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Government Lending A HandAs we make progress in our little path to explain what Austrian Economics is and how it works, we are getting into far more interesting topics and subjects. Ideas that are not only powerful but that that have actual consequences for your life, today.


The first notion that has never been thought through by most people is the concept of competition. In the past, competition was a given. Nobody thought about it because it just was. It was a daily affair such as the sun rising. It was absolutely inconceivable to imagine a world without competition. This happened at all levels, workers and producers alike… up to approximately the beginning of the 1900's. Beyond this point communism begins to emerge and through their heavy dose of propaganda competition was linked with capitalism and this, in turn, was linked with evil. Thus, competition was equated to evil.

Idiotic notions such as blissful coexistence in an environment where all the means of production belonged to all people were drilled into unsuspected minds and people began to forget what competition really meant. Eventually communism began to understand that however "efficient" planning may be (according to them), competition wasn't that bad because it provided incentives for people to do better. Yet, those "incentives" had to be understood strictly from a state perspective. This is, incentives were "planned" to prevent them from reaching the "exploitation" of the "worker" by... well… we don't know by whom because all the means of production already belonged to the state and so there were no "owners"… (but blatant plot theory holes never stopped communists from moving forward…so to speak). The point is that when communists really wanted to get good stuff, they set up things in such a manner as to have competition. The area of USSR's where this was most visible was in the development of their military weapons. Wherever possible (typically aviation) communists would set-up two "Bureaus" competing with each other. When economic conditions began to tank, communists hijacked the notion of competition and allowed people some incentives such as during the years 1917 to 1922 when they implemented the New Economic Policy also called "State Capitalism" by Lenin no less.

The end result of all this nonsense was that it was also adopted by socialism in its new-and-improved theory (as this could not be otherwise because socialism is communism-light). Said theory stated that competition was OK, as long as it was "managed" by the state in order to get only benefits and avoid drawbacks such as the "exploitation" of "workers" by "owners". Sounds familiar?

Thus, the last two or three generations have been indoctrinated in the following idiotic concepts:

  1. Competition is only for business
  2. Competition is only good if managed and restricted by the state

These new-and-improved concepts have polluted the minds of latest generations so much that every time the market is incapable of providing a solution to their needs, they look at the state for solutions instead of realizing that it is the restriction of competition by the state that caused the problem in the first place!
Every time they have issues regarding wages or jobs, they look at the state to "fix" the problems through mandates instead of realizing that it is entirely up to them to improve their competing abilities thus increasing the rewards markets provide.

This systematic attack on competition has left people in a systemic state of "gimme, gimme, gimme" instead of struggling and striving to better serve their fellow people and reaping the rewards of so doing. Basically, socialist systems have managed to reverse the benefits free markets and competition bring by attacking and subverting the very thought processes that lead to free market benefits in the first place.

This kind of damage is terrifying and it is at the core of the explanation as to why our modern "managed markets" have lost all their "dynamism". This is so because competition is not viewed any longer as something that everybody should be doing, but something that governments must regulate. Strangely enough, if we want to see the power of competition in pseudo-free-markets we must abandon the search in the West and head East, more precisely to China, a formally communist country nevertheless!

Let's be clear. We are not saying that Chinese economic policies are good. They are equally flawed as the ones in the West. The difference is that thanks to widespread corruption and bribery (the universal equalizers) quasi-free-markets developed in selected economic areas in China. Thus, the old concepts come rushing back because they are based in reality and not political and economic fairy tales.

In such Chinese markets it is patently clear that the only way to make profits is through the provision of goods and services people want. Once the state is out of the way through bribery, this reality sinks-in very rapidly. There really is no other option. Thus Chinese markets suddenly became "dynamic" (as ignorant economists love to say). The "dynamism" does not come from Chinese enhanced economic conditions or efficiency gains or productivity improvements or mystical state planning abilities or something else. It comes from the notion in every Chinese person that the only way forward is to create products and services that actually satisfy people's wants, and (and this is important) they must do so better than the other Chinese guys doing the same thing.

What a concept to behold!

It is truly sad when we see that communists have a better grasp of the concept of competition than so-called capitalists do. There you have it. Socialism at work.


In our article Austrian Economics For Dummies - Competition we spent some time commenting on the differences between Natural Competition (as in Nature) and Catallactic Competition (as in Free Market competition). The short version is that Natural Competition leads to hierarchical systems which are incompatible with freedom while Catallactic Competition leads to free markets which are the epitome of freedom. We also made it very clear that having one type of competition or the other is simply a matter of choice. What is interesting to point out is that either type of completion has rules. No competition is rule-free. From our perspective Natural Competition is undesirable because it restricts or destroys freedom. But this is our personal and private point of view and it is obvious that we are in a dismal minority. Most people in the world prefer Natural Competition in the form of governments and the saddest part is that they don't even know what they are doing! Also, because we have this tiny site we wonder if we qualify as "visible minority"… but we digress…

But they are not the only political point of view. There is one group that advocates a rule-free society. They are called Anarchists. We fully acknowledge that as with any other political theory based on individual beliefs, there is going to be as many types of Anarchisms as Anarchists are there. But for the purposes of this argument, we are going to deal with the rule-free type only, which seems to be the most common type.

Such Anarchists advocate a system where there are no rules fully expecting that somehow everything will work out OK.

The problem with this concept is that it is an open concept. It may lead to a free market system and become a de-facto Austrian Economics system or it may lead to absolute chaos. Looking at history we do believe that evolution towards free markets is unavoidable and irresistible. The problem is what happens in the interim. Until a full-fledged Anarchist system reaches the free market stage, this system would simply mean that governments have been eliminated as the sources of hierarchies but nothing else is providing order. Security, arbitration and the preservation of property rights are not being provided by anybody, at least not reliably. The outcome is chaos and not order. And in chaos we typically see the appearance of hierarchical systems because they can provide instant-order as they don't depend on the cooperation of people. The problem is that hierarchical systems monopolize security, arbitration and the preservation of some property rights. As such, the typical effects of such artificial monopolies are always the same; costs skyrocket and quality of service gets into free fall.

As such Anarchism is a quixotic, self-defeating, stuck-in-a-loop, cycling type of system that only exists in theory. It is inherently unstable and it rapidly evolves into Natural Competition or Catallactic Competiton. Anarchic systems eventually evolve into Catallactic Competition systems but not without a few turns around the hierarchy-revolution loop.

And so the real choice is not whether we want a system without rules or one with rules.

The only choice is which rule-based system we want. F&P

Note: please see the Glossary if you are unfamiliar with certain words.

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