignored climate change would “go bankrupt without question”.

“Capitalism is part of the solution and part of what we need to do,” he said in the interview broadcast on Wednesday.

Taking the existence of the problem as being true, the solution is of course to change peoples’ behaviour. That means changing the incentives they face - and then watching as they scramble to make money out of those changed incentives. One obvious point being that those who don’t change their behaviour will, as The Governor says, go bust.

This isn’t a new point of course which is why it’s so absurd it has to be made. The original analyses of that warming future tell us, directly, that capitalism is the cure. The IPCC’s models are all built upon the insistence that it is. Globalised capitalism - neoliberalism that is - without fossil fuels produces a vastly richer and not warmer world. Any and every variation that is not globalised capitalism is worse in outcomes.

As absolutely every economist opining on the point has insisted - get the incentives, the price system, right and leave that lust for gilt and pelf to do the rest. You know, just like we’ve solved every other problem this past 250 years.

Columbus reached Venezuela

On his third voyage, Christopher Columbus became the first European to reach the mainland of South America, when he landed in what is now Venezuela on August 1st, 1498. Artifacts from the area show that native peoples had previously co-existed with and hunted the megafauna that lived there. The pre-Columbian peoples seem to have been peaceful village-dwelling hunters and farmers, who made textiles and ceramics.

Alonso de Ojeda, who led the second Spanish expedition, thought the gulf resembled Venice, and gave it the name Venezuela, meaning “little Venice.” Parts of it were colonized by the Spanish from 1502, and by the Germans from 1528. A prosperous economy developed, raising livestock and later growing cacao beans, and developed trade with the nearby British and French islands as well as with Spain. The mining of gold and silver was a significant factor, though El Dorado, the legendary city of gold, was never discovered.

Independence from Spain was achieved in 1821 when the country became part of the Republic of Gran Colombia, achieving the status of an independent country in 1830. But long before then Caracas had status as a cultural centre, with a university teaching Latin, medicine, engineering and the humanities.

Oil was discovered in 1922, in vast quantities. Venezuela has the world’s largest reserves and although it was governed by a series of military dictators, the country prospered. High oil prices from the 1950s to the 1980s helped it to become the most prosperous in South America. In terms of wealth per capita, in 1950 Venezuela was the world’s 4th wealthiest nation.

I visited the place twice in the 1980s, and was impressed by its vitality, and by both the energy and courtesy of its talented peoples. Caracas seems to have a moderate climate tempered partly by its altitude, and partly by a fortunate geography that brings cooling breezes. It is very sad to see the country brought so low, largely because of incompetent and corrupt government.

Chavez and Maduro used the oil revenues to buy political support instead of investing in diversification. The oil industry was run into the ground when nationalization replaced its skilled workers with government cronies who milked it to buy private jets and lavish properties abroad. Oil output is now down to a third of what it was, and fuel is imported. By 2013 the so-called “Misery Index” ranked Venezuela top, and it came 180th out of 185 among the worst places for doing business.

Inflation has topped 1 million percent per annum, and price caps have led to shortages of milk, flour and toilet paper. There is widespread malnourishment, and hospitals cannot perform operations through lack of supplies and drugs. Whereas Venezuela was once a magnet for immigration, it is estimated that 4m have fled the country in 20 years. Socialism has ruined the country, as it has everywhere it has been tried.

One cause for optimism is the resilience of the people. Just as inept and ideological government can bankrupt a country in short order, so can market economics lift it again to prosperity. As Adam Smith said,

“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice.”

Venezuela has had none of those, but there is a high chance that when its corrupt thugs are swept to oblivion, it will rapidly regain the prosperity its people deserve.