On Maximum Collective Welfare

“Look back over the past, with its changing empires that rose and fell, and you can foresee the future too.” – Marcus Aurelius

Gradually Reducing the Minds of Men

The Roman Republic was corrupted long before Marcus Aurelius came to be Emperor in AD 161.  The responsibility and representation of consuls had been supplanted by Caesars sometime around BC 27.  Yet the Roman Empire still ran reasonably well, for a while.

There were happy, prosperous, years enjoyed by the empire from AD 98 until Aurelius’ death in AD 180.  But, unfortunately, Aurelius’ passing was the high-water mark for the civilization.  The fortunes of the imperial power slowly receded for the next three hundred years…until its final collapse on September 4, 476, when Romulus Augustus, the last Emperor of the Western Roman Empire, was deposed by Odoacer, a Germanic soldier.

“It is scarcely possible that the eyes of contemporaries should discover in the public felicity the latent causes of decay and corruption,” said 18th century historian Edward Gibbon in The Decline and Fall of the Roman Empire.  “This long peace, and the uniform government of the Romans, introduced a slow and secret poison into the vitals of the empire.  The minds of men were gradually reduced to the same level, the fire of genius was extinguished, and even the military spirit evaporated.”

These days, near the ruins of the Colosseum, the minds of men are gradually being reduced again.  On Tuesday, Rome, the capital of Italy, fell into an election stalemate.  At the heart of the standoff is government spending.  Supporters of Silvio Berlusconi and Beppe Grillo want more of it.

Markets reacted with a massive selloff.  Italian stocks dropped 4.9 percent and Italy’s 10-year bond yields spiked up 41 basis points to 4.89 percent.  Moreover, election of anti-austerity candidates could reignite the eurozone crisis.

“There is a subtle message from these elections,” said Dario Perkins, an economist at Lombard Research.  “One that if the rest of Europe ignores, will be disastrous for the euro in the longer term.  This was a vote against austerity.”

Seeing the Light

In other words, Italy’s election could reverse the centralization of financial power that was put in place when the euro was introduced to financial markets in 1999.  For many of the years since then, Italy’s had it too good.  They could borrow money at near equivalent levels with German bunds…and, rather than having to save like Germans, they could spend like Greeks.

Those days have come to an end.  But the dream of a centrally planned economy and a life of security and abundance for all will live on.  Intelligent minds will ponder it with all they’ve got until the end of time.  Many years ago, for instance, a bright minded Italian proposed a pure theory of a socialist economy to make this dream a reality.  Here’s how he came up with it…

In 1908, Italian Economist Enrico Barone skipped a bite of his meatballs and marinara, and gazed into the outer frontiers of deep space.  Looking around, he couldn’t believe his eyes.  For in this far corner of absolute darkness, he saw something truly amazing.  Out in the distant reaches of nothingness, peering into a black hole, he saw not the dark…but rather, he saw the light.

The light being a socialist utopia achieved through “scientific management” of the economy, lorded over by the Ministry of Production.  Through this endeavor, he conceived, an economy could attain “maximum collective welfare.”

The proposal was simple enough.  If a bounty of academics were put to the task of determining the best prices for all goods and services, supply and demand could be optimized to produce an economy without poverty, without unemployment…and without possibility.

On Maximum Collective Welfare

Of course, with all these number crunchers writing all these tech memos on the optimal price of toothpaste and pizza, how could they account for a change beyond their control?  What if there’s a springtime heat wave resulting in a meager wheat harvest?  How would this affect their pre-determined price for bread?

Before they could re-optimize the price to the change in conditions, the bread shelves would be empty because the price wasn’t allowed to adjust upward by natural market interactions.  There’d be government caused shortages and artificial scarcity.

The idea was absurd.  But this was exactly why the socialist visionaries loved it…it endorsed their conceit.  Here was a marvelous way for them to play God…muck with people’s lives at large…and remake the world in their image.

The ideas of Barone, which were an extension of Marx, swept across Eastern Europe during the early 20th century like a medieval plague.  In the Western world these notions were slower to stick.  Not until Keynesian fiscal policies were married with Chicago school monetary policies, and it was elaborated that you can muck around with the prices of an entire economy just by monkeying around with the price of money, were the rest of the academics onboard with a managed economy.

Still, we’ll tip our hats to Barone for first fashioning the light of scientific management into a luminous scheme for offering the world the great ideal of “maximum collective welfare.”

Such models, wherever tried, have always ended in tears.  Today’s experiments with centrally planned economies, through heavy handed central bank intervention, will prove no different.

Sincerely,

MN Gordon
for Economic Prism

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